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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8187
Greenbriar Corporation
(Exact name of Registrant as specified in its charter)
Nevada 75-2399477
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
14185 Dallas Parkway, Suite 650, Dallas, Texas 75254
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 407-8400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES [X] NO [ ]
At November 3, 2003, the issuer had outstanding approximately 703,000 shares of
par value $.01 Common Stock.
GREENBRIAR CORPORATION
Index to Quarterly Report on Form 10-Q
Period ended September 30, 2003
PART I: FINANCIAL INFORMATION..................................................3
ITEM 1: FINANCIAL STATEMENTS...............................................3
CONSOLIDATED BALANCE SHEETS..............................................3
CONSOLIDATED STATEMENTS OF OPERATIONS....................................5
CONSOLIDATED STATEMENTS OF CASH FLOW.....................................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................................14
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE
AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002.........................14
FORWARD LOOKING STATEMENTS..............................................18
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........18
ITEM 4: CONTROLS AND PROCEDURES............................................18
PART II: OTHER INFORMATION....................................................19
SIGNATURES.................................................................19
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
- -----------------------------
Greenbriar Corporation
Consolidated Balance Sheets
(Amounts in thousands)
September 30, December 31,
Assets 2003 2002
(Unaudited)
------------- -------------
Current assets
Cash and cash equivalents $ 238 $ 661
Accounts receivable-trade 108 22
Note receivable 2,604 1,238
Other current assets 207 323
------------- -------------
Total current assets 3,157 2,244
Notes receivable, from sale of properties 4,107 7,997
Less deferred gains (3,720) (6,127)
------------- -------------
387 1,870
Deferred income tax benefit 1,161 1,161
Property and equipment, at cost
Land and improvements 541 678
Buildings and improvements 4,851 6,850
Equipment and furnishings 1,285 1,387
Proven oil and gas properties (full cost method) 1,294
------------- -------------
7,971 8,915
Less accumulated depreciation and
depletion 2,172 2,282
------------- -------------
5,799 6,633
Deposits 292 311
Other assets 391 405
------------- -------------
$ 11,187 $ 12,624
============= =============
3
Greenbriar Corporation
Consolidated Balance Sheets - Continued
(Amounts in thousands)
September 30, December 31,
Liabilities and Stockholders' equity 2003 2002
(Unaudited)
------------- -------------
Current liabilities
Current maturities of long-term debt $ 2,340 $ 113
Accounts payable - trade 306 405
Accrued expenses 574 367
Other current liabilities 279 668
------------- -------------
Total current liabilities 3,499 1,553
Long-term debt 4,591 8,479
Investment in Affiliate 82 46
Deferred Gain 740 740
Other long term liabilities 508 455
------------- -------------
Total liabilities 9,420 11,273
Stockholders' equity
Preferred stock 1 1
Common stock $.01 par value; authorized, 4,000
shares; 703 shares issued and outstanding 7 7
Additional paid-in capital 54,988 54,988
Accumulated deficit (53,229) (53,645)
------------- -------------
1,767 1,351
------------- -------------
$ 11,187 $ 12,624
============= =============
4
Greenbriar Corporation
Consolidated Statements Of Operations
(Amounts in thousands, except per share data)
For The Three Month For The Nine Month
Period Ended Period Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Revenue
Assisted living operations $ 1,168 $ 1,185 $ 3,356 $ 3,554
Oil and gas operations 174 174
--------- --------- --------- ---------
1,342 1,185 3,530 3,554
--------- --------- --------- ---------
Operating expenses
Assisted living operations 633 547 1,888 1,661
Oil and gas operations 141 141
Lease expense 338 376 1,137 1,145
Depletion, depreciation and 84 120 241 345
amortization
Corporate general and
administrative 295 480 554 1,349
--------- --------- --------- ---------
1,491 1,523 3,961 4,500
--------- --------- --------- ---------
Operating loss (149) (338) (431) (946)
Other income (expense)
Interest income 110 178 224 408
Interest expense (157) (203) (543) (597)
Net gain on sale of assets 1,008 1,008
Equity in net income (loss) of
affiliated partnership 16 (254) 49 (667)
Other 27 (660) 109 (660)
--------- --------- --------- ---------
1,004 (939) 847 (1,516)
--------- --------- --------- ---------
Earnings (loss) from continuing 855 (1,277) 416 (2,462)
Operations
Discontinued operations
Loss from operations (374) (684)
Loss on disposal, including taxes
of $400 (2,822) (2,822)
--------- --------- --------- ---------
Loss from discontinued (3,196) (3,506)
operations
--------- --------- --------- ---------
Net earnings (loss) 855 (4,473) 416 (5,968)
--------- --------- --------- ---------
Net earnings (loss) per common share -
basic and diluted $ 1.21 $ (6.23) $ .59 $ (8.31)
Weighted average of common and
equivalent shares outstanding - 703 718 703 834
basic and diluted
5
Greenbriar Corporation
Consolidated Statements of Cash Flow
(Amounts in thousands)
For the nine month
Period Ended September 30,
2003 2002
----------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net earnings (loss) $ 416 $ (5,968)
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities
Depreciation and amortization 241 345
(Gain) loss on sale of assets (1,008) 2,422
Equity in net loss (income) of partnership (49) 667
Changes in operating assets and liabilities
Deferred taxes 400
Accounts receivable (86) 54
Other current and non current assets 92 (1,204)
Accounts payable and other liabilities 59 (141)
----------- -----------
Net cash used in operating activities (335) (3,425)
----------- -----------
Cash flows used in investing activities
Proceeds from sale of property 125 8,558
Purchase of property and equipment (262) (209)
----------- -----------
Net cash provided by (used in) investing
activities (137) 8,349
Cash flows from financing activities
Payments on debt (51) (6,699)
Borrowings 100 1,417
----------- -----------
Net cash provided by (used in) financing
activities 49 (5,282)
----------- -----------
NET DECREASE IN CASH AND (423) (358)
CASH EQUIVALENTS
Cash and cash equivalents at beginning of period 661 1,246
----------- -----------
Cash and cash equivalents at end of period $ 238 $ 888
=========== ===========
6
Notes To Consolidated Financial Statements
For the Unaudited Three and Nine Months Ended June 30, 2003 and 2002
Note A: Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Greenbriar Corporation and its majority-owned subsidiaries
(collectively, "the Company"). All significant intercompany transactions and
accounts have been eliminated.
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and, accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles.
These financial statements have not been examined by independent certified
public accountants but, in the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
consolidated results of operations, consolidated financial position and
consolidated cash flows at the dates and for the periods indicated have been
included.
Operating results for the three and nine month periods ended September 30, 2003
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2003. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2002.
Note B: Notes Receivable and Deferred Gain From Sale Of Property
As a result of the sale of two communities in 2001 the Company holds tax-exempt
notes in the amount of $4,030,000 bearing interest at 9.5%. The notes mature on
April 1, 2032, and August 1, 2031 respectively.
The repayment of the notes is limited to the cash flow of the respective
communities either from operations, refinance or sale. The Company has deferred
gains in the amount of $3,720,000. The deferred gains and interest income will
be recognized as cash is received.
Note C: Affiliated Partnerships
In October 2001, the Company became a 56% limited partner in Corinthians Real
Estate Investors, LP ("CREI"), a partnership formed to acquire two properties.
The general partner is a limited liability corporation whose sole member is W.
Michael Gilley, the son of the former CEO of the Company. Sylvia Gilley, W.
Michael Gilley's mother, has a 25.9% interest, the general partner has a .1%
interest, the Company's current chief executive officer has a 10.5% interest,
and other employees of the Company have interests aggregating 7.5%. In October
2001, the Partnership acquired a retirement community for approximately
$9,100,000 and in January 2002, it acquired an assisted living community for
approximately $2,800,000.
7
The Company issued a $1,600,000 note to the seller as partial payment for the
purchase of the retirement community. CREI gave the Company a $1,600,000 note as
consideration for payment of that amount of the purchase price. The balance of
the purchase price was funded by CREI's borrowings from a third party.
In September 2002 CREI sold its two properties for cash and notes and paid off
its third party debt. As part of the proceeds, CREI received a note for
$1,600,000 due September 30, 2004, which was transferred to the Company in
satisfaction of its $1,600,000 note receivable from CREI. CREI also assigned to
the Company a $400,000 participation in another note due September 30, 2004 in
payment of all other CREI debt to the Company.
The Company transferred the $1,600,000 note it received to the original owner of
the retirement community in payment of the Company's $1,600,000 debt. The
Company guaranteed payment of the $1,600,000 note.
CREI recognized a gain of $1,322,000. The Company has deferred recognition of
its $740,000 share of the gain because of the aforementioned guaranty. CREI has
deferred a gain of $994,000 that will be recognized on the installment method.
The Company will realize its $557,000 (56%) portion of the $994,000 upon
collection of the notes held by CREI. The notes are due September 30, 2004.
8
Following are unaudited, condensed financial statements of CREI (in thousands):
Balance Sheet
September 30, 2003
Current assets $ 51
Other assets 248
Notes receivable 994
-----------
$ 1,293
Current liabilities $ 70
Other liabilities 157
Deferred gain 994
-----------
1,221
Partners' equity 72
-----------
$ 1,293
Statement of Operations
Nine months ended September 30, 2003
Interest Income $ 89
Expenses 6
-----------
Net Income $ 83
-----------
9
Note D - Acquisition and Sale of Assets
Acquisition of Gaywood Oil & Gas, LLC
Effective August 1, 2003 Greenbriar acquired Gaywood Oil & Gas, LLC (Gaywood) a
company that has oil and gas leases in the East Texas Field. The oil wells in
this field have low but steady oil production. The Texas Railroad Commission,
which regulates the oil & gas industry in Texas, limits production in this field
to 20 barrels of oil per day for each operating well. There are approximately
300 existing wells on the leases owned by Gaywood At the time of the acquisition
Gaywood had 46 operating wells, generating approximately 4,000 barrels of oil
per month.
Greenbriar has elected to account for it's oil and gas operations using the full
cost method of accounting.
Gaywood was formed and acquired the leases in October 2002 however the
production was insignificant until January of 2003. The following pro forma
financial information reflects Greenbriar as if Gaywood had been acquired on
January 1, 2003
Three months Nine Months
ended ended
September 30, 2003 September 30, 2003
------------------ ------------------
Revenue $1,428,000 $4,045,000
Net earnings $830,000 $441,000
Net earnings per share $1.18 $.63
Greenbriar purchased Gaywood with 9.5% interest bearing bonds which were carried
at zero in the Company's financial statements. Gaywood was valued by independent
reserve engineers as having a fair market value of $1,119,000 which was recorded
as a gain by Greenbriar. The purpose of this acquisition was to acquire a cash
flowing asset with future potential value in excess of the purchase price.
Gaywood was acquired from a trust for the benefit of Mr. Gene E. Phillips spouse
and children. On October 16, 2003 Mr. Phillips and six other entities filed a
Schedule 13D with the Securities and Exchange Commission indicating that the six
entities owned, in total, 55,000 shares (approximately 8% of the Company's
outstanding common stock) and the entire group may be deemed to constitute a
person within the meaning of Section 13d of the Securities act of 1934.
Sale of Undeveloped Land
On September 10, 2003, the Company sold one acre of undeveloped land for
$125,000 in cash to an entity which has been deemed to be an affiliate of Gene
E. Phillips. The sale resulted in a loss of approximately $111,000.
10
Note E: Long-Term Obligations
Long-term debt is comprised of the following (in thousands):
September 30, December 31,
2003 2002
------------- -------------
Notes payable to financial institutions maturing through
2015; fixed and variable interest rates ranging from
5.25% to 10.50%; collateralized by property, fixtures,
equipment and the assignment of rents $ 2,107 $ 3,956
Notes payable to individuals and companies maturing
through 2023; variable and fixed interest rates ranging
from 7% to 12% collateralized by real property,
personal property, fixtures, equipment and the assignment of rents 1,850 1,753
Notes payable to Sylvia M. Gilley, bearing interest at 10% and
maturing on July 1, 2004 2,255 2,255
Notes payable to current and former executive officers,
non-interest bearing at 8.5% and maturing on December 31,
2004, net of discount of $163 and $260 respectively,
representing interest imputed at 8.5% 695 598
Other 24 30
------------- -------------
6,931 8,592
Less: current maturities 2,340 113
============= =============
$ 4,591 $ 8,479
As discussed in Note C the company is a guarantor of debt in the amount of
$1,600,000.
Note F - Discontinued Operations and Sales of Real Estate
In October 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and the accounting and reporting provisions for
disposals of a segment of a business as addressed in APB Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
11
Events and Transactions." SFAS No. 144 establishes a single accounting model for
long-lived assets to be disposed of by sale and addresses various implementation
issues of SFAS No. 121. In addition, SFAS No. 144 extends the reporting
requirements of discontinued operations to include components of an entity that
has either been disposed of or classified as held for sale. The Company adopted
SFAS No. 144 as of January 1, 2002.
During 2002, the Company disposed of six communities. Revenues for the six
communities for the three and nine months ended September 30, 2002 were
$1,157,000 and $4,262,000 respectively.
Pursuant to SFAS No. 144, the results of operations for the six communities have
been reclassified to Discontinued Operations for the three and nine months ended
September 30, 2002.
Note G - Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB 25) in its primary financial
statements and has provided supplemental disclosures required by Statement of
Financial Accounting Standards No. 123 (SFAS 123) "Accounting for Stock-Based
Compensation" and by Statement of Financial Accounting Standards No. 148
"Accounting for Stock-Based Compensation - Transition and Disclosure an
Amendment of SFAS No. 123."
SFAS 123 requires disclosure of pro forma net earnings (loss) and pro forma net
earnings (loss) per share as if the fair value method had been applied in
measuring compensation cost for stock based awards. There was no pro forma stock
based compensation expense for any period presented.
Note H - Stock Split
In October 2003 the Company completed a stock split, affected in the form of a
stock dividend, whereby each shareholder received one additional share of stock
for each share that they owned. All financial and share information included in
this filing has been adjusted to reflect the stock split.
Note I - Segments
The Company and its subsidiaries are principally engaged in the business of
acquiring, enhancing and selling real estate properties. Since 1996 those
activities have, almost exclusively, involved assisted living facilities.
Effective August 1, 2003 the Company acquired 100% of the stock in Gaywood Oil &
Gas LLC, a limited liability company that owns working interests in certain oil
producing wells. The acquisition was done for investment purposes and
substantially all costs associated with the oil and gas operations are operating
expenses incurred directly by Gaywood. The Company continues to allocate all of
its corporate overhead expenses to its core real estate operation.
12
Segment information and reconciliation to income (loss) from operations are as
follows:
Three months ended September 30, 2003
- -------------------------------------
Real Estate Oil and Gas Consolidated
Operations Operations
Revenue $ 1,168,000 $ 174,000 $ 1,342,000
Depletion, depreciation
and amortization 69,000 15,000 84,000
Operating income (loss) (167,000) 18,000 (149,000)
Total assets $ 9,873,000 $ 1,314,000 $ 11,187,000
Nine months ended September 30, 2003
- ------------------------------------
Real Estate Oil and Gas Consolidated
Operations Operations
Revenue $ 3,356,000 $ 174,000 $ 3,530,000
Depletion, depreciation
and amortization 226,000 15,000 241,000
Operating income (loss) (449,000) 18,000 (431,000)
Total assets $ 9,873,000 $ 1,314,000 $ 11,187,000
Note J - Contingencies
Benetic Financial vs. Wedgwood et al:
This action is against a subsidiary of the Company as well as other corporate
and individual defendants who are unrelated to the Company. In 1993, Wedgwood
Retirement Inns entered into a financing arrangement with a third party lender.
The plaintiff alleged that he had a verbal brokerage agreement with Wedgwood and
was entitled to a fee. The Company acquired Wedgwood in 1996.
In a jury trial the plaintiff was awarded $150,000 on one count of his
complaint. However, the jury found for the defendants on all other counts. In
his final ruling the judge awarded the defendants legal fees that were in excess
of the judgment. The plaintiff appealed and on April 30, 2003 the California
Court of Appeals let the $150,000 stand but reversed the judge's award of legal
fees. Based upon the ruling of the Court of Appeals the defendants are obligated
for the judgment plus $165,093 in interest since 1993. The judgment is against
all the defendants as a group.
The defendants have filed an appeal to the California Supreme Court but the
appeal was denied. There are no further legal defenses available. There remains
the issue of the allocation of the award among the defendants. Management has
provided a reserve that it believes is sufficient to cover its expected
liability in this matter.
13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- --------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Overview
As of September 30, 2003, the Company owns one assisted living community and
leases two assisted living communities in three states with a capacity of 257
residents. In addition the Company owns one assisted living community that is
operated by an independent third party with a capacity of 41 residents.
Since 1996 the Company has owned, leased and operated assisted living and
retirement communities throughout the United States. During that period of time
the Company has both acquired and sold over seventy communities. The acquiring
and disposing of its real estate assets has been an integral part of the
Company's business.
During the past year the Company's business strategy has evolved into one of
focusing on the real estate component and reducing its operating activities. The
Company's objective is to become an investor in various entities whose intent is
to acquire properties and either sell, lease or hire third party operators to
manage the properties.
Effective August 1, 2003 Greenbriar acquired Gaywood Oil & Gas, LLC (Gaywood) a
company that has oil and gas leases in the East Texas field. The oil wells in
this field have low but steady production. There are approximately 300 existing
wells on the leases owned by Gaywood. At the time of the acquisition Gaywood had
46 operating wells, generating approximately 4,000 barrels of oil per month.
Greenbriar intends to open additional Gaywood wells however Greenbriar does not,
at this time, anticipate acquiring additional oil and gas properties. The
purpose of this acquisition was to acquire a cash flowing asset with future
potential value in excess of the purchase price.
Three and nine month periods ended September 30, 2003 compared to three and
nine-month periods ended September 30, 2002.
Revenues and Operating Expenses from Assisted Living Operations
Revenues for the assisted living communities were $1,168,000 and $3,356,000 for
the three and nine months ended September 30, 2003 as compared to $1,185,000 and
$3,554,000 for the three and nine months ended September 30, 2002. Community
operating expenses, which consist of assisted living community expenses, lease
expense, depreciation and amortization, were $1,040,000 and $3,128,000 for the
three and nine months ended September 30, 2003 as compared to $1,043,000 and
$2,863,000 for the three and nine months ended September 30, 2002.
14
The Company owned a community that it leased to a third party during the three
and nine month periods ended September 30, 2002. The lease expired in November
2002 and the Company operated the Community during the three and nine months
ended September 30, 2003. The revenues included for this community in 2003 were
$177,000 and $461,000 respectively. The operating expenses were $184,000 and
$564,000.
Included in revenue for the nine months ended September 30, 2002 is $333,000,
which pertains to one community that was contributed to an unconsolidated
partnership in May 2002. Operating expense for the equivalent period was
$215,000. The Company sold its partnership interest in November 2002.
During the three and nine months ended September 30, 2002 the Company managed
three communities for a third party. The management fees recorded in the three
and nine months of 2002 were $114,000 and $338,000, respectively. The Company
did not manage properties for third parties during 2003.
On a "same store" basis the revenues for the three and nine months ended
September 30, 2003 were $991,000 and $2,895,000 as compared to $1,071,000 and
$2,883,000. The Community operating expenses for the three and nine months ended
September 30, 2003 were $856,000 and $2,564,000 as compared to $1,043,000 and
$2,648,000 for the three and nine months ended September 30, 2002.
Corporate General and Administrative Expenses
General and administrative expenses were $295,000 and $554,000 for the three and
nine months ended September 30, 2003 compared to $480,000 and $1,349,000 for the
three and nine months ended September 30, 2002. During the later part of 2001
and 2002 the Company sold, leased or disposed of 26 communities. The decrease in
the corporate general and administrative expenses is primarily a result of a
decrease in salaries and related payroll expenses. Due to the reduction in the
number of communities operated by the Company, the number of employees on the
corporate staff was reduced. In addition, due to fewer communities, expenses
such as travel, communication costs and general operating costs were reduced.
In October 2001, principally to help the Company's cash flow due to its reduced
size, the senior officers agreed to substantial salary reductions. In lieu of
salary the Company agreed to allow the officers to participate in future
acquisitions. In October 2003 the Company's Board of Directors decided that the
officers would no longer participate in the ownership of acquired entities. The
Board agreed to increase certain officers' salaries effective January 1, 2003.
During the third quarter of 2003 there was a charge of $110,000 for officers'
salaries that pertained to the first two quarters of 2003.
Interest Income
Interest income decreased to $110,000 and $224,000 for the three and nine months
ended September 30, 2003 as compared to $178,000 and $408,000 for the three and
nine months ended September 30, 2002. Interest for the first quarter of 2002
includes $117,000 received from the notes receivable from the sale of
properties. As discussed in Note B, the interest from these notes is recorded
when a payment is received. The Company did not receive an interest payment for
the notes during 2003. The balance of the difference is due principally to a
lowering of interest rates.
15
Interest Expense
Interest expense decreased to $157,000 and $543,000 for the three and nine
months ended September 30, 2003 as compared to $203,000 and $597,000 for the
three and nine months ended September 30, 2002.
In December 2002 the Company borrowed $1,700,000 at 12% interest which
represents an additional $51,000 and $153,000 for the three and nine months
ended September 30, 2003 when compared to 2002.
In May 2002 the Company contributed one community to an unconsolidated
partnership. Interest expense for that community was $18,000 and $73,000 for the
three months and nine months ended September 30, 2002. In November 2002, the
Company transferred its partnership interest in Muskogee Real Estate Investors,
LP to Sylvia M. Gilley in exchange for a reduction in the debt due Mrs. Gilley
of $1,120,000 and extending the due date of the note by one year to June 30,
2004. This reduction in debt reduced interest expense by an additional $28,000
and $84,000 for the three and nine months ended September 30, 2003.
Equity in Net Income (Loss) of Affiliated Partnership
During the three and nine months ended September 30, 2002, CREI operated two
properties. The Company's share of the net losses was ($254,000) and ($667,000)
respectively. CREI sold these properties in September 2002 and, as part of the
proceeds, received notes. The collection of the notes and interest thereon is
the only remaining operation of the partnership. For the three and nine month
periods ended September 30, 2003 the Company's portion of the CREI's earnings
were $16,000 and $49,000 respectively.
16
Other Income (Expense)
Other Income (expense) for the three months and nine months ended September 30,
2003 was $27,000 and $109,000 respectively. These amounts principally represent
income from the reimbursement of a prior year insurance claim as well as the
settlement of a lawsuit.
Gain on Sale of Assets
In 2001 the Company sold a property and received proceeds of both cash and a
bond bearing interest at the rate of 9.5%. The payment of both principal and
interest on the bond was based exclusively on the cash flow from the property
sold. For financial statement purposes the bond was valued at zero.
In August the Company exchanged the bond for 100% of Gaywood Oil & Gas LLC.
Gaywood was valued by independent engineers as having a fair market value of
$1,119,000, which was recorded as a gain by the Company. In September 2003 the
Company sold land it was holding for $125,000 cash and recorded a loss of
$111,000 on the sale.
Liquidity and Capital Resources
On September 30, 2003, the Company had current assets of $3,157,000 and current
liabilities of $3,499,000. Included in current liabilities is a $2,255,000 note
to Sylvia M. Gilley. Under the terms of the note the obligation will only be due
if the Company has sufficient cash to pay the note.
Operating activities used $335,000 of cash in 2003 and $3,425,000 in 2002. The
decrease in cash used in 2003 as compared to 2002 was the net result of the
reduced net loss offset by a lower level of non-cash charges in 2003.
Investing Activities used $137,000 of cash in 2003 and provided $8,349,000 of
cash in 2002. The net cash used in 2003 was for purchases of equipment at the
various Communities owned by the Company. The cash provided in 2002 includes
$8,558,000, which is the proceeds from the sale of properties less expenditures
of $209,000 for the purchase of equipment.
Financing activities provided $49,000 in cash in 2003 and used $5,282,000 in
cash in 2002. The cash provided in 2003 was additional debt of $100,000 as part
of the Gaywood Oil & Gas acquisition offset by $51,000 in principal payments on
the debt. The cash used in 2002 was for the payment of debt. The principal
source of the cash in 2002 was from the sale of properties.
Future acquisitions by the Company are dependent upon obtaining capital and
financing through various means, including financing obtained from loans,
sale/leaseback transactions, long-term state bond financing, debt or equity
offerings and, to the extent available, cash generated from operations. There
can be no assurance that the Company will be able to obtain adequate capital to
finance its projected growth.
17
Forward Looking Statements
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: A number of the matters and subject areas discussed in this filing that
are not historical or current facts deal with potential future circumstances,
operations, and prospects. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from the Company's actual
future experience involving any one or more of such matters and subject areas
relating to interest rate fluctuations, ability to obtain adequate debt and
equity financing, demand, pricing, competition, construction, licensing,
permitting, construction delays on new developments contractual and licensure,
and other delays on the disposition, transition, or restructuring of currently
or previously owned, leased or managed communities in the Company's portfolio,
and the ability of the Company to continue managing its costs and cash flow
while maintaining high occupancy rates and market rate assisted living charges
in its assisted living communities. The Company has attempted to identify, in
context, certain of the factors that they currently believe may cause actual
future experience and results to differ from the Company's current expectations
regarding the relevant matter of subject area. These and other risks and
uncertainties are detailed in the Company's reports filed with the Securities
and Exchange Commission (SEC), including the Company's Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Nearly all of the Company's debt is financed at fixed rates of interest.
Therefore the Company has minimal risk from exposure to changes in interest
rates.
ITEM 4: CONTROLS AND PROCEDURES
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The Company maintains a set of disclosure controls and procedures and internal
controls designed to ensure that information required to be disclosed in the
Company's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time period specified in the
Securities and Exchange Commission rules and forms. Our principal executive and
financial officer has evaluated our disclosure control procedures within 90 days
prior to the filing of this Quarterly report on Form 10-Q and have determined
that such disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or, to its
knowledge, in other factors that could significantly affect its disclosure
controls and procedures subsequent to the Evaluation Date.
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PART II: OTHER INFORMATION
ITEMS 1-6: ARE NOT APPLICABLE.
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EXHIBITS
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Exhibit 31.1 - Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
Exhibit 32.1 - Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Rule 13a-14(b), 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by
undersigned, thereunto duly authorized.
Greenbriar Corporation
Date: November 17, 2003 By: /s/ Gene S. Bertcher
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Chief Executive Officer
Chief Financial Officer
19