Back to GetFilings.com
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, 2004
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.)
1755 Wittington Place, Suite 340, Dallas, Texas 75234
(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 A merican 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 12, 2004, the issuer had outstanding approximately 977,000 shares of
par value $.01 Common Stock.
GREENBRIAR CORPORATION
Index to Quarterly Report on Form 10-Q
Period ended September 30, 2004
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.........................................13
OVERVIEW................................................................13
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2004 COMPARED TO
THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2003...................14
FORWARD LOOKING STATEMENTS..............................................17
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........18
ITEM 4: CONTROLS AND PROCEDURES............................................18
PART II: OTHER INFORMATION....................................................19
EXHIBITS...................................................................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 2004 2003
(Unaudited)
------------- -------------
Current assets
Cash and cash equivalents $ 324 $ 688
Accounts receivable-trade 336 100
Note receivable 1,156 2,435
Property held for sale 1,876
Other current assets 241 198
------------- -------------
Total current assets 3,933 3,421
Notes receivable, from sale of properties 4,107 4,107
Less deferred gains (3,720) (3,720)
------------- -------------
387 387
Deferred income tax benefit 1,161 1,161
Property and equipment, at cost
Land and improvements 2,240 2,758
Buildings and improvements 6,549 9,410
Equipment and furnishings 1,228 1,317
Proven oil and gas properties (full cost method) 1,466 1,361
------------- -------------
11,483 14,846
Less accumulated depreciation and
depletion 1,288 2,233
------------- -------------
10,195 12,613
Deposits 307 232
Other assets 691 317
------------- -------------
$ 16,674 $ 18,131
============= =============
3
Greenbriar Corporation
Consolidated Balance Sheets - Continued
(Amounts in thousands, except share amounts)
September 30, December 31,
Liabilities and Stockholders' equity 2004 2003
(Unaudited)
------------- -------------
Current liabilities
Current maturities of long-term debt $ 4,756 $ 4,690
Current notes payable 5,571
Accounts payable - trade 214 503
Accrued expenses 821 633
Other current liabilities 309 931
------------- -------------
Total current liabilities 6,100 12,328
Long-term debt 7,589 2,053
Deferred Gain 740
Other long term liabilities 188 456
------------- -------------
Total liabilities 13,877 15,577
Stockholders' equity
Preferred stock 1 1
Common stock $.01 par value; authorized,
4,000,000 shares; 977,000 shares
issued and outstanding 10 10
Additional paid-in capital 55,966 55,966
Accumulated deficit (53,180) (53,423)
------------- -------------
2,797 2,554
------------- -------------
$ 16,674 $ 18,131
============= =============
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,
2004 2003 2004 2003
--------- -------- -------- --------
(Unaudited) (Unaudited)
Revenue
Real Estate operations $ 1,589 $ 837 $ 4,477 $ 2,385
Oil and gas operations 358 174 996 174
--------- -------- -------- --------
1,947 1,011 5,473 2,559
--------- -------- -------- --------
Operating expenses
Real estate operations 857 413 2,602 1,238
Oil and gas operations 267 141 758 141
Lease expense 231 212 686 757
Depletion, depreciation and 109 79 365 227
amortization
Corporate general and
administrative 213 295 774 554
--------- -------- -------- --------
1,677 1,140 5,185 2,917
--------- -------- -------- --------
Operating earning (loss) 270 (129) 288 (358)
Other income (expense)
Interest income 51 110 179 224
Interest expense (392) (157) (994) (543)
Net gain on sale of assets 1,409 1,008 1,409 1,008
Equity in net income of
Affiliated partnership 0 16 31 49
Other (715) 27 (649) 109
--------- -------- -------- --------
353 1,004 (24) 847
--------- -------- -------- --------
Earnings from continuing 623 875 264 489
Operations
Discontinued operations
Loss from operations (20) (21) (73)
--------- -------- -------- --------
Net earnings 623 855 243 416
--------- -------- -------- --------
Net earnings per common share -
basic and diluted $ .64 $ 1.21 $ .25 $ .59
Weighted average of common and
equivalent shares outstanding - 977 703 977 703
basic and diluted
5
Greenbriar Corporation
Consolidated Statements of Cash Flow
(Amounts in thousands)
For the nine month
Period Ended September 30,
2004 2003
----------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net earnings $ 243 $ 416
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities
Depreciation and amortization 325 241
(Gain) on sale of assets (740) (1,008)
Equity in net (income) of partnership (31) (49)
Changes in operating assets and liabilities
Accounts receivable (236) (86)
Other current and non current assets 739 92
Accounts payable and other liabilities (705) 59
----------- -----------
Net cash used in operating activities (405) (335)
----------- -----------
Cash flows used in investing activities
Proceeds from the sale of property 109 125
Purchase of property and equipment (99) (262)
----------- -----------
Net cash provided by (used in) investing
activities 10 (137)
Cash flows from financing activities
Payments on debt (6,469) (51)
Borrowings 6,500 100
----------- -----------
Net cash provided by financing
activities 31 49
----------- -----------
NET DECREASE IN CASH AND (364) (423)
CASH EQUIVALENTS
Cash and cash equivalents at beginning of period 688 661
----------- -----------
Cash and cash equivalents at end of period $ 324 $ 238
=========== ===========
6
Notes To Consolidated Financial Statements
For the Unaudited Three and Nine Months Ended September 30, 2004 and 2003
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 unaudited financial statements included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The financial statements reflect all adjustments that
are, in the opinion of management, necessary to fairly present such information.
All such adjustments are of a normal recurring nature. Although the Company
believes that the disclosures are adequate to make the information presented not
misleading, certain information and footnote disclosures, including a
description of significant accounting policies normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America, have been condensed or omitted pursuant to such
rules and regulations.
These financial statements should be read in conjunction with 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, 2003. Operating results for
the three and nine month periods ended September 30, 2004 are not necessarily
indicative of the results that may be expected for any subsequent quarter or the
year ended December 31, 2004
Note B: Notes Receivable and Deferred Gain From Sale Of Property
As a result of the sale of two retirement communities in 2001 the Company holds
tax-exempt notes in the total 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: Property Held for Sale
The Company has an agreement to sell a subsidiary whose sole asset is an
assisted living community in North Carolina. The carrying value of this asset is
$1,876,000 and there is a mortgage of $1,700,000. The net sales price
approximates the carrying value.
Note D: 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 a 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 president 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 one of the retirement communities. 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 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. In
addition CREI had deferred a gain to be recognized both by the partnership and
the Company on the installment method when payment is received.
In September 2004 the notes were paid in full. The Company recorded a gain of
$1,232,000.
Note E: Long-Term Obligations
Long-term debt is comprised of the following (in thousands):
September 30, December 31,
2004 2003
------------- -------------
Notes payable to financial institutions maturing through
2015; fixed and variable interest rates ranging from
5.875% to 15%; collateralized by property, fixtures,
equipment and the assignment of rents $ 7,674 $ 2,090
Notes payable to individuals and companies maturing
through 2023; variable and fixed interest rates ranging
from 7% to 14% collateralized by real property, personal
property, fixtures, equipment and the assignment of rents 1,800 1,851
Note payable to Sylvia M. Gilley, bearing interest at 10%
and maturing on July 1, 2004 2,255 2,255
Note payable to a former officer, non-interest bearing at
8.5% and maturing on December 31, 2004, net of
discount of $23 and $103 respectively, representing
interest imputed at 8.5% 608 528
Other 8 19
------------- -------------
12,345 6,743
Less: current maturities 4,756 4,690
============= =============
$ 7,589 $ 2,053
8
Note F - 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 G - Discontinued Operations
On January 31, 2004 the Company negotiated, at no cost, the termination a lease
for an assisted living community in Georgia. The operations of that community
have been reflected as discontinued operations for 2004 and 2003.
Note H - Segments
The Company and its subsidiaries are principally engaged in the business of
acquiring, enhancing and selling real estate properties. From 1996 through 2002
those activities were almost exclusively involved assisted living facilities. By
the end of 2002 the Company had disposed of the bulk of its assisted living
facilities and was actively seeking to acquire real estate properties other than
assisted living. In December 2003 the Company acquired a shopping mall in
Gainesville, Texas
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.
9
Segment information and reconciliation to income (loss) from operations are as
follows:
Three months ended September 30, 2004
- -------------------------------------
Real Estate Oil and Gas Consolidated
Operations Operations
Revenue $ 1,589,000 $ 358,000 $ 1,947,000
Depletion, depreciation
and amortization 89,000 20,000 109,000
Operating income (loss) 179,000 91,000 270,000
Total assets $15,180,000 $ 1,494,000 $16,674,000
10
Nine months ended September 30, 2004
- ------------------------------------
Real Estate Oil and Gas Consolidated
Operations Operations
Revenue $ 4,477,000 $ 996,000 $ 5,473,000
Depletion, depreciation
and amortization 283,000 82,000 365,000
Operating income (loss) 132,000 156,000 288,000
Total assets $15,180,000 $ 1,494,000 $16,674,000
Note I - Contingencies
Internal Revenue Service Pre-Assessment Letter
In December 1991 the Company sold four nursing homes to a not-for-profit
corporation in exchange for tax exempt bonds issued on behalf of the acquiring
corporation by government authorities. The bonds were issued in three lettered
series: A, B and C. The aggregate principal amount of the Series A bonds was
$8,700,000, the aggregate principal amount of the series B bonds was $1,000,000
and the aggregate amount of the Series C bonds was $6,700,000. Interest on the
bonds was payable semi-annually. A nationally recognized law firm opined that
interest on the bonds would be tax-exempt.
In March 1992, pursuant to a plan promulgated and recommended by a nationally
recognized investment banking firm, the Series C bonds were converted to zero
coupon status and their value was enhanced by substituting higher grade
collateral. The substitute collateral, which consisted of zero coupon U.S.
Treasury obligations, was placed in trust to defease the Series C bonds in
exchange for the underlying mortgage. The Series C bonds were then sold for
approximately $47,000,000. A gain was recorded equal to the proceeds received by
the Company of $6,252,000 after deducting transaction costs and the cost of the
higher grade collateral. A nationally recognized law firm opined that the
defeasance of the bonds would not adversely affect the tax exempt status.
In December 1992, again pursuant to a plan promulgated and recommended by a
nationally recognized investment banking firm, the Series A bonds were converted
to zero coupon status, their value enhanced by substituting zero coupon U.S.
Treasury obligations as collateral and the collateral placed in trust in
exchange for the mortgage underlying the Series A bonds in a transaction similar
to the sale of the Series C bonds. The Series A bonds were then sold for
approximately $20,000,000. A gain was recorded equal to the proceeds received by
the Company of $2,081,000 after deducting transaction costs and the cost of the
higher grade collateral.
On January 8, 2004 the Company was notified by the Internal Revenue Service
(IRS) in the form of a Section 6700 Pre-Assessment Letter that the IRS was
considering assessing penalties under Section 6700 of the Internal Revenue Code
as a result of the Company's organization or assistance in connection with the
issuance and sale of the Series A and Series C bonds.
In August 2004 the Company and the IRS concluded a settlement whereby the
Company admitted no guilt in the matter and paid a fine of $216,000.
11
Other
The Company has been named as a defendant in other lawsuits in the ordinary
course of business. Management is of the opinion that these lawsuits will not
have a material effect on the financial condition, results of operations or cash
flows of the Company.
Note J: Subsequent Event - Acquisition of Bulgarian Cable and Telecommunications
Company
On October 12, 2004 the Company acquired two privately-held U.S. corporations in
exchange for 31,500 shares of newly-designated 2% Series J Preferred Stock. The
two U.S. corporations each own an undivided one-half of the equity interests in
Tacaruna BV, a Netherlands company, which in turn owns 75% of CableTEL AD
("CableTEL"). The remaining 25% is owned by an unrelated third party.
CableTEL, the largest cable television provider in Bulgaria, has launched
Bulgaria's first, fully connected fiber optic backbone ring which, upon
completion, will cover the entire country with connections to its major
metropolitan cities.
In addition to its current cable television business, CableTEL's business plan
is to build a vertically integrated communications company which will provide a
full range of telephone services (including voice over IP), internet services
and fiber optic backbone connectivity to individual, commercial and government
customers. With the completion of the fiber optic backbone and with legal
barriers to admission into the fixed voice market lifted in Bulgaria, CableTEL
is preparing an aggressive entry into the Bulgarian telecommunications market.
A significant component of CableTEL's business plan is the leasing of fiber
optic backbone connectivity to commercial, industrial and governmental clients.
Bordered by Greece, Turkey, Macedonia, Yugoslavia and Romania, CableTEL's
land-based fiber optic infrastructure will offer a less expensive alternative to
current connectivity under the Mediterranean Sea for countries desiring high
speed internet, voice and data access to the rest of the world.
Bulgaria is situated in Southeastern Europe and occupies the northeastern part
of the Balkan Peninsula. Bulgaria's Parliamentary Republic form of government
has brought political stability and its stringent fiscal controls have
stimulated sustained economic growth of 4.1%-5.4% per annum for the past four
years. Bulgaria is a member of NATO and expects to join the European Union by
2007.
The European Union, which currently consists of 25 member countries, has
earmarked substantial funding to assist candidate countries to achieve the
infrastructure and institutional reforms necessary for membership in the Union.
The Union's commitment to Bulgaria from this funding is 816,000,000 Euros (over
one billion U.S. dollars), nearly 20% of the European Union assistance budget.
Bulgaria has completed over 85% of the steps the Union requires for entry.
12
As consideration for the acquisition, Greenbriar issued 31,500 shares of its
newly-designated 2% Series J Preferred Stock (the "Preferred Shares") to four
individual stockholders of the two U.S. corporations. The 2% Series J Preferred
Stock has a liquidation value of $1,000 per share, has the right to receive
cumulative cash dividends of $20 per share per annum payable quarterly, payment
of $1,000 per share in the event of liquidation, dissolution or winding up of
Greenbriar before any distribution is made to common stockholders, optional
redemption at any time after September 30, 2006 at a price of $1,000 per share
plus cumulative unpaid dividends. The Preferred Shares are not convertible into
any other securities of Greenbriar, and each share has voting rights consisting
of five votes per share voting together with all other classes of stock.
The Acquisition Agreement requires as soon as reasonably practicable, and in no
event later than September 30, 2005, that Greenbriar present the transaction
represented by the Acquisition Agreement, together with a proposed mandatory
exchange of the Preferred Shares for Common Stock to its current stockholders in
accordance with the applicable requirements of the Securities and Exchange
Commission and the American Stock Exchange, Inc. for a vote (or a written
consent by the requisite number) of stockholders to approve the transaction,
including a mandatory exchange of all shares of the Preferred Shares for shares
of Greenbriar Common Stock on the basis of 279 shares of Common Stock for each
share of the Preferred Shares, which would result in an aggregate of
approximately 8,788,500 shares of Greenbriar Corporation's Common Stock being
issued to the four individuals, which would then constitute approximately 90% of
the total issued and outstanding shares of Common Stock of Greenbriar, subject
to the listing requirements with the AMEX. In the event the stockholders of
Greenbriar do not approve the transaction and the mandatory exchange by the
requisite number of votes, the holders of the Preferred Shares have the option
exercisable by all of them at any time after September 30, 2005 until September
30, 2006 to rescind the transaction by delivery back to Greenbriar of the 31,500
Preferred Shares to receive in exchange all of the ordinary shares and other
securities of Tacaruna BV held by the Company.
For a more detailed description of the CableTEL acquisition see the Company's
Form 8-K filed October 15, 2004.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
As of September 30, 2004, the Company owned one assisted living community and
leased one assisted living community in two states with a capacity of 200
residents. In addition, the Company owns one assisted living community that is
leased to and operated by an independent third party with a capacity of 41
residents.
The Company acquired the Gainesville Factory Outlet Mall in Gainesville, TX in
December 2003. The mall has approximately 315,000 sq ft. of retail space which
is leased to a number of nationally know retail operations as well as local
vendors.
13
The Company acquired Gaywood Oil & Gas, LLC (Gaywood) which has oil and gas
leases in the East Texas field effective August 31, 2003. The oil wells in this
field have low but steady production. There are approximately 200 existing wells
on the leases owned by Gaywood however as of November 12, 2004 Gaywood had 52
operating wells generating approximately 4,000 barrels of oil per month.
Gaywood, based upon the price of oil and available financing, and the Company's
estimates of potential production may open additional wells. At this time
Greenbriar does not 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, 2004 compared to three and
nine-month periods ended September 30, 2003.
Revenues and Operating Expenses
Revenues for the assisted living communities were $945,000 and $2,773,000 for
the three and nine months ended September 30, 2004 as compared to $803,000 and
$2,313,000 for the three and nine months ended September 30, 2003. Community
operating expenses, which consist of assisted living community expenses, lease
expense, depreciation and amortization, were $746,000 and $2,205,000 for the
three and nine months ended September 30, 2004 as compared to $661,000 and
$2,001,000 for the three and nine months ended September 30, 2003.
The increase in revenue is due principally to increased census at the
communities. The increase in expenses is the increased operating cost necessary
to care for the additional residents. The significant increases were for wages
and food.
Revenues for the outlet mall were $644,000 and $1,704,000 for the three and nine
months ended September 30, 2004. Operating expenses were $379,000 and $1,197,000
for the comparable periods. The outlet mall was not owned by the Company during
the three and nine month period ended September 30, 2003
Revenues for the oil & gas operations were $358,000 and $996,000 for the three
and nine month periods ending September 30, 2004. Operating expenses were
$267,000 and $758,000 for the comparable periods. The oil & gas operations were
not owned by the Company until August 31, 2003.
Corporate General and Administrative Expenses
General and administrative expenses were $213,000 and $774,000 for the three and
nine month periods ending September 30, 2004 compared to $295,000 and $554,000
for the three and nine months ending September 30, 2003.
During the later part of 2001 and 2002 the Company sold, leased or disposed of
26 communities. 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. In the third quarter of 2003 the Board of Directors agreed
14
to increase certain officers' salaries effective January 1, 2003. The general &
administrative expenses in the third quarter of 2003 includes an expense of
approximately $90,000 that pertains to the first six months of 2003. The balance
of the additional expenses is due to additional administrative salaries and
expenses due to the addition of the outlet mall and the oil and gas operations
as well as additional legal fees due to the Company's dispute with the Internal
Revenue Service.
Interest Income
Interest income was to $51,000 and $179,000 for the three and nine month periods
ending September 30, 2004 as compared to $110,000 and $224,000 for the three and
nine months ending September 30, 2003. Interest was $20,000 higher for the first
quarter of 2004 In April 2004 the Company received certain principal payments
which reduced the level of interest bearing notes outstanding. This reduction in
notes receivable was the most significant factor in the reduction in interest
income.
15
Interest Expense
Interest expense was $392,000 and $994,000 for the three and nine month periods
ended September 30, 2004 as compared to $157,000 and $543,000 for the three and
nine months periods ended September 30, 2003.
The increase is due almost entirely to the financing of the Gainesville Outlet
Mall. When the mall was acquired in December 2003 it was initially financed with
a short term note which escalated form 3% to 15% during the nine months ended
September 30, 2004. The short term note was refinanced in August 2004 with a
five year note requiring interest at 5.85%.
Other Income (Expense)
Other Income (expense) for the three and nine month periods ending September 30,
2004 was ($715,000) and ($649,000) as compared to $27,000 and $109,000 for the
three and nine months ended September 30, 2003. In 2002 the Company sold a
property in California and was required to establish an escrow fund for certain
repairs to the building. The escrowed amounts were written off when the building
was sold. Included in other income for 2004 is $125,000 which represents the
return of a portion of escrow funds in excess of the amount required. Due to a
reduction in the corporate staff the Company needed less space than it was
occupying and reached a settlement with the owner of the building, in the third
quarter, whereby the Company made a one time payment of $472,000 to settle all
obligations and to terminate the lease early. Also included in 2004 is a
$216,000 expense to provide for the settlement of the Company's dispute with the
IRS.
The 2003 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
The gain on sale of asset for the three and nine months ended September 30, 2004
was $1,409,000 as compared to a gain of $1,008,000 for the three and nine months
ended September 30, 2003.
In October 2001, the Company became a 56% limited partner in Corinthians Real
Estate Investors, LP ("CREI"), a partnership formed to acquire two properties.
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.
The Company deferred recognition of its $740,000 share of the gain because of
the aforementioned guaranty. In addition CREI had deferred a gain to be
recognized both by the partnership and the Company on the installment method
when payment is received.
In September 2004 the notes were paid in full and the Company recorded a gain of
$1,232,000.
16
The Company owned a property in Ellensburg WA. The property's book value was
$202,000 less than its debt. In July 2004 the Company sold the property to an
unrelated third party and recorded a gain of $177,000 net of expenses.
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 2003 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.
Discontinued Operations
On January 31, 2004 the company terminated a lease for an assisted living
community in Georgia. The operating losses for the community were $0 and $21,000
for the three and nine month periods ending September 30, 2004 and $20,000 and
$73,000 for the three and nine months ending September 30, 2003.
Liquidity and Capital Resources
On September 30, 2004, the Company had current assets of $3,933,000 and current
liabilities of $6,100,000.
Included in current liabilities is a $2,600,000 note plus accrued interest to
Sylvia M. Gilley, wife of a former president of the Company. Under the terms of
the note the obligation will only be due if the Company has sufficient cash to
pay the note.
Also included in current liabilities is a $1,700,000 mortgage for a property in
North Carolina which is due in December 2004. The Company has an agreement to
sell the property. The sale will generate sufficient cash to repay the
$1,700,000.
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.
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
17
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
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
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.
18
PART II: OTHER INFORMATION
ITEMS 1-6: ARE NOT APPLICABLE.
EXHIBITS
Exhibit 31.1 - Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a)
Exhibit 31.2 - Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a)
Exhibit 32.1 - Certification of Chief Executive 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
Exhibit 32.2 - Certification of 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
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 15, 2004 By: /s/ Gene S. Bertcher
-----------------------
President
Chief Financial Officer