10-Q/A 1 green10qsb033102.txt 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 March 31, 2002 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 May 13, 2002, the issuer had outstanding approximately 359,000 shares of par value $.01 Common Stock. GREENBRIAR CORPORATION Index to Quarterly Report on Form 10-Q Period ended March 31, 2002 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............................................11 Three month period ended March 31, 2002 compared to three month period ended March 31, 2001.....................................................11 Forward Looking Statements...............................................14 Part II: Other Information....................................................15 2 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS ----------------\------------ Greenbriar Corporation Consolidated Balance Sheets (Amounts in thousands) March 31, December 31, Assets 2002 2001 (Unaudited) ------------ ------------ Current Assets Cash and cash equivalents $ 1,065 $ 1,246 Short-term investments 1,098 1,098 Accounts receivable-trade 184 106 Receivables from affiliated partnership 112 311 Prepaid expenses 156 572 Other current assets 973 541 ------------ ------------ Total Current Assets 3,588 3,874 Notes receivable, from sale of properties 6,400 6,400 Less deferred gains (6,090) (6,090) ------------ ------------ 310 310 Notes receivable from affiliate partnership 1,600 1,600 Deferred income tax benefit 2,350 2,350 Property and equipment, at cost Land and improvements 4,437 4,430 Buildings and improvements 32,667 32,675 Equipment and furnishings 3,183 3,134 ------------ ------------ 40,287 40,239 Less accumulated depreciation 6,783 6,498 ------------ ------------ 33,504 33,741 Deposits 1,676 1,730 Other Assets 518 417 ------------ ------------ $ 43,546 $ 44,022 ============ ============ 3
Greenbriar Corporation Consolidated Balance Sheets - Continued (Amounts in thousands) March 31, December 31, Liabilities and Stockholders' Equity 2002 2001 (Unaudited) ------------ ------------ Current Liabilities Current maturities of long-term debt $ 4,513 $ 4,316 Accounts payable - trade 912 1,042 Accrued expenses 871 1,116 Other current liabilities 640 467 ------------ ------------ Total Current Liabilities 6,936 6,941 Long-term debt 16,675 16,693 Financing obligations 10,815 10,815 Other long term liabilities 309 304 ------------ ------------ Total Liabilities 34,735 34,753 Stockholders' Equity Preferred stock 1 1 Common stock $.01 par value; authorized, 100,000 shares; 359 shares issued and outstanding 75 75 Additional paid-in capital 56,828 56,828 Accumulated deficit (45,726) (45,268) ------------ ------------ 11,178 11,636 Less stock purchase notes receivable (Including $2,250 from related parties) (2,367) (2,367) ------------ ------------ Total Equity 8,811 9,269 ------------ ------------ $ 43,546 $ 44,022 ============ ============
4 Greenbriar Corporation Consolidated Statements of Operations (Amounts in thousands, except per share data) For The Three Month Period Ended March 31, 2002 2001 (Unaudited) Revenue Assisted living operations $ 2,925 $ 9,976 2,925 9,976 Operating expenses Assisted living operations $ 1,627 $ 6,004 Lease expense 409 1,154 Depreciation and amortization 331 865 Corporate, general and administrative 431 1,184 2,798 9,207 Operating income 127 769 Other income (expense) Interest income $ 164 $ 77 Interest expense (628) (1,422) Net gain on the sale of assets -- 381 Equity in net loss of affiliated partnership (121) Other -- (81) (585) (1,045) Net loss (458) (276) Preferred stock dividend requirement -- (80) Loss allocable to common --------- --------- stockholders (458) (356) ========= ========= Net loss per common share- basic and diluted $ (1.28) $ (0.86) Weighted average number of common and equivalent shares outstanding 359 417 5 Greenbriar Corporation Consolidated Statements Of Cash Flow (Amounts in thousands) For the three month Period Ended March 31, 2002 2001 --------- --------- (Unaudited) (Unaudited) Cash flows from operating activities Net loss $ (458) $ (276) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 331 865 Gain on sale of assets -- (381) Changes in operating assets and liabilities Accounts receivable 121 155 Other current and non current assets 38 (236) Accounts payable and other liabilities (344) (1,341) --------- --------- Net cash used in operating activities (312) (1,214) --------- --------- Cash flows provided by (used in) investing activities Proceeds from sale of property -- 2,767 Purchase of property and equipment (48) (91) --------- --------- Net cash provided by (used in) investing Activities (48) 2,676 Cash flows from financing activities Payments on debt -- (132) New Debt Borrowings 179 Dividends on preferred stock -- (80) --------- --------- Net cash provided by (used in) financing Activities 179 (212) --------- --------- Net increase (decrease) in cash and (181) 1,250 cash equivalents Cash and cash equivalents at beginning of period 1,246 2,287 --------- --------- Cash and cash equivalents at end of period $ 1,065 $ 3,537 ========= ========= 6 Notes To Consolidated Financial Statements For the Unaudited Three Months Ended March 31, 2002 and 2001 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-month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. 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, 2001. Note B: Notes Receivable From Sale Of Property During 2001, the Company sold three properties for cash and $6,400,000 of tax-free-notes bearing interest at 9.5%. The notes mature on April 1, 2032, March 20, 2037 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 $6,090,000. The deferred gains and interest income will be recognized as cash is received. Note C: Affiliated Partnerships In October 2001, the Company became a 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 controlling member is James Gilley. Mr. Gilley is also CEO of the Company. The Company is a 56% limited partner. Mr. Gilley has a 25.9% interest, the general partner has a .1% interest, the Company's chief financial officer has a 10.5% interest, and other employees of the Company have interests aggregating 7.5%. In October 2001, the 7 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. The Company issued a $1,600,000 note to the seller as partial payment for the purchase of the retirement community. The balance of the purchase price was funded by borrowings by CREI from a third party in the amount of $7,840,000, which was guaranteed by the Company. CREI gave the Company a $1,600,000 note in consideration for payment of that amount of the purchase price. The notes bear interest at 8.75% and are due December 30, 2003. CREI also has debt in the amount of $3,975,000 collateralized by the assisted living community that has been guaranteed by the Company. The Company accounts for its investment in CREI by the equity method and records 56% of the gains or losses of CREI. In addition, because of its debt guarantees the Company's policy is to record all cash losses of CREI that are in excess of its 56% investment. For the three-months ended March 31, 2002 the Company recorded a loss of $121,000. The Company had a receivable of $112,000 at March 31, 2002, resulting from advances to CREI. 8 Following are unaudited, condensed financial statements of CREI (in thousands): Balance Sheet March 31, 2002 Current Assets $ 643 Property and Equipment 12,188 Other Assets 871 -------- $ 13,702 ======== Current Liabilities $ 132 Other Liabilities 466 Notes Payable to Greenbriar Corp. 1,600 Mortgages Payable 11,815 -------- 14,013 Partners' Deficit (311) -------- $ 13,702 ======== Statement of Operations Three months ended March 31, 2002 Revenue $ 743 Expenses Operating 370 Depreciation 100 General and Administrative 56 Interest 432 -------- 958 Net loss $ (215) ======== 9
Note D: Long-Term Obligations Long-term debt is comprised of the following (in thousands): March 31, December 31, 2002 2001 ------------ ------------ 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 $ 14,084 $ 8,947 Notes payable to individuals and companies maturing through 2023; variable and fixed interest rates ranging from 7% to 8.75% collateralized by real property, personal property, fixtures, equipment and the assignment of rents 1,655 1,655 Mortgage note payable to a financial institution maturing in 2010; bearing interest rates ranging from7.5% through 14.5%; collateralized by property and equipment -- 5,253 Notes Payable to wife of Chief Executive Officer, bearing interest at 10% and maturing on July 1, 2003 3,375 3,375 Notes Payable to executive officers, non interest bearing at 8.5% and maturing on December 31, 2004, net of discount of $358 and $391 respectively, representing interest imputed at 8.5% 1,382 1,349 Other 692 430 ------------ ------------ 21,188 21,009 Less: current maturities 4,513 4,316 ------------ ------------ $ 16,675 $ 16,693
The Company operates two communities that are financed through sale-leaseback obligations. At the end of the tenth year of the fifteen-year leases (March 31, 2004), the Company has options to repurchase the communities for the greater of the sales prices or their current replacement costs less depreciation plus land at current fair market values. Accordingly, these transactions have been accounted for as financings, and the Company has recorded the proceeds from the sales as financing obligations, classified the lease payments as interest expense and continues to carry the communities and record depreciation. 10 As discussed in Note C the company is guarantor of debt for CREI in the amount of $11,815,000 at March 31, 2002. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ------------------------------------------------------------------------ OF OPERATIONS ------------- Overview The Company owns and manages assisted living communities that provide housing, healthcare, hospitality and personal services to seniors. As of May 13, 2002 the Company operates 12 communities in seven states with a capacity of 1,069 residents, consisting of three communities that are owned, four that are leased and five that are managed under contract to one of the Company's subsidiaries for third party owners. Three-month period ended March 31, 2002 compared to three-month period ended March 31, 2001. Revenues and Operating Expenses from Assisted Living Operations Revenues were $2,925,000 for the three months ended March 31, 2002 as compared to $9,976,000 for the three months ended March 31, 2001. Community operating expenses, which consist of assisted living community expenses, lease expense and depreciation and amortization, were $2,367,000 for the three months ended March 31, 2002 as compared to $8,023,000 for the three months ended March 31, 2001. During the last nine months of 2001 the Company disposed of 11 Communities as part of a redemption of its Series E and F Preferred Stock. The Company also sold three Communities to not for profit organizations and retained a long-term management contract. The company also sold one Community and leased one Community to independent third parties. In addition the Company entered into a sub-management contract for three properties whereby the sub-manager is retaining the revenue and paying the expenses as their fee for being a sub-manager. The sub-manager also has an agreement to acquire the Communities upon approval of the third party lenders. For reporting purposes the Company no longer records the revenue and operating expenses of the three Communities. In October of 2001 and January of 2002 the Company obtained a 56% limited partnership interest in two Communities. These Communities are accounted for using the equity method of accounting. Therefore, the Company does not record the revenue and expenses of the Communities. 11 Overall the Company recorded revenue and expenses for nineteen fewer Communities during the three months ended March 31, 2002 than for the comparable period in the preceding year. On a "same store basis" revenue and operating expenses for the three months ended March 31, 2001 would have been $2,652,000 and $2,196,000 respectively. Corporate General and Administrative Expenses General and administrative expenses were $431,000 for the three months ended March 31, 2002 compared to $1,184,000 for the three months ended March 31, 2001. 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 significant reduction in the number of Communities operated by the Company, the number of employees on the corporate staff was reduced. In addition the salaries for members of senior management have been reduced. Also during the three months ended March 31, 2001 the Company was incurring legal and professional fees with respect to a lawsuit was a preferred shareholder. Professional fees decreased by $189,000 for the three months ended March 31, 2002 when compared to the comparable period of 2001. Interest Income Interest Income increased to $164,000 for the three months ended March 31, 2002 as compared to $77,000 for the three months ended March 31, 2001. Included in 2002 is $117,000 of interest received from the notes receivable from the sale of properties. Interest income from investments other than notes receivable decreased by $70,000 due to lower interest rates and a less money invested. Interest Expense Interest expense decreased to $628,000 for the three months ended March 31, 2002 as compared to $1,422,000 for the three months ended March 31, 2001. Due to the reduction in the number of Communities the Company's long-term debt has been reduced significantly. The interest expense on a "same store basis" for the three months ended March 31, 2001 would have been $562,000. The increase in interest expense on a "same store basis" is due principally to higher interest rates on existing borrowings. Other Income (Expense) Other Income (expense) for the three months ended March 31, 2001 was $(81,000)) which represented minority interest in a Community. The community was sold during 2001. 12 Net gain on the Sale of Assets The net gain on the sale of assets for the three months ended March 31, 2001 was $381,000. The gain is attributable to the sale of Company's corporate office building, which resulted in a gain of $406,000 and the sale of certain garden homes and related property that was adjacent to Camelot Retirement that resulted in a loss of $25,000. Liquidity and Capital Resources At March 31, 2002, the Company had current assets of $3,588,000 and current liabilities of $6,936,000. Operating activities used $312,000 of cash in 2002 and $1,214,000 in 2001. The decrease in cash used in 2002 as compared to 2001 was the net result of decreased cash for certain working capital accounts. Investing Activities used $48,000 of cash in 2002 and provided $2,676,000 of cash in 2001. In 2001 the Company sold certain assets, including its corporate office building, and realized cash proceeds of $2,767,000. There were no property sales in 2002. Financing activities provided $179,000 in cash in 2002 and used $212,000 in cash in 2001. In 2002 the Company had increased net borrowings of $179,000 while in 2001 the Company had a net reduction in debt of $132,000. In addition in 2001 the Company paid $80,000 in dividends in 2001. There were no dividend payments in 2002. Included in current liabilities is a $3,360,000 mortgage for an assisted living community, which matures in October 2002. The Company intends to refinance that mortgage on a long-term basis prior to its maturity date. During 2001 the Company reduced it long-term debt from $50,887,000 to $16,693,000. The reduction was due to the sale of properties and the repayment of the mortgages related to the properties. In January 1997 the Company negotiated employment contracts with the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the Company. Both individuals had been employed by the Company since 1989. The employment contracts called for combined salaries of $640,000 per year and provided that if the contracts were terminated or amended the individuals would be entitled to cash payment of three years salary for the CEO and two years salary for the CFO. In light of the reduced size of the Company the independent directors and the officers in October 2001 agreed to modify the employment agreements with the two officers. The two officers have each agreed to continue their roles in the Company for $12,000 per year for three years. The revisions in the contracts triggered the contract termination payments requiring the Company to immediately pay the two officers $1,740,000. However, the two officers agreed to accept non-interest-bearing notes due December 31, 2004. These notes have certain acceleration provisions if the Company violates the terms of the revised contracts. 13 In the future the two officers will participate with the Company in partnerships or other entities formed to acquire and sell real estate properties during the period of their contracts. The Company believes that this arrangement will allow it to maintain experienced senior management at a cost that will not overburden its resources while at the same time allowing it to realize significant profits through management fees, operating profits and the ultimate sale of the properties. It is anticipated that the Company will acquire additional properties through investments in third party entities, which for the most part, will be partnerships. The Company may or may not be the controlling party with respect to these investments. It is anticipated that the two senior officers will bring potential acquisitions and financing to Greenbriar. The Company has no obligation to participate. The Company conducts its property management operations through its subsidiary Senior Living Management, Inc (SLM). SLM expects to manage properties, which are owned or leased by the Company or are owned by partnerships or other entities where Greenbriar is an investor, for a fee. To a far lesser degree SLM will manage properties for independent third parties. Future acquisitions by of 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 expectations generally, and also may materially differ from Greenbriar Corporation'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. Greenbriar Corporation has attempted to identify, in context, certain of the factors that they currently believe may cause actual future experience and results to differ from Greenbriar Corporation'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 Greenbriar Corporation's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. 14 PART II: OTHER INFORMATION ITEMS 1-6: ARE NOT APPLICABLE. ------------------- 15 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: May 20, 2002 By: /s/ Gene S. Bertcher ---------------------------- Executive Vice President Chief Financial Officer 16