10-Q 1 green10q033103.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, 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 May 13, 2003, the issuer had outstanding approximately 343,900 shares of par value $.01 Common Stock. GREENBRIAR CORPORATION Index to Quarterly Report on Form 10-Q Period ended March 31, 2003 PART I: FINANCIAL INFORMATION..................................................3 ITEM 1: FINANCIAL STATEMENTS................................................3 CONSOLIDATED BALANCE SHEETS..............................................3 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, 2003OMPARED TO THREE-MONTH PERIOD ENDED MARCH 31, 2002...........................................11 FORWARD LOOKING STATEMENTS..............................................13 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RATE.........14 ITEM 4: CONTROLS AND PROCEDURES............................................14 PART II: OTHER INFORMATION....................................................15 SIGNATURES.................................................................15 EXHIBIT 99.2..................................................................17 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002...............................................................17 2 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS Greenbriar Corporation Consolidated Balance Sheets (Amounts in thousands) March 31, December 31, Assets 2003 2002 (Unaudited) ------------ ------------ Current Assets Cash and cash equivalents $ 166 $ 661 Accounts receivable-trade 35 22 Notes receivable 1,238 1,238 Other current assets 220 323 ------------ ------------ Total Current Assets 1,659 2,244 Notes receivable, from sale of properties 7,997 7,997 Less deferred gains (6,127) (6,127) ------------ ------------ 1,870 1,870 Deferred income tax benefit 1,161 1,161 Property and equipment, at cost Land and improvements 678 678 Buildings and improvements 6,850 6,850 Equipment and furnishings 1,432 1,387 ------------ ------------ 8,960 8,915 Less accumulated depreciation 2,344 (2,282) ------------ ------------ 6,616 6,633 Deposits 327 311 Other Assets 391 405 ------------ ------------ $ 12,024 $ 12,624 ============ ============ 3
Greenbriar Corporation Consolidated Balance Sheets - Continued (Amounts in thousands) March 31, December 31, Liabilities and Stockholders' Equity 2003 2002 (Unaudited) ------------ ------------ Current Liabilities Current maturities of long-term debt $ 85 $ 113 Accounts payable - trade 177 405 Accrued expenses 346 367 Other current liabilities 541 668 ------------ ------------ Total Current Liabilities 1,149 1,553 Long-term debt 8,521 8,479 Investment in Affiliate 28 46 Deferred Gain 740 740 Other long term liabilities 497 455 ------------ ------------ Total Liabilities 10,935 11,273 Stockholders' Equity Preferred stock 1 1 Common stock $.01 par value; authorized, 100,000 shares; 359 shares issued and outstanding 72 72 Additional paid-in capital 54,923 54,923 Accumulated deficit (53,907) (53,645) ------------ ------------ 1,089 1,351 $ 12,024 $ 12,624 ============ ============
4 Greenbriar Corporation Consolidated Statements of Operations (Amounts in thousands, except per share data) For The Three Month Period Ended March 31, 2003 2002 (Unaudited) Revenue Assisted living operations $ 1,070 $ 1,327 Operating expenses Assisted living operations 632 638 Lease expense 413 377 Depreciation and amortization 79 121 Corporate, general and administrative 142 431 ------- ------- 1,266 1,567 ------- ------- Operating income (loss) (196) (240) Other income (expense) Interest income 54 161 Interest expense (196) (229) Equity in net income (loss) of affiliated partnership 18 (121) Other 58 -- ------- ------- (66) (189) ------- ------- Loss from continuing operations (262) (429) Discontinued operations Loss from operations (29) ------- ------- ------- ------- NET (LOSS) $ (262) $ (458) ======= ======= Net loss per common share - basic and diluted $ (.76) $ (1.28) Weighted average number of common and equivalent shares outstanding 344 359 5
Greenbriar Corporation Consolidated Statements Of Cash Flow (Amounts in thousands) For the three month Period Ended March 31, 2003 2002 --------- --------- (Unaudited) (Unaudited) Cash flows from operating activities Net loss $ (262) $ (458) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 79 331 Loss (Gain) from affiliate (18) 121 Changes in operating assets and liabilities Accounts receivable (13) 121 Other current and non current assets 84 38 Accounts payable and other liabilities (334) (465) --------- --------- Net cash used in operating activities (464) (312) --------- --------- Cash flows provided by (used in) investing activities Purchase of property and equipment (45) (48) --------- --------- Net cash provided by (used in) investing Activities (45) (48) Cash flows from financing activities Payments on debt (14) -- Borrowings -- 179 --------- --------- Net cash provided by (used in) financing activities (14) 179 --------- --------- Net increase (decrease) in cash and cash equivalents (495) (181) Cash and cash equivalents at beginning of period 661 1,246 --------- --------- Cash and cash equivalents at end of period $ 166 $ 1,065 ========= =========
6 Notes To Consolidated Financial Statements For the Unaudited Three Months Ended March 31, 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-month period ended March 31, 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 three communities in 2001 the Company holds tax-free-notes in the amount of $6,437,000 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 $6,127,000. 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 chief financial 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 in 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 the Company a $400,000 participation in another note due September 30, 2004 in payment of 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 as it receives proceeds. 8 Following are unaudited, condensed financial statements of CREI (in thousands): Balance Sheet March 31, 2003 Current assets $ 96 Other assets 152 Notes receivable 994 ----------- $ 1,242 Current liabilities $ 70 Other liabilities 157 Deferred gain 994 ----------- 1,221 Partners' equity 21 ----------- $ 1,242 Statement of Operations Three months ended March 31, 2003 Revenue $ 33 Expenses 1 ---------- Net Income $ 32 ---------- 9
Note D: Long-Term Obligations Long-term debt is comprised of the following (in thousands): March 31, December 31, 2003 2002 ------------ ------------ Notespayable 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 $ 3,937 $ 3,956 Notespayable 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 1,753 1,753 Notes payable to Sylvia M. Gilley, bearing interest at 10% and maturing on July 1, 2004 2,255 2,255 Notespayable to current and former executive officers, non interest bearing at 8.5% and maturing on December 31, 2004, net of discount of $227 and $260 respectively, representing interest imputed at 8.5% 631 598 Other 30 30 ------------ ------------ 8,606 8,592 Less: current maturities 85 113 ------------ ------------ $ 8,521 $ 8,479
As discussed in Note C the company is guarantor of debt in the amount of $1,600,000. Note E - 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 FASB 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, 10 "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring 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 months ended March 31, 2002 was $1,888,000. Pursuant to SFAS No. 144, the results of operations for the six communities has been reclassified to Discontinued Operations for the three months ended March 31, 2002. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ------------------------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- Overview As of March 31, 2003, the Company owns or leases three communities in three states with a capacity of 257 residents, consisting of two communities that are owned and one that is leased. In addition the Company owns one 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, principally partnerships, whose intent is to acquire properties and either sell, lease or enter into joint venture agreements with third party operators with respect to these properties Three-month period ended March 31, 2003 compared to three-month period ended March 31, 2002. Revenues and Operating Expenses from Assisted Living Operations Revenues were $1,070,000 for the three months ended March 31, 2003 as compared to $1327,000 for the three months ended March 31, 2002. Community operating expenses, which consist of assisted living community expenses, lease expense and depreciation and amortization, were $1,124,000 for the three months ended March 31, 2003 as compared to $1,136,000 for the three months ended March 31, 2002. 11 Included in revenue and operating expenses for 2002 are $240,000 and $165,000 respectively which pertain to one community that was contributed to an unconsolidated partnership in May 2002. The partnership was subsequently sold. The Company owned a community which it leased to a third party during the three-month period ended March 31, 2002. The lease expired in November 2002 and the Company operated the Community during the three months ended March 31 2003. The revenues and operating expenses included for this community in 2003 were $115,000 and $161, 000 respectively During the three months ended March 31, 2002 the Company managed three communities for a third party. The management fees recorded in 2002 were $110,000. The Company did not manage properties for third parties during 2003. Corporate General and Administrative Expenses General and administrative expenses were $142,000 for the three months ended March 31, 2003 compared to $431,000 for the three months ended March 31, 2002. During the later part of 2001 and 2002 the Company sold, leased or disposed twenty-six 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 having less communities, expenses such as travel, communication costs and general operating costs were reduced. Interest Income Interest income decreased to $54,000 for the three months ended March 31, 2003 as compared to $161,000 for the three months ended March 31, 2002. Interest for 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 the three months ended March 31, 2003. 12 Interest Expense Interest expense decreased to $196,000 for the three months ended March 31, 2003 as compared to $229,000 for the three months ended March 31, 2002. In December the Company borrowed $1,700,000 at 12% interest which represents an additional $51,000 in 2003 when compared to 2002. In May 2002 the Company contributed one community to an unconsolidated partnership. Interest expense for that community was $55,000 during the three months ended March 31, 2002. In November 2002, the Company transferred the partnership to Sylvia Gilley, wife of the former CEO of the Company, and reduced the debt due to Mrs. Gilley by $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 in 2003 as compared to 2002. Equity in Net Income (Loss) of Affiliated Partnership During the quarter ended March 31, 2002 CREI operated two properties. The Company's share of the operating losses was ($121,000). CREI sold its 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 months ended March 31, 2003 the Company's portion of the CREI's earnings was $18,000. Other Income (Expense) Other Income (expense) for the three months ended March 31, 2003 was $58,000. The majority of that amount was proceeds from the settlement of a legal action brought by the Company. Liquidity and Capital Resources At March 31, 2003, the Company had current assets of $1,659,000 and current liabilities of $1,149,000. Operating activities used $464,000 of cash in 2003 and $312,000 in 2002. The decrease in cash used in 2003 as compared to 2002 was the net result of decreased cash for certain working capital accounts. Investing Activities used $45,000 of cash in 2003 and $48,000 of cash in 2002. The use of cash was for purchases of equipment at the various Communities owned by the Company Financing activities used $14,000 in cash in 2003 and provided $179,000 in cash in 2002. In 2002 the Company had increased net borrowings of $179,000 while in 2003 the Company had no additions in debt. It is anticipated that the Company will acquire additional properties through investments in third party entities which, for the most part, will be 13 partnerships. The Company may or may not be the controlling party with respect to these investments. It is anticipated that the senior officers will bring potential acquisitions and financing to the Company. The Company has no obligation to participate. 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 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. 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. 14 PART II: OTHER INFORMATION ITEMS 1-6: ARE NOT APPLICABLE. -------------------------------- 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 ----------------------- Chief Executive Officer Chief Financial Officer 15 GREENBRIAR CORPORATION MARCH 31, 2003 CERTIFICATIONS I, Gene S. Bertcher, Chief Executive Officer and Chief Financial Officer of Greenbriar Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Greenbriar Corporation ("Registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Registrant as of, and for, the periods presented in this annual report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of the Registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /S/ Gene S. Bertcher --------------------------------- Chief Executive Officer Chief Financial Officer May 20, 2002 16