-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nj8Mt/FzSo27xbstrZZqrWxZg6tnAdPQ6jIQRpzy9nlpU9BLEJVsqLm1tU3rY+Cg KBfyfk6/Y5fF0ZNEt06mHw== 0001010549-04-000746.txt : 20041115 0001010549-04-000746.hdr.sgml : 20041115 20041115162830 ACCESSION NUMBER: 0001010549-04-000746 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041115 DATE AS OF CHANGE: 20041115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREENBRIAR CORP CENTRAL INDEX KEY: 0000105744 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 752399477 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08187 FILM NUMBER: 041145650 BUSINESS ADDRESS: STREET 1: 1755 WITTINGTON PLACE STREET 2: SUITE 340 CITY: DALLAS STATE: TX ZIP: 75234 BUSINESS PHONE: 9724078400 MAIL ADDRESS: STREET 1: 1755 WITTINGTON PLACE STREET 2: SUITE 340 CITY: DALLAS STATE: TX ZIP: 75234 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL RESOURCE COMPANIES OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WESPAC INVESTORS TRUST DATE OF NAME CHANGE: 19900605 10-Q 1 green10q093004.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 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 EX-31.1 2 green10qex311093004.txt CERTIFICATION OF CEO UNDER SECTION 302 Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule lSd-14(a) I, Ronald C. Finley, Chief Executive 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 quarterly 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 quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and lSd-15(f) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, 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 report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial data; 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 /S/ Ronald C. Finley ----------------------- Ronald C. Finley Chief Executive Officer November 15, 2004 EX-31.2 3 green10qex312093004.txt CERTIFICATION OF CFO UNDER SECTION 302 Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule lSd-14(a) I, Gene S. Bertcher, 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 quarterly 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 quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and lSd-15(f) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, 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 report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial data; 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 /S/ Gene S. Bertcher ----------------------- Gene S. Bertcher Chief Financial Officer November 15, 2004 EX-32.1 4 green10qex321093004.txt CERTIFICATION OF CEO UNDER SECTION 906 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 In connection with the filing by Greenbriar Corporation (the "Company") of the Quarterly Report on Form 10-Q for the period ending September 30, 2003 (the Report), I, Ronald C. Finley, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) and 5(d) of the Securities Exchange Act of 1934, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of Company. /S/ Ronald C. Finley ----------------------- Ronald C. Finley Chief Executive Officer November 15, 2004 EX-32.2 5 green10qex322093004.txt CERTIFICATION OF CFO UNDER SECTION 906 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 In connection with the filing by Greenbriar Corporation (the "Company") of the Quarterly Report on Form 10-Q for the period ending September 30, 2003 (the Report), I, Gene S. Bertcher, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) and 5(d) of the Securities Exchange Act of 1934, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of Company. /S/ Gene S. Bertcher ----------------------- Gene S. Bertcher Chief Financial Officer November 15, 2004 -----END PRIVACY-ENHANCED MESSAGE-----