##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-QSB (Mark One) x     Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 2004 o     Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from  to . Commission file number 0-18808 Great Western Land and Recreation, Inc. 
  Nevada
    
    13-3530765(State or other jurisdiction
of incorporation or organization)
    
    (IRS Employer Identification No.)
 5115 N. Scottsdale Road, Suite 101
Scottsdale, AZ 85250
(480) 949-6007
(Address and telephone number of principal executive offices) Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x     No o The number of shares of the registrants Common Stock outstanding at April 30,
2004 was 20,885,399. 1




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GREAT WESTERN LAND AND RECREATION, INC. CONTENTS PAGEPart IFinancial InformationItem 1. Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis
    
    
    14Item 3. Controls and Procedures
    
    
    20Part IIOther InformationItem 1. Legal Proceedings
    
    
    21Item 2. Changes in Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits and Reports on Form 8-K
    
    
    21Signatures
    
    
    22EX-31.1EX-31.2EX-32.1EX-32.2
  2




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BUSINESS RISKS AND FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-QSB includes forward-looking statements.
Forward-looking statements are often characterized by the use of words such as
may, believes, plans, will, anticipates, estimates, expects, or
intends or by discussions of strategy, plans or intentions. All
forward-looking statements in this Form 10-QSB are made based on our current
expectations and estimates, which involve risks, uncertainties and other
factors that could cause results to differ materially from those expressed in
forward-looking statements. You are cautioned not to place undue reliance on
any such forward-looking statements. We have no obligation to publicly release
the result of any revisions that may be made to any forward-looking statements
to reflect anticipated or unanticipated events or circumstances occurring after
the date of such statements. Forward-looking statements involve a number of
risks and uncertainties including, but not limited to, general economic
conditions, the cyclical nature of the real estate market, competitive factors,
our ability locate new projects and to finance the acquisition and development
of these projects on acceptable terms, possible delays in bringing our projects
to market, the availability of qualified third-party contractors, our exposure
to changes in interest rates, demand for new housing starts, the availability
of finished lots within a particular area and the cost of compliance with
government regulations. 3




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##### Table of Contents



PART I FINANCIAL INFORMATION 
 Item 1.Financial Statements GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED BALANCE SHEETS March 31,
    
    September 30,2004
    
    2003(unaudited)ASSETSCash and cash equivalents
    
    $
    726,827
    
    
    $
    1,100,844Notes receivable
    
    

    90,550
    
    
    
    70,118Land held for development and sale
    
    
    11,193,678
    
    
    
    9,321,515Receivable from related entities
    
    
    49,454
    
    
    
    68,080Property and equipment, net of accumulated
depreciation of $54,917 and $42,583 at March 31,
2004 and September 30, 2003, respectively
    
    
    187,114
    
    
    
    201,727Other
    
    
    1,289,403
    
    
    
    985,046$
    13,537,026
    
    
    $
    11,747,330LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesNotes payable
    
    $
    5,832,200
    
    
    $
    4,026,588Subordinated debt
    
    
    3,053,073
    
    
    
    3,319,684Payable to related entities
    
    
    877,182
    
    
    
    745,427Accounts payable and other accrued liabilities
    
    
    646,354
    
    
    
    620,586Total liabilities
    
    
    10,408,809
    
    
    
    8,712,285Minority interest
    
    
    31,229
    
    
    
    46,843Stockholders equityPreferred stock, $0.001 par value; 10,000,000 shares authorized;
22,580 and 14,380 shares issued and outstanding at
March 31, 2004 and September 30, 2003 respectively;
liquidation value - $1,546,190 at March 31, 2004
    
    
    1,355,430
    
    
    
    660,409Common stock, $0.001 par value; 30,000,000 shares
authorized; 20,885,399 and 20,785,399 shares issued
and outstanding at March 31, 2004 and
September 30, 2003, respectively
    
    
    20,885
    
    
    
    20,785Additional paid-in capital
    
    
    2,593,758
    
    
    
    2,595,298Accumulated other comprehensive loss
    
    
    (733
    )
    
    
    (733
    )Accumulated deficit
    
    
    (872,352
    )
    
    
    (287,557
    )Total stockholders equity
    
    
    3,096,988
    
    
    
    2,988,202$
    13,537,026
    
    
    $
    11,747,330
 The accompanying notes are an integral part of these consolidated financial statements. 4




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##### Table of Contents



GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) Three months ended March 31,
    
    Six months ended March 31,2004
    
    2003
    
    2004
    
    2003Land and lot sales
    
    $
    520,747
    
    
    $
    694,590
    
    
    $
    809,623
    
    
    $
    1,931,793Cost of land and lot sales
    
    
    215,313
    
    
    
    375,357
    
    
    
    358,617
    
    
    
    866,197Gross profit on sales
    
    
    305,434
    
    
    
    319,233
    
    
    
    451,006
    
    
    
    1,065,596Operating, selling, general and
administrative expense
    
    
    406,903
    
    
    
    516,344
    
    
    
    823,065
    
    
    
    1,085,743(101,469
    )
    
    
    (197,111
    )
    
    
    (372,059
    )
    
    
    (20,147
    )Other income (expense)Interest expense
    
    
    (114,307
    )
    
    
    (178,233
    )
    
    

    (211,739
    )
    
    
    (294,537
    )Interest income
    
    
    2,298
    
    
    
    35,102
    
    
    
    4,397
    
    
    
    47,826Equity in losses of unconsolidated company
    
    
    
    
    
    
    (53,530
    )
    
    
    
    
    
    
    (53,530
    )Gain on settlement of quepasa.com claim
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405,750Other income (expense)
    
    
    838
    
    
    
    (7,363
    )
    
    
    (5,394
    )
    
    
    91,375(111,171
    )
    
    
    (204,024
    )
    
    
    (212,736
    )
    
    
    196,884Earnings (loss) before minority interest
    
    
    (212,640
    )
    
    
    (401,135
    )
    
    
    (584,795
    )
    
    
    176,737Minority interest
    
    
    
    
    
    
    (1,872
    )
    
    
    
    
    
    
    (2,040
    )Net earnings (loss)
    
    
    (212,640
    )
    
    
    (403,007
    )
    
    
    (584,795
    )
    
    
    174,697Less: preferred stock dividends applicable to the
period
    
    
    (11,815
    )
    
    
    (11,815
    )
    
    
    (23,630
    )
    
    
    (23,630
    )Net earnings (loss) available for common stock
    
    $
    (224,455
    )
    
    $
    (414,822
    )
    
    $
    (608,425
    )
    
    $
    151,067Net earnings (loss) per common and common
equivalent shareBasic and diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    0.01Weighted average common and common
equivalent shares outstandingBasic and diluted
    
    
    20,885,399
    
    
    
    20,785,399
    
    
    
    20,869,006
    
    
    
    20,785,399
 The accompanying notes are an integral part of these consolidated financial
statements. 5




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GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE LOSS
(unaudited) AccumulatedPreferred Stock
    
    Common Stock

    
    Additionalpaid-in
    
    othercompre-hensive
    
    Accumulated
    
    Compre-hensiveShares
    
    Amount
    
    Shares
    
    Amount
    
    capital
    
    loss
    
    deficit
    
    lossBalance, September 30, 2003
    
    
    14,380
    
    
    $
    660,409
    
    
    
    20,785,399
    
    
    $
    20,785
    
    
    $
    2,595,298
    
    
    $
    (733
    )
    
    $
    (287,557
    )
    
    $
    Issuance of preferred stock in
exchange for land
    
    
    8,200
    
    
    
    678,581
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of discount on
preferred stock
    
    
    
    
    
    
    16,440
    
    
    
    
    
    
    
    
    
    

    
    (16,440
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock in
exchange for minority
interest and an option to
purchase land
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    100
    
    
    
    14,900
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (584,795
    )
    
    
    (584,795
    )Comprehensive loss for the
six months ended
March 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (584,795
    )Balance, March 31, 2004
    
    
    22,580
    
    
    $
    1,355,430
    
    
    
    20,885,399
    
    
    $
    20,885
    
    
    $
    2,593,758
    
    
    $
    (733
    )
    
    $
    (872,352
    )
 6




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##### Table of Contents



GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Six months ended March 31,2004
    
    2003Cash flows from operating activitiesNet earnings (loss)
    
    $
    (584,795
    )
    
    $
    174,697Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    15,499
    
    
    
    15,367Bad debt expense
    
    
    
    
    
    
    46,175Accrued interest expense included in debt
    
    
    179,389
    
    
    
    403,726Deferred income taxes
    
    
    
    
    
    
    (12,937
    )Accretion of interest income
    
    
    
    
    
    
    (80,671
    )Collection of notes receivable relating to prior years sales
    
    
    1,479
    
    
    
    372,549Uncollected notes receivable from current year sales
    
    
    (21,911
    )
    
    
    (68,346
    )Loss on disposal of property and equipment
    
    
    
    
    
    
    9,756Equity in losses of unconsolidated company
    
    
    
    
    
    
    53,530Gain on settlement of quepasa.com claim
    
    
    
    
    
    
    (405,750
    )Minority interests in earnings of consolidated subsidiaries
    
    
    
    
    
    
    2,040Change in operating assets and liabilities:Land held for development and sale
    
    
    (1,209,196
    )
    
    
    (231,049
    )Other assets
    
    
    (292,522
    )
    
    
    155,788Accounts payable and other accrued liabilities
    
    
    25,768
    
    
    
    151,944Deferred income
    
    
    
    
    
    
    (51,037
    )Net cash provided by (used in) operating activities
    
    
    (1,886,289
    )
    
    
    535,782Cash flows from investing activitiesCollection of receivable from related entities
    
    
    18,626
    
    
    
    4,886Investment in unconsolidated company
    
    
    
    
    
    
    (53,530
    )Purchase of property and equipment
    
    
    (37,721
    )
    
    
    (2,416
    )Proceeds from sales of property and equipment
    
    
    40,000
    
    
    
    Net cash provided by (used in) investing activities
    
    
    20,905
    
    
    
    (51,060
    )Cash flows from financing activitiesIssuance of notes payable
    
    
    2,679,904
    
    
    
    412,888Payments on notes payable
    
    
    (995,869
    )
    
    
    (1,159,808
    )Issuance of note payable to related entities
    
    
    150,000
    
    
    
    Decrease in payable to related entities
    
    
    (18,245
    )
    
    
    (22,162
    )Decrease in subordinated debt
    
    
    (324,423
    )
    
    
    (133,253
    )Net cash provided by (used in) financing activities
    
    
    1,491,367
    
    
    
    (902,335
    )Net decrease in cash and cash equivalents
    
    
    (374,017
    )
    
    
    (417,613
    )Cash and cash equivalents at beginning of period
    
    
    1,100,844
    
    
    
    500,818Cash and cash equivalents at end of period
    
    $
    726,827
    
    
    $
    83,205Supplemental disclosure of cash flow information:Cash paid during the period for interest, net of amount capitalized
    
    $
    10,599
    
    
    $
    94,456Noncash investing and financing activitiesAccrued interest capitalized included in debt
    
    
    57,528
    
    
    
    14,178Transfer of Wagon Bow ranch land in exchange for minority interest in
Houston Warren Ranch LLC
    
    
    15,614
    
    
    
    Transfer of Wagon Bow ranch land in exchange for minority interest in Willow
Springs Ranch, LLC and a reduction in the payable to minority investors
    
    
    
    
    
    
    134,962Preferred stock issued in exchange for land in Houston, Texas
    
    
    678,581
    
    
    
    Common stock issued in exchange for 47.5% minority interest in Firebird
Financial, LLC and an option to purchase land
    
    
    15,000
    
    
    
    Offset of note payable for quepasa.com claim
    
    
    
    
    
    
    405,750
 The accompanying notes are an integral part of these consolidated financial
statements. 7




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##### Table of Contents



GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) NOTE A  BACKGROUND AND BASIS OF PRESENTATION The accompanying consolidated financial statements as of March 31, 2004 and
September 30, 2003 and for the three month and six month periods ended March
31, 2004 and 2003 include the accounts of Great Western Land and Recreation,
Inc. (formerly 1st Realty Investments, Inc.) and its wholly- and majority-owned
subsidiaries (collectively, the Company). Investments in companies that
represent 20% to 50% of the ownership interest are accounted for on the equity
method. Investments in companies that represent less than a 20% ownership
interest are accounted for on the cost basis. All material intercompany
accounts and transactions have been eliminated. The Company is engaged principally in the acquisition, development and sale of
land located in Houston and College Station Texas, Phoenix and Glendale,
Arizona and certain country areas of New Mexico and Arizona. Transactions
include both retail and nonretail land sales, depending upon the progress of
the development and sub-division process. On July 23, 2002, the Company entered into an Agreement and Plan of Merger (the
Merger Agreement or the Agreement) with Great Western Land and Recreation,
Inc., a Delaware corporation (Great Western Delaware). Under the Merger
Agreement, the Company agreed to undertake a series of transactions the result
of was the transfer of control of the Company to Amortibanc Investments, LC,
(Amortibanc), the stockholder of Great Western Delaware, and the merger of
Great Western Delaware into the Company (the Merger). The Company was the
surviving entity. The transaction also involved the election of new directors
of the Company and the amendment of the Companys Articles of Incorporation to
change its name to Great Western Land and Recreation, Inc. The Board of
Directors of the Company unanimously approved the Merger Agreement and the
other transactions to be undertaken and the holders of a majority of the
outstanding stock of the Company approved the transactions in writing on July
25, 2002. On July 23, 2002 the stockholder of Great Western Delaware consented
in writing to the Merger Agreement transactions. Under applicable Nevada law,
written consent by the holders of a majority of the outstanding stock of the
Company to the transactions outlined in the Agreement was sufficient to approve
the transactions, without a meeting or vote of all of the stockholders. This
transaction became effective on February 20, 2003. Immediately following the
merger, former 1st Realty stockholders owned approximately 9% of the Company
and Amortibanc owned approximately 91% of the Company (94% assuming the
conversion of the Series A preferred stock into common stock). The Company expects that the Merger will be treated as a tax-free
reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986,
as amended. If the Merger qualifies as a tax-free reorganization, no gain or
loss will be recognized for income tax purposes by either the Company or Great
Western Delaware as a result of the acquisition. There also should not be any
material tax effects to the existing stockholders of the Company as a result of
the transaction. However, neither the Company nor Great Western Delaware
requested a tax ruling from the Internal Revenue Service with respect to the
transaction. Accordingly, the Company can give no assurance that the
transaction will qualify as a tax-free reorganization. The Company has
accounted for its acquisition of Great Western Delaware as a reverse
acquisition, with Great Western Delaware the acquirer and the Company the
acquiree for reporting purposes. Prior to September 2000,
1st Realty was a
dormant non-operating company. Its operations up to the date of the Merger
were solely the result of the series of transactions it entered into with Great
Western Delaware. As a result, the assets and liabilities of both companies
have been combined at their historical cost. The accompanying financial
statements and notes are presented as if the Merger were consummated on October
1, 2002. The accompanying unaudited financial information reflects all adjustments,
consisting only of normal recurring adjustments, that are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. Such financial information should be read in conjunction
with the consolidated financial statements and related notes as of September
30, 2003 included in Form 10-KSB filed with the SEC on December 29, 2003. The Company maintains its records and prepares its financial statements in
accordance with accounting principles generally accepted in the United States
of America for real estate operations. In preparing financial statements in
conformity with accounting principles generally accepted in the United States
of America, management is responsible for making estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. 8




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NOTE B  NET EARNINGS (LOSS) PER SHARE Basic net earnings (loss) per share is computed by dividing net earnings (loss)
less preferred stock dividends applicable to the period by the weighted average
common shares outstanding during the period. The 20,785,399 common shares
issued and outstanding upon the completion of the Merger are assumed to be
outstanding for the three month and six month periods ended March 31, 2003.
Diluted net earnings (loss) per share is the same as basic earnings (loss) per
share because the convertible preferred stock and the stock options are either
anti-dilutive or have no impact and therefore are excluded from the
computation. NOTE C  INVESTMENT IN UNCONSOLIDATED COMPANY On September 19, 1997, Laguna Investments L.L.C. (Laguna Investments), a
subsidiary of the Company, acquired a 25.52% ownership in Laguna at Arrowhead
Apartments L.L.C. (Laguna), which owns an apartment complex in Phoenix,
Arizona. On December 30, 2002, the Company sold a 7.1% interest in Laguna
Investments to Lafayette Financial Services (Lafayette) for $35,500 in
partial payment of a note payable to Lafayette. Lafayette is 50% owned by the
Chairman of the Companys Board of Directors. On September 29, 2003, the
Company sold an additional 6.37% interest in Laguna Investments to Lafayette
for $31,855, also in partial payment of the note payable to Lafayette. On
September 29, 2003, the Company also sold a 3.0% interest in Laguna Investments
to Torok Partners, LLC for $15,000 in exchange for Torok Partners minority
interest in one of the Companys projects. Torok Partners is controlled by the
Chairman of the Companys Board of Directors. As a result of these
transactions, at March 31, 2004 the Company owns 83.53% of Laguna Investments,
which represents a 21.32% interest in Laguna. This investment in Laguna is accounted for using the equity method. Under the
equity method, the Companys investment balance approximates the Companys
original cost adjusted for its equity interest in the earnings and losses of
Laguna since the date of acquisition. At March 31, 2004 the Companys
investment balance in Laguna was $-0-. Under the terms of the Laguna at
Arrowhead Apartments L.L.C. operating agreement, Laguna Investments L.L.C. is
subject to additional capital calls in connection with its ownership interest
in Laguna. A capital call for $53,530 was paid in fiscal 2003. Had Laguna
Investments L.L.C. failed to make the required payment, its ownership interest
would have been reduced from 25.52% to 24.14%. As a result of this payment,
unrecognized equity losses from prior periods were recorded in fiscal 2003 to
the extent of the capital call. Unrecognized losses from Laguna as of March
31, 2004 total $247,281. Summarized unaudited financial information for Laguna is as follows: March 31,2004Current assets
    
    $
    50,681Noncurrent assets
    
    
    8,159,283Total assets
    
    $
    8,209,964Current liabilities
    
    $
    165,845Noncurrent liabilities
    
    
    9,188,502Members capital
    
    
    (1,144,383
    )$
    8,209,964
 For the three months ended
    
    For the six months endedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    350,425
    
    
    $
    397,853
    
    
    $
    713,422
    
    
    $
    767,332Net loss from continuing
operations and net loss
    
    
    (158,363
    )
    
    
    (160,912
    )
    
    
    (280,494

    )
    
    
    (309,824
    )
 9




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NOTE D  RELATED ENTITIES Related entity receivables/payables are as follows: March 31,
    
    September 30,2004
    
    2003Receivable from related entitiesManagement Pool, LLC
    
    $
    20,238
    
    
    $
    43,244Minority investor in Houston Warren Ranch Partners, LLC (1)
    
    
    17,375
    
    
    
    16,625Other
    
    
    11,841
    
    
    
    8,211$
    49,454
    
    
    $
    68,080Payable to related entitiesMinority investors in Glendale Condominiums, LLC (2)
    
    $
    727,182
    
    
    $
    710,885Minority investors in Villa Maria, LLC (3)
    
    
    150,000
    
    
    
    Lafayette Financial Services (4)
    
    
    
    
    
    
    34,542$
    877,182
    
    
    $
    745,427
  (1)
    
    The Company has a 70% interest in Houston Warren Ranch Partners, LLC,
with Jessica Star Partners, LLC owning the remaining 30%. Jessica Star
Partners, LLC is 50% owned by the Chairman of the Companys Board of
Directors. The note receivable bears interest at 10%, with principal
and interest due on September 24, 2004.(2)
    
    The Company has a 70% interest in Glendale Condominiums, LLC. The
land for the project was purchased from an individual and a trust who
own the other 30% of the project. The payable represents the balance
due, including interest at 8% per annum, for this purchase. Principal
and interest are due quarterly from September 2008 through September
2018. The land cost and preliminary development costs for this project
total $2,988,236 and $2,379,178 at March 31, 2004 and September 30,
2003, respectively, and are included in land held for development and
sale in Arizona properties.(3)
    
    The Company has an 82.5% interest in Villa Maria, LLC, which plans to
construct a townhome project in College Station, Texas. The remaining
17.5% is owned by minority investors, consisting of the three members of
the Companys Board of Directors. The payable represents the balance
due to these investors. Interest on this balance accrues at 10% per
annum, with principal and interest due at the end of the
project. The purchase of the land for this project was completed on
April 1, 2004.(4)
    
    Lafayette Financial Services is 50% owned by the Chairman of the
Companys Board of Directors. This note resulted from the purchase of
certain real estate options by the Company in 1999. The note bears
interest at prime and is payable in semi-annual installments of $15,760
plus interest. The note was paid in full in October 2003. NOTE E  DEPOSITS Effective July 8, 2003, in exchange for a $650,000 note payable, the Company
acquired land in Stafford, Texas for $125,000 and also agreed to become general
partner and to acquire a 34% interest in #22 Stafford Springs LTD (Stafford
Springs) for $525,000. Stafford Springs owns the Summer Park Duplexes, a
168-unit, HUD-financed, manufactured housing duplex rental community in
Stafford, Texas. The $525,000 paid for Stafford Springs has been accounted for
as a deposit pending receipt of final approval of this transaction by HUD, and
is included in Other Assets in the accompanying consolidated balance sheet. As
of March 31, 2004, HUD approval had not yet been received. The Chairman of the
Companys Board of Directors also owns 33% of Stafford Springs. NOTE F  SUBORDINATED DEBT The Companys operations have been partially financed with periodic advances in
prior years from Amortibanc. The advances are subordinate to the Companys bank
financing and bear interest at 4% to 10%. The interest accrued on these
advances has primarily been added to the subordinated debt. Payments on the
debt are made only when cash flow from a land sale, after payment of bank 10




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##### Table of Contents



debt, exceeds the Companys operating cash requirements. This determination is
made by the Companys management. On October 31, 2003, the Company made a
payment of $378,587. The total advances and accrued interest due are
$3,053,073 and $3,319,684 at March 31, 2004 and September 30, 2003
respectively. NOTE G  COMMITMENTS AND CONTINGENCIES The Company sold notes receivable with repayment terms of up to 15 years, with
recourse upon nonpayment by the debtor of $212,588 and $291,717 during the six
months ended March 31, 2004 and 2003, respectively. The remaining balances
due, with recourse, of all notes sold are $1,361,232 and $1,157,023 as of March
31, 2004 and September 30, 2003 respectively. In certain instances, 15% of the note sales proceeds are retained by the
purchaser of the notes as a nonpayment reserve and returned to the Company when
the original land purchasers pay off the note balances. The reserve balance is
$245,909 and $200,330 at March 31, 2004 and September 30, 2003, respectively
and is included in other assets, net of an allowance established for recourse
chargeback of $27,608 at March 31, 2004 and September 30, 2003. When the
Company incurs a chargeback, ownership of the original land sold reverts to the
Company and can be resold to help recover any losses incurred by the Company as
a result of the chargeback. The Company did not receive any chargebacks during
the six months ended March 31, 2004. During the six months ended March 31,
2003, the Company was notified of two chargebacks, totaling $61,600. From time to time the Company is involved in a variety of legal matters that
arise in the normal course of business. Based on information currently
available, management does not believe that the ultimate resolution of any such
matters will have a material adverse effect on the Companys financial
condition, results of operations or cash flow. The Company entered into a five-year employment agreement with its president
during 2001. In the event the Company consummates an acquisition (as defined in
the agreement) during the terms of the agreement, the contract provides for
salary increases and issuance of options to acquire a total of 600,000 common
shares of the surviving corporation at a price not to exceed the fair market
value of such shares on the closing date of the acquisition. The agreement also
provides for severance payments upon termination in the amount of the total
compensation for the remainder of the contract terms and a consulting
arrangement upon retirement of the president. NOTE H  PREFERRED STOCK The Company has authorized three series of preferred stock: Series A Cumulative
Convertible Preferred Stock ( Series A Preferred), Series B Cumulative
Convertible Preferred Stock (Series B Preferred) and Series C Cumulative
Convertible Preferred Stock (Series C Preferred). As of March 31, 2004,
there are 14,380 shares of Series A Preferred and 8,200 shares of Series C
Preferred issued and outstanding. As of March 31, 2004, no shares of Series B
Preferred have been issued. Series A Preferred Stock Effective June 28, 2002, the company issued 14,380 shares of Series A Preferred
with a liquidation value of $719,000. The Series A Preferred is senior to the
Series B Preferred and to the Series C Preferred, and is not redeemable at a
fixed or determinable price on a fixed or determinable date or upon the
occurrence of any event that is not solely within the Companys control. It is
convertible by the holder at any time into shares of the Companys common stock
at a price equal to the average market price of the Companys common stock for
the thirty business days immediately preceding the conversion, and is
redeemable by the Company at any time after one year from the date of issuance.
The Series A Preferred has a cumulative dividend, payable semi-annually at the
following rates: First year from the date of issuance
    
    0% per annumSecond year from the date of issuance
    
    2% per annumThird year from the date of issuance
    
    4% per annumFourth year from the date of issuance
    
    5% per annumFifth year from the date of issuance
    
    6% per annumThereafter
    
    7% per annum
 As the Series A Preferred has an increasing dividend rate, it was initially
recorded at its fair value at the date of its issuance by discounting the
preferred stock using managements estimate of the current market rate for
dividend yields and comparing it to the actual dividend rate of the stock.
This resulted in a discount of $114,071, which is being amortized to additional
paid-in capital over the period of increasing dividend rates of the stock. The
balance of the Series A Preferred (net of unamortized discount) was $676,849 11




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##### Table of Contents



and $660,409 at March 31, 2004 and September 30, 2003, respectively. At March
31, 2004, dividends in arrears totaled $7,190, or $0.50 per share. Series C Preferred Stock Effective March 31, 2004, the company issued 8,200 shares of Series C Preferred
with a liquidation value of $820,000. The Series C Preferred ranks junior to
the Series A Preferred and to the Series B Preferred, and is not redeemable at
a fixed or determinable price on a fixed or determinable date or upon the
occurrence of any event that is not solely within the Companys control. It is
convertible by the holder at any time into shares of the Companys common stock
at the following prices: First year from the date of issuance
    
    $1.00 per share of common stockSecond through fourth years from the
date of issuance
    
    $2.00 per share of common stockThereafter
    
    $3.50 per share of common stock
 The Series C Preferred is redeemable by the Company at any time after five
years from the date of issuance. It has a cumulative dividend, payable in cash
semi-annually at the following rates: First year from the date of issuance
    
    1% per annumSecond year from the date of issuance
    
    2% per annumThird year from the date of issuance
    
    3% per annumFourth year from the date of issuance
    
    4% per annumFifth year from the date of issuance
    
    5% per annumThereafter
    
    7% per annum
 As the Series C Preferred has an increasing dividend rate, it was initially
recorded at its fair value at the date of its issuance by discounting the
preferred stock using managements estimate of the current market rate for
dividend yields and comparing it to the actual dividend rate of the stock.
This resulted in a discount of $141,419, which is being amortized to
accumulated deficit over the period of increasing dividend rates of the stock.
The balance of the Series C Preferred was $678,581 at March 31, 2004. NOTE I  COMMON STOCK On October 30, 2003, the Company issued 100,000 shares of common stock in
exchange for the 47.5% minority interest in Firebird Financial, LLC, one of the
Companys subsidiaries, and for an option to purchase 80 acres of land in
Yavapai County, Arizona. NOTE J  STOCK OPTION PLAN The Company has established a 2001 stock option plan and has reserved 3,500,000
shares to be issued under the plan. All employees are eligible to participate
in this plan and participants shall be selected by an Administrative Committee
consisting of not less than three members of the Companys Board of Directors.
The options generally vest over a period of 3 years, however certain options
granted to employees who have been with the Company for over five years vest
immediately. The options expire no more than 10 years from the date of grant.
Upon termination of an option holders employment, all unvested options will
immediately terminate and vested options will generally remain exercisable for
a period of three months after date of termination (one year in case of
disability or death). The options issued in 2002 and 2003 were issued at an
exercise price of $0.15 per share, which approximated the fair market value of
the Companys common stock on the date of issuance. Since no public market
existed for the Companys common stock at that time, fair market value was
determined by the Board of Directors. At March 31, 2004 options for 1,506,250
shares of common stock were available for issuance under the plan. The Company accounts for this plan under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employeesand
related Interpretations using the intrinsic value based method. No stock-based
employee compensation cost is reflected in net earnings, as all options granted
under this plan had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net earnings and earnings per share if the Company had applied
the fair value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation for the three
month and six month periods ended March 31, 2004 and 2003.  12




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##### Table of Contents



Three months ended March 31,
    
    Six months ended March 31,2004
    
    2003
    
    2004
    
    2003Net earnings
(loss) available for common stock, as reported
    
    $
    (224,455
    )
    
    $
    (414,822
    )
    
    $
    (608,425
    )
    
    $
    151,067Deduct: Total stock-based employee
compensation expense determined
under fair value based method (1)
    
    
    (2,313
    )
    
    
    (1,975
    )
    
    
    (4,992
    )
    
    
    (3,107
    )Pro forma net earnings (loss)
    
    $
    (226,768
    )
    
    $
    (416,797
    )
    
    $
    (613,417
    )
    
    $
    147.960Net earnings (loss) per share:Basic and diluted - as
reported
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    0.01Basic and diluted - pro forma
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    0.01
  (1)
    
    The fair value method amortizes the estimated fair value of the options
at date of grant over the vesting period. The fair value of these options
was estimated at the date of grant assuming a risk-free interest rate of
4.88%, an expected option life of 10 years with no volatility or
dividends. The expected option life is based on all options being
exercised just prior to expiration. NOTE K SETTLEMENT OF QUEPASA.COM CLAIM The Company entered into a merger agreement with quepasa.com as of August 6,
2001. In October 2001, in order to induce the Company to amend and extend the
original merger agreement, quepasa.com loaned the Company $500,000 (the
loan). In February 2002, the merger agreement was terminated. The merger
agreement provided for a termination fee of $500,000 as liquidated damages
under certain circumstances. The Company believed that it was entitled to this
termination fee, which would result in the loan being deemed paid in full and
filed a declaratory judgment action against quepasa.com on that issue.
Quepasa.com filed a counterclaim, alleging that it was entitled to the
termination fee and seeking to foreclose on the loan. This lawsuit was settled
in October 2002. Under the terms of the settlement, the Company retained the
termination fee, which resulted in the loan being deemed paid in full, in
exchange for a payment by the Company to quepasa.com of $50,000 and the
transfer to quepasa.com of 642,000 shares of quepasa.com common stock with a
market value of $44,250. The net result was that the Company recognized a gain
on the settlement of the claim against quepasa.com of $405,750 during the six
months ended March 31, 2003. NOTE L  RELATED PARTY TRANSACTIONS In December 2003, the three members of the Companys Board of Directors
invested a total of $150,000 in the form of a subordinated payable in exchange
for a 17.5% minority interest in Villa Maria, LLC. The Company currently owns
the remaining 82.5% of Villa Maria, LLC, however additional minority investors
may be added in the future. Villa Maria, LLC plans to construct Woodland
Court, a planned 43-unit townhome project located in College Station, Texas.
The purchase of the land for this project was completed on April 1, 2004.
Interest on the $150,000 balance accrues at 10% per annum, with
principal and interest due at the end of the project (see Note D). NOTE M  SALE OF WILLOW SPRINGS RANCH On January 9, 2004, the Companys Board of Directors approved an agreement to
sell the Willow Springs Ranch near Socorro, New Mexico for $125 per acre, or a
total of approximately $5.0 million. Payment will consist of cash, assumption
of debt and a note receivable, with the buyer entitled to a discount of up to
3% of the purchase price in exchange for an early payoff of the note
receivable. The buyer has an inspection period ending on June 21, 2004, during
which time the buyer may elect to terminate the agreement if the buyer makes a
determination that the property is not acceptable, for any reason in the
buyers sole discretion. If the buyer makes such a determination, the buyer
will be entitled to a refund of all funds it has placed in escrow. At March
31, 2004, the carrying value of the Willow Springs Ranch was approximately $4.1
million. 13




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##### Table of Contents



Item 2.Managements Discussion and Analysis The following discussion includes forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from the results
contemplated by these forward-looking statements due to certain factors,
including those discussed below, elsewhere in this Form 10-QSB and in the
Companys other filings with the SEC. Overview Great Western Land and Recreation, Inc. (formerly 1st Realty Investments, Inc.)
(we or the Company) is incorporated in the state of Nevada. On July 23,
2002, we entered into an Agreement and Plan of Merger (the Merger Agreement
or the Agreement) with Great Western Land and Recreation, Inc. a Delaware
corporation (Great Western Delaware). Under the Merger Agreement, we agreed
to undertake a series of transactions the result of which was the transfer of
control of the Company to Amortibanc Investments, LC (Amortibanc), the
stockholder of Great Western Delaware, and the merger of Great Western Delaware
into the Company. We were the surviving entity. Immediately following the
merger, former 1st Realty stockholders owned approximately 9% of the Company
and Amortibanc owned approximately 91% of the Company (94% assuming the
conversion of the Series A preferred stock into common stock). We have accounted for our acquisition of Great Western Delaware as a reverse
acquisition, with Great Western Delaware the acquirer and 1st Realty the
acquiree for reporting purposes. Prior to September 2000, we were a dormant
non-operating company. Our current operations are solely the result of the
series of transactions we entered into with Great Western Delaware. As a
result, the assets and liabilities of both companies have been combined at
their historical cost. The accompanying discussion and analysis is presented
as if the Merger was consummated on October 1, 2002. We acquire, develop, market, sell and finance residential and recreational
property in the southwestern United States, with over 48,000 acres in various
stages of development. Our properties are located in Houston and College
Station Texas, Phoenix and Glendale Arizona and certain country areas of New
Mexico and Arizona, and consist of a variety of lifestyle choices including
townhomes and condominiums for first-time homebuyers, vacant lots for
commercial homebuilders and ranch lots for those seeking recreational and
investment properties. Over the years, we have developed a number of
subdivision projects in the Houston area, with additional subdivision projects
currently in various stages of development. Subdivided residential lots are
marketed principally to builders seeking to build homes in quality residential
settings in the low- to mid-price range. Our ranch properties are marketed to
purchasers seeking a long-term investment in up-scale vacant ranch land, with
occasional bulk sales also occurring. In addition, we engage in ranching and
agricultural activities on some of our properties until the properties are
either developed or sold. These activities include the planting of tree farms,
the ownership of a modest cattle herd on one of our ranches and the leasing of
another ranch property for cattle grazing. As an additional marketing incentive
to customers for our recreational land, we offer financing on individual
purchases of ranch lots. The majority of these loans are then sold to third
parties. On January 9, 2004, our Board of Directors approved an agreement to sell the
Willow Springs Ranch near Socorro, New Mexico for $125 per acre, or a total of
approximately $5.0 million. Payment will consist of cash, assumption of debt
and a note receivable, with the buyer entitled to a discount of up to 3% of the
purchase price in exchange for an early payoff of the note receivable. The
buyer has an Inspection Period ending on June 21, 2004, during which time the buyer
may elect to terminate the agreement if the buyer makes a determination that
the property is not acceptable, for any reason in the buyers sole discretion.
If the buyer makes such a determination, the buyer will be entitled to a refund
of all funds it has placed in escrow. Results of Operations Three months ended March 31, 2004 (second quarter of fiscal 2004) compared to
the three months ended March 31, 2003 (second quarter of fiscal 2003) Land and lot sales.Land and lot sales decreased $173,843 or 25% to $520,747 in
the second quarter of fiscal 2004 from $694,590 in the second quarter of fiscal
2003. This decrease was the result of decreases in residential lot sales of
$444,362 partially offset by increases in ranch land sales of $270,519. All of
the land and lot sales during the second quarter of fiscal 2004 were ranch land
sales. The decline in residential lot sales reflects the fact that our current
projects in Houston are nearing completion. The Wheatstone and Wheatstone III
subdivisions were completed and sold out during fiscal 2003. We expect the
Coventry subdivision to be sold out early in fiscal 2005. However, we expect
Woodland Court, a planned 43-unit townhome project located in College Station,
Texas, to begin generating revenue in the fall of 2004. In addition, Mallard
Crossing (formerly known as Warren Ranch), a new residential development in the
Houston metro area, is expected to begin generating revenue in fiscal 2005. 14




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##### Table of Contents



The increases in ranch land sales occurred at both the Wagon Bow Ranch, near
Wikieup, Arizona and at the Willow Springs Ranch, near Socorro, New Mexico.
However, during the second quarter of fiscal 2004, approximately 84% of our
ranch land sales were generated at the Wagon Bow Ranch, with the remaining 16%
coming from the Willow Springs Ranch. Gross margins are also significantly
higher at the Wagon Bow Ranch due to higher average per-acre selling prices.
As a result of continued lower than expected sales at the Willow Springs Ranch,
we have decided to sell the entire ranch and focus our ranch land sales efforts
on the Wagon Bow Ranch. As discussed more fully in Liquidity and Capital
Resources below, on January 9, 2004, our Board of Directors approved an
agreement to sell the Willow Spring Ranch for $125 per acre, or a total of
approximately $5.0 million. The sale of the Willow Springs Ranch will allow us
to better focus our resources on improving our marketing programs and the
quality of our sales force at the Wagon Bow Ranch. We believe that these
efforts, along with an improvement in the economy, will lead to increased ranch
land sales at the Wagon Bow Ranch. Our land and lot sales are affected by numerous factors including mortgage
interest rates, demand for new housing starts and the availability of finished
lots within a particular area. Generally, the pace of sales and the price per
lot increase over the life of a project as developments gain popularity and as
contract price escalators become effective. Cost of land and lot sales.Cost of land and lot sales decreased $160,044, or
43%, to $215,313 in the second quarter of fiscal 2004 from $375,357 in the
second quarter of fiscal 2003. As a percentage of land and lot sales, the cost
of land and lot sales decreased to 41% in the second quarter of fiscal 2004
from 54% in the second quarter of fiscal 2003. This was primarily due to a
change in the mix of sales from primarily residential lot sales during the
second quarter of fiscal 2003 to 100% ranch land sales during the second
quarter of fiscal 2004. Ranch land sales historically have had significantly
higher gross margins than residential lot sales. In addition, gross margins at
the Wagon Bow Ranch during the second quarter of fiscal 2004 were higher than
during the second quarter of fiscal 2003. Operating, selling, general and administrative expenses.Operating, selling,
general and administrative expenses decreased $109,441, or 21%, to $406,903 in
the second quarter of fiscal 2004 from $516,344 in the second quarter of fiscal
2003. The decrease was primarily due to decreases in professional fees of
$43,054, salaries of $35,423, printing and reproduction of $30,189 and taxes of
$17,299, partially offset by a $19,132 increase in insurance costs.
Professional fees and printing and reproduction costs were unusually high in
the second quarter of fiscal 2003 due to activity related to Great Western
Delawares merger with 1st Realty. Salaries decreased due to lower staffing
levels this year. Taxes decreased due to lower property and franchise tax
liabilities associated with our Houston projects. The increase in insurance
costs was due to our instituting director and officer liability coverage this
year as well as slightly higher property and liability insurance premiums. Interest expense.Interest expense decreased $63,926 or 36% to $114,307 in the
second quarter of fiscal 2004 from $178,233 in the second quarter of fiscal
2003. The decrease is due to lower average outstanding balances on our loans
due to the repayment of principal as lots are sold. Interest income.Interest income decreased $32,804 to $2,298 in the second
quarter of fiscal 2004 from $35,102 in the second quarter of fiscal 2003 due to
lower outstanding balances on notes receivable. Other income (expense).Other income was $838 in the second quarter of fiscal
2004 compared to other expense of $7,363 in the second quarter of fiscal 2003. Net loss.Net loss was $212,640 in the second quarter of fiscal 2004 compared
to a loss of $403,007 the second quarter of fiscal 2003. This improvement is
primarily due to a $109,441 decrease in operating expenses and a $63,926
decrease in interest expense. Six months ended March 31, 2004 (first six months of fiscal 2004) compared to
the six months ended March 31, 2003 (first six months of fiscal 2003) Land and lot sales.Land and lot sales decreased $1,122,170 or 58% to $809,623
in the first six months of fiscal 2004 from $1,931,793 in the first six months
of fiscal 2003. This decrease was the result of decreases in residential lot
sales of $897,344 and a decrease in ranch land sales of $224,826. The decline
in residential lot sales reflects the fact that our current projects in Houston
are nearing completion. The Wheatstone and Wheatstone III subdivisions were
completed and sold out during fiscal 2003. We expect the Coventry subdivision
to be sold out early in fiscal 2005. However, we expect Woodland Court, a
planned 43-unit townhome project located in College Station, Texas, to begin
generating revenue in the fall of 2004. In addition, Mallard Crossing
(formerly known as Warren Ranch), a new residential development in the Houston
metro area, is expected to begin generating revenue in fiscal 2005. 15




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##### Table of Contents



The decrease in ranch land sales is primarily due to a $400,000 bulk sale that
occurred during the first six months of fiscal 2003. There were no such bulk
sales in the first six months of fiscal 2004. Excluding the bulk sale, ranch
land sales increased at both the Wagon Bow Ranch, near Wikieup, Arizona and at
the Willow Springs Ranch, near Socorro, New Mexico. However, during the first
six months of fiscal 2004, approximately 83% of our ranch land sales were
generated at the Wagon Bow Ranch, with the remaining 17% coming from the Willow
Springs Ranch. Gross margins are also significantly higher at the Wagon Bow
Ranch due to higher average per-acre selling prices. As a result of continued
lower than expected sales at the Willow Springs Ranch, we have decided to sell
the entire ranch and focus our ranch land sales efforts on the Wagon Bow Ranch.
As discussed more fully in Liquidity and Capital Resources below, on January
9, 2004, our Board of Directors approved an agreement to sell the Willow Spring
Ranch for $125 per acre, or a total of approximately $5.0 million. The sale of
the Willow Springs Ranch will allow us to better focus our resources on
improving our marketing programs and the quality of our sales force at the
Wagon Bow Ranch. We believe that these efforts, along with an improvement in
the economy, will lead to increased ranch land sales at the Wagon Bow Ranch. Our land and lot sales are affected by numerous factors including mortgage
interest rates, demand for new housing starts and the availability of finished
lots within a particular area. Generally, the pace of sales and the price per
lot increase over the life of a project as developments gain popularity and as
contract price escalators become effective. Cost of land and lot sales.Cost of land and lot sales decreased $507,580, or
59%, to $358,617 in the first six months of fiscal 2004 from $866,197 in the
first six months of fiscal 2003. As a percentage of land and lot sales, the
cost of land and lot sales decreased slightly, to 44% in the first six months
of fiscal 2004 from 45% in the first six months of fiscal 2003. This was
primarily due to a change in the mix of sales, with a higher percentage of our
sales coming from ranch land sales during the first six months of fiscal
compared to the first six months of fiscal 2003. Ranch land sales historically
have had significantly higher gross margins than residential lot sales. This
was offset by a decrease in gross margins on residential lot sales due to the
completion of the Wheatstone and Wheatstone II subdivisions, which generated
higher gross margins than the Coventry subdivision which is still active. Operating, selling, general and administrative expenses.Operating, selling,
general and administrative expenses decreased $262,678, or 24%, to $823,065 in
the first six months of fiscal 2004 from $1,085,743 in the first six months of
fiscal 2003. The decrease was primarily due to decreases in professional fees
of $124,857, taxes of $51,630, bad debt expense of $46,175 and printing and
reproduction of $28,755, partially offset by a $31,891 increase in insurance
costs. Professional fees and printing and reproduction costs were unusually
high in the first six months of fiscal 2003 due to activity related to Great
Western Delawares merger with 1st Realty. Taxes decreased due to lower
property and franchise tax liabilities associated with our Houston projects.
Bad debt expense in the first six months of fiscal 2003 was unusually high due
to the write-off of notes receivable carried by 1st Realty prior to the Merger.
The increase in insurance costs was due to our instituting director and
officer liability coverage this year as well as slightly higher property and
liability insurance premiums.. Interest expense.Interest expense decreased $82,798 or 28% to $211,739 in the
first six months of fiscal 2004 from $294,537 in the first six months of fiscal
2003. The decrease is due to lower average outstanding balances on our loans
due to the repayment of principal as lots are sold. Interest income.Interest income decreased $43,429 to $4,397 in the first six
months of fiscal 2004 from $47,826 in the first six months of fiscal 2003 due
to lower outstanding balances on notes receivable. Gain on settlement of quepasa.com claim.We entered into a merger agreement
with quepasa.com as of August 6, 2001. In October 2001, quepasa.com loaned us
$500,000 (the loan). In February 2002, the merger agreement was terminated.
The merger agreement provided for a termination fee of $500,000 as liquidated
damages under certain circumstances. Under the terms of our settlement with
quepasa.com, we retained the termination fee, which resulted in the loan being
deemed paid in full, in exchange for a payment to quepasa.com of $50,000 and
the transfer to quepasa.com of 642,000 shares of quepasa.com common stock with
a market value of $44,250. The net result was that we recognized a gain on the
settlement of the claim against quepasa.com of $405,750 during the first six
months of fiscal 2003. Other income (expense).Other expense was $5,394 in the first six months of
fiscal 2004 compared to other income of $91,375 in the first six months of
fiscal 2003. Other income in the first six months of fiscal 2003 included a
$32,000 gain on the sale of two notes receivable and a $28,817 gain on the sale
of a 7.1% interest in Laguna Investments L.L.C. to Lafayette Financial Services
(Lafayette) in partial payment of a note payable to Lafayette. Net earnings (loss).Net loss was $584,795 in the first six months of fiscal
2004 compared to net earnings of $174,697 the first six months of fiscal 2003.
This decrease is primarily due to a $614,590 decrease in gross profit due to
lower land sales and a $405,750 decrease in gain on settlement of quepasa.com
claim, partially offset by a $262,678 decrease in operating expenses. 16




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##### Table of Contents



Liquidity and Capital Resources In this section of the management discussion and analysis segment, we are going
to discuss:  
    
    sources and uses of cash, and significant factors that influence both;
    
    our analysis of our cash flows for the first six months of fiscal 2004; and
    
    our commitments and contractual obligations. All of these factors are important to obtain an understanding of our ability to
meet our current obligations, to fund working capital, to finance the
acquisition and development of new projects and to pay down existing debt. Sources and uses of cash. We require cash to fund our operating expenses, to
finance the acquisition and development of new projects and to pay debt
service. Our principal sources of liquidity are cash on hand, cash generated
from land and lot sales, cash generated from bulk land sales, collections on
notes receivable, refinancings and funds from external borrowings. We may also
raise additional funding through future equity offerings, subject to market
conditions. We believe that the key factors that could affect sources of cash include:  
    
    factors that affect our results of operations and cash flows,
including reduced demand for land resulting from the economic slowdown,
competitive pricing pressures; and
    
    factors that affect our access to bank financing that could impair
our ability to obtain needed financing on acceptable terms to finance
the acquisition and development of new projects. Analysis of cash flows.Cash flow information for the six months ended March
31, 2004 and 2003 follows: Six months ended March 31,2004
    
    2003Cash flows from operating activitiesNet earnings (loss)
    
    $
    (584,795
    )
    
    $
    174,697Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities
    
    
    174,456
    
    
    
    335,439Change in assets and liabilities
    
    
    (1,475,950
    )
    
    
    25,646Net cash provided by (used in) operating activities
    
    
    (1,886,289
    )
    
    
    535,782Cash flows from investing activitiesCollection of receivable from related entities
    
    
    18,626
    
    
    
    4,886Investment in unconsolidated company
    
    
    
    
    
    
    (53,530
    )Purchase of property and equipment
    
    
    (37,721
    )
    
    
    (2,416
    )Proceeds from sales of property and equipment
    
    
    40,000
    
    
    
    Net cash provided by (used in) investing activities
    
    
    20,905
    
    
    
    (51,060
    )Cash flows from financing activitiesIssuance of notes payable
    
    
    2,679,904
    
    
    
    412,888Payments on notes payable
    
    
    (995,869
    )
    
    
    (1,159,808
    )Issuance of note payable to related entities
    
    
    150,000
    
    
    
    Decrease in payable to related entities
    
    
    (18,245
    )
    
    
    (22,162
    )Decrease in subordinated debt
    
    
    (324,423
    )
    
    
    (133,253
    )Net cash provided by (used in) financing activities
    
    
    1,491,367
    
    
    
    (902,335
    )Net decrease in cash and cash equivalents
    
    
    (374,017
    )
    
    
    (417,613
    )Cash and cash equivalents at beginning of period
    
    
    1,100,844
    
    
    
    500,818Cash and cash equivalents at end of period
    
    $
    726,827
    
    
    $
    83,205
 17




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Cash flow activity for the six months ended March 31, 2004 (first six months of
fiscal 2004).As of March 31, 2004, we had cash and cash equivalents of
$726,827, a decrease of $374,017 from the September 30, 2003 balance. This
compares to a decrease in cash and cash equivalents of $417,613 in the first
six months of fiscal 2003. Cash flow used in operating activities was $1,886,289 for the first six months
of fiscal 2004 compared to cash provided of $535,782 in the first six months of
fiscal 2003, a decrease of $2,422,071. Factors causing decreased cash flows
from operating activities in the first six months of fiscal 2004 as compared to
the first six months of fiscal 2003 include:  
    
    A decrease in land and lot sales to $809,623 in the first six months
of fiscal 2004 from $1,931,793 in the first six months of fiscal 2003;
    
    Collections of notes receivable of $1,479 in the first six months of
fiscal 2004 compared to $372,549 in the first six months of fiscal 2003.
The fiscal 2003 collections were primarily due to the payoff of a
$351,666 note related to a bulk sale of land in Houston, Texas;
    
    Land held for development and sale increased $1,209,196 in the first
six months of fiscal 2004 compared to an increase of $231,049 in the
first six months of fiscal 2003. The increase in fiscal 2004 is
primarily due to the capitalization of development costs related to our
condominium project in Glendale, Arizona, and to the purchase of 200
acres of land in the Houston area for a residential lot development
called Westchester Lakes. Construction costs for the Glendale project
are being funded primarily through a bank loan. The purchase of the 200
acres was funded by a bank loan and by the issuance of preferred stock
to the sellers; and
    
    Other assets increased $292,522 in the first six months of fiscal
2004 compared to a decrease of $155,788 in the first six months of
fiscal 2003. The increase in the first six months of fiscal 2004 is
primarily due to pre-development costs we incurred in connection with
two properties that we have under contract to purchase. The decrease in
the first six months of fiscal 2003 was primarily due to a $111,782
decrease in interest receivable due to interest payments received on
notes receivable. These were partially offset by the following factors causing increased cash
flows:  
    
    A decrease in cash paid for operating, selling, general and
administrative expense to $781,798 in the first six months of fiscal
2004 compared to $872,257 in the first six months of fiscal 2003; and
    
    The change in deferred income was $0 during the first six months of
fiscal 2004 compared to a decrease of $51,037 in the first six months of
fiscal 2003. Looking forward, we expect cash flow from operations to remain slow for the
next twelve months, While we have several new projects that will come on-line
during the next twelve months, cash flow is typically slower in the early
stages of a project, increasing in the later stages as the bank financing is
paid down. Net cash provided by investing activities was $20,905 in the first six months
of fiscal 2004 compared to cash used of $51,060 in the first six months of
fiscal 2003. Collections of receivables from related entities totaled $18,626
in the first six months of fiscal 2004 compared to $4,886 in the first six
months of fiscal 2003. We purchased $37,721 of property and equipment in the
first six months of fiscal 2004 compared to $2,416 in the first six months of
fiscal 2003. We are not planning any significant purchases of property and
equipment for the remainder of the fiscal year. We also received proceeds of
$40,000 from the sale of a portion of the cattle herd at the Willow Springs
Ranch. Cash used in the first six months of fiscal 2003 included $53,530 that
was paid as an additional capital call in connection with our ownership
interest in Laguna at Arrowhead Apartments L.L.C. Net cash provided by financing activities was $1,491,367 in the first six
months of fiscal 2004 compared to cash used of $902,335 in the first six months
of fiscal 2003. During the first six months of fiscal 2004, additional
borrowings totaled $2,679,904 compared to $412,888 in the first six months of
fiscal 2003. The borrowings in fiscal 2004 consisted primarily of $1,644,000
in proceeds from refinancing the Wagon Bow Ranch and the Coventry subdivision
to take advantage of the equity that has accumulated in those projects. We
also borrowed $900,000 to fund our purchase of 200 acres in the Houston area
for a residential lot development called Westchester Lakes. Development
activity at Westchester Lakes is expected to begin late this year. The
remainder of the borrowings consisted of draws on a construction loan for the
development of our condominium project in Glendale, Arizona. Construction on
Phase I of the Glendale project is expected to continue through the spring of
2005, with sales beginning in July 2004. Payments on notes payable totaled
$995,869 in the first six months of fiscal 2004 compared to $1,159,808 in the
first six months of fiscal 2003. Principal payments on our notes are made
primarily through the payment of release prices as lots are sold, however the
payments in 18




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the first quarter of fiscal 2004 included the repayment of $540,371 due to the
refinancing of the Wagon Bow Ranch. Proceeds from the issuance of notes to related entities totaled $150,000 in the
first six months of fiscal 2004. This occurred when the three members of our
Board of Directors invested $150,000 in the form of a subordinated note payable
in exchange for a 17.5% minority interest in Villa Maria, LLC. We currently
own the remaining 82.5% of Villa Maria, LLC, however additional minority
investors may be added in the future. Villa Maria, LLC plans to construct
Woodland Court, a planned 43-unit townhome project located in College Station,
Texas. The purchase of the land for this project was completed on April 1,
2004. Interest on the $150,000 balance accrues at 10% per annum, with
principal and interest due at the end of the project. Other payables
to related entities decreased $18,245 during the first six months of fiscal
2004 compared to a decrease of $22,162 in the first six months of fiscal 2003. Subordinated debt decreased $324,423 in the first six months of fiscal 2004,
compared to a decrease of $133,253 in the first six months of fiscal 2003. Contractual obligations. Our long-term debt includes notes payable of
$5,832,200 and subordinated debt of $3,053,073. Other than two vehicle loans,
all of the notes payable were incurred to finance the development of our real
estate projects. Principal payments on those notes payable are primarily made
as lots are sold, although minimum principal payments are also required on
certain loans. Included in notes payable is a $500,716 loan used to purchase
480 acres of land in the Houston area for a residential lot subdivision called
Mallard Crossing. This loan is due in June 2004. It is our intent to
refinance this loan with a development loan for the project. We have received a
commitment from a bank for the development loan, which is expected to close in
May. In addition, our construction loan for a condominium project in Glendale,
Arizona requires cash contributions by the Company each time construction on a
new building is started. As of March 31, 2004, construction on two 8-unit
buildings has been started. The remaining four buildings in this phase of the
project are expected to begin construction at various dates through early 2005. In March 2004, we purchased 200 acres in the Houston area for a residential lot
development called Westchester Lakes. A portion of the purchase price was paid
through the issuance of Series C preferred stock with a liquidation value of
$820,000, with the balance of the purchase price financed by a bank loan. The
Series C preferred stock is convertible into shares of our common stock, and
has a cumulative dividend, payable semi-annually. The dividend rate is 1% for
the first year from the date of issuance, and escalates each year until it
reaches 7% in the sixth year from the date of issuance. Development activity
at Westchester Lakes is expected to begin late this year. Payments on the subordinated debt are made only when cash flow from a land
sale, after payment of bank debt, exceeds our operating cash requirements. This
determination is made by our management. On October 1, 2003, we made a payment
of $378,587. On June 28, 2002, our majority stockholder contributed an
additional $719,000 of capital to the Company through the conversion of
subordinated debt to Series A preferred stock. The Series A preferred stock is
convertible into shares of our common stock, and has a cumulative dividend,
payable semi-annually. The dividend rate is 0% for the first year from the
date of issuance, and escalates each year until it reaches 7% in the sixth year
from the date of issuance. At March 31, 2004, the dividend rate was 2%. In the normal course of our business, we have also entered into various
operating leases for equipment and vehicles. Our primary future cash needs, both in the short term and in the long term will
focus on funding operating expenses, financing the acquisition and development
of new projects and paying debt service. During the first six months of fiscal
2004, cash generated by land and lot sales was not sufficient to pay our
operating expenses. To meet our operating cash flow needs during the period
and to provide funds to invest in new projects, we refinanced the Wagon Bow
Ranch and the Coventry subdivision to take advantage of the equity that has
accumulated in those projects. While this provided us with an immediate source
of funds, the refinancings will also result in increased interest costs in the
future. To meet our cash flow needs during the remainder of fiscal 2004 it
will be necessary to supplement the land and lot sales with bulk sales of ranch
property or sales of one or more of our notes receivable. Additional
borrowings will also be needed to finance our new projects. On January 9,
2004, our Board of Directors approved an agreement to sell the Willow Springs
Ranch near Socorro, New Mexico for $125 per acre, or a total of approximately
$5.0 million. Payment will consist of cash, assumption of debt and a note
receivable, with the buyer entitled to a discount of up to 3% of the purchase
price in exchange for an early payoff of the note receivable. The buyer has an
inspection period ending on June 21, 2004, during which time the buyer may
elect to terminate the agreement if the buyer makes a determination that the
property is not acceptable, for any reason in the buyers sole discretion. If
the buyer makes such a determination, the buyer will be entitled to a refund of
all funds it has placed in escrow. Although there can be no assurances, management believes that cash flow from
operations coupled with existing cash and cash equivalent balances, proceeds
from bulk sales of property or the sale of one or more notes receivable, along
with borrowings from banks and other financial institutions will generate
sufficient cash to fund our operating and cash flow needs for the next twelve
months. To the extent that actual results or events differ from our financial
projections, our liquidity may be adversely affected. 19




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##### Table of Contents



We project that our capital expenditures for property and development will be
approximately $11.4 million over the next twelve months, but that only a
portion of that amount will need to be funded internally. The remainder will be
borrowed from banks and other financial institutions. As part of our business
strategy, we continuously review acquisition opportunities and proposals. We
expect to finance any future acquisitions with additional equity and debt
financing, to the extent available on attractive terms. We hold $90,550 of third party notes receivable from the sale of property.
These notes are secured by the property sold and bear interest at 9.5% per
year. We evaluate the collectibility of these notes based on the payment
history and the value of the collateral, and charge off any uncollectible
balances. As of March 31, 2004, there were no delinquencies on any of these
notes receivable. 
 Item 3. Controls and Procedures  (a)
    
    We maintain disclosure controls and procedures (as defined in Securities
Exchange Act 1934 Rules 13a-14(c) and 15d-14(c)) that are designed to
ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Principal Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.Within 90 days prior to the date of this quarterly report, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Principal
Financial Officer concluded that our disclosure controls and procedures were
effective.(b)
    
    There have not been any significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent
to the date of their evaluation. There were no significant deficiencies or
material weaknesses, and therefore no corrective actions were taken. 20




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PART II: OTHER INFORMATION 
 Item 1.Legal Proceedings We are not a party to any pending legal proceedings other than routine
litigation incidental to our business, and to the best of our knowledge, no
other litigation against us has been threatened. 
 Item 2.Changes in Securities and Use of Proceeds  We have not materially modified the instruments defining the rights of our
security holders during the reporting period.On March 31, 2004, we issued 8,200 shares of Series C preferred stock as part
of the consideration for the purchase of 200 acres of land in the Houston
area. The preferred stock was issued pursuant to exemptions available under
Sections 4(2) or 4(6) of the Securities Act of 1933, as amended (the Act)
and has not been registered under the Act or under the securities laws of any
state. These securities are subject to restrictions on transferability and
resale and may not be transferred or resold except as permitted under the Act
and the applicable state securities laws, pursuant to registration or
exemption therefrom. 
 Item 3.Defaults Upon Senior Securities  Not Applicable. 
 Item 4.Submission of Matters to a Vote of Security Holders  Not Applicable 
 Item 5.Other Information  Not Applicable 
 Item 6.Exhibits and Reports on Form 8-K (a) Exhibits ExhibitNo.31.1
    
    Certification of Jay N. Torok pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Ron OConnor pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of Jay N. Torok pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of Ron OConnor pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 (b) Reports on Form 8-K On January 21, 2004 a Form 8-K was filed to report the Registrants Board of
Directors approval of an agreement to sell the Willow Springs Ranch near
Socorro, New Mexico. 21




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SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. GREAT WESTERN LAND AND RECREATION, INC.
(Registrant)Date: May 14, 2004
    
    By
    
    /s/ Ron OConnorRon OConnor, Senior Vice President and Chief
Financial Officer (Duly Authorized Officer and
Principal Financial Officer)
 22