UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A\
Amendment No. 4
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 5(d) OF
THE SECURITIES EXCHANGEACT OF 1934
For the fiscal year ended December 31, 2004
----------------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-08187
CabelTel International Corporation
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 75-2399477
------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification
Incorporation or organization) Number)
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:
Title of Each Class Name of each exchange on which registered
Common Stock, $0.01 par value American Stock Exchange
----------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
The aggregate market value of the shares of voting and non-voting
common equity held by non-affiliates of the Registrant, computed by reference to
the closing price at which the common equity was last sold which was the sales
price of the Common Stock on the American Stock Exchange as of June 30, 2004
(the last business day of the Registrant's most recently completed second fiscal
quarter) was $2,424,000 based upon a total of 977,004 shares held as of June 30,
2004 by persons believed to be non-affiliates of the Registrant. The basis of
the calculation does not constitute a determination by the Registrant as defined
in Rule 405 of the Securities Act of 1933, as amended, such calculation, if made
as of a date within sixty days of this filing, would yield a different value.
As of January 12, 2006, there were 977,004 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
AMENDMENT NO. 4 TO
ANNUAL REPORT ON FORM 10-K FOR
CABELTEL INTERNATIONAL CORPORATION
The undersigned Registrant hereby further amends the following items,
exhibits or other portions of its Annual Report on Form 10-K for the fiscal year
ended December 31, 2004 as set forth below and as reflected in the substituted
pages attached hereto which replace the same numbered pages in Amendment No. 3
to Form 10-K dated November 18, 2005:
o Page 2 - Amendment No. 3 explanation page; and
o Page 9 - Recent Acquisition of CableTEL AD; and
o Page 22 - Item 8 - Financial Statements (also F-1 following).
The balance of the items have not been changed from Amendment No. 3 or
the original filing and have accordingly not been updated to any current date.
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Amendment to be signed on its
behalf by the undersigned, thereunto duly-authorized.
Date: January 16, 2006.
CABELTEL INTERNATIONAL CORPORATION
By: /s/ Gene S. Bertcher
-------------------------------------
Gene S. Bertcher, President and Chief
Financial Officer
3
AMENDMENT NO. 3 TO
FORM 10-K ANNUAL REPORT FOR
CABELTEL INTERNATIONAL CORPORATION
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
The undersigned Registrant hereby amends the following items, exhibits
or other portions of its Annual Report on Form 10-K for the fiscal year ended
December 31, 2004, as set forth below and as reflected in the substituted pages
attached hereto which replace the same numbered pages in the original filing.
As a preface to the identification below, the entirety of the Report
has been amended to reflect an acquisition of two U.S. entities which are not
consolidated into the Company but are maintained in a separate basis; see Item
I, Business - "Recent Acquisition of CableTEL AD." This change was necessitated
by certain comments by the Staff of the Securities and Exchange Commission (the
"SEC"), which resulted in an appeal to the Office of the Chief Accountant of the
SEC. On October 25, 2005, the Office of the Chief Accountant of the SEC provided
its determination of the appeal with respect to certain accounting treatment.
The appeal was the result of an initial determination and comment by the Staff
of the SEC during May 2005, that, in this very unique set of circumstances and
in the opinion of the Staff, reverse acquisition accounting treatment may not
have been the proper treatment. Management has determined based upon discussions
with the Office of the Chief Accountant during such appeal that while the
overall acquisition and other contingent aspects of the transaction are a single
transaction, the appropriate accounting treatment at this time is recordation of
the issuance of the Preferred Stock together with a recordation of a "contra
asset" in the same amount for the value of the two U.S. corporations and
CableTEL AD. The result is that Management of the Company filed a Form 8-K
Current Report for event noted October 25, 2005, under Item 4.02, which of
necessity requires certain changes in the Annual Report on Form 10-K to cover
such treatment. This document includes additional items of Form 10-K which have
not been amended or changed, but the items which are changed are as follows:
o Page 4, Item 1 - Business.
o Page 13, Item 2 - Properties.
o Page 16, Item 6 - Selected Financial Data.
o Page 17, Item 7 - Management's Discussion and Analysis of
Results of Operation.
o Page 22, Item 7(a) - Quantitative and Qualitative Disclosures
About Market Risk.
o Page 22, Item 8 - Financial Statements (also F-1 following).
Separate audited financial statements of CableTEL AD are included as
Exhibit 99.1 because the Registrant intends to seek approval of an exchange of
2% Series J Preferred Stock for Common Stock of the Registrant (see "Recent
Acquisition of CableTEL AD" at page 9), and upon consummation of that exchange
transaction, a reverse acquisition would be recorded with the CableTEL AD
financial statements as the accounting acquirer, and therefore are relevant to
investors.
4
Management is not aware of any non-compliance by the Company as regards
applicable regulatory requirements that would have a material adverse effect on
the Company's financial condition or results of operations.
Recent Acquisition of CableTEL AD
On October 12, 2004, CIC acquired, for 31,500 shares of
newly-designated 2% Series J Preferred Stock, 74.8% of CableTEL AD ("CableTEL"),
a Bulgarian telecommunications company. The terms of the acquisition agreement
require CIC to present a proposal to its stockholders to approve the mandatory
exchange of all shares of Series J Preferred Stock into 8,788,500 shares of
common stock which, if approved by stockholders, would represent 90% of the
resulting total issued and outstanding shares of common stock in CIC. As of the
date of this report, the exchange has not occurred.
The acquisition agreement, as amended, provides that the stockholders
of CIC have until June 30, 2006 to approve the exchange of Series J Preferred
Stock into CIC common stock. If the exchange is not approved by June 30, 2006,
the holders of the Series J Preferred Stock have the option to rescind the
entire transaction. Until the acquisition is completed, CableTEL AD will not be
included in CIC's consolidated financial statements and the financial statements
of CIC will include a Series J Preferred Stock contra equity account
representing the Company's interest in CableTEL AD.
If the stockholders of CIC approve the transaction, it would
effectively give the owners of CableTEL AD the controlling interest in CIC. Due
to the effective change in control, by virtue of the aforementioned exchange
into common stock, this transaction will be accounted for, upon the exchange, as
a "reverse acquisition," with CableTEL AD being the accounting acquirer and with
CIC accounted for as if it had been acquired on the exchange date. Separate
audited financial statements of CableTEL AD are included as an exhibit to this
report because, upon completion the exchange, such financial statements will be
that of the accounting acquirer and are therefore relevant to investors.
CableTEL AD is the largest cable television ("CATV") operator in the
Country of Bulgaria. In addition, CableTEL AD has built a fiber optic backbone
(the "backbone") consisting of three ducts around Bulgaria at a total cost of
$29,872,500. CableTEL AD intends to keep one duct for its own use and sell the
remaining two ducts to unrelated third parties to offset the cost of building
the ducts.
CableTEL AD's marketing is centralized in its Sofia, Bulgaria
headquarters. Given the acquisitions strategy of CableTEL AD, the Sales and
Marketing Department has developed a re-branding strategy to quickly bring new
operations up to CableTEL AD communication standards and preserve the overall
strength of the CableTEL AD brand.
In addition to CATV, CableTEL AD provides internet service, VoIP
(internet telephony) and mobile phone services. The company is well-positioned
from both a marketing and quality approach to being a strong competitor in its
markets.
CableTEL AD has 384 employees (372 full-time and 12 part-time) in
Bulgaria. It leases its headquarters and owns no property. The technical nature
of its business requires a high capital cost.
For further information on CableTEL AD, please refer to Note A in the
accompanying financial statements and the separate audited financial statements
of CableTEL AD included as Exhibit 99.1.
5
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Cabeltel International Corporation, formerly Greenbriar Corporation
We have audited the accompanying consolidated balance sheets of Cabeltel
International Corporation, formerly Greenbriar Corporation, and subsidiaries as
of December 31, 2004, and 2003, and the related consolidated statements of
income, shareholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits include consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion of the effectiveness of the company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cabeltel
International Corporation, formerly Greenbriar Corporation, and subsidiaries as
of December 31, 2004, and 2003, and the consolidated results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ FARMER FUQUA & HUFF, P.C.
Plano, Texas
April 15, 2005
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Cabeltel International Corporation
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of Cabeltel International Corporation
(formerly Greenbriar Corporation) and subsidiaries for the year ended December
31, 2002. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion of the effectiveness of the company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and the
consolidated cash flows of Cabeltel International Corporation and subsidiaries
for the year ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note O to the consolidated financial statements, on January 1,
2002, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets."
/s/ GRANT THORNTON LLP
Dallas, Texas
March 28, 2003
F-2
CabelTel International Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31,
ASSETS
2004 2003
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 762 $ 688
Accounts receivable - trade 222 100
Notes receivable 856 2,435
Property held for sale 1,760 1,859
Other current assets, net 103 198
---------- ----------
Total Current Assets 3,703 5,280
NOTES RECEIVABLE, net of deferred income 309 387
PROPERTY AND EQUIPTMENT, AT COST
Land and improvements 2,232 2,446
Buildings and improvements 6,987 7,276
Equipment and furnishings 273 951
Proven oil and gas properties (full cost method) 1,479 1,361
---------- ----------
10,971 12,034
Less accumulated depreciation, depletion, and amortization (1,090) (1,280)
---------- ----------
9,881 10,754
DEFERRED INCOME TAX BENEFIT 1,161 1,161
DUE FROM CABLETEL AD 951
DEPOSITS 36 232
OTHER ASSETS, NET 725 317
---------- ----------
Total Assets $ 16,766 $ 18,131
========== ==========
The accompanying notes are an integral part of this statement.
F-3
CabelTel International Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Amounts in thousands, except share amounts)
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
2004 2003
---------- ----------
CURRENT LIABILITIES
Current maturities of long-term debt, including amounts
to related parties of $901 $ 4,780 $ 4,690
Current notes payable 240 5,571
Accounts payable - trade 687 503
Accrued expenses 828 633
Other current liabilities -- 931
---------- ----------
Total Current Liabilities 6,535 12,328
LONG-TERM DEBT 8,338 2,053
OTHER NON-CURRENT LIABILITIES 155 --
DEFERRED GAIN -- 740
OTHER LONG-TERM LIABILITIES -- 456
---------- ----------
Total Liabilities 15,028 15,577
STOCKHOLDERS' EQUITY
Preferred stock, Series B 1 1
Preferred stock, Series J 2% 3,150 --
Preferred stock, Series J contra equity (3,150) --
Common stock, $.01 par value; authorized, 4,000,000
shares; issued and outstanding, 977,000 shares 10 10
Additional paid-in capital 55,966 55,966
Accumulated deficit (54,239) (53,423)
---------- ----------
1,738 2,554
---------- ----------
Total liabilities & equity 16,766 18,131
========== ==========
The accompanying notes are an integral part of this statement.
F-4
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Year ended December 31,
2004 2003 2002
------------ ----------- -----------
Revenue
Real estate operations $ 4,813 $ 2,598 $ 3,300
Oil and gas operations 1,410 449 --
------------ ----------- -----------
6,223 3,047 3,300
------------ ----------- -----------
Operating expenses
Real estate operations 2,925 996 1,366
Oil and gas operations 1,003 400 --
Lease expense 917 969 1,112
Depreciation, depletion, and amortization 570 160 300
General and administrative 1,715 1,111 2,329
Write-down of assets -- -- 266
------------ ----------- -----------
7,130 3,636 5,373
------------ ----------- -----------
Operating loss (907) (589) (2,073)
Other income (expense)
Interest income 213 304 412
Interest expense (991) (498) (840)
Gain on sale of assets, net 1,456 1,058 930
Other income (expense), net (403) 342 (1,153)
------------ ----------- -----------
275 1,206 (651)
------------ ----------- -----------
Earnings (loss) from continuing operations
before income taxes (632) 617 (2,724)
Income tax expense -- -- 749
Earnings (loss) from continuing operations (632) 617 (3,473)
------------ ----------- -----------
Discontinued operations
Loss from operations (184) (395) (899)
Loss on disposal, (including taxes of $440 in 2002) -- -- (4,001)
------------ ----------- -----------
Loss from discontinued operations (184) (395) (4,900)
------------ ----------- -----------
Net earnings (loss) (816) 222 (8,373)
Preferred dividend requirement -- -- (4)
------------ ----------- -----------
Net earnings (loss) applicable to common shares $ (816) $ 222 $ (8,377)
============ =========== ===========
Earnings (loss) per share - basic
Continuing operations $ (0.65) $ 0.87 $ (4.84)
Discontinued operations (0.19) (0.56) (6.83)
------------ ----------- -----------
Net earnings (loss) per share $ (0.84) $ 0.31 $ (11.67)
Basic weighted average common shares 977 706 718
The accompanying notes are an integral part of this statement.
F-5
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year ended December 31,
2004 2003 2002
------------ ------------ ------------
Cash flows from operating activities
Net earnings (loss) $ (816) $ 222 $ (8,373)
Adjustments to reconcile net earnings (loss) to net
Cash provided by (used in) operating activities
Depreciation and amortization 570 160 300
Depreciation from assets classified as
discontinued operations -- 170 21
(Gain) loss from affiliates (1,247) (131) 612
(Gain) loss on sale of properties (209) (1,058) 3,561
Write-down of impaired assets 147 -- 266
Deferred income taxes -- -- 1,189
Changes in operating assets and liabilities
Accounts receivable - trade (122) (45) 395
Other current and non-current assets (132) 174 (927)
Accounts payable and other liabilities (357) 22 (929)
------------ ------------ ------------
Net cash provided by (used in)
operating activities (2,166) (486) (3,885)
Cash flows from investing activities
Purchase of property and equipment (845) (1,225) (285)
Net repayment of notes receivable 1,579 334 --
Proceeds from sale of investments -- -- 1,098
Proceeds from sale of properties -- 126 7,460
------------ ------------ ------------
Net cash provided by (used in)
investing activities 734 (765) 8,273
------------ ------------ ------------
Cash flows from financing activities
Proceeds from common stock issuance -- 792 --
Proceeds from borrowings 6,500 500 1,730
Payments on debt (5,591) (90) (6,699)
Distributions from equity partnerships'
financing cash flow 507 85 --
Dividends on preferred stock -- -- (4)
Repurchase of common stock -- (9) --
Net advances from affiliates 90 -- --
------------ ------------ ------------
Net cash provided by (used in)
financing activities 1,506 1,278 (4,973)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 74 27 (585)
Cash and cash equivalents at beginning of year 688 661 1,246
------------ ------------ ------------
Cash and cash equivalents at end of year $ 762 $ 688 $ 661
The accompanying notes are an integral part of this statement.
F-6
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Amounts in thousands)
Supplemental information on cash flows is as follows:
Interest paid $ 705 $ 515 $ 2,215
Income taxes paid -- -- 129
Non-cash investing and financing activities:
Notes received from sale of assets -- -- 1,050
Notes given in connection with purchase of property -- 5,905 --
Common stock issued in connection with satisfaction
of note to executive officer -- 198 --
Disposal of property to satisfy debt 935 -- --
Notes payable agreed by buyer upon sale of real estate 906 -- --
The accompanying notes are an integral part of this statement.
F-7
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands)
Series J
Series B Series J Preferred stock Common
Preferred stock Preferred stock Contra Equity Stock
----------------- ----------------- ------------------ ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------- ------- ------- ------- ------- ------- ------- -------
Balance at January 1, 2002 1 1 -- -- -- -- 718 7
Write-off of stock purchase
notes receivable -- -- -- -- -- -- (30) --
Dividend on preferred stock -- -- -- -- -- -- -- --
Other -- -- -- -- -- -- -- --
Stock purchase notes receivable
reclassified as a reduction of
related party debt -- -- -- -- -- -- -- --
Netloss -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Balance at December 31, 2002 1 1 -- -- -- -- 688 7
Dividend on preferred stock -- -- -- -- -- -- -- --
Conversion of obligation to -- -- -- -- -- -- 23 --
common stock
Common stock acquired -- -- -- -- -- -- (5) --
Common stock issued -- -- -- -- -- -- 271 3
Net earnings -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Balance at December 31, 2003 1 1 -- -- -- -- 977 10
Net loss
Issuance of Series J
preferred stock -- -- 32 3,150 (32) (3,150) -- --
Net loss -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
1 1 32 3,150 (32) (3,150) 977 10
======= ======= ======= ======= ======= ======= ======= =======
Stock
Additional Accum- Purchase
paid in ulated Notes
capital deficit Receivable Total
---------- ------- ---------- -------
Balance at January 1, 2002 56,896 (45,268) (2,367) 9,269
Write--off of stock purchase
notes receivable (1,908) -- 1,905 (3)
Dividend on preferred stock -- (4) -- (4)
Other -- -- 12 12
Stock purchase notes receivable
reclassified as a reduction of
related party debt -- -- 450 450
Netloss -- (8,373) -- (8,373)
---------- ------- ---------- -------
Balance at December 31, 2002 54,988 (53,645) -- 1,351
Dividend on preferred stock -- -- -- --
Conversion of obligation to -- -- -- --
common stock
Common stock acquired (9) -- -- (9)
Common stock issued 987 -- -- 990
Net earnings -- 222 -- 222
---------- ------- ---------- -------
Balance at December 31, 2003 55,966 (53,423) -- 2,554
Net loss
Issuance of Series J
preferred stock -- -- -- --
Net loss -- (816) -- (816)
---------- ------- ---------- -------
Balance at December 31, 2004 55,966 (54,239) -- 1,738
========== ======= ========== =======
The accompanying notes are an integral part of this statement.
F-8
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE A - BUSINESS DESCRIPTION AND PRESENTATION
Name Change
-----------
On February 10, 2005, Greenbriar Corporation changed its name to CabelTel
International Corporation (which is referred throughout this report as
"CIC").
Acquisition of CableTEL AD
--------------------------
On October 12, 2004, CIC acquired, for 31,500 shares of newly-designated 2%
Series J Preferred Stock, 74.8% of CableTEL AD, a Bulgarian
telecommunications company. The terms of the acquisition agreement require
CIC to present a proposal to its stockholders to approve the mandatory
exchange of all shares of Series J Preferred Stock into 8,788,500 shares of
common stock which, if approved by stockholders, would represent 90% of the
resulting total issued and outstanding shares of common stock in CIC. As of
the date of this report the exchange has not occurred.
The acquisition agreement, as amended, provides that the stockholders of CIC
have until June 30, 2006 to approve the exchange of Series J Preferred Stock
into CIC common stock. If the exchange is not approved by June 30, 2006 the
holders of the Series J Preferred Stock have the option to rescind the
entire transaction. Until the acquisition is completed, CableTEL AD will not
be included in CIC's consolidated financial statements and the financial
statements of CIC will include a Series J Preferred Stock contra equity
account representing the Company's interest in CableTEL AD.
If the stockholders of CIC approve the transaction it would effectively give
the owners of the CableTEL AD the controlling interest in CIC. Due to the
effective change in control, by virtue of the aforementioned exchange into
common stock, this transaction will be accounted for, upon the exchange, as
a "reverse acquisition," with CableTEL AD being the accounting acquirer and
with CIC accounted for as if it had been acquired on the exchange date.
Nature of Operations
As of December 31, 2004, the Company controls three retirement communities
in three states. The Company operates two of the retirement communities with
a capacity of 162 residents and leases one community to a third party. The
Company owns an outlet shopping mall in Gainesville, Texas with
approximately 315,000 square feet of retail space available for lease. In
addition the Company owns the leases for approximately 200 oil wells in East
Texas. These are low production wells with maximum production limits of 20
barrels of oil per day. As of March 31, 2005, there are 48 wells in
operation.
F-9
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows:
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of CabelTel
International Corporation and its majority-owned subsidiaries (collectively,
the "Company" or "CIC") and are prepared on the basis of accounting
principles generally accepted in the United States of America. All
significant intercompany transactions and accounts have been eliminated.
Depreciation
------------
Depreciation is provided for in amounts sufficient to relate the cost of
property and equipment to operations over their estimated service lives,
ranging from 3 to 40 years. Depreciation is computed by the straight-line
method.
Accounting for Leases
---------------------
Leases of property, plant and equipment where the Company assumes
substantially all the benefits and risks of ownership are classified as
finance leases. Finance leases are capitalized at the estimated present
value of the underlying lease payments. Each lease payment is allocated
between the liability and finance charges so as to achieve a constant rate
on the finance balance outstanding. The corresponding rental obligations,
net of finance charges, are included in other long-term payables. The
interest element of the finance charge is charged to the income statement
over the lease period. The property, plant and equipment acquired under
finance leasing contracts is depreciated over the useful life of the asset.
Leases of assets under which all the risks and benefits of ownership are
effectively retained by the lessor are classified as operating leases.
Payments made under operating leases are charged to the income statement on
a straight-line basis over the period of the lease. When an operating lease
is terminated before the lease period has expired, any payment required to
be made to the lessor by way of penalty is recognized as an expense in the
period in which termination takes place.
Revenue Recognition
-------------------
Crude oil and natural gas revenues are recorded at the time of delivery of
such products to pipelines for the account of the purchaser or at the time
of physical transfer of such products to the purchaser. Revenues from the
sale of crude oil and natural gas are recorded using the sales method. Under
such method, the Company recognizes revenue from the sale of crude oil and
natural gas production from its leases, based on the actual volumes the
Company sold during the period.
Rental income for commercial property leases is recognized on a
straight-line basis over the respective lease terms. Rental income for
residential property leases is recorded when due from residents and is
recognized monthly as it is earned, which is not materially different than
on a straight-line basis as lease terms are generally for periods of one
year or less.
F-10
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Use of Estimates
----------------
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
----------------
The Company considers all short-term deposits and money market investments
with a maturity of less than three months to be cash equivalents.
Other Intangible Assets
-----------------------
The cost of acquired patents, trademarks and licenses is capitalized and
amortized using the straight-line method over their useful lives. The
carrying amount of each intangible asset is reviewed annually and adjusted
for permanent impairment where it is considered necessary. Impairment of
Notes Receivable
Notes receivable are identified as impaired when it is probable that
interest and principal will not be collected according to the contractual
terms of the note agreements. The accrual of interest is discontinued on
such notes, and no income is recognized until all past due amounts of
principal and interest are recovered in full. No notes were deemed to be
impaired at December 31, 2004 and 2003.
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. In reviewing
recoverability, the Company estimates the future cash flows expected to
result from use of the assets and eventually disposing of them. If the sum
of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss
is recognized based on the asset's fair value.
The Company determines the fair value of assets to be disposed of and
records the asset at the lower of fair value less disposal costs or carrying
value. Assets are not depreciated while held for disposal.
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."
Options were granted at market by Cabeltel International Corporation during
2003, are exercisable immediately, and expire 5 years from date of grant.
F-11
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Warrants were issued at market by Cabeltel International Corporation during
2004. The ability to exercise such warrants is contingent upon the
conversion of the Series J Preferred stock to common stock. Because of the
contingent nature as to the timing and the ability to exercise these
warrants, no value has been ascribed to such warrants at December 31, 2004.
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.
Reported and pro forma net earnings (loss) and net earnings (loss) per share
amounts are set forth below (in thousands, except per share data):
2004 2003 2002
-----------------------------------
Net earnings (loss) allocable to common stockholders
As reported $ (816) $ 222 $ (8,377)
Deduct: total stock-based compensation under
fair value based method for all awards -- (43) (464)
Pro forma $ (816) $ 179 $ (8,841)
Net earnings (loss) per share
As reported $ (0.84) $ 0.31 $ (23.33)
Pro forma $ (0.84) $ 0.25 $ (24.63)
The fair value of these options was estimated at the date of grant during
2003 using the Black-Scholes option pricing model with the following
weighted-average assumptions: no dividends; expected volatility of 20
percent; risk-free interest rates of 4.24 percent; and weighted average
expected lives of 5 years.
Earnings (Loss) Per Common Share
--------------------------------
Basic earnings (loss) per common share is based on the weighted average
number of common shares outstanding. Diluted earnings (loss) per share is
computed based on the weighted average number of common shares outstanding
plus the number of additional common shares that would have been outstanding
if dilutive potential common shares had been issued. In 2004, stock options
for approximately 140,000 shares were excluded from diluted shares
outstanding because their effect was anti-dilutive. In 2004, warrants for
approximately 190,000 shares were excluded from diluted shares outstanding
because their effect was anti-dilutive.
Sales of Real Estate
--------------------
Gains on sales of real estate are recognized to the extent permitted by SFAS
No. 66, "Accounting for Sales of Real Estate." Until the requirements of
SFAS No. 66 have been met for full profit recognition, sales are accounted
for by the installment or cost recovery method, whichever is appropriate.
F-12
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Real Estate Held for Sale
-------------------------
SFAS No. 144 requires that properties held for sale be reported at the lower
of carrying amount or fair value less costs of sale. If a reduction in a
held for sale property's carrying amount to fair value less costs of sale is
required, a provision for loss is recognized by a charge against earnings.
Subsequent revisions, either upward or downward, to a held for sale
property's estimated fair value less costs of sale are recorded as an
adjustment to the property's carrying amount, but not in excess of the
property's carrying amount when originally classified as held for sale. A
corresponding charge against or credit to earnings is recognized. Properties
held for sale are not depreciated.
New Accounting Pronouncements
-----------------------------
SFAS No. 151--In November 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 151, "Inventory
Costs, an Amendment of ARB No. 43, Chapter 4" ("SFAS No.151"). SFAS No. 151
amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility
expense, freight, handling costs and wasted materials (spoilage) be
recognized as current period charges. It also requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.
The adoption of SFAS No. 151 is not expected to have a material impact on
the consolidated financial position or results of operations of CIC.
SFAS No. 152--In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 152, "Accounting for
Real Estate Time-Sharing Transactions" ("SFAS No. 152"). SFAS No. 152 amends
FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position 04-2,
Accounting for Real Estate Time-SharingTransactions ("SOP 04-2"). This
Statement also amends FASB Statement No. 67, Accounting for Costs and
Initial Rental Operations of Real Estate Projects, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real
estate projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
04-2.
SFAS No. 152 is effective for financial statements for fiscal years
beginning after June 15, 2005, and is to be reported as a cumulative effect
of a change in accounting principle. The adoption of SFAS No. 152 is not
expected to have a material impact on the consolidated financial position or
results of operations of CIC.
SFAS No. 123--In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, Share-Based
Payment, revised ("SFAS No. 123R"). SFAS No. 123R addresses the accounting
for share-based payments to employees, including grants of employee stock
options. Under the new standard, companies will no longer be able to account
for share-based compensation transactions using the intrinsic method in
accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees. Instead, companies will be required to account for such
transactions using a fair-value method and recognize the expense in the
consolidated statement of income. SFAS No. 123R will be effective for
periods beginning after June 15, 2005, and allows, but does not require,
companies to restate the full fiscal year of 2005 to reflect the impact of
expensing share-based payments under SFAS No. 123R. The Company has not yet
determined which fair-value method and transitional provision it will
follow. The adoption of SFAS No. 123R is not expected to have a material
impact on the Company's consolidated financial position or results of
operations. See Stock-Based Employee Compensation for the pro forma impact
on net income and net income per share from calculating stock-based
compensation costs under the fair value alternative of SFAS No. 123.
F-13
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
SFAS No. 153--In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 153, "Exchanges of
Non-monetary Assets, an Amendment of APB Opinion No. 29" ("SFAS No. 153").
The guidance in APB Opinion No. 29, Accounting for Non-monetary
Transactions, is based on the principle that exchanges of non-monetary
assets should be measured based on the fair value of the assets exchanged.
The guidance in APB Opinion No. 29, however, included certain exceptions to
that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the
exception for non-monetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective
for non-monetary asset exchanges in fiscal periods beginning after June 15,
2005. The adoption of SFAS No. 153 is not expected to have a material impact
on the consolidated financial position or results of operations of CIC.
NOTE C - NOTES RECEIVABLE
As a result of the sale of two assisted living communities in 2001, the
Company holds two tax-exempt notes for a total of $4,030,000, bearing
interest at 9.5%. The notes mature on April 1, 2032 and August 1, 2031.
The repayment of the notes and interest thereon is limited to the cash flow
of the respective properties either from operations, refinancing or sale.
The Company has deferred gains in the amount of $3,721,000 as well as unpaid
interest, which will be recognized as cash is received.
NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate values at December 31, 2004 and 2003:
Cash and cash equivalents - The carrying amount approximates fair value
because of the short maturity of these instruments.
Long-term debt - The fair value of the Company's long-term debt is estimated
based on market rates for the same or similar issues. The carrying value of
long-term debt approximates its fair value.
Notes receivable-- The fair value of the note receivable from an affiliate
partnership is estimated to approximate fair value based on its short
maturity. It is not practical to estimate the fair value of notes receivable
from sale of properties because no quoted market exists and there are no
comparable debt instruments to provide a basis for valuation.
F-14
NOTE E - NOTES PAYABLE
LONG TERM DEBT
Long-term debt is comprised of the following (in thousands):
December 31,
2004 2003
Notes payable to financial institutions maturing
through 2018; fixed and variable interest rates
ranging from 5.75% to 11% collateralized by real
property, fixtures, equipment and the assignment
of rents 7,627 2,109
Notes payable to individuals and companies
maturing through 2023; variable and fixed
interest rates ranging from 10% to 18%;
collateralized by real property, personal property,
fixtures, equipment and the assignment of rents
4,590 4,106
Notes payable to related parties bearing interest
at rates ranging From 15% to 18% 901 528
13,118 6,743
-----------------------
Less current maturities 4,780 4,690
=======================
8,338 2,053
=======================
Aggregate annual principal maturities of long-term debt at December 31, 2004
are as follows (in thousands):
2005 4,780
2006 1,118
2007 250
2008 273
2009 6,085
Thereafter 612
---------
$ 13,118
=========
F-15
NOTE F - OPERATING LEASES
The Company leases an assisted living community under an operating lease in
which the basic term expires December 31, 2011, and has operating leases for
equipment and office space. The leases generally provide that the Company
pay property taxes, insurance and maintenance.
Future minimum payments following December 31, 2004, are as follows (in
thousands):
2005 $ 898
2006 898
2007 914
2008 853
2008 870
Thereafter 2,717
---------
$ 7,150
=========
Lease expense in 2004, 2003 and 2002 was $917, $969, and $1,112,
respectively.
NOTE G - AFFILIATED PARTNERSHIP
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 October 2001, CREI acquired a retirement community for
approximately $9,100,000 and in January 2002, it acquired an assisted living
community for approximately $2,800,000.
The Company issued a $1,600,000 note to the seller in 2001 as partial
payment for the purchase of the retirement community. CREI gave the Company
a $1,600,000 note in consideration for payment of that amount of the
purchase price. The notes bear interest at 8.75% and were due December 30,
2003. The balance of the purchase price was funded by borrowings of CREI
from a third party in the amount of $7,840,000, which was guaranteed by the
Company.
The Company accounted for its investment in CREI by the equity method. The
Company recorded income of $131,733 in 2003 and a loss of $692,338 in 2002.
These amounts are included in other income (expense), net in the
accompanying financial statements.
In January 2002 the Company became a 56% limited partner in a partnership,
Muskogee Real Estate Investors (MREI), which acquired two assisted living
communities in Muskogee, OK, including one community acquired from the
Company. In September 2002 MREI leased the two communities to a third party
for three years. The lessee has committed to purchase the two properties
during the three-year period for $6,000,000. The current debt on the
property is approximately $4,000,000.
The Company had a note to Sylvia M. Gilley, wife of the former CEO of the
Company, for $3,375,000. In November 2002, the Company transferred its 56%
interest in MREI to Mrs. Gilley in exchange for a reduction of $1,120,000 on
the debt and a one-year extension on the due date of the Company's note to
Mrs. Gilley. The Company recognized a gain of $929,956 on the transaction.
The Company accounted for its investment in MREI using the equity method.
The Company recorded income of $80,215 during 2002.
F-16
NOTE G - AFFILIATED PARTNERSHIP - Continued
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, which was transferred to the Company in satisfaction of its
$1,600,000 note receivable from CREI.
The Company transferred the $1,600,000 note it received in 2002 to the
original owner of the retirement community in payment of the Company's
$1,600,000 debt. The Company guaranteed payment of the $1,600,000 note.
CREI recognized a gain on sale in the amount of $1,322,000. The Company has
deferred recognition of its $740,000 share of the gain because of the
aforementioned guaranty. CREI has deferred a gain on sale in the amount
$994,000 that will be recognized on the installment method.
The Company also entered into an agreement in October 2002 wherein it would
be allowed to participate in the acquisition of twelve communities and
receive a 50% partnership interest. The Company agreed to pay
$660,000, payable at $55,000 per month, from October 2002 through September
2003 to pay for due diligence required by these acquisitions. The Company's
$660,000 obligation was accrued and charged to expense in 2002.
In 2004, the purchaser of the CREI paid off the remaining notes, including
the $1,600,000 note guaranteed by the Company. The Company realized its
deferred gain of $740,000 as well as $492,000, representing its 56% share of
the proceeds received by CREI on its outstanding note net of partnership
expenses.
Following is the unaudited condensed financial statements of CREI at
December 31, 2002 (in thousands):
Balance Sheet
2002
----------
Current assets $ 67
Notes receivable 994
Other assets 171
----------
$ 1,232
Current liabilities $ 248
Deferred gain 994
----------
1,242
Partners' equity (deficit) (10)
Distributions --
----------
$ 1,232
Statement of Operations
Revenue $ 2,233
Expenses
Operating 1,284
Depreciation 747
General and administrative 111
Interest 1,328
----------
3,470
Gain on sale of properties 1,322
----------
Net income $ 85
==========
F-17
NOTE H - EARNINGS PER SHARE
The following table sets forth the computations of pro forma basic and
diluted earnings per share from continuing operations (in thousands, except
per share data):
Year ended December 31,
-------------------------------------
2004 2003 2002
Numerator:
Net income (loss) from continuing operations $ (632) $ 617 $ (3,473)
Denominator:
Shares used in basic earnings per share calculation 977 706 718
Effect of diluted securities:
Employee stock options -- 80 --
Warrants -- -- --
Shares used in diluted earnings per share
calculations 977 1,057 718
Pro forma basic earnings per share $ (0.65) $ 0.87 $ 4.84
Pro forma diluted earnings per share $ (0.65) $ 0.54 $ 4.84
F-18
NOTE I - INCOME TAXES
At December 31, 2004, the Company had net operating loss carry forwards of
approximately $23,000,000, which expire between 2004 and 2022. However,
approximately $7,900,000 of these net operating loss carryforwards have
limitations that restrict utilization to approximately $1,530,000 for any
one year.
The following is a summary of the components of income tax expense of
continuing operations (in thousands):
Year ended
December 31,
2004 2003 2002
------------------------------------
Current - state $ -- $ -- $ --
Deferred - federal -- -- 749
------------------------------------
-- -- 749
------------------------------------
Deferred tax assets and liabilities were comprised of the following (in
thousands):
Year ended
December 31,
2004 2003
--------------------
Deferred tax assets:
Net operating loss carryforwards $ 7,869 $ 7,163
Notes receivable -- 680
Alternative minimum tax carryforwards 324 235
Accounts receivable -- --
Accrued expenses -- 2,241
Financing obligations -- --
Other 386 583
Total deferred tax assets 8,579 10,902
Deferred tax liabilities - property and equipment -- (3,198)
Valuation allowance (7,418) (6,543)
Net deferred tax asset $ 1,161 $ 1,161
Following is a reconciliation of income tax expense attributable to
continuing operations with the amount of tax computed at the federal
statutory rate of 34% (in thousands):
Year ended
December 31,
2004 2003 2002
--------------------------------
Tax expense (benefit) at the statutory rate $ (216) $ 75 $ (1,019)
State taxes net of federal benefit -- -- --
Change in deferred tax asset valuation allowance,
attributable to continuing operations 216 (75) 1,768
Other -- -- --
--------------------------------
Tax expense $ -- $ -- 749
--------------------------------
F-19
NOTE I - INCOME TAXES - Continued
Changes in the deferred tax valuation allowance result from assessments made
by the Company each year of its expected future taxable income available to
absorb its carryforwards. The Company believes that it is more likely than
not that the net deferred tax asset at December 31, 2004, of $1,161,000 will
be realized. However, this evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available. Accordingly, the ultimate realization of the
net deferred tax asset could be less than the carrying amount.
NOTE J - STOCKHOLDERS' EQUITY
Outstanding Preferred Stock
---------------------------
Preferred stock consists of the following (amounts in thousands):
Year ended
December 31,
2004 2003
-------- --------
Series B cumulative convertible preferred stock,
$.10 par value; liquidation value of $100;
authorized, 100 shares; issued and outstanding,
1 share $ 1 $ 1
======== ========
Series J cumulative non-convertible preferred stock,
$.10 par value; liquidation value of $1,000;
authorized, 31,500 shares; issued and outstanding,
31,500 shares $ 3,150 $ --
======== ========
The Series B preferred stock has a liquidation value of $100 per share and
is convertible into common stock over a ten-year period at prices escalating
from $500 per share in 1993 to $1,111 per share by 2002. The right to
convert expired April 30, 2003. Dividends at a rate of 6% are payable in
cash or preferred shares at the option of the Company.
The Series J stock is non-convertible, however, the Company has agreed to
hold a shareholder vote to allow the Series J shareholders to covert their
31,500 shares of preferred into 8,788,000 shares of the Company's common
stock
Stock Options
-------------
In 1997, the Company established a long-term incentive plan (the "1997
Plan") for the benefit of certain key employees. Options granted to
employees under the 1997 Plan become exercisable over a period as determined
by the Company and may be exercised up to a maximum of 5 years from date of
grant. The 1997 Plan allowed up to 50,000 shares of the Company's common
stock to be reserved for issuance. In 2000, the Company adopted the 2000
Stock Option Plan, under which up to 50,000 shares of the Company's common
stock are reserved for issuance.
The Company granted options to two officers during 1996 through 2001,
aggregating 80,000 shares not covered by either plan. These options were
granted at market, were exercisable immediately and expire 10 years from
date of grant.
F-20
NOTE J - STOCKHOLDERS' EQUITY - Continued
Information with respect to stock option activity is as follows:
Weighted
Average
exercise
Shares price
-------- --------
Outstanding at January 1, 2002 160,850 $ 81.28
Expired (5,050) 182.58
-------- --------
Outstanding at December 31, 2002 155,800 78.00
Granted 60,000 2.60
Cancelled, rescinded or annulled (70,800) 109.27
Expired (3,000) 112.50
Outstanding at December 31, 2003 and 2004 142,000 $ 30.27
======== ========
Options exercisable at December 31, 2002 155,800 $ 78.00
======== ========
Options exercisable at December 31, 2003 and 2004 142,000 $ 30.27
======== ========
Weighted average fair value per share of options granted during 2003 and
2001 was $0.71 and $7.60, respectively.
Additional information about stock options outstanding at December 31, 2004,
is summarized as follows:
Options outstanding and exercisable
-------------------------------------------------
Weighted average
Number remaining Weighted average
Range of exercise prices outstanding contractual life exercise price
------------------------ ----------- ---------------- ----------------
$2.60 60,000 4.0 $ 2.60
$3.75 to $6.90 60,000 6.0 5.68
$100.00 to $150.39 2,000 1.0 150.39
$175.00 20,000 3.0 175.00
F-21
NOTE K - OTHER INCOME (EXPENSE)
Other income (expenses) consists of the following: (amounts in thousands)
Year ended December 31,
2004 2003 2002
-------- -------- --------
Equity in earnings of CREI -- 131 (692)
Property acquisition due diligence expense -- -- (660)
Write off start up costs in projects not completed (167) -- --
Accrued tenant revenue -- 121
Other (236) 90 199
-------- -------- --------
$ (403) $ 342 $ (1,153)
======== ======== ========
NOTE L - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE
In October 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 supersedes FASB SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the
accounting and reporting provisions for disposals of a segment of a business
as addressed in APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions".
SFAS No. 144 establishes a single accounting model for long-lived assets to
be disposed of by sale and addresses various implementation issues of SFAS
No. 121. In addition, SFAS No. 144 extends the reporting requirements of
discontinued operations to include components of an entity that has either
been disposed of or is classified as held for sale. The Company adopted SFAS
No. 144 as of January 1, 2002.
During 2004, the Company disposed of an assisted living community and
entered into a contract to sell a second assisted living community, which
has been reflected as an asset held for sale. Revenue for the two properties
was $841,000, $1,986,000 and $1,122,000 in 2004, 2003 and 2002,
respectively. The net loss for the two properties was $, $184,000, $395,000
and $272,000 in 2004, 2003 and 2002, respectively.
During 2002, the Company disposed of six properties. The net loss from the
operations of these properties was $627,000 and the loss incurred from the
sale of these properties was $4,001,000 (including income tax of $440,000).
NOTE M - SEGMENT REPORTING
The Company and its subsidiaries are principally engaged in the business of
acquiring, enhancing and selling real estate properties. From 1996 until
2003 those activities almost exclusively involved assisted living
facilities. Effective August 1, 2003, the Company acquired 100% of the stock
in Gaywood Oil & Gas, LLC ("Gaywood"), 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.
F-22
NOTE M - SEGMENT REPORTING - Continued
Segment information and reconciliation to income (loss) from operations are
as follows:
Twelve months ended December 31, 2004 (amounts in thousands)
Real Estate Oil & Gas
Operations Operations Consolidated
---------------------------------------
Revenue $ 4,813 $ 1,410 $ 6,223
Depletion, depreciation and amortization 462 108 570
Net income (loss) (1,115) 299 (816)
Total assets 15,150 1,616 16,766
NOTE N - CONTINGENCIES
Cable Partners Bulgaria LLC vs. Greenbriar Corporation and Ronald C. Finley
---------------------------------------------------------------------------
On January 24, 2005, a lawsuit was filed in the District Court of Dallas
County, Texas by Cable Partners Bulgaria LLC ("CPB") a Colorado limited
liability company, against the Company. The lawsuit states that on October
12, 2004, CPB entered into a letter agreement with the owners of Eurocom to
acquire the assets of Eurocom, a cable operator in the city of Plovdiv,
Bulgaria. The lawsuit further indicates that the October 12, 2004, letter
outlines a time line for the completion of due diligence by CPB. The lawsuit
states that in November 2004, a conversation occurred between a
representative of CPB and Ronald Finley, CEO of both CIC and CableTEL,
during which time such representative told Mr. Finley that CPB had an
agreement to purchase Eurocom.
The lawsuit alleges that CIC intentionally and improperly caused the sellers
of Eurocom to enter into discussions with CableTEL which ultimately led to
CableTEL entering into a separate and competing contract to purchase
Eurocom. CPB alleges that the Company's interference was improper and that
CPB has been damaged in the amount of at least $5,387,400. The lawsuit
further alleges that CPB's letter agreement provided for a three-year
management agreement with the sellers of Eurocom and that CPB was further
damaged by the loss of the experience, expertise and contacts of the sellers
of Eurocom in an amount to be determined at trial. CPE further seeks
exemplary damages of an unspecified amount.
The Company believes the lawsuit is totally without merit. CableTEL had been
holding discussions, conducting due diligence and had agreements in place
with the owners of Eurocom well before either the alleged November
conversation or the October 12, 2004, letter. In addition, the Company
believes the lawsuit misstates certain key facts, which could prove to be
critical in CPB's ability to prevail in this matter.
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.
F-23
NOTE O - QUARTERLY DATA (UNAUDITED)
The table below reflects the Company's selected quarterly information for
the years ended December 31, 2003 and 2002. Certain 2003 and 2002 amounts
have been reclassified to conform to the current presentation of
discontinued operations. All amounts shown are in thousands.
Year ended December 31, 2004
First Second Third Fourth
Quarter Quarter Quarter Quarter
Revenue $ 1,806 $ 1,720 $ 1,947 $ 750
Operating expenses 1,709 1,799 1,677 1,945
Net income (loss) (175) (205) 623 (1,059)
Income (loss) allocable to common shareholders (175) (205) 623 (1,059)
Income (loss) per common share - basic and diluted (.18) (.21) .64 (1.09)
Year ended December 31, 2003
First Second Third Fourth
Quarter Quarter Quarter Quarter
Revenue $ 1,070 $ 1,118 $ 1,342 $ 1,774
Operating expenses 1,266 1,235 1,491 1,819
Net income (loss) (262) (177) 855 (194)
Income (loss) allocable to common shareholders (262) (177) 855 (194)
Income (loss) per common share - basic and diluted (.38) (.26) 1.21 (.27)
NOTE P - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
The Company's net proved oil and natural gas reserves as of December 31,
2004 and 2003 (when Gaywood was purchased), have been estimated by Company
personnel in accordance with guidelines established by the Securities and
Exchange Commission. Accordingly, the following reserve estimates were based
on existing economic and operating conditions. Oil and gas prices in effect
at December 31 of each year were used. Operating costs, production and ad
valorem taxes and future development costs were based on current costs with
no escalation.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of
development expenditures. The following reserve data represents estimates
only and should not be construed as being exact. Moreover, the present
values should not be construed as the current market value of the Company's
oil and gas reserves or the costs that would be incurred to obtain
equivalent reserves.
F-24
NOTE P - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued
Changes in Estimated Quantities of Proved Oil and Gas Reserves (Unaudited):
Crude Oil Natural Gas
Quantities of Proved Reserves: Bbls Mcf
----------------------------- ----------- -----------
Balance August 2003 500,090 --
Sales of reserves in place --
Acquired properties --
Revisions of previous estimates 29,017
Production (18,217)
----------- -----------
Balance December 31, 2003 510,890 --
Sales of reserves in place --
Acquired properties --
Revisions of previous estimates (82,971) 38,870
Production (46,849)
----------- -----------
Balance December 31, 2004 381,070 38,870
=========== ===========
Proved Developed Reserves:
Balance December 31, 2003 510,890 --
Balance December 31, 2004 381,070 38,870
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves (Unaudited)
The Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves ("Standardized Measures")
does not purport to present the fair market value of a company's oil and gas
properties. An estimate of such value should consider, among other factors,
anticipated future prices of oil and gas, the probability of recoveries in
excess of existing proved reserves, the value of probable reserves and
F-25
NOTE P - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued
acreage prospects, and perhaps different discount rates. It should be noted
that estimates of reserve quantities, especially from new discoveries, are
inherently imprecise and subject to substantial revision.
Reserve estimates were prepared in accordance with standard Security and
Exchange Commission guidelines. The future net cash flow was computed using
year-end 2004, oil and gas prices. Lease operating costs, compression,
dehydration, transportation, ad valorem taxes, severance taxes and federal
income taxes were deducted. Costs and prices were held constant and were not
escalated over the life of the properties. No deduction has been made for
interest or general corporate overhead. The annual discount of estimated
future cash flows is defined, for use herein, as future cash flows
discounted at 10% per year, over the expected period of realization.
Proved Developed Reserves were calculated based on Decline Curve Analysis on
22 operating wells and 15 non-operated wells.
During 2004, the Company continued to operate the producing wells it
acquired in 2003. The Company controls nearly 200 leases but only had 48
wells in production on December 31, 2004.
The Company controls 68 leases which were abandoned by larger oil and gas
companies in the past due to low production. The Company's operating wells
average from 70 to 360 barrels per month. Due to low production and
relatively high overhead the Company estimates that its production would be
unprofitable if the price of oil fell below $24 per barrel.
Standardized measure of discounted future net cash flows related to proved
reserves:
Year Ended December 31,
2004 2003
----------- -----------
Future production revenue $19,371,000 $16,370,000
Future development costs 83,000 285,000
Future production costs 11,394,000 11,980,000
----------- -----------
Future net cash flow before federal
income tax 7,894,000 4,105,000
Federal income tax 2,684,000 1,396,000
----------- -----------
Future net cash flows 5,210,000 2,709,000
Effect of 10% annual discounting 3,963,000 2,060,000
----------- -----------
Standardized measure of
Discounted net cash flows $ 1,247,000 $ 649,000
=========== ===========
F-26
NOTE P - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued
Changes in the standardized measure of discounted future net cash flows:
Year Ended December 31,
2004 2003
----------- -----------
Beginning of the year $ 649,000 $ --
Oil and gas sales, net of
production costs (407,000) (49,000)
Purchases of reserves in place -- 655,000
Sales reserves in place -- --
Net change in prices, net of
production costs 839,000 291,000
Changes in production rates,
timing and other
Revisions of quantity estimate 469,000
Effect of income tax (417,000) (337,000)
Accretion of discount 114,000 89,000
----------- -----------
Standardized measure of
Discounted net cash flows $ 1,247,000 $ 649,000
=========== ===========
F-27