UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 5(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
December 31, 2006
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
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(Exact name of registrant as specified in its charter)
Nevada 75-2399477
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(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
1755 Wittington Place, Suite 340
Dallas, Texas 75234
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code (972) 407-8400
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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
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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]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer ____ Accelerated filer _____Non-accelerated filer __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, 2006 (the last
business day of the Registrant's most recently completed second fiscal quarter)
was $923,780 based upon a total of 410,569 shares held as of December 31, 2006
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 March 24, 2007, there were 986,953 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
CABELTEL INTERNATIONAL CORPORATION
Index to Annual Report on Form 10-K
Fiscal year ended December 31, 2006
FORWARD-LOOKING STATEMENTS..............................................- 3 -
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PART I....................................................................- 3 -
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ITEM 1. BUSINESS......................................................- 3 -
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ITEM 1A. RISK FACTORS..................................................- 8 -
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ITEM 1B. UNRESOLVED STAFF COMMENTS.....................................- 9 -
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ITEM 2. PROPERTIES....................................................- 9 -
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ITEM 3. LEGAL PROCEEDINGS.............................................- 9 -
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........- 10 -
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PART II...................................................................- 11 -
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.............- 11 -
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ITEM 6. SELECTED FINANCIAL DATA.......................................- 13 -
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION..- 13 -
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ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...- 17 -
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ITEM 8. FINANCIAL STATEMENTS..........................................- 17 -
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE......................................- 17 -
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ITEM 9A(T). CONTROLS AND PROCEDURES...................................- 17 -
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ITEM 9B. OTHER INFORMATION............................................- 18 -
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PART III..................................................................- 19 -
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........- 19 -
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ITEM 11. EXECUTIVE COMPENSATION.......................................- 23 -
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...................................................- 24 -
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. - 25 -
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES...................... - 26 -
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PART IV.................................................................. - 28 -
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES................. .- 28 -
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SIGNATURES............................................................... - 31 -
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM................. .- 32 -
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EXHIBIT INDEX............................................................ - 56 -
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-2-
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of
the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934. The words "estimate", "plan", "intend", "expect", "anticipate", "believe"
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are found at various places throughout this
Report and in the documents incorporated herein by reference. CabelTel
International Corporation disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. Although we believe that our expectations are based
upon reasonable assumptions, we can give no assurance that our goals will be
achieved. Important factors that could cause our actual results to differ from
estimates or projects contained in any forward-looking statements are described
under ITEM 1A. RISK FACTORS beginning on page - 8 -.
PART I
ITEM 1. BUSINESS
CabelTel International Corporation ("CabelTel" or the "Company" or "we" or "us")
was incorporated in Nevada on May 31, 1991, originally under the name Medical
Resource Companies of America. The Company is the successor-by-merger to Wespac
Investors Trust, a California business trust that began operating in 1982. On
March 26, 1996, the name was changed to Greenbriar Corporation; on February 8,
2005, the name of the Company was changed to CabelTel International Corporation.
Business Operations
We own, lease and operate real estate through:
(i) leasing and operation of a retirement community in King City, Oregon,
with a capacity of 114 residents, and
(ii) ownership and operation of an outlet mall in Gainesville, Texas, with
approximately 315,000 square feet of retail space available for lease.
Real Estate
Retirement Property
The Company leases and operates Pacific Pointe Retirement Inn ("Pacific Pointe")
in King City, Oregon. Pacific Pointe has a capacity of 114 residents and
provides community living with basic services such as meals, housekeeping,
laundry, 24/7 staffing, transportation and social and recreational activities.
These residents do not yet need assistance or support with activities of daily
living but prefer the physical and psychological comfort of a residential
community of like-minded people and access to health care and other senior
oriented services.
Pacific Pointe is not required to hold a license for its independent retirement
operation.
At Pacific Pointe, the Company's marketing and sales efforts are undertaken at
the local level. These efforts are intended to create awareness of a community
and its services among prospective residents, their families, other key
decision-makers and professional referral sources.
-3-
Pacific Pointe has a stellar reputation in its community and has operated at or
near capacity for a number of years. However, the retirement housing market has
little barrier to entry and Pacific Pointe's present and potential competitors
have, or may have access to, greater financial, management and other resources
than those of the facility. There can be no assurance that competitive pressures
will not have a material adverse effect on the property.
Operating Community - The following table sets forth certain information with
respect to Pacific Pointe. The Company considers its community to be in good
operating condition and suitable for the purpose for which it is being used.
Community
Care Resident Operations
Community Location Level(1) Units Capacity(2) Commenced Ownership
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Pacific Pointe King City, OR S 114 114 1993 Leased (3)
Retirement Inn
Key:
(1) S basic support and supplemental services are offered.
(2) Reflects actual number of units for Independent Living.
(3) Leased from a partnership. Initial lease term is 10 years, expiring in
2012. The Company is responsible for all costs including repairs to
the community, property taxes and other direct operating costs of the
community. The lease includes clauses that allow for rent to increase
over time based on a specified schedule.
Repair and Maintenance - The Company conducts routine repairs and maintenance,
as needed, of its properties on a regular basis. The Company has no other
current plans for significant expenditures relating to its existing properties
and considers them to be in good repair and working order.
The Company has attracted, and continues to seek, highly dedicated and
experienced personnel. All employees are required to complete training programs
which include a core curriculum comprised of personal care basics, job related
specific training, first aid, fire safety, nutrition, infection control and
customer service. Executive Directors receive training in all of these areas,
plus marketing, community relations, healthcare management and fiscal
management. In addition to some classroom training, the Company's communities
provide new employees with on- the-job training, utilizing experienced staff as
trainers and mentors.
Outlet Shopping Mall Property
The Company's outlet mall does business as Gainesville Factory Shops ("GFS") and
is located in Gainesville, Texas. GFS has approximately 315,000 square feet of
retail space available for lease. Purchased in December 2003, GFS presented the
Company with an opportunity to make an investment at what the Company believed,
at the time, was a bargain price. The Company believed that mall traffic could
be enhanced by a more aggressive marketing effort as well as development in its
immediate Gainesville, Texas area including the opening of a restaurant and a
90-unit hotel immediately adjacent to the mall and the ongoing development and
operation of a casino four miles from the mall.
A number of shopping alternatives are available to potential customers within a
reasonable driving distance. Further, conditions which the Company cannot
control such as highway construction, economic downturn or the high price of
gasoline can have a negative impact on traffic at GFS.
Marketing is general, market wide advertising to build overall mall traffic.
Where possible, the mall coordinates this advertising with its tenant merchants'
advertising to enhance the mall as a specific destination for shoppers.
-4-
Business Strategy
In choosing investment properties, the Company's strategy is to choose a
property that can achieve and sustain a strong competitive position within its
chosen market. The Company also seeks to continue to enhance the performance of
the properties it operates directly. In its real estate properties, the Company
seeks to enhance current operations by (i) maintaining and improving occupancy
rates, (ii) opportunistically increasing rents and fees, (iii) improving
operating efficiencies and (iv) improving a property's market positioning.
The Company is a Nevada corporation which has principally been a real estate
company, owning or leasing retirement specific real estate, an outlet shopping
mall and certain oil and natural gas leases through subsidiaries. During 2006,
the Company disposed of its subsidiaries engaged in the oil and natural gas
lease and operation business. The Company seeks to re-enter the oil and natural
gas industry through an acquisition of interests in a significant block of oil
and natural gas leases in Cleburne County, Arkansas covering approximately
10,209 net acres, which the Company seeks to develop using various financing
sources. The oil and natural gas leases cover properties located in the
Fayetteville Shale area of the State of Arkansas. There is no assurance that
this acquisition will occur.
Insurance
The Company currently maintains property and liability insurance intended to
cover claims in its retirement community, outlet mall and corporate operations.
The provision of personal services entails an inherent risk of liability
compared to more institutional long-term care communities. Retirement
communities of the type operated by the Company offer residents a greater degree
of independence in their daily lives. This increased level of independence,
however, may subject the resident and the Company to certain risks that would be
reduced in a more institutionalized setting. The Company also carries property
insurance on each of its owned and leased properties.
Employees
At December 31, 2006, the Company employed, in all segments, 65 people (20
full-time and 45 part-time). The Company believes it maintains good
relationships with its employees. None of the Company's employees are
represented by a collective bargaining group.
The Company's operations are subject to the Fair Labor Standards Act. Many of
the Company's employees are paid at rates related to the minimum wage and any
increase in the minimum wage will result in an increase in labor costs.
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.
Quality Assurance
In operating a retirement community, our commitment to quality assurance is
designed to achieve a high degree of resident and family member satisfaction
with the care and services the Company provides. In addition to training and
performance reviews of all employees, the Company's quality control measures
include:
Philosophy of Management - The Company's philosophy of management is to
demonstrate by its actions and require from its employees high standards of
personal integrity, to develop a climate of openness and trust, to demonstrate
-5-
respect for human dignity in every circumstance, to be supportive in all
relationships, to promote teamwork by involving employees in the management of
their own work and to promote the free expression of ideas and opinions.
Regular Property Inspections - Property inspections are conducted by corporate
personnel. These inspections cover the appearance of the exterior and grounds,
the appearance and cleanliness of the interior, the professionalism and
friendliness of staff and notes on maintenance.
Marketing
In real estate, the Company's marketing and sales efforts are undertaken at the
local level. These are intended to create awareness of a property and its
services among prospective customers, their families and other key referral
sources. The property engages in traditional types of marketing activities such
as special events, radio spots, direct mailings, print advertising, signs and
yellow page advertising. These marketing activities and media advertisements are
directed to potential customers.
Government Regulation
Pacific Pointe is not required to hold a state license for its independent
retirement operation.
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.
Competition
The retirement industry is highly competitive and will continue to become
increasingly competitive in the future. The Company competes with other
retirement companies and numerous other companies providing similar long-term
care alternatives, such as home healthcare agencies, community-based service
programs and convalescent centers (nursing homes).
The shopping mall industry is also competitive but the Company's property in
Gainesville, Texas is geographically isolated and the Company feels that the
market will not support another mall. To be successful, an outlet mall needs to
attract shoppers from more highly populated areas at a greater distance than its
local market.
Acquisition and disposition of CableTEL AD
On October 12, 2004, the Company acquired, for 31,500 shares of newly-designated
Series J 2% Cumulative Preferred Stock (the "Series J Preferred Stock"), 74.8%
of CableTEL AD ("CableTEL"), a Bulgarian telecommunications company. The terms
of the acquisition agreement required the Company 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 have represented 90% of the resulting total issued and
outstanding shares of common stock in the Company.
The acquisition agreement, as amended, provided that the stockholders of the
Company had until June 30, 2006 to approve the exchange of Series J Preferred
Stock into the Company common stock. If the exchange was not approved by June
30, 2006, the holders of the Series J Preferred Stock had the option to rescind
the entire transaction.
-6-
Until the acquisition was completed, the financial statements of CableTEL AD
were not included in the Company's consolidated financial statements. The
financial statements of the Company at December 31, 2005 did reflect the Series
J Preferred Stock as well as a contra equity account reflecting that the
transaction had not yet occurred.
Effective June 1, 2006, the Company and the owners of CableTEL AD entered into a
Rescission Agreement whereby the original Acquisition Agreement dated October
12, 2004, as amended, was rescinded in its entirety. Pursuant to the Rescission
Agreement:
(a) The Company received back and cancelled the 31,500 shares of Series J
2% Cumulative Preferred Stock it issued.
(b) The Company returned the equity securities of all entities it had
acquired on October 12, 2004 to the original owners.
(c) A corporation affiliated with one of the original sellers assumed from
the Company all indebtedness incurred by the Company since October 1, 2004
in connection with or related to advances by the Company to CableTEL AD or
its affiliates to fund the operation of CableTEL AD. In exchange the
Company surrendered all claims it had against CableTel AD or its affiliates
for reimbursement for such advances.
(d) Ronald C. Finley, Chief Executive Officer of CableTEL AD resigned his
positions in the Company as a director, as Chairman of the Board and as
Chief Executive Officer. His resignation was effective June 1, 2006.
(e) The Company agreed that subject to its compliance with all applicable
American Stock Exchange, Inc. rules and federal securities laws, it would
in the future change its name to a name that does not include the word
"cable" or "cabel".
(f) An affiliate of one of the original sellers assumed control and
responsibility of any and all litigation involving the Company or in which
the Company is named as a party involving the Company's relationship with
the parties to the Rescission Agreement and/or CableTEL AD.
(g) All of the parties agreed to pay their own expenses with respect to any
costs associated with the Rescission Agreement.
(h) The Company received, as a "break up fee", a $1,500,000 participation
in a 9 1/2% tax free bond. The bond, with a total face value of $2,406,850,
was originally issued by an unrelated third party. In June 2006, the
Company recorded $1,467,000 as other income, representing the $1,500,000
net of expenses.
-7-
Available Information
The Company maintains an internet website at http://www.cabeltel.us. The
Company has available through the website, free of charge, Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
reports filed pursuant to Section 16 of the Securities Exchange Act of 1934
(the "Exchange Act") and amendments to those reports as soon as reasonably
practicable after we electronically file or furnish such materials to the
Securities and Exchange Commission. In addition, the Company has posted the
charters for our Audit Committee, Compensation Committee and Governance and
Nominating Committee, as well as our Code of Business Conduct and Ethics,
Corporate Governance Guidelines on Director Independence and other
information on the website. These charters and principles are not
incorporated in this Report by reference. The Company will also provide a
copy of these documents free of charge to stockholders upon request. The
Company issues Annual Reports containing audited financial statements to
its common stockholders.
ITEM 1A. RISK FACTORS
Risks Related to the Company
The retirement industry is highly competitive. Competition for residents,
employees and facilities is very keen in the retirement industry.
The shopping mall business is dependent on leasing space to successful tenants.
The Company's shopping mall in Gainesville, Texas is unique in its market but
must maintain good relationships with its current and future tenants as well as
generate adequate traffic for those tenants to be successful.
Our governing documents contain anti-takeover provisions that may make it more
difficult for a third party to acquire control of us. Our Articles of
Incorporation contain provisions designed to discourage attempts to acquire
control of the Company by a merger, tender offer, proxy contest or removal of
incumbent management without the approval of our Board of Directors. As a
result, a transaction which otherwise might appear to be in your best interests
as a stockholder could be delayed, deferred or prevented altogether, and you may
be deprived of an opportunity to receive a premium for your shares over
prevailing market rates. The provisions contained in our Articles of
Incorporation include:
* the requirement of an 80% vote to make, adopt, alter, amend, change or
repeal our Bylaws or certain key provisions of the Articles of
Incorporation that embody, among other things, the anti-takeover
provisions;
* the so-called business combination "control act" requirements
involving the Company and a person that beneficially owns 10% or more
of the outstanding common stock except under certain circumstances;
and
* the requirement of holders of at least 80% of the outstanding Common
Stock to join together to request a special meeting of stockholders.
As of December 31, 2006, officers, directors and affiliated entities owning more
than 5% of the Company's outstanding common stock owned approximately 59% of the
outstanding shares of common stock. In light of this, these anti-takeover
provisions could help entrench the existing Board of Directors and may
effectively give our management the power to block any attempted change in
control.
-8-
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company's principal offices are located at 1755 Wittington Place, Dallas,
Texas 75234 in approximately 5,000 square feet of leased space. The Company
believes its leased space is presently suitable, fully utilized and will be
adequate for the foreseeable future. The Company's retirement property and
outlet mall property are described in detail beginning on page - 3 - under ITEM
1. BUSINESS, all of which are suitable and adequate for the purpose to which
each is devoted.
ITEM 3. LEGAL PROCEEDINGS
During the fourth quarter of the fiscal year covered by this report, no
proceeding previously reported was terminated.
On December 1, 2005, Cable Partners Bulgaria, LLC ("CPB") instituted an action
in the 95th Judicial District Court of Dallas County, Texas styled Cable
Partners Bulgaria, LLC and Cable Partners Europe, LLC v. CabelTel International
Corporation f/k/a Greenbriar Corporation, Gene Phillips and Ronald C. Finley,
Cause No. 05-12021 County, Texas. The complaint alleges that a representative of
the plaintiffs talked to Ronald Finley about their possible purchase of CableTEL
AD's telecommunications systems during 2004, and that during the conversation in
November 2004, told Mr. Finley that they had an agreement to purchase Eurocom
Plovdiv EOOD ("Eurocom"). The complaint further alleges that (i) the two owners
of Eurocom (who are not defendants in this action) advised the plaintiffs that
they had agreed to sell the entity to CableTEL AD and had been paid a
non-refundable deposit; (ii) the two individuals informed CPB's representative
that they would complete the sale of Eurocom to CPB only if CableTEL AD were
unable to complete the purchase, and CPB's price increased to (euro)23,000,000
with limited further due diligence and the purchase of stock rather than assets.
Plaintiffs' complaint alleges tortiuous interference with an existing contract,
breach of contract, and seeks a temporary and permanent injunction, exemplary
damages, costs and attorneys' fees. An answer has been filed on behalf of the
Company denying all of the material allegations in the Complaint. Management
intends to vigorously defend the action, which it perceives to be without merit
as to the Company. Management also believes that the action misstates or seeks
to conveniently rearrange certain facts and events central to the controversy.
As part of the Rescission Agreement unwinding the acquisition of CableTEL AD, an
affiliate of one of the original sellers assumed control and responsibility of
any and all litigation involving the Company or in which the Company is named as
a party involving the Company's relationship with the parties to the Rescission
Agreement and/or CableTEL AD.
On June 23, 2006, Commerce and Industry Insurance Company instituted an action
against the Company and its subsidiaries, styled Commerce and Industry Insurance
Company vs. Cabeltel International Corporation DBA Greenbriar Corporation, Et Al
(Citation No. DC-06-6040-M, District Court, Dallas County, Texas), alleging an
underpayment of insurance premiums of $113,000 in 2002. The Company disagrees
with the plaintiff as to any obligation owed. Further, should an obligation be
owed the Company believes the amount would be less than the amount in the
complaint.
-9-
The ownership of property and provision of services to the public entails an
inherent risk of liability. Although the Company and its subsidiaries, from time
to time, have been and are involved in various items of litigation incidental to
and in the ordinary course of its business, in the opinion of Management, the
outcome of such litigation will not have a material adverse impact upon the
Company's financial condition, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of Stockholders was held on December 1, 2006, at which meeting
stockholders were asked to consider and vote upon the election of directors. At
the meeting, stockholders elected the following individuals as directors:
Shares Voting
Director FOR ABSTAINED
Roz Campisi Beadle 671,305 612
Gene S. Bertcher 671,301 612
James E. Huffstickler 669,635 612
Dan Locklear 671,305 612
Victor L. Lund 671,305 612
There were no broker non-votes in the election of directors at the annual
meeting.
-10-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of the Company is traded on the American Stock Exchange
("AMEX") using the symbol "GBR". The following table sets forth the high and low
sales prices as reported in the reporting system of the AMEX and other published
financial sources. (All prices have been adjusted for a 2002 stock dividend and
October 2003 stock split.)
2006 2005
High Low High Low
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First Quarter $6.10 $3.00 $6.44 $3.66
Second Quarter 2.15 1.90 8.08 4.63
Third Quarter 3.58 2.18 5.65 4.20
Fourth Quarter 3.72 2.65 4.15 2.70
On March 24, 2007, the closing price of the Company's common stock was $3.80 per
share. According to the Transfer Agent's records, at March 24, 2007 our common
stock was held by approximately 450 holders of record.
Performance Graph
The following graph compares the cumulative total return on a $100 investment in
the Company's common stock on December 31, 2002 through December 31, 2006, based
on the Company's closing stock price on December 31 for each of those years. The
same information is provided using the Standard & Poor 500 index and the Dow
Jones Total Market Index.
2002 2003 2004 2005 2006
CabelTel International
Corporation 100.00 113.24 130.64 88.38 96.67
Dow Jones US Market
Index 100.00 128.71 141.80 148.16 168.19
S&P 500 100.00 126.43 137.80 141.93 161.26
-11-
The Company paid no dividends on its common stock in 2006 or 2005. The Company
has not paid cash dividends on its common stock during at least the last ten
fiscal years and it has been the policy of the Board of Directors of the Company
to retain all earnings to pay down long-term debt and finance future expansion
and development of its businesses. The payment of dividends, if any, will be
determined by the Board of Directors in the future in light of conditions then
existing, including the Company's financial condition and requirements, future
prospects, restrictions in financing agreements, business conditions and other
factors deemed relevant by the Board of Directors.
Securities Authorized for Issuance under Equity Compensation Plans
We have two stock-based equity compensation plans that have been approved by our
stockholders. See NOTE J - STOCKHOLDERS EQUITY for a description of the plans,
the number of shares of common stock to be issued upon exercise of outstanding
stock options, the weighted average exercise price of outstanding stock options
and the number of shares of common stock remaining for future issuance under the
plans. We have no stock-based compensation plans which were adopted without the
approval of our stockholders.
Purchases of Equity Securities
The Board of Directors has not authorized the repurchase of any shares of its
common stock under any share repurchase program, except when stockholders owning
less than one round lot (100 shares) so request, the Company will purchase
shares at market closing on the last trading day prior to receipt of the
certificate(s). The following table represents shares repurchased during the
three months ended December 31, 2006.
Total No. of Shares
Repurchased as part
Weighted of Maximum No. of Shares
Total No. of Average Publicly- that May Yet Be
Shares Price Per Announced Repurchased Under the
Period Repurchased Share Program Program
10/01-31/2006 -0- -0- -0- -0-
11/01-30/2006 -1- 3.10 -1- -0-
12/01-31/2006 -0- -0- -0- -0-
-12-
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below are derived from the
Company's audited financial statements.
For the fiscal year ended December 31,
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
(dollar amounts in thousands, except per share data)
Operating revenue $ 4,268 $ 4,098 $ 4,643 $ 2,486 $ 3,300
Operating expenses 5,090 5,124 5,783 3,195 5,373
Operating profit (loss) (822) (1,026) (1,140) (709) (2,073)
Earnings (loss) from continuing
operations before income
taxes $ 1,285 $ (1,241) $ (987) $ 614 $ (2,724)
Income tax (income) expense (437) -- -- -- (749)
Earnings (loss) from continuing
operations 848 (1,241) (987) 614 (3,473)
Income (loss) from discontinued
operations 453 255 171 (392) (4,900)
NET EARNINGS (LOSS) $ 1,301 $ (986) $ (816) $ 222 $ (8,373)
Earnings (loss) per common
share - basic and diluted
Continuing operations 0.86 $(1.28) $ (1.01) $ 0.31 $ (4.88)
Discontinued operations 0.46 0.27 0.18 -- (6.79)
Net earnings (loss) per $ 1.32 $(1.01) $ (0.83) 0.31 $ (11.67)
share
Basic weighted average
common shares 987 977 977 706 718
BALANCE SHEET DATA:
Total assets $ 9,702 $ 20,080 $ 16,766 $ 18,131 $ 12,624
Long-term debt 6,078 13,560 8,338 2,053 8,479
Total liabilities 7,623 19,328 16,766 18,131 12,624
Total stockholders equity $ 2,079 $ 752 $ 1,738 $ 2,554 $ 1,351
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION
Overview
As of December 31, 2006, the Company leased one assisted living community in
Oregon, with a capacity of 114 residents. The Company also owns a 315,000 square
foot outlet mall in Gainesville, Texas.
Since 1996, the Company has owned, leased and operated assisted living and
retirement communities throughout the United States. During that period of time
the Company has both acquired and sold over seventy communities. The acquiring
and disposing of its real estate assets has been an integral part of the
Company's business.
-13-
During 2004 and 2005, the Company anticipated acquiring a cable operator
CableTEL AD. For the most part, all of its efforts were directed to that
acquisition. In June 2006, the acquisition of CableTEL AD was rescinded by the
parties and the Company received a break up fee of $1,500,000. After the
rescission of the CableTEL AD acquisition the Company began seeking new
acquisitions.
During 2006, the Company disposed of its subsidiaries engaged in the oil and
natural gas leasing and operation business. The Company seeks to re-enter the
oil and natural gas industry through an acquisition of interests in a
significant block of oil and natural gas leases in Cleburne County, Arkansas
covering approximately 10,209 net acres which the Company seeks to develop using
various financing sources. The oil and natural gas leases cover properties
located in the Fayetteville Shale area of the State of Arkansas. There is no
assurance that this acquisition will occur.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. Certain of the Company's accounting policies require the
application of judgment in selecting the appropriate assumptions for calculating
financial estimates. By their nature, these judgments are subject to an inherent
degree of uncertainty. These judgments and estimates are based upon the
Company's historical experience, current trends and information available from
other sources that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
The Company believes the following critical accounting policies are more
significant to the judgments and estimates used in the preparation of its
consolidated financial statements. Revisions in such estimates are recorded in
the period in which the facts that give rise to the revisions become known.
The Company's allowance for doubtful accounts receivable and notes receivable is
based on an analysis of the risk of loss on specific accounts. The analysis
places particular emphasis on past due accounts. Management considers such
information as the nature and age of the receivable, the payment history of the
tenant, customer or other debtor and the financial condition of the tenant or
other debtor. Management's estimate of the required allowance, which is reviewed
on a quarterly basis, is subject to revision as these factors change.
Deferred Tax Assets
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities and any valuation allowance
recorded against net deferred tax assets. The future recoverability of the
Company's net deferred tax assets is dependent upon the generation of future
taxable income prior to the expiration of the loss carry forwards. The company
believes that it will generate future taxable income to fully utilize the net
deferred tax assets.
Liquidity and Capital Resources
At December 31, 2006, the Company had current assets of $1,854,000 and current
liabilities of $1,127,000.
-14-
On December 31, cash and cash equivalents totaled $324,000 and $650,000 in 2006,
and 2005, respectively. CabelTel's principal sources of cash have been and will
continue to be property operations, proceeds from property sales and refinancing
of debt. If cash from future operations does not prove to be sufficient to
satisfy all of CabelTel's obligations, as they mature, when necessary,
management may also selectively sell income-producing properties, refinance
properties and/or incur additional borrowings secured by real estate to meet
cash requirements.
Net cash provided by (used in) continuing operating activities was ($908,000) in
2006, $38,000 in 2005 and ($2,129,000) in 2004.
Net cash provided by (used in) investing activities was ($1,219,000) in 2006,
$3,560,000 in 2005 and $734,000 in 2004. In 2006, the net cash used was
principally a cash loan to Eurenergy Resources, a related party, $1,377,000. In
addition the Company purchased an interest in a gas well in Fayetteville,
Arkansas for $118,000. In 2005 the cash provided was principally from the sale
of two assisted living facilities. In 2004, the cash provided was from the
collection of existing notes receivable of $1,579,000 less the purchase of
$845,000 in property and equipment principally at the Gainesville outlet mall.
Net cash provided by (used in) financing activities was ($204,000) in 2006,
($3,969,000) in 2005 and $1,533,000 in 2004. In 2006, the cash used was
principally for the payment of the mortgage for the Gainesville Outlet Mall. In
2005, the cash used was principally for the repayment of the mortgage
obligations on two assisted living facilities that were sold as well as the
Gainesville Outlet Mall. In 2004, the cash provided was principally from the
refinancing of the Gainesville Outlet Mall.
Net cash provided (used in) by discontinued operations was $2,005,000 in 2006,
$259,000 in 2005 and ($64,000) in 2004. In 2006 the Company sold Gaywood Oil &
Gas and received cash proceeds of $1,737,000. Additionally, in 2006, Gaywood
provided cash from operations of $268,000.
Results of Operations
Fiscal 2006 as Compared to Fiscal 2005
Revenues and Operating Expenses from operations of a retirement facility:
Revenues were $2,695,000 in 2006 as compared to $2,597,000 in 2005. Retirement
operating expenses, which consist of assisted living operations expense, lease
expense and depreciation and amortization, were $2,130,000 in 2006 as compared
to $2,006,000 in 2005.
Revenues and Operating Expenses from operations of an outlet mall: Revenues were
$1,235,000 in 2006 as compared to $1,501,000 in 2005. Operating expenses were
$1,760,000 in 2006 as compared to $1,845,000 in 2005. The decrease in revenue is
due to the net reduction in occupancy and rent adjustments for several tenants.
The increase in expenses is due to overall operating costs throughout the
operation.
Corporate General and Administrative Expense: These expenses were $1,091,000 in
2006 and $1,191,000 in 2005. During 2006, the Company reduced certain salary and
personnel expenses that existed in 2005.
Interest and Dividend Income: Interest and dividend income was $447,000 in 2006
and $700,000 in 2005. During 2006, the Company recorded interest income of
$314,000 from funds it had advanced to CabelTEL AD for operations and
acquisitions in Bulgaria as compared to 515,000 in 2005. (See discussion of
interest expense)
Interest Expense: Interest expense was $924,000 in 2006 and $1,161,000 in 2005.
During the fourth quarter of 2004 and continuing through 2005, the Company
-15-
borrowed a total of $7,200,000 which it advanced to CabelTEL AD for operations
and acquisitions in Bulgaria. The interest expense on this debt was $314,000 on
2006 as compared to $515,000 in 2005.
Other Income (Expense): Other income was $2,584,000 in 2006. In June 2006, the
Company rescinded its acquisition of CableTel AD and received a break up fee of
$1,500,000 which resulted in net income, after deducting expenses of $1,467,000.
In addition, in November 2006, the Company settled its obligation to Sylvia
Gilley and recorded a gain on such settlement of $1,021,000. Additionally, the
Company collected certain payments on certain receivables that were previously
written off.
Discontinued Operations: During 2006, the Company sold Gaywood Oil and Gas.
During 2005, the Company disposed of an assisted living community in South
Carolina. During 2004, the Company disposed of assisted living communities in
Georgia and Washington. In addition, the Company entered into a contract to sell
a third assisted living community in North Carolina, which was sold in January
2005. These were reflected as assets held for sale.
Fiscal 2005 as Compared to Fiscal 2004
Revenues and Operating Expenses from operations of a retirement facility:
Revenues were $2,597,000 in 2005, as compared to $2,566,000 in 2004. Retirement
operating expenses, which consist of assisted living operations expense, lease
expense and depreciation and amortization, were $2,006,000 in 2005 as compared
to $1,967,000 in 2004.
Revenues and Operating Expenses from the Gainesville outlet mall: In 2005,
revenues were $1,501,000 and operating expenses were $1,845,000. In 2004,
revenues were $2,077,000 and operating expenses were $2,013,000. The decrease in
revenue is due to the net reduction in occupancy and rent adjustments for
several tenants. The reduction in expenses is due to better cost control
throughout the operation. The Company acquired the mall on December 10, 2003.
Corporate General and Administrative Expense: These expenses were $1,191,000 in
2005 as compared to $1,694,000 in 2004. During 2004, the Company incurred legal
fees related to a dispute with the IRS and overall professional fees with regard
to its acquisition of the CableTEL AD. These expenses did not occur in 2005.
Interest and Dividend Income: Interest and dividend income was $700,000 in 2005
and $213,000 in 2004. During the fourth quarter of 2004 and continuing through
2005, the Company borrowed a total of $7,200,000, which it had advanced to
CabelTEL AD for operations and acquisitions in Bulgaria. The Company has a
receivable from CableTEL AD for principal and interest equivalent to the amounts
the Company has incurred.
Interest Expense: Interest expense was $1,161,000 in 2005 as compared to
$904,000 in 2004. The net increase in interest expense is primarily due to two
specific items. The Company acquired the Gainesville Outlet Mall in December
2003. When the Company acquired the mall, it was initially financed with a
short-term note with interest rates escalating from 3% to 15%. These notes were
refinanced in August 2004 through a five year note with interest at 5.85%. The
additional interest that was incurred through August 2004 was not incurred in
2005. During the fourth quarter of 2004 and continuing through 2005, the Company
borrowed a total of $7,200,000, which it had advanced to CabelTEL AD for
operations and acquisitions in Bulgaria. The additional interest in 2005
represents the interest on this debt. The Company has a receivable from CableTEL
AD for principal and interest equivalent to the amounts the Company has
incurred.
Other Income (Expense): Other income was $285,000 in 2005, which principally
represents the collection of certain receivables that were previously written
off.
Discontinued Operations: During 2005, the Company disposed of an assisted living
community in South Carolina. During 2004, the Company disposed of assisted
-16-
living communities in Georgia and Washington. In addition, the Company entered
into a contract to sell a third assisted living community in North Carolina,
which was sold in January 2005. These were reflected as assets held for sale.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All of the Company's debt is financed at fixed rates of interest. Therefore, the
Company has minimal risk from exposure to changes in interest rates.
ITEM 8. FINANCIAL STATEMENTS
The financial statements required by this Item begin at page 32 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
A review and evaluation was performed by management under the supervision and
with the participation of the Acting Principal Executive Officer and Chief
Financial Officer of the effectiveness of the Company's disclosure controls and
procedures, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934
as of December 31, 2006. Based upon that most recent evaluation, which was
completed as of the end of the period covered by this Form 10-K, the Acting
Principal Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective at December 31, 2006
to ensure that information required to be disclosed in reports that the Company
files submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and timely reported as provided in the Securities and Exchange
Commission ("SEC") rules and forms. As a result of this evaluation, there were
no significant changes in the Company's internal control over financial
reporting during the three months ended December 31, 2006 that have materially
affected or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Management Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a
process designed by, or under the supervision of, the Company's principal
executive and principal financial officers and effected by the Company's board,
management and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States ("GAAP, US") and includes those policies and
procedures that:
-17-
* pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of a
company;
* provide reasonable assurance that the transactions are recorded as necessary
to permit preparation of financial statements in accordance with GAAP, US and
that receipts and expenditures of a company are being made only in accordance
with authorizations of management and directors of a company; and
* provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of a company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of human error and the circumvention or
overriding of controls, material misstatements may not be prevented or detected
on a timely basis. Projections of any evaluation of effectiveness to future
periods are subject to the risks that controls may become inadequate because of
changes and conditions or that the degree of compliance with policies or
procedures may deteriorate. Accordingly, even internal controls determine to be
effective can provide only reasonable assurance that information required to be
disclosed in and reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and represented within the time periods
required.
Management of the Company has assessed the effectiveness of its internal control
over financial reporting at December 31, 2006. To make this assessment, the
Company used the criteria for effective internal control over financial
reporting described in Internal Control - Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based
on this assessment, management of the Company believes that as of December 31,
2006, the internal control system over financial reporting met those criteria.
This Annual Report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the SEC that
permit the Company to provide only management's report in this annual report.
Changes in Internal Control Over Financial Reporting
There has been no change in the Registrant's internal control over financial
reporting during the quarter ended December 31, 2006 that has materially
affected, or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
-18-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The affairs of the Company are managed by the Board of Directors. The directors
are elected at the Annual Meeting of Stockholders or appointed by the incumbent
Board and serve until the next Annual Meeting of Stockholders, until a successor
has been elected or approved, or until earlier resignation, removal or death.
After December 31, 2003 changes occurred involving the creation of Board
Committees, the adoption of Committee charters, the adoption of a Code of Ethics
for Senior Financial Officers and the adoption of Guidelines for Director
Independence. Also, following the acquisition of two U.S. entities in October
2004, and following the Annual Meeting of Stockholders held on October 20, 2004,
Ronald C. Finley, Chief Executive Officer of CableTEL AD was elected a director,
Chairman of the Board and Chief Executive Officer of the Company;
It is the Board's objective that a majority of the Board consists of independent
directors. For a director to be considered "independent", the Board must
determine that the director does not have any direct or indirect material
relationship with the Company. The Board has established guidelines to assist it
in determining director independence, which conform to, or are more exacting
than, the independence requirements in the American Stock Exchange listing
rules. The independence guidelines are set forth in the Company's "Corporate
Governance Guidelines". The text of this document has been posted on the
Company's internet website at http://www.cabeltel.us, and is available in print
to any stockholder who requests it. In addition to applying these guidelines,
the Board will consider all relevant facts and circumstances in making an
independent determination.
The Company has adopted a code of conduct that applies to all directors,
officers and employees, including our principal executive officer, principal
financial officer and principal accounting officer. Stockholders may find our
Code of Conduct on our internet website address at http://www.cabeltel.us. We
will post any amendments to the Code of Conduct as well as any waivers that are
required to be disclosed by the rules of the SEC or the AMEX on our website.
Our Board of Directors has adopted charters for our Audit, Compensation and
Governance and Nominating Committees of the Board of Directors. Stockholders may
find these documents on our website by going to the website address
http://www.cabeltel.us. Stockholders may also obtain a printed copy of the
materials referred to by contacting us at the following address:
CabelTel International Corporation
Attn: Investor Relations
1755 Wittington Place, Suite 340
Dallas, Texas 75234
972-407-8400 (Telephone)
-19-
The Audit Committee of the Board of Directors is an "audit committee" for the
purposes of Section 3(a) (58) of the Exchange Act. The members of that Committee
are Dan Locklear (Chairman), James Huffstickler and Victor Lund. Mr. Locklear is
qualified as an "audit committee financial expert" within the meaning of SEC
regulations and the Board has determined that he has the accounting and related
financial management expertise within the meaning of the listing standards of
the AMEX. All of the members of the Audit Committee meet the independence and
experience requirements of the listing standards of the AMEX.
All members of the Audit Committee, Compensation Committee and the Governance
and Nominating Committee must be independent directors. Members of the Audit
Committee must also satisfy additional independence requirements which provide
(i) that they may not accept, directly or indirectly, any consulting, advisory
or compensatory fee from the Company or any of its subsidiaries other than their
director's compensation (other than in their capacity as a member of the Audit
Committee, the Board of Directors or any other Committee of the Board), and (ii)
no member of the Audit Committee may be an "affiliated person" of the Company or
any of its subsidiaries, as defined by the Securities and Exchange Commission.
The current directors of the Company are listed below, together with their ages,
terms of service, all positions and offices with the Company, their principal
occupations, business experience and directorships with other companies during
the last five years or more. The designation "affiliated", when used below with
respect to a director, means that the director is an officer or employee of the
Company or one of its subsidiaries. The designation "independent", when used
below with respect to a director, means that the director is neither an officer
of the Company nor a director, officer or employee of a subsidiary of the
Company, although the Company may have certain business or professional
relationships with the director as discussed in ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.
Roz Campisi Beadle, age 50, (Independent) Director since December 2003
Ms. Beadle is Executive Vice President of Unified Housing Foundation and a
licensed realtor. She has a background in public relations and marketing. Ms.
Beadle is also extremely active in various civic and community services and is
currently working with the Congressional Medal of Honor Society and on the Medal
of Honor Host City Committee in Gainesville, Texas.
Gene S. Bertcher, age 58, (Affiliated) Director November 1989 to September 1996
and since June 1999
Mr. Bertcher was elected President and Chief Financial Officer effective
November 1, 2004. He was elected Chairman and Chief Executive Officer in
December 2006. Mr. Bertcher has been Chief Financial Officer and Treasurer of
the Company since November 1989 and Executive Vice President from November 1989
until he was elected President in 2003. He has been a certified public
accountant since 1973.
James E. Huffstickler, age 64, (Independent) Director since December 2003
Mr. Huffstickler has been Chief Financial Officer of Sunchase America, Ltd., a
multi-state property management company, for more than five years. He is a
-20-
graduate of the University of South Carolina and was formerly employed by
Southmark Management, Inc., a nationwide real estate management company. Mr.
Huffstickler has been a certified public accountant since 1976.
Dan Locklear, age 55, (Independent) Director since December 2003
Mr. Locklear has been Chief Financial Officer of Sunridge Management Group, a
real estate management company, for more than five years. Mr. Locklear was
formerly employed by Johnstown Management Company, Inc. and Trammel Crow
Company. Mr. Locklear has been a certified public accountant since 1981 and a
licensed real estate broker in the State of Texas since 1978.
Victor L. Lund, age 78, (Independent) Director since March 1996
Mr. Lund founded Wedgwood Retirement Inns, Inc. ("Wedgwood") in 1977, which
became a wholly owned subsidiary of the Company in 1996. For most of Wedgwood's
existence, Mr. Lund was Chairman of the Board, President and Chief Executive
Officer, positions he held until Wedgwood was acquired by the Company. Mr. Lund
is President and Chief Executive Officer of Wedgwood Services, Inc., a
construction services company not affiliated with the Company.
Board Committees
The Board of Directors held six meetings during 2006. For such year, no
incumbent director attended fewer than 75% of the aggregate of (i) the total
number of meetings held by the Board during the period for which he or she had
been a director, and (ii) the total number of meetings held by all Committees of
the Board on which he or she served during the period that he or she served.
The Board of Directors has standing Audit, Compensation and Governance and
Nominating Committees. The Audit Committee was formed on December 12, 2003, and
its function is to review the Company's operating and accounting procedures. A
Charter of the Audit Committee has been adopted by the Board. The current
members of the Audit Committee, all of whom are independent within the SEC
regulations, the listing standards of the AMEX and the Company's Corporate
Governance Guidelines are Messrs. Locklear (Chairman), Huffstickler and Lund.
Mr. Dan Locklear is qualified as an Audit Committee financial expert within the
meaning of SEC regulations, and the Board has determined that he has the
accounting and related financial management expertise within the meaning of the
listing standards of the AMEX. The Audit Committee met once in 2006.
The Governance and Nominating Committee is responsible for developing and
implementing policies and practices relating to the corporate governance,
including reviewing and monitoring implementation of the Company's Corporate
Governance Guidelines. In addition, the Committee develops and reviews
background information on candidates for the Board and makes recommendations to
the Board regarding such candidates. The Committee also prepares and supervises
the Board's annual review of director independence and the Board's performance
and self-evaluation. The Charter of the Governance and Nominating Committee was
adopted on October 20, 2004. The members of the Committee are Messrs.
Huffstickler (Chairman), Lund and Ms. Beadle. The Governance and Nominating
Committee met once in 2006.
-21-
The Board has also formed a Compensation Committee of the Board of Directors,
adopted a Charter for the Compensation Committee on October 20, 2004, and
selected Ms. Beadle (Chairman) and Messrs. Huffstickler and Locklear as members
of that Committee. The Compensation Committee met once in 2006.
The members of the Board of Directors at the date of this Report and the
Committees of the Board on which they serve are identified below:
-------------------------------------------------------------------------------
Governance and Compensation
Director Audit Committee Nominating Committee Committee
Roz Campisi Beadle |X| Chairman
Gene S. Bertcher
James E. Huffstickler |X| Chairman |X|
Dan Locklear Chairman |X|
Victor L. Lund |X| |X|
--------------------------------------------------------------------------------
Executive Officers
The following persons currently serve as executive officers of the Company: Gene
S. Bertcher, Chairman of the Board, President, Chief Executive Officer and Chief
Financial Officer; and Oscar Smith, Vice President and Secretary. Their
positions with the Company are not subject to a vote of stockholders. Their
ages, terms of service and all positions and offices with the Company, other
principal occupations, business experience and directorships with other
companies during the last five years or more are listed below. For information
relating to Mr. Bertcher, see the description under the caption "Directors"
above.
Oscar Smith, age 64, Secretary (since December 2001), Vice President (since
1994)
Mr. Smith has been Secretary of the Company since December 2001. He has been
Vice President of the Company since June 1994. Prior to joining the Company he
owned and operated a multi-unit retail and manufacturing business in Norfolk,
Virginia.
In addition to the foregoing officers, the Company has other officers not listed
herein who are not considered executive officers.
Code of Ethics
The Board of Directors has adopted a code of ethics entitled "Code of Business
Conduct and Ethics" that applies to all directors, officers and employees of the
Company and its subsidiaries. In addition, the Company has adopted a code of
ethics entitled "Code of Ethics for Senior Financial Officers" that applies to
the principal executive officer, president, principal financial officer, chief
financial officer, principal accounting officer and controller. The text of
these documents is posted on the Company's internet website address at
http://www.cabeltel.us and is available in print to any stockholder who requests
them.
-22-
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company pursuant
to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"), or upon written representations received by the Company, the
Company is not aware of any failure by any director, officer or beneficial owner
of more than 10% of the Company's common stock to file with the Securities and
Exchange Commission on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth the compensation in all categories paid by the
Company for services rendered during the fiscal years ended December 31, 2006,
2005 and 2004 by the Chief Executive Officer of the Company and to the other
executive officers and Directors of the Company whose total annual salary in
2006 exceeded $100,000, the number of options granted to any of such persons
during 2006 and the value of the unexercised options held by any of such persons
on December 31, 2006.
SUMMARY COMPENSATION TABLE
Change in
Pension
Non- Value and
Name Equity Nonqualified
and Incentive Deferred All
Principal Stock Option Plan Compensation Other
Position Year Salary Bonus Awards Awards Compensation Earnings Compensation Total
Gene S. Bertcher 2006 $ 186,000 $ 186,000
Chairman, President
Chief Executive
Officer
& Chief Financial
Officer
2005 186,000 186,000
2004 137,000 137,000
GRANTS OF PLAN-BASED AWARDS
None
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
None
OPTION EXERCISES AND STOCK VESTED
None
PENSION BENEFITS
None
NONQUALIFIED DEFERRED COMPENSATION
No
-23-
DIRECTOR COMPENSATION
Change in
Pension
Value and
Non-Equity Nonqualified
Fees Earned Incentive Deferred
Or Paid in Stock Option Plan Compensation All Other
Name Cash Awards Awards Compensatio Earnings Compensation Total
Roz Campisi Beadle $ 8,500 $ 8,500
Gene S. Bertcher -- --
James E. Huffstickler 8,500 8,500
Dan Locklear 8,500 8,500
Victor L. Lund 8,500 8,500
MANAGEMENT AND CERTAIN SECURITY HOLDERS
None
Stock Option Plan
The Board of Directors administers the Company's 1997 Stock Option Plan (the
"1997 Plan") and the 2000 Stock Option Plan (the "2000 Plan"), each of which
provide for grants of incentive and non-qualified stock options to the Company's
executive officers, as well as its directors and other key employees and
consultants. Under the two Plans, options are granted to provide incentives to
participants to promote long-term performance of the Company and specifically,
to retain and motivate senior management in achieving a sustained increase in
stockholder value. Currently, none of the Plans has a pre-set formula or
criteria for determining the number of options that may be granted. The exercise
price for an option granted is determined by the Compensation Committee, in an
amount not less than 100% of the fair market value of the Company's common stock
on the date of grant. The Compensation Committee reviews and evaluates the
overall compensation package of the executive officers and determines the awards
based on the overall performance of the Company and the individual performance
of the executive officers. The Company's stock plans total 50,000 shares of
common stock under the 1997 Plan and 50,000 shares of common stock under the
2000 Plan. Options have been granted for all shares reserved under the 1997 Plan
and 10,000 shares for the 2000 Plan.
Compensation of Directors
The Company pays each non-employee director a fee of $2,500 per year, plus a
meeting fee of $2,000 for each board meeting attended. Company employee
directors serve with no fees being paid.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2006, certain information
with respect to all stockholders known by the company to own beneficially more
than 5% of the outstanding common stock, which is the only outstanding class of
securities of the Company, except for Series B Preferred Stock (the ownership of
which is immaterial), as well as information with respect to the Company's
common stock owned beneficially by each director and current executive officers,
whose compensation from the company in 2005 exceeded $100,000, and by all
-24-
directors and executive officers as a group. Unless otherwise indicated, each of
these stockholders has sole voting and investment power with respect to the
shares beneficially owned.
Common Stock
------------------------------------
Name of Beneficial Owner No. of Shares Percent of Class*
--------------------------------------------------------------------------------
HKS Investment Corp. (1) 108,994 11.04%
Gene S. Bertcher(2) 71,811 7.28%
Roz Campisi Beadle 100 **
James E. Huffstickler - -
Dan Locklear - -
JRG Investment Company, Inc.(3)(5) 156,884 15.89%
TacCo Financial, Inc.(3)(4)(6) 228,726 23.17%
International Health Products, Inc.(3)(7) 9,770 **
All executive officers and directors
as a group (six persons) 180,905 18.33%
-----------------------
* Based on 976,955 shares of common stock outstanding at March 31, 2006. ** Less
than 1%.
(1) Consists of 108,994 shares of common stock owned by HKS Investment
Corporation ("HKS"). According to an original statement on Schedule
13D dated January 9, 2006, the group consists of HKS Investment
Corporation, David Hensel, John Kellar and Marshall Stagg, each of
whom are deemed to be the beneficial owner of all 108,994 shares.
Hensel is stated to be a shareholder, director and President of HKS;
Kellar is a shareholder, director, Vice President and Treasurer of
HKS; and Stagg is a shareholder, director and Secretary of HKS.
(2) Consists of 71,811 shares of common stock owned by Mr. Bertcher.
(3) Based on a Schedule 13D, amended December 14, 2004, filed by each of
these entities and by Gene E. Phillips, an individual; each of these
entities owns of record the number of shares set forth for such entity
in the table. The amended Schedule 13D indicates that these entities,
Mr. Phillips and Basic Capital Management, Inc., collectively, may be
deemed a "Person" within the meaning of Section 13D of the Securities
Exchange Act of 1934.
(4) Consists of 228,726 shares of common stock (which does not include
156,884 shares held by JRG Investment Company, Inc. or an option to
40,000 shares of common stock at an exercise price of $2.60 per
share). TacCo Financial, Inc. also holds a warrant to purchase 170,000
shares at $3.58 per share, exercisable only after stockholder approval
to exchange the Company's Series J 2% Preferred Stock for common stock
before October 1, 2005, and not exercisable if such approval does not
occur.
(5) Officers and Directors of JRG Investment Co., Inc. ("JRG") are J. T.
Tackett, Director, President and Treasurer and E. Wayne Starr,
Director, Chairman and Chief Executive Officer. JRG is a wholly owned
subsidiary of TacCo Financial, Inc.
(6) Officers and Directors of TacCo Financial, Inc. ("TFI") are J.T.
Tackett, Director, Chairman and CEO; Wayne Starr, Director, President
and Treasurer and R. Neil Crouch II, Vice President and Secretary.
TFI's stock is owned by Electrical Networks, Inc. (75%) and Starr
Investments (25%).
(7) Officers and Directors of International Health Products, Inc. ("IHPI")
are R. Neil Crouch II, Director, President and Treasurer and Cecelia
Maynard, Secretary. IHPI is wholly owned by a trust for the benefit of
the wife and children of Gene E. Phillips.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 2006, the Company loaned Eurenergy Resources Corporation $1,377,000. The
Company received a demand note with interest of 8% per annum.
-25-
In October 2004, the Company issued Series J 2% Preferred Stock to acquire 74.8%
of CableTEL AD. Certain of the holders of the Series J 2% Preferred Stock are
deemed to be related parties with the Company. In June 2006, the transaction was
rescinded.
It is the policy of the Company that all transactions between the Company and
any officer or director, or any of their affiliates, must be approved by
non-management members of the Board of Directors of the Company. All of the
transactions described above were so approved.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the aggregate fees for professional services
rendered to the Company for the years 2006 and 2005 by the Company's principal
accounting firms, Grant Thornton & Company and Farmer, Fuqua & Huff, PC:
Type of Fees 2006 2005 (a)
Audit Fees $106,046 $ 72,062
Audit Related Fees -- --
Tax Fees 9,625 9,973
All Other Fees -- --
Total Fees $115,671 $ 82,035
(a) The amount of audit fees paid in 2005 was $68,151 to Farmer Fuqua
& Huff PC and $3,911 to Grant Thornton. The tax fees paid in 2005
were to Farmer, Fuqua & Huff PC.
All services rendered by the principal auditors are permissible under applicable
laws and regulations and were pre-approved by either of the Board of Directors
or the Audit Committee, as required by law. The fees paid to principal auditors
for services described in the above table fall under the categories listed
below:
Audit Fees: These are fees for professional services performed by the
principal auditor for the audit of the Company's annual financial
statements and review of financial statements included in the Company's
Form 10-Q filings and services that are normally provided in connection
with statutory and regulatory filings or engagements.
Audit-Related Fees: These are fees for assurance and related services
performed by the principal auditor that are reasonably related to the
performance of the audit or review of the Company's financial statements.
These services include attestation by the principal auditor that is not
required by statute or regulation and consulting on financial
accounting/reporting standards.
Tax Fees: These are fees for professional services performed by the
principal auditor with respect to tax compliance, tax planning, tax
consultation, returns preparation and reviews of returns. The review of tax
returns includes the Company and its consolidated subsidiaries.
All Other Fees: These are fees for other permissible work performed by the
principal auditor that does not meet the above category descriptions.
-26-
These services are actively monitored (as to both spending level and work
content) by the Audit Committee to maintain the appropriate objectivity and
independence in the principal auditor's core work, which is the audit of the
Company's consolidated financial statements.
Financial Information Systems Design and Implementation Fees
Farmer, Fuqua & Huff, P.C. did not render any professional services to the
Company in 2006 with respect to financial information systems design and
implementation.
Under the Sarbanes-Oxley Act of 2002 (the "SO Act"), and the rules of the
Securities and Exchange Commission (the "SEC"), the Audit Committee of the Board
of Directors is responsible for the appointment, compensation and oversight of
the work of the independent auditor. The purpose of the provisions of the SO Act
and the SEC rules for the Audit Committee's role in retaining the independent
auditor is two-fold. First, the authority and responsibility for the
appointment, compensation and oversight of the auditors should be with directors
who are independent of management. Second, any non-audit work performed by the
auditors should be reviewed and approved by these same independent directors to
ensure that any non-audit services performed by the auditor do not impair the
independence of the independent auditor. To implement the provisions of the SO
Act, the SEC issued rules specifying the types of services that an independent
may not provide to its audit client, and governing the Audit Committee's
administration of the engagement of the independent auditor. As part of this
responsibility, the Audit Committee is required to pre-approve the audit and
non-audit services performed by the independent auditor in order to assure that
they do not impair the auditor's independence. Accordingly, the Audit Committee
has adopted a pre-approval policy of audit and non-audit services (the
"Policy"), which sets forth the procedures and conditions pursuant to which
services to be performed by the independent auditor are to be pre-approved.
Consistent with the SEC rules establishing two different approaches to
pre-approving non-prohibited services, the Policy of the Audit Committee covers
pre-approval of audit services, audit-related services, international
administration tax services, non-U.S. income tax compliance services, pension
and benefit plan consulting and compliance services, and U.S. tax compliance and
planning. At the beginning of each fiscal year, the Audit Committee will
evaluate other known potential engagements of the independent auditor, including
the scope of work proposed to be performed and the proposed fees, and the
approve or reject each service, taking into account whether services are
permissible under applicable law and the possible impact of each non-audit
service on the independent auditor's independence from management. Typically, in
addition to the generally pre-approved services, other services would include
due diligence for an acquisition that may or may not have been known at the
beginning of the year. The Audit Committee has also delegated to any member of
the Audit Committee designated by the Board or the financial expert member of
the Audit Committee responsibilities to pre-approve services to be performed by
the independent auditor not exceeding $25,000 in value or cost per engagement of
audit and non-audit services, and such authority may only be exercised when the
Audit Committee is not in session.
-27-
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
(1) FINANCIAL STATEMENTS: The following financial statements of the Registrant
and the Report of Independent Public Accountants therein are filed as part
of this Report on Form 10-K:
Report of Farmer, Fuqua & Huff, P.C....................................32
Consolidated Balance Sheets............................................33
Consolidated Statement of Operations...................................35
Consolidated Statements of Cash Flows..................................36
Consolidated Statement of Changes in Stockholders' Equity..............38
Notes to Consolidated Financial Statements.............................39
(2) FINANCIAL STATEMENT SCHEDULES: Other financial statement schedules have
been omitted because the information required to be set forth therein is
not applicable, is immaterial or is shown in the consolidated financial
statements or notes thereto.
(3) EXHIBITS
The following documents are filed as exhibits (or are incorporated by reference
as indicated) into this Report:
Exhibit Designation Exhibit Description
3.1 Articles of Incorporation of Medical Resource Companies of
America (incorporated by 3.1 reference to Exhibit 3.1 to
Registrant's Form S-4 Registration Statement No. 333-55968
dated December 21, 1992)
3.2 Amendment to the Articles of Incorporation of Medical
Resource Companies of America (incorporated by reference to
Exhibit 3.5 to Registrant's Form 8-K dated April 1, 1993)
3.3 Restated Articles of Incorporation of Greenbriar Corporation
(incorporated by reference to Exhibit 3.1.1 to Registrant's
Form 10-K dated December 31, 1995)
-28-
3.4 Amendment to the Articles of Incorporation of Medical
Resource Companies of America (incorporated by reference to
Exhibit to Registrant's PRES 14-C dated February 27, 1996)
3.5 Bylaws of Registrant (incorporated by reference to Exhibit
3.2 to Registrant's Form S-4 Registration Statement No.
333-55968 dated December 21, 1992)
3.6 Amendment to Section 3.1 of Bylaws of Registrant adopted
October 9, 2003 (incorporated by reference to Exhibit 3.2.1
to Registrant's Form S-4 Registration Statement No.
333-55968 dated December 21, 1992)
3.7 Certificate of Decrease in Authorized and Issued Shares
effective November 30, 2001 (incorporated by reference to
Exhibit 2.1.7 to Registrant's Form 10-K dated December 31,
2002)
3.8 Certificate of Designations, Preferences and Rights of
Preferred Stock dated May 7, 1993 relating to Registrant's
Series B Preferred Stock (incorporated by reference to
Exhibit 4.1.2 to Registrant's Form S-3 Registration
Statement No. 333-64840 dated June 22, 1993)
3.9 Certificate of Voting Powers, Designations, Preferences and
Rights of Registrant's Series F Senior Convertible Preferred
Stock dated December 31, 1997 (incorporated by reference to
Exhibit 2.2.2 of Registrant's Form 10-KSB for the fiscal
year ended December 31, 1997)
3.10 Certificate of Voting Powers, Designations, Preferences and
Rights of Registrant's Series G Senior Non-Voting
Convertible Preferred Stock dated December 31, 1997
(incorporated by reference to Exhibit 2.2.3 of Registrant's
Form 10-KSB for the fiscal year ended December 31, 1997)
3.11 Certificate of Designations dated October 12, 2004 as filed
with the Secretary of State of Nevada on October 13, 2004
(incorporated by reference to Exhibit 3.4 of Registrant's
Current Report on Form 8-K for event occurring October 12,
2004)
3.12 Certificate of Amendment to Articles of Incorporation
effective February 8, 2005 (incorporated by reference to
Exhibit 3.5 of Registrant's Current Report on Form 8-K for
event occurring February 8, 2005)
3.13 Certificate of Amendment to Articles of Incorporation
effective March 21, 2007 (incorporated by reference to
Exhibit 3.13 of Registrant's Current Report on Form 8-K for
event occurring March 21, 2005)
10.1 Registrant's 1997 Stock Option Plan (filed as Exhibit 4.1 to
Registrant's Form S-8 Registration Statement, Registration
No. 333-33985 and incorporated herein by this reference).
10.2 Registrant's 2000 Stock Option Plan (filed as Exhibit 4.1 to
Registrant's Form S-8 Registration Statement, Registration
No. 333-50868 and incorporated herein by this reference)
-29-
10.3 Form of Umbrella Agreement between Greenbriar Corporation,
James R. Gilley and Jon Harder, Sunwest Management, Inc. et
al
10.4 Form of Acquisition Agreement between Greenbriar
Corporation, Ronald Finley, Jeffery A. Finley, Bradford A.
Phillips and Gene E. Phillips dated October 12, 2004
(incorporated by reference to Exhibit 10.1 of Registrant's
Current Report on Form 8-K for event occurring October 12,
2004)
10.5 Amendment No. 1 to Acquisition Agreement effective July 29,
2005 among CabelTel International Corporation, Ronald C.
Finley, Jeffrey A. Finley, Bradford A. Phillips, Gene E.
Phillips, joined by CIC Investment, LLC and PSII Management,
LLC (incorporated by reference to Exhibit 10.2 of
registrants current report on Form 8-K for event occurring
July 29, 2005)
10.6 Warrant to Purchase 20,000 shares of Common Stock issued
October 20, 2004 (incorporated by reference to Exhibit 10.5
of registrants annual report of Form 10-K for the fiscal
year ended December 31, 2004)
10.7 Warrant to Purchase 170,000 shares of Common Stock issued
October 20, 2004 (incorporated by reference to Exhibit 10.5
of registrants annual report of Form 10-K for the fiscal
year ended December 31, 2004)
14.0 Code of Ethics for Senior Financial Officers (incorporated
by reference to Exhibit 14.0 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2003)
21.1* Subsidiaries of the Registrant
23.1* Consent of Farmer, Fuqua & Hunt, P.C.
31.1* Rule 13a-14(a) Certification by Chief Executive Officer
32.1* Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. ss.1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
*Filed herewith.
-30-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized
CABELTEL INTERNATIONAL CORPORATION
March 30, 2007 by: /s/ Gene S. Bertcher
---------------------------------------
Gene S. Bertcher
President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
/s/ Gene S. Bertcher President, Chairman, Chief Executive March 30, 2007
-------------------- Officer, Chief Financial Officer and
Gene S. Bertcher Director
/s/ Roz Campisi Beadle Director March 30, 2007
-------------------------
Roz Campisi Beadle
/s/ James Huffstickler Director March 30, 2007
----------------------
James Huffstickler
/s/ Dan Locklear Director March 30, 2007
----------------
Dan Locklear
/s/ Victor Lund March 30, 2007
------------------ Director
Victor Lund
-31-
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, 2006, and 2005, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 2006. 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, 2006, and 2005, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2006 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ FARMER FUQUA & HUFF, P.C.
Plano, Texas March 30, 2007
-32-
CabelTel International Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
CabelTel International Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31,
-----------------
Assets 2006 2005
------- -------
Current assets
Cash and cash equivalents $ 324 $ 650
Accounts receivable - trade 31 339
Note and interest receivable - related party 1,428 --
Notes receivable -- 306
Other current assets, net 71 179
------- -----
Total current assets 1,854 1,474
Notes receivable net of deferred income -- 309
Property and equipment, at cost
Land and improvements 2,237 2,232
Buildings and improvements 5,240 5,298
Equipment and furnishings 315 292
Proven oil and gas properties (full cost method) -- 1,401
------- -------
7,792 9,223
Less accumulated depreciation, depletion, and amortization 959 963
------- -------
6,833 8,260
Deferred tax asset 491 1,161
Due from CableTEL AD - related party -- 8,004
Deposits 146 129
Other assets 378 743
------- -------
Total Assets $ 9,702 $20,080
======= =======
The accompanying notes are an integral part
of these statements.
-33-
CabelTel International Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Amounts in thousands, except share amounts)
December 31,
====================================================================== --------------------------------
Liabilities And Stockholders' Equity 2006 2005
------------- --------------
Current liabilities
Current maturities of long-term debt $ 135 $ 2,383
Accounts payable - trade 500 842
Accrued expenses 339 1,236
Other current liabilities 153 371
------------- --------------
Total Current Liabilities 1,127 4,832
Long-term debt 6,078 13,560
Other long-term liabilities 418 936
------------- --------------
Total liabilities 7,623 19,328
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, 986,953 shares at
December 31, 2006 and 976,955 shares at
December 31, 2005 10 10
Additional paid-in capital 55,992 55,966
Accumulated deficit (53,924) (55,225)
------------- --------------
2,079 752
------------- --------------
Total Liabilities & Equity $ 9,702 $ 20,080
============= ==============
The accompanying notes are an integral part of these statements.
-34-
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Year Ended
December 31,
------------------------------------------------------
2006 2005 2004
---------------- -------------- -------------
Revenue
Real estate operations $ 4,268 $ 4,098 $ 4,643
---------------- -------------- -------------
Operating expenses
Real estate operations 3,060 3,001 3,172
Lease expense 939 932 917
Corporate general and administrative 1,091 1,191 1,694
---------------- -------------- -------------
---------------- -------------- -------------
Operating earnings (loss) (822) (1,026) (1,140)
Other income (expense)
Interest income 447 700 213
Interest expense (924) (1,161) (904)
Gain (loss) on sale of assets, net -- (39) 1,247
Other income (expense), net 2,584 285 (403)
---------------- -------------- -------------
2,107 (215) 153
---------------- -------------- -------------
Earnings (loss) from continuing operations 1,285 (1,241) (987)
Provision for income taxes (437) -- --
---------------- -------------- -------------
Net income (loss) from continuing operations 848 (1,241) (987)
Discontinued operations
Gain from operations (net of $91 income tax in 2006) 177 337 (38)
Gain from sale of assets (net of $142 income tax in 2006) 276 (82) 209
---------------- -------------- -------------
Net gain (loss) from discontinued operations 453 255 171
---------------- -------------- -------------
Net income (loss) applicable to common shares 1,301 (986) (816)
================ ============== =============
Earnings (loss) per common share - basic and diluted
Continuing operations $ 0.86 $ (1.27) $ (1.01)
Discontinued operations 0.46 0.26 0.17
---------------- -------------- -------------
Net earnings (loss) per share $ 1.32 $ (1.01) $ (0.84)
================ ============== =============
Weighted average common and equivalent shares 987 977 977
outstanding - basic and diluted
The accompanying notes are an integral part of these statements.
-35-
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year ended December 31,
-----------------------
2006 2005 2004
---- ---- ----
Cash flows from operating activities
Net earnings (loss) from continuing operations $ 848 $(1,241) $ (987)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 369 389 246
Depreciation from assets classified as
discontinued operations -- 121 323
(Gain) loss from affiliates (1,500) -- (1,247)
(Gain) from settlement with Sylvia Gilley (1,303)
(Gain) loss on sale of assets -- 39 --
Change in deferred tax asset 437
Write-down of impaired assets -- -- 147
Changes in operating assets and liabilities
Accounts receivable - trade 308 (117) (122)
Other current and non-current assets 77 (299) (132)
Accounts payable and other liabilities (144) 1,146 (357)
------- ------- -------
Net cash provided by (used) in operating activities (908) 38 (2,129)
Cash flows from investing activities
Funding of a note receivable (1,377) -- --
Investment in gas well (118) -- --
Purchase of property and equipment, net (30) (47) (845)
Net repayment of notes receivable 306 550 1,579
Proceeds from sale of other real estate -- 1,147 --
Proceeds from sale of properties -- 1,910 --
------- ------- -------
Net cash provided by (used in) investing activities (1,219) 3,560 734
------- ------- -------
Cash flows from financing activities
Proceeds from common stock issuance 26 -- --
Proceeds from borrowings -- 6,500
Payments on debt (230) (3,831) (5,591)
Distributions from equity partnerships'
financing cash flow -- -- 507
Repurchase of common stock -- -- --
Net advances from affiliates -- (138) 117
------- ------- -------
Net cash provided by (used in)
financing activities (204) (3,969) 1,533
------- ------- -------
Cash flows from discontinued operations
Cash provided by operating activities 268 259 (64)
Cash provided by investing activities -
proceeds from sale 1,737 -- --
------- ------- -------
Net cash provided by (used in) discontinued
operations 2,005 259 (64)
Net increase (decrease) in cash
and cash equivalents (326) (112) 74
Cash and cash equivalents at beginning of year 650 762 688
------- ------- -------
Cash and cash equivalents at end of year $ 324 $ 650 $ 762
The accompanying notes are an integral part of these statements
-36-
December 31,
----------------------------
2006 2005 2004
---- ---- ----
Supplemental information on cash flows is as follows:
Interest paid $ 380 $ 370 $ 705
Non-cash investing and financing activities:
Notes payable dissolved under rescission (7,245) -- --
Interest payable dissolved under rescission (991) -- --
Funds due from affiliate dissolved under rescission 8,236 -- --
Notes receivable funded under rescission 1,500 -- --
Notes payable cancelled under Gilley settlement (2,255) -- --
Interest payable cancelled under Gilley settlement (857) -- --
Notes receivable transferred to Gilleys 1,809 -- --
Disposal of property to satisfy debt -- -- 935
Notes payable agreed by buyer on sale of real estate -- -- 906
The accompanying notes are an integral part of this statement.
-37-
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, 2004 1 1 -- -- -- -- 977 10
Net loss
Issuance of Series J
-- 32 3,150 (32) (3,150)
Preferred Stock -- -- --
Net loss -- -- -- -- -- -- -- --
-------- ---------- -------- ---------- -------- ---------- --------- ---------
Balance at December 31, 2004 1 1 32 3,150 (32) (3,150) 977 10
Net loss
-------- ---------- -------- ---------- -------- ---------- --------- ---------
Balance at December 31, 2005
1 1 32 3,150 (32) (3,150) 977 10
Rescission of Series J
Preferred Stock (32) (3,150) 32 3,150
Exercised stock option 10 --
Net income
Balance at December 31, 2006 1 1 -- -- -- -- 987 10
The accompanying notes are an integral part of this statement.
-38-
Additional Accum-
paid in ulated
capital deficit Total
----------- ----------- --------
Balance at January 1, 2004 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
Net loss (986) (986)
----------- -- ----------- -- --------
Balance at December 31, 2005
55,966 (55,225) 752
Rescission of Series J
Preferred Stock
Exercised stock option 26 26
Net income 1,301 1,301
Balance at December 31, 2006 55,992 (53,924) 2,079
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
The accompanying Consolidated Financial Statements of CabelTel International
Corporation and consolidated entities were prepared in conformity with
accounting principles generally accepted in the United States of America, the
most significant of which are described in NOTE B. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES. The Notes to Consolidated Financial Statements are an
integral part of these Consolidated Financial Statements. The data presented in
the Notes to Consolidated Financial Statements are as of December 31, of each
year and for the year then ended, unless otherwise indicated. Dollar amounts in
tables are in thousands, except per share amounts.
Certain balances for 2004 and 2005 have been reclassified to conform to the 2006
presentation.
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 "the
Company" or "CIC").
Acquisition and disposition of CableTEL AD
On October 12, 2004, the Company acquired, for 31,500 shares of newly-designated
Series J 2% Preferred Stock, 74.8% of CableTEL AD ("CableTEL"), a Bulgarian
telecommunications company. The terms of the Acquisition Agreement required the
Company to present a proposal to its stockholders to approve the mandatory
exchange of all shares of Series J 2% Preferred Stock into 8,788,500 shares of
common stock which, if approved by stockholders, would have represented 90% of
the resulting total issued and outstanding shares of common stock in the
Company.
The Acquisition Agreement, as amended, provided that the stockholders of the
Company had until June 30, 2006 to approve the exchange of Series J 2% Preferred
Stock into the Company common stock. If the exchange was not approved by June
30, 2006, the holders of the Series J 2% Preferred Stock had the option to
rescind the entire transaction.
Until the acquisition was completed, the financial statements of CableTEL AD
were not included in the Company's consolidated financial statements. The
financial statements of the Company at December 31, 2005 did reflect the Series
J 2% Preferred Stock as well as a contra equity account reflecting that the
transaction had not yet occurred.
Effective June 1, 2006, the Company and the owners of CableTEL AD entered
into a Rescission Agreement whereby the original Acquisition Agreement
dated October 12, 2004, plus all amendments, was rescinded in its entirety.
-39-
Pursuant to the Rescission Agreement:
(a) The Company received back and cancelled the 31,500 shares of Series J 2%
Cumulative Preferred Stock it issued.
(b) The Company returned the equity securities of all entities it had acquired
on October 12, 2004 to the original owners.
(c) A corporation affiliated with one of the original sellers assumed from the
Company all indebtedness incurred by the Company since October 1, 2004 in
connection with or related to advances by the Company to CableTEL AD or its
affiliates to fund the operation of CableTEL AD. In exchange, the Company
surrendered all claims it had against CableTel AD or its affiliates for
reimbursement for such advances.
(d) Ronald C. Finley, Chief Executive Officer of CableTEL AD and one of the
original sellers, resigned his positions in the Company as a director, as
Chairman of the Board and as Chief Executive Officer. His resignation was
effective June 1, 2006.
(e) The Company agreed that, subject to its
compliance with all applicable American Stock Exchange, Inc. rules and
federal securities laws, it would in the future change its name to a name
that does not include the word "cable" or "cabel".
(f) An affiliate of one of the original sellers assumed control and
responsibility of any and all litigation involving the Company or in which the
Company is named as a party involving the Company's relationship with the
parties to the Rescission Agreement and/or CableTEL AD.
(g) All of the parties agreed to pay their own expenses with respect to any
costs associated with the Rescission Agreement.
(h) The Company, as a "break up fee", received a $1,500,000 participation in a 9
1/2% tax free bond. The bond, with a total face value of $2,406,850, is from an
unrelated third party. In June 2006, the Company recorded $1,467,000 as other
income, representing the $1,500,000, net of expenses.
Disposition of Gaywood Oil & Gas
Effective June 30, 2006, the Company sold all of its membership interests in the
two limited liability companies Gaywood Oil & Gas, LLC and Gaywood Oil & Gas II,
LLC which own oil and gas leases in Gregg and Rusk Counties, Texas and on which
approximately 50 oil-producing wells are operating. These are wells averaging
two to three barrels of oil per day. The sale price of $1,737,000 was received
in cash on July 5, 2006. The Company recorded a gain on the sale of $418,000.
Nature of Operations
As of December 31, 2006, the Company leases and operates a retirement community,
in King City Oregon, with a capacity of 114 residents. The Company owns an
outlet shopping mall in Gainesville, Texas with approximately 315,000 square
feet of retail space available for lease.
-40-
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.
Depreciation expense, included in operations expenses, was $248,000, $493,000
$355,000 for 2006, 2005 and 2004, respectively.
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. 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
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.
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.
-41-
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.
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 follows Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment" ("SFAS 123R) for its stock options. The effect of SFAS
123R is immaterial to the Company's financial statements.
Sales of Real Estate
Gains on sales of real estate are recognized to the extent permitted by
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate" ("SFAS No. 66"). 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.
-42-
Real Estate Held for Sale
-------------------------
Statement of Financial Accounting Standards No. 144, ("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.
Recent Accounting Pronouncements
In February 2006, the FASB issued Statement of Financial Accounting Standards
No. 155, "Accounting for Certain Hybrid Financial Instruments--an Amendment of
FASB Statements No. 133 and 140" ("SFAS No. 155"). The purpose of SFAS No. 155
is to simplify the accounting for certain hybrid financial instruments by
permitting fair value re-measurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation. SFAS
No. 155 is effective for all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006.
We do not expect the adoption of SFAS No. 155 to have a material impact on our
cash flows, results of operations, financial position or liquidity.
In March 2006, the FASB issued Statement of Financial Accounting Standards No.
156, "Accounting for Servicing of Financial Assets--an Amendment of FASB
Statement No. 140" ("SFAS No. 156"). SFAS No. 156 requires recognition of a
servicing asset or a servicing liability each time an entity undertakes an
obligation to service a financial asset by entering into a servicing contract.
SFAS No. 156 also requires that all separately recognized servicing assets and
servicing liabilities be initially measured at fair value and subsequently
measured at fair value at each reporting date. SFAS No. 156 is effective as of
the beginning of an entity's first fiscal year that begins after September 15,
2006. We do not expect the adoption of SFAS No. 156 to have a material impact on
our cash flows, results of operations, financial position or liquidity.
In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes, an Interpretation of FASB Statement No. 109" ("FIN No. 48").
FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized
in a company's financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN No. 48 also
provides guidance on description, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN No. 48 is
effective for fiscal years beginning after December 15, 2006. We do not expect
the adoption of FIN No. 48 to have a material impact on our cash flows, results
of operations, financial position or liquidity.
-43-
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements" ("SAB No. 108"). SAB 108 provides guidance on the consideration of
the effects of prior period misstatements in quantifying current year
misstatements for the purpose of a materiality assessment. SAB 108 requires the
quantification of financial statement misstatements based on the effects of the
misstatements on each of the company's financial statements and the related
financial statement disclosures. This model is commonly referred to as the "dual
approach" because it requires quantification of errors under both the iron
curtain and the roll-over methods. The roll-over method focuses primarily on the
impact of a misstatement on the income statement--including the reversing effect
of prior year misstatements--but its use can lead to the accumulation of
misstatements in the balance sheet. The iron-curtain method focuses primarily on
the effect of correcting the period-end balance sheet with less emphasis on the
reversing effects of prior year errors on the income statement. SAB 108 was
effective for financial statements for fiscal years ending after November 15,
2006. The adoption of SAB 108 did not have a material impact on our cash flows,
results of operations, financial position or liquidity.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("SFAS No. 157"). The new FASB rule defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, or GAAP, and expands disclosures about fair
value measurements. The statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. We are currently evaluating the impact, if any, to our
financial condition or results of operations from the adoption of SFAS No. 157.
NOTE C - SHORT TERM NOTE RECEIVABLE - RELATED PARTY
In July 2006, the Company made an unsecured $1,377,000 loan to Eurenergy
Resources Corporation (a company that is 20% owned by an entity deemed to be
related to CabelTel). The loan has an annual interest rate of 8% with principal
and interest payable within 30 days after demand, and if not sooner demanded, on
July 17, 2007.
NOTE D - NOTES RECEIVABLE
As a result of the sale of two properties in 2001, the Company, as of January 1,
2006, held tax-exempt notes in the amount of $4,030,000, bearing interest at
9.5%. The notes mature on April 1, 2032 and August 1, 2031, respectively. The
repayment of the notes 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 when it is received. In the third quarter of 2006, the
Company determined that a $3,200,000 note due April 1, 2032 would be
uncollectible and therefore wrote off the note and the corresponding deferred
gain. The write off caused no gain or loss for the Company.
As a result of the CableTEL AD rescission, the Company holds a $1,500,000
participation in a tax-exempt note with a face amount of $2,406,000, bearing
interest at 9.5%. The note matures on August 20, 2037. The repayment of the
notes and interest thereon is limited to the cash flow of the property either
from operations, refinancing or sale.
As of September 30, 2006 the Company had two notes for $2,330,000 and a
corresponding deferred gain of $521,000.
-44-
Notes Deferred
Receivable Gain Net
---------------- --------------- --------------
Balance 1/1/2006 $4,030,000 $3,721,000 $ 309,000
Write off of uncollectible note (3,200,000) (3,200,000) --
62% Participation in $2,406,000
Note 1,500,000 -- 1,500,000
Settlement of Note to Sylvia Gilley -
See Note F (2,330,000) (521,000) (1,809,000)
---------------- --------------- --------------
================ =============== ============
Balance 12/31/06 $ -- $ -- $ --
================ =============== ==============
NOTE E - 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, 2006 and 2005:
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.
NOTE F - NOTES PAYABLE
LONG TERM DEBT
Long-term debt is comprised of the following (in thousands):
December 31,
2006 2005
------------------------
Notes payable to a financial institution
maturing in 2008 with a fixed interest
rate of 5.75%, collateralized by real
property, fixtures, equipment (with a
carrying value of $6,719 at December 31,
2006) and assignment of rents $ 6,213 $ 6,341
Note payable to an individual with a
fixed interest rate of 10% -- 2,255
Notes payable to related parties
bearing interest at rates ranging
From 15% to18% (funds re-advanced
to CableTEL AD) -- 7,347
------------------------
6,213 15,943
Less current maturities 135 2,383
========================
$ 6,078 $ 13,560
========================
-45-
Aggregate annual principal maturities of long-term debt at December 31, 2006 are
as follows (in thousands):
2007 135
2008 143
2009 5,935
2009 --
2010 --
2011 --
----------------------
Thereafter --
----------------------
$ 6,213
======================
In November 2002, the Company converted an existing obligation to Sylvia Gilley,
the wife of the former CEO, into a note for $2,255,000 with interest accruing at
10% per year. At November 30, 2006, the total obligation to Sylvia Gilley was
$3,112,148. The Company and Mrs. Gilley have negotiated a settlement whereby
Mrs. Gilley will agree to cancel the obligation owed to her in exchange for:
o The transfer of two notes receivable from third parties currently held by
the Company. These notes are have a book value of $1,809,000 (see Note D);
o 5% of the cash flow from Pacific Pointe, a retirement facility leased by
the Company, for as long as the Company holds the lease; and
o Interest received from the notes since June 2006.
The transaction resulted in the Company being relieved of a $3,112,148
obligation and, based upon the value of the assets provided to Mrs. Gilley,
recording a gain of $1,034,000, which has been reflected as other income.
NOTE F - OPERATING LEASES
The Company leases a retirement 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, 2006 are as follows (in
thousands):
2007 861
2008 858
2009 875
2010 892
2011 910
Thereafter 925
------------------
$ 5,321
Lease expense in 2006, 2005, and 2004 was $939, $932 and $917, respectively.
-46-
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 bore 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.
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. In addition, CREI has deferred a gain on sale in the
amount $994,000 that will be recognized on the installment method.
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.
-47-
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,
2006 2005 2004
---- ---- ----
Numerator:
Net income (loss) from continuing operations $ 848 $(1,241) $ (987)
Net income (loss) from discontinued operations 453 255 171
Denominator:
Shares used in basic earnings per share
calculation 987 977 977
Effect of diluted securities:
Employee stock options -- -- --
Pro forma basic earnings per share from
continuing operations $ 0.86 $ (1.24) $ (1.01)
Pro forma basic earnings per share from
discontinued operations 0.46 0.26 0.17
Pro forma diluted earnings per share $ 1.32 $ (1.01) $ (0.84)
Shares used in diluted earnings per share
calculations 987 977 977
-48-
NOTE I - INCOME TAXES
At December 31, 2006, the Company had net operating loss carry forwards of
approximately $21,600,000, which expire between 2012 and 2024.
Deferred tax assets and liabilities were comprised of the following (in
thousands):
Year ended
December 31,
2006 2005
---- ----
Deferred tax assets:
Net operating loss carry forwards $ 7,363 $ 8,043
Alternative minimum tax carry forwards 324 324
Other 496 496
------------- -------------
Total deferred tax assets 8,183 8,863
Valuation allowance (7,692) (7,702)
-------------- --------------
Net deferred tax asset $ 491 $ 1,161
============= =============
Tax computed at the federal statutory rate of 34% (in thousands):
Year ended
December 31,
2006 2005 2004
---- ---- ----
Federal income tax expense (benefit)
at the statutory rate Change in $ 670 $ (331) $ (216)
deferred tax asset valuation allowance,
attributable to continuing operations (670) (331) (216)
------------ ---------- ----------
Federal income tax expense $ -- $ -- $ --
=========== =========== ===========
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 carry forwards. $620,000 of the deferred tax asset was used against income
in 2006 resulting in a deferred income tax expense of $670,000 on the financial
statements with $437,000 in continuing operations and $233,000 in discontinued
operations. The Company believes that it is more likely than not that the net
deferred tax asset at December 31, 2006, of $491,000 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,
2006 2005
---- ----
Series B cumulative convertible preferred stock,
$.10 par value; liquidation value of $100; $ 1 $ 1
authorized, 100 shares; issued and outstanding, ========= =======
1 share
-49-
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.
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.
Information with respect to stock option activity is as follows:
Weighted
average
exercise
Shares price
------------- ----------------
------------- ----------------
Outstanding January 1, 2004 142,000 $ 30.27
Outstanding December 31, 2004 and 2005 142,000 $ 30.27
Exercised (10,000) 2.60
Cancelled (62,000) 5.68
Outstanding December 31, 2006 70,000 $ 51.86
Additional information about stock options outstanding at December 31, 2006 is
summarized as follows:
Options outstanding and exercisable
Weighted Average
Number Remaining Weighted average
Range of exercise price Outstanding contractual life exercise price
------------ ---------------- --------------
$2.60 50,000 3.0 $2.60
$175.00 60,000 2.0 $175.00
50
NOTE K - OTHER INCOME (EXPENSE)
Other income (expenses) consists of the following: (amounts in thousands)
Year ended December 31,
2006 2005 2004
----------------------------
Break -up fee upon the rescission of the Cabeltel AD
acquisition $ 1,467 $ -- $ --
Gain from the settlement with Sylvia Gilley 1,034
Write off start up costs in projects not completed -- -- (167)
Collection of previously deferred receivables 61 145 --
Other 22 140 (236)
------------------ ---------
$ 2,584 $ 285 $ (403)
======== ========= =========
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 No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
supersedes FASB Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS No. 121") and the accounting and reporting provisions for disposals
of a segment of a business as addressed in Accounting Principles Board 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" ("APB Opinion No. 30"). 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 in North
Carolina and entered into a contract to sell an assisted living community in
South Carolina. The operations of these two facilities have been reflected as an
assets held for sale. Revenue for the two properties was $841,000, in 2004. The
net loss for the two properties was $184,000 in 2004.
The South Carolina facility was sold in May 2005. Revenue and net loss for 2005
were $40,610 and $11,640, respectively.
Effective June 30, 2006, the Company sold all of its membership interests in two
limited liability companies, Gaywood Oil & Gas, LLC and Gaywood Oil & Gas II,
LLC ("Gaywood"), which own oil and gas leases in Gregg and Rusk Counties, Texas
and on which approximately 50 oil-producing wells are operating. These are wells
averaging two to three barrels of oil per day. The sale price of $1,737,000 was
received in cash on July 5, 2006. The Company recorded a pre-tax gain on the
sale of $418,000. The operation of Gaywood and the gain on the sale have been
reflected as a discontinued operation in 2006 and prior years.
The following table shows discontinued operations detail for 2006, 2005 and
2004, respectively (amounts in thousands).
51
December 31,
-----------------------------
2006 2005 2004
------- ------- -------
Revenue
Oil & gas operations 995 1,723 1,410
Other -- 41 170
------- ------- -------
995 1,764 1,580
Operating expenses
Oil and gas operating expenses 674 1,250 1,003
Depreciation and amortization 53 122 323
Corporate general and administrative -- -- 20
------- ------- -------
727 1,372 1,346
Operating income 268 392 234
Other income (expense)
Interest expense -- (55) (89)
Loss from assisted living operations -- -- (164)
Gain (Loss) on sale of assets 418 (82) 210
Discontinued operations -- -- (20)
Other -- -- --
------- ------- -------
418 (137) (63)
Earnings before income tax 686 255 171
Income tax (233) -- --
Net earnings $ 453 $ 255 $ 171
======= ======= =======
52
NOTE N - CONTINGENCIES
Cable Partners Bulgaria LLC vs. Greenbriar Corporation and Ronald C. Finley
---------------------------------------------------------------------------
On December 1, 2005, Cable Partners Bulgaria, LLC ("CPB") instituted an action
in the 95th Judicial District Court of Dallas County, Texas styled Cable
Partners Bulgaria, LLC and Cable Partners Europe, LLC v. CabelTel International
Corporation f/k/a Greenbriar Corporation, Gene Phillips and Ronald C. Finley,
Cause No. 05-12021. The complaint makes allegations, in another state district
court in Dallas County, Texas (which was non-suited on October 17, 2005), but in
addition alleges that a representative of CPE talked to Finley about CPE's
possible purchase of CableTEL AD's telecommunications systems during 2004, and
that during the conversation in November 2004, told Ronald C. Finley that CPB
had an agreement to purchase Eurocom Plovdiv EOOD ("Eurocom"). The current
complaint alleges that (i) the two owners of Eurocom (who are not defendants in
this action) advised CPE that they had agreed to sell the entity to CableTEL AD
and had been paid a non-refundable deposit, (ii) the two individuals informed
the CPE representative that they would complete the sale of Eurocom to CPB only
if CableTEL AD were unable to complete the purchase, and CPB's price increased
to (euro)23,000,000 with limited further due diligence and the purchase of stock
rather than assets, (iii) subsequently CPE, CableTEL AD and the Company entered
into negotiations relating to CPE's potential acquisition of CableTEL AD,
including Eurocom, (iv) the parties executed a "letter agreement" whereby the
parties agreed that they would "engage in good faith discussions" regarding the
potential transaction, which purportedly included an exclusivity period up to
April 29, 2005, (v) in June 2005, Plaintiffs entered into a "term sheet summary"
setting forth the principle provisions of the transaction, but the defendants
continued to endeavor to sell CableTEL AD to third party purchasers, failed to
cooperate with CPE's due diligence efforts, and refused to provide CPE with
copies of certain contracts, and (vi) Plaintiffs continued to complete the
transaction and expended efforts and funds up to November 23, 2005. Plaintiffs'
complaint alleges tortious interference with an existing contract, breach of
contract, and seeks a temporary and permanent injunction, exemplary damages,
costs and attorneys' fees. An answer has been filed on behalf of the Company
denying all of the material allegations in the Complaint.
As a component of the Rescission Agreement, an affiliate of one of the original
sellers assumed control and responsibility of any and all litigation involving
the Company or in which the Company is named as a party involving the Company's
relationship with the parties to the Rescission Agreement and/or CableTEL AD.
Commerce and Industry Insurance Company vs. Cabeltel International Corporation
DBA Greenbriar Corporation, Et Al
On June 23, 2006, Commerce and Industry Insurance Company instituted an action
against the Company and its subsidiaries, styled Commerce and Industry Insurance
Company vs. Cabeltel International Corporation DBA Greenbriar Corporation, Et Al
(Citation No. DC-06-6040-M, District Court, Dallas County, Texas), alleging an
underpayment of insurance premiums of $113,000 in 2002. The Company disagrees
with the plaintiff as to any obligation owed. Further, should an obligation be
owed the Company believes the amount would be less than the amount in the
complaint. 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.
53
54
NOTE P - QUARTERLY DATA (UNAUDITED)
The table below reflects the Company's selected quarterly information for the
years ended December 31, 2006 and 2005. Certain 2005 amounts have been
reclassified to conform to the current presentation of discontinued operations.
All amounts shown are in thousands.
First Second Third Fourth
Year ended December 31, 2006 Quarter Quarter Quarter Quarter
------------- ------------ ------------- ------------
Revenue $ 1,176 $1,072 $ 1,091 $ 929
Operating (expense) (1,084) (942) (1,027) (946)
Corporate general and administrative expense (348) (249) (202) (292)
Other income (expense) net (143) 1,799 10 441
Net income (loss) from continuing operations (399) 1,680 (128) 132
Provision for income taxes -- (233) -- (437)
Gain (loss) from discontinued operations 101 585 -- --
Income (loss) allocable to common shareholders (298) 2,032 (128) (305)
Income (loss) per common share -
basic and diluted $ (0.31) $ 2.08 $ (0.14) $ (0.31)
First Second Third Fourth
Year ended December 31, 2005 Quarter Quarter Quarter Quarter
--------------- ------------ ------------ ------------
Revenue $ 1,100 $ 1,136 $ 969 $ 893
Operating (expense) (1,179) (1,234) (1,263) (257)
Corporate general and administrative expense (262) (268) (256) (405)
Other income (expense) net (181) (87) (102) 155
Net income (loss) from continuing operations (522) (453) (652) 386
Gain (loss) from discontinued operations 45 77 107 26
Income (loss) allocable to common shareholders (477) (376) (545) 412
Income (loss) per common share -
basic and diluted $ (0.49) $ (0.38) $ (0.56) $ 0.42
55
EXHIBIT INDEX
Exhibit No. Exhibit On Page
21.1 Subsidiaries of the Registrant 55
23.1 Consent of Farmer, Fuqua & Hunt, P.C. 56
31.1 Rule 13a-14(a) Certification by Chief Executive Officer and
Chief Financial Officer 57
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. ss.1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 59
56