UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 5(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
----------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-08187
CabelTel International Corporation
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 75-2399477
------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
Incorporation or organization) Number)
1755 Wittington Place, Suite 340, Dallas, Texas 75234
----------------------------------------------- ------------------------
(Address of prinicpal executive offices) (Zip Code)
Registrant's Telephone Number, including area code 972-407-8400
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
Common Stock, $0.01 par value American Stock Exchange
----------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark 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 ]
The aggregate market value of the voting stock held by non-affiliates of
the issuer, computed by reference to the closing sales price on March 31, 2005,
was approximately $2,424,000. At March 31, 2005, the issuer had outstanding
approximately 977,000 shares of par value $0.01 Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Cabeltel International Corporation, formerly Greenbriar Corporation
We have audited the accompanying consolidated balance sheets of Cabeltel
International Corporation, formerly Greenbriar Corporation and subsidiaries as
of December 31, 2004 and 2003, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2004. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits include consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion of the effectiveness of the company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cabeltel
International Corporation, formerly Greenbriar Corporation and subsidiaries as
of December 31, 2004 and 2003, and the consolidated results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 2004 in conformity with accounting principles generally accepted in
the United States of America.
/s/ FARMER FUQUA & HUFF, P.C.
Plano, TexasApril 15, 2005
CabelTel International Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31,
ASSETS 2004 2003
-------- --------
CURRENT ASSETS
Cash and cash equivalents $ 1,352 $ 1,427
Accounts receivable - trade 1,016 443
Notes receivable 856
Inventory 1,166 235
Assets held for sale 3,939
Other current assets, net 710 1,573
-------- --------
Total current assets 9,039 3,678
PROPERTY AND EQUIPMENT, AT COST
Land and improvements 2,114
Buildings and improvements 9,982 544
Equipment and furnishings 12,246 7,378
Assets under construction 11,571 3,833
Proven oil and gas properties (full cost method) 1,357
-------- --------
37,270 11,755
Less accumulated depreciation, depletion, and amortization (5,172) (3,454)
-------- --------
32,098 8,301
Goodwill 8,339 2,905
OTHER ASSETS 1,037 80
-------- --------
Total Assets $ 50,513 $ 14,964
======== ========
F-2
CabelTel International Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Amounts in thousands, except share amounts)
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2004 2003
-------- --------
CURRENT LIABILITIES
Current maturities of long-term debt $ 9,603 $ 2,553
Current notes payable 352
Accounts payable - trade 3,887 964
Accrued expenses 9,498 134
Other current liabilities 1,792 2,211
-------- --------
Total current liabilities 24,780 6,214
LONG-TERM DEBT
Long -tem debt 9,740
Long-term debt - related parties 10,523 2,120
-------- --------
20,263 2,120
-------- --------
OTHER LONG-TERM LIABILITIES 1,557 68
-------- --------
Total liabilities 46,600 8,402
Minority Interest 2,954 827
STOCKHOLDERS' EQUITY
Preferred stock, Series B 1 1
Preferred stock, Series J 3,150 --
Common stock, $.01 par value; authorized, 4,000,000
shares; issued and outstanding, 977,000 shares issued
and outstanding 10 10
Additional paid-in capital 4 5,575
Accumulated other comprehensive income (loss) 1,014 1,204
Retained earnings (3,220) (1,055)
-------- --------
959 5,735
-------- --------
Total liabilities & equity 50,513 14,964
======== ========
The accompanying notes are an integral part of these statements.
F-3
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share amounts)
Year ended December 31,
2004 2003 2002
-------- -------- --------
Revenue
Cable operations $ 9,463 $ 8,338 $ 6,262
Real estate operations 1,173
Oil and gas operations 413 -- --
-------- -------- --------
11,049 8,338 6,262
-------- -------- --------
Operating expenses
Cable operation 6,226 5,731 3,286
Real estate operations 722 -- --
Oil and gas operations 237 -- --
Lease expense 1,178 560 613 --
Depreciation, depletion, and amortization 1,612 1,439 913
Corporate general and administrative 4,166 1,056 921
-------- -------- --------
14,141 8,786 5,733
-------- -------- --------
Operating earnings (loss) (3,092) (448) 529
Other income (expense)
Interest income 44 6 5
Interest expense (926) (202) (45)
Gain on foreign transactions, net 241 413 338
Gain on sale of assets, net 844 368 --
Other income (expense), net 325 389 1
-------- -------- --------
528 974 299
-------- -------- --------
Earnings (loss) before income taxes
and minority interest (2,564) 526 828
Income tax (income) expense 32 (66) 122
Minority interest (431) 137 109
-------- -------- --------
Net earnings (loss) from continuing operations (2,165) 455 597
-------- -------- --------
Discontinued operations -- -- (508)
Net income (loss) $ (2,165) $ 455 $ 89
Preferred dividend requirement (158) -- --
-------- -------- --------
Net income applicable to Common shares $ (2,323) $ 455 $ 89
-------- -------- --------
Earnings per share - basic
Net income (loss) from continuing operations $ (2.38) $ 0.47 $ 0.61
Discontinued operations -- -- (.52)
-------- -------- --------
Net earnings (loss) per share $ (2.38) $ 0.47 $ 0.09
Basic weighted average common shares 977 977 977
The accompanying notes are an integral part of these statements.
F-4
CONSOLIDATED OF OPERATIONS - CONTINUED
Earnings per share - diluted
Net income (loss) from continuing operations $ (2.38) $ 0.43 $ 0.60
Discontinued operations -- (.51)
-------- -------- --------
Net earnings (loss) per share $ (2.38) $ 0.43 $ 0.09
Diluted weighted average common shares 977 1,057 997
In accordance with the provisions of the acquisition agreement the Company is
required to have a shareholder vote permitting the Series J shareholders to
convert into 8,788,000 shares of the Company's common stock. The following pro
forma earnings per share assumes such conversion has occurred.
Pro-forma earnings per share - diluted
Net income(loss) from continuing operations $ (.24) $ 0.05 $ 0.06
Discontinued operations -- (.05)
-------- -------- --------
Net earnings (loss) per share $ (.24) $ 0.05 $ 0.01
Diluted weighted average common shares 9,766 9,846 9,786
The accompanying notes are an integral part of this statement.
F-5
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year ended December 31,
--------------------------------
2004 2003 2002
-------- -------- --------
Cash flows from operating activities
Net earnings (loss) $ (2,165) $ 455 $ 89
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 1,612 1,439 913
Gain on foreign currency transactions (241) (413) (338)
Gain on sale of assets (844) (368)
Increase in minority interest (650) 216 162
Changes in operating assets and liabilities
Accounts receivable - trade (351) (61) (53)
Other current and noncurrent assets (162) (1,543) 87
Accounts payable and other liabilities 3,171 840 1,216
-------- -------- --------
Net cash provided by (used in)
operating activities 370 565 2,076
Cash flows from investing activities
Purchase of property and equipment (4,165) (3,461) (2,274)
-------- -------- --------
Net cash provided by (used in)
investing activities (4,165) (3,461) (2,274)
Cash flows from financing activities
Proceeds from borrowings 4,072 5,602 454
Payments on debt (352) (1,702) (218)
-------- -------- --------
Net cash provided by (used in)
financing activities 3,720 3,900 236
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents (75) 1,004 38
Cash and cash equivalents at beginning of year 1,427 423 385
-------- -------- --------
Cash and cash equivalents at end of year $ 1,352 $ 1,427 $ 423
======== ======== ========
The accompanying notes are an integral part of this statement.
F-6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands)
Series B Series J
Preferred stock Preferred stock Common stock
----------------------------- ----------------------------- ------------------------------
Shares Amount Shares Amount Shares Amount
------------- ------------- ------------- ------------- -------------- -------------
Balance at January 1, 2002 1 1 -- -- 977 10
Comprehensive income: -- -- -- -- -- --
Unrealized gain on foreign
currency translation -- -- -- -- -- --
Net earnings -- -- -- -- -- --
------------- ------------- ------------- ------------- -------------- -------------
Balance at December 31, 2002 1 1 -- -- 977 10
Comprehensive income: -- -- -- -- -- --
Unrealized gain on foreign
currency translation -- -- -- -- -- --
Net earnings -- -- -- -- -- --
------------- ------------- ------------- ------------- -------------- -------------
Balance at December 31, 2003 1 1 -- -- 977 10
Net loss
Issuance of preferred stock for
Reverse acquisition of
Greenbriar Corporation and
recapitalization related to
reverse acquisition on
October 1, 2004 -- -- 32 3,150 -- --
Comprehensive income: -- -- -- -- -- --
Unrealized gain on foreign
currency translation -- -- -- -- -- --
Net earnings -- -- -- -- -- --
------------- ------------- ------------- ------------- -------------- -------------
Balance at December 31, 2004 1 1 32 3,150 977 10
============= ============= ============= ============= ============== =============
Accumulated
Additional Other
paid in Accumulated Comprehensive
capital deficit Income (Loss) Total
------------- ------------- ------------- -------------
Balance at January 1, 2002 5,575 (1,599) 3,987
Comprehensive income: -- -- -- --
Unrealized gain on foreign
currency translation -- -- 407 407
Net earnings -- 89 -- 89
------------- ------------- ------------- -------------
Balance at December 31, 2002 5,575 (1,510) 407 4,483
Comprehensive income: -- -- -- --
Unrealized gain on foreign
currency translation -- -- 797 797
Net earnings -- 455 -- 455
------------- ------------- ------------- -------------
Balance at December 31, 2003 5,575 (1,055) 1,204 5,735
Net loss
Issuance of preferred stock for
Reverse acquisition of
Greenbriar Corporation and
recapitalization related to
reverse acquisition on
October 1, 2004 (5,571) -- -- (2,421)
Comprehensive income: -- -- -- --
Unrealized gain on foreign
currency translation -- -- (190) (190)
Net earnings -- (2,165) -- (2,165)
------------- ------------- ------------- -------------
Balance at December 31, 2004 4 (3,220) 1,014 959
============= ============= ============= =============
F-7
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BUSINESS DESCRIPTION AND PRESENTATION
Name Change
-----------
On February 10, 2005 Greenbriar Corporation changed its name to CabelTel
International Corporation (which is referred throughout this report as
"CIC").
Acquisition of CableTEL AD
--------------------------
On October 12, 2004 the CIC acquired two privately-held U.S., Corporations
in exchange for 31,500 shares of newly-designated 2% Series J Preferred
Stock. The two U.S. corporations collectively own 100% of Tacaruna BV, a
Netherlands company, which in turn owns 74.8% of CableTEL AD, a Bulgarian
telecommunications company.
The Series J Preferred Stock is not convertible to common stock, however,
the terms of the acquisition agreement require CIC to present a proposal to
its stockholders to approve the exchange of all shares of Series J Preferred
Stock into 8,788,500 shares of common stock which, if approved by
stockholders, would represent 90% of the total issued and outstanding shares
of common stock in CIC. Management believes that this approval will be
forthcoming. This would effectively give the owners of the legally acquired
company (CableTEL AD) the controlling interest in CIC. Although CIC acquired
the two U.S. entities, due to the effective change in control by virtue of
the issuance of the aforementioned consideration, this transaction is being
accounted for as a "reverse acquisition", with CableTEL AD being the
surviving company. As a reverse acquisition for reporting purposes, CIC is
accounted for as if it had been acquired. Also, certain information and the
historical financial statements presented present those of the entities
acquired by CIC for all years presented.
For purpose of determining the value of the consideration, management
believed that due to one of the owners of CableTEL AD also having an
ownership interest in CIC, the transaction should not result in goodwill
being recognized. Management valued the assets of CIC at their fair value
and applied that value to the acquisition transaction.
The following table sets forth the allocation of the purchase price to CIC's
assets and liabilities acquired effective as of October 1, 2004:
F-8
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BUSINESS DESCRIPTION AND PRESENTATION - Continued
Cash $ 283,000
Accounts receivable 276,000
Notes receivable 871,000
Property held for sale 1,725,000
Property and equipment 13,038,000
Other assets 891,000
Accounts payable and accrued expenses (1,024,000)
Other liabilities (216,000)
Notes payable (12,344,000)
------------
Total $ 3,500,000
============
Nature of Operations
--------------------
CabelTel International Corporation, its subsidiaries and affiliates (the
"Company") is principally a telecommunications company which provides cable
television, telephone, internet access and fiber optic line capacity
services in the country of Bulgaria.
As of December 31, 2004 the Company had nearly 130,000 cable TV subscribers
and access to another 400,000 households in Bulgaria. It had also completed
the first alternative fiber optical backbone in Bulgaria with connectivity
to Turkey, Greece, Romania and Macedonia.
In addition the Company owns retirement communities, oil and gas leases and
a shopping mall in the United States.
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 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.
F-9
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Depreciation
------------
Depreciation is provided for in amounts sufficient to relate the cost of
property and equipment to operations over their estimated service lives,
ranging from 3 to 40 years. Depreciation is computed by the straight-line
method.
Accounting for Leases
---------------------
Leases of property, plant and equipment where the Company assumes
substantially all the benefits and risks of ownership are classified as
finance leases. Finance leases are capitalised at the estimated present
value of the underlying lease payments. Each lease payment is allocated
between the liability and finance charges so as to achieve a constant rate
on the finance balance outstanding. The corresponding rental obligations,
net of finance charges, are included in other long-term payables. The
interest element of the finance charge is charged to the income statement
over the lease period. The property, plant and equipment acquired under
finance leasing contracts is depreciated over the useful life of the asset.
Leases of assets under which all the risks and benefits of ownership are
effectively retained by the lessor are classified as operating leases.
Payments made under operating leases are charged to the income statement on
a straight-line basis over the period of the lease. When an operating lease
is terminated before the lease period has expired, any payment required to
be made to the lessor by way of penalty is recognised as an expense in the
period in which termination takes place.
Inventories
-----------
Inventories are stated at the lower of cost or net realisable value. Cost is
determined weighted average method. Net realisable value is the estimate of
the selling price in the ordinary course of business, less the cost of
completion and selling expenses.
Use of Estimates
----------------
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
----------------
The Company considers all short-term deposits and money market investments
with a maturity of less than three months to be cash equivalents.
F-10
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Foreign Currencies
------------------
Foreign currency transactions by the Company are accounted for at the
exchange rates prevailing at the date of the transactions; gains and losses
resulting from the settlement of such transactions and from the translation
of monetary assets and liabilities denominated in foreign currencies are
recognized in the income statement. Such balances are translated at year-end
exchange rates unless hedged by forward foreign exchange contracts, in which
case the rates specified in such forward contracts are used. The effects of
translation are recorded in the cumulative translation component of
shareholder's equity.
Goodwill
--------
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Company's share of the net assets of the acquired subsidiary or
associated undertaking at the date of acquisition. Until January 1, 2002
goodwill was amortized using the straight-line method over its estimated
useful life. The Company has adopted FASB 142 Business Combinations from the
date it was issued and after initial recognition goodwill is measured at
cost less any accumulated impairment losses. The value of goodwill is
reviewed annually and written down for permanent impairment where it is
considered necessary.
Other Intangible Assets
-----------------------
The cost of acquired patents, trademarks and licenses is capitalized and
amortized using the straight-line method over their useful lives. The
carrying amount of each intangible asset is reviewed annually and adjusted
for permanent impairment where it is considered necessary.
Impairment of Notes Receivable
------------------------------
Notes receivable are identified as impaired when it is probable that
interest and principal will not be collected according to the contractual
terms of the note agreements. The accrual of interest is discontinued on
such notes, and no income is recognized until all past due amounts of
principal and interest are recovered in full. No notes were deemed to be
impaired at December 31, 2004 and 2003.
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. In reviewing
recoverability, the Company estimates the future cash flows expected to
result from use of the assets and eventually disposing of them. If the sum
of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss
is recognized based on the asset's fair value.
The Company determines the fair value of assets to be disposed of and
records the asset at the lower of fair value less disposal costs or carrying
value. Assets are not depreciated while held for disposal.
F-11
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Stock Options
-------------
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) in its primary
financial statements and has provided supplemental disclosures required by
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
for Stock-Based Compensation" and by Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure an Amendment of SFAS No. 123."
Options were granted at market by Cabeltel International Corporation during
2003, are exercisable immediately, and expire 5 years from date of grant.
Warrants were issued at market by Cabeltel International Corporation during
2004, are exercisable contingent upon the conversion of the Series J
Preferred stock,to common stock. Because of the contingent nature as to the
timing and the ability to exercise these warrants, no value has been
ascribed to such warrants at December 31, 2004.
SFAS 123 requires disclosure of pro forma net earnings (loss) and pro forma
net earnings (loss) per share as if the fair value method had been applied
in measuring compensation cost for stock-based awards.
Reported and pro forma net earnings (loss) and net earnings (loss) per share
amounts are set forth below (in thousands, except per share data):
2003
------
Net earnings (loss) allocable to common stockholders
As reported $ 455
Deduct: total stock-based compensation under
fair value based method for all awards (43)
Pro forma $ 422
Net earnings (loss) per share
As reported $ 0.43
Pro forma $ 0.40
The fair value of these options was estimated at the date of grant during
2003 using the Black-Scholes option pricing model with the following
weighted-average assumptions: no dividends; expected volatility of 20
percent; risk-free interest rates of 4.24 percent; and weighted average
expected lives of 5 years.
F-12
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Earnings (Loss) Per Common Share
--------------------------------
Basic earnings (loss) per common share is based on the weighted average
number of common shares outstanding. Diluted earnings (loss) per share is
computed based on the weighted average number of common shares outstanding
plus the number of additional common shares that would have been outstanding
if dilutive potential common shares had been issued. In 2004, stock options
for approximately 140,000 shares were excluded from diluted shares
outstanding because their effect was anti-dilutive. In 2004 warrants for
approximately 190,000 shares were excluded from diluted shares outstanding
because their effect was anti-dilutive.
Sales of Real Estate
--------------------
Gains on sales of real estate are recognized to the extent permitted by SFAS
No. 66, "Accounting for Sales of Real Estate." Until the requirements of
SFAS No. 66 have been met for full profit recognition, sales are accounted
for by the installment or cost recovery method, whichever is appropriate.
Real estate held for sale
-------------------------
SFAS No. 144 requires that properties held for sale be reported at the lower
of carrying amount or fair value less costs of sale. If a reduction in a
held for sale property's carrying amount to fair value less costs of sale is
required, a provision for loss is recognized by a charge against earnings.
Subsequent revisions, either upward or downward, to a held for sale
property's estimated fair value less costs of sale are recorded as an
adjustment to the property's carrying amount, but not in excess of the
property's carrying amount when originally classified as held for sale. A
corresponding charge against or credit to earnings is recognized. Properties
held for sale are not depreciated.
New Accounting Pronouncements
-----------------------------
SFAS No. 151--In November 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 151, "Inventory
Costs, an Amendment of ARB No. 43, Chapter 4" ("SFAS No.151"). SFAS No. 151
amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility
expense, freight, handling costs and wasted materials (spoilage) be
recognized as current period charges. It also requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.
The adoption of SFAS No. 151 is not expected to have a material impact on
the consolidated financial position or results of operations of CIC.
F-13
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
SFAS No. 152--In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 152, "Accounting for
Real Estate Time-Sharing Transactions" ("SFAS No. 152"). SFAS No. 152 amends
FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position 04-2,
Accounting for Real Estate Time-SharingTransactions ("SOP 04-2"). This
Statement also amends FASB Statement No. 67, Accounting for Costs and
Initial Rental Operations of Real Estate Projects, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real
estate projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
04-2.
SFAS No. 152 is effective for financial statements for fiscal years
beginning after June 15, 2005, and is to be reported as a cumulative effect
of a change in accounting principle. The adoption of SFAS No. 152 is not
expected to have a material impact on the consolidated financial position or
results of operations of CIC.
SFAS No. 123--In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, Share-Based
Payment, revised ("SFAS No. 123R"). SFAS No. 123R addresses the accounting
for share-based payments to employees, including grants of employee stock
options. Under the new standard, companies will no longer be able to account
for share-based compensation transactions using the intrinsic method in
accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees. Instead, companies will be required to account for such
transactions using a fair-value method and recognize the expense in the
consolidated statement of income. SFAS No. 123R will be effective for
periods beginning after June 15, 2005 and allows, but does not require,
companies to restate the full fiscal year of 2005 to reflect the impact of
expensing share-based payments under SFAS No. 123R. The Company has not yet
determined which fair-value method and transitional provision it will
follow. The adoption of SFAS No. 123R is not expected to have a material
impact on the Company's consolidated financial position or results of
operations. See Stock-Based Employee Compensation for the pro forma impact
on net income and net income per share from calculating stock-based
compensation costs under the fair value alternative of SFAS No. 123.
SFAS No. 153--In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 153, Exchanges of
Non-monetary Assets, An Amendment of APB Opinion No. 29 ("SFAS No. 153").
The guidance in APB Opinion No. 29, Accounting for Non-monetary
Transactions, is based on the principle that exchanges of non-monetary
assets should be measured based on the fair value of the assets exchanged.
The guidance in APB Opinion No. 29, however, included certain exceptions to
that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the
exception for non-monetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective
for non-monetary asset exchanges in fiscal periods beginning after June 15,
2005. The adoption of SFAS No. 153 is not expected to have a material impact
on the consolidated financial position or results of operations of CIC.
F-14
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - Liquidity
At December 31, 2004 the Company had current assets of $9,039,000 and
current liabilities of $24,780,000. During the past eighteen months CableTEL
AD has for the most part completed the first fiber optic backbone in
Bulgaria with connectivity to Turkey, Greece, Romania and Macedonia. The
total investment in the backbone will be approximately $30,000,000. Most of
the costs to construct the backbone were incurred in 2004 and were financed
both through debt and vendor financing.
The backbone that CableTEL AD is constructing consists of three separate and
independent fiber optic ducts, and CableTEL AD only needs one for its
operations. The other two ducts are being constructed to sell to independent
third parties. CableTEL AD has a contract for the sale of one duct for a
total price of approximately $13,000,000. CableTEL AD received approximately
$1,800,000 in 2004, $4,200,000 in the first quarter of 2005 and anticipates
the collection of the remaining balance of approximately $7,000,000 in
second and third quarters of 2005. CableTEL AD is actively pursuing the sale
of the remaining duct.
NOTE D - NOTES RECEIVABLE
The Company holds two tax-exempt notes for a total of $4,030,000 bearing
interest at 9.5%. The notes mature on April 1, 2032, and August 1, 2031.
The repayment of the notes is limited to the cash flow of the respective
properties either from operations, refinancing or sale. The Company has
valued the notes and accrued interest at zero and will record any cash
received in the form of interest or principal as income.
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, 2004 and 2003:
Cash and cash equivalents - The carrying amount approximates fair value
because of the short maturity of these instruments.
Long-term debt - The fair value of the Company's long-term debt is estimated
based on market rates for the same or similar issues. The carrying value of
long-term debt approximates its fair value.
Notes receivable - The fair value of the note receivable from an affiliate
partnership is estimated to approximate fair value based on its short
maturity. It is not practical to estimate the fair value of notes receivable
from sale of properties because no quoted market exists and there are no
comparable debt instruments to provide a basis for valuation.
F-15
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - NOTES PAYABLE
LONG TERM DEBT
Long-term debt is comprised of the following (in thousands):
December 31,
2004 2003
Notes payable to financial institutions maturing 14,112
through 2018; fixed and variable interest rates
ranging from 5.75% to 11% ; collateralized by real
property, fixtures, equipment and the assignment of
rents
Notes payable to individuals and companies maturing 5,232
through 2023; variable and fixed interest rates
ranging from 10% to 18%; collateralized by real
property, personal property, fixtures, equipment and
the assignment of rents
Notes payable to related parties bearing interest at 10,522 2,120
rates ranging From 15% to 18%
29,866 2,120
----------------------
Less current maturities 9,603 0
======================
20,263 2,120
======================
F-16
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - NOTES PAYABLE - Continued
Aggregate annual principal maturities of long-term debt at December 31, 2004
are as follows (in thousands):
2005 9,603
2006 13,222
2007 415
2008 480
2009 5,536
Thereafter 610
-------
$29,866
=======
NOTE G - OPERATING LEASES
The Company leases an assisted living community under an operating lease
whose basic term expires December 31, 2011 and has operating leases for
equipment and office space. The leases generally provide that the Company
pay property taxes, insurance, and maintenance.
Future minimum payments following December 31, 2004 are as follows (in
thousands):
2004 $ 1,881
2005 1,881
2006 1,897
2007 1,836
2008 1,853
Thereafter 2,717
-------
$12,065
Lease expense in 2004, 2003 and 2002 was $1,178, $560, and $613,
respectively.
F-17
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - EARNINGS PER SHARE
The following table sets forth the computations of pro forma basic and
diluted earnings per share (in thousands, except per share data):
Year ended December 31,
2004 2003 2002
Numerator:
Net income(loss) from continuing operations $ (2,165) $ 455 $ 89
Denominator:
Shares used in basic earnings per share
calculation1 977 977 977
Effect of diluted securities:
Employee stock options 80 20 --
Warrants -- -- --
Shares used in diluted earnings per share
calculations 977 1,057 997
Pro forma basic earnings per share $ (2.38) $ 0.47 $ 0.09
Pro forma diluted earnings per share $ (2.38) $ 0. 43 $ 0.09
NOTE I - INCOME TAXES
CableTEl AD pays income tax in Bulgaria based on their stand alone earnings.
CIC will not pay income tax for the earnings of CableTEL AD until such time
as such earnings are remitted to the United States.
Prior to the acquisition of CableTEL AD CIC had net operating loss carry
forwards of approximately $22,500,000, which expire between 2004 and 2022.
As a result of the CIC's acquisition of CableTEL AD a change of control has
been deemed to have occurred and as a result to remaining carry forwards to
offset future operating profits have limitations that restrict utilization
to approximately $70,000 for any one year for the next fifteen years. CIC
may however utilize the benefit of certain of the remaining net operating
loss carry forwards to increase the basis of its assets to their fair market
value at the date of the acquisition
F-18
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - INCOME TAXES - Continued
Deferred tax assets and liabilities were comprised of the following (in
thousands):
December 31,
--------------------
2004 2003
-------- --------
Deferred tax assets:
Net operating loss carry forwards $ 357 $ --
Other 344
-------- --------
Total deferred tax assets 701
Valuation allowance (701) --
-------- --------
Net deferred tax asset $ -- $ --
======== ========
The company does not estimate any tax significant tax income or loss for the
year ended December 31, 2004. The historical financials presented do not
represent the historical taxpayer as such, historical information regarding
taxes have not been included.
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. The Company believes that the deferred tax assets
will not be realized. However, this evaluation is inherently subjective as
it requires estimates that are susceptible to significant revision as more
information becomes available.
NOTE J - STOCKHOLDERS' EQUITY
Outstanding Preferred Stock
---------------------------
Preferred stock consists of the following (amounts in thousands):
Year ended
December 31,
-------------------
2004 2003
-------- --------
Series B cumulative convertible preferred stock,
$.10 par value; liquidation value of $100;
authorized, 100 shares; issued and outstanding, 1 share $ 1 $ 1
======== ========
Series J cumulative non-convertible preferred stock,
$.10 par value; liquidation value of $1000; authorized,
31500 shares; issued and outstanding 31,500 shares $ 31,500 $ --
======== ========
F-19
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - STOCKHOLDERS' EQUITY - Continued
The Series B preferred stock has a liquidation value of $100 per share and
is convertible into common stock over a ten-year period at prices escalating
from $500 per share in 1993 to $1,111 per share by 2002. The right to
convert expired April 30, 2003. Dividends at a rate of 6% are payable in
cash or preferred shares at the option of the Company.
The Series J stock is non-convertible however the Company has agreed to hold
a shareholder vote to allow the Series J shareholders to covert their 31,500
shares of preferred into 8,788,000 shares of the Company's common stock
Stock Options
-------------
In 1997, the Company established a long-term incentive plan (the 1997 Plan)
for the benefit of certain key employees. Options granted to employees under
the 1997 Plan become exercisable over a period as determined by the Company
and may be exercised up to a maximum of 5 years from date of grant. The 1997
Plan allowed up to 50,000 shares of the Company's common stock to be
reserved for issuance. In 2000, the Company adopted the 2000 Stock Option
Plan, under which up to 50,000 shares of the Company's common stock are
reserve for issuance.
The Company granted options to two officers during 1996 through 2001,
aggregating 80,000 shares not covered by either plan. These options were
granted at market, were exercisable immediately, and expire 10 years from
date of grant.
F-20
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - STOCKHOLDERS' EQUITY - Continued
Information with respect to stock option activity is as follows:
Weighted
average
exercise
Shares price
-------- --------
Outstanding at January 1, 2002 160,850 $ 81.28
Expired (5,050) 182.58
-------- --------
Outstanding at December 31, 2002 155,800 $ 78.00
Granted 60,000 2.60
Cancelled, rescinded, or annulled (70,800) 109.27
Expired (3,000) 112.50
Outstanding at December 31, 2003 and 2004 142,000 $ 30.27
======== ========
Options exercisable at December 31, 2002 155,800 $ 78.00
======== ========
Options exercisable at December 31, 2003 and 2004 142,000 $ 30.27
======== ========
Weighted average fair value per share of options granted during 2003 and
2001 was $0.71 and $7.60, respectively.
Additional information about stock options outstanding at December 31, 2004
is summarized as follows:
Options outstanding and exercisable
------------------------------------------------
Weighted average Weighted
Number remaining average
Range of exercise prices outstanding contractual life exercise price
------------------------ ----------- ----------------- --------------
$2.60 60,000 4.0 $ 2.60
$3.75 to $6.90 60,000 6.0 5.68
$100.00 to $150.39 2,000 1.0 150.39
$175.00 20,000 3.0 175.00
F-21
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K - OTHER INCOME (EXPENSE)
Other income (expenses) consists of the following: (amounts in thousands)
Year ended December 31,
-------------------------------
2004 2003 2002
-------- -------- --------
Gain (loss) on sale of properties $ (162) $ -- $ --
Advertisement revenue 32 -- --
Miscellaneous service fees 472 389 1
Other (17) -- --
-------- -------- --------
$ 325 $ 389 $ 1
======== ======== ========
NOTE L - CASH FLOW INFORMATION
Supplemental information on cash flows is as follows (in thousands):
Year ended December 31,
------------------------------
2004 2003 2002
-------- -------- --------
Interest paid $ 329 $ -- $ 17
Income taxes paid 31 43 69
Non-cash investing and financing activities (in thousands):
Issuance of Series J preferred stock for assets 3,500 -- --
Unrealized foreign currency translation loss 190 -- --
Unrealized foreign currency translation gain -- 797 407
Notes payable from acquisition 8,244 -- --
Write-up of goodwill from acquisition 5,100 -- --
Minority interest increase from acquisition 2,777
Purchase of property and equipment
vendor financed 8,200 -- --
NOTE M - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE
Discontinued Operations was a loss of $508,000 in 2002. During 2000 and 2001
CableTEL's growth occurred by acquiring other existing cable operators.
During that period in time cable operators in Bulgaria were required to
actually own and operate TV studios. In early 2003 CableTEL AD sold its
studio operations. Any gain or loss in 2003 was immaterial and the loss from
operations in 2002 was $508,000.
F-22
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - SEGMENT REPORTING
Business Operations
The Company operates three separate distinct businesses
o The Company's principal business is telecommunications activities in
Bulgaria and surrounding countries including subscription cable
television, fixed voice telephony services and data services.
o The ownership and operation of real estate through one retirement
community in King City, Oregon, with a capacity of 114 residents,
leasing of a residential retirement property to a third party in
Greenville, South Carolina and ownership and operation of an outlet mall
in Gainesville, Texas with approximately 315,000 square feet of retail
space available for lease.
o The ownership of oil and gas leases in Gregg and Rusk Counties, Texas on
which 48 producing wells were operating as of March 31, 2005.
The segment information and reconciliation to income (loss) from operations
that follows includes the Bulgarian telecommunications activities for the
twelve months ended December 31, 2004 and the US operations for the three
months ended December 31, 2004.
Twelve months ended December 31, 2003 (amounts in thousands)
Real Oil Consolidated
Cable Corporate Estate Operation CIC
----------------------------------------------------------------------
Revenue 9,463 1,173 413 11,049
----------------------------------------------------------------------
Operating expenses
Cable operations 6,226 722 237 7,185
Lease expense 947 231 1,178
Depletion, depreciation and amortization 1,473 112 27 1,612
Corporate general and administrative 3,917 249 4,166
----------------------------------------------------------------------
12,563 249 1,065 264 14,141
----------------------------------------------------------------------
Operating earning (loss) (3,100) (249) 108 149 (3,092)
Interest Expense 268 478 180 926
Gain on sale of assets 844 844
Net earnings (loss) (1,979) (312) (23) 149 (2,165)
Total Assets 23,755 10,310 14,833 1,615 50,513
F-23
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O - CONTINGENCIES
Cable Partners Bulgaria LLC vs. Greenbriar Corporation and Ronald C. Finley
---------------------------------------------------------------------------
On January 24, 2005 a lawsuit was filed in the District Court of Dallas
County, Texas by Cable Partners Bulgaria LLC, ("CPB") a Colorado limited
liability company against the Company. The lawsuit states that on October
12, 2004 CPB entered into a letter agreement with the owners of Eurocom to
acquire the assets of Eurocom, a cable operator in the city of Plovdiv
Bulgaria. The lawsuit further indicates that the October 12, 2004 letter
outlines a time line for the completion of due diligence by CPB. The lawsuit
states that in November 2004 a conversation occurred between a
representative of CPB and Ronald Finley, CEO of both CIC and CableTEL during
which time such representative told Mr. Finley that CPB had an agreement to
purchase Eurocom.
The lawsuit alleges that CIC intentionally and improperly caused the sellers
of Eurocom to enter into discussions with CableTEL which ultimately led to
CableTEL entering into a separate and competing contract to purchase
Eurocom. CPB alleges that the Company's interference was improper and that
CPB has been damaged in the amount of at least (euro)4.5 million. The
lawsuit further alleges that CPB's letter agreement provided for a three
year management agreement with the sellers of Eurocom and that CPB was would
be further damaged by the loss of the experience, expertise and contacts of
the sellers of Eurocom in an amount to be determined at trial. CPE further
seeks exemplary damages of an unspecified amount.
The Company believes the lawsuit is totally without merit. CableTEL had been
holding discussions, conducting due diligence and had agreements in place
with the owners of Eurocom well before either the alleged November
conversation or the October 12, 2004 letter. In addition the Company
believes the lawsuit misstates certain key facts which could prove to be
critical in CPB's ability to prevail in this matter.
Other
-----
The Company has been named as a defendant in other lawsuits in the ordinary
course of business. Management is of the opinion that these lawsuits will
not have a material effect on the financial condition, results of operations
or cash flows of the Company.
F-24
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - Related Parties
On October 1, 2003 CableTEL AD entered into a consulting agreement with Gene
E. Phillips whereby Mr. Phillips is to receive (euro)15,000 per month for
consulting services. These services include technical and financial advice
to CableTEL The initial agreement was amended on March 26, 2004 to extended
the agreement to March 26, 2009. This agreement may be terminated upon
mutual consent of the parties or by any of the parties with a three month
written notification.
Global Communication Technologies, Inc. ("Globaltec") is a manufacturer of
telecommunications switching equipment. Globaltec is owned by Ronald C.
Finley, Jeffrey Finley (brother to Ronald Finley) and Gene E. Phillips. In
2004 CableTEL AD paid $1,992,284 to Globaltec for the purchase of hardware,
software and licensing. In addition, CableTEL AD paid Globaltec's Bulgarian
subsidiary $164,250 in consulting fees to implement the switching equipment
installation and management.
The Company through subsidiaries owns 30% of CableTEL AD directly and owns
64% of Narisma Holdings, Ltd., a Cyprus company that owns the remaining 70%
of CableTEL AD. Collectively, the Company has effective ownership of 74.8%
of CableTEL AD. In January 2005 Envicon Development Corporation, a company
indirectly owned by Gene E. Phillips acquired the 36% of Narisma Holdings
Limited which represents 25.2% of CableTEL AD.
F-25