10-Q 1 cabel10q063005.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended June 30, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-8187 CabelTel International Corporation (Exact name of Registrant as specified in its charter) Nevada 75-2399477 (State or other jurisdiction of (IRS Employer Incorporation or organization) Identification No.) 1755 Wittington Place, Suite 340, Dallas, Texas 75234 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 407-8400 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Common Stock, $.01 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) YES [ ] NO [X] At August 15, 2005, the issuer had outstanding 977,004 shares of par value $0.01 Common Stock. CABELTEL INTERNATIONAL CORPORATION Index to Quarterly Report on Form 10-Q Period ended June 30, 2005 PART I: FINANCIAL INFORMATION..................................................3 ITEM 1: FINANCIAL STATEMENTS...............................................3 Consolidated Balance Sheets..............................................3 Consolidated Statements Of Operations....................................5 Consolidated Statements Of Cash Flow.....................................6 Consolidated Statements Of Cash Flows - Continued........................7 Notes To Consolidated Financial Statements...............................7 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................................11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........14 ITEM 4. CONTROLS AND PROCEDURES...........................................15 PART II: OTHER INFORMATION....................................................16 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS........16 ITEM 6. EXHIBITS...........................................................16 SIGNATURES.................................................................17 2
PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS ----------------------------- CabelTel International Corporation Consolidated Balance Sheets (Amounts in thousands) June 30, December 31, Assets 2005 2004 (Unaudited) ------------ ------------ Current assets Cash and cash equivalents $ 643 $ 1,352 Accounts receivable-trade 2,274 1,016 Notes receivable 606 856 Inventory 1,924 1,166 Assets held for sale 1,200 3,939 Other current assets 1,346 710 ------------ ------------ Total current assets 7,993 9,039 Property and equipment, at cost Land and improvements 2,232 2,114 Buildings and improvements 8,327 9,982 Equipment and furnishings 15,517 12,246 Assets under construction 7,558 11,571 Proven oil and gas properties (full cost method) 1,278 1,357 ------------ ------------ 34,912 37,270 Less accumulated depreciation, depletion and amortization (5,639) (5,172) ------------ ------------ 29,273 32,098 Goodwill 8,164 8,339 Other assets 1,733 1,037 ------------ ------------ Total assets $ 47,163 $ 50,513 ============ ============
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CabelTel International Corporation Consolidated Balance Sheets - Continued (Amounts in thousands) June 30, December 31, Liabilities and Stockholders' equity 2005 2004 (Unaudited) ------------ ------------ Current liabilities Current maturities of long-term debt $ 9,327 $ 9,603 Current notes payable 41 -- Accounts payable - trade 1,496 3,887 Accrued expenses 15,654 9,498 Other current liabilities 242 1,792 ------------ ------------ Total current liabilities 26,760 24,780 Long-term debt Long term debt 6,284 9,740 Long-term debt - related parties 13,534 10,523 ------------ ------------ 19,818 20,263 ------------ ------------ Other long term liabilities 455 1,557 ------------ ------------ Total liabilities 47,033 46,600 Minority Interest 2,330 2,954 Stockholders' equity Preferred stock Series B 1 1 Preferred stock Series J 3,150 3,150 Common stock $.01 par value; authorized, 4,000,000 shares; 977,000 shares issued and outstanding 10 10 Additional paid-in capital 4 4 Accumulated other comprehensive income (loss) 740 1,014 Retained earnings (6,105) (3,220) ------------ ------------ (2,200) 959 ------------ ------------ Total Liabilities & Stockholders' Equity $ 47,163 $ 50,513 ============ ============
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CabelTel International Corporation Consolidated Statements Of Operations (Amounts in thousands, except per share data) For The Three Month For The Six Month Period Ended Period Ended June 30, June 30, 2005 2004 2005 2004 -------- -------- -------- -------- (Unaudited) (Unaudited) Revenue Cable Operations $ 2,831 $ 2,241 $ 5,236 $ 4,419 Real Estate operations 1,127 -- 2,277 -- Oil and gas operations 396 -- 810 -- -------- -------- -------- -------- 4,354 2,241 8,323 4,419 -------- -------- -------- -------- Operating expenses Cable Operations 1,992 1,459 3,864 2,708 Real estate operations 660 -- 1,275 -- Oil and gas operations 292 -- 559 -- Lease expense 486 240 1,061 435 Depletion, depreciation and amortization 638 520 1,196 1,124 Corporate general and administrative 1,722 499 3,355 1,147 -------- -------- -------- -------- 5,790 2,717 11,310 5,414 -------- -------- -------- -------- Operating earnings (loss) (1,436) (476) (2,987) (995) Other income (expense) Interest income 30 10 70 13 Interest expense (882) (45) (1,709) (94) Loss on foreign exchange transactions, net (631) (15) (912) (69) Net gain on sale of cable duct 77 -- 1,920 -- Net gain (loss) on sale of assets (6) 184 (124) (39) Other (177) -- 212 312 -------- -------- -------- -------- (1,589) 134 (543) 123 -------- -------- -------- -------- Earnings (loss) before income taxes and minority interest (3,025) (342) (3,530) (872) Income tax (income) expense 38 (17) 52 (35) Minority interest (income) expense 608 62 593 127 -------- -------- -------- -------- Net loss $ (2,379) $ (297) $ (2,885) $ (780) Preferred stock dividend requirements (158) -- (316) -- -------- -------- -------- -------- Net loss applicable to common shares $ (2537) $ (297) $ (3,201) $ (780) Earnings per share - basic and diluted Net loss per share $ (2.44) $ (0.30) $ (2.95) $ (0.08) Basic weighted average common shares 977 977 977 977 In accordance with the provisions of the acquisition agreement the Company is required to seek shareholder approval permitting the Series J shareholders to exchange into 8,788,000 shares of the Company's common stock. The following pro forma earnings per share assume such exchange has occurred. Pro forma earnings per share - basic and diluted $ (0.24) $ (0.03) $ (0.30) $ (0.80) Net loss Diluted average common shares 9,766 9,766 9,766 9,766
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CabelTel International Corporation Consolidated Statements Of Cash Flow (Amounts in thousands) For the six month Period Ended June 30, 2005 2004 (Unaudited) (Unaudited) Cash flows from operating activities Net loss $ (2,885) $ (780) Adjustments to reconcile net loss to net cash used in operating activities Depreciation, depletion and amortization 1,196 1,124 Net loss on foreign currency transactions 912 69 Net (gain) loss on sale of assets (1,796) 39 Changes in operating assets and liabilities Accounts receivable (1,330) (823) Other current and non current assets 1,869 2,142 Accounts payable and other liabilities (3,762) (3,407) ----------- ----------- Net cash used in operating activities (5,796) (1,636) Cash flows provided by (used in) investing activities Proceeds from sale of assets 7,211 -- Purchase of property and equipment, net (1,442) (2,276) ----------- ----------- Net cash provided by (used in) investing Activities 5,769 (2,276) Cash flows from financing activities Proceeds from borrowings 5,765 7,547 Payments on debt (6,447) (4,509) ----------- ----------- Net cash provided by (used in) financing Activities (682) 3,038 Net increase (decrease) in cash and (709) (874) cash equivalents Cash and cash equivalents at beginning of period 1,352 1,420 Cash and cash equivalents at end of period $ 643 $ 546
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CabelTel International Corporation Consolidated Statements Of Cash Flows - Continued (Amounts in thousands) For the six month Period Ended June 30, 2005 2004 (Unaudited) (Unaudited) ----------- ----------- Supplemental Disclosures of Cash Flow Information: Cash paid for interest 597 94 Cash paid for taxes -- 35 Schedule of non-cash investing and financing activities: Unrealized foreign currency translation loss (274) (69) Purchase of property and equipment vendor financed (3,119) -- Sale of property and equipment for short term receivable 2,179 --
Notes To Consolidated Financial Statements For the Unaudited Six Months Ended June 30, 2005 and 2004 Note A: Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of CabelTel International Corporation and its majority-owned subsidiaries (collectively, "the Company"). All significant intercompany transactions and accounts have been eliminated. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004. Operating results for the three and six month periods ended June 30, 2005 are not necessarily indicative of the results that may be expected for any subsequent quarter or the year ended December 31, 2005. Note B: Notes Receivable As a result of the sale of two properties in 2001 the Company holds 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. In addition, as the result of a property sale in March 2005 the Company has a $170,000 non interest bearing note. The repayment of the notes is limited to the cash flow of the respective properties either from operations, refinance 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. 7
Note C: Long-Term Obligations Long-term debt is comprised of the following (in thousands): June 30, December 31, 2005 2004 ------------ ------------ Notes payable to financial institutions maturing through 2018; fixed and variable interest rates ranging from 5.75% to 11%; collateralized by property, fixtures, equipment and the assignment of rents $ 12,714 $ 14,112 Notes payable to individuals and companies maturing through 2023; variable and fixed interest rates ranging from 10% to 18% collateralized by real property, personal property, fixtures, equipment and the assignment of rents 2,897 5,232 Notes payable to related parties, bearing interest at rates ranging from 15% to 18% 13,534 10,522 ------------ ------------ 29,145 29,866 Less: current maturities 9,327 9,603 ============ ============ $ 19,818 20,263
Note D - Net Gain on Sale of Cable Duct The fiber optic 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 have been 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 and is recording the sale and the related gain as various segments of the duct are completed and turned over to the buyer. CableTEL AD recorded a sale of one segment for approximately $1,800,000 in 2004. During the three months ended March 31, 2005 CableTEL AD delivered another segment and recorded a sale of $4,200,000 and a gain of $1,843,000. In July CableTEL AD sold an additional segment and recorded a sale of approximately $2,400,000. It is anticipated that CableTEL AD will record the balance of the contract during the remainder of 2005 During the three months ended June 30, 2005 CableTel AD sold several segments of a second duct and recorded sales of approximately $228,000 and a gain of $77,000. NOTE E - SEGMENT REPORTING Business Operations The Company operates three separate distinct businesses 8
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, 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 June 30, 2005. The segment information and reconciliation to income (loss) from operations that follows includes the Bulgarian telecommunications activities and US operations for the three and six months ended June 30, 2005. For the three and six months ended June 30, 2004 the Bulgarian telecommunication was the only segment of the Company. Cable Corporate Real Oil Consolidated Estate Operation CIC ------------------------------------------------------------- Three months ended June 30, 2005 (amounts in thousands) Revenue Cable operations 2,831 2,831 Real estate operations 1,127 1,127 Oil & gas operations 396 396 ------------------------------------------------------------- 2,831 1,127 396 4,354 ------------------------------------------------------------- Operating expenses Operations 1,992 660 292 2,944 Lease expense 255 19 212 486 Depletion, depreciation and amortization 518 93 27 638 Corporate general and administrative 1,461 261 1,722 ------------------------------------------------------------- 4,226 280 965 319 5,790 ------------------------------------------------------------- Operating earning (loss) (1,395) (280) 162 77 (1,436) Interest Income 30 30 Interest expense 394 332 156 882 Loss on foreign exchange transactions, net (631) (631) Loss on sale of assets (6) (6) Gain on sale of cable duct 77 77 Net earnings (loss) (2,346) (188) 78 77 (2,379) Total assets 22,305 12,294 10,783 1,781 47,163 9 Cable Corporate Real Oil Consolidated Estate Operation CIC -------------------------------------------------------------- Six months ended June 30, 2005 (amounts in thousands) Revenue Cable operations 5,236 5,236 Real estate operations 2,277 2,277 Oil & gas operations 810 810 -------------------------------------------------------------- 5,236 2,277 810 8,323 -------------------------------------------------------------- Operating expenses Operations 3,864 1,275 559 5,698 Lease expense 599 39 423 1,061 Depletion, depreciation and amortization 918 225 53 1,196 Corporate general and administrative 2,827 528 3,355 -------------------------------------------------------------- 8,208 567 1,923 612 11,310 -------------------------------------------------------------- Operating earning (loss) (2,972) (567) 354 198 (2,987) Interest Income 70 70 Interest expense 755 771 183 1,709 Loss on foreign exchange transactions, net (912) (912) Loss on sale of assets (48) (76) (124) Gain on sale of cable ducts 1,920 1,920 Net earnings (loss) (1,911) (1,271) 175 122 (2,885) Total assets 22,305 12,294 10,783 1,781 47,163
10 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION -------------------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- Overview In October 2004 the Company acquired CableTEL AD which is a cable television operator in the Country of Bulgaria. At present CableTEL AD estimates that its cable subscribers represent approximately 11.5% of the market in Bulgaria. CableTEL AD also operates fixed voice telephony services, national cable television and provides internet access data services primarily in Bulgaria. While the Company was the legal acquirer, in accordance with Statement of Accounting Standards No. 141 for reporting purposes this transaction is being accounted for as a reverse acquisition. As a reverse acquisition, for reporting purposes the Company is being accounted for as if it had been acquired effective October 1, 2004. For that reason, the following discussion, when comparing the results of operations for three and six months ended June 30, 2005 with the three and six months ended June 30, 2004 will include only CableTEL AD for the three and six month ended June 30, 2004. 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 critical accounting policies relate to and the evaluation of the collectibility of accounts and notes receivable and the evaluation of potential impairment of goodwill. 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 resident, customer or other debtor and the financial condition of the tenant or other debtor. Our estimate of the required allowance, which is reviewed on a quarterly basis, is subject to revision as these factors change. The carrying value of goodwill is reviewed annually for impairment by reviewing any events or changes in circumstances such as significant declines in sales, earnings or cash flows or material adverse changes in the business climate which would indicate that its fair value may be less than its carrying value. If any impairment were indicated as a result of such reviews we would measure it using a fair value methodology on a report unit basis to determine the amount of the impairment. 11 Liquidity and Capital Resources At June 30, 2005 the Company had current assets of $7,993,000 and current liabilities of $26,760,000. During the past two years 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 the first three months of 2005 and were financed both through debt and vendor financing. CableTEL AD is constructing three separate and independent fiber optic ducts and only needs one for its operations. The other two ducts are being constructed for the purpose of sale to independent third parties. CableTEL AD has sold one duct for a total contract price of approximately $13,000,000. CableTEL AD has recorded approximately $1,800,000 in 2004 and $4,200,000 in the first three months of 2005 and anticipates recording the balance of $7,000,000 in the remainder of 2005. In the second quarter of 2005 CableTEL AD sold a small section of the remaining duct held for sale and anticipates selling additional sections to the same buyer in the future. Included in current liabilities is an obligation of principal and accrued interest of $2,830,000 the terms of which are similar to that of preferred stock whereby the Company can only pay this obligation out of available earned surplus. Cash and cash equivalents at June 30, 2005 were $643,000 compared with $1,352,000 at December 31, 2004. Net cash used by operating activities was $5,796,000 for the six months ended June 30, 2005. During the six month period the Company had a loss net loss of $2,885,000. Included in the six month period was a net gain on the sale of assets of $1,796,000 which was principally the sale of an additional segment of the cable duct that CableTEL AD has under contract for sale. The Company also recorded a loss on foreign monetary transactions of $912,000 and depreciation, depletion and amortization of $1,196,000. Net cash provided in investing activities was $5,769,000 for the six months ended June 30, 2005. In March and April of 2005 the Company sold two assisted living communities and received approximately $3,000,000 which approximated book value for the properties. The proceeds were used principally to pay off the existing mortgages. During the six months ended June 30, 2005 CableTel AD invested approximately $4,600,000 for the purchase of equipment that upgraded the existing cable infrastructure as well as construction of the backbone. This investment was principally vendor financed. Net cash flow used in financing activities was $682,000 in the six months ended June 30, 2005. The additional funds received of $5,765,000 from financing activities during the six months were principally used to repay existing trade payables and short term debt. 12 Results of Operations The Company reported a net loss of $2,379,000 and $2,885,000 for the three and six months ended June 30, 2005, as compared to a net loss of $297,000 and $780,000 for the three and six months ended June 30, 2004 Revenue from cable operations was $2,831,000 and $5,236,000 for the three and six months ended June 30, 2005, as compared to $2,241,000 and $4,419,000 for the corresponding periods in the prior year. These revenues are from subscribers for cable services in Bulgaria. The increase in revenues from 2005 to 2004 is based almost exclusively on rate increases for services. For the three and six months ended June 30, 2005 the Company recorded revenues of $1,127,000 and $2,277,000 for its real estate operations and $396,000 and $810,000 for its oil and gas operation. The Company's retirement property is fully occupied and it is anticipated that it will remain so during 2005. The Company's retail shopping mall was approximately 76% occupied at June 30, 2005. The oil operation is benefiting from record high prices for crude oil. While our production is stable we have no control over what prices will be for the remainder of 2005. CATV operations expense was $1,992,000 and $3,864,000 for the three and six months ended June 30, 2005 as compared to $1,459,000 and $2,708,000 for the corresponding period in the prior year. The cost of acquiring programming rights for cable product increased by $324,000 and $756,000 in the three and six months ended June 30, 2005 as compared to 2004. In addition there was an overall increase in general costs in anticipation of the backbone being completed and more services being offer. For the three and six months ended June 30, 2005 the Company recorded $660,000 and $1,275,000 in expenses for its real estate operations and $292,000 and $559,000 for its oil and gas operations. Lease expense for the cable operation was $255,000 and $599,000 in the three and six months ended June 30, 2005 compared to $240,000 and $435,000 for the corresponding periods in the prior year. The majority of the lease cost increase is due to increases at the corporate level. The development and construction of the backbone and the growth of the overall operation created a need for larger staff and corporate offices in Bulgaria. For the three and six months ended June 30, 2005 the Company had lease expenses of $231,000 and $462,000 in the United States which was principally incurred by its real estate operation. Depreciation and amortization for CableTEL AD was $518,000 and $918,000 for the three and six months ended June 30, 2005 as compared to $520,000 and $1,124,000 for corresponding periods in the prior year. The additional depreciation in 2005, is due to fixed asset additions and was, for the most part, offset by a decrease due to CableTEL AD's changing the determination of useful life of certain of its depreciable assets. For the three and six months ended June 30, 2005 the depreciation expense for the real estate operation was $93,000 and $225,000 and the depletion of the oil operation was $27,000 and $53,000. Corporate general and administrative expense for CableTEL AD was $1,461,000 and $2,827,000 for the three and six months ended June 30, 2005 as compared to $499,000 and $1,147,000 for the corresponding periods for the prior year. The increase in expenses is attributable to the development of the backbone and the anticipated growth of the business. The bulk of the increase is attributable either directly or indirectly to increased administrative personnel in Bulgaria. Personnel expenses increased by approximately $500,000 and $800,000 for the three and six months ended June 30, 2005. This included personnel to oversee the construction of the backbone and additional marketing, accounting 13 and technical personnel. Professional fees, principally accounting and auditing fees, have increased by approximately $100,000 and $300,000 for the three and six months ended June 30, 2005, due to both the increased scope of the business as well as additional costs of being associated with a publicly traded company in the United States. For the three and six months ended June 30, 2005 the corporate general and administrative expense for the United States operation was $261,000 and $528,000. Interest expense for CableTEL AD was $394,000 and $755,000 for the three and six months ended June 30, 2005 as compared to $45,000 and $94,000 for the corresponding periods in the prior year. The increased interest expense was principally due to the cost of completing the backbone which was primarily financed with debt. For the three and six months ended 2005 the interest expense for certain foreign corporate subsidiaries acquired by the Company as part of the October 14, 2004 acquisition was $342,000 and $658,000. With respect to the U.S. operations the interest expense for the three and six months ended June 30, 2005 for the real estate operation was $101,000 and $183,000 and corporate interest was $45,000 and $113,000. The net loss on foreign exchange transactions for the three and six months ended June 30, 2005 was $631,000 and $912,000 as compared to $15,000 and $99,000 for the corresponding periods in the prior year. Transactions in foreign currency are accounted for at the exchange rates prevailing at the time of the transaction. Gains or losses resulting from the settlement of such transactions are recognized in the income statement. The net gain on the sale of a cable ducts by CableTEL AD was $77,000 and $1,920,000 in the three and six months of 2005. CableTEL AD is selling two cable ducts which were built with the intention of seeing to third parties. The sale of the ducts are being recognized as sections of the duct and access thereon is delivered and paid for by the buyers. Inflation The effects of inflation on the Company's operations are not quantifiable. The Company's principal sources of revenues impacted by inflationary increases are monthly fees charged for cable television access. The principal expense would be wages. Property operations tend to fluctuate. To the extent that inflation affects interest rates it would not significantly affect current borrowings which are mostly at fixed rates. It could affect future borrowings. Environmental Matters Management is not aware of any environmental liability that would have a material adverse effect on the Company's business, assets or results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ------------------------------------------------------------------- 14 Interest Rate Risk Nearly all of the Company's debt is financed at fixed rates of interest. Therefore, we have minimal risk from exposure to changes in interest rates. The future growth of the Company is dependent on obtaining capital to grow. Significant increases in interest rates could negatively impact our growth plans. Foreign Exchange Risk CableTEL AD operates in Bulgaria and is currently exposed to foreign exchange risk arising from purchase of program rights and equipment from foreign suppliers and long term debt, both of which are denominated in US dollars. Liquidity Risk CableTEL AD's growth and construction of the backbone were financed through borrowed funds. While the Company believes that the sale of the additional two ducts in the backbone, the revenue generated by the sale of access to the backbone for international calls in the region and positive cash flow from operations of its cable network will generate cash to repay its obligations or support refinancing when its debt comes due, there is no assurance that these sums will be adequate. ITEM 4. CONTROLS AND PROCEDURES Based upon their most recent evaluation, which was completed as of the end of the period covered by this Report, the Acting Principal Executive Office and Acting Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective at June 30, 2005, to ensure that information required to be disclosed in reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time period specified in Securities and Exchange Commission rules and forms. There were no changes in the Company's internal controls over financial reporting during the quarter ended June 30, 2005, that have materially affected or are reasonably likely to materially affect the Company's internal controls over financial reporting." 15
PART II: OTHER INFORMATION ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ------------------------------------------------------------------- During the period of time covered by this report CabelTel International Corporation did not repurchase any of its equity securities. The following table sets forth a summary for the quarter indicating no repurchases were made and that, at the end of the period covered by this report, no specified number of shares may be purchased under any program in place. Maximum Total Number Number of of Shares Shares Purchased that May Total Average as Part of Yet be Number Price Publicly Purchased of Shares Paid per Announced Under the Period Purchased Share Program Program(a) ------ ----------- ----------- ----------- ----------- Balance as of March 31, 2005 -- -- -- -- April 1-30, 2005 ........... -- $ -- -- -- May 1-31, 2005 ............. -- -- -- -- June 1-30, 2005 ............ -- -- -- -- ----------- ----------- ----------- ----------- Total ...................... -- $ -- -- -- =========== =========== =========== ===========
(a) As a courtesy to stockholders of less than 100 shares and to relieve such stockholders of having to pay a broker's commission, the Company, although not obligated to do so, has periodically repurchased its common stock at the then most recent closing price of the Company's common stock on the last trading day before the stock certificate(s) is actually received by the Company from the stockholder. The number of such shares purchased in any period of time has been minimal; no purchases were made during the quarter ended June 30, 2005. ITEM 6. EXHIBITS ---------------- The following exhibits are filed herewith or incorporated by reference as indicated below. Exhibit 31.1 - Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) Exhibit 31.2 - Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) Exhibit 32.1 - Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b), 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 16 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by undersigned, thereunto duly authorized. CabelTel International Corporation Date: August 19, 2005 By: /s/ Gene S. Bertcher ----------------------------------- President & Chief Financial Officer