-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qvf+OgPCG5yUvjk0P3551ddHMdO5kaf0vYxB7IXefbkqj2OBCSryHM0gku04kUHm smzsCfihZrgACmYSBI0smA== 0001010549-06-000210.txt : 20060413 0001010549-06-000210.hdr.sgml : 20060413 20060413171857 ACCESSION NUMBER: 0001010549-06-000210 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060413 DATE AS OF CHANGE: 20060413 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CabelTel International Corp CENTRAL INDEX KEY: 0000105744 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 752399477 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08187 FILM NUMBER: 06759213 BUSINESS ADDRESS: STREET 1: 1755 WITTINGTON PLACE STREET 2: SUITE 340 CITY: DALLAS STATE: TX ZIP: 75234 BUSINESS PHONE: 9724078400 MAIL ADDRESS: STREET 1: 1755 WITTINGTON PLACE STREET 2: SUITE 340 CITY: DALLAS STATE: TX ZIP: 75234 FORMER COMPANY: FORMER CONFORMED NAME: GREENBRIAR CORP DATE OF NAME CHANGE: 19960514 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL RESOURCE COMPANIES OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WESPAC INVESTORS TRUST DATE OF NAME CHANGE: 19900605 10-K 1 cabel10k123105.txt 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 For the fiscal year ended December 31, 2005 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 000-08187 CabelTel International Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 75-2399477 - ---------------------------------------- ---------------------------- (State or other jurisdiction of (IRS Employer Identification Incorporation or organization) Number) 1755 Wittington Place, Suite 340 Dallas, Texas 75234 - ---------------------------------------- ---------------------------- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code (972) 407-8400 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of each exchange on which registered Common Stock, $0.01 par value American Stock Exchange - ----------------------------- ----------------------------------------- Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [ X ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X] 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 12-B-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, 2005 (the last business day of the Registrant's most recently completed second fiscal quarter) was $1,871,000 based upon a total of 400,619 shares held as of December 31, 2005 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 31, 2006, there were 976,955 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, 2005 FORWARD-LOOKING STATEMENTS................................................ 3 PART I....................................................................... 3 ITEM 1. BUSINESS......................................................... 3 ITEM 1A. RISK FACTORS..................................................... 11 ITEM 1B. UNRESOLVED STAFF COMMENTS........................................ 12 ITEM 2. PROPERTIES....................................................... 12 ITEM 3. LEGAL PROCEEDINGS................................................ 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 13 PART II...................................................................... 14 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ............... 14 ITEM 6. SELECTED FINANCIAL DATA.......................................... 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION..... 16 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 20 ITEM 8. FINANCIAL STATEMENTS............................................. 20 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............................................. 21 ITEM 9A. CONTROLS AND PROCEDURES......................................... 21 ITEM 9B. OTHER INFORMATION............................................... 21 PART III..................................................................... 22 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 22 ITEM 11. EXECUTIVE COMPENSATION.......................................... 26 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 28 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 31 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.......................... 32 PART IV...................................................................... 35 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES...................... 35 SIGNATURES................................................................... 38 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM...................... 39 EXHIBIT INDEX................................................................ 62 -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 - 11 -. 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 operate two separate distinct businesses: o 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; and o Ownership of oil and gas leases in Gregg and Rusk Counties, Texas, on which 50 producing wells were operating as of March 31, 2005. Financial information about our segments can be found in NOTE M - SEGMENT REPORTING in the Notes to Consolidated Financial Statements found on page 57. -3- 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 market positioning. In its oil and gas properties, the Company seeks to keep producing wells properly maintained and to recondition and, where economically feasible, bring into production non-operating leases it owns. 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. In compliance with underlying state bond financing, rents at this community must be approved by an agency of the State of Oregon. 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. 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. -4-
Community Care Resident Operations Community Location Level(1) Units Capacity(2) Commenced Ownership - --------------------------------------------------------------------------------------------------------- Pacific Pointe Retirement Inn King City, OR S 114 114 1993 Leased (4)
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 believes was a bargain price. The Company believes that mall traffic will 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. The Company's outlet mall has the advantage of being the only mall in its immediate market area. In addition, the Company believes that the market does not lend itself to construction of another mall in the foreseeable future. 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. -5- Summary Oil Reserve Data The following table sets forth summary information concerning the Company's proved oil reserves on December 31, 2005, based on a report prepared by Haas Petroleum Engineering Services, Inc., an independent consulting and engineering firm. Reserves were determined using year-end product prices, held constant for the life of the properties. Estimates of economically recoverable reserves and future net revenues are based on a number of variables, which may differ from actual results. Proved and Developed Reserves December 31, 2005 Oil (Bbl) 251,250 Productive Wells The following table summarizes our gross working interests and net revenue interests in productive oil wells at December 31, 2005. All wells are in the State of Texas. Gross Wells Net Wells 50 37 The Company's oil wells have all been "abandoned" by the larger oil companies and their leases have devolved to other persons or entities. The Company has 61 leases with a range of 65.7% to 80% of ownership. Individual wells produce from 70 to 360 barrels per month. Well Operations The Company's oil production is hauled and its wells are maintained by third party contractors, and the entire production is sold under contract to a subsidiary of Black Hills Corporation. This contract is renegotiated periodically and is based on the average daily closing price of oil for the previous month, as published by Koch Supply & Trading, plus a premium of $1.99 per barrel at March 31, 2006. The operations of any facility gathering, transporting, processing or storing crude oil is subject to stringent and complex laws and regulations pertaining to health, safety and the environment. As an operator of such facilities, the Company must comply with federal, state and local laws that relate to air and water quality, hazardous and solid waste management and disposal and other environmental matters. Costs of operating oil wells must incorporate compliance with environmental laws, regulations and safety standards. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and potentially criminal enforcement measures. The market for oil is highly volatile but not greatly competitive. Sweet Texas Crude Oil is constantly in high demand world wide. However, there is a high cost to operate the low-production wells in East Texas. The Company's wells would not be profitable if oil is sold at less than $24 per barrel. -6- Insurance The Company currently maintains property and liability insurance intended to cover claims in its retirement community, outlet mall, corporate and oil well 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 more institutionalized settings. The number of insurance carriers who offer retirement industry liability insurance has diminished since 1999, and the cost of such insurance continues to escalate. The Company also carries property insurance on each of its owned and leased properties. Environmental Matters Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean up costs incurred by such parties in connection with the contamination. Such laws typically impose clean up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants and the liability under such laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of such substances may be substantial and the presence of such substances or the failure to remediate properly such property may adversely affect the owner's ability to sell or lease the property or to borrow using the property as collateral. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or redemption of such substances at the disposal or treatment community, whether or not such community is owned or operated by that person or corporation. Finally, the owner or operator of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. The Company has conducted environmental assessments on most of its existing owned or leased properties. These assessments have not revealed any environmental liability that the Company believes would have a material adverse effect on the Company's business, assets or results of operations. The Company is not aware of any such environmental liability. The Company believes that all of its properties are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. The Company has not been notified by any governmental authority and is not otherwise aware of any material non-compliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of its properties. -7- Employees At December 31, 2005, the Company employed, in all segments, 61 people (24 full-time and 37 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 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. In oil production, quality is a matter of proper separation of crude oil from saltwater. These processes are automated at each well and the Company is not aware of any complaints as to the quality of its crude oil. 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. In its oil business, the Company sells its production of crude oil through a contract as described on page - 6 -. The Company has no marketing efforts or responsibility in this facet of its business. -8- Government Regulation Pacific Pointe is not required to hold a state license for its independent retirement operation. Any future retirement community acquired by the Company must be correctly licensed as required by its state and local laws and must be in compliance with the Americans with Disabilities Act. That community must also be in compliance with the Fair Housing Amendments Act. In compliance with underlying state bond financing, rents at Pacific Pointe must be approved by an agency of the State of Oregon. The operations of any facility gathering, transporting, processing or storing crude oil is subject to stringent and complex laws and regulations pertaining to health, safety and the environment. As an owner or operator of these facilities, the Company must comply with federal, state and local laws that relate to air and water quality, hazardous and solid waste management and disposal and other environmental matters. Costs of operating oil wells must incorporate compliance with environmental laws, regulations and safety standards. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and potentially criminal enforcement measures. 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. There are many factors in the crude oil business, described elsewhere in this report that could cause concern. However, it is not competitive. The Company's Texas Sweet Crude is highly sought after by the oil industry. Acquisition of CableTEL AD On October 12, 2004, the Company acquired, for 31,500 shares of newly-designated 2% Series J Preferred Stock, 74.8% of CableTEL AD ("CableTEL"), a Bulgarian telecommunications company. The terms of the acquisition agreement require 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 represent 90% of the resulting total issued and outstanding shares of common stock in the Company. As of the date of this report the exchange has not occurred. -9- The acquisition agreement, as amended, provides that the stockholders of the Company have until June 30, 2006 to approve the exchange of Series J Preferred Stock into the Company common stock. If the exchange is not approved by June 30, 2006, the holders of the Series J Preferred Stock have the option to rescind the entire transaction. Until the acquisition is completed, CableTEL will not be included in the Company's consolidated financial statements and the financial statements of the Company will include a Series J Preferred Stock contra equity account representing the Company's interest in CableTEL. If the stockholders of the Company approve the transaction it would effectively give the owners of CableTEL the controlling interest in the Company. Due to the effective change in control, by virtue of the aforementioned exchange into common stock, this transaction will be accounted for, upon the exchange, as a "reverse acquisition", with CableTEL being the accounting acquirer and with CIC accounted for as if it had been acquired on the exchange date. CableTEL is the largest cable television ("CATV") operator in the Country of Bulgaria. In addition, CableTEL has built a fiber optic backbone (the "backbone") consisting of three ducts around Bulgaria at a total cost of $29,872,500. CableTEL intends to keep one duct for its own use and sell the remaining two ducts to unrelated third parties to offset the cost of building the ducts. CableTEL's marketing is centralized in its Sofia, Bulgaria headquarters. Given the acquisitions strategy of CabelTEL, the Sales and Marketing department has developed a re-branding strategy to quickly bring new operations up to CableTEL communication standards and preserve the overall strength of the CableTEL brand. In addition to CATV, CableTEL provides internet service, VoIP (internet telephony) and mobile phone services. The company is well-positioned from both a marketing and quality approach to being a strong competitor in its markets. CableTEL has 467 employees (457 full-time and 10 part-time) in Bulgaria. It leases its headquarters and owns no property. The technical nature of its business requires a high capital cost. For further information on CableTEL, please refer to Note A in the accompanying financial statements. 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. -10- 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. Although the Company's Pacific Pointe property in Oregon is not subject to federal regulation, it must comply with State of Oregon Senior Housing Regulations which are subject to change from time to time. 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. The price of crude oil is volatile. Although the Company has benefited from extremely high crude oil prices in the last three years there is no guarantee that crude oil prices will remain at record levels. The type of oil production the Company is involved in is expensive and will not be profitable if the market for crude oil is less than $24 per barrel. 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: o 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, o 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 o 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, 2005, 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 addition, a small group of individuals and entities own all of the outstanding Series J 2% Preferred Stock, which holds -11- the right to five votes per share of Series J 2% Preferred Stock voting with the common stock. Under these circumstances, if the holders of Series J 2% Preferred Stock and directors and affiliated entities owning more than 5% of our outstanding common stock voted together, the group would control 64% of the votes in any stockholder action. 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. 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, outlet mall property and mineral properties are described in detail beginning on page - 3 - under ITEM 1. BUSINESS; all of which are suitable and adequate for the purposes to which each is devoted. ITEM 3. LEGAL PROCEEDINGS 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. Plaintiffs' Original Petition is also a request for an injunction and alleged that CPB is a wholly-owned subsidiary of Cable Partners Europe, LLC, a Delaware limited liability company ("CPE"). The complaint makes allegations similar to an original complaint filed by CPB on January 24, 2005, 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 -12- "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 tortuous 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. During the fourth quarter of the fiscal year covered by this report, no proceeding previously reported was terminated except a non-suit on October 17, 2005 of the original Texas state court action described in the preceding paragraph. See also Note N to the Consolidated Financial Statements. 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 16, 2005, 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 606,849 530 Gene S. Bertcher 606,849 530 James E. Huffstickler 606,849 530 Dan Locklear 606,849 530 Victor L. Lund 606,849 530 There were no broker non-votes in the election of directors at the annual meeting. -13- 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.) 2005 2004 High Low High Low --------------------- --------------------- First Quarter $6.44 $3.66 $5.39 $3.62 Second Quarter 8.08 4.63 3.98 2.80 Third Quarter 5.65 4.20 3.74 3.17 Fourth Quarter 4.15 2.70 4.73 3.00 On March 31, 2006, the closing price of the Company's common stock was $3.35 per share. According to the Transfer Agent's records, at March 31, 2006, our common stock was held by approximately 450 holders of record. The Company paid no dividends on its common stock in 2004 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. -14-
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, 2005. Total No. of Maximum No. of Shares Shares that May Repurchased as Yet Be Total No. of part of Publicly- Repurchased Shares Weighted Average Announced Under the Period Repurchased Price Per Share Program Program 10/01-31/2005 -0- -0- -0- -0- 11/01-30/2005 -0- -0- -0- -0- 12/01-31/2005 4 3.13 4 -0-
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, 2005 2004 2003 2002 2001 (dollar amounts in thousands except per share data) Operating revenue $ 5,821 $ 6,053 $ 2,935 $ 3,300 $23,568 Operating expenses 6,473 6,915 3,636 5,373 27,543 Operating profit (loss) (652) (862) (701) (2,073) (3,975) Earnings (loss) from continuing operations before income taxes $ (974) $ (500) $ 622 $(2,724) $ 9,559 Income tax (income) expense -- -- -- 749 2,824 Earnings (loss) from continuing operations (974) (500) 622 (3,473) 6,735 Loss from discontinued operations (12) (316) (400) (4,900) (317) NET EARNINGS (LOSS) $ (986) $ (816) $ 222 $(8,373) $ 6,418 Net earnings (loss) per common share - basic and diluted $ (1.01) $ (0.84) $ 0.3 $(11.67) $ 15.53 Basic weighted average common shares 977 977 706 718 806
-15- BALANCE SHEET DATA: 2005 2004 2003 2002 2001 ------- ------- ------- ------- ------- Total assets $20,080 $16,766 $18,131 $12,624 $44,022 Long-term debt 13,560 8,338 2,053 8,479 16,693 Total liabilities 19,328 15,028 15,557 11,273 34,753 Total stockholders equity $ 752 $ 1,738 $ 2,554 $ 1,351 $ 9,269 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION Overview As of December 31, 2005, the Company leased one assisted living community in Oregon, with a capacity of 114 residents. The Company also controls the leases for 198 oil wells in East Texas and 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. During the past several years, the Company's business strategy has evolved into one of focusing on the real estate component and reducing its operating activities. The Company's objective is to become an investor in various entities, to acquire properties and either sell, lease or enter into joint venture agreements with third party operators with respect to these properties. 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 -16- 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, 2005, the Company had current assets of $1,474,000 and current liabilities of $4,832,000. Included in current liabilities is an obligation of principal and accrued interest to an unrelated third party for $2,943,000. The terms of this obligation are similar to that of preferred stock whereby the Company can only pay this obligation out of available earned surplus. On December 31, of each year cash and cash equivalents totaled $650,000, $762,000 and $688,000 in 2005, 2004 and 2003 respectively. CabelTel's principal sources of cash have been and will continue to be property and oil well operations, proceeds from property sales and refinancing of debt. Management anticipates that in 2006 CabelTel will generate excess cash from operations. However, if excess cash from 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) operating activities was $355,000 in 2005, ($2,166,000) in 2004 and ($486.000) in 2003. Net cash provided by (used in) investing activities was $3,560,000 in 2005, $734,000 in 2004 and ($765,000) in 2003. 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. In 2003, the cash used was principally from the collection of existing notes receivable of $334,000 less the purchase of $1,225,000 in property and equipment principally at the Gainesville Outlet Mall. Net cash provided by (used in) financing activities was ($4,027,000) in 2005, $1,506,000 in 2004 and $1,278,000 in 2003. In 2005 the cash used was principally form the repayment of the mortgage obligations on two assisted living facilities that were sold. In 2004, the cash provided was principally from the refinancing of the Gainesville Outlet Mall and the cash provided in 2003 was from the issuance of additional common stock as well as net proceeds from borrowings. -17- Results of Operations 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. Revenues and Operating Expense from Oil & Gas Operations: Revenues were $1,723,000 in 2005 and $1,410,000 in 2004. Operating expenses were $1,349,000 in 2005 and $1,111,000 in 2004. The increase in revenue is due to the increase in price of oil, over which the Company has no control. The increase in expenses is principally due to certain repairs and upgrades of equipment in 2005. The Company acquired its oil & gas operations effective August 1, 2003. Corporate General and Administrative Expense: These expenses were $1,191,000 in 2005 as compared to $1,715,000 in 2004. During 2004 the Company incurred legal fees related to a dispute with the IRS and overall professional fees with regard to it's 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 has advanced to CabelTEL AD for operations and acquisitions in Bulgaria. The Company has a receivable from CableTEL AD for principal and interest which is equivalent to the amounts the Company has incurred. Interest Expense: Interest expense was $1,189,000 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 has 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 which is equivalent to the amounts the Company has incurred. Loss on Sale of Assets: The loss on sale of assets was $118,000 in 2005. The Company sold certain leases held by Gaywood Oil & Gas during 2005 and recorded a loss of $79,000. These leases held shut in wells and were located in areas in which the Company was unlikely to ever operate. The balance of the loss was incurred when the Company sold it's assisted living facility in South Carolina. Other Income (Expense): Other income was $285,000 in 2005 which principally represents the collection of certain receivables that were previously written off. -18- Discontinued Operations: During 2005 the Company disposed of an assisted living community in South Carolina. During 2004, the Company disposed of an assisted living community in Georgia and entered into a contract to sell a second assisted living community in North Carolina, which was sold in January 2005. These were reflected as assets held for sale. Revenue for the properties was $34,000 in 2005, $1,011,000 in 2004 and $2,098,000 in 2003, respectively. The net loss from operations for the two properties was $184,000 and $395,000 in 2004 and 2003, respectively. Fiscal 2004 as Compared to Fiscal 2003 Revenues and Operating Expenses from Assisted Living Operations: Revenues were $2,566,000 in 2004, as compared to $2,485,000 in 2003. Community operating expenses, which consist of assisted living operations expense, lease expense and depreciation and amortization, were $1,967,000 in 2004, as compared to $1,890,000 in 2003. The increase in revenue is principally due to increased occupancy during 2004. The increase in expenses is chiefly the write down of fixed assets at one of the facilities. Revenues and Operating Expenses from the Gainesville outlet mall: In 2004 revenues were $2,077,000 and operating expenses were $1,836,000. The Company acquired the mall on December 10, 2003. Revenue and expenses for 2003 were both $121,000. Revenues and Operating Expense from Oil & Gas Operations: Revenues were $1,410,000 in 2004 and $449,000 in 2003. Operating expenses were $1,111,000 in 2004 and $441,000 in 2003. The Company acquired its oil & gas operations effective August 1, 2003. In addition, the price of oil was higher in 2004 than in the prior year. Corporate General and Administrative Expense: These expenses were $1,721,000 in 2004, as compared to $1,111,000 in 2003. The increase in the corporate general and administrative expenses is primarily a result of increased expenses due to the addition of the Gainesville outlet mall and Gaywood. In addition, the Company incurred additional legal fees in conjunction with our dispute with the Internal Revenue Service, which was settled in August 2004. Interest and Dividend Income: Interest and dividend income was $213,000 in 2004, as compared to $304,000 in 2003. The decrease in interest and dividend income is a result of a reduction in notes receivable held by the Company Interest Expense: Interest expense was $904,000 in 2004, as compared to $413,000 in 2003. The increase in interest expense is primarily due to the acquisition of the Gainesville outlet mall. 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%. Gain on Sale of Assets: In 2004, the gain on sale of assets was $1,456,000. 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 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 due September 30, 2004, which was transferred to the Company in satisfaction of its $1,600,000 note receivable from CREI. -19- The Company deferred recognition of its $740,000 share of the gain because of the aforementioned guaranty. In addition, CREI had deferred a gain to be recognized both by the partnership and the Company on the installment method when payment is received. In September 2004, the notes were paid in full and the Company recorded a gain of $1,232,000. The Company owned a property in Ellensburg, Washington. The property's book value was $202,000 less than its debt. In July 2004, the Company sold the property to an unrelated third party, who assumed the debt, and recorded a gain of $177,000 net of expenses. Other Income (Expense): Other expense was $403,000 in 2004 and other income was $374,000 in 2003. In 2002, the Company sold a property in California and was required to establish an escrow fund for certain repairs to the building. The escrowed amounts were written off when the building was sold. Included in other income for 2004 is $125,000, which represents the return of a portion of escrow funds in excess of the amount required. Due to a reduction in the corporate staff, the Company needed less space than it was occupying and reached a settlement with the owner of the building, in the third quarter, whereby the Company made a one time payment of $472,000 to settle all obligations and to terminate the lease early. Also included in 2004 is a $216,000 expense to provide for the settlement of the Company's dispute with the IRS. Other income in 2003 includes reimbursement of a prior year insurance claim, the settlement of a lawsuit and settlements for certain prior year accounts payable. Discontinued Operations: During 2004, the Company disposed of an assisted living community in Georgia and entered into a contract to sell a second assisted living community in North Carolina. These have been reflected as assets held for sale. Revenue for the two properties was $841,000 and $1,986,000 in 2004 and 2003, respectively. The net loss from operations for the two properties was $184,000 and $395,000 in 2004 and 2003, respectively ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Nearly 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 39 of this report. -20- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting Principles in the United States of America ("GAAP"). 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. Accordingly, even internal controls determined to be effective can provide only reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and represented within the time periods required. Furthermore, projections of any evaluation of the effectiveness as to future periods are subject to the risk that such controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Evaluation of Disclosure Controls and Procedures Management, under the supervision of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of December 31, 2005. Based upon that most recent evaluation, which was completed as of the end of the period covered by this Form 10-K, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective at December 31, 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 Exchange Commission rules and forms. Changes in Internal Control Over Financial Reporting There have been no changes in the Registrant's internal control over financial reporting during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 9B. OTHER INFORMATION Not applicable. -21- 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) -22- 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 49, (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 57 (Affiliated) Director November 1989 to September 1996 and since June 1999 Mr. Bertcher was elected President and Chief Financial Officer effective November 1, 2004. From January 3, 2003 until that date he was also Chief Executive Officer. 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. He has been a certified public accountant since 1973. Ronald C. Finley, age 56, (Affiliated) Director since November 1, 2004 Mr. Finley became a Director and Chairman of the Board and Chief Executive Officer of the Company on November 1, 2004. He is also President and Chief Executive Officer of CableTEL AD, the Company's largest subsidiary. Mr. Finley -23- is also Chairman or Managing Partner with the following entities: Global Communication Technologies, Inc., a company specializing in switch system integration, sales and maintenance of switching systems; Global Communication Group, Inc., a company that maintains a fiber optic network that provides a private international long distance service for the hotel/resort industry in Bulgaria; World Trade Company, LTD, a company specializing in investment privatization opportunities in Bulgaria and Eastern Europe; and The Pinnacle Property, Inc. and Ellis Development Company, Inc., which are vertically integrated, full-service real estate companies specializing in the ownership, management and leasing of retail shopping centers located throughout the southwestern United States. Mr. Finley is a graduate of the University of Shippensburg with a degree in business administration. James E. Huffstickler, age 63, (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 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 54, (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 77, (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 five meetings during 2005 and acted by unanimous consent two times. 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. -24- 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 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 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 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 Audit Nominating Compensation Director Committee Committee Committee Roz Campisi Beadle |X| Chairman Gene S. Bertcher Ronald C. Finley 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: Ronald C. Finley, Chairman of the Board and Chief Executive Officer; Gene S. Bertcher, President 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 Messrs. Finley and Bertcher, see the descriptions under the caption "Directors" above. Oscar Smith, age 63, 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. -25-
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. 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 paid by the Company for services rendered during the fiscal years ended December 31, 2005, 2004 and 2003 to the Chief Executive Officer of the Company and to the other executive officers of the Company whose total annual salary in 2004 exceeded $100,000, the number of options granted to any of such persons during 2005 and the value of the unexercised options held by any of such persons on December 31, 2005. Summary Compensation Table Long Term Compensation- Number of Shares Annual of Common Stock Compensation- Underlying All Other Name and Principal Position Year Salary Options Compensation(1) - ------------------------------------------------------------------------------------ Gene S. Bertcher, President 2005 $ 186,000 $ -- $ -- & Chief Financial Officer 2004 137,000 -- -- 2003 134,000 -- 6,500 Ronald C. Finley, Chairman 2005 $ 448,340 (2) $ -- $ 74,600 & Chief Executive Officer 2004 447,790 -- 74,723
(1) Constitutes directors' fees paid by the Company to the named individuals. (2) Represents Mr. Finley's compensation from CableTEL AD under the terms of a contract which expires March 30, 2009. The terms of the contract provide that the contract is terminable by either party with 90 days notice. All amounts shown for Mr. Finley are accrued and unpaid. The dollar amounts in the table above are based on the average Euro exchange rate for the year presented. -26-
Option Grants Table (Option Grants in Last Fiscal Year) Number of Percent of Securities Total Options Exercise or Underlying Granted to Employees in Base Price Options Fiscal Year Per Share Expiration Name Granted Date - -------------------------------------------------------------------------------- NONE Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values Value of Unexercised Number of Securities In-the-Money Shares Underlying Unexercised Options at 2002 Acquired Value Options at 2002 FY-End FY-End Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ------------------------------------------------------------------------------------------- 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 provides 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. CableTEL AD pays each of its three directors $6,200 per month. -27- Performance Graph The following graph compares the cumulative total return on a $100 investment in the company's common stock on December 31, 2001 through December 31, 2005, 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. 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005 ---------- ---------- ---------- ---------- ---------- CableTEL AD 100 71.54 81.03 93.48 63.24 S&P 500 100 76.68 98.49 108.50 113.37 Industry Peer Group 100 76.63 96.85 105.56 108.73 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of December 31, 2005, 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 J 2% Preferred Stock and 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, director nominee and current executive officers whose compensation from the company in 2005 exceeded $100,000, and by all 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. -28- Common Stock ----------------------------------- Name of Beneficial Owner No. of Shares Percent of Class* - -------------------------------------------------------------------------------- HKS Investment Corp. (1) 108,994 11.16% Gene S. Bertcher(2) 71,811 7.35% Roz Campisi Beadle 100 ** Ronald C. Finley(8) - - James E. Huffstickler - - Dan Locklear - - JRG Investment Company, Inc.(3)(5) 156,884 16.06% TacCo Financial, Inc.(3)(4)(6) 228,726 23.41% International Health Products, Inc.(3)(7) 9,770 1.02% All executive officers and directors as a group (six persons) 180,905 18.52% - ----------------------- * 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 and 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; J.T. Tackett, Director, President and Treasurer and Mary K. Willett, 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 Ken L. Joines, Director, President and Treasurer; Bradford A. Phillips, Vice President and Jamie Cobb, Secretary. IHPI is wholly owned by a trust for the benefit of the wife and children of Gene E. Phillips. (8) It is anticipated that approval will occur for the owners of the Series J 2% Preferred Stock to exchange their preferred shares for shares of common stock. Mr. Finley owns 14,175 shares of Series J 2% Preferred Stock which if, as anticipated by the Company, exchanged for common stock would be 3,954,825 shares, or approximately 40.5% of the then outstanding common stock. On October 12, 2004, the Company entered into an Acquisition Agreement with four individuals, Ronald C. Finley, Jeffrey A. Finley, Bradford A. Phillips and Gene E. Phillips, pursuant to which the Company acquired in a stock-for-stock exchange all of the issued and outstanding equity interests of two privately-held U.S. corporations, Finley Equities, Inc., a Texas corporation ("FEINC"), and American Realty Management, Inc., a Nevada corporation ("ARM"), in exchange for the issuance of 31,500 shares of the Company's newly-designated Series J 2% Preferred Stock, liquidation value $1,000 per share. FEINC and ARM -29- each owned an undivided one-half of the equity interest in Tacaruna B.V., a Netherlands company, which in turn directly owned 30% of CableTEL AD. Tacaruna B.V. also owned 64% of the equity of Narisma Holdings, Ltd., a Cyprus company, which in turn owns the balance of 70% of CableTEL AD. Prior to this transaction, the Company had no material relationship with Ronald C. Finley, Jeffrey A. Finley or Bradford A. Phillips. Bradford A. Phillips is the son of Gene E. Phillips. Gene E. Phillips is an individual who has significant contact with and influence upon matters handled by Basic Capital Management, Inc., a Nevada corporation ("BCM"), International Health Products, Inc., a Nevada corporation ("IHPI"), TacCo Financial, Inc., a Nevada corporation ("TFI"), and its wholly-owned subsidiary, JRG Investment Co., Inc., a Nevada corporation ("JRG"). Reference is made to the preceding table for the common stock ownership of such entities. The consideration given by the Company for the assets received was an aggregate of 31,500 shares of the Company's newly-designated Series J 2% Preferred Stock, liquidation value $1,000 per share. Such Series J 2% Preferred Stock has the right to receive cumulative cash dividends of $20 per share per annum, payable quarterly, payment of $1,000 per share in the event of dissolution, liquidation or winding-up of the Company before any distribution is made by the Company to its common stockholders, optional redemption at any time after September 30, 2006 at a price of $1,000 per share plus cumulative dividends, no initial right of conversion into any other securities of the Company and voting rights consisting of five votes per share voting together with all other classes of stock. Subsequently, on February 16, 2005, Gene E. Phillips contributed all 12,600 shares of Series J 2% Preferred Stock to CIC Investment LLC, a Nevada limited liability company, of which Gene E. Phillips is the sole member. Also on February 15, 2005, Bradford A. Phillips sold and transferred 1,575 shares of Series J 2% Preferred Stock to PS II Management LLC, a Texas limited liability company, which is indirectly owned by a trust for the benefit of the children of Bradford A. Phillips. Bradford A. Phillips retained the other 1,575 shares of Series J 2% Preferred Stock. The Acquisition Agreement contained customary representations, warranties and covenants by the parties, but also required that as soon as reasonably practicable and in no event later than June 30, 2006, that the Company present the transaction represented by the Acquisition Agreement, together with a proposed mandatory exchange of Series J 2% Preferred Stock for common stock to its current stockholders in accordance with the applicable requirements of the Securities and Exchange Commission and the AMEX for a vote (or written consent by the requisite number) of stockholders to approve the transaction, including a mandatory exchange of all shares of Series J 2% Preferred Stock for shares of the Company's common stock on the basis of 279 shares of common stock for each share of Series J 2% Preferred Stock, which would result in an aggregate of 8,788,500 shares of common stock being issued to the four individuals or their transferees, which would then constitute at least 89% of the total issued and outstanding shares of common stock of the Company, all subject to the listing requirements with the AMEX. If the proposal is ultimately approved by the requisite number of votes of stockholders, it would result in the following individuals or entities owning the number of shares of common stock of the Company set forth opposite their respective names below by virtue of the exchange of the shares of Series J 2% Preferred Stock for common stock, which, based upon a new total number of shares of Common Stock then to be outstanding of 9,765,504 shares, would result in such individuals or entities owning the then percentage of the total outstanding shares of common stock set forth opposite the number of shares in the following table: -30- Anticipated No. of Shares of Percentage of Then Series J 2% Assumed Exchange Outstanding Shares Preferred Stock of Common Stock of Common Stock Name of Stockholder Owned No. of Shares Owned After Exchange Jeffrey A. Finley 1,575 439,425 4.50% Ronald C. Finley 14,175 3,954,825 40.50% Bradford A. Phillips 1,575 439,425 4.50% CIC Investment LLC 12,600 3,515,400 36.00% PS II Management LLC 1,575 439,425 4.50% Assuming the proposal is ultimately approved by the requisite number of votes, a change in control of the Company would occur. As a result of such exchange, Gene E. Phillips, the sole member of CIC Investment LLC, would beneficially own 3,515,400 shares of common stock, constituting 36% of the then issued and outstanding shares of common stock, and three corporations, TFI, JRG and IHPI would also own in the aggregate 395,380 shares of common stock of the Company, or approximately 4.05% of the then issued and outstanding shares of common stock. Also, Ronald C. Finley, Chairman of the Board and Chief Executive Officer of the Company, would beneficially own 3,954,825 shares of common stock of the Company, or approximately 40.5% of the then issued and outstanding shares of common stock. If the proposal does not ultimately receive the approval of the requisite number of votes of stockholders prior to June 30, 2006, then at any time thereafter until June 30, 2007, the holders of the shares of Series J 2% Preferred Stock have the option exercisable by all of them to either: o rescind in full and revoke the transaction covered by the Acquisition Agreement by returning all 31,500 shares of Series J 2% Preferred Stock to the Company, upon which the Company shall be obligated to deliver back to such holders all equity securities of any entity owning all of the ordinary shares and other securities of Tacaruna B.V. or CableTEL AD, or o deliver to the Company all 31,500 shares of Series J 2% Preferred Stock and receive in exchange therefor all of the ordinary shares and other securities of Tacaruna B.V. outstanding and owned by the Company such that such holders will become the owners and holders of all of the issued and outstanding securities of Tacaruna B.V., which in turn continues to own shares of CableTEL AD and shares of Narisma Holdings, Ltd. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 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. See ITEM 12 above for a description of the Acquisition Agreement and continuing requirements upon the Company to submit certain matters to the stockholders for approval. -31- The Company, through subsidiaries, owns 30% of CableTEL AD directly and owns 64% of Narisma Holdings, Ltd. which 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 Ltd. which represents 25.2% of CableTEL AD. 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 2004 and 2003 by the Company's principal accounting firms, Grant Thornton LLP (January 2003 through January 2004) and Farmer, Fuqua & Huff, P.C. (February 9, 2004 through December 31, 2005): Type of Fees 2005 (a) 2004 (b) Audit Fees $72,062 $166,110 Audit Related Fees -- 4,701 Tax Fees 9,973 3,000 All Other Fees -- -- Total Fees $82,035 $173,811 (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. (b) The amount of audit fees paid to Farmer, Fuqua & Huff, P.C. for January 2004 through December 2004 was $166,110; the amount of audit fees paid to Grant Thornton LLP in 2004 was $4,701. The amount of tax fees paid to Farmer, Fuqua & Huff, P.C. for January 2004 through December 2004 was $8,625; the amount of tax fees paid to Grant Thornton for January 2004 through December 2004 was $3,000. 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. -32- 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. 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 2005 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 -33- 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. -34- 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.........................39 Consolidated Balance Sheets.................................40 Consolidated Statement of Operations........................42 Consolidated Statements of Cash Flows.......................43 Consolidated Statement of Changes in Stockholders' Equity...45 Notes to Consolidated Financial Statements..................46 (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 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) -35- 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) 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). -36- 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) 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 31.2* Rule 13a-14(a) Certification by Chief Financial 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. -37- 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 April 13, 2006 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/ Ronald C. Finley Chairman, Chief Executive April 13, 2006 - ----------------------- Officer and Director Ronald C. Finley /s/ Gene S. Bertcher President, Chief Financial April 13, 2006 - ----------------------- Officer and Director Gene S. Bertcher /s/ Roz Campisi Beadle Director April 13, 2006 - ----------------------- Roz Campisi Beadle /s/ James Huffstickler Director April 13, 2006 - ----------------------- James Huffstickler /s/ Dan Locklear Director April 13, 2006 - ----------------------- Dan Locklear /s/ Victor Lund Director April 13, 2006 - ----------------------- Victor Lund -38- 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, 2005, and 2004, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2005. 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, 2005, and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. /s/ FARMER FUQUA & HUFF, P.C. Plano, Texas April 7, 2006 -39-
CabelTel International Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (Amounts in thousands) December 31, ----------------------- 2005 2004 ---------- ---------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 650 $ 762 Accounts receivable - trade 339 222 Notes receivable 306 856 Property held for sale -- 1,760 Other current assets, net 179 103 ---------- ---------- Total Current Assets 1,474 3,703 NOTES RECEIVABLE, net of deferred income 309 309 PROPERTY AND EQUIPMENT, AT COST Land and improvements 2,232 2,232 Buildings and improvements 5,298 6,987 Equipment and furnishings 292 273 Proven oil and gas properties (full cost method) 1,401 1,479 ---------- ---------- 9,223 10,971 Less accumulated depreciation, depletion, and amortization 963 (1,090) ---------- ---------- 8,260 9,881 DEFERRED INCOME TAX BENEFIT 1,161 1,161 DUE FROM CABLETEL AD 8,004 951 DEPOSITS 129 36 OTHER ASSETS, NET 743 725 ---------- ---------- Total Assets $ 20,080 $ 16,766 ========== ==========
The accompanying notes are an integral part of this statement. -40-
CabelTel International Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS - CONTINUED (Amounts in thousands, except share amounts) December 31, ------------------------ 2005 2004 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 2,383 $ 4,780 Current notes payable -- 240 Accounts payable - trade 842 687 Accrued expenses 1,236 828 Other current liabilities 371 -- ---------- ---------- Total Current Liabilities 4,832 6,535 LONG-TERM DEBT (including amounts to related parties of $7,347) 13,560 8,338 OTHER NON-CURRENT LIABILITIES (including amounts to related parties of $591) 936 155 ---------- ---------- Total Liabilities 19,328 15,028 STOCKHOLDERS' EQUITY Preferred stock, Series B 1 1 Preferred stock, Series J 2% 3,150 3,150 Preferred stock, Series J contra equity (3,150) (3,150) Common stock, $.01 par value; authorized, 4,000,000 shares; issued and outstanding, 976,955 shares 10 10 Additional paid-in capital 55,966 55,966 Accumulated deficit (55,225) (54,239) ---------- ---------- 752 1,738 ---------- ---------- Total liabilities & equity $ 20,080 $ 16,766 ========== ==========
The accompanying notes are an integral part of this statement. -41-
CabelTel International Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts) Year Ended -------------------------------- December 31, -------------------------------- 2005 2004 2003 -------- -------- -------- Revenue Real estate operations $ 4,098 $ 4,643 $ 2,486 Oil and gas operations 1,723 1,410 449 -------- -------- -------- 5,821 6,053 2,935 -------- -------- -------- Operating expenses Real estate operations 3,001 3,172 1,115 Oil and gas operations 1,349 1,111 441 Lease expense 932 917 969 General and administrative 1,191 1,715 1,111 -------- -------- -------- 6,473 6,915 3,636 -------- -------- -------- Operating loss (652) (862) (701) Other income (expense) Interest income 700 213 304 Interest expense (1,189) (904) (413) Gain (loss) on sale of assets, net (118) 1,456 1,058 Other income (expense), net 285 (403) 374 -------- -------- -------- (322) 362 1,323 -------- -------- -------- Earnings (loss) from continuing operations (974) (500) 622 Discontinued operations Profit from operations 22 (316) (400) Other expense (34) -- -- -------- -------- -------- Loss from discontinued operations (12) (316) (400) -------- -------- -------- Net earnings (loss) (986) (816) 222 Preferred dividend requirement -- -- -- -------- -------- -------- Net earnings (loss) applicable to common shares $ (986) $ (816) $ 222 ======== ======== ======== Earnings (loss) per share - basic Continuing operations $ (1.00) $ (0.51) $ 0.88 Discontinued operations (0.01) (0.32) (0.57) -------- -------- -------- Net earnings (loss) per share $ (1.01) $ (0.84) $ 0.31 Basic weighted average common shares 977 977 706
The accompanying notes are an integral part of this statement. -42-
CabelTel International Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year ended December 31, 2005 2004 2003 -------- -------- -------- Cash flows from operating activities Net earnings (loss) $ (986) $ (816) $ 222 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities Depreciation and amortization 475 355 160 Depreciation from assets classified as discontinued operations 18 215 170 (Gain) loss from affiliates -- (1,247) (131) Loss on sale of assets 118 (209) (1,058) Write-down of impaired assets -- 147 -- Changes in operating assets and liabilities Accounts receivable - trade (117) (122) (45) Other current and non-current assets (299) (132) 174 Accounts payable and other liabilities 1,146 (357) 22 -------- -------- -------- Net cash provided (used) in operating activities 355 (2,166) (486) Cash flows from investing activities Purchase of property and equipment, net (47) (845) (1,225) Net repayment of notes receivable 550 1,579 334 Proceeds from sale of other real estate 1,147 -- -- Proceeds from sale of properties 1,910 -- 126 -------- -------- -------- Net cash provided by investing activities 3,560 734 (765) -------- -------- -------- Cash flows from financing activities Proceeds from common stock issuance -- -- 792 Proceeds from borrowings -- 6,500 500 Payments on debt (3,831) (5,591) (90) Distributions from equity partnerships' financing cash flow -- 507 85 Repurchase of common stock -- -- (9) Net advances from affiliates (196) 90 -- -------- -------- -------- Net cash provided by (used in) financing activities (4,027) 1,506 1,278 -------- -------- -------- Net increase (decrease) in cash and cash equivalents (112) 74 27 Cash and cash equivalents at beginning of year 762 688 661 -------- -------- -------- Cash and cash equivalents at end of year $ 650 $ 762 $ 688
The accompanying notes are an integral part of this statement. -43-
CabelTel International Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Amounts in thousands) Year ended December 31, 2005 2004 2003 Supplemental information on cash flows is as follows: Interest paid $ 370 $ 705 $ 515 Non-cash investing and financing activities: Notes given in connection with purchase of property -- -- 5,905 Common stock issued in connection with satisfaction of note to executive officer -- -- 198 Disposal of property to satisfy debt -- 935 -- Notes payable agreed by buyer upon sale of real estate -- 906 --
The accompanying notes are an integral part of this statement. -44-
CabelTel International Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Amounts in thousands) Series J Series B Series J Preferred Stock Preferred stock Preferred stock Contra Equity ------------------------ ------------------------ ------------------------- Shares Amount Shares Amount Shares Amount ---------- ---------- ---------- ---------- ---------- ---------- Balance at January 1, 2003 1 1 -- -- -- -- Conversion of obligation to -- -- -- -- -- -- common stock Common stock acquired -- -- -- -- -- -- Common stock issued -- -- -- -- -- -- Net earnings -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2003 1 1 -- -- -- -- Net loss Issuance of Series J preferred stock -- -- 32 3,150 (32) (3,150) Net loss -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2004 1 1 32 3,150 (32) (3,150) Net loss ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2005 1 1 32 3,150 (32) (3,150) ========== ========== ========== ========== ========== ========== Common Stock Additional Accum- ------------------------ paid in ulated Shares Amount capital deficit Total ---------- ---------- ---------- ---------- ---------- Balance at January 1, 2003 688 7 53,645 (53,645) 1,351 Conversion of obligation to 23 -- -- -- -- common stock Common stock acquired (5) -- (9) -- (9) Common stock issued 271 3 987 -- 990 Net earnings -- -- -- 222 222 ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2003 977 10 54,623 (53,423) 2,554 Net loss Issuance of Series J -- -- -- -- -- preferred stock Net loss -- -- -- (816) (816) ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2004 977 10 55,966 (54,239) 1,738 Net loss (986) (986) ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2005 977 10 55,966 (55,225) 752 ========== ========== ========== ========== ==========
* The Company does not have any Other Comprehensive Income. The accompanying notes are an integral part of this statement. -45- CabelTel International Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005 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 2003 have been reclassified to conform to the 2005 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 of CableTEL AD - -------------------------- On October 12, 2004, CIC acquired, for 31,500 shares of newly-designated 2% Series J Preferred Stock, 74.8% of CableTEL AD, a Bulgarian telecommunications company. The terms of the acquisition agreement require CIC to present a proposal to its stockholders to approve the mandatory exchange of all shares of Series J Preferred Stock into 8,788,500 shares of common stock which, if approved by stockholders, would represent 90% of the resulting total issued and outstanding shares of common stock in CIC. As of the date of this report the exchange has not occurred. The acquisition agreement, as amended, provides that the stockholders of CIC have until June 30, 2006 to approve the exchange of Series J Preferred Stock into CIC common stock. If the exchange is not approved by June 30, 2006 the holders of the Series J Preferred Stock have the option to rescind the entire transaction. Until the acquisition is completed, CableTEL AD will not be included in CIC's consolidated financial statements and the financial statements of CIC will include a Series J Preferred Stock contra equity account representing the Company's interest in CableTEL AD. If the stockholders of CIC approve the transaction it would effectively give the owners of the CableTEL AD the controlling interest in CIC. Due to the effective change in control, by virtue of the aforementioned exchange into common stock, this transaction will be accounted for, upon the exchange, as a "reverse acquisition," with CableTEL AD being the accounting acquirer and with CIC accounted for as if it had been acquired on the exchange date. Nature of Operations - -------------------- As of December 31, 2005, 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. In addition the Company owns the leases for approximately 198 oil wells in East Texas. These are low production wells with maximum production limits of 20 barrels of oil per day. As of March 30, 2005, there are 50 wells in operation. -46- 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 $493,000 and $355,000 for 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. The property, plant and equipment acquired under finance leasing contracts is depreciated over the useful life of the asset. Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which termination takes place. Revenue Recognition - ------------------- Crude oil and natural gas revenues are recorded at the time of delivery of such products to pipelines for the account of the purchaser or at the time of physical transfer of such products to the purchaser. Revenues from the sale of crude oil and natural gas are recorded using the sales method. Under such method, the Company recognizes revenue from the sale of crude oil and natural gas production from its leases, based on the actual volumes the Company sold during the period. Rental income for commercial property leases is recognized on a straight-line basis over the respective lease terms. Rental income for residential property leases is recorded when due from residents and is recognized monthly as it is earned, which is not materially different than on a straight-line basis as lease terms are generally for periods of one year or less. 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. -47- NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Cash Equivalents - ---------------- The Company considers all short-term deposits and money market investments with a maturity of less than three months to be cash equivalents. Other Intangible Assets - ----------------------- The cost of acquired patents, trademarks and licenses is capitalized and amortized using the straight-line method over their useful lives. The carrying amount of each intangible asset is reviewed annually and adjusted for permanent impairment where it is considered necessary. Impairment of Notes Receivable - ------------------------------ Notes receivable are identified as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the note agreements. The accrual of interest is discontinued on such notes, and no income is recognized until all past due amounts of principal and interest are recovered in full. No notes were deemed to be impaired at December 31, 2005 and 2004. Impairment of Long-Lived Assets - ------------------------------- The Company reviews its long-lived assets and certain identifiable intangibles for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In reviewing recoverability, the Company estimates the future cash flows expected to result from use of the assets and eventually disposing of them. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the asset's fair value. The Company determines the fair value of assets to be disposed of and records the asset at the lower of fair value less disposal costs or carrying value. Assets are not depreciated while held for disposal. Stock Options - ------------- The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) in its primary financial statements and has provided supplemental disclosures required by Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation" and by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure an Amendment of SFAS No. 123." Options for 140,000 shares of the Company's common stock were granted at market by Cabeltel International Corporation during 2003. These options were exercisable immediately and expire 5 years from the date they were granted. 190,000 warrants were issued at market by Cabeltel International Corporation during 2004. The ability to exercise such warrants is contingent upon the conversion of the Series J 2% 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. 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. -48-
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Reported and pro forma net earnings (loss) and net earnings (loss) per share amounts are set forth below (in thousands, except per share data): 2005 2004 2003 -------------------------------- Net earnings (loss) allocable to common stockholders As reported $ (986) $ (816) $ 222 Deduct: total stock-based compensation under fair value based method for all awards -- -- (43) Pro forma $ (986) $ (816) $ 179 Net earnings (loss) per share As reported $ (1.01) $ (0.84) $ 0.31 Pro forma $ (1.01) $ (0.84) $ 0.25
The fair value of these options was estimated at the date of grant during 2003 using the Black-Scholes option pricing model with the following weighted-average assumptions: no dividends; expected volatility of 20 percent; risk-free interest rates of 4.24 percent; and weighted average expected lives of 5 years. Earnings (Loss) Per Common Share - -------------------------------- Basic earnings (loss) per common share is based on the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed based on the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. In 2003, 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. -49- NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued New Accounting Pronouncements - ----------------------------- 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. In June 2005, the FASB ratified the consensus in EITF Issue No. 04-5, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights" ("Issue 04-5"), which provides guidance in determining whether a general partner controls a limited partnership. Issue 04-5 states that the general partner in a limited partnership is presumed to control that limited partnership. The presumption may be overcome if the limited partners have either (1) the substantive ability to dissolve the limited partnership or otherwise remove the general partner without cause or (2) substantive participating rights, which provide the limited partners with the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the limited partnership's business and thereby preclude the general partner from exercising unilateral control over the partnership. The adoption of Issue 04-5 by us for new or modified limited partnership arrangements is effective June 30, 2005 and for existing limited partnership arrangements effective January 1, 2006. We do not expect that we will be required to consolidate our current unconsolidated joint venture investments nor do we expect Issue 04-5 to have a material effect on our consolidated financial statements. In May 2005, the FASB issued Statement No. 154, "Accounting Changes and Error Corrections" ("Statement No. 154"). Statement No. 154, which replaces APB Opinion No. 20, "Accounting Changes" and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements", changes the requirements for the accounting for and reporting of a change in accounting principle. The statement requires retrospective application of changes in accounting principle to prior periods' financial statements unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. Statement No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of Statement No. 154 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows of IORI. NOTE C - NOTES RECEIVABLE As a result of the sale of two assisted living communities in 2001, the Company holds two tax-exempt notes for a total of $4,030,000, bearing interest at 9.5%. The notes mature on April 1, 2032 and August 1, 2031. The repayment of the notes and interest thereon is limited to the cash flow of the respective properties either from operations, refinancing or sale. The Company has deferred gains in the amount of $3,721,000 as well as unpaid interest, which will be recognized as cash is received or the receivables are sold. The net of the notes receivable and deferred gains discussed above is $309,000 which is shown on the Balance Sheet as `Notes receivable, net of deferred income.' -50- NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate values at December 31, 2005 and 2004: 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 E - NOTES PAYABLE LONG TERM DEBT Long-term debt is comprised of the following (in thousands): 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 real property, fixtures, equipment (with a carrying value of $6,918 at December 31, 2005) and the assignment of rents 6,341 7,627 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 2,255 4,590 Notes payable to related parties bearing interest at rates ranging From 15% to 18% (funds re- advanced to CableTEL AD) 7,347 901 --------------------- 15,943 13,118 Less current maturities 2,383 4,780 ===================== 13,560 8,338 ===================== -51- NOTE E - NOTES PAYABLE - Continued Aggregate annual principal maturities of long-term debt at December 31, 2004 are as follows (in thousands): 2006 2,383 2007 7,481 2008 143 2009 5,936 2009 -- 2010 -- Thereafter -- -------- $ 15,943 ======== 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, 2005, are as follows (in thousands): 2006 $ 898 2007 914 2008 866 2009 870 2010 888 Thereafter 1,829 -------- $ 6,265 ======== Lease expense in 2005, 2004 and 2003 was $932, $917, and $969, respectively. NOTE G - AFFILIATED PARTNERSHIP In October 2001, the Company became a 56% limited partner in Corinthians Real Estate Investors, LP ("CREI"), a partnership formed to acquire two properties. In October 2001, CREI acquired a retirement community for approximately $9,100,000 and in January 2002, it acquired an assisted living community for approximately $2,800,000. The Company issued a $1,600,000 note to the seller in 2001 as partial payment for the purchase of the retirement community. CREI gave the Company a $1,600,000 note in consideration for payment of that amount of the purchase price. The notes 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. -52- NOTE G - AFFILIATED PARTNERSHIP - Continued 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. 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, ----------------------- 2005 2004 2003 Numerator: Net income (loss) from continuing operations $(986) $(632) $ 617 Denominator: Shares used in basic earnings per share calculation 977 977 706 Effect of diluted securities: Employee stock options -- -- 80 Pro forma basic earnings per share $(1.01) $(0.84) $0.31 Pro forma diluted earnings per share $(1.01) $(0.84) $0.31 Shares used in diluted earnings per share calculations 977 977 706 -53-
NOTE I - INCOME TAXES At December 31, 2004, the Company had net operating loss carry forwards of approximately $23,600,000, which expire between 2012 and 2024. Deferred tax assets and liabilities were comprised of the following (in thousands): Year ended December 31, 2005 2004 -------------------- Deferred tax assets: Net operating loss carryforwards $ 8,043 $ 7,869 Alternative minimum tax carryforwards 324 324 Other 496 386 Total deferred tax assets 8,863 8,579 Valuation allowance (7,702) (7,418) -------------------- Net deferred tax asset $ 1,161 $ 1,161 Following is a reconciliation of income tax expense attributable to continuing operations with the amount of tax computed at the federal statutory rate of 34% (in thousands): Year ended December 31, 2005 2004 2003 ----------------------------- Tax expense (benefit) at the statutory rate $ (331) $ (216) $ 75 Change in deferred tax asset valuation allowance, attributable to continuing operations (331) (216) 75 ----------------------------- 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 carryforwards. The Company believes that it is more likely than not that the net deferred tax asset at December 31, 2005, of $1,161,000 will be realized. However, this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accordingly, the ultimate realization of the net deferred tax asset could be less than the carrying amount. NOTE J - STOCKHOLDERS' EQUITY Outstanding Preferred Stock - --------------------------- Preferred stock consists of the following (amounts in thousands): Year ended December 31, 2005 2004 ------ ------ Series B cumulative convertible preferred stock, $.10 par value; liquidation value of $100; authorized, 100 shares; issued and outstanding, 1 share $ 1 $ 1 ====== ====== Series J cumulative non-convertible preferred stock, $.10 par value; liquidation value of $1,000; authorized, 31,500 shares; issued and outstanding 31,500 shares $3,150 $3,150 ====== ======
The Series B preferred stock has a liquidation value of $100 per share and is convertible into common stock over a ten-year period at prices escalating from $500 per share in 1993 to $1,111 per share by 2002. The right to convert expired April 30, 2003. Dividends at a rate of 6% are payable in cash or preferred shares at the option of the Company. -54- The Series J stock is non-convertible, however, the Company has agreed to hold a shareholder vote to require the Series J shareholders to exchange their 31,500 shares of preferred into 8,788,000 shares of the Company's common stock (See Note A). 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. -55- NOTE J - STOCKHOLDERS' EQUITY - Continued Information with respect to stock option activity is as follows: Weighted Average exercise Shares price --------- -------- Outstanding at January 1, 2003 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 ,2004 and 2005 142,000 $ 30.27 ========= ======== Options exercisable at December 31, 2003 , 2004 and 2005 142,000 $ 30.27 ========= ======== Weighted average fair value per share of options granted during 2003 was $0.71 and $7.60, respectively. Additional information about stock options outstanding at December 31, 2005, is summarized as follows: Options outstanding and exercisable ---------------------------------------------------- Weighted average Number remaining Weighted average Range of exercise prices outstanding contractual life exercise price - ------------------------ ----------- ------------------ ---------------- $2.60 60,000 4.0 $ 2.60 $3.75 to $6.90 60,000 6.0 5.68 $100.00 to $150.39 2,000 1.0 150.39 $175.00 20,000 3.0 175.00 NOTE K - OTHER INCOME (EXPENSE) Other income (expenses) consists of the following: (amounts in thousands) Year ended December 31, 2005 2004 2003 ------ ------ ------ Equity in earnings of CREI -- -- 131 Property acquisition due diligence expense -- -- -- Write off start up costs in projects not completed -- (167) -- Accrued tenant revenue -- -- 121 Collection of previously deferred receivables 145 -- -- Other 140 (236) 90 ------ ------ ------ $ 285 $ (403) $ 342 ====== ====== ====== -56-
NOTE L - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE In October 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes FASB SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the accounting and reporting provisions for disposals of a segment of a business as addressed in APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and addresses various implementation issues of SFAS No. 121. In addition, SFAS No. 144 extends the reporting requirements of discontinued operations to include components of an entity that has either been disposed of or is classified as held for sale. The Company adopted SFAS No. 144 as of January 1, 2002. During 2004, the Company disposed of an assisted living community in North Carolina and entered into a contract to sell a 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, and $1,986,000 in 2004, and 2003 respectively. The net loss for the two properties was $184,000, and $395,000 in 2004, and 2003 respectively. The South Carolina facility was sold in May 2005. Revenue and net income were $40,610 and $(11,640) respectively for 2005. NOTE M - SEGMENT REPORTING The Company and its subsidiaries are principally engaged in the business of acquiring, enhancing and selling real estate properties. From 1996 until 2003 those activities almost exclusively involved assisted living facilities. Effective August 1, 2003, the Company acquired 100% of the stock in Gaywood Oil & Gas, LLC ("Gaywood"), a limited liability company that owns working interests in certain oil-producing wells. The acquisition was done for investment purposes and substantially all costs associated with the oil and gas operations are operating expenses incurred directly by Gaywood. The Company continues to allocate all of its corporate overhead expenses to its core real estate operation. Segment information and reconciliation to income (loss) from operations are as follows: Twelve months ended December 31, 2005 (amounts in thousands) Real Estate Oil & Gas Operations Operations Consolidated ------------ ------------ ------------ Revenue $ 4,098 $ 1,723 $ 5,821 Depletion, depreciation and amortization 389 104 493 Net earnings (loss) from continuing operations (1,349) 375 (974) Total Assets $ 18,679 $ 1,401 $ 20,080
-57- NOTE N - LIQUIDITY Included in current liabilities is an obligation of principal and accrued interest to a third party for $2,943,000. The terms of this obligation are similar to that of preferred stock whereby the Company can only pay this obligation out of available earned surplus. Although management anticipates that the Company may generate excess cash from property operations in 2006, such excess, however, will not be sufficient to discharge all of this obligation and in accordance with the debt instrument, the amount due will not be paid until such surplus cash is available. NOTE O - 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. Plaintiffs' Original Petition is also a request for an injunction and alleged that CPB is a wholly-owned subsidiary of Cable Partners Europe, LLC, a Delaware limited liability company ("CPE"). The complaint makes allegations similar to an original complaint filed by CPB on January 24, 2005, 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. 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. 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. -58-
NOTE P - QUARTERLY DATA (UNAUDITED) The table below reflects the Company's selected quarterly information for the years ended December 31, 2005 and 2004. Certain 2004 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, 2005 Quarter Quarter Quarter Quarter ------- ------- ------- ------- Revenue $ 1,514 $ 1,532 $ 1,441 $ 1,334 Operating Expense 1,475 1,588 1,633 1,777 Other income (expense) net (181) (87) (102) 48 Net income (loss) from continuing operations 39 (56) (192) (443) Other income (expense) net (181) (87) (102) 48 Gain (loss) from discontinued operations 5 (17) -- -- Income (loss) allocable to common shareholders (137) (160) (294) (395) Income (loss) per common share - basic and diluted $ 0.14 $ (0.16) $ (0.28) $ (0.71) First Second Third Fourth Year ended December 31, 2004 Quarter Quarter Quarter Quarter ------- ------- ------- ------- Revenue $ 1,539 $ 1,439 $ 1,645 $ 1,430 Operating Expense 1,466 1,563 1,458 2,428 Operating income (loss) 73 (124) 187 (998) Other income (expense) net (182) (47) 426 165 Gain (loss) from discontinued operations (66) (34) 10 (226) Income (loss) allocable to common shareholders (175) (205) 623 (1,059) Income (loss) per common share - basic and diluted $ (0.18) $ (0.21) $ 0.64 $ (1.09)
NOTE Q - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) The Company's net proved oil and natural gas reserves as of December 31, 2005 and 2004, have been estimated by Company personnel in accordance with guidelines established by the Securities and Exchange Commission. Accordingly, the following reserve estimates were based on existing economic and operating conditions. Oil and gas prices in effect at December 31, of each year were used. Operating costs, production and ad valorem taxes and future development costs were based on current costs with no escalation. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production and timing of development expenditures. The following reserve data represents estimates only and should not be construed as being exact. Moreover, the present values should not be construed as the current market value of the Company's oil and gas reserves or the costs that would be incurred to obtain equivalent reserves. -59- NOTE Q - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued Changes in Estimated Quantities of Proved Oil and Gas Reserves (Unaudited): Crude Oil Natural Gas Quantities of Proved Reserves: Bbls Mcf - -------------------------------------- ----------- ----------- Balance December 31, 2003 510,890 -- Revisions of previous estimates (82,971) 38,870 Production (46,849) ----------- ----------- Balance December 31, 2004 381,070 38,870 Revisions of previous estimates (88,522) (12,070) Production (41,298) ----------- ----------- Balance December 31, 2005 381,070 38,870 =========== =========== Proved Developed Reserves: - -------------------------- Balance December 31, 2004 381,070 38,870 Balance December 31, 2005 251,250 26,800 Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Gas Reserves (Unaudited) The Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Gas Reserves ("Standardized Measures") does not purport to present the fair market value of a company's oil and gas properties. An estimate of such value should consider, among other factors, anticipated future prices of oil and gas, the probability of recoveries in excess of existing proved reserves, the value of probable reserves and acreage prospects, and perhaps different discount rates. It should be noted that estimates of reserve quantities, especially from new discoveries, are inherently imprecise and subject to substantial revision. Reserve estimates were prepared in accordance with standard Security and Exchange Commission guidelines. The future net cash flow was computed using year-end 2004, oil and gas prices. Lease operating costs, compression, dehydration, transportation, ad valorem taxes, severance taxes and federal income taxes were deducted. Costs and prices were held constant and were not escalated over the life of the properties. No deduction has been made for interest or general corporate overhead. The annual discount of estimated future cash flows is defined, for use herein, as future cash flows discounted at 10% per year, over the expected period of realization. Proved Developed Reserves were calculated based on Decline Curve Analysis on 22 operating wells and 15 non-operated wells. During 2005, the Company continued to operate the producing wells it acquired in 2003. The Company controls approximately 198 wells but only had 50 wells in production on December 31, 2005. The Company controls 68 leases which were abandoned by larger oil and gas companies in the past due to low production. The Company's operating wells average from 70 to 360 barrels per month. Due to low production and relatively high overhead the Company estimates that its production would be unprofitable if the price of oil fell below $24 per barrel. -60- NOTE Q - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued Standardized measure of discounted future net cash flows related to proved reserves: Year Ended December 31, -------------------------- 2005 2004 ----------- ----------- Future production revenue $14,985,000 $16,420,000 Future development costs 20,000 83,000 Future production costs 10,874,000 11,394,000 ----------- ----------- Future net cash flow before federal income tax 4,091,000 4,943,000 Federal income tax 1,391,000 1,680,000 ----------- ----------- Future net cash flows 2,700,000 3,263,000 Effect of 10% annual discounting 972,000 1,304,000 ----------- ----------- Standardized measure of Discounted net cash flows $ 1,728,000 $ 1,959,000 =========== =========== Changes in the standardized measure of discounted future net cash flows: Year Ended December 31, --------------------------- 2005 2004 ----------- ----------- Beginning of the year $ 1,959,000 $ 1,361,000 Oil and gas sales, net of production costs (478,000) (407,000) Net change in prices, net of production costs 2,645,000 2,670,000 Changes in production rates, timing and other Revisions of quantity estimate (2,436,000) (1,815,000) Effect of income tax (71,000) (291,000) Accretion of discount 109,000 441,000 ----------- ----------- Standardized measure of Discounted net cash flows $ 1,728,000 $ 1,959,000 =========== =========== -61- EXHIBIT INDEX Exhibit No. Exhibit 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 31.2 Rule 13a-14(a) Certification by Chief Financial 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 -62- EX-21.1 2 cabel10kex211123105.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 SUBSIDIARIES OF REGISTRANT State or Entity Name Country % Owned - -------------------------------------------------------- --------------- ------- American Realty Management, Inc. Nevada 100% Big Bear Indian Art, LLC Texas 100% Crown Pointe, Inc. California 100% Finley Equities, Inc. Texas 100% Gainesville Outlet Mall, LLC Nevada 100% Gainesville Partners, LLC Nevada 100% Gainesville Property, LP Texas 100% Gaywood Oil & Gas, LLC Nevada 100% Gaywood Oil & Gas II, LLC Nevada 100% Greenbriar Financial Corporation Nevada 100% Kellway Corporation Texas 100% King City Retirement Corporation Oregon 100% Mesquite, LLC Nevada 60% Narisma Holdings Limited Cypress 64% Real Estate Investors, LLC Nevada 100% Retirement Real Estate, Inc. Nevada 100% Senior Living Management, Inc. Nevada 100% Senior Living Management Payroll Company Texas 100% Senior Property Management, Inc. Nevada 100% Senior Property Management- CP, LLC Nevada 100% Senior Property Management- OP, LLC Nevada 100% Senior Property Management- WT, LLC Nevada 100% SLM-Crown Pointe, Inc. Nevada 100% SLM-Oak Park, Inc. Nevada 100% SLM-Wedgwood Terrace, Inc. Nevada 100% Tacaruna Holdings, BV The Netherlands 100% Villa Residential Care Homes - Arlington I, LP Texas 49% Villa Residential Care Homes - Corpus Christi South, LP Texas 1% Villa Residential Care Homes - Fort Worth East, LP Texas 1% Villa Residential Care Homes - Granbury, LP Texas 1% Villa Residential Care Homes - Oak Park, LP Texas 1% Wedgwood Retirement Inns, Inc. Washington 100% Wedgwood Terrace, Inc. Nevada 100% Windsor Group, LLC South Carolina 100% Windsor House Greenville, LLC South Carolina 100% EX-23.1 3 cabel10kex231123105.txt CONSENT OF FARMER, FUQUA & HUNT, P.C. Exhibit 23.1 We have issued our opinion dated April 7, 2006 accompanying the consolidated financial statements included in the Annual Report of Greenbriar Corporation on Form 10-K for the year ended December 31, 2005. We hereby consent to the incorporation by reference of said report in the Registration Statements of Greenbriar Corporation on Form S-8 (File No. 33-50868 and 33-33985). /s/ FARMER, FUQUA & HUFF, P.C. Plano, Texas April 7, 2006 EX-31.1 4 cabel10kex311123105.txt SECTION 302 CERTIFICATION OF CEO EXHIBIT 31.1 CHIEF EXECUTIVE OFFICER'S RULE 13a-14(a)/15d-14(a) CERTIFICATION I, Ronald C. Finley, certify that: 1) I have reviewed this report on Form 10-K of CabelTel International Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13-15(e) and 15d-15e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Dated: April 13, 2006. /s/ Ronald C. Finley ----------------------- Ronald C. Finley, Chief Executive Officer EX-31.2 5 cabel10kex312123105.txt SECTION 302 CERTIFICATION OF CFO EXHIBIT 31.2 CHIEF FINANCIAL OFFICER'S RULE 13a-14(a)/15d-14(a) CERTIFICATION I, Gene S. Bertcher, certify that: 1. I have reviewed this report on Form 10-K of CabelTel International Corporation; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13-15(e) and 15d-15e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Dated: April 13, 2006. /s/ Gene S. Bertcher ------------------------------- Gene S. Bertcher, President and Chief Financial Officer EX-32.1 6 cabel10kex321123105.txt SECTION 906 CERTIFICATION OF CEO & CFO Exhibit 32.1 OFFICERS' SECTION 1350 CERTIFICATIONS The undersigned officers of CabelTel International Corporation, a Nevada corporation (the "Company"), hereby certifies that (i) the Company's Annual Report on Form 10-K for the year ended December 31, 2005 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and (ii) the information contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2005 fairly presents, in all material respects, the financial condition and results of operations of the Company, at and for the periods indicated. Dated: April 13, 2006. /s/ Ronald C. Finley ------------------------------- Ronald C. Finley, Chief Executive Officer /s/ Gene S. Bertcher ------------------------------- Gene S. Bertcher, President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----