UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NUMBER 3
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 5(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
-------------------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-08187
CABELTEL INTERNATIONAL CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 75-2399477
------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification
Incorporation or organization) Number)
1755 Wittington Place, Suite 340, Dallas, Texas 75234
----------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code (972) 407-8400
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
Common Stock, $0.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
The aggregate market value of the shares of voting and non-voting
common equity held by non-affiliates of the Registrant, computed by reference to
the closing 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 $1,870,891 based upon a total of 400,619 shares held
as of March 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 June 30, 2005, there were 977,004 shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Common Stock, $.01 par value 976,961 shares
(Class) (Outstanding at November 11, 2005)
================================================================================
AMENDMENT NO. 3 TO
FORM 10-K ANNUAL REPORT FOR
CABELTEL INTERNATIONAL CORPORATION
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
The undersigned Registrant hereby amends the following items, exhibits,
or other portions of its Annual Report on Form 10-K for the fiscal year ended
December 31, 2004, as set forth below and as reflected in the substituted pages
attached hereto which replace the same numbered pages in the original filing.
As a preface to the identification below, the entirety of the Report
has been amended to reflect an acquisition of two U.S. entities which are not
consolidated into the Company but are maintained in a separate basis; see Item
I, Business - "Recent Acquisition of CableTEL AD." This change was necessitated
by certain comments by the Staff of the Securities and Exchange Commission (the
"SEC"), which resulted in an appeal to the Office of the Chief Accountant of the
SEC. On October 25, 2005, the Office of the Chief Accountant of the SEC provided
its determination of the appeal with respect to certain accounting treatment.
The appeal was the result of an initial determination and comment by the Staff
of the SEC during May 2005, that, in this very unique set of circumstances and
in the opinion of the Staff, reverse acquisition accounting treatment may not
have been the proper treatment. Management has determined based upon discussions
with the Office of the Chief Accountant during such appeal that while the
overall acquisition and other contingent aspects of the transaction are a single
transaction, the appropriate accounting treatment at this time is recordation of
the issuance of the Preferred Stock together with a recordation of a "contra
asset" in the same amount for the value of the two U.S. corporations and
CableTEL AD. The result is that Management of the Company filed a Form 8-K
Current Report for event noted October 25, 2005, under Item 4.02, which of
necessity requires certain changes in the Annual Report on Form 10-K to cover
such treatment. This document includes additional items of Form 10-K which have
not been amended or changed, but the items which are changed are as follows:
o Page 4, Item 1 - Business.
o Page 13, Item 2 - Properties.
o Page 16, Item 6 - Selected Financial Data.
o Page 17, Item 7 - Management's Discussion and Analysis of
Results of Operation.
o Page 22, Item 7(a) - Quantitative and Qualitative Disclosures
About Market Risk.
o Page 22, Item 8 - Financial Statements (also F-1 following).
The balance of the items have not been changed from the original
filing, and have accordingly not been updated to a more current date.
2
CABELTEL INTERNATIONAL CORPORATION
Index to Annual Report on Form 10-K
Fiscal year ended December 31, 2004
PART I.........................................................................4
Item 1. Business...........................................................4
Item 2. Properties........................................................13
Item 3. Legal Proceedings.................................................13
Item 4. Submission of Matters to a Vote of Security Holders...............14
PART II.......................................................................15
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.................15
Item 6. Selected Financial Data...........................................16
Item 7. Management's Discussion and Analysis of Results of Operation......17
Item 7a: Quantitative And Qualitative Disclosures About Market Risk.......22
Item 8. Financial Statements..............................................22
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure..........................................22
Item 9a. Controls and Procedures...........................................23
Item 9b. Other Information.................................................23
PART III......................................................................24
Item 10. Directors and Executive Officers of the Registrant...............24
Item 11. Executive Compensation...........................................28
Item 12. Security Ownership of Certain Beneficial Owners and Management...31
Item 13. Certain Relationships and Related Transactions...................34
Item 14. Principal Accounting Fees and Services...........................35
PART IV.......................................................................38
Item 15. Exhibits and Financial Statement Schedules.......................38
SIGNATURES....................................................................41
3
PART I
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 "Risks Related to the Company" beginning on page 10.
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 28,
2005, the name of the Company was changed to CabelTel International Corporation.
We operate retirement-focused real estate, own and operate an outlet shopping
mall in Gainesville, Texas and own interests in producing oil and gas leases in
Gregg and Rusk Counties, Texas.
Business Operations
We operate two separate distinct businesses:
o ownership and operation of real estate through:
(i) one retirement community in King City, Oregon, with a
capacity of 114 residents, and leasing of a
residential retirement property to a third party in
Greenville, South Carolina, 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 48 producing wells were operating as of March
31, 2005
4
Financial information about our segments can be found in Note M "Segment
Reporting" in the Notes to Consolidated Financial Statements found at Item 8
"Financial Statements and Supplementary Data
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 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 which offers 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, which was owned, operated and managed by the Company
at March 31, 2005. The Company considers its community to be in good operating
condition and suitable for the purpose for which it is being used.
5
Community
Care Resident Operations
Community Location Level Units Capacity(3) Commenced Ownership
---------------------------------------------------------------------------------------------------
Pacific Pointe Retirement King City, OR S 114 114 1993 Leased (4)
Inn
Windsor House Greenville Greenville, SC FE 31 50 1997 Owned(5)
Key:
(1) S basic support and supplemental services are offered.
(2) FE assisted living with additional support and
supplemental services offered.
(3) Reflects actual number of units for Independent Living.
(4) 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
(5) Leased to an independent third party..
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. Since purchasing the mall in December 2003 occupancy has
risen from 60% to 76%. Mall traffic has been enhanced by a more aggressive
marketing effort as well as development in its immediate Gainesville Texas area
including the opening 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.
6
Summary Oil Reserve Data
The following table sets forth summary information concerning the Company's
proved oil reserves on December 31, 2004, 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, 2004
Oil (MBbl) 381.07
Productive Wells
The following table summarizes our gross working interests and net revenue
interests in productive oil wells at March 31, 2005. All wells are in the State
of Texas.
Gross Wells Net Wells
48 36
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 by 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 $3.15
per barrel at March 31, 2005.
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.
7
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 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 communities.
Employees
At March 31, 2005, the Company employed 56 people (20 full-time and 36
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.
8
Management is not aware of any non-compliance by the Company as regards
applicable regulatory requirements that would have a material adverse effect on
the Company's financial condition or results of operations.
Recent Acquisition of CableTEL AD
On October 12, 2004, CIC acquired, for 31,500 shares of newly-designated 2%
Series J Preferred Stock, 74.8% of CableTEL AD ("CableTEL"), a Bulgarian
telecommunications company. The terms of the acquisition agreement require CIC
to present a proposal to its stockholders to approve the mandatory exchange of
all shares of Series J Preferred Stock into 8,788,500 shares of common stock
which, if approved by stockholders, would represent 90% of the resulting total
issued and outstanding shares of common stock in CIC. As of the date of this
report the exchange has not occurred.
The acquisition agreement, as amended, provides that the stockholders of CIC
have until June 30, 2006 to approve the exchange of Series J Preferred Stock
into CIC common stock. If the exchange is not approved by June 30, 2006, the
holders of the Series J Preferred Stock have the option to rescind the entire
transaction. Until the acquisition is completed, CableTEL AD will not be
included in CIC's consolidated financial statements and the financial statements
of CIC will include a Series J Preferred Stock contra equity account
representing the Company's interest in CableTEL AD.
If the stockholders of CIC approve the transaction it would effectively give the
owners of CableTEL AD the controlling interest in CIC. Due to the effective
change in control, by virtue of the aforementioned exchange into common stock,
this transaction will be accounted for, upon the exchange, as a "reverse
acquisition", with CableTEL AD being the accounting acquirer and with CIC
accounted for as if it had been acquired on the exchange date.
CableTEL AD 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 384 employees (372 full-time and 12 part-time) in Bulgaria. It
leases its headquarters and owns no property. The technical nature of its
business requires a high capital cost.
For further information on CableTEL AD, please refer to Note A in the
accompanying financial statements.
9
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
written request. The Company issues Annual Reports containing audited financial
statements to its common stockholders.
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 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 highly volatile. Although the Company has benefited
from extremely high crude oil prices in the last two 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 very expensive and cannot 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,
10
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 March 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
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.
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 on a regular basis. These inspections cover the appearance of the
exterior and grounds, the appearance and cleanliness of the interior, the
professionalism and friendliness of staff, where applicable, 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 7. The Company has no marketing efforts or
responsibility in this facet of its business.
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 ("ADA"). That community
must also be in compliance with the Fair Housing Amendments Act.
11
In compliance with underlying state bond financing, rents at Pacific Pointe must
be approved by an agency of the state.
The operations of any facility gathering, transporting, processing or storing
natural gas and 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.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wage, overtime and other working conditions. Many of the
Company's employees are paid at rates related to the federal minimum wage and
accordingly, increases 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.
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 CIC feels that the market will
not support another mall.
The crude oil business has many factors, 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.
Insurance
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 Company currently
maintains liability insurance intended to cover such claims. However, the number
of insurance carriers who offer such insurance has diminished in recent years
and the costs of such insurance continues to escalate. The Company also carries
property insurance on each of its properties.
12
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 communities.
ITEM 2. PROPERTIES
-------------------
The Company's principal offices are approximately 5,000 square feet of
leased space in Dallas, Texas. The Company believes its leased space 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
5.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
On January 24, 2005, Cable Partners Bulgaria LLC, a Colorado limited
liability company, instituted an action in the District Court of Dallas County,
Texas styled Cable Partners Bulgaria LLC v. Greenbriar Corporation and Ronald C.
Finley, Cause No. 05-00746-L in the 193rd Judicial District Court of Dallas
County, Texas. Plaintiff's original petition alleges that Cable Partners
Bulgaria LLC ("CPB") was formed to acquire the assets of a cable
telecommunications system located in Plovdiv, Bulgaria, known as "Eurocom", and
to that end entered into a letter agreement on October 12, 2004, with two
individuals on behalf of Eurocom to purchase all of the assets of Eurocom.
Plaintiff's complaint alleges that the letter agreement with CPB obligates the
two individuals to sell all of Eurocom's assets to CPB, and that CPB's
13
obligation to complete the purchase is conditioned upon completion of due
diligence reviews and negotiation with the two individuals of a customary
purchase and sale agreement and customary employment and non-competition
agreements. The October 12, 2004 letter agreement provided that CPB was to
"utilize commercially-reasonable efforts" for completing the due diligence and
agreements by January 7, 2005. Plaintiff's complaint alleges it engaged an
international accounting firm to conduct the due diligence, but the delays
resulted in an extension until February 28, 2005, at a minimum. Plaintiff's
complaint alleges that certain meetings occurred in December 2004 and January
2005, and alleges tortuous interference with a contract and prospective contract
by the Company and Ronald Finley, seeks a temporary injunction and permanent
injunction enjoining the Company and its subsidiaries from further contact with
the two individuals, and a judgment against the Company in the amount of at
least (euro)4.5 million plus exemplary damages and attorneys' fees and costs.
Management of the Company intends to vigorously defend the action, which it
perceives to be without merit. Representatives of CableTEL AD had conversations
and arrangements in place with the individual stockholders of Eurocom well
before either the October 12, 2004 purported letter agreement or the
November/December 2004 conversations. Management also believes the action
misstates or seeks to rearrange facts and events central to the controversy.
The ownership of property and provision of services to the public entails an
inherent risk of liability. Although the Company and its subsidiaries 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 October 20, 2004, 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 720,202 2,888
Gene S. Bertcher 713,462 2,888
James E. Huffstickler 720,200 2,888
Dan Locklear 720,200 2,888
Victor L. Lund 712,562 2,888
There were no votes or broker non-votes on the election of directors.
14
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.)
2004 2003
High Low High Low
---------------- ----------------
First Quarter $5.39 3.62 $4.25 3.62
Second Quarter 3.98 2.80 4.50 3.65
Third Quarter 3.74 3.17 4.00 2.15
Fourth Quarter 4.73 3.00 6.50 2.38
According to the Transfer Agent's records, at March 31, 2005, our Common Stock
was held by approximately 463 holders of record. On March 31, 2005, the closing
price of the Company's Common Stock was $6.05.
The Company paid no dividends on its Common Stock in 2003 or 2004. The Company
has not paid cash dividends on its Common Stock during at least the ten fiscal
years, and it has been the policy of the Board of Directors of the Company to
retain all earnings to pay down long-term debt and finance future expansion and
development of its businesses. The payment of dividends, if any, will be
determined by the Board of Directors in the future in light of conditions then
existing, including the Company's financial condition and requirements, future
prospects, restrictions in financing agreements, business conditions and other
factors deemed relevant by the Board of Directors.
Securities Authorized for Issuance Under Equity Compensation Plans We have two
stock-based equity compensation plans that have been approved by our
stockholders. See "Note J - Stockholders Equity" for a description of the plans,
the number of shares of Common Stock to be issued upon exercise of outstanding
stock options, the weighted average exercise price of outstanding stock options,
and the number of shares of Common Stock remaining for future issuance under the
plans. We have no stock-based compensation plans which were adopted without the
approval of our stockholders.
Purchases of Equity Securities
The Board of Directors has not authorized the repurchase of any shares of its
Common Stock under any share repurchase program. However, in the past when
stockholders owning less than one round lot (100 shares) so request, the Company
has purchased 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, 2004.
15
Total No. of Maximum No. of
Shares Shares that May
Repurchased as Yet Be
Total No. of Weighted part of Publicly- Repurchased
Shares Average Price Announced Under the
Period Repurchased Per Share Program Program
10/01-31/2004 -0- -0- -0- -0-
11/01-30/2004 -0- -0- -0- -0-
12/01-31/2004 -0- -0- -0- -0-
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- --------
Operating revenue $ 6,223 $ 3,047 $ 3,300 $ 23,568 $ 33,482
Operating expenses 7,130 3,636 5,373 27,543 6,378
Operating profit (loss) (907) (589) (2,073) (3,975) (10,115)
Earnings (loss) from continuing
operations before
income taxes $ (632) $ 617 $ (2,724) $ 9,559 $ (10,115)
Income tax (income) expense -- -- 749 2,824 --
Earnings (loss) from
continuing operations (632) 617 (3,473) 6,735 (10,115)
Loss from
discontinued
operations (184) (395) (4,900) (317) (508)
NET EARNINGS
(LOSS) $ (816) 222 (8,373) 6,418 (10,623)
Net earnings (loss) applicable
to Common shares - Basic
and diluted $ (0.84) $ 0.31 $ (11.67) $ 15.53 $ (39.17)
BALANCE SHEET DATA: 2004 2003 2002 2001 2000
Total assets $ 16,766 $ 18,131 $ 12,624 $ 44,022 $ 102,588
Long-term debt 8,338 2,053 8,479 16,693 50,887
Total liabilities 15,028 15,557 11,273 34,753 68,944
Preferred stock redemption
obligation -- -- -- -- 26,988
Total stockholders' equity 1,738 2,554 1,351 9,269 6,656
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION
---------------------------------------------------------------------
Overview
As of March 31, 2005, the Company owns one assisted living community and leases
one community in two separate states, with a total capacity of 204 residents. In
addition, the Company owns one community that is operated by an independent
third party with a capacity of 41 residents. The Company also controls the
leases for 200 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
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
17
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, 2004, the Company had current assets of $3,703,000 and current
liabilities of $6,535,000.
Included in current liabilities is an obligation of principal and accrued
interest to Sylvia Gilley, wife of a former President of the Company, for
$2,717,000. 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 $762,000, $688,000
and $661,000 in 2004, 2003 and 2002 respectively.
Net cash (used in) operating activities was ($2,166,000) in 2004, ($486,000) in
2003 and ($3,885,000) in 2002.
Net cash provided by (used in) investing activities was $734,000 in 2004,
($765,000) in 2003 and $8,273,000 in 2002. 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. In 2002, the cash provided was
principally from the proceeds from the sale of investments of $1,098,000 and the
sale of properties of $7,460,000.
Net cash provided by (used in) financing activities was $1,506,000 in 2004,
$1,278,000 in 2003 and ($4,973,000) in 2002. 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. In 2002, the net use of cash was principally due to
the repayment of debt on properties that were sold.
Results of Operations
Fiscal 2004 as Compared to Fiscal 2003
Revenues and Operating Expenses from Assisted Living Operations: Revenues were
$2,736,000 in 2004, as compared to $2,597,000,000 in 2003. Community operating
expenses, which consist of assisted living operations expense, lease expense and
depreciation and amortization, were $2,182,000 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 $1,088,000 in
2004 and $400,000 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.
18
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 $991,000 in 2004, as compared to $498,000
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.
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
$342,000 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.
19
Discontinued Operations: 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 have either been disposed of or are classified as
held for sale. The Company adopted SFAS No. 144 as of January 1, 2002.
During 2004, the Company disposed of an assisted living community and entered
into a contract to sell a second assisted living community. 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
Fiscal 2003 as Compared to Fiscal 2002
Revenues and Operating Expenses from Real Estate Operations: Revenues from our
retirement facilities were $2,598,000 in 2003, as compared to $2,378,000 in
2002. Community operating expenses, which consist of retirement operations,
lease expense and depreciation and amortization, were $1,890,000 in 2003, as
compared to $1,745,000 in 2002. The increases in revenue and expenses in 2003
are primarily due to increased occupancy.
The Company also received revenue from fees and incurred costs for managing
facilities for other third party entities. These fees and costs have been
included in real estate revenue and operating expenses.
Revenues and Operating Expenses from Oil & Gas Operations: The Company acquired
its oil & gas operations effective August 1, 2003. Revenues were $449,000,
operating expenses were $400,000 and depletion and depreciation was $41,000.
Corporate General and Administrative Expenses: These expenses were $1,111,000 in
2003, as compared to $2,329,000 in 2002. The decrease in the corporate general
and administrative expenses is primarily a result of a decrease in salaries and
related payroll expenses. Due to a significant reduction in the number of
retirement communities operated by the Company, the number of employees on the
corporate staff was reduced. The downsizing also resulted in an overall decrease
in almost all general and administrative cost categories.
Write-off of Impaired Assets and Related Expenses: During 2002, the Company
wrote down the recorded value of a property it was attempting to sell.
Interest and Dividend Income: Interest and dividend income was $304,000 in 2003,
as compared to $412,000 in 2002. The decrease in interest and dividend income is
a result of a reduction in the notes receivable held by the Company.
Interest Expenses: These expenses decreased to $498,000 in 2003, as compared to
$840,000 in 2002. The decrease is due primarily to the reduction in the number
of retirement communities.
20
Gain on Sale of Assets: In 2001, the Company sold a property and received
proceeds of both cash and a bond bearing interest at 9.5%. The payment of both
principal and interest on the bond was based exclusively on the cash flow from
the property sold. For financial statement purposes the bond was valued at zero.
In August 2003, the Company exchanged the bond for 100% of Gaywood Oil and Gas,
LLC ("Gaywood"). Gaywood was valued by independent engineers as having a fair
market value of $1,169,000, which was recorded as a gain by the Company. In
September 2003, the Company sold land it was holding for $125,000 cash and
recorded a loss of $111,000 on the sale.
In November 2002, the Company sold its 56% interest in Muskogee Real Estate
Investors, LP to Sylvia M. Gilley in exchange for a reduction of $1,120,000 owed
to Ms. Gilley and a one year extension on the remaining portion of the note due
her of $2,255,000. The Company recorded income of $930,000.
Other Income( Expenses): Other income was $342,000 in 2003 and a negative
$1,153,000 in 2002. 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.
In September 2002, the Company entered into a venture with a third party to
secure partnership interests in future acquisitions of assisted living
communities. The agreement required the Company to pay $660,000 over the next
twelve months to fund the cost of the due diligence for these acquisitions.
There could be no assurance that this venture would be successful so the Company
charged the entire cost to expense. The Company recorded its 56% investment CREI
by the equity method of accounting. The Company's share of the operating losses
of this partnership was $621,000. On September 30, 2002, CREI sold its two
properties to a third party for a gain of $2,315,000. The Company has deferred
recognition of its 56% participation in the gain.
Discontinued Operations: In October 2001, the Financial Accounting Standard
Board issued Statement of Financial Accounting Standards #144, :Accounting for
the Impairment or Disposal of Long Lived Assets". ("SFAS #144"). The Company
adopted SFAS #144 effective January 1, 2002, which resulted in a presentation of
the net operating results of qualifying properties sold in 2002 as a (loss) from
discontinued operations for all periods presented. During 2002, the Company
disposed of six properties. Revenue for the six properties was approximately
$4,698,000 in 2002. Operating expenses for the six properties were approximately
$5,325,000 in 2002. The loss on sale of these six properties was $3,729,000,
which includes income tax expense of $440,000.
During 2004, the Company disposed of an assisted living community and entered
into a contract to sell a second assisted living community, which has been
reflected as an asset held for sale. Revenue for the two properties was $
$1,986,000, and $1,122,000 in 2003 and 2002, respectively. The net loss from
operations for the two properties were $395,000 and $272,000 in 2003 and 2002,
respectively
Effect of Inflation
The Company's principal sources of revenue are from rents in a retirement
community, an outlet shopping mall and its oil and gas operations. The operation
of the real estate entities is affected by rental rates that are highly
dependent upon market conditions and the competitive environment in the areas
where the properties are located. Worldwide consumption patterns seem to
preclude competition in the oil business in the foreseeable future. Compensation
21
to employees and maintenance are the principal cost elements relative to the
operations of the entities. Although the Company has not historically
experienced any adverse effects of inflation on salaries or other operating
expenses, there can be no assurance that such trends will continue or that,
should inflationary pressures arise, the Company will be able to offset such
costs by increasing rental rates in its real estate properties. The price of oil
is dictated by market conditions and the Company could not arbitrarily increase
the price of its oil.
Forward Looking Statements
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: A number of the matters and subject areas discussed in this filing that
are not historical or current facts deal with potential future circumstances,
operations and prospects. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from the Company's actual
future experience involving any one or more of such matters and subject areas
relating to interest rate fluctuations, ability to obtain adequate debt and
equity financing, demand, pricing, competition, construction, licensing,
permitting, construction delays on new developments contractual and licensure,
and other delays on the disposition, transition, or restructuring of currently
or previously owned, leased or managed communities in the Company's portfolio,
and the ability of the Company to continue managing its costs and cash flow
while maintaining high occupancy rates and market rate assisted living charges
in its assisted living communities. The Company has attempted to identify, in
context, certain of the factors that it currently believes may cause actual
future experience and results to differ from The Company's current expectations
regarding the relevant matter or subject area. These and other risks and
uncertainties are detailed in the Company's reports filed with the Securities
and Exchange Commission ("SEC"), including The Company's Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q.
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 F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Effective February 9, 2004, the Audit Committee of the Board of Directors of the
Company engaged the Plano, Texas accounting firm of Farmer, Fuqua & Huff, P.C.
as the independent accountants to audit the Company's financial statements for
the fiscal year ended December 31, 2003. During the Company's two most recent
fiscal years and any subsequent interim period, the Company had not consulted
with Farmer, Fuqua & Huff, P.C. or any of its members about the application of
accounting principles to any specified transaction or any other matter. The
decision to change accountants was approved by the Audit Committee of the Board
of Directors of the Company. Audit Committee members are Dan Locklear, James
Huffstickler and Victor Lund.
22
The engagement, effective February 9, 2004, of Farmer, Fuqua & Huff, P.C. as the
new independent accountants for the Company necessarily resulted in the
termination or dismissal of the principal accountant which audited the Company's
financial statements for the two fiscal years ended December 31, 2002, Grant
Thornton LLP. Grant Thornton LLP's reports dated March 28, 2002 and March 18,
2003 did not contain any adverse opinion or disclaimer of opinion, nor were the
qualified or modified as to uncertainty, audit scope or accounting principles.
During the Company's two most recent fiscal years and subsequent interim period
through February 9, 2004, there were no disagreements between the Company and
Grant Thornton LLP concerning any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which
disagreements, if not resolved to Grant Thornton LLP's satisfaction, would have
caused them to make reference to the subject matter of the disagreement in
connection with their report; there were no reportable events described in Item
304(a)(1)(v) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES
---------------------------------
As required by Rule 13a-15(b), the Company's management, including the principal
executive officer, chief financial officer and principal accounting officer,
conducted an evaluation as of the end of the period covered by this report of
the effectiveness of the Company's disclosure controls and procedures as defined
in Exchange Act Rule 13a-15(e). Based on that evaluation, the chief executive
officer and the chief financial officer concluded that the Company's disclosure
controls and procedures were effective as of the end of the period covered by
this report. As required by Rule 13(a)-15(d), the Company's management,
including the chief executive officer, chief financial officer and principal
accounting officer, also conducted an evaluation of the Company's internal
controls over financial reporting to determine whether any changes occurred in
the fourth fiscal quarter that materially affected, or are reasonably like to
materially effect, the Company's internal control over financial reporting.
Based on that evaluation, there has been no such change during the fourth fiscal
quarter.
It should be noted that any system of controls, however well designed and
operated, can only provide reasonable and not absolute assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part on certain assumptions about the likelihood of future
events.
ITEM 9B. OTHER INFORMATION
--------------------------
Not applicable.
23
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 or until a
successor has been elected or approved.
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
(formerly Greenbriar Corporation)
Attn: Investor Relations
1755 Wittington Place, Suite 340
Dallas, Texas 75234
972-407-8400 (Telephone)
24
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, a
member of the Audit Committee, 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 or 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 48, (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 56 (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 Executive Vice President, Chief
Financial Officer and Treasurer of the Company since November 1989. He has been
a certified public accountant since 1973.
Ronald C. Finley, age 55, (Affiliated) Director since November 1, 2004
Mr. Finley became a Director and Chairman 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 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
25
service for the hotel/resort industry in Bulgaria; World Trade Company, LTD,
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 62, (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 the past 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 52 (Independent) Director since December 2003
Mr. Locklear has been chief financial officer of Sunridge Management Group, a
real estate management company, for more than the past 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 76 (Independent) Director since March 1996
Mr. Lund founded Wedgwood Retirement Inns, Inc. 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 two meetings during 2004 and acted by unanimous
consent one time. For such year, no incumbent director attended fewer than 75%
of the aggregate of (i) the total number of meetings held by the Board during
the period for which he or she had been a director, and (ii) the total number of
meetings held by all Committees of the Board on which he or she served during
the period that he or she served.
The Board of Directors has standing Audit, Compensation and Governance and
Nominating Committees. The Audit Committee was formed on December 12, 2003, and
its function is to review the Company's operating and accounting procedures. A
Charter of the Audit Committee has been adopted by the Board. The current
members of the Audit Committee, all of whom are independent within the SEC
regulations, the listing standards of the AMEX and the Company's Corporate
Governance Guidelines are Messrs. Locklear (Chairman), Huffstickler and Lund.
Mr. Dan Locklear is qualified as an Audit Committee financial expert within the
meaning of SEC regulations, and the Board has determined that he has the
accounting and related financial management expertise within the meaning of the
listing standards of the AMEX.
The 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
26
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) and 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 such 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|
----------------------- ---------------- ----------------- ---------------------
During October 2004, the Board adopted its Corporate Governance Guidelines. The
Guidelines adopted by the Board meet or exceed the new listing standards adopted
during the year by the AMEX. Pursuant to the Guidelines, the Board undertook its
annual review of director independence, and during this review, the Board
considered transactions and relationships between each director or any member of
his or her immediate family and the Company and its subsidiaries and affiliates,
including those reported under Certain Relationships and Related Transactions
below. The Board also examined transactions and relationships between directors
or their affiliates and members of the Company's senior management or their
affiliates. As provided in the Guidelines, the purpose of such review was to
determine whether such relationships or transactions were inconsistent with the
determination that the director is independent.
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 62, 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.
27
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 has been posted on the Company's internet website address at
http://www.cabeltel.us and are 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, 2004, 2003 and 2002 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 2004 and the value of the
unexercised options held by any of such persons on December 31, 2004.
28
Summary Compensation Table
--------------------------------- --------- ---------------- ----------------- -------------------
Long Term
Compensation-
Number of
Shares of
Common Stock
Name and Annual Underlying All
Principal Compensation- Options Other
Position Year Salary Compensation(1)
--------------------------------- --------- ---------------- ----------------- -------------------
Gene S. Bertcher, 2004 $137,000
President, Chief Financial 2003 134,000 -- $ --
Officer and until 11/1/04, 2002 14,000 -- 6,500
Chairman and Chief Executive 6,500
Officer
Ronald C. Finley, 2004
Chairman and Chief Executive
Officer since 11/1/04
(1) Constitutes directors' fees paid by the Company to the named individuals.
Option Grants Table
(Option Grants in Last Fiscal Year)
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted Fiscal Year Per Share Date
--------- ------------- ------------------- ------------- ------------
NONE
29
Aggregated Option Exercises in Last Fiscal
Year and FY-End Option Values
------- -------------- ---------- ------------------------ ---------------------
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at 2002
Shares Options at 2002 FY-End FY-End
Acquired Value Exercisable Exercisable
Name on Exercise Realized Unexercisable 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 percent 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.
30
Performance Graph
The following graph compares the cumulative total return on a $100 investment in
the company's common stock on December 31, 2000 through December 31, 2004, 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.
[GRAPHIC OMITTED]
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
The following table sets forth as of March 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 2004 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.
Common Stock
------------------------------------
Name of Beneficial Owner No. of Shares Percent of Class*
------------------------------------------- ---------------- -------------------
Victor L. Lund(1) 108,994 11.16%
Gene S. Bertcher(2) 71,811 7.35%
Roz Campisi Beadle 100 **
31
Common Stock
------------------------------------
Name of Beneficial Owner No. of Shares Percent of Class*
------------------------------------------- ---------------- -------------------
Ronald C. Finley(8) - -
James E. Huffstickler - -
Dan Locklear - -
JRG Investments, 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 977,004 shares of common stock outstanding at March 31, 2005.
** less than 1%
(1) Consists of 108,994 shares of common stock owned by Mr. Lund.
(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 Form 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 Investments, 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 CEO. 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
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,
32
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 September 30, 2005, 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:
33
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 September 30, 2005, then at any time
thereafter until September 30, 2006, 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 BV 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 BV
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 BV, 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.
34
The Company, through subsidiaries, owns 30% of CableTEL AD directly and owns 64%
of Narisma Holdings, Ltd., a Cyprus company that owns the remaining 70% of
CableTEL AD. Collectively, the Company has effective ownership of 74.8% of
CableTEL AD. In January 2005, Envicon Development Corporation, a company
indirectly owned by Gene E. Phillips, acquired the 36% of Narisma Holdings 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, 2004):
Type of Fees 2004 (a) 2003 (b)
Audit Fees $166,110 $ 94,259
Audit Related Fees 4,701
Tax Fees 3,000 42,524
All Other Fees -- --
Total Fees $173,811 $136,783
(a) The am ount of audit fees paid to Farmer, Fuqua & Huff, P.C. for
January 2004 throug h December 2004 was $30,000; 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.
(b) The amount of audit fees paid to Grant Thornton LLP for January
2003 through December 2003 was $50,620.
All services rendered by the principal auditors are permissible under applicable
laws and regulations and were pre-approved by either of the Board of Directors
or the Audit Committee, as required by law. The fees paid to principal auditors
for services described in the above table fall under the categories listed
below:
Audit Fees. These are fees for professional services performed by the
principal auditor for the audit of the Company's annual financial
statements and review of financial statements included in the Company's
Form 10-Q filings and services that are normally provided in connection
with statutory and regulatory filings or engagements.
Audit-Related Fees. These are fees for assurance and related services
performed by the principal auditor that are reasonably related to the
performance of the audit or review of the Company's financial
statements. These services include attestation by the principal auditor
that are not required by statute or regulation and consulting on
financial accounting/reporting standards.
35
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 did not render any professional services to the Company in
2004 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 role in retaining the independent
auditor is two-fold. First, the authority and responsibility for the
appointment, compensation and oversight of the auditors should be with directors
who are independent of management. Second, any non-audit work performed by the
auditors should be reviewed and approved by these same independent directors to
ensure that any non-audit services performed by the auditor do not impair the
independence of the independent auditor. To implement the provisions of the SO
Act, the SEC issued rules specifying the types of services that an independent
may not provide to its audit client, and governing the Audit Committee's
administration of the engagement of the independent auditor. As part of this
responsibility, the Audit Committee is required to pre-approve the audit and
non-audit services performed by the independent auditor in order to assure that
they do not impair the auditor's independence. Accordingly, the Audit Committee
has adopted a pre-approval policy of audit and non-audit services (the
"Policy"), which sets forth the procedures and conditions pursuant to which
services to be performed by the independent auditor are to be pre-approved.
Consistent with the SEC rules establishing two different approaches to
pre-approving non-prohibited services, the Policy of the Audit Committee covers
pre-approval of audit services, audit-related services, international
administration tax services, non-U.S. income tax compliance services, pension
and benefit plan consulting and compliance services, and U.S. tax compliance and
planning. At the beginning of each fiscal year, the Audit Committee will
evaluate other known potential engagements of the independent auditor, including
the scope of work proposed to be performed and the proposed fees, and the
36
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.
37
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 filled as part of this Report on
Form 10-K:
Report of Farmer, Fuqua & Huff, P.C......................F-1
Report of Grant Thornton LLP.............................F-2
Consolidated Balance Sheets..............................F-3
Consolidated Statement of Operations.....................F-5
Consolidated Statements of Cash Flows....................F-6
Consolidated Statement of Changes in
Stockholders' Equity.....................................F-8
Notes to Consolidated Financial Statements...............F-9
(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)
38
Exhibit
Designation Exhibit Description
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).
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)
39
Exhibit
Designation Exhibit Description
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 Warrant to Purchase 20,000 shares of Common Stock issued
October 20, 2004
10.6 Warrant to Purchase 170,000 shares of Common Stock issued
October 20, 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)
21.0* Subsidiaries of the Registrant
23.0* Consent of Farmer, Fuqua & Hunt, P.C.
23.2* Consent of Grant Thornton LLP
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
99.1* Audited financial statements of CableTEL AD
*Filed herewith.
40
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
November 18, 2005 by: /s/ Gene S. Bertcher
-----------------------------------------------
Gene S. Bertcher, President and Chief Financial
Officer
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Cabeltel International Corporation, formerly Greenbriar Corporation
We have audited the accompanying consolidated balance sheets of Cabeltel
International Corporation, formerly Greenbriar Corporation, and subsidiaries as
of December 31, 2004, and 2003, and the related consolidated statements of
income, shareholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits include consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion of the effectiveness of the company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cabeltel
International Corporation, formerly Greenbriar Corporation, and subsidiaries as
of December 31, 2004, and 2003, and the consolidated results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ FARMER FUQUA & HUFF, P.C.
Plano, Texas
April 15, 2005
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Cabeltel International Corporation
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of Cabeltel International Corporation
(formerly Greenbriar Corporation) and subsidiaries for the year ended December
31, 2002. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion of the effectiveness of the company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and the
consolidated cash flows of Cabeltel International Corporation and subsidiaries
for the year ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note O to the consolidated financial statements, on January 1,
2002, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets."
GRANT THORNTON LLP
Dallas, Texas
March 28, 2003
F-2
CabelTel International Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31,
ASSETS
2004 2003
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 762 $ 688
Accounts receivable - trade 222 100
Notes receivable 856 2,435
Property held for sale 1,760 1,859
Other current assets, net 103 198
---------- ----------
Total Current Assets 3,703 5,280
NOTES RECEIVABLE, net of deferred income 309 387
PROPERTY AND EQUIPTMENT, AT COST
Land and improvements 2,232 2,446
Buildings and improvements 6,987 7,276
Equipment and furnishings 273 951
Proven oil and gas properties (full cost method) 1,479 1,361
---------- ----------
10,971 12,034
Less accumulated depreciation, depletion, and amortization (1,090) (1,280)
---------- ----------
9,881 10,754
DEFERRED INCOME TAX BENEFIT 1,161 1,161
DUE FROM CABLETEL AD 951
DEPOSITS 36 232
OTHER ASSETS, NET 725 317
---------- ----------
Total Assets $ 16,766 $ 18,131
========== ==========
The accompanying notes are an integral part of this statement.
F-3
CabelTel International Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Amounts in thousands, except share amounts)
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
2004 2003
---------- ----------
CURRENT LIABILITIES
Current maturities of long-term debt, including amounts
to related parties of $901 $ 4,780 $ 4,690
Current notes payable 240 5,571
Accounts payable - trade 687 503
Accrued expenses 828 633
Other current liabilities -- 931
---------- ----------
Total Current Liabilities 6,535 12,328
LONG-TERM DEBT 8,338 2,053
OTHER NON-CURRENT LIABILITIES 155 --
DEFERRED GAIN -- 740
OTHER LONG-TERM LIABILITIES -- 456
---------- ----------
Total Liabilities 15,028 15,577
STOCKHOLDERS' EQUITY
Preferred stock, Series B 1 1
Preferred stock, Series J 2% 3,150 --
Preferred stock, Series J contra equity (3,150) --
Common stock, $.01 par value; authorized, 4,000,000
shares; issued and outstanding, 977,000 shares 10 10
Additional paid-in capital 55,966 55,966
Accumulated deficit (54,239) (53,423)
---------- ----------
1,738 2,554
---------- ----------
Total liabilities & equity 16,766 18,131
========== ==========
The accompanying notes are an integral part of this statement.
F-4
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Year ended December 31,
2004 2003 2002
---------- ---------- ----------
Revenue
Real estate operations $ 4,813 $ 2,598 $ 3,300
Oil and gas operations 1,410 449 --
---------- ---------- ----------
6,223 3,047 3,300
---------- ---------- ----------
Operating expenses
Real estate operations 2,925 996 1,366
Oil and gas operations 1,003 400 --
Lease expense 917 969 1,112
Depreciation, depletion, and amortization 570 160 300
General and administrative 1,715 1,111 2,329
Write-down of assets -- -- 266
---------- ---------- ----------
7,130 3,636 5,373
---------- ---------- ----------
Operating loss (907) (589) (2,073)
Other income (expense)
Interest income 213 304 412
Interest expense (991) (498) (840)
Gain on sale of assets, net 1,456 1,058 930
Other income (expense), net (403) 342 (1,153)
---------- ---------- ----------
275 1,206 (651)
---------- ---------- ----------
Earnings (loss) from continuing operations
before income taxes (632) 617 (2,724)
Income tax expense -- -- 749
Earnings (loss) from continuing operations (632) 617 (3,473)
---------- ---------- ----------
Discontinued operations
Loss from operations (184) (395) (899)
Loss on disposal, (including taxes of $440 in 2002) -- -- (4,001)
---------- ---------- ----------
Loss from discontinued operations (184) (395) (4,900)
---------- ---------- ----------
Net earnings (loss) (816) 222 (8,373)
Preferred dividend requirement -- -- (4)
---------- ---------- ----------
Net earnings (loss) applicable to common shares $ (816) $ 222 $ (8,377)
========== ========== ==========
Earnings (loss) per share - basic
Continuing operations $ (0.65) $ 0.87 $ (4.84)
Discontinued operations (0.19) (0.56) (6.83)
---------- ---------- ----------
Net earnings (loss) per share $ (0.84) $ 0.31 $ (11.67)
Basic weighted average common shares 977 706 718
The accompanying notes are an integral part of this statement.
F-5
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year ended December 31,
2004 2003 2002
---------- ---------- ----------
Cash flows from operating activities
Net earnings (loss) $ (816) $ 222 $ (8,373)
Adjustments to reconcile net earnings (loss) to net
Cash provided by (used in) operating activities
Depreciation and amortization 570 160 300
Depreciation from assets classified as
discontinued operations -- 170 21
(Gain) loss from affiliates (1,247) (131) 612
(Gain) loss on sale of properties (209) (1,058) 3,561
Write-down of impaired assets 147 -- 266
Deferred income taxes -- -- 1,189
Changes in operating assets and liabilities
Accounts receivable - trade (122) (45) 395
Other current and non-current assets (132) 174 (927)
Accounts payable and other liabilities (357) 22 (929)
---------- ---------- ----------
Net cash provided by (used in)
operating activities (2,166) (486) (3,885)
Cash flows from investing activities
Purchase of property and equipment (845) (1,225) (285)
Net repayment of notes receivable 1,579 334 --
Proceeds from sale of investments -- -- 1,098
Proceeds from sale of properties -- 126 7,460
---------- ---------- ----------
Net cash provided by (used in)
investing activities 734 (765) 8,273
---------- ---------- ----------
Cash flows from financing activities
Proceeds from common stock issuance -- 792 --
Proceeds from borrowings 6,500 500 1,730
Payments on debt (5,591) (90) (6,699)
Distributions from equity partnerships'
financing cash flow 507 85 --
Dividends on preferred stock -- -- (4)
Repurchase of common stock -- (9) --
Net advances from affiliates 90 -- --
---------- ---------- ----------
Net cash provided by (used in)
financing activities 1,506 1,278 (4,973)
---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents 74 27 (585)
Cash and cash equivalents at beginning of year 688 661 1,246
---------- ---------- ----------
Cash and cash equivalents at end of year $ 762 $ 688 $ 661
The accompanying notes are an integral part of this statement.
F-6
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Amounts in thousands)
Supplemental information on cash flows is as follows:
Interest paid $ 705 $ 515 $ 2,215
Income taxes paid -- -- 129
Non-cash investing and financing activities:
Notes received from sale of assets -- -- 1,050
Notes given in connection with purchase of property -- 5,905 --
Common stock issued in connection with satisfaction
of note to executive officer -- 198 --
Disposal of property to satisfy debt 935 -- --
Notes payable agreed by buyer upon sale of real estate 906 -- --
The accompanying notes are an integral part of this statement.
F-7
CabelTel International Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands)
Series J
Series B Series J Preferred stock Common
Preferred stock Preferred stock Contra Equity Stock
----------------- ----------------- ------------------ ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------- ------- ------- ------- ------- ------- ------- -------
Balance at January 1, 2002 1 1 -- -- -- -- 718 7
Write--off of stock purchase
notes receivable -- -- -- -- -- -- (30) --
Dividend on preferred stock -- -- -- -- -- -- -- --
Other -- -- -- -- -- -- -- --
Stock purchase notes receivable
reclassified as a reduction of
related party debt -- -- -- -- -- -- -- --
Netloss -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Balance at December 31, 2002 1 1 -- -- -- -- 688 7
Dividend on preferred stock -- -- -- -- -- -- -- --
Conversion of obligation to -- -- -- -- -- -- 23 --
common stock
Common stock acquired -- -- -- -- -- -- (5) --
Common stock issued -- -- -- -- -- -- 271 3
Net earnings -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Balance at December 31, 2003 1 1 -- -- -- -- 977 10
Net loss
Issuance of Series J
preferred stock -- -- 32 3,150 (32) (3,150) -- --
Net loss -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Balance at December 31, 2004 1 1 32 3,150 (32) (3,150) 977 10
======= ======= ======= ======= ======= ======= ======= =======
Stock
Additional Accum- Purchase
paid in ulated Notes
capital deficit Receivable Total
---------- ------- ---------- -------
Balance at January 1, 2002 56,896 (45,268) (2,367) 9,269
Write--off of stock purchase
notes receivable (1,908) -- 1,905 (3)
Dividend on preferred stock -- (4) -- (4)
Other -- -- 12 12
Stock purchase notes receivable
reclassified as a reduction of
related party debt -- -- 450 450
Netloss -- (8,373) -- (8,373)
---------- ------- ---------- -------
Balance at December 31, 2002 54,988 (53,645) -- 1,351
Dividend on preferred stock -- -- -- --
Conversion of obligation to -- -- -- --
common stock
Common stock acquired (9) -- -- (9)
Common stock issued 987 -- -- 990
Net earnings -- 222 -- 222
---------- ------- ---------- -------
Balance at December 31, 2003 55,966 (53,423) -- 2,554
Net loss
Issuance of Series J
preferred stock -- -- -- --
Net loss -- (816) -- (816)
---------- ------- ---------- -------
Balance at December 31, 2004 55,966 (54,239) -- 1,738
========== ======= ========== =======
The accompanying notes are an integral part of this statement.
F-8
CabelTel International Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE A - BUSINESS DESCRIPTION AND PRESENTATION
Name Change
-----------
On February 10, 2005, Greenbriar Corporation changed its name to CabelTel
International Corporation (which is referred throughout this report as
"CIC").
Acquisition of CableTEL AD
--------------------------
On October 12, 2004, CIC acquired, for 31,500 shares of newly-designated 2%
Series J Preferred Stock, 74.8% of CableTEL AD, a Bulgarian
telecommunications company. The terms of the acquisition agreement require
CIC to present a proposal to its stockholders to approve the mandatory
exchange of all shares of Series J Preferred Stock into 8,788,500 shares of
common stock which, if approved by stockholders, would represent 90% of the
resulting total issued and outstanding shares of common stock in CIC. As of
the date of this report the exchange has not occurred.
The acquisition agreement, as amended, provides that the stockholders of CIC
have until June 30, 2006 to approve the exchange of Series J Preferred Stock
into CIC common stock. If the exchange is not approved by June 30, 2006 the
holders of the Series J Preferred Stock have the option to rescind the
entire transaction. Until the acquisition is completed, CableTEL AD will not
be included in CIC's consolidated financial statements and the financial
statements of CIC will include a Series J Preferred Stock contra equity
account representing the Company's interest in CableTEL AD.
If the stockholders of CIC approve the transaction it would effectively give
the owners of the CableTEL AD the controlling interest in CIC. Due to the
effective change in control, by virtue of the aforementioned exchange into
common stock, this transaction will be accounted for, upon the exchange, as
a "reverse acquisition," with CableTEL AD being the accounting acquirer and
with CIC accounted for as if it had been acquired on the exchange date.
Nature of Operations
As of December 31, 2004, the Company controls three retirement communities
in three states. The Company operates two of the retirement communities with
a capacity of 162 residents and leases one community to a third party. The
Company owns an outlet shopping mall in Gainesville, Texas with
approximately 315,000 square feet of retail space available for lease. In
addition the Company owns the leases for approximately 200 oil wells in East
Texas. These are low production wells with maximum production limits of 20
barrels of oil per day. As of March 31, 2005, there are 48 wells in
operation.
F-9
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows:
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of CabelTel
International Corporation and its majority-owned subsidiaries (collectively,
the "Company" or "CIC") and are prepared on the basis of accounting
principles generally accepted in the United States of America. All
significant intercompany transactions and accounts have been eliminated.
Depreciation
------------
Depreciation is provided for in amounts sufficient to relate the cost of
property and equipment to operations over their estimated service lives,
ranging from 3 to 40 years. Depreciation is computed by the straight-line
method.
Accounting for Leases
---------------------
Leases of property, plant and equipment where the Company assumes
substantially all the benefits and risks of ownership are classified as
finance leases. Finance leases are capitalized at the estimated present
value of the underlying lease payments. Each lease payment is allocated
between the liability and finance charges so as to achieve a constant rate
on the finance balance outstanding. The corresponding rental obligations,
net of finance charges, are included in other long-term payables. The
interest element of the finance charge is charged to the income statement
over the lease period. The property, plant and equipment acquired under
finance leasing contracts is depreciated over the useful life of the asset.
Leases of assets under which all the risks and benefits of ownership are
effectively retained by the lessor are classified as operating leases.
Payments made under operating leases are charged to the income statement on
a straight-line basis over the period of the lease. When an operating lease
is terminated before the lease period has expired, any payment required to
be made to the lessor by way of penalty is recognized as an expense in the
period in which termination takes place.
Revenue Recognition
-------------------
Crude oil and natural gas revenues are recorded at the time of delivery of
such products to pipelines for the account of the purchaser or at the time
of physical transfer of such products to the purchaser. Revenues from the
sale of crude oil and natural gas are recorded using the sales method. Under
such method, the Company recognizes revenue from the sale of crude oil and
natural gas production from its leases, based on the actual volumes the
Company sold during the period.
Rental income for commercial property leases is recognized on a
straight-line basis over the respective lease terms. Rental income for
residential property leases is recorded when due from residents and is
recognized monthly as it is earned, which is not materially different than
on a straight-line basis as lease terms are generally for periods of one
year or less.
F-10
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Use of Estimates
----------------
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
----------------
The Company considers all short-term deposits and money market investments
with a maturity of less than three months to be cash equivalents.
Other Intangible Assets
-----------------------
The cost of acquired patents, trademarks and licenses is capitalized and
amortized using the straight-line method over their useful lives. The
carrying amount of each intangible asset is reviewed annually and adjusted
for permanent impairment where it is considered necessary. Impairment of
Notes Receivable
Notes receivable are identified as impaired when it is probable that
interest and principal will not be collected according to the contractual
terms of the note agreements. The accrual of interest is discontinued on
such notes, and no income is recognized until all past due amounts of
principal and interest are recovered in full. No notes were deemed to be
impaired at December 31, 2004 and 2003.
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. In reviewing
recoverability, the Company estimates the future cash flows expected to
result from use of the assets and eventually disposing of them. If the sum
of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss
is recognized based on the asset's fair value.
The Company determines the fair value of assets to be disposed of and
records the asset at the lower of fair value less disposal costs or carrying
value. Assets are not depreciated while held for disposal.
Stock Options
-------------
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) in its primary
financial statements and has provided supplemental disclosures required by
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
for Stock-Based Compensation" and by Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure an Amendment of SFAS No. 123."
Options were granted at market by Cabeltel International Corporation during
2003, are exercisable immediately, and expire 5 years from date of grant.
F-11
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Warrants were issued at market by Cabeltel International Corporation during
2004. The ability to exercise such warrants is contingent upon the
conversion of the Series J Preferred stock to common stock. Because of the
contingent nature as to the timing and the ability to exercise these
warrants, no value has been ascribed to such warrants at December 31, 2004.
SFAS 123 requires disclosure of pro forma net earnings (loss) and pro forma
net earnings (loss) per share as if the fair value method had been applied
in measuring compensation cost for stock-based awards.
Reported and pro forma net earnings (loss) and net earnings (loss) per share
amounts are set forth below (in thousands, except per share data):
2004 2003 2002
--------- --------- ---------
Net earnings (loss) allocable to common stockholders
As reported $ (816) $ 222 $ (8,377)
Deduct: total stock-based compensation under
fair value based method for all awards -- (43) (464)
Pro forma $ (816) $ 179 $ (8,841)
Net earnings (loss) per share
As reported $ (0.84) $ 0.31 $ (23.33)
Pro forma $ (0.84) $ 0.25 $ (24.63)
The fair value of these options was estimated at the date of grant during
2003 using the Black-Scholes option pricing model with the following
weighted-average assumptions: no dividends; expected volatility of 20
percent; risk-free interest rates of 4.24 percent; and weighted average
expected lives of 5 years.
Earnings (Loss) Per Common Share
--------------------------------
Basic earnings (loss) per common share is based on the weighted average
number of common shares outstanding. Diluted earnings (loss) per share is
computed based on the weighted average number of common shares outstanding
plus the number of additional common shares that would have been outstanding
if dilutive potential common shares had been issued. In 2004, stock options
for approximately 140,000 shares were excluded from diluted shares
outstanding because their effect was anti-dilutive. In 2004, warrants for
approximately 190,000 shares were excluded from diluted shares outstanding
because their effect was anti-dilutive.
Sales of Real Estate
--------------------
Gains on sales of real estate are recognized to the extent permitted by SFAS
No. 66, "Accounting for Sales of Real Estate." Until the requirements of
SFAS No. 66 have been met for full profit recognition, sales are accounted
for by the installment or cost recovery method, whichever is appropriate.
F-12
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Real Estate Held for Sale
-------------------------
SFAS No. 144 requires that properties held for sale be reported at the lower
of carrying amount or fair value less costs of sale. If a reduction in a
held for sale property's carrying amount to fair value less costs of sale is
required, a provision for loss is recognized by a charge against earnings.
Subsequent revisions, either upward or downward, to a held for sale
property's estimated fair value less costs of sale are recorded as an
adjustment to the property's carrying amount, but not in excess of the
property's carrying amount when originally classified as held for sale. A
corresponding charge against or credit to earnings is recognized. Properties
held for sale are not depreciated.
New Accounting Pronouncements
-----------------------------
SFAS No. 151--In November 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 151, "Inventory
Costs, an Amendment of ARB No. 43, Chapter 4" ("SFAS No.151"). SFAS No. 151
amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility
expense, freight, handling costs and wasted materials (spoilage) be
recognized as current period charges. It also requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.
The adoption of SFAS No. 151 is not expected to have a material impact on
the consolidated financial position or results of operations of CIC.
SFAS No. 152--In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 152, "Accounting for
Real Estate Time-Sharing Transactions" ("SFAS No. 152"). SFAS No. 152 amends
FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position 04-2,
Accounting for Real Estate Time-SharingTransactions ("SOP 04-2"). This
Statement also amends FASB Statement No. 67, Accounting for Costs and
Initial Rental Operations of Real Estate Projects, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real
estate projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
04-2.
SFAS No. 152 is effective for financial statements for fiscal years
beginning after June 15, 2005, and is to be reported as a cumulative effect
of a change in accounting principle. The adoption of SFAS No. 152 is not
expected to have a material impact on the consolidated financial position or
results of operations of CIC.
SFAS No. 123--In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, Share-Based
Payment, revised ("SFAS No. 123R"). SFAS No. 123R addresses the accounting
for share-based payments to employees, including grants of employee stock
options. Under the new standard, companies will no longer be able to account
for share-based compensation transactions using the intrinsic method in
accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees. Instead, companies will be required to account for such
transactions using a fair-value method and recognize the expense in the
consolidated statement of income. SFAS No. 123R will be effective for
periods beginning after June 15, 2005, and allows, but does not require,
companies to restate the full fiscal year of 2005 to reflect the impact of
expensing share-based payments under SFAS No. 123R. The Company has not yet
determined which fair-value method and transitional provision it will
follow. The adoption of SFAS No. 123R is not expected to have a material
impact on the Company's consolidated financial position or results of
operations. See Stock-Based Employee Compensation for the pro forma impact
on net income and net income per share from calculating stock-based
compensation costs under the fair value alternative of SFAS No. 123.
F-13
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
SFAS No. 153--In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 153, "Exchanges of
Non-monetary Assets, an Amendment of APB Opinion No. 29" ("SFAS No. 153").
The guidance in APB Opinion No. 29, Accounting for Non-monetary
Transactions, is based on the principle that exchanges of non-monetary
assets should be measured based on the fair value of the assets exchanged.
The guidance in APB Opinion No. 29, however, included certain exceptions to
that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the
exception for non-monetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective
for non-monetary asset exchanges in fiscal periods beginning after June 15,
2005. The adoption of SFAS No. 153 is not expected to have a material impact
on the consolidated financial position or results of operations of CIC.
NOTE C - NOTES RECEIVABLE
As a result of the sale of two assisted living communities in 2001, the
Company holds two tax-exempt notes for a total of $4,030,000, bearing
interest at 9.5%. The notes mature on April 1, 2032 and August 1, 2031.
The repayment of the notes and interest thereon is limited to the cash flow
of the respective properties either from operations, refinancing or sale.
The Company has deferred gains in the amount of $3,721,000 as well as unpaid
interest, which will be recognized as cash is received.
NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate values at December 31, 2004 and 2003:
Cash and cash equivalents - The carrying amount approximates fair value
because of the short maturity of these instruments.
Long-term debt - The fair value of the Company's long-term debt is estimated
based on market rates for the same or similar issues. The carrying value of
long-term debt approximates its fair value.
Notes receivable-- The fair value of the note receivable from an affiliate
partnership is estimated to approximate fair value based on its short
maturity. It is not practical to estimate the fair value of notes receivable
from sale of properties because no quoted market exists and there are no
comparable debt instruments to provide a basis for valuation.
F-14
NOTE E - NOTES PAYABLE
LONG TERM DEBT
Long-term debt is comprised of the following (in thousands):
December 31,
2004 2003
Notes payable to financial institutions maturing
through 2018; fixed and variable interest rates
ranging from 5.75% to 11% collateralized by real
property, fixtures, equipment and the assignment
of rents 7,627 2,109
Notes payable to individuals and companies
maturing through 2023; variable and fixed
interest rates ranging from 10% to 18%;
collateralized by real property, personal property,
fixtures, equipment and the assignment of rents
4,590 4,106
Notes payable to related parties bearing interest
at rates ranging From 15% to 18% 901 528
13,118 6,743
---------------------
Less current maturities 4,780 4,690
=====================
8,338 2,053
=====================
Aggregate annual principal maturities of long-term debt at December 31, 2004
are as follows (in thousands):
2005 4,780
2006 1,118
2007 250
2008 273
2009 6,085
Thereafter 612
----------
$ 13,118
==========
F-15
NOTE F - OPERATING LEASES
The Company leases an assisted living community under an operating lease in
which the basic term expires December 31, 2011, and has operating leases for
equipment and office space. The leases generally provide that the Company
pay property taxes, insurance and maintenance.
Future minimum payments following December 31, 2004, are as follows (in
thousands):
2005 $ 898
2006 898
2007 914
2008 853
2008 870
Thereafter 2,717
----------
$ 7,150
==========
Lease expense in 2004, 2003 and 2002 was $917, $969, and $1,112,
respectively.
NOTE G - AFFILIATED PARTNERSHIP
In October 2001, the Company became a 56% limited partner in Corinthians
Real Estate Investors, LP ("CREI"), a partnership formed to acquire two
properties. In October 2001, CREI acquired a retirement community for
approximately $9,100,000 and in January 2002, it acquired an assisted living
community for approximately $2,800,000.
The Company issued a $1,600,000 note to the seller in 2001 as partial
payment for the purchase of the retirement community. CREI gave the Company
a $1,600,000 note in consideration for payment of that amount of the
purchase price. The notes bear interest at 8.75% and were due December 30,
2003. The balance of the purchase price was funded by borrowings of CREI
from a third party in the amount of $7,840,000, which was guaranteed by the
Company.
The Company accounted for its investment in CREI by the equity method. The
Company recorded income of $131,733 in 2003 and a loss of $692,338 in 2002.
These amounts are included in other income (expense), net in the
accompanying financial statements.
In January 2002 the Company became a 56% limited partner in a partnership,
Muskogee Real Estate Investors (MREI), which acquired two assisted living
communities in Muskogee, OK, including one community acquired from the
Company. In September 2002 MREI leased the two communities to a third party
for three years. The lessee has committed to purchase the two properties
during the three-year period for $6,000,000. The current debt on the
property is approximately $4,000,000.
The Company had a note to Sylvia M. Gilley, wife of the former CEO of the
Company, for $3,375,000. In November 2002, the Company transferred its 56%
interest in MREI to Mrs. Gilley in exchange for a reduction of $1,120,000 on
the debt and a one-year extension on the due date of the Company's note to
Mrs. Gilley. The Company recognized a gain of $929,956 on the transaction.
The Company accounted for its investment in MREI using the equity method.
The Company recorded income of $80,215 during 2002.
F-16
NOTE G - AFFILIATED PARTNERSHIP - Continued
In September 2002, CREI sold its two properties for cash and notes and paid
off its third party debt. As part of the proceeds, CREI received a note for
$1,600,000, which was transferred to the Company in satisfaction of its
$1,600,000 note receivable from CREI.
The Company transferred the $1,600,000 note it received in 2002 to the
original owner of the retirement community in payment of the Company's
$1,600,000 debt. The Company guaranteed payment of the $1,600,000 note.
CREI recognized a gain on sale in the amount of $1,322,000. The Company has
deferred recognition of its $740,000 share of the gain because of the
aforementioned guaranty. CREI has deferred a gain on sale in the amount
$994,000 that will be recognized on the installment method.
The Company also entered into an agreement in October 2002 wherein it would
be allowed to participate in the acquisition of twelve communities and
receive a 50% partnership interest. The Company agreed to pay
$660,000, payable at $55,000 per month, from October 2002 through September
2003 to pay for due diligence required by these acquisitions. The Company's
$660,000 obligation was accrued and charged to expense in 2002.
In 2004, the purchaser of the CREI paid off the remaining notes, including
the $1,600,000 note guaranteed by the Company. The Company realized its
deferred gain of $740,000 as well as $492,000, representing its 56% share of
the proceeds received by CREI on its outstanding note net of partnership
expenses.
NOTE H - EARNINGS PER SHARE
The following table sets forth the computations of pro forma basic and
diluted earnings per share from continuing operations (in thousands, except
per share data):
Year ended December 31,
-------------------------------
2004 2003 2002
-------- -------- --------
Numerator:
Net income (loss) from continuing operations $ (632) $ 617 $ (3,473)
Denominator:
Shares used in basic earnings per share calculation 977 706 718
Effect of diluted securities:
Employee stock options -- 80 --
Warrants -- -- --
Shares used in diluted earnings per share
calculations 977 1,057 718
Pro forma basic earnings per share $ (0.65) $ 0.87 $ 4.84
Pro forma diluted earnings per share $ (0.65) $ 0.54 $ 4.84
F-17
NOTE I - INCOME TAXES
At December 31, 2004, the Company had net operating loss carry forwards of
approximately $23,000,000, which expire between 2004 and 2022. However,
approximately $7,900,000 of these net operating loss carryforwards have
limitations that restrict utilization to approximately $1,530,000 for any
one year.
The following is a summary of the components of income tax expense of
continuing operations (in thousands):
Year ended
December 31,
2004 2003 2002
------------------------------
Current - state $ -- $ -- $ --
Deferred - federal -- -- 749
------------------------------
-- -- 749
------------------------------
Deferred tax assets and liabilities were comprised of the following (in
thousands):
Year ended
December 31,
2004 2003
----------------------
Deferred tax assets:
Net operating loss carryforwards $ 7,869 $ 7,163
Notes receivable -- 680
Alternative minimum tax carryforwards 324 235
Accounts receivable -- --
Accrued expenses -- 2,241
Financing obligations -- --
Other 386 583
Total deferred tax assets 8,579 10,902
Deferred tax liabilities - property and equipment -- (3,198)
Valuation allowance (7,418) (6,543)
Net deferred tax asset $ 1,161 $ 1,161
Following is a reconciliation of income tax expense attributable to
continuing operations with the amount of tax computed at the federal
statutory rate of 34% (in thousands):
Year ended
December 31,
2004 2003 2002
-----------------------------
Tax expense (benefit) at the statutory rate $ (216) $ 75 $(1,019)
State taxes net of federal benefit -- -- --
Change in deferred tax asset valuation allowance,
attributable to continuing operations 216 (75) 1,768
Other -- -- --
-----------------------------
Tax expense $ -- $ -- 749
-----------------------------
F-18
NOTE I - INCOME TAXES - Continued
Changes in the deferred tax valuation allowance result from assessments made
by the Company each year of its expected future taxable income available to
absorb its carryforwards. The Company believes that it is more likely than
not that the net deferred tax asset at December 31, 2004, of $1,161,000 will
be realized. However, this evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available. Accordingly, the ultimate realization of the
net deferred tax asset could be less than the carrying amount.
NOTE J - STOCKHOLDERS' EQUITY
Outstanding Preferred Stock
Preferred stock consists of the following (amounts in thousands):
Year ended
December 31,
2004 2003
---------------
Series B cumulative convertible preferred stock,
$.10 par value; liquidation value of $100; authorized,
100 shares; issued and outstanding, 1 share $ 1 $ 1
===============
Series J cumulative non-convertible preferred stock,
$.10 par value; liquidation value of $1,000; authorized,
31,500 shares; issued and outstanding 31,500 shares $3,150 $ --
===============
The Series B preferred stock has a liquidation value of $100 per share and
is convertible into common stock over a ten-year period at prices escalating
from $500 per share in 1993 to $1,111 per share by 2002. The right to
convert expired April 30, 2003. Dividends at a rate of 6% are payable in
cash or preferred shares at the option of the Company.
The Series J stock is non-convertible, however, the Company has agreed to
hold a shareholder vote to allow the Series J shareholders to covert their
31,500 shares of preferred into 8,788,000 shares of the Company's common
stock
Stock Options
In 1997, the Company established a long-term incentive plan (the "1997
Plan") for the benefit of certain key employees. Options granted to
employees under the 1997 Plan become exercisable over a period as determined
by the Company and may be exercised up to a maximum of 5 years from date of
grant. The 1997 Plan allowed up to 50,000 shares of the Company's common
stock to be reserved for issuance. In 2000, the Company adopted the 2000
Stock Option Plan, under which up to 50,000 shares of the Company's common
stock are reserved for issuance.
The Company granted options to two officers during 1996 through 2001,
aggregating 80,000 shares not covered by either plan. These options were
granted at market, were exercisable immediately and expire 10 years from
date of grant.
F-19
NOTE J - STOCKHOLDERS' EQUITY - Continued
Information with respect to stock option activity is as follows:
Weighted
Average
exercise
Shares price
-------- --------
Outstanding at January 1, 2002 160,850 $ 81.28
Expired (5,050) 182.58
-------- --------
Outstanding at December 31, 2002 155,800 78.00
Granted 60,000 2.60
Cancelled, rescinded or annulled (70,800) 109.27
Expired (3,000) 112.50
Outstanding at December 31, 2003 and 2004 142,000 $ 30.27
======== ========
Options exercisable at December 31, 2002 155,800 $ 78.00
======== ========
Options exercisable at December 31, 2003 and 2004 142,000 $ 30.27
======== ========
Weighted average fair value per share of options granted during 2003 and
2001 was $0.71 and $7.60, respectively.
Additional information about stock options outstanding at December 31, 2004,
is summarized as follows:
Options outstanding and exercisable
------------------------------------
Weighted average
Number remaining Weighted average
Range of exercise prices outstanding contractual life exercise price
------------------------ ----------- ------------------ ----------------
$2.60 60,000 4.0 $ 2.60
$3.75 to $6.90 60,000 6.0 5.68
$100.00 to $150.39 2,000 1.0 150.39
$175.00 20,000 3.0 175.00
F-20
NOTE K - OTHER INCOME (EXPENSE)
Other income (expenses) consists of the following: (amounts in thousands)
Year ended December 31,
2004 2003 2002
-------- -------- --------
Equity in earnings of CREI -- 131 (692)
Property acquisition due diligence expense -- -- (660)
Write off start up costs in projects not completed (167) -- --
Accrued tenant revenue -- 121
Other (236) 90 199
-------- -------- --------
$ (403) $ 342 $ (1,153)
======== ======== ========
NOTE L - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE
In October 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 supersedes FASB SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the
accounting and reporting provisions for disposals of a segment of a business
as addressed in APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions".
SFAS No. 144 establishes a single accounting model for long-lived assets to
be disposed of by sale and addresses various implementation issues of SFAS
No. 121. In addition, SFAS No. 144 extends the reporting requirements of
discontinued operations to include components of an entity that has either
been disposed of or is classified as held for sale. The Company adopted SFAS
No. 144 as of January 1, 2002.
During 2004, the Company disposed of an assisted living community and
entered into a contract to sell a second assisted living community, which
has been reflected as an asset held for sale. Revenue for the two properties
was $841,000, $1,986,000 and $1,122,000 in 2004, 2003 and 2002,
respectively. The net loss for the two properties was $, $184,000, $395,000
and $272,000 in 2004, 2003 and 2002, respectively.
During 2002, the Company disposed of six properties. The net loss from the
operations of these properties was $627,000 and the loss incurred from the
sale of these properties was $4,001,000 (including income tax of $440,000).
NOTE M - SEGMENT REPORTING
The Company and its subsidiaries are principally engaged in the business of
acquiring, enhancing and selling real estate properties. From 1996 until
2003 those activities almost exclusively involved assisted living
facilities. Effective August 1, 2003, the Company acquired 100% of the stock
in Gaywood Oil & Gas, LLC ("Gaywood"), a limited liability company that owns
working interests in certain oil-producing wells. The acquisition was done
for investment purposes and substantially all costs associated with the oil
and gas operations are operating expenses incurred directly by Gaywood. The
Company continues to allocate all of its corporate overhead expenses to its
core real estate operation.
F-21
NOTE M - SEGMENT REPORTING - Continued
Segment information and reconciliation to income (loss) from operations are
as follows:
Twelve months ended December 31, 2004 (amounts in thousands)
Real Estate Oil & Gas
Operations Operations Consolidated
----------------------------------------
Revenue $ 4,813 $ 1,410 $ 6,223
Depletion, depreciation and amortization 462 108 570
Net income (loss) (1,115) 299 (816)
Total assets 15,150 1,616 16,766
NOTE N - CONTINGENCIES
Cable Partners Bulgaria LLC vs. Greenbriar Corporation and Ronald C. Finley
---------------------------------------------------------------------------
On January 24, 2005, a lawsuit was filed in the District Court of Dallas
County, Texas by Cable Partners Bulgaria LLC ("CPB") a Colorado limited
liability company, against the Company. The lawsuit states that on October
12, 2004, CPB entered into a letter agreement with the owners of Eurocom to
acquire the assets of Eurocom, a cable operator in the city of Plovdiv,
Bulgaria. The lawsuit further indicates that the October 12, 2004, letter
outlines a time line for the completion of due diligence by CPB. The lawsuit
states that in November 2004, a conversation occurred between a
representative of CPB and Ronald Finley, CEO of both CIC and CableTEL,
during which time such representative told Mr. Finley that CPB had an
agreement to purchase Eurocom.
The lawsuit alleges that CIC intentionally and improperly caused the sellers
of Eurocom to enter into discussions with CableTEL which ultimately led to
CableTEL entering into a separate and competing contract to purchase
Eurocom. CPB alleges that the Company's interference was improper and that
CPB has been damaged in the amount of at least $5,387,400. The lawsuit
further alleges that CPB's letter agreement provided for a three-year
management agreement with the sellers of Eurocom and that CPB was further
damaged by the loss of the experience, expertise and contacts of the sellers
of Eurocom in an amount to be determined at trial. CPE further seeks
exemplary damages of an unspecified amount.
The Company believes the lawsuit is totally without merit. CableTEL had been
holding discussions, conducting due diligence and had agreements in place
with the owners of Eurocom well before either the alleged November
conversation or the October 12, 2004, letter. In addition, the Company
believes the lawsuit misstates certain key facts, which could prove to be
critical in CPB's ability to prevail in this matter.
Other
-----
The Company has been named as a defendant in other lawsuits in the ordinary
course of business. Management is of the opinion that these lawsuits will
not have a material effect on the financial condition, results of operations
or cash flows of the Company.
F-22
NOTE O - QUARTERLY DATA (UNAUDITED)
The table below reflects the Company's selected quarterly information for
the years ended December 31, 2003 and 2002. Certain 2003 and 2002 amounts
have been reclassified to conform to the current presentation of
discontinued operations. All amounts shown are in thousands.
Year ended December 31, 2004
First Second Third Fourth
Quarter Quarter Quarter Quarter
Revenue $ 1,806 $ 1,720 $ 1,947 $ 750
Operating expenses 1,709 1,799 1,677 1,945
Net income (loss) (175) (205) 623 (1,059)
Income (loss) allocable to common shareholders (175) (205) 623 (1,059)
Income (loss) per common share - basic and diluted (.18) (.21) .64 (1.09)
Year ended December 31, 2003
First Second Third Fourth
Quarter Quarter Quarter Quarter
Revenue $ 1,070 $ 1,118 $ 1,342 $ 1,774
Operating expenses 1,266 1,235 1,491 1,819
Net income (loss) (262) (177) 855 (194)
Income (loss) allocable to common shareholders (262) (177) 855 (194)
Income (loss) per common share - basic and diluted (.38) (.26) 1.21 (.27)
NOTE P - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
The Company's net proved oil and natural gas reserves as of December 31,
2004 and 2003 (when Gaywood was purchased), have been estimated by Company
personnel in accordance with guidelines established by the Securities and
Exchange Commission. Accordingly, the following reserve estimates were based
on existing economic and operating conditions. Oil and gas prices in effect
at December 31 of each year were used. Operating costs, production and ad
valorem taxes and future development costs were based on current costs with
no escalation.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of
development expenditures. The following reserve data represents estimates
only and should not be construed as being exact. Moreover, the present
values should not be construed as the current market value of the Company's
oil and gas reserves or the costs that would be incurred to obtain
equivalent reserves.
F-23
NOTE P - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued
Changes in Estimated Quantities of Proved Oil and Gas Reserves (Unaudited):
Crude Natural
Oil Gas
Quantities of Proved Reserves: Bbls Mcf
----------------------------- -------- --------
Balance August 2003 500,090 --
Sales of reserves in place --
Acquired properties --
Revisions of previous estimates 29,017
Production (18,217)
-------- --------
Balance December 31, 2003 510,890 --
Sales of reserves in place --
Acquired properties --
Revisions of previous estimates (82,971) 38,870
Production (46,849)
-------- --------
Balance December 31, 2004 381,070 38,870
======== ========
Proved Developed Reserves:
-------------------------
Balance December 31, 2003 510,890 --
Balance December 31, 2004 381,070 38,870
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves (Unaudited)
The Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves ("Standardized Measures")
does not purport to present the fair market value of a company's oil and gas
properties. An estimate of such value should consider, among other factors,
anticipated future prices of oil and gas, the probability of recoveries in
excess of existing proved reserves, the value of probable reserves and
F-24
NOTE P - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued
acreage prospects, and perhaps different discount rates. It should be noted
that estimates of reserve quantities, especially from new discoveries, are
inherently imprecise and subject to substantial revision.
Reserve estimates were prepared in accordance with standard Security and
Exchange Commission guidelines. The future net cash flow was computed using
year-end 2004, oil and gas prices. Lease operating costs, compression,
dehydration, transportation, ad valorem taxes, severance taxes and federal
income taxes were deducted. Costs and prices were held constant and were not
escalated over the life of the properties. No deduction has been made for
interest or general corporate overhead. The annual discount of estimated
future cash flows is defined, for use herein, as future cash flows
discounted at 10% per year, over the expected period of realization.
Proved Developed Reserves were calculated based on Decline Curve Analysis on
22 operating wells and 15 non-operated wells.
During 2004, the Company continued to operate the producing wells it
acquired in 2003. The Company controls nearly 200 leases but only had 48
wells in production on December 31, 2004.
The Company controls 68 leases which were abandoned by larger oil and gas
companies in the past due to low production. The Company's operating wells
average from 70 to 360 barrels per month. Due to low production and
relatively high overhead the Company estimates that its production would be
unprofitable if the price of oil fell below $24 per barrel.
Standardized measure of discounted future net cash flows related to proved
reserves:
Year Ended December 31,
2004 2003
----------- -----------
Future production revenue $19,371,000 $16,370,000
Future development costs 83,000 285,000
Future production costs 11,394,000 11,980,000
----------- -----------
Future net cash flow before federal
income tax 7,894,000 4,105,000
Federal income tax 2,684,000 1,396,000
----------- -----------
Future net cash flows 5,210,000 2,709,000
Effect of 10% annual discounting 3,963,000 2,060,000
----------- -----------
Standardized measure of
Discounted net cash flows $ 1,247,000 $ 649,000
=========== ===========
F-25
NOTE P - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued
Changes in the standardized measure of discounted future net cash flows:
Year Ended December 31,
2004 2003
----------- -----------
Beginning of the year $ 649,000 $ --
Oil and gas sales, net of
production costs (407,000) (49,000)
Purchases of reserves in place -- 655,000
Sales reserves in place -- --
Net change in prices, net of
production costs 839,000 291,000
Changes in production rates,
timing and other
Revisions of quantity estimate 469,000
Effect of income tax (417,000) (337,000)
Accretion of discount 114,000 89,000
----------- -----------
Standardized measure of
Discounted net cash flows $ 1,247,000 $ 649,000
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F-26