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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2007
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 000-08187
CABELTEL INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Nevada 75-2399477
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1755 Wittington Place, Suite 340
Dallas, Texas
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(Address of principal executive offices)
75234
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(Zip Code)
(972) 407-8400
(Registrant's telephone number, including area code)
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(Former name, former address and former
fiscal year, if changed since last report)
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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_|. No |X|.
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of accelerated
filer in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |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|.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |_|. No |_|.
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 986,951
(Class) (Outstanding at August 7, 2007)
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CABELTEL INTERNATIONAL CORPORATION
Index to Quarterly Report on Form 10-Q
Period ended June 30, 2007
PART I: FINANCIAL INFORMATION..................................................3
Item 1: Financial Statements...............................................3
Consolidated Balance Sheets..............................................3
Consolidated Statements of Operations....................................5
Consolidated Statements of Cash Flows....................................6
Notes To Consolidated Financial Statements...............................7
Item 2: Management's Discussion and Analysis of Financial
Conditionand Results of Operations..............................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk........13
Item 4. Controls and Procedures...........................................14
PART II: OTHER INFORMATION....................................................15
Item 1: Legal Proceedings..................................................15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........15
Item 6. Exhibits...........................................................16
Signatures.................................................................18
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CabelTel International Corporation
Consolidated Balance Sheets
(amounts in thousands)
June 30, December 31,
Assets 2007 2006
(Unaudited)
------------ ------------
Current assets
Cash and cash equivalents $ 233 $ 324
Notes and interest receivable - related party 1,482 1,428
Other current assets -- 36
Assets held for sale 6,920 7,047
------ ------
Total current assets 8,635 8,835
Property and equipment, at cost
Land and improvements 20 20
Buildings and improvements 169 169
Equipment and furnishings 313 290
------ ------
502 479
Less accumulated depreciation 379 364
------ ------
123 115
Deferred tax asset 491 491
Other assets 88 261
------ ------
Total Assets $9,337 $9,702
====== ======
The accompanying notes are an integral part of these
Consolidated Financial Statements.
3
CabelTel International Corporation
Consolidated Balance Sheets - Continued
(amounts in thousands, except share amounts)
June 30, December 31,
Liabilities and Stockholders' equity 2007 2006
(Unaudited)
----------- ------------
Current liabilities
Accounts payable - trade $ 191 $ 439
Accrued expenses 175 124
Liabilities held for sale 6,920 6,642
-------- --------
Total current liabilities 7,286 7,205
Other long-term liabilities 405 418
-------- --------
Total liabilities 7,691 7,623
Stockholders' equity
Preferred stock, Series B 1 1
Common stock $.01 par value; authorized,
100,000,000 shares; 976,955 shares at
June 30, 2006 and 986,943 shares at
June 30, 2007 issued and outstanding 10 10
Additional paid-in capital 55,992 55,992
Accumulated deficit (54,357) (53,924)
-------- --------
1,646 2,079
-------- --------
Total Liabilities and Equity $ 9,337 $ 9,702
======== ========
The accompanying notes are an integral part of these
Consolidated Financial Statements.
4
CabelTel International Corporation
Consolidated Statements of Operations
(amounts in thousands, except per share data)
For The Three Month For The Six Month
Period Ended Period Ended
June 30, June 30,
2007 2006 2007 2006
------- ------- ------- -------
(Unaudited) (Unaudited)
Revenue
Real estate operations $ 761 $ 682 $ 1,482 $ 1,434
------- ------- ------- -------
Operating expenses
Real estate operations 324 308 630 590
Lease expense 219 238 459 474
Corporate general and administrative 251 249 474 563
------- ------- ------- -------
794 795 1,563 1,627
------- ------- ------- -------
Operating (loss) (33) (113) (81) (193)
Other income (expense)
Interest income 27 5 111 322
Interest expense -- (46) -- (386)
Net gain on sale of assets -- 424 -- 418
Other income net -- 1,512 10 1,509
------- ------- ------- -------
27 1,895 121 1,863
------- ------- ------- -------
Earnings from continuing operations (6) 1,782 40 1,670
Provision for income taxes -- (330) -- (330)
------- ------- ------- -------
Net income (loss) from continuing operations (6) 1,452 40 1,340
------- ------- ------- -------
Discontinued Operations
Gain (loss) from operations -- 65 -- (120)
Provision for asset impairment -- -- (473) --
------- ------- ------- -------
Gain (loss) from discontinued operations -- 65 (473) (120)
------- ------- ------- -------
Net income (loss) applicable to common shares $ (6) $ 1,517 $ (433) $ 1,220
======= ======= ======= =======
Earnings (loss) per share - basic and diluted
Continuing operations $ (0.01) $ 1.49 $ 0.04 $ 1.37
Discontinued operations -- 0.07 (0.48) (0.12)
------- ------- ------- -------
Net loss per share $ (0.01) $ 1.56 $ (0.44) $ 1.25
======= ======= ======= =======
Basic weighted average common shares 986 977 986 977
The accompanying notes are an integral part of these
Consolidated Financial Statements.
5
CabelTel International Corporation
Consolidated Statements of Cash Flows
(amounts in thousands)
For the Six Month
Period Ended June 30,
2007 2006
------- -------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net income from continuing operations $ 40 $ 1,340
Adjustments to reconcile net income (loss) to net
cash (provided by) used in operating activities
Depreciation, depletion and amortization 25 64
(Gain) loss on sale of assets -- (418)
(Gain) from affiliate -- (1,500)
Changes in operating assets and liabilities
Interest receivable (54) --
Other current and non-current assets 36 58
Other assets 163 (59)
Accounts payable, accrued and other liabilities (210) (163)
------- -------
Net cash used in operating activities -- (1,352)
Cash flows provided by (used in) investing activities
Repayment of notes receivable -- 300
Purchase of property and equipment, net (23) --
------- -------
Net cash provided by (used in) investing activities (23) 300
Cash flows from discontinued operations
Cash used by operating (46) (202)
Cash used by financing (22) (64)
------- -------
Net cash used in discontinued (68) (266)
operations
Net decrease in cash and cash (91) (318)
equivalents
Cash and cash equivalents at beginning of period 324 650
------- -------
Cash and cash equivalents at end of period $ 233 $ 332
The accompanying notes are an integral part of these
Consolidated Financial Statements.
6
CabelTel International Corporation
Notes To Consolidated Financial Statements
Note A: Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of CabelTel International Corporation and its majority-owned
subsidiaries (collectively, "CIC" or the "Company"). All significant
intercompany transactions and accounts have been eliminated. Certain 2006
balances have been reclassified to conform to the 2007 presentation.
The unaudited financial statements included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The financial statements reflect all adjustments that
are, in the opinion of management, necessary to fairly present such information.
All such adjustments are of a normal recurring nature. Although the Company
believes that the disclosures are adequate to make the information presented not
misleading, certain information and footnote disclosures, including a
description of significant accounting policies normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America, have been condensed or omitted pursuant to such
rules and regulations.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ending December 31, 2006. Operating results for
the three and six month period ended June 30, 2007 are not necessarily
indicative of the results that may be expected for any subsequent quarter or for
the fiscal year ending December 31, 2007.
Note B: Transfer of ownership of the Gainesville Outlet Mall
The Company has an agreement to transfer its ownership of the Gainesville outlet
mall and 40 acres of vacant land to an independent third party. The mall, which
the Company acquired in 2003, has incurred both cash and accounting losses for
the past several years. The Company recorded an impairment loss of $314,000 in
the quarter ended March 31, 2007. Until the transfer is completed the third
party will fund any cash shortfalls that the mall incurs. The assets and
liabilities being transferred have been reflected as Assets and Liabilities Held
for Sale.
Note C: Short-Term Note Receivable - Related Party
In 2006 the Company made an unsecured loan with a current principal balance of
$1,377,000 to Eurenergy Resources Corporation (a company that is 20% owned by an
entity deemed to be related to CabelTel). The loan has an annual interest rate
of 8% per annum with principal and interest payable within 30 days after demand.
As of June 30, 2007, accrued interest was $107,540.
In March 2007, the Company made a $100,000 loan to an entity affiliated to the
Company. This loan was repaid in May 2007.
7
Note D: Discontinued Operations
The operation of the Gainesville outlet mall has been reflected as a
discontinued operation in 2007 and 2006. (See Note B: Transfer of Ownership... )
Effective June 30, 2006, the Company sold all of its membership interests in
Gaywood Oil & Gas, LLC and Gaywood Oil & Gas II, LLC ("Gaywood") which owned oil
and gas leases in Gregg and Rusk Counties, Texas and on which approximately 50
oil-producing wells were operating. These wells averaged two to three barrels of
oil per day. The sale price of $1,737,000 was received in cash on July 5, 2006.
The Company recorded a gain on the sale of $418,000. The operation of Gaywood
has been reflected as a discontinued operation in 2006.
Note E: Segment Reporting
Business Operations
Currently, the Company operates one retirement community in King City, Oregon,
with a capacity of 114 residents.
Certain 2006 amounts have been reclassified to conform to the current
presentation. The segment information and reconciliation to income (loss) from
operations are as follows (amounts in thousands):
Three Months Ended June 30, 2007
CIC
Corporate Real Estate Consolidated
--------- ----------- ------------
Revenue $ 70 $ 691 $ 761
Operating expenses
Operations -- 324 324
Lease expense 17 202 219
Corporate general and
administrative 251 -- 222
------- ------- -------
268 526 765
------- ------- -------
Operating earnings (loss) (198) 165 (33)
Interest Income 27 -- 27
------- ------- -------
(171) 165 (6)
Net income (loss) applicable to
common shares $ (171) $ 165 $ (6)
======= ======= =======
Total assets $ 8,164 $ 1,173 $ 9,337
======= ======= =======
8
Six Months Ended June 30, 2007
CIC Discontinued
Corporate Real Estate Consolidated Operations
--------- ----------- ------------ ----------
Revenue $ 108 $ 1,374 $ 1,482 $ 541
Operating expenses
Operations -- 630 630 663
Lease expense 37 422 459 --
Corporate general and
administrative 474 -- 445 --
------- ------- ------- -------
511 1,052 1,563 663
------- ------- ------- -------
Operating earnings (loss) (403) 322 (81) (122)
Interest Income 111 -- 111 --
Interest (expense) -- -- -- (78)
Gain (loss) on sale of assets -- -- -- (311)
Other income 8 2 10 38
------- ------- ------- -------
Earnings (loss) from continuing (284) 324 40 (473)
operations
Net earnings (loss) applicable to
common shares $ (284) $ 324 $ 40 (473)
======= ======= ======= =======
Total assets $ 1,244 $ 1,173 $ 2,417 $ 6,920
======= ======= ======= =======
Three Months Ended June 30, 2006
CIC Discontinued
Corporate Real Estate Consolidated Operations
--------- ----------- ------------ ----------
Revenue $ 15 $ 667 $ 682 $ 931
Operating expenses
Operations -- 308 308 770
Lease expense 27 211 238 --
Corporate general and
administrative 249 -- 249 --
------- ------- ------- -------
276 519 795 770
------- ------- ------- -------
Operating earnings (loss) (261) 148 (113) 161
Interest Income 5 -- 5 --
Interest (expense) (46) -- (46) (115)
Gain on sale of assets 424 -- 424 --
Other income 1,512 -- 1,512 19
Earnings from continuing operations 1,634 148 1,782 65
Provision for income taxes 330 -- 330 --
======= ======= ======= =======
Net earnings applicable
to common shares $ 1,304 $ 148 $ 1,452 $ 65
======= ======= ======= =======
Total assets $ 4,430 $ 2,151 $ 6,581 $ 6,332
======= ======= ======= =======
9
Six Months Ended June 30, 2006
CIC Discontinued
Corporate Real Estate Consolidated Operations
--------- ----------- ------------ ----------
Revenue $ 99 $ 1,335 $ 1,434 $ 1,783
Operating expenses
Operations 41 549 590 1,697
Lease expense 52 422 474 --
Corporate general and
administrative 563 -- 563 --
------- ------- ------- -------
656 971 1,627 1,697
------- ------- ------- -------
Operating earnings (loss) (557) 364 (193) 86
Interest Income 322 -- 322 --
Interest (expense) (386) -- (386) (229)
Gain (loss) on sale of assets 418 -- 418 --
Other income 1,507 2 1,509 23
Earnings (loss) from
continuing operations 1,304 366 1,670 (120)
------- ------- ------- -------
Provision for income taxes 330 -- 330 --
======= ======= ======= =======
Net earnings (loss) applicable
to common shares $ 974 $ 366 $ 1,340 (120)
======= ======= ======= =======
Total assets $ 4,430 $ 2,151 $ 6,581 $ 6,332
======= ======= ======= =======
Note F: Contingencies
Chesapeake Exploration Limited Partnership and Chesapeake Operating Inc
("Chesapeake")
In January 2006 the Company entered into a joint operating agreement evidencing
its acquisition of a 5% interest in two gas wells being drilled and ultimately
operated by Chesapeake. The Company relied on the cost projections provided by
Chesapeake to make its investment decision. Subsequent to its investment the
Company received an invoice from Chesapeake for $556,217 which, according to
Chesapeake, represents the Company's 5% share of additional costs incurred by
Chesapeake in drilling the wells. The Company believes that these additional
costs far exceed any reasonable expense that should have been incurred in
drilling the two wells and were incurred without notifying the Company of such
expenses. The Company has requested an accounting of the additional expenses and
a reconciliation of the final costs to the cost estimates previously presented.
In April 2007 Chesapeake filed a lawsuit against the Company and others in State
District Court in Tarrant County, Texas.
Management intends to vigorously defend this action. However, should the Company
not prevail, Eurenergy Arkansas, LLC, an entity affiliated with the Company, has
agreed to fully indemnify the Company for any losses it might incur in this
matter.
Litigation
The Company is involved in various lawsuits arising in the ordinary course of
business. Management is of the opinion that the outcome of these lawsuits will
have no material impact on the Company's financial condition, results of
operation or liquidity.
10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's Consolidated Financial Statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. Certain of the Company's accounting policies require the
application of judgment in selecting the appropriate assumptions for calculating
financial estimates. By their nature, these judgments are subject to an inherent
degree of uncertainty. These judgments and estimates are based upon the
Company's historical experience, current trends and information available from
other sources that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
The Company believes the following critical accounting policies are more
significant to the judgments and estimates used in the preparation of its
consolidated financial statements. Revisions in such estimates are recorded in
the period in which the facts that give rise to the revisions become known.
The Company's allowance for doubtful accounts receivable and notes receivable is
based on an analysis of the risk of loss on specific accounts. The analysis
places particular emphasis on past due accounts. Management considers such
information as the nature and age of the receivable, the payment history of the
tenant, customer or other debtor and the financial condition of the tenant or
other debtor. Management's estimate of the required allowance, which is reviewed
on a quarterly basis, is subject to revision as these factors change.
Deferred Tax Assets
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities and any valuation allowance
recorded against net deferred tax assets. The future recoverability of the
Company's net deferred tax assets is dependent upon the generation of future
taxable income prior to the expiration of the loss carry forwards. The Company
believes that it will generate future taxable income to fully utilize the net
deferred tax assets.
Liquidity and Capital Resources
At June 30, 2007, the Company had current assets, exclusive of Assets Held for
Sale, of $1.7 million and current liabilities, exclusive of Liabilities Held for
Sale, of $366,000.
Cash and cash equivalents at June 30, 2007 were $233,000, as compared to
$324,000 at December 31, 2006.
Net cash used by operating activities was $-0- for the six months ended June 30,
2007. During the six month period the Company had a net income from continuing
operations of $40,000.
Net cash used in investing activities was $23,000 for the six months ended June
30, 2007.
11
No cash flows were provided by or used in financing activities in the six months
ended June 30, 2007.
Net cash used in discontinued operations was $68,000 in 2007, which represents
the net cash expenditures at the Gainesville outlet mall for the three months
ended March 31, 2007.
Results of Operations
The Company reported a net loss of $6,000 and $433,000 for the three and six
months ended June 30, 2007, as compared to net income of $1.5 million and $1.2
million for the three and six months ended June 30, 2006.
For the three and six months ended June 30, 2007, the Company recorded revenues
of $761,000 and $1.5 million for its real estate operations, as compared to
$682,000 and $1.4 million for the three and six months ended June 30, 2006. The
increases in revenue represent rate increases at the Company's retirement
property, which is fully occupied and anticipated to remain so during 2007.
For the three and six months ended June 30, 2007, real estate operating expenses
were $324,000 and $630,000, as compared to $308,000 and $590,000 for the three
and six months ended June 30, 2006. The increase in real estate operations at
the retirement center of $16,000 and $40,000 for the and six months ended June
30, 2007 was due to an overall increase in operating expenses.
General and administrative expenses for the three and six months ended June 30,
2007 were $251,000 and $474,000 compared to $249,000 and $563,000 for the same
periods in 2006. 2007 includes $29,000 for prior year income taxes. In 2006 the
Company incurred approximately $80,000 in payroll and consulting fees not
incurred in 2007. In general there was an overall reduction in administrative
costs in the latter part of 2006 which has had the effect of lower
administrative costs in 2007.
For the three and six months ended June 30, 2007, interest income was $27,000
and $111,000, as compared to $5,000 and $322,000 for the three and six months
ended June 30, 2006. During theF first quarter of 2006 the Company recorded
interest income on loans for funds that were transferred to CableTEL AD for
operating expenses. The balance of the interest income is from current and
former notes receivable held by the Company.
There was no interest expense for the three and six months ended June 30, 2007,
as compared to $46,000 and $386,000 for the three and six months ended June 30,
2006. During the first quarter of 2006 the Company recorded interest expense on
loans it made to acquire funds which were provided to CableTEL AD for operating
expenses. The interest expense equaled the interest income.
Other income was $-0- and $10,000 for the three and six months ended June 30,
2007, compared to $1.5 million for both the three and six month periods ended
June 30, 2006. The income in 2006 was due almost entirely to the Company's
rescinding its acquisition of CableTEL AD for which it received and recorded a
break up fee of $1.5 million net of expenses and the sale of Gaywood.
12
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 properties 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 charges in its retirement
community. 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 of 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.
Inflation
The Company's principal source of revenue is from rents in a retirement
community and fees for services rendered. The real estate operation is affected
by rental rates that are highly dependent upon market conditions and the
competitive environment in the areas where the property is located. Compensation
to employees and maintenance are the principal cost elements relative to the
operation of this property. 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 operation.
Environmental Matters
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
affect 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Nearly all of the Company's debt is financed at fixed rates of interest.
Therefore, we have minimal risk from exposure to changes in interest rates.
13
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13(a)-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 13(a)-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 first fiscal quarter that materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting. Based on that evaluation, there has been no such change during the
first 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.
14
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On April 24, 2007, Chesapeake Exploration Limited Partnership and Chesapeake
Operating, Inc. instituted an action in the 342nd Judicial District Court of
Tarrant County, Texas against the Company and another entity alleging breach of
contract and suit on account seeking the sum of $556,217.28 with prejudgment
interest, attorney's fees and cost of suit in connection with the drilling and
completion of two wells in Arkansas. The action is styled Chesapeake Exploration
Limited Partnership and Chesapeake Operating, Inc. v. CabelTel International
Corporation, et al, Cause No. 342-223696-07, which is pending in the 342nd
Judicial District Court of Tarrant County, Texas. In January 2006, CabelTel
International Corporation (the "Company") entered into a Joint Operating
Agreement to evidence its acquisition of a five percent interest in two gas
wells then being drilled and ultimately operated by Chesapeake Exploration
Limited Partnership and Chesapeake Operating. Inc.. The Company relied on cost
projections provided by Chesapeake to make its investment decision and
subsequent to its investment, the Company received an invoice from Chesapeake
for $556,217.28 which according to Chesapeake represents the Company's five
percent share of additional cost incurred by Chesapeake in drilling the wells.
The Company believes the alleged additional cost far exceed any reasonable
expense that should have been incurred in the drilling of the two wells and in
any event were incurred without notification to the Company of any such
expenses. The Company requested an accounting of the additional expenses and a
reconciliation of the final costs to cost estimates originally presented. Rather
than provide the information to the Company, in April 2007, Chesapeake simply
instituted the lawsuit. Management intends to vigorously defend the action, but
should it not prevail, Eurenergy Arkansas, LLC, an entity affiliated with the
Company has agreed to fully indemnify the Company for any losses the Company
might incur in this matter.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the period of time covered by this Report, CabelTel International
Corporation did not repurchase any of its equity securities under any formal
repurchase plan. The following table sets forth a summary for the quarter,
indicating no repurchases were made under a formal program and that, at the end
of the period covered by this Report, no specified number of shares may be yet
be repurchased under any program in place.
Total Number of
Shares
Purchased as Maximum Number
Part of of Shares that
Average Publicly May Yet be
Total Number of Price Paid Announced Purchased Under
Period Shares Purchased per Share Program the Program(a)
------ ---------------- --------- ------- --------------
Balance as of March 31, 2007 -- $-- -- --
April 1-30, 2007 -- -- -- --
May 1-31, 2007 10 4.45 -- --
June 1-30, 2007 -- -- -- --
------- ------- ------- -------
Total 10 $4.45 -- --
======= ======= ======= =======
(a) As a courtesy to stockholders of less than 100 shares and to relieve such
stockholders of having to pay a broker's commission, the Company, although
not obligated to do so, has periodically repurchased its common stock at
the then most recent closing price of the Company's common stock on the
last trading day before the stock certificate(s) is (are) actually received
by the Company from the stockholder. The number of such shares purchased in
any period of time has been minimal. Ten shares were purchased during the
quarter ended June 30, 2007.
15
ITEM 6. EXHIBITS
The following exhibits are filed herewith or incorporated by reference as
indicated below.
Exhibit Exhibit Description
Designation
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)
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)
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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)
31.1* Certification pursuant to Rule 13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as amended, of Principal
Executive Officer and Chief Financial Officer
32.1* Certification of Principal Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. ss. 1350
----------------
*Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CabelTel International Corporation
Date: August 14, 2007 By: /s/ Gene S. Bertcher
-----------------------------
President and
Chief Financial Officer
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