| CabelTel International Corp ITEM 1A RISK FACTORS |
| 11 under ITEM 1A RISK FACTORS beginning on page - 11 - |
| BUSINESS CabelTel International Corporation ( "e CabelTel "e or the "e Company "e or "e we "e or "e us "e ) was incorporated in Nevada on May 31, 1991, originally under the name Medical Resource Companies of America |
| The Company is the successor-by-merger to Wespac Investors Trust, a California business trust that began operating in 1982 |
| On March 26, 1996, the name was changed to Greenbriar Corporation; on February 8, 2005, the name of the Company was changed to CabelTel International Corporation |
| Business Operations We operate two separate distinct businesses: o Own, lease and operate real estate through: (i) leasing and operation of a retirement community in King City, Oregon, with a capacity of 114 residents, and (ii) ownership and operation of an outlet mall in Gainesville, Texas, with approximately 315cmam000 square feet of retail space available for lease; and o Ownership of oil and gas leases in Gregg and Rusk Counties, Texas, on which 50 producing wells were operating as of March 31, 2005 |
| Financial information about our segments can be found in NOTE M - SEGMENT REPORTING in the Notes to Consolidated Financial Statements found on page 57 |
| -3- Business Strategy In choosing investment properties, the Companyapstas strategy is to choose a property that can achieve and sustain a strong competitive position within its chosen market |
| The Company also seeks to continue to enhance the performance of the properties it operates directly |
| In its real estate properties, the Company seeks to enhance current operations by (i) maintaining and improving occupancy rates, (ii) opportunistically increasing rents and fees, (iii) improving operating efficiencies and (iv) improving market positioning |
| In its oil and gas properties, the Company seeks to keep producing wells properly maintained and to recondition and, where economically feasible, bring into production non-operating leases it owns |
| Real Estate Retirement Property The Company leases and operates Pacific Pointe Retirement Inn ( "e Pacific Pointe "e ) in King City, Oregon |
| Pacific Pointe has a capacity of 114 residents and provides community living with basic services such as meals, housekeeping, laundry, 24/7 staffing, transportation and social and recreational activities |
| These residents do not yet need assistance or support with activities of daily living but prefer the physical and psychological comfort of a residential community of like-minded people and access to health care and other senior oriented services |
| Pacific Pointe is not required to hold a license for its independent retirement operation |
| In compliance with underlying state bond financing, rents at this community must be approved by an agency of the State of Oregon |
| At Pacific Pointe, the Companyapstas 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 Pointeapstas present and potential competitors have, or may have access to, greater financial, management and other resources than those of the facility |
| There can be no assurance that competitive pressures will not have a material adverse effect on the property |
| Operating Community - The following table sets forth certain information with respect to Pacific Pointe |
| The Company considers its community to be in good operating condition and suitable for the purpose for which it is being used |
-4- Community Care Resident Operations Community Location Level(1) Units Capacity(2) Commenced Ownership - --------------------------------------------------------------------------------------------------------- Pacific Pointe Retirement Inn King City, OR S 114 114 1993 Leased (4) Key: (1) S basic support and supplemental services are offered |
| (2) Reflects actual number of units for Independent Living |
| (3) Leased from a partnership |
| Initial lease term is 10 years, expiring in 2012 |
| The Company is responsible for all costs including repairs to the community, property taxes and other direct operating costs of the community |
| The lease includes clauses that allow for rent to increase over time based on a specified schedule |
| Repair and Maintenance - The Company conducts routine repairs and maintenance, as needed, of its properties on a regular basis |
| The Company has no other current plans for significant expenditures relating to its existing properties and considers them to be in good repair and working order |
| The Company has attracted and continues to seek highly dedicated and experienced personnel |
| All employees are required to complete training programs which include a core curriculum comprised of personal care basics, job related specific training, first aid, fire safety, nutrition, infection control and customer service |
| Executive Directors receive training in all of these areas, plus marketing, community relations, healthcare management and fiscal management |
| In addition to some classroom training, the Companyapstas communities provide new employees with on- the-job training, utilizing experienced staff as trainers and mentors |
| Outlet Shopping Mall Property The Companyapstas outlet mall does business as Gainesville Factory Shops ( "e GFS "e ) and is located in Gainesville, Texas |
| GFS has approximately 315cmam000 square feet of retail space available for lease |
| Purchased in December 2003, GFS presented the Company with an opportunity to make an investment at what the Company believes was a bargain price |
| The Company believes that mall traffic will be enhanced by a more aggressive marketing effort as well as development in its immediate Gainesville, Texas area including the opening of a restaurant and a 90 unit hotel immediately adjacent to the mall and the ongoing development and operation of a casino four miles from the mall |
| The Companyapstas 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 &apos advertising to enhance the mall as a specific destination for shoppers |
| -5- Summary Oil Reserve Data The following table sets forth summary information concerning the Companyapstas proved oil reserves on December 31, 2005, based on a report prepared by Haas Petroleum Engineering Services, Inc, an independent consulting and engineering firm |
| Reserves were determined using year-end product prices, held constant for the life of the properties |
| Estimates of economically recoverable reserves and future net revenues are based on a number of variables, which may differ from actual results |
| Proved and Developed Reserves December 31, 2005 Oil (Bbl) 251cmam250 Productive Wells The following table summarizes our gross working interests and net revenue interests in productive oil wells at December 31, 2005 |
| All wells are in the State of Texas |
| Gross Wells Net Wells 50 37 The Companyapstas oil wells have all been "e abandoned "e by the larger oil companies and their leases have devolved to other persons or entities |
| The Company has 61 leases with a range of 65dtta7prca to 80prca of ownership |
| Individual wells produce from 70 to 360 barrels per month |
| 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 dlra1dtta99 per barrel at March 31, 2006 |
| The operations of any facility gathering, transporting, processing or storing crude oil is subject to stringent and complex laws and regulations pertaining to health, safety and the environment |
| As an operator of such facilities, the Company must comply with federal, state and local laws that relate to air and water quality, hazardous and solid waste management and disposal and other environmental matters |
| Costs of operating oil wells must incorporate compliance with environmental laws, regulations and safety standards |
| Failure to comply with these laws and regulations may trigger a variety of administrative, civil and potentially criminal enforcement measures |
| The market for oil is highly volatile but not greatly competitive |
| Sweet Texas Crude Oil is constantly in high demand world wide |
| The Companyapstas wells would not be profitable if oil is sold at less than dlra24 per barrel |
| -6- Insurance The Company currently maintains property and liability insurance intended to cover claims in its retirement community, outlet mall, corporate and oil well operations |
| The provision of personal services entails an inherent risk of liability compared to more institutional long-term care communities |
| Retirement communities of the type operated by the Company offer residents a greater degree of independence in their daily lives |
| This increased level of independence, however, may subject the resident and the Company to certain risks that would be reduced in more institutionalized settings |
| The number of insurance carriers who offer retirement industry liability insurance has diminished since 1999, and the cost of such insurance continues to escalate |
| The Company also carries property insurance on each of its owned and leased properties |
| Environmental Matters Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean up costs incurred by such parties in connection with the contamination |
| Such laws typically impose clean up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants and the liability under such laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility |
| The costs of investigation, remediation or removal of such substances may be substantial and the presence of such substances or the failure to remediate properly such property may adversely affect the ownerapstas 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 Companyapstas business, assets or results of operations |
| The Company is not aware of any such environmental liability |
| The Company believes that all of its properties are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products |
| The Company has not been notified by any governmental authority and is not otherwise aware of any material non-compliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of its properties |
| -7- Employees At December 31, 2005, the Company employed, in all segments, 61 people (24 full-time and 37 part-time) |
| The Company believes it maintains good relationships with its employees |
| None of the Companyapstas employees are represented by a collective bargaining group |
| The Companyapstas operations are subject to the Fair Labor Standards Act |
| Many of the Companyapstas employees are paid at rates related to the minimum wage and any increase in the minimum wage will result in an increase in labor costs |
| Management is not aware of any non-compliance by the Company as regards applicable regulatory requirements that would have a material adverse effect on the Companyapstas financial condition or results of operations |
| Quality Assurance In operating a retirement community, our commitment to quality assurance is designed to achieve a high degree of resident and family member satisfaction with the care and services the Company provides |
| In addition to training and performance reviews of all employees, the Companyapstas quality control measures include: Philosophy of Management - The Companyapstas philosophy of management is to demonstrate by its actions and require from its employees high standards of personal integrity, to develop a climate of openness and trust, to demonstrate respect for human dignity in every circumstance, to be supportive in all relationships, to promote teamwork by involving employees in the management of their own work and to promote the free expression of ideas and opinions |
| Regular Property Inspections - Property inspections are conducted by corporate personnel |
| These inspections cover the appearance of the exterior and grounds, the appearance and cleanliness of the interior, the professionalism and friendliness of staff and notes on maintenance |
| In oil production, quality is a matter of proper separation of crude oil from saltwater |
| These processes are automated at each well and the Company is not aware of any complaints as to the quality of its crude oil |
| Marketing In real estate, the Companyapstas marketing and sales efforts are undertaken at the local level |
| These are intended to create awareness of a property and its services among prospective customers, their families and other key referral sources |
| The property engages in traditional types of marketing activities such as special events, radio spots, direct mailings, print advertising, signs and yellow page advertising |
| These marketing activities and media advertisements are directed to potential customers |
| In its oil business, the Company sells its production of crude oil through a contract as described on page - 6 - |
| The Company has no marketing efforts or responsibility in this facet of its business |
| -8- Government Regulation Pacific Pointe is not required to hold a state license for its independent retirement operation |
| Any future retirement community acquired by the Company must be correctly licensed as required by its state and local laws and must be in compliance with the Americans with Disabilities Act |
| That community must also be in compliance with the Fair Housing Amendments Act |
| In compliance with underlying state bond financing, rents at Pacific Pointe must be approved by an agency of the State of Oregon |
| The operations of any facility gathering, transporting, processing or storing crude oil is subject to stringent and complex laws and regulations pertaining to health, safety and the environment |
| As an owner or operator of these facilities, the Company must comply with federal, state and local laws that relate to air and water quality, hazardous and solid waste management and disposal and other environmental matters |
| 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 Companyapstas property in Gainesville, Texas is geographically isolated and the Company feels that the market will not support another mall |
| However, it is not competitive |
| The Companyapstas Texas Sweet Crude is highly sought after by the oil industry |
| Acquisition of CableTEL AD On October 12, 2004, the Company acquired, for 31cmam500 shares of newly-designated 2prca Series J Preferred Stock, 74dtta8prca of CableTEL AD ( "e CableTEL "e ), a Bulgarian telecommunications company |
| The terms of the acquisition agreement require the Company to present a proposal to its stockholders to approve the mandatory exchange of all shares of Series J Preferred Stock into 8cmam788cmam500 shares of common stock which, if approved by stockholders, would represent 90prca of the resulting total issued and outstanding shares of common stock in the Company |
| -9- The acquisition agreement, as amended, provides that the stockholders of the Company have until June 30, 2006 to approve the exchange of Series J Preferred Stock into the Company common stock |
| If the exchange is not approved by June 30, 2006, the holders of the Series J Preferred Stock have the option to rescind the entire transaction |
| Until the acquisition is completed, CableTEL will not be included in the Companyapstas consolidated financial statements and the financial statements of the Company will include a Series J Preferred Stock contra equity account representing the Companyapstas interest in CableTEL If the stockholders of the Company approve the transaction it would effectively give the owners of CableTEL the controlling interest in the Company |
| Due to the effective change in control, by virtue of the aforementioned exchange into common stock, this transaction will be accounted for, upon the exchange, as a "e reverse acquisition "e , with CableTEL being the accounting acquirer and with CIC accounted for as if it had been acquired on the exchange date |
| CableTEL is the largest cable television ( "e CATV "e ) operator in the Country of Bulgaria |
| In addition, CableTEL has built a fiber optic backbone (the "e backbone "e ) consisting of three ducts around Bulgaria at a total cost of dlra29cmam872cmam500 |
| 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 |
| CableTELapstas marketing is centralized in its Sofia, Bulgaria headquarters |
| Given the acquisitions strategy of CabelTEL, the Sales and Marketing department has developed a re-branding strategy to quickly bring new operations up to CableTEL communication standards and preserve the overall strength of the CableTEL brand |
| In addition to CATV, CableTEL provides internet service, VoIP (internet telephony) and mobile phone services |
| The company is well-positioned from both a marketing and quality approach to being a strong competitor in its markets |
| CableTEL has 467 employees (457 full-time and 10 part-time) in Bulgaria |
| It leases its headquarters and owns no property |
| The technical nature of its business requires a high capital cost |
| For further information on CableTEL, please refer to Note A in the accompanying financial statements |
| 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 "e Exchange Act "e ) and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission |
| These charters and principles are not incorporated in this Report by reference |
| The Company will also provide a copy of these documents free of charge to stockholders upon request |
| The Company issues Annual Reports containing audited financial statements to its common stockholders |
| -10- ITEM 1A RISK FACTORS Risks Related to the Company The retirement industry is highly competitive |
| Competition for residents, employees and facilities is very keen in the retirement industry |
| Although the Companyapstas Pacific Pointe property in Oregon is not subject to federal regulation, it must comply with State of Oregon Senior Housing Regulations which are subject to change from time to time |
| The shopping mall business is dependent on leasing space to successful tenants |
| The Companyapstas 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 |
| Although the Company has benefited from extremely high crude oil prices in the last three years there is no guarantee that crude oil prices will remain at record levels |
| The type of oil production the Company is involved in is expensive and will not be profitable if the market for crude oil is less than dlra24 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 80prca 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 "e control act "e requirements involving the Company and a person that beneficially owns 10prca or more of the outstanding common stock except under certain circumstances, and o the requirement of holders of at least 80prca of the outstanding Common Stock to join together to request a special meeting of stockholders |
| As of December 31, 2005, officers, directors and affiliated entities owning more than 5prca of the Companyapstas outstanding common stock owned approximately 59prca of the outstanding shares of common stock |
| In addition, a small group of individuals and entities own all of the outstanding Series J 2prca Preferred Stock, which holds -11- the right to five votes per share of Series J 2prca Preferred Stock voting with the common stock |
| Under these circumstances, if the holders of Series J 2prca Preferred Stock and directors and affiliated entities owning more than 5prca of our outstanding common stock voted together, the group would control 64prca 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 |