New Concept Energy, Inc. - Quarter Report: 2005 September (Form 10-Q)

 

 

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2005
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 000-8187

CABELTEL INTERNATIONAL CORPORATION

Nevada		75-2399477
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1755 Wittington Place, Suite 340
Dallas, Texas

75234

(972) 407-8400
(Registrant’s telephone number, including area code)

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 þ. No ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨. No þ.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨. No þ.

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 (Class)		977,000 (Outstanding at November 11, 2005)

 

 

CABELTEL INTERNATIONAL CORPORATION
Index to Quarterly Report on Form 10-Q
Period ended September 30, 2005

PART I: FINANCIAL INFORMATION			3
Item 1: Financial Statements			3
Consolidated Balance Sheets			3
Consolidated Statements of Operations			5
Consolidated Statements of Cash Flow			6
Notes To Consolidated Financial Statements			7
Item 2: Management’s Discussion And Analysis Of Financial ConditionAnd Results Of Operations			10
Forward Looking Statements			12
Item 3. Quantitative and Qualitative Disclosures About Market Risk			13
Item 4. Controls and Procedures			13
PART II: OTHER INFORMATION			14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			14
Item 6. Exhibits			15
Signatures			16

Part I: Financial Information

Item 1: Financial Statements

CabelTel International Corporation
Consolidated Balance Sheets
(Amounts in thousands)

Assets		September 30,				December 31,
		2005				2004
		(Unaudited)
Current assets
Cash and cash equivalents		$	418			$	762
Accounts receivable-trade			352				222
Note receivable			456				856
Property held for sale			—				2,925
Other current assets			323				103
Total current assets			1,549				4,868
Notes receivable net of deferred income			309				309
Property and equipment, at cost
Land and improvements			2,232				2,232
Buildings and improvements			5,298				5,349
Equipment and furnishings			286				273
Proven oil and gas properties (full cost method)			1,401				1,479
			9,217				9,333
Less accumulated depreciation and depletion			875				617
			8,342				8,716
Deferred tax asset			1,161				1,161
Due from CableTEL AD — related party			4,634				951
Deposits			195				36
Other assets			1,443				725
		$	17,633			$	16,766

The accompanying notes are an integral part of this statement.

CabelTel International Corporation
Consolidated Balance Sheets — Continued
(Amounts in thousands, except share amounts)

		September 30,				December 31,
Liabilities and Stockholders' equity		2005				2004
		(Unaudited)
Current liabilities
Current maturities of long-term debt		$	2,375			$	5,945
Current notes payable			17				240
Accounts payable — trade			768				687
Accrued expenses			1,447				828
Other current liabilities			447				—
Total current liabilities			5,054				7,700
Long-term debt			11,258				7,173
Other long term liabilities			174				155
Total liabilities			16,486				15,028
Stockholders’ equity
Preferred stock, Series B			1				1
Preferred stock, Series J 2%			3,150				3,150
Preferred stock, Series J 2% contra equity			(3,150	)			(3,150	)
Common stock $.01 par value; authorized, 4,000,000 shares; 977,000 shares issued and outstanding			10				10
Additional paid-in capital			55,966				55,966
Accumulated deficit			(54,830	)			(54,239	)
			1,147				1,738
		$	17,633			$	16,766

The accompanying notes are an integral part of this statement.

CabelTel International Corporation
Consolidated Statements of Operations
(Amounts in thousands, except per share data)

		For The Three Month								For The Nine Month
		Period Ended								Period Ended
		September 30,								September 30,
		2005				2004				2005				2004
		(Unaudited)								(Unaudited)
Revenue
Real estate operations		$	969			$	1,287			$	3,205			$	3,627
Oil and gas operations			472				358				1,282				996
			1,441				1,645				4,487				4,623
Operating expenses
Real estate operations			702				650				1,969				2,009
Oil and gas operations			322				267				881				758
Lease expense			230				231				692				686
Depletion, depreciation and amortization			123				73				370				260
Corporate general and administrative			256				237				784				774
			1,633				1,458				4,696				4,487
Operating earnings (loss)			(192	)			187				(209	)			136
Other income (expense)
Interest income			22				51				90				179
Interest expense			(151	)			(320	)			(419	)			(773	)
Net gain on sale of assets			—				1,409				(118	)			1,409
Equity in net income of affiliated partnership			—								— --				31
Other			27				(714	)			77				(649	)
			(102	)			426				(370	)			197
Earnings from continuing operations			(294	)			613				(579	)			333
Discontinued operations
Loss from operations			—				10				(12	)			(90	)
Net earnings			(294	)			623				(591	)			243
Net earnings per common share — basic and diluted		$	(0.28	)		$	0.64			$	(0.54	)		$	0.25
Weighted average of common and equivalent shares outstanding — basic and diluted			977				977				977				977

The accompanying notes are an integral part of this statement.

CabelTel International Corporation
Consolidated Statements of Cash Flow
(Amounts in thousands)

		For the nine month
		Period Ended September 30,
		2005				2004
		(Unaudited)				(Unaudited)
Cash flows from operating activities
Net earnings (loss)		$	(591	)		$	243
Adjustments to reconcile net earnings (loss) to net cash used in operating activities
Depreciation and amortization			370				260
Gain (loss) on sale of assets			118				(740	)
Depreciation on discontinued operations			—				65
Equity in net (income) of partnership			—				(31	)
Changes in operating assets and liabilities
Accounts receivable			(130	)			(236	)
Other current and non current assets			(1,150	)			739
Accounts payable and other liabilities			1,166				(705	)
Net cash used in operating activities			(217	)			(405	)
Cash flows used in investing activities
Repayment of notes receivable			400				—
Proceeds from the sale of property			3,057				109
Purchase of property and equipment			(41	)			(99	)
Net cash provided by investing activities			3,416				10
Cash flows from financing activities
Net advances from affiliates			257				—
Payments on debt			(3,800	)			(6,469	)
Borrowings			—				6,500
Net cash (used in) provided by financing activities			(3,543	)			31
NET DECREASE IN CASH AND							(364	)
CASH EQUIVALENTS			(344	)
Cash and cash equivalents at beginning of period			762				688
Cash and cash equivalents at end of period		$	418			$	324

The accompanying notes are an integral part of this statement.

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, the “Company”). All significant intercompany transactions and accounts have been eliminated.

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, as amended, for the fiscal year ended December 31, 2004. Operating results for the three and nine month periods ended September 30, 2005 are not necessarily indicative of the results that may be expected for any subsequent quarter or the year ended December 31, 2005.

Note B: Notes Receivable and Deferred Gain From Sale Of Property

As a result of the sale of two properties in 2001, the Company holds tax-exempt notes in the amount of $4,030,000, bearing interest at 9.5%. The notes mature on April 1, 2032, and August 1, 2031, respectively. 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.

The Company also sold a property in March 2005 and received a $200,000 non-interest bearing note. The repayment of the notes and interest thereon is limited to the cash flow of the respective properties either from operations, refinancing or sale. Subsequent to the sale the Company has received payments totaling $35,000 and has deferred gains in the amount of $165,000, which will be recognized as cash is received.

Note C: Long-Term Obligations

Long-term debt is comprised of the following (in thousands):

		September 30,				December 31,
		2005				2004
Notes payable to financial institutions maturing through 2018 at variable and fixed interest rates ranging from 5.75% to 11% and collateralized by real property, fixtures, equipment and the assignment of rents		$	6,372			$	7,627
Notes payable to individuals and companies maturing through 2023 at variable and fixed interest rates ranging from 10% to 18% and collateralized by real property, personal property, fixtures, equipment and the assignment of rents			2,255				4,590
Notes payable to related parties bearing interest at rates ranging from 15% to 18%			5,006				901
			13,633				13,118
Less: current maturities			2,375				5,945
		$	11,258				7,173

NOTE D: Discontinued Operations

The Company owned an assisted living property in Greenville, South Carolina. In August 2002, the Company leased the property to an unrelated third party who has been operating the property. The monthly lease payments received by the Company approximated the Company’s cost for interest and real estate taxes. In May 2005, the Company sold the property to the lessee for the amount of the existing mortgage on the property, which approximated the Company’s carrying value for the property.

On January 31, 2004, the Company terminated a lease for an assisted living community in Georgia. The operations of that property have been reflected as a discontinued operation in 2005 and 2004.

In March 2005, the company sold an assisted living facility in North Carolina and recorded a loss of $42,000. The operations of that property have been reflected as a discontinued operation in 2005 and 2004.

In May 2005, the Company sold an assisted living facility in South Carolina. The operations of that property have been reflected as a discontinued operation in 2005 and 2004.

NOTE E: Segment Reporting

Business Operations

     The Company operates two separate distinct businesses

•     The ownership and operation of real estate through one retirement community in King City, Oregon, with a capacity of 114 residents and ownership and operation of an outlet mall, with approximately 315,000 square feet of retail space available for lease, in Gainesville, Texas.

•     The ownership of oil and gas leases in Gregg and Rusk Counties, Texas, on which 48 producing wells were operating as of September 30, 2005.

     The segment information and reconciliation to income (loss) from operations are as follows:

										Oil				Consolidated
		Corporate				Real Estate				Operation				CIC
Three months ended September 30, 2005 (amounts in thousands)
Revenue
Real estate operations							969								969
Oil & gas operations											472				472
							969				472				1,441
Operating expenses
Operations							702				322				1,024
Lease expense			19				211								230
Depletion, depreciation and amortization			2				96				25				123
Corporate general and administrative			256												256
			277				1,009				347				1,633
Operating earnings (loss)			(277	)			(40	)			125				(192	)
Interest Income			22												22
Interest (expense)			(73	)			(78	)							(151	)
Other			27												27
Net earnings (loss) from continuing operations			(24	)			(78	)							(102	)
Total assets			6,920				8,836				1,877				17,633

NOTE E: Segment Reporting — Continued

						Real				Oil
		Corporate				Estate				Operations				Consolidated
Nine months ended September 30, 2005 (amounts in thousands)
Revenue
Real estate operations							3,205								3,205
Oil & gas operations											1,282				1,282
							3,205				1,282				4,487
Operating expenses
Operations							1,969				881				2,850
Lease expense			58				634								692
Depletion, depreciation and amortization			6				286				78				370
Corporate general and administrative			784												784
			848				2,889				959				4,696
Operating earnings (loss)			(848	)			316				323				(209	)
Interest Income			90												90
Interest (expense)			(170	)			(249	)							(419	)
Loss on sale of assets							(42	)			(76	)			(118	)
Other			77												77
			(3	)			(291	)			(76	)			(370	)
Net earnings (loss) from continuing operations			(851	)			25				247				(579	)
Total assets			6,920				8,836				1,877				17,633

Item 2: Management’s Discussion And Analysis Of Financial ConditionAnd 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 September 30, 2005, the Company had current assets of $1,549,000 and current liabilities of $5,054,000. Included in current liabilities is an obligation of principal and accrued interest of $2,830,000, the terms of which are similar to that of preferred stock, whereby the Company can only pay this obligation out of available earned surplus.

Cash and cash equivalents at September 30, 2005 were $418,000.

Net cash used by operating activities was $217,000 for the nine months ended September 30, 2005. During the nine month period the Company had a net loss of $591,000.

Net cash provided in investing activities was $3,416,000 for the nine months ended September 30, 2005, as compared to $10,000 for the nine months ended September 30, 2004. In March and April of 2005, the Company sold two assisted living communities and received approximately $3,000,000, which approximated book value for the properties. The proceeds were primarily used to pay off the existing mortgages.

Net cash flow used in financing activities was $3,543,000 in the nine months ended September 30, 2005, as compared to net cash flow provided in financing activities $31,000 for the nine months ended September 30, 2004. The additional funds received for the sale of the two properties was used to pay off the existing mortgages on those properties.

Results of Operations

The Company reported a net loss of $294,000 and $591,000 for the three and nine months ended September 30, 2005, as compared to net earnings of $623,000 and $243,000 for the three and nine month periods ending September 30, 2004.

For the three and nine months ended September 30, 2005, the Company recorded revenues of $969,000 and $3,205,000 for its real estate operations, as compared to $1,287,000 and $3,627,000 for the three and nine months ended September 30, 2004. The Company’s retirement property is fully occupied and it is anticipated that it will remain so during 2005. The decrease in revenue in 2005, as compared to 2004, is due to reduced rents at the Gainesville outlet mall.

For the three and nine months ended September 30, 2005, revenues for the oil and gas operation was $472,000 and $1,282,000, as compared to $358,000 and $996,000 for the three and nine months ended September 30, 2004. The increase was due principally to the increase in the price of oil.

For the three and nine months ended September 30, 2005, real estate operating expenses were $702,000 and $1,969,000, as compared to $650,000 and $2,009,000 for the three and nine months ended September 30, 2004. The increase was due principally to increases in operating costs for the Gainesville outlet mall during the third quarter of 2005.

For the three and nine months ended September 30, 2005, operating expenses for the oil and gas operation were $322,000 and $881,000, as compared to $267,000 and $758,000 for the three and nine months ended September 30, 2004. The increase was due principally to well repairs incurred in 2005.

For the three and nine months ended September 30, 2005, the depletion, depreciation and amortization expense was $123,000 and $370,000, as compared to $73,000 and $260,000 for the three and nine months ended September 30, 2004. The increase was due to one additional depreciable asset - the Gainesville outlet mall.

For the three and nine months ended September 30, 2005, interest income was $22,000 and $90,000, as compared to $51,000 and $179,000 for the three and nine months ended September 30, 2004. The decrease was due principally to a reduction in notes receivable in 2005, as compared to 2004.

Interest expense was $151,000 and $419,000 for the three months and nine months ended September 30, 2005, as compared to $320,000 and $773,000 for the three months and nine months ended September 30, 2004. The decrease was due principally to the refinancing of the Gainesville outlet mall.

Loss on the sale of assets was $118,000 for the nine months ended September 30, 2005. The Company sold certain of its non-producing oil wells when it was determined that we were unlikely to operate them in the future. The Company incurred a loss of $76,000. The Company also incurred certain legal and closing costs in its sale of the assisted living property in North Carolina.

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 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 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.

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 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 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.

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 effect, 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.

Part II: Other Information

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     During the period of time covered by this report, CabelTel International Corporation did not repurchase any of its equity securities. The following table sets forth a summary for the quarter, indicating no repurchases were made and that, at the end of the period covered by this report, no specified number of shares may be purchased under any program in place.

Total Number of Shares

Maximum Number of Shares that May

Total Number of

Average Price

Purchased as Part of Publicly

Yet be Purchased

Period

Shares Purchased

Paid per Share

Announced Program

Under the Program(a)

Balance as of March 31, 2005

—

—

—

—

April 1-30, 2005

¯

$

¯

¯

—

May 1-31, 2005

¯

¯

¯

—

June 1-30, 2005

¯

¯

¯

—

Total

¯

$

¯

¯

—

(a)

As a courtesy to stockholders of less than 100 shares and to relieve such stockholders of having to pay a broker’s commission, the Company, although not obligated to do so, has periodically repurchased its common stock at the then most recent closing price of the Company’s common stock on the last trading day before the stock certificate(s) is (are) actually received by the Company from the stockholder. The number of such shares purchased in any period of time has been minimal; no purchases were made during the quarter ended June 30, 2005.

Item 6. Exhibits.

     The following exhibits are filed herewith or incorporated by reference indicated below:

Exhibit No.		Exhibit Description
31.1*		Certification pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended, of Principal Executive Officer.
31.2*		Certification pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended, of Chief Financial Officer.
32.1*		Certification of Principal Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. § 1350.

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: November 21, 2005		By:		/s/GeneS.Bertcher
				President
				Chief Financial Officer