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FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(As last amended in Rel. No. 34-29354 eff. 7-1-91)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

|    |  |                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended DECEMBER 31, 2002

|     |  |                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the transition period from       to

Commission file number 333-43157

NORTHLAND CABLE TELEVISION, INC.

---

(Exact name of registrant as specified in its charter)


|                                                              |  |                                     
|------------------------------------------------------------- |  | ------------------------------------
|STATE OF WASHINGTON                                           |  | 91-1311836                          
|                                                              |  |                                     
|(State or other jurisdiction of incorporation or organization |  | (I.R.S. Employer Identification No.)

AND SUBSIDIARY GUARANTOR:

NORTHLAND CABLE NEWS, INC.

---

(Exact name of registrant as specified in its charter)


|                                                                                   |  |                                                
|---------------------------------------------------------------------------------- |  | -----------------------------------------------
|STATE OF WASHINGTON
(State or other jurisdiction of incorporation or organization) |  | 91-1638891
(I.R.S. Employer Identification No.)

|                                                             |  |                 
|------------------------------------------------------------ |  | ----------------
|101 STEWART STREET, SUITE 700                                |  |                 
|SEATTLE, WASHINGTON
(Address of principal executive offices) |  | 98101
(Zip Code)

Registrants telephone number, including area code: (206) 621-1351

Securities registered pursuant to including Section 12(b) of the Act:

|                           |  |                                                 
|-------------------------- |  | ------------------------------------------------
|Title of each class
(NONE) |  | Name of each exchange on which registered
(NONE)

Securities registered pursuant to Section 12(g) of the Act:

10 1/4% Senior Subordinated Notes due 2007

---

(Title of class)


Indicate by check mark whether registrant 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, and 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 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.

Yes [   ] No [ X ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

Yes [   ] No [ X ]

As of December 31, 2002 the Company had 10,000 shares outstanding, all of
which are held by an affiliate.

1



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TABLE OF CONTENTS



|               |                                                                                               |  |  |  |  |  |  | 
|-------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I        
|               | ITEM 1. BUSINESS                                                                             
|               | ITEM 2. PROPERTIES                                                                           
|               | ITEM 3. LEGAL PROCEEDINGS                                                                    
|               | ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                    
|PART II       
|               | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|               | ITEM 6. SELECTED FINANCIAL DATA                                                              
|               | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|               | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|               | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|               | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III      
|               | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|               | ITEM 11. EXECUTIVE COMPENSATION                                                              
|               | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|               | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|               | ITEM 14. CONTROLS AND PROCEDURES                                                             
|PART IV       
|               | ITEM15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                     
|SIGNATURES    
|CERTIFICATIONS
|EXHIBITS INDEX
|EXHIBIT 99 (A)
|EXHIBIT 99 (B)



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Cautionary statement for purposes of the Safe Harbor provisions of the
Private Litigation Reform Act of 1995. Statements contained or incorporated by
reference in this document that are not based on historical fact are
forward-looking statements within the meaning of the Private Securities
Reform Act of 1995. Forward-looking statements may be identified by use of
forward-looking terminology such as believe, intends, may, will,
expect, estimate, anticipate, continue, or similar terms, variations of
those terms or the negative of those terms.




PART I




ITEM 1.    BUSINESS



| |  | Northland Cable Television, Inc. (the Company), a Washington
Corporation, was formed in October 1985 and owns and operates 36 cable
television systems serving small cities, towns, and rural communities in
California, Georgia, South Carolina, North Carolina, Texas and Washington
(collectively the Systems). The Company is a wholly owned subsidiary of
Northland Telecommunications Corporation (NTC), which, together with the
Company and its other affiliates, has specialized in providing cable
television and related services in non-urban markets since 1981. Other
subsidiaries of NTC include:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | NORTHLAND COMMUNICATIONS CORPORATION (NCC) - formed in March 1981 and
principally involved in the ownership and management of cable television
systems. NCC is the sole shareholder of Northland Cable Properties, Inc.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| |  |  | NORTHLAND CABLE PROPERTIES, INC. (NCPI) - formed in February 1995
and principally involved in the direct ownership of local cable
television systems. NCPI is the majority member of Northland Cable
Ventures LLC.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|

|
|
|
|

| |  |  | CABLE AD-CONCEPTS, INC. (CAC) - formed in November 1993 and
principally involved in the sale, development and production of
video commercial advertisements that are cablecast on Northland-
affiliated cable systems.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|

| |  |  | STATESBORO MEDIA, INC. - formed in April 1995 and principally
involved in operating an AM radio station serving the community of
Statesboro, Georgia and surrounding areas.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| |  |  | CORSICANA MEDIA, INC. - purchased in September 1998 from an
affiliate and principally involved in operating an AM radio station
serving the community of Corsicana, Texas and surrounding areas.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Since closing its initial acquisition in 1986, the Company has continued
to target, negotiate and complete acquisitions of cable systems and integrate
the operation of such systems. The Company has increased its basic and
premium subscribers through strategic acquisitions, selective system upgrades
and extensions of its cable systems. As of December 31, 2002, the total
number of basic subscribers served by the Systems was 108,269, and the
Companys penetration rate (basic subscribers as a percentage of homes
passed) was approximately 56%.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company has 88 non-exclusive franchises to operate the Systems.
These franchises, which will expire at various dates through 2022, have been
granted by local and county authorities in the areas in which the Systems
operate. The Company has historically been able to renew its franchises
without incurring significant costs, and management believes that any
particular franchise will be renewed or that it can be renewed on
commercially favorable terms, however, no assurances can be given.                                                   

2



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| |  | Franchise fees are paid to the granting governmental authorities. These
fees vary between 1% and 5% and are generally based on the respective gross
revenues of the Systems in a particular community. The franchises may be
terminated for failure to comply with their respective conditions.                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | THE SYSTEMS                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The Companys systems are divided into four geographical regions. Unless
otherwise indicated, all operating statistical data set forth in the
following table and the region-by-region description of the Systems, which
follows, is as of December 31, 2002. The system serving the area of Port
Angeles, Washington was sold to an unaffiliated third party on March 11,
2003.

|                 |  |           |         |             |  |             |         |             |  |          |      |             |  |            |       |        |  |  |        |     |  |        |      |         |  |         |       |  |  |  |      |   |  |  |  | 
|---------------- |  | --------- | ------- | ----------- |  | ----------- | ------- | ----------- |  | -------- | ---- | ----------- |  | ---------- | ----- | ------ |  |  | ------ | --- |  | ------ | ---- | ------- |  | ------- | ----- |  |  |  | ---- | - |  |  |  | 
|                 |  |           |         |             |  |             |         |             |  |          |      |             |  |            |       |        |  |  |        |     |  |        |      |         |  | AVERAGE |       |  |  |  |      |   |  | 
|                 |  |           |         |             |  |             |         |             |  |          |      |             |  |            |       |        |  |  |        |     |  |        |      |         |  | MONTHLY |       |  |  |  |      |   |  | 
|                 |  |           |         |             |  |             |         |             |  |          |      |             |  | PERCENT OF |       |        |  |  |        |     |  |        |      | REVENUE |  |         |       |  |  |  |      |  
|                 |  |           |         |             |  | BASIC       |         |             |  |          |      | BASIC       |  | PREMIUM    |       |        |  |  |        | PER |  | EBITDA |      |         |  |        
|                 |  | HOMES     |         | SUBSCRIBERS |  | BASIC       |         | SUBSCRIBERS |  | SERVICE  |      | PREMIUM     |  | BASIC      |       | MARGIN |  |  |        |    
|REGION           |  | PASSED(1) |         | (2)         |  | PENETRATION |         | (3)         |  | UNITS(4) |      | PENETRATION |  | SUBSCRIBER |       | (5)    |  |  |        |    
|                 |  |           |         |             |  |             |         |             |  |          |      |             |  |            |       |        |  |  |        |    
|So. Carolina/No. |  |           |         |             |  |             |         |             |  |          |      |             |  |            |       |        |  |  |        |     |  |        |      |         |  |         |       |  |  |  |      |  
|Carolina/Georgia |  |           | 99,030  |             |  |             | 58,022  |             |  |          | 58.6 | %           |  |            | 53.6  | %      |  |  | 28,589 |     |  |        | 49.3 | %       |  | $       | 48.01 |  |  |  | 44.9 | %
|Washington       |  |           | 25,775  |             |  |             | 15,206  |             |  |          | 59.0 | %           |  |            | 14.0  | %      |  |  | 5,662  |     |  |        | 37.2 | %       |  | $       | 43.03 |  |  |  | 39.3 | %
|Texas            |  |           | 47,950  |             |  |             | 24,141  |             |  |          | 50.4 | %           |  |            | 22.3  | %      |  |  | 10,500 |     |  |        | 43.5 | %       |  | $       | 44.58 |  |  |  | 41.1 | %
|California       |  |           | 19,090  |             |  |             | 10,900  |             |  |          | 57.1 | %           |  |            | 10.1  | %      |  |  | 6,073  |     |  |        | 55.7 | %       |  | $       | 42.32 |  |  |  | 38.4 | %
|                 |  |           |         |             |  |             |         |             |  |          |      |             |  |            |       |        |  |  |        |     |  |        |      |         |  |         |       |  |  |  |      |  
|Total Systems    |  |           | 191,845 |             |  |             | 108,269 |             |  |          | 56.4 | %           |  |            | 100.0 | %      |  |  | 50,824 |     |  |        | 46.9 | %       |  | $       | 45.96 |  |  |  | 42.7 | %



| | (1) | Homes passed refers to estimates of the number of dwelling units in a
particular community that can be connected to the distribution system
without any further extension of principal transmission lines. Such
estimates are based upon a variety of sources, including billing records,
house counts, city directories and other local sources.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) | The number of basic subscribers has been computed by adding the actual
number of subscribers for all non-bulk accounts and the equivalent
subscribers for all bulk accounts. The number of such equivalent
subscribers has been calculated by dividing aggregate basic service
revenue for bulk accounts by the full basic service rate for the community
in which the account is located.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (3) | Percentage of all basic subscribers based on an aggregate of all Systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (4) | Premium service units represent the number of subscriptions to premium
channels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (5) | EBITDA represents income from operations excluding the effect of
depreciation and amortization expense. EBITDA margin represents EBITDA as
a percentage of revenue. EBITDA is commonly used to analyze companies on
the basis of leverage and liquidity. However, EBITDA is not a measure
determined under generally accepted accounting principles, or GAAP, in the
United States and may not be comparable to similarly titled measures
reported by other companies. EBITDA should not be construed as a
substitute for operating income or as a better measure of liquidity than
cash flow from operating activities, which are determined in accordance
with GAAP. We have presented EBITDA to provide additional information
with respect to our ability to meet future debt service, capital
expenditure and working capital requirements (See reconciliation of
EBITDA to cash flow from operations included in the Liquidity and Capital
Resources section of Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations).
|
| |     | The South Carolina/North Carolina/Georgia Region. The South Carolina/North
Carolina/Georgia Region consists of eight headends serving 58,022
subscribers. Four headends, located in Aiken, Greenwood and Clemson, South
Carolina and Statesboro, Georgia, serve 53,507 subscribers or 92.2% of the
total subscribers in the region. The region is currently operated from five
primary local offices located in Aiken, Greenwood, Clemson, Statesboro and
Highlands, North Carolina.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     | Clemson, South Carolina. The Clemson area systems serve 13,119 subscribers
from two headends. The Clemson system, which is home to Clemson University,
is the largest system, serving 12,925 subscribers. Approximately 85% of the
homes passed are served by plant with 450 MHz or better channel capacity. The
Company began offering digital television service in the Clemson system
during 2000. Additionally, the Clemson area systems have a strong advertising
sales effort, and their principal office and headend sites are owned by the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     | Aiken, South Carolina. The Aiken area systems serve 17,955 subscribers from
three headends. The Aiken headend serves 89.8% of the subscribers, has a 550
MHz channel capacity and is addressable. The Company began offering digital
television service in the Aiken system during 2001. The Aiken area has a
diversified industrial base consisting of local, national and foreign
manufacturing companies covering such diverse industries such as
pharmaceuticals, textiles, industrial                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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| |  | robotics, gardening seeds and
prefabricated homes. The largest employer in the Aiken area is the
Westinghouse Savannah River Company. The office and two of the headend sites
are owned by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Greenwood, South Carolina. The Greenwood system serves 15,932 subscribers
from a single headend and has a minimum of 450 MHz channel capacity. The
Company began the upgrade of the Greenwood system to 550 MHz channel capacity
in 2000, with approximately 69% of the homes passed being served by plant
with 550 MHz channel capacity by year-end 2002. Although this system
employed fiber optic technology, the Company has constructed an expansion of
the fiber optic backbone designed to support 860 MHz capacity. Additionally,
a fiber optic backbone interconnect was constructed to the Saluda and
Edgefield systems for system upgrades and connection, currently in process.
The Company began offering digital television service in the Greenwood system
during 2001. The Greenwood area has a diversified industrial base consisting
of local, national and foreign manufacturing companies covering such diverse
industries such as pharmaceuticals, photo film textiles, industrial robotics,
gardening seeds and prefabricated homes. The Company owns its office and
headend site.
|
| |  | Statesboro, Georgia. The Statesboro system serves 8,526 subscribers from a
single headend with approximately 95% of the subscribers served by 450 MHz
channel capacity. The Company began offering digital television service in
the Statesboro system during 2000. The Statesboro system has a strong
advertising sales effort and its office and headend site are owned by the
Company. Statesboro is home to Georgia Southern University.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Highlands, North Carolina. The Highlands system serves 2,490 subscribers from
a single headend with approximately 83% of the subscribers served by 330 MHz
channel capacity and 17% served by 450 MHz capacity. The system currently
utilizes and plans to expand a fiber backbone designed to ultimately support
860 MHz capacity. Highlands is located on a plateau of the Blue Ridge
Mountains where Georgia, North Carolina and South Carolina meet. The
Highlands area has long been a vacation destination for affluent families
from many Southern cities. The area is encircled by 200,000 acres of the End
National Forest. One of the main attractions of Highlands is the areas
exclusive golf clubs. The system experiences seasonality in its subscriber
base, the areas low season (winter) and high season (summer) fluctuate by
approximately 700 basic subscribers.                                                                                                                                                                                                                  
|
| |  | The Washington Region. The Washington Region serves 15,206 subscribers
from four headends and is operated from two offices located in Port Angeles
and Moses Lake, Washington. The two largest headends serve 11,656
subscribers, or 76.7% of the Companys total subscribers in the region.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Port Angeles, Washington. The Port Angeles system serves 5,718 subscribers
from one headend. The system utilizes a fiber optic backbone designed to
support a 750 MHz capacity with 63% of the subscribers served by 550 MHz
capacity plant and 37% served by 450 MHz capacity plant. The Company began
offering digital television service in the Port Angeles system during 2000.
Port Angeles is located near the Olympic National Park and is the county seat
for Clallam County. The systems office and headend sites are owned by the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Moses Lake, Washington. The Moses Lake area systems serve 9,488 subscribers
from three headends. The Moses Lake headend serves 62.6% of the subscribers
and was recently upgraded to 450 MHz channel capacity, which included the
expansion of the fiber optic backbone designed to support a 750 MHz capacity.
The Company began offering digital television service in the Moses Lake
system during 1999. The office, three headend sites and a microwave site are
owned by the Company. The three headends are interconnected via microwave for
the delivery of certain off-air broadcast signals imported from the Seattle
and Spokane, Washington markets. Each system maintains a separate headend
facility for reception and distribution of satellite signals. An upgrade of
the Othello system to 450 MHz was recently completed. The Ephrata system is
currently being upgraded to 550 MHz capacity with completion projected by the
end of 2003.                                                                                                                                             
|
| |  | The Texas Region. The Texas Region is characterized by smaller systems,
with 17 headends serving 24,141 subscribers. Eight headends currently serve
83.9% of the subscribers. Additionally, the Companys management structure
allows it to achieve operating efficiencies, as only five local offices are
required to service the region.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Stephenville, Texas. The Stephenville area systems serve 5,333 subscribers
from a cluster of four headends. Stephenville is home to Tarleton State
College, an affiliate of Texas A&M University. All of the subscribers are
currently served by
plant with 450 MHz or better channel capacity. The Company began offering
digital television service in the Stephenville system during 2001. The
office and three of the headend sites are owned by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Mexia, Texas. The Mexia area systems serve 10,497 subscribers from a cluster
of nine headends, with the two largest headends, Mexia and Crockett, serving
54.1% of the subscribers. Approximately 87.7% of subscribers currently are
serviced by plant with 400 MHz capacity, with the Mexia headend utilizing a
fiber optic backbone. The Company began                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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| |  | offering digital television service
in the Mexia system during 2001. The Mexia area has a diversified economy
with Nucor Steel, Inc. as a major employer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Marble Falls, Texas. The Marble Falls area systems serve 6,948 subscribers
from a cluster of three headends. In June 2000 the Company completed a fiber
optic interconnect of the Burnet system to the Marble Falls system, thereby
eliminating an additional headend. With the completion of the Burnet
interconnect, approximately 80.9% of the subscribers in the area are served
from a single headend. The combination office and headend site in Marble
Falls is owned by the Company. Over the next two to three years the
remaining systems in the Marble Falls area are scheduled to be upgraded to
400 MHz or 550 MHz capacity. The Company began offering digital television
service in the Marble Falls system during 2001. The Marble Falls region is a
popular outdoor recreation and retirement area for families from nearby
Austin and San Antonio.                                                                                               
|
| |  | The remaining headend in the Texas region, located in the Navasota, serves
1,363 subscribers, with all of the subscribers served by plant with 400 MHz
capacity or better.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The California Region. The California Region serves 10,900 subscribers
from seven headends, which are operated from three offices located in Yreka,
Oakhurst and Mount Shasta, California. Three headends serve 9,530 subscribers
or 87.4% of the total subscribers in the region.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Oakhurst, California. The Oakhurst, California area is one of the entrances
to Yosemite National Park. The Oakhurst area systems serve 3,874 subscribers
from a cluster of five headends. The Oakhurst headend serves 64.6% of the
subscribers in the area. An upgrade of the Oakhurst system to 450 MHz
capacity with approximately 90.0% of the systems subscribers served was
recently completed. The Company began offering digital television service in
the Oakhurst system during 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Yreka, California. The Yreka, California system, located near Mt. Shasta
National Park, serves 2,918 subscribers from a single headend. Yreka is the
county seat of Siskiyou County. The Yreka system currently has a plant
capacity of 75% 450 MHz and 25% 400 MHz. An ongoing upgrade of the system to
450 MHz capacity is in process with completion projected by year-end 2004.
The Company began offering digital television service in the Yreka system
during 2001. The Yreka office and headend sites are owned by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Mount Shasta, California. The Mount Shasta, California system, serves 4,108
subscribers from a primary headend and is located in close proximity to the
Companys Yreka system. The system sits at the base of 14,162 foot Mt.
Shasta, which attracts tourists year round with skiing, hiking and golf
courses nearby. The communities of Mount Shasta, Dunsmuir and Weed are
connected by fiber optic backbone and the community of McCloud is connected
via AML microwave. Portions of the system serving approximately 85% of the
subscribers are currently at 330 MHz capacity with the remaining 15% at 550
MHz. The completion of an upgrade to 550 MHz is planned. The Company began
offering digital television service in the Mount Shasta system in 2000. The
Mount Shasta area has a strong economic base. Forestry, forest services and
tourism are the major industries.                                                                              
|
| |  | As of December 31, 2002, the Company had approximately 171 full-time
employees and 6 part-time employees. Nine of the Companys employees at its
Moses Lake, Washington system are represented by a labor union. The Company
considers its relations with its employees to be good.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The Companys cable television business generally is not considered
seasonal. Its business is not dependent upon a single customer or a few
customers, the loss of any one or more of which would have a material adverse
effect on its business. No customer accounts for 10% or more of revenues. No
material portion of the Companys business is subject to re-negotiation of
profits or termination of contracts or subcontracts at the election of any
governmental unit, except that franchise agreements may be terminated or
modified by the franchising authorities as noted above. During the last year,
the Company did not engage in any research and development activities.                                                                                                                                                                                                                                                                         
|
| |  | Company revenues are derived primarily from monthly payments received
from cable television subscribers. Subscribers are divided into four
categories: basic subscribers, expanded basic subscribers, premium
subscribers, and digital subscribers. Basic subscribers are households that
subscribe to the basic level of service, which generally provides access to
the three major television networks (ABC, NBC and CBS), a few independent
local stations, PBS (the Public Broadcasting System) and certain satellite
programming services, such as ESPN, CNN or The Discovery Channel. Expanded
basic subscribers are households that subscribe to an additional level of
programming service, the content of which varies from system to system.
Premium subscribers are households that subscribe to one or more pay
channels in addition to the basic service. These pay channels include such
services as Showtime, Home Box Office, Cinemax, The

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| |  | Movie Channel, Encore and
Starz. Digital subscribers are those who subscribe to digitally delivered
video and audio services where offered.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | COMPETITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Cable television systems currently experience competition from several
sources, including broadcast television, cable overbuilds, direct broadcast
satellite services, private cable and multichannel multipoint distribution
service systems. Cable television systems are also in competition in
various degrees with other communications and entertainment media,
including motion pictures, home video cassette recorders, Internet data
delivery and Internet video delivery. The following provides a summary
description of these sources of competition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Broadcast Television                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Cable television systems have traditionally competed with broadcast
television, which consists of television signals that the viewer is able to
receive directly on the viewers television without charge using an off-air
antenna. The extent of this competition is dependent in part upon the quality
and quantity of signals available by antenna reception as compared to the
services provided by the local cable system. Accordingly, cable operators
find it less difficult to obtain higher penetration rates in rural areas
(where signals available off-air are limited) than in metropolitan areas
where numerous, high quality off-air signals are often available without the
aid of cable television systems. The recent licensing of digital spectrum by
the FCC will provide incumbent broadcast licensees with the ability to
deliver high definition television pictures and multiple digital-quality
program streams, as well as advanced digital services such as subscription
video.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Overbuilds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Cable television franchises are not exclusive, so that more than one cable
television system may be built in the same area. This is known as an
overbuild. Overbuilds have the potential to result in loss of revenues to
the operator of the original cable television system. Constructing and
developing a cable television system is a capital intensive process, and it
is often difficult for a new cable system operator to create a marketing edge
over the existing system. Generally, an overbuilder would be required to
obtain franchises from the local governmental authorities, although in some
instances, the overbuilder could be the local government itself. In any case,
an overbuilder would be required to obtain programming contracts from
entertainment programmers and, in most cases, would have to build a complete
cable system such as headends, trunk lines and drops to individual
subscribers homes throughout the franchise areas.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Federal cross-ownership restrictions historically limited entry by local
telephone companies into the cable television business. The 1996 Telecom Act
eliminated this cross-ownership restriction. See Regulation and Legislation
below. It is therefore possible for companies with considerable resources to
overbuild existing cable operators and enter the business. Several telephone
companies have begun seeking cable television franchises from local
governmental authorities and constructing cable television systems. The
Company cannot predict at this time the extent of telephone company
competition that will emerge in areas served by the Companys cable
television systems. The entry of electric utility companies into the cable
television business, as now authorized by the 1996 Telecom Act, could have a
similar adverse effect.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Direct Broadcast Satellite Service                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | High powered direct-to-home satellites have made possible the wide-scale
delivery of programming to individuals throughout the United States using
small roof-top or wall-mounted antennas. The two leading DBS providers have
experienced dramatic growth over the last several years and together now
serve over 17 million customers nationwide. Companies offering direct
broadcast satellite service use video compression technology to increase
channel capacity of their systems to more than 200 channels and to provide
packages of movies, satellite networks and other program services which are
competitive to those of cable television systems. DBS companies historically
faced significant legal and
technological impediments to providing popular local broadcast
programming to their customers. Recent federal legislation reduced this
competitive disadvantage. Nevertheless, technological limitations still
affect DBS companies, and it is expected that DBS companies will offer local
broadcast programming only in the top 50 to 100 U.S. markets for the
foreseeable future. The availability of DBS equipment at reasonable prices
(often free with promotions), and the relative attractiveness of the
programming options offered by the cable television industry and direct
broadcast satellite competitors will impact the ability of providers of DBS
service to compete successfully with the cable television industry.
Recently, the two leading DBS providers announced their intent to merge into
one DBS provider, which, according to the companies FCC filings, would
enable the merged company to offer services such as local broadcast
programming in all U.S. markets

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| |  | and high-speed Internet access nationwide; if
this merger is approved by both the FCC and Department of Justice, DBS may
become a stronger competitor to the cable television industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Private Cable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Additional competition is provided by private cable television systems,
known as satellite master antenna television, serving multi-unit dwellings
such as condominiums, apartment complexes, and private residential
communities. These private cable systems may enter into exclusive agreements
with apartment owners and homeowners associations, which may preclude
operators of franchised systems from serving residents of these private
complexes. Operators of private cable, which do not cross public rights of
way, are free from the federal, state and local regulatory requirements
imposed on franchised cable television operators.
|
| |  | Multichannel Multipoint Distribution Service Systems                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Cable television systems also compete with wireless program distribution
services such as multichannel, multipoint distribution service systems,
commonly called wireless cable, which are licensed to serve specific areas.
Multichannel, multipoint distribution service systems use low-power microwave
frequencies to transmit television programming over-the-air to paying
subscribers. This industry is less capital intensive than the cable
television industry, and it is therefore more practical to construct systems
using this technology in areas of lower subscriber penetration.                                                    
|
| |  | REGULATION AND LEGISLATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Summary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The following summary addresses the key regulatory developments and
legislation affecting the cable television industry. Other existing federal
legislation and regulations, copyright licensing and, in many jurisdictions,
state and local franchise requirements are currently the subject of a variety
of judicial proceedings, legislative hearings and administrative and
legislative proposals, which could change, in varying degrees, the manner in
which cable television systems operate. Neither the outcome of these
proceedings nor their impact upon the cable television industry or the
Company can be predicted at this time.      
|
| |  | The Company expects to adapt its business to adjust to the changes that may
be required under any scenario of regulation. At this time, the Company
cannot assess the effects, if any, that present regulation may have on the
Companys operations and potential appreciation of its Systems. There can be
no assurance that the final form of regulation will not have a material
adverse impact on the Companys operations.                                                                                                                                                                                                                      
|
| |  | The operation of a cable system is extensively regulated by the FCC, some
state governments and most local governments. The 1996 Telecommunications Act
has altered the regulatory structure governing the nations communications
providers. It removes barriers to competition in both the cable television
market and the local telephone market. Among other things, it also reduces
the scope of cable rate regulation and encourages additional competition in
the video programming industry by allowing local telephone companies to
provide video programming in their own telephone service areas.                                         
|
| |  | The 1996 Telecommunications Act requires the FCC to undertake a host of
implementing rulemakings. Moreover, Congress and the FCC have frequently
revisited the subject of cable regulation. Future legislative and regulatory
changes could adversely affect the Companys operations.                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Cable Rate Regulation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The 1992 Cable Act imposed an extensive rate regulation regime on the cable
television industry, which limited the ability of cable companies to increase
subscriber fees. Under that regime, all cable systems were subject to rate
regulation,
unless they face effective competition in their local franchise area.
Federal law now defines effective competition on a community-specific basis
as requiring satisfaction of conditions rarely satisfied in the current
marketplace, although this may change in light of emerging DBS competition.                                                                                           
|
| |  | Although the FCC established the underlying regulatory scheme, local
government units, commonly referred to as local franchising authorities, are
primarily responsible for administering the regulation of the lowest level of
cable service called the basic service tier. The basic service tier typically
contains local broadcast stations and public, educational, and government
access channels. Before a local franchising authority begins basic service
rate regulation, it must certify to the FCC that it will follow applicable
federal rules. Many local franchising authorities have voluntarily declined
to exercise                

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| |  | their authority to regulate basic service rates. Local
franchising authorities also have primary responsibility for regulating cable
equipment rates. Under federal law, charges for various types of cable
equipment must be unbundled from each other and from monthly charges for
programming services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As of December 31, 2002, approximately 10% of the Companys local franchising
authorities were certified to regulate basic tier rates. The 1992 Cable Act
permits communities to certify and regulate rates at any time, so that it is
possible that additional localities served by the systems may choose to
certify and regulate rates in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The FCC itself historically administered rate regulation of cable
programming service tiers, which represent the expanded level of packaged,
non-premium, programming services typically containing satellite-delivered
programming. The FCCs authority, however, with respect to smaller operators
like the Company ended in 1996.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Under the rate regulations of the FCC, most cable systems were required
to reduce their basic service tier and cable programming service tier rates
in 1993 and 1994, and have since had their rate increases governed by a
complicated price cap scheme that allows for the recovery of inflation and
certain increased costs, as well as providing some incentive for expanding
channel carriage. The FCC has modified its rate adjustment regulations to
allow for annual rate increases and to minimize previous problems associated
with regulatory lag. Operators also have the opportunity to bypass this
benchmark regulatory scheme in favor of traditional cost-of-service
regulation in cases where the latter methodology appears favorable. Cost of
service regulation is a traditional form of rate regulation, under which a
utility is allowed to recover its costs of providing the regulated service,
plus a reasonable profit. In a particular effort to ease the regulatory
burden on small cable systems, the FCC created special rate rules applicable
for systems with fewer than 15,000 subscribers owned by an operator with
fewer than 400,000 subscribers. The special rate rules allow for a simplified
cost-of-service showing. All of the Companys systems are eligible for these
simplified cost-of-service rules (two pursuant to waivers granted by the
FCC), and have calculated rates generally in accordance with those rules. To
the extent the Companys systems remain rate regulated on the basic service
tier, this regulatory option affords the Company significant regulatory
options.
|
| |  | The FCC and Congress have provided various forms of rate relief for
smaller cable systems owned by smaller operators. Premium cable services
offered on a per-channel or per-program basis remain unregulated, as do
affirmatively marketed packages consisting entirely of new programming
product. However, federal law requires that the basic service tier be offered
to all cable subscribers and limits the ability of operators to require
purchase of any cable programming service tier if a customer seeks to
purchase premium services offered on a per-channel or per-program basis,
subject to a technology exception which sunsets in October 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Regulation by the FCC of cable programming service tier rates for all
systems, regardless of size, sunset pursuant to the 1996 Telecom Act on March
31, 1999. Certain legislators, however, have called for new rate regulations
if unregulated cost rates increase dramatically. Should this occur, all rate
deregulation including that applicable to small operators like the Company
could be jeopardized. The 1996 Telecom Act also relaxes existing uniform
rate requirements by specifying that uniform rate requirements do not apply
where the operator faces effective competition, and by exempting bulk
discounts to multiple dwelling units, although complaints about predatory
pricing still may be made to the FCC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Cable Entry Into Telecommunication                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The 1996 Telecom Act creates a more favorable environment for us to
provide telecommunications services beyond traditional video delivery. It
provides that no state or local laws or regulations may prohibit or have the
effect of prohibiting any entity from providing any interstate or intrastate
telecommunications service. A cable operator is authorized under the 1996
Telecom Act to provide telecommunications services without obtaining a
separate local franchise. States are authorized, however, to impose
competitively neutral requirements regarding universal service,
public safety and welfare, service quality, and consumer protection.
State and local governments also retain their authority to manage the public
rights-of-way and may require reasonable, competitively neutral compensation
for management of the public rights-of-way when cable operators provide
telecommunications service. The favorable pole attachment rates afforded
cable operators under federal law can be gradually increased by utility
companies owning the poles, beginning in 2001, if the operator provides
telecommunications service, as well as cable service, over its plant.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Internet Service                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | There is at present no significant federal regulation of cable system
delivery of Internet services. So far, cable operators are experiencing many
victories where regulation is attempted. For example, many local
franchising authorities were unsuccessful in their attempts to impose
mandatory Internet access requirements as part of cable franchise renewals or
transfers. A federal district court in Portland, Oregon upheld the legal
ability of local franchising authority to impose these                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

8



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| |  | types of conditions,
but such ruling was reversed by the Ninth Circuit Court of Appeals.
Additionally, In March 2002, the FCC adopted a Declaratory Ruling,concluding
that cable modem service is properly classified as an interstate information
service and is therefore subject to FCC jurisdiction. For now, this leaves
cable modem service exempt from open access requirements. However, the FCC
simultaneously adopted a Notice of Proposed Rulemakingto determine whether,
in light of marketplace developments, it is necessary or appropriate at this
time to require access over cable systems by multiple Internet service
providers, and whether (and to what extent) cable modem service should be
regulated by state and local franchising authorities. Any increased
regulation could burden the capacity of cable systems and complicate any
plans the Company may have or develop for providing Internet service.             
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Many utilities were unsuccessful in attempting to impose unduly burdensome
pole attachment rental fees for cable operators provision of Internet access
services when the U.S. Supreme Court recently ruled that cable television
systems may deliver high-speed Internet access and remain within the
protections of Section 703 of the Telecommunications Act of 1996 (the Pole
Attachment Act). National Cable & Telecommunications Assoc. v. Gulf Power
Co., Nos. 00-832 and 00-843, 534 U.S. (January 16, 2002). The U.S. Supreme
Court reversed the Eleventh Circuits decision to the contrary and sustained
the FCC decision that applied the Pole Attachment Acts rate formula and
other regulatory protections to cable television systems attachments over
which commingled cable television and cable modem services are provided.                                                                                               
|
| |  | Telephone Entry Into Cable Television                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | The 1996 Telecom Act allows telephone companies to compete directly with
cable operators by repealing the historic telephone company/cable
cross-ownership ban. Local exchange carriers, including the regional
telephone companies, can now compete with cable operators both inside and
outside their telephone service areas with certain regulatory safeguards.
Because of their resources, local exchange carriers could be formidable
competitors to traditional cable operators. Various local exchange carriers
currently are providing video programming services within their telephone
service areas through a variety of distribution methods, including both the
deployment of broadband wire facilities and the use of wireless transmission.                                                                                                                                                                                       
|
| |  | Under the 1996 Telecom Act, local exchange carriers or any other cable
competitor providing video programming to subscribers through broadband wire
should be regulated as a traditional cable operator, subject to local
franchising and federal regulatory requirements, unless the local exchange
carrier or other cable competitor elects to deploy its broadband plant as an
open video system. To qualify for favorable open video system status, the
competitor must reserve two-thirds of the systems activated channels for
unaffiliated entities. The Fifth Circuit Court of Appeals reversed certain of
the FCCs open video system rules, including its preemption of local
franchising. The FCC revised its OVS rules to eliminate this general
preemption, thereby leaving franchising discretion to local and state
authorities. It is unclear what effect this ruling will have on entities
pursuing open video system operation.
|
| |  | Although local exchange carriers and cable operators can now expand their
offerings across traditional service boundaries, the general prohibition
remains on local exchange carrier buyouts of co-located cable systems.
Co-located cable systems are cable systems serving an overlapping territory.
Cable operator buyouts of co-located local exchange carrier systems, and
joint ventures between cable operators and local exchange carriers in the
same market also are prohibited. The 1996 Telecom Act provides a few limited
exceptions to this buyout prohibition, including a carefully circumscribed
rural exemption. The 1996 Telecom Act also provides the FCC with the
limited authority to grant waivers of the buyout prohibition.                                                                                                                                                                                            
|
| |  | Electric Utility Entry Into Telecommunications/Cable Television                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services, including cable
television, notwithstanding the Public Utility Holding Company Act. Electric
utilities must establish separate subsidiaries, known as exempt
telecommunications companies and must apply to the FCC for operating
authority. Like telephone companies, electric utilities have substantial
resources at their disposal, and could be formidable competitors to
traditional cable systems. Several of these utilities have been granted broad
authority by the FCC to engage in activities, which could include the
provision of video programming.                                                                                                                                                                                                                                            
|
| |  | Additional Ownership Restrictions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The 1996 Telecom Act eliminates statutory restrictions on
broadcast/cable cross-ownership, including broadcast network/cable
restrictions, but leaves in place existing FCC regulations prohibiting local
cross-ownership between co-located television stations and cable systems.
However, in February 2002, the U.S. Court of Appeals for the D.C. Circuit
found such local cross-ownership rule to be unlawful and vacated such rule.
The 1996 Telecommunications Act also eliminates the three year holding period
required under the 1992 Cable Acts anti-trafficking provision. The 1996
Cable                                                                                                                                                                                                                                                                                                                                          

9



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| |  | Act leaves in place existing restrictions on cable cross-ownership with
satellite master antenna television and multichannel multipoint distribution
service facilities, but lifts those restrictions where the cable operator is
subject to effective competition. FCC regulations permit cable operators to
own and operate satellite master antenna television systems within their
franchise area, provided that their operation is consistent with local cable
franchise requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable
system from devoting more than 40% of its activated channel capacity to the
carriage of affiliated national video program services. Although the 1992
Cable Act also precluded any cable operator from serving more than 30% of all
U.S. domestic cable subscribers, this provision was stayed pending further
judicial review and FCC rulemaking. In May 2000, the U.S. Court of Appeals
for the D.C. Circuit struck down both of these provisions. The FCC is now
considering whether it can fashion new such laws to withstand judicial
review.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Must Carry/Retransmission Consent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The 1992 Cable Act contains broadcast signal carriage requirements. Broadcast
signal carriage is the transmission of broadcast television signals over a
cable system to cable customers. These requirements, among other things,
allow local commercial television broadcast stations to elect once every
three years between a must carry status or a retransmission consent
status; the next such three-year period commencing January 1, 2003 and ending
December 31, 2005. Less popular stations typically elect must carry, which is
the broadcast signal carriage requirement that allows local commercial
television broadcast stations to require a cable system to carry the station.
More popular stations, such as those affiliated with a national network,
typically elect retransmission consent, which is the broadcast signal
carriage requirement that allows local commercial television broadcast
stations to negotiate for payments for granting permission to the cable
operator to carry the stations. Must carry requests can dilute the appeal of
a cable systems programming offerings because a cable system with limited
channel capacity may be required to forego carriage of popular channels in
favor of less popular broadcast stations electing must carry. Retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse effect on the Companys business.
|
| |  | To date, compliance with the retransmission consent and must carry
provisions of the 1992 Cable Act has not had a material effect on the
Company, although these provisions may affect the operations of the Company
in the future, depending on factors as market conditions, the implementation
of digital broadcasts, channel capacity and similar matters when these
arrangements are renegotiated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The burden associated with must carry may increase substantially if
broadcasters proceed with conversion to digital transmission and the FCC
determines that cable systems must carry all analog and digital broadcasts in
their entirety. This burden would reduce capacity available for more popular
video programming and new Internet and telecommunication offerings. The FCC
initially ruled against the imposition of dual digital and analog must
carry rules, but is conducting a further factual inquiry into whether such
rules should be promulgated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Access Channels                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Local franchising authorities can include franchise provisions requiring
cable operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires cable systems to
designate a portion of their channel capacity, up to 15% in some cases, for
commercial leased access by unaffiliated third parties. The FCC
has adopted rules regulating the terms, conditions and maximum rates a cable
operator may charge for commercial leased access use. We believe that
requests for commercial leased access carriages have been relatively limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Access to Programming                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | To spur the development of independent cable programmers and competition to
incumbent cable operators, the 1992 Cable Act imposed restrictions on the
dealings between cable operators and cable programmers. Of special
significance from a competitive business posture, the 1992 Cable Act
precludes video programmers affiliated with cable companies from favoring
their cable operators over new competitors and requires these programmers to
sell their programming to other multichannel video distributors. This
provision limits the ability of vertically integrated cable programmers to
offer exclusive programming arrangements to cable companies. This
prohibition is scheduled to sunset in October 2002, subject to FCC review.
There also has been interest expressed in further restricting the marketing
practices of cable programmers, including subjecting programmers who are not
affiliated with cable operators to all of the existing program access
requirements, and subjecting terrestrially delivered programming to the
program access requirements. Terrestrially delivered programming is
programming delivered other than by satellite. These changes should not have
a dramatic impact on the Company, but would limit potential competitive
advantages the Company enjoys.                                                                                                                                                 

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##### Table of Contents





| |  | Inside Wiring; Subscriber Access                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In an order issued in 1997, the FCC established rules that require an
incumbent cable operator upon expiration of a multiple dwelling unit service
contract to sell, abandon, or remove home run wiring that was installed by
the cable operator in a multiple dwelling unit building. These inside wiring
rules are expected to assist building owners in their attempts to replace
existing cable operators with new programming providers who are willing to
pay the building owner a higher fee, where this fee is permissible. The FCC
has also proposed abrogating all exclusive multiple dwelling unit service
agreements held by incumbent operators, but allowing such contracts when held
by new entrants. In another proceeding, the FCC has preempted restrictions on
the deployment of private antenna on rental property within the exclusive use
of a tenant, such as balconies and patios. This ruling by the FCC may limit
the extent to which we along with multiple dwelling unit owners may enforce
certain aspects of multiple dwelling unit agreements which otherwise
prohibit, for example, placement of digital broadcast satellite receiver
antennae in multiple dwelling unit areas under the exclusive occupancy of a
renter. These developments may make it even more difficult for us to provide
service in multiple dwelling unit complexes.
|
| |  | Other Regulations of the Federal Communications Commission                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | In addition to the FCC regulations noted above, there are other FCC
regulations covering such areas as:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



| |  |  | equal employment opportunity,                              
| |  | - | -----------------------------------------------------------
|
| |  |  | subscriber privacy,                                        
|
| |  |  | programming practices, including, among other things,      
|
| |  |  | syndicated program exclusivity                             
|
| |  |  | network program nonduplication,                            
|
| |  |  | local sports blackouts,                                    
|
| |  |  | indecent programming,                                      
|
| |  |  | lottery programming,                                       
|
| |  |  | political programming,                                     
|
| |  |  | sponsorship identification,                                
|
| |  |  | childrens programming advertisements, and                 
|
| |  |  | closed captioning,                                         
|
| |  |  | registration of cable systems and facilities licensing,    
|
| |  |  | maintenance of various records and public inspection files,
|
| |  |  | aeronautical frequency usage,                              
|
| |  |  | lockbox availability,                                      
|
| |  |  | antenna structure notification,                            
|
| |  |  | tower marking and lighting,                                
|
| |  |  | consumer protection and customer service standards,        
|
| |  |  | technical standards,                                       

11



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| |  |  | consumer electronics equipment compatibility, and
| |  | - | -------------------------------------------------
|
| |  |  | emergency alert systems.                         



| |  | The FCC recently ruled that cable customers must be allowed to purchase
cable converters from third parties and established a multi-year phase-in
during which security functions, which would remain in the operators
exclusive control, would be unbundled from basic converter functions, which
could then be satisfied by third party vendors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders
and/or the imposition of other administrative sanctions, such as the
revocation of FCC licenses needed to operate certain transmission facilities
used in connection with cable operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Copyright                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Cable television systems are subject to federal copyright licensing
covering carriage of television and radio broadcast signals. In exchange for
filing certain reports and contributing a percentage of their revenues to a
federal copyright royalty pool, cable operators can obtain blanket permission
to retransmit copyrighted material included in broadcast signals. The
possible modification or elimination of this compulsory copyright license is
the subject of continuing legislative review and could adversely affect the
Companys ability to obtain desired broadcast programming. We cannot predict
the outcome of this legislative activity. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.                                                                                                                                                                                                                                                                    
|
| |  | Cable operators distribute locally originated programming and
advertising that use music controlled by major music performing rights
organizations, such as Broadcast Music, Inc. (BMI). The cable industry has
had a long series of negotiations and adjudications with certain of such
organizations. The Company recently entered into an agreement with BMI
setting forth, among other things, an agreed upon rate through 2004.
Although we cannot predict the ultimate outcome of other industry proceedings
or the amount of any license fees the Company may be required to pay for past
and future use of association-controlled music, we do not believe these
license fees will be significant to the Companys business and operations.                                                                                                                                                                                                                                                                                       
|
| |  | State and Local Regulation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Cable television systems generally are operated pursuant to nonexclusive
franchises granted by a municipality or other state or local government
entity in order to cross public rights-of-way. Federal law now prohibits
local franchising authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises. Cable franchises
generally are granted for fixed terms and in many cases include monetary
penalties for non-compliance and may be terminable if the franchisee failed
to comply with material provisions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | The specific terms and conditions of franchises vary materially between
jurisdictions. Each franchise generally contains provisions governing cable
operations, service rates, franchising fees, system construction and
maintenance obligations,
system channel capacity, design and technical performance, customer service
standards, and indemnification protections. A number of states, including
Connecticut, subject cable systems to the jurisdiction of centralized state
governmental agencies, some of which impose regulation of a character similar
to that of a public utility. Although local franchising authorities have
considerable discretion in establishing franchise terms, there are certain
federal limitations. For example, local franchising authorities cannot insist
on franchise fees exceeding 5% of the systems gross cable-related revenues,
cannot dictate the particular technology used by the system, and cannot
specify video programming other than identifying broad categories of
programming.
|
| |  | Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the local franchising authority may seek to impose new and more
onerous requirements such as significant upgrades in facilities and service
or increased franchise fees as a condition of renewal. Similarly, if a local
franchising authoritys consent is required for the purchase or sale of a
cable system or franchise, the local franchising authority may attempt to
impose more burdensome or onerous franchise requirements in connection with a
request for consent. Historically, most franchises have been renewed for and
consents granted to cable operators that have provided satisfactory services
and have complied with the terms of their franchise.                                                                                                                                                                                                         

12



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| |  | Under the 1996 Telecom Act, cable operators are not required to obtain
franchises for the provision of telecommunications services, and local
franchising authorities are prohibited from limiting, restricting, or
conditioning the provision of these services. In addition, local franchising
authorities may not require a cable operator to provide any
telecommunications service or facilities, other than institutional networks
under certain circumstances, as a condition of an initial franchise grant, a
franchise renewal, or a franchise transfer. The 1996 Telecom Act also
provides that franchising fees are limited to an operators cable-related
revenues and do not apply to revenues that a cable operator derives from
providing new telecommunications services.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------






| |  | ITEM 2.    PROPERTIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Companys cable television systems are located in and around
Stephenville, Marble Falls, Mexia and Navasota, Texas; Moses Lake and Port
Angeles, Washington; Clemson, Aiken and Greenwood, South Carolina; Highlands,
North Carolina; Statesboro, Georgia; and Yreka, Mount Shasta and Oakhurst,
California.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | A cable television system consists of three principal operating
components. The first component, known as the headend, receives television,
radio and information signals generally by means of special antennas and
satellite earth stations. The second component, the distribution network,
which originates at the headend and extends throughout the systems service
area, consists of microwave relays, coaxial or fiber optic cables and
associated electronic equipment placed on utility poles or buried
underground. The third component of the system is a drop cable, which
extends from the distribution network into each customers home and connects
the distribution system to the customers television set. An additional
component used in certain systems is the home terminal device, or converter,
that expands channel capacity to permit reception of more than twelve
channels of programming on a non-cable ready television set.                                                                                                                                               
|
| |  | The Companys principal physical assets consist of cable television
systems, including signal-receiving, encoding and decoding apparatus,
headends, distribution systems and subscriber house drop equipment for each
of its systems. The signal receiving apparatus typically includes a tower,
antennas, ancillary electronic equipment and earth stations for reception of
satellite signals. Headends, consisting of associated electronic equipment
necessary for the reception, amplification and modulation of signals,
typically are located near the receiving devices. The Companys distribution
systems consist primarily of coaxial cable and related electronic equipment.
As upgrades are completed, the systems will generally incorporate fiber optic
cable. Subscriber equipment consists of traps, house drops and, in some
cases, converters. The Company owns its distribution systems, various office
fixtures, test equipment and certain service vehicles. The physical
components of the systems require maintenance and periodic upgrading to keep
pace with technological advances.
|
| |  | The Companys cables are generally attached to utility poles under pole
rental agreements with local public utilities, although in some areas the
distribution cable is buried in trenches or placed in underground ducts. The
FCC regulates most pole attachment rates under the federal Pole Attachment
Act although in certain cases attachment rates are regulated by state law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The Company owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave complexes and business
offices. The Company believes that its properties, both owned and leased, are
in good condition and are suitable and adequate for the Companys business
operations as presently conducted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    






| |  | ITEM 3.    LEGAL PROCEEDINGS                                                                                                                                                                                                                                                                                                                      
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company is a party to ordinary and routine litigation proceedings that
are incidental to the Companys business. Management believes that the
outcome of all pending legal proceedings will not, individually or in the
aggregate, have a material adverse effect on the Company, its financial
condition, prospects and debt service ability.






| |  | ITEM 4.    SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
| |  | ------------------------------------------------------------
|
| |  | None.                                                       

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PART II






| |  | ITEM 5.    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                                                             
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (a)  There is no established public trading market for the Companys common
equity.                                                                                          
|
| |  | (b)  The Company has one common equity holder as of December 31, 2002.                                                                                                       
|
| |  | (c)  During 2002, the Company did not pay cash dividends and has no
intentions of paying cash dividends in the foreseeable future, due to
restrictions in its loan agreement.






| |  | ITEM 6.    SELECTED FINANCIAL DATA                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The data set forth below should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements included in Item 8.
Financial Statements and Supplementary Data.

|                                  |                        |   |            |  |      |   |            |   |      |   |                          |   |  |   |             |   |  |   |            |   |  |  |  |  | 
|--------------------------------- | ---------------------- | - | ---------- |  | ---- | - | ---------- | - | ---- | - | ------------------------ | - |  | - | ----------- | - |  | - | ---------- | - |  |  |  |  | 
|                                  |                        |   |            |  |      |   |            |   |      |   | Years ended December 31, |   |  |   |             |   |  |   |            |   |  |  | 
|                                  |                        |   | 2002 (1)   |  | 2001 |   | 2000       |   | 1999 |   | 1998                     |   |  |   |            
|                                  |                        |   |            |  |      |   |            |   |      |   |                          |   |  |   |            
|                                  | SUMMARY OF OPERATIONS: |   |            |  |      |   |            |   |      |   |                          |   |  |   |             |   |  |   |            |   | 
|Revenue                           |                        | $ | 62,276,784 |  |      | $ | 62,067,659 |   |      | $ | 60,507,984               |   |  | $ | 58,848,415  |   |  | $ | 56,002,667 |  
|Operating income                  |                        |   | 15,520,411 |  |      |   | 6,141,037  |   |      |   | 6,376,758                |   |  |   | 6,561,172   |   |  |   | 4,655,761  |  
|Net income (loss)                 |                        |   | 1,468,650  |  |      |   | (1,864,718 | ) |      |   | (14,268,443              | ) |  |   | (11,776,281 | ) |  |   | (7,758,291 | )
|Total comprehensive income (loss) |                        |   | 1,200,650  |  |      |   | (1,596,718 | ) |      |   | (14,268,443              | ) |  |   | (11,776,281 | ) |  |   | (7,758,291 | )



| |  | (1)  As of December 31, 2001, the Company discontinued amortization of its
franchise agreements and goodwill in accordance with SFAS No. 142.
Amortization of these items was $10,515,590 and 10,524,474 for the year
ended December 31, 2001 and 2000, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |                     |   |             |   |      |   |             |   |      |   |              |   |  |   |             |   |  |   |             |   |  |  |  |  | 
|--------------------- | ------------------- | - | ----------- | - | ---- | - | ----------- | - | ---- | - | ------------ | - |  | - | ----------- | - |  | - | ----------- | - |  |  |  |  | 
|                      |                     |   |             |   |      |   |             |   |      |   | December 31, |   |  |   |             |   |  |   |             |   |  |  | 
|                      |                     |   | 2002        |   | 2001 |   | 2000        |   | 1999 |   | 1998         |   |  |   |            
|                      |                     |   |             |   |      |   |             |   |      |   |              |   |  |   |            
|                      | BALANCE SHEET DATA: |   |             |   |      |   |             |   |      |   |              |   |  |   |             |   |  |   |             |   | 
|Total assets          |                     | $ | 121,181,353 |   |      | $ | 125,926,194 |   |      | $ | 135,997,674  |   |  | $ | 141,985,167 |   |  | $ | 156,586,254 |  
|Notes payable         |                     |   | 168,031,182 |   |      |   | 171,031,182 |   |      |   | 182,540,000  |   |  |   | 175,090,000 |   |  |   | 177,340,000 |  
|Total liabilities     |                     |   | 176,803,018 |   |      |   | 182,748,509 |   |      |   | 192,022,121  |   |  |   | 183,741,171 |   |  |   | 186,565,977 |  
|Shareholders deficit |                     |   | (55,621,665 | ) |      |   | (56,822,315 | ) |      |   | (56,024,447  | ) |  |   | (41,756,004 | ) |  |   | (29,979,723 | )



|                              |  |              |            |               |  |                |            |           |  |   |            |   |  |   |            |  
|----------------------------- |  | ------------ | ---------- | ------------- |  | -------------- | ---------- | --------- |  | - | ---------- | - |  | - | ---------- | -
|                              |  |              |            |               |  | Quarters Ended |            |           |  |  
|                              | 
|                              |  | December 31, |            | September 30, |  | June 30,       |            | March 31,
|                              |  | 2002         |            | 2002          |  | 2002           |            | 2002     
|                              |  |              |            |               |  |                |            |          
|Revenue                       |  | $            | 15,278,094 |               |  | $              | 15,301,621 |           |  | $ | 15,482,261 |   |  | $ | 15,214,808 |  
|Operating income              |  |              | 3,894,235  |               |  |                | 3,814,385  |           |  |   | 3,869,373  |   |  |   | 3,942,418  |  
|Gain (loss) on sale
of assets |  |              | 30,021     |               |  |                | (243,421   | )         |  |   | (10,052    | ) |  |   | (5,824     | )
|Net income (loss)             |  |              | 400,882    |               |  |                | 308,919    |           |  |   | 269,561    |   |  |   | 489,288    |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                              |  |              |            |               |  |                |            |           |  |   |            |   |  |   |            |  
|----------------------------- |  | ------------ | ---------- | ------------- |  | -------------- | ---------- | --------- |  | - | ---------- | - |  | - | ---------- | -
|                              |  |              |            |               |  | Quarters Ended |            |           |  |  
|                              | 
|                              |  | December 31, |            | September 30, |  | June 30,       |            | March 31,
|                              |  | 2001         |            | 2001          |  | 2001           |            | 2001     
|                              |  |              |            |               |  |                |            |          
|Revenue                       |  | $            | 15,683,176 |               |  | $              | 15,454,301 |           |  | $ | 15,524,527 |   |  | $ | 15,405,655 |  
|Operating income              |  |              | 1,206,240  |               |  |                | 1,502,413  |           |  |   | 1,710,917  |   |  |   | 1,721,467  |  
|Gain (loss) on sale
of assets |  |              | 12,731,008 |               |  |                | 43,704     |           |  |   | (12,194    | ) |  |   | (3,189     | )
|Net income (loss)             |  |              | 9,337,234  |               |  |                | (3,238,976 | )         |  |   | (3,003,921 | ) |  |   | (4,959,055 | )

14





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| |  | ITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | RESULTS OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | 2002 AND 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Basic subscribers decreased 5,669 or 5.0%, from 113,938 at December 31, 2001
to 108,269 at December 31, 2002. Revenues decreased $800,000 or 1.3%, from
$62.1 million to $61.3 million in 2002. Average monthly revenue per basic
subscriber increased $3.13 or 7.3%, from $42.92 to $46.05 for the year ended
December 31, 2002. On a pro forma basis, adjusting for the acquisition of
the Highlands, NC system and the disposition of the Bainbridge, WA system in
2001, revenues would have increased $1.7 million or 2.9%, from $59.6 million
to $61.3 million and revenue per average basic subscriber would have
increased $3.46 or 8.1%, from $42.59 to $46.05. This pro forma increase was
attributable to rate increases implemented in a majority of the Companys
systems during the year and increased penetration of new product tiers.          
|
| |  | Operating expenses, which include costs related to programming, technical
personnel, repairs and maintenance and advertising sales, increased
approximately $1.0 million or 4.5%, from $22.1 million to $23.1 million for
the year ended December 31, 2002. Operating expenses as a percentage of
revenues increased from 35.6% to 37.7% for the year ended December 31, 2002.
Such increase is primarily attributable to annual wage and benefit increases
and higher programming costs resulting from rate increases by certain
programming vendors and the launch of new programming services in various
systems. On a pro forma basis, operating expenses would have increased $2.0
million or 9.5%, from $21.1 million to $23.1 million and operating expenses
as a percentage of revenue would have increased from 35.4% to 37.7%.                       
|
| |  | General and administrative expenses, which include on-site office and
customer service personnel costs, customer billing, postage and marketing
expenses and franchise fees decreased approximately $1.1 million or 11.0%,
from $10.0 million to $8.9 million for the year ended December 31, 2002. The
results are due primarily to decreases in expenses associated with
accounting, legal and administrative services. On a pro forma basis, general
and administrative expenses would have decreased $700,000 or 7.3%, from $9.6
million to $8.9 million.                                                                                                                                                                                                                                                                                                  
|
| |  | Management fees decreased from $3.1 million to $3.0 million for the year
ended December 31, 2002. Such decrease was directly attributable to the
revenue decreases discussed above. Management fees are calculated at 5.0% of
gross revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Depreciation and amortization expense decreased approximately 48.3%, from
$20.7 million in 2001 to $10.7 million in 2002. The decrease is
primarily attributable to the Companys implementation of Statement of
Financial Accounting Standards (SFAS) No. 142  Goodwill and Other
Intangible Assets. As of December 31, 2001, the Company discontinued
amortizing its franchise agreements and goodwill resulting in a decrease
of approximately $10.5 million in amortization expense for the year
ended December 31, 2002. This is offset by depreciation and
amortization of plant, equipment and other intangible assets acquired
during 2002.                                                                                                                                                                                                        
|
| |  | Interest expense decreased approximately $2.6 million or 14.1%, from $18.5
million to $15.9 million for the year ended December 31, 2002. The Companys
average bank balance decreased from approximately $183.7 million in 2001 to
$170.1 million in 2002. In addition, the Companys effective interest rate
decreased from approximately 9.72% in 2001 to 8.95 % in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | 2001 AND 2000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Basic subscribers decreased 10,356 or 8.3%, from 124,294 at December 31, 2000
to 113,938 at December 31, 2001. On a pro forma basis, excluding the effects
of system sales and acquisitions, basic subscribers decreased 4.8%, from
119,721 at December 31, 2000 to 113,938 at December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Revenues increased $1.6 million or 2.6%, from $60.5 million to $62.1 million
in 2001. Average monthly revenue per basic subscriber increased $2.64 or
6.6%, from $40.28 to $42.92 for the year ended December 31, 2001. Such
increase was attributable to rate increases implemented in a majority of the
Companys systems during the year, revenue from the increase in penetration
of new product tiers, and the Highlands, North Carolina acquisition which
accounted for approximately $321,000 of the 2001 revenue increase. On a pro
forma basis, adjusting for the acquisition of the Highlands, NC System and
the disposition of the Bainbridge, WA system revenues would have increased
$1.1 million or
1.9%, from $58.5 million to $59.6 million and revenue per average basic
subscriber would have increased $2.65 or 6.6%, from $39.94 to $42.59.

15



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##### Table of Contents





| |  | Operating expenses increased approximately $1.1 million or 5.2%, from $21.0
million to $22.1 million for the year ended December 31, 2001. Operating
expenses as a percentage of revenues increased from 34.7% to 35.6% for the
year ended December 31, 2001. Such increase is primarily attributable to
annual wage and benefit increases, higher programming costs resulting from
rate increases by certain programming vendors and the launch of new
programming services in various systems and expenses associated with the
Highlands system acquisition. On a pro forma basis, operating expenses would
have increased $1.0 million or 5.0%, from $20.1 million to $21.1 million and
operating expenses as a percentage of revenue would have increased from 34.5%
to 35.5%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | General and administrative expenses decreased approximately $300,000 or 2.9%,
from $10.3 million to $10.0 million for the year ended December 31, 2001. The
results are due to decreases in expenses associated with accounting, legal
and administrative services off-set by increased expenses associated with the
Highlands system acquisition. On a pro forma basis, general and
administrative expenses would have decreased $400,000 or 4.0%, from $10
million to $9.6 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Management fees increased $100,000 or 3.3%, from $3.0 million to $3.1 million
for the year ended December 31, 2001. Such increase was directly attributable
to the revenue increases discussed above. Management fees are calculated at
5.0% of gross revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Depreciation and amortization expense increased approximately $900,000 or
4.5%, from $19.8 million to $20.7 million for the year ended December 31,
2001. Such increase is attributable to depreciation of recent equipment
purchases in upgrading plant and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Interest expense increased approximately $100,000 or .5%, from $18.4 million
to $18.5 million for the year ended December 31, 2001. The Companys average
bank balance increased from approximately $182.5 million in 2000 to $183.7
million in 2001. In addition, the Companys effective interest rate
increased from approximately 9.48% in 2000 to 9.72% in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | LIQUIDITY AND CAPITAL RESOURCES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | The cable television business generally requires substantial capital for
the construction, expansion, improvement and maintenance of the signal
distribution system. In addition, the Company has pursued, and intends to
pursue, a business strategy, which includes selective acquisitions. The
Company has financed these expenditures through a combination of cash flow
from operations and borrowings under the revolving credit and term loan
facility provided by a group of banks. For the years ended December 31, 2002,
2001 and 2000, the Companys net cash provided from operations was $9.1
million, $10.1 million and $8.5 million, respectively, all of which were
sufficient to meet the Companys debt service obligations and capital
expenditure requirements for the respective periods, excluding acquisitions.
Acquisitions of cable television systems during these periods primarily were
financed through bank borrowings. Based on amounts outstanding as of December
31, 2002, the Companys debt service obligations for the years ended December
31, 2003 and 2004 are expected to be approximately $16 million and $22
million, respectively. The Company believes that cash flow from operations
will be adequate to meet the Companys long-term liquidity requirements,
excluding acquisitions, prior to the maturity of its long-term indebtedness,
although no assurance can be given in this regard.
|
| |  | 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Net cash provided by operating activities was $9.1 million for the year
ended December 31, 2002. Adjustments to the $1.5 million net income for the
period to reconcile to net cash provided by operating activities consisted
primarily of $11.4 million of depreciation and amortization, off-set by $2.1
million in unrealized gains on interest rate swap agreements and changes in
other operating assets and liabilities of $1.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Net cash used in investing activities was $7.2 million for the year
ended December 31, 2002, and consisted primarily of $8.3 million in capital
expenditures off-set by $1.0 million in proceeds related to the disposition
of the Bainbridge Island, Washington system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Net cash used in financing activities was $3.0 million for the year
ended December 31, 2002, and consisted primarily of principal payments on
notes payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

16



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| |  | EBITDA decreased approximately $700,000 or 2.6%, from $26.9 million to
$26.2 million for the year ended December 31, 2002. On a pro forma basis,
adjusting for the 2001 acquisition of the Highlands system and disposition of
the Bainbridge system, EBITDA would have increased approximately $300,000 or
1.2% from $25.9 million to $26.2 million and EBITDA margin would have
decreased from 43.5% to 42.8% for the year ended December 31, 2002. The
aforementioned increases in revenues were offset by increased operating
expenses resulting from rate increases by certain programming vendors and the
launch of new programming services.                                                                                                                                                                                                                                                                              
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | EBITDA represents income from operations excluding the effect of
depreciation and amortization expense. EBITDA margin represents EBITDA as a
percentage of revenue. EBITDA is commonly used to analyze companies on the
basis of leverage and liquidity. However, EBITDA is not a measure determined
under generally accepted accounting principles, or GAAP, in the United States
and may not be comparable to similarly titled measures reported by other
companies. EBITDA should not be construed as a substitute for operating
income or as a better measure of liquidity than cash flow from operating
activities, which are determined in accordance with GAAP. We have presented
EBITDA to provide additional information with respect to our ability to meet
future debt service, capital expenditure and working capital requirements. A
reconciliation of net cash provided by operating activities to EBITDA
follows:

|                                                              |  |                         |            |      |  |      |            |   |  |   |            |   |  |  |  | 
|------------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | - |  |  |  | 
|                                                              |  | Year Ended December 31, |            |      |  |     
|                                                              |  |                         |            |      |  |     
|                                                              |  | 2002                    |            | 2001 |  | 2000 |            |   |  |  
|                                                              |  |                         |            |      |  |      |            |   |  |  
|Net cash provided by
operating activities                     |  | $                       | 9,122,769  |      |  | $    | 10,079,347 |   |  | $ | 8,538,557  |  
|Interest expense,
excluding amortization of
loan fees         |  |                         | 15,232,571 |      |  |      | 17,848,839 |   |  |   | 17,545,863 |  
|Changes in certain assets
and liabilities, net of
acquisition |  |                         | 1,862,492  |      |  |      | (1,104,756 | ) |  |   | 524,703    |  
|Other, net                                                    |  |                         | (23,227    | )    |  |      | 54,783     |   |  |   | (402,628   | )
|                                                              |  |                         |            |      |  |      |            |   |  |   |            |  
|EBITDA                                                        |  | $                       | 26,194,605 |      |  | $    | 26,878,213 |   |  | $ | 26,206,495 |  
|                                                              |  |                         |            |      |  |      |            |   |  |   |            |  



| |  | Senior Subordinated Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In November 1997, the Company issued $100 million of 10 -1/4% senior
subordinated notes due November 15, 2007. Proceeds from the offering were
utilized to pay transaction costs and reduce amounts outstanding under the
Companys Senior Credit Facility by $95 million. The indenture pursuant to
which the notes were issued will, among other things, limit the ability of
the Company and its subsidiaries to: (i) incur additional indebtedness or
issue preferred stock; (ii) make certain restricted payments as defined in
the indenture; (iii) grant liens on assets; (iv) merge, consolidate or
transfer substantially all of their assets; (v) enter into transactions with
certain related parties; (vi) make certain payments affecting subsidiaries;
(vii) sell assets; and (viii) issue capital stock of subsidiaries.
Additionally, the Company has agreed to restrictive covenants, which require
the maintenance of certain ratios, including a debt to annualized operating
cash flow ratio of 6.00 to 1. As of December 31, 2002, the Company was in
compliance with the terms of the Notes.
|
| |  | Revised Senior Credit Facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | On August 14, 2000, the Company refinanced its existing senior bank
indebtedness (the Revised Senior Credit Facility). The Revised Senior
Credit Facility establishes a 364-day revolving credit loan with a term-out
option in the aggregate principal amount of $35 million, a seven-year
revolving credit loan in the aggregate principal amount of $40 million and a
seven-year term loan in the aggregate principal amount of $35 million.
During 2001 the Company reduced the amount of unborrowed commitments under
the Revised Senior Credit Facility. At December 31, 2002 approximately $53
million was outstanding under term loans and approximately $15 million was
outstanding under the revolving credit loan. Amounts outstanding under the
Revised Senior Credit Facility mature on June 30, 2007. The Revised Senior
Credit Facility is collateralized by a first lien position on all present and
future assets and stock of the Company.                                                                                                                                                    
|
| |  | At the Companys election, the interest rate per annum applicable to the
Revised Senior Credit Facility is a fluctuating rate of interest measured by
reference to either: (i) an adjusted London interbank offered rate (LIBOR)
plus a borrowing margin; or (ii) the base rate of the managing agent bank
(the Base Rate), which Base Rate is equal to the greater of the Federal
Funds Effective Rate plus 0.50% or the corporate base rate announced by the
managing agent bank, plus a                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

17



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##### Table of Contents





| |  | borrowing margin. The applicable borrowing margins
vary, based upon the Companys leverage ratio, from 1.00% to 2.75% for LIBOR
loans and from 0.00% to 1.75% for Base Rate loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Revised Senior Credit Facility contains a number of covenants which,
among other things, require the Company to comply with specified financial
ratios and tests, including continuing maintenance, as tested on a quarterly
basis, of: (A) an interest coverage ratio (the ratio of Annualized Operating
Cash Flow (as defined) to interest expense) of at least 1.4 to 1.0 initially,
increasing over time to 2.0 to 1.0; (B) a fixed charge coverage ratio (the
rate of the Companys Annual Operating Cash Flow (as defined) to capital
expenditures and principal and interest payments) of at least 1.05 to 1.0
commencing January 1, 2003; (C) a pro forma debt service ratio (the ratio of
the Companys current Operating Cash Flow (as defined) to the Companys debt
service obligations for the following twelve months) of 1.25 to 1.0; and (D)
a leverage ratio (the ratio of total Debt (as defined) to Annualized
Operating Cash Flow) of not more than 6.75 to 1.0 initially, 6.00 at December
31, 2002, decreasing over time to 4.5 to 1.0. The Company expects that cash
provided from operations will be sufficient to cover its future debt service
obligations and debt covenant requirements.
|
| |  | At December 31, 2002, the outstanding balance under the Revised Senior
Credit Facility was $68,031,182. Interest rates on the Revised Senior Credit
Facility were as follows: $27,000,000 fixed at 5.668% under the terms of an
interest rate swap with the Companys lender expiring February 20, 2003;
$20,000,000 at a LIBOR based rate of 4.25% expiring on February 20, 2003;
$14,926,398 at a LIBOR based rate of 3.92% expiring on January 21, 2003;
$5,518,386 at a LIBOR based rate of 4.19% expiring on February 18, 2003;
$586,398 at a LIBOR based rate of 3.92% expiring on January 21, 2003. The
above rates include a margin paid to the lender based on overall leverage and
may increase or decrease as the Companys overall leverage fluctuates.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Obligations and Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | In addition to working capital needs for ongoing operations, the Company has
capital requirements for (i) annual maturities and interest payments related
to the term loan and (ii) required minimum operating lease payments. The
following table summarizes the Companys contractual obligations as of
December 31, 2002 and the anticipated effect of these obligations on its
liquidity in future years:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



|                                                                                     |  |      |            |      |  |                        |            |      |  |   |            |  |  |   |            | 
|------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- |  | ---------------------- | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                                                                                     |  |      |            |      |  | Expected Maturity Date |            |      |  |  
|                                                                                     |  |     
|                                                                                     |  | 2003 |            | 2004 |  | 2005                   |            | 2006
|                                                                                     |  |      |            |      |  |                        |            |     
|Debt maturity                                                                        |  | $    | 2,775,920  |      |  | $                      | 8,327,756  |      |  | $ | 11,103,676 |  |  | $ | 19,581,913 | 
|Interest payments (weighted average
interest rate of 8.016% as of
December 31, 2002) |  |      | 13,628,021 |      |  |                        | 13,175,414 |      |  |   | 12,140,434 |  |  |   | 10,332,269 | 
|Minimum operating lease payments                                                     |  |      | 91,150     |      |  |                        | 74,296     |      |  |   | 55,331     |  |  |   | 44,663     | 
|                                                                                     |  |      |            |      |  |                        |            |      |  |   |            |  |  |   |            | 
|Total contractual cash obligations (a)                                               |  | $    | 16,495,091 |      |  | $                      | 21,577,466 |      |  | $ | 23,299,441 |  |  | $ | 29,958,845 | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                     |  |                        |             |            |  |       |        |  |  |   |             | 
|------------------------------------------------------------------------------------ |  | ---------------------- | ----------- | ---------- |  | ----- | ------ |  |  | - | ----------- | 
|                                                                                     |  | Expected Maturity Date
|                                                                                     |  |                       
|                                                                                     |  | 2006                   |             | Thereafter |  | Total
|                                                                                     |  |                        |             |            |  |      
|Debt maturity                                                                        |  | $                      | 126,241,917 |            |  | $     |       |  |  | $ | 168,031,182 | 
|Interest payments (weighted average
interest rate of 8.016% as of
December 31, 2002) |  |                        | 8,532,578   |            |  |       |       |  |  |   | 57,808,716  | 
|Minimum operating lease payments                                                     |  |                        | 37,006      |            |  |       | 53,831 |  |  |   | 356,277     | 
|                                                                                     |  |                        |             |            |  |       |        |  |  |   |             | 
|Total contractual cash obligations (a)                                               |  | $                      | 134,811,501 |            |  | $     | 53,831 |  |  | $ | 226,196,175 | 



| |  | (a)    These contractual obligations do not include accounts payable and
accrued liabilities, which are expected to be paid in 2003.                                                                                                                                                                                                                                                                                                                      
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Capital Expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | For the year ended December 31, 2002, the Company had capital expenditures of
approximately $8.3 million excluding acquisitions. Capital expenditures
included: (i) expansion and improvements of cable properties including new
product digital launches; (ii) additions to plant and equipment; (iii)
maintenance of existing equipment; (iv) cable line drops and extensions and
installations of cable plant facilities; and (v) vehicle replacements.
|
| |  | The Company plans to invest approximately $5.6 million in capital
expenditures for 2003. This represents anticipated expenditures for upgrading
and rebuilding certain distribution facilities, continued new product digital
deployment, extensions of distribution facilities to add new subscribers and
vehicle replacements. It is expected that cash flow from operations will be
sufficient to fund planned capital expenditures.                   

18



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##### Table of Contents





| |  | SYSTEM SALE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On March 11, 2003, the Company sold the operating assets and franchise rights
of its cable system serving the community of Port Angeles, Washington, which
served approximately 5,700 basic subscribers to Wave Division Networks, LLC.
The system was sold at a purchase price of approximately $11,400,000. Net
proceeds from the transaction were used to repay amounts outstanding under
the Companys Revised Senior Credit Facility, and effectively reduce the
required principal payments and managements estimate of debt service
obligations over the remaining term of the facility. The required principal
payments due in 2003 have been reduced by approximately $390,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | CRITICAL ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | This discussion and analysis of our financial condition and results of
operations is based on the Companys financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The following critical accounting policies, which have been
chosen among alternatives, require a more significant amount of
management judgment than other accounting policies the Company employs.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Cable television service revenue, including service and maintenance, is
recognized in the month service is provided to customers. Advance
payments on cable services to be rendered are recorded as subscriber
prepayments. Revenues resulting from the sale of local spot advertising
are recognized when the related advertisements or commercials appear
before the public.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Property and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Property and equipment are recorded at cost. Costs of additions and
substantial improvements, which include materials, labor, and other
indirect costs associated with the construction of cable transmission
and distribution facilities, are capitalized. Indirect costs include
employee salaries and benefits, travel and other costs. These costs are
estimated based on historical information and analysis. The Company
periodically performs evaluations of these estimates as warranted by
events or changes in circumstances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | In accordance with SFAS No. 51, Financial Reporting by Cable Television
Companies, the Company also capitalizes costs associated with initial
customer installations. The costs of disconnecting service or
reconnecting service to previously installed locations is expensed in
the period incurred. Costs for repairs and maintenance are also charged
to operating expense, while equipment replacements are capitalized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 required that the Company cease
amortization of goodwill and any other intangible assets determined to
have indefinite lives, and established a new method of testing these
assets for impairment on an annual basis or on an interim basis if an
event occurs or circumstances change that would reduce the fair value of
a reporting unit below its carrying value or if the fair value of
intangible assets with indefinite lives falls below their carrying value
on an annual basis. The amortization of existing goodwill ceased on
December 31, 2001. The Company determined that its franchise agreements
met the definition of indefinite lived assets due to the history of
obtaining franchise renewals, among other considerations. Accordingly,
amortization of these assets ceased on December 31, 2001. The Company
tested these intangibles for impairment as of January 1, 2002 and again
during the fourth quarter of 2002 and determined that the fair value of
the assets exceeded their carrying value. The Company will continue to
test these assets for impairment annually, or more frequently as
warranted by events or changes in circumstances.
|
| |  | Management believes the franchises have indefinite lives because the
franchises are expected to be used by the Company for the foreseeable
future and effects of obsolescence, competition and other factors are
minimal. In addition, the level of maintenance expenditures required to
obtain the future cash flows expected from the franchises are not
material in
relation to the carrying value of the franchises. While the franchises have
defined lives based on the franchising authority, renewals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

19



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| |  | are routinely
granted, and management expects them to continue to be granted, without
substantial cost. This expectation is supported by managements experience
with the Companys franchising authorities and the franchising authorities of
the Companys affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Statement of Financial Accounting Standards No. 143                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | In September 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in
which it is incurred. The associated asset retirement costs are capitalized
as part of the carrying amount of the long-lived asset. Statement No. 143
will be effective for the Company beginning January 1, 2003. The Company has
not yet estimated the impact of implementation on its financial position or
results of operations.                                                                                                                                                                                                                                               
|
| |  | Statement of Financial Accounting Standards No. 145                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS No. 145 provides for the rescission of several
previously issued accounting standards (including the treatment of loss on
extinguishment of debt), new accounting guidance for the accounting for
certain lease modifications and various technical corrections that are not
substantive in nature to existing pronouncements. SFAS No. 145 will be
effective beginning January 1, 2003, except for the provisions relating to
the amendment of SFAS No. 13, which will be effective for transactions
occurring subsequent to May 15, 2002. Adoption of SFAS No. 145 will not have
a material impact on the Companys financial statements.
|
| |  | Statement of Financial Accounting Standards No. 146                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | In September 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be
recognized at fair value when the liability is incurred and is effective for
exit or disposal activities that are initiated after December 31, 2002.
Adoption of SFAS No. 146 will not have a material impact on the Companys
financial statements.                                                                                                                                                                                                                                                                                                                                    
|
| |  | FASB Interpretation No. 45                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | In November 2002, the FASB issued FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. The interpretation
establishes disclosure requirements for December 31, 2002 financial
statements for companies that make certain types of guarantees. Beginning in
2003, the interpretation requires that companies record the fair value of
certain types of guarantees as a liability in the financial statements. The
Company has reviewed the interpretation and has concluded that its 2002
disclosures are adequate and does not expect the interpretation to have a
material impact on the Companys financial position or results of operations
in 2003.                                                  
|
| |  | ECONOMIC CONDITIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Historically, the effects of inflation have been considered in determining to
what extent rates will be increased for various services provided. It is
expected that the future rate of inflation will continue to be a significant
variable in determining rates charged for services provided, subject to the
provisions of the 1996 Telecom Act. Because of the deregulatory nature of
the 1996 Telecom Act, the Company does not expect the future rate of
inflation to have a material adverse impact on operations.                                                                                                                                                                                                                                                                                      
|
| |  | TRANSACTIONS WITH RELATED PARTIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Management Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The Company pays management fees to NTC equal to 5% of NCTVs gross revenues,
excluding revenues from the sale of cable television systems or franchises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

20



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##### Table of Contents





| |  | Reimbursements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | NTC provides or causes to be provided certain centralized services to the
Company and other affiliated entities. NTC is entitled to reimbursement from
the Company for various expenses incurred by it or its affiliates on behalf
of the Company allocable to its management of the Company, including travel
expenses, pole and site rental, lease payments, legal expenses, billing
expenses, insurance, governmental fees and licenses, headquarters supplies
and expenses, pay television expenses, equipment and vehicle charges,
operating salaries and expenses, administrative salaries and expenses,
postage and office maintenance. NTC has historically assigned its
reimbursement rights to NCC. In addition, Northland Cable Service
Corporation (NCSC), an affiliate of the Parent, was formed to provide billing
system support to cable systems owned and managed by the Parent. Further,
NCSC provides technical support associated with the build out and upgrade of
Northland affiliated cable systems. Cable Ad Concepts, a subsidiary of NCSC,
assists in the development of local advertising as well as billing for video
commercial advertisements to be cablecast on Northland affiliated cable
systems.
|
| |  | The amounts billed to the Company are based on costs incurred by affiliates
in rendering the services. The costs of certain services are allocated to
the Company, based upon the personnel time spent by the employees rendering
the service. The cost of other services is allocated to the Company and
affiliates based upon relative size and revenue. NTC has, from time to time,
reduced the amount of costs allocated to the Company, to the extent the
allocated costs would result in noncompliance with debt covenants.
Management believes that the combination of management fees and allocated
costs shown in the accompanying consolidated statements of operations exceed
direct costs for all periods presented. The Company reflected $269,527,
$869,582 and $1,903,306 of expenses on the accompanying statements of
operations for these services for the years ended December 31, 2002, 2001,
and 2000, respectively.                                                                                                                                                                                                                                                                                         
|
| |  | The Company has operating management agreements with affiliated entities
managed by NCC. Under the terms of these agreements, the Company or an
affiliate serves as the managing agent for certain cable television systems
and is reimbursed for certain operating, administrative, and programming
expenses. The Company paid $175,163, $90,098, and $84,526, net, under the
terms of these agreements during 2002, 2001, and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Certain Business Relationships                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | John E. Iverson, a Director and Assistant Secretary of the Company, is a
member of the law firm of Ryan, Swanson & Cleveland P.L.L.C., which has
rendered and is expected to continue to render legal services to the Company
and its affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 






| |  | ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company is subject to market risks arising from changes in interest
rates. The Companys primary interest rate exposure results from
changes in LIBOR or the prime rate, which are used to determine the
interest rate applicable to the Companys Revised Senior Credit
Facility. As of December 31, 2002, the Company had entered into one
interest rate swap agreement for $27.0 million to partially mitigate
interest rate exposure. Interest rate swap agreements have the effect
of converting the applicable variable rate obligations to fixed or other
variable rate obligations. The potential loss over one year that would
result from a hypothetical, instantaneous and unfavorable change of 100
basis points in the interest rate of all the Companys variable rate
obligations would be approximately $680,000, of which, approximately
$270,000 would be mitigated by interest rate swap agreements in place as
of December 31, 2002.
|
| |  | The Company does not use financial instruments for trading or other
speculative purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   




| |  | ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                                                                          
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The audited consolidated financial statements of the Company for the years
ended December 31, 2002, 2001 and 2000 are included as a part of this filing
(see Item 15 (a) below).






| |  | ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Previous Independent Accountant                                                                                                                                       
|
| |  | The Company dismissed Arthur Andersen LLP as its independent auditor on
July 10, 2002. The decision to dismiss Arthur Andersen was approved by the
Board of Directors.

21



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| |  | During the two most recent fiscal years and through July 10, 2002, there
were no disagreements with Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or procedure which, if not resolved to Arthur Andersens satisfaction,
would have caused Arthur Andersen to make reference to the subject matter
in connection with its report on the Companys financial statements for
such years; and there were no reportable events as defined in Item
304(a)(1)(v) of Regulation S-K. Arthur Andersens reports on the financial
statements of the Company for 2000 did not contain an adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope, or accounting principles.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company requested that Arthur Andersen provide a currently dated letter
confirming its agreement with the above statements. Arthur Andersen
informed the Company that, because of Arthur Andersens current situation,
it is unable to provide such letter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | New Independent Accountant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | On July 10, 2002, the Company engaged KPMG LLP as the firm of independent
auditors to audit the Companys financial statements for the fiscal year
ending December 31, 2002. The decision to engage KPMG was approved by the
Board of Directors. During the period from January 2000 to April 1, 2002,
The Company did not consult KPMG regarding (i) the application of
accounting principles to a specified transaction, either completed or
proposed, that was an important factor the Company considered in reaching a
decision on an accounting, auditing, or financial reporting issue, or the
type of audit opinion that might be rendered on our financial statements,
or (ii) any matter that was the subject of either a disagreement                                             

22



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##### Table of Contents






PART III






| |  | ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following table sets forth certain information concerning directors and
executive officers of the Company, none of whom are compensated by the
Company for their respective services to the Company and all but one of whom
devotes a substantial amount of his time to the affairs of affiliated
entities other than the Company. Each director holds office until the next
annual meeting of shareholders or until his successor is elected or appointed
and qualified.

|                  |  |     |    |          |  |                                                                      
|----------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------------
|NAME              |  | AGE |    | POSITION
|                  |  |     |    |         
|John S. Whetzell  |  |     | 61 |          |  | Director, Chairman of the Board and Chief Executive Officer          
|Richard I. Clark  |  |     | 45 |          |  | Director, Executive Vice President, Treasurer and
Assistant Secretary
|Gary S. Jones     |  |     | 45 |          |  | President                                                            
|Richard J. Dyste  |  |     | 57 |          |  | Senior Vice President, Technical Services                            
|R. Gregory Ferrer |  |     | 47 |          |  | Vice President and Assistant Treasurer                               
|H. Lee Johnson    |  |     | 59 |          |  | Divisional Vice President                                            
|John E. Iverson   |  |     | 66 |          |  | Director and Secretary                                               
|Matthew J. Cryan  |  |     | 38 |          |  | Vice President, Budgets and Planning                                 
|Rick J. McElwee   |  |     | 41 |          |  | Vice President, Controller                                           



| |  | JOHN S. WHETZELL (AGE 61). Mr. Whetzell is the founder of Northland
Communications Corporation, its Chief Executive Officer and has been a
Director since March 1982. Mr. Whetzell became Chairman of the Board of
Directors in December 1984. He also serves as Chief Executive Officer and
Chairman of the Board of Northland Telecommunications Corporation and each of
its subsidiaries. He has been involved with the cable television industry for
over 28 years. Between March 1979 and February 1982 he was in charge of the
Ernst & Whinney national cable television consulting services. Mr. Whetzell
first became involved in the cable television industry when he served as the
Chief Economist of the Cable Television Bureau of the Federal Communications
Commission (FCC) from May 1974 to February 1979. He provided economic studies
to support the deregulation of cable television both in federal and state
arenas. He participated in the formulation of accounting standards for the
industry and assisted the FCC in negotiating and developing the pole
attachment rate formula for cable television. His undergraduate degree is in
economics from George Washington University, and he has an MBA degree from
New York University.                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | JOHN E. IVERSON (AGE 66). Mr. Iverson is the Secretary of Northland
Communications Corporation and has served on the Board of Directors since
December 1984. He also is the Secretary and serves on the Board of Directors
of Northland Telecommunications Corporation and each of its subsidiaries. He
is currently a member in the law firm of Ryan, Swanson & Cleveland, P.L.L.C.
He is a member of the Washington State Bar Association and American Bar
Association and has been practicing law for more than 40 years. Mr. Iverson
is the past President and a Trustee of the Pacific Northwest Ballet
Association. Mr. Iverson has a Juris Doctor degree from the University of
Washington.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | RICHARD I. CLARK (AGE 45). Mr. Clark is an original incorporator of Northland
Communications Corporation and serves as Executive Vice President, Assistant
Secretary and Assistant Treasurer of Northland Communications Corporation.
He also serves as Vice President, Assistant Secretary and Treasurer of
Northland Telecommunications Corporation. Mr. Clark has served on the Board
of Directors of both Northland Communications Corporation and Northland
Telecommunications Corporation since July 1985. In addition to his other
responsibilities, Mr. Clark is responsible for the administration and
investor relations activities of Northland, including financial planning and
corporate development. From July 1979 to February 1982, Mr. Clark was
employed by Ernst & Whinney in the area of providing cable television
consultation services and has been involved with the cable television
industry for nearly 24 years. He has directed cable television feasibility
studies and on-site market surveys. Mr. Clark has assisted in the design and
maintenance of financial and budget computer programs, and he has prepared
documents for major cable television companies in franchising and budgeting
projects through the application of these programs. In 1979, Mr. Clark
graduated cum laude from Pacific Lutheran University with a Bachelor of Arts
degree in accounting.
|
| |  | GARY S. JONES (AGE 45). Mr. Jones is the President of Northland
Telecommunications Corporation and each of its subsidiaries. Mr. Jones
joined Northland in March 1986 and had previously served as Vice President
and Chief Financial Officer for Northland. Mr. Jones is responsible for cash
management, financial reporting and banking relations for
Northland and is involved in the acquisition and financing of new cable
systems. Prior to joining Northland, Mr. Jones was                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

23



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##### Table of Contents





| |  | employed as a Certified
Public Accountant with Laventhol & Horwath from 1980 to 1986. Mr. Jones
received his Bachelor of Arts degree in Business Administration with a major
in accounting from the University of Washington in 1979.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | RICHARD J. DYSTE (AGE 57). Mr. Dyste serves as Senior Vice
President-Technical Services of Northland Telecommunications Corporation and
each of its subsidiaries. He joined Northland in April 1986. Mr. Dyste is
responsible for planning and advising all Northland cable systems with regard
to technical performance as well as system upgrades and rebuilds. He is a
past president of the Mt Rainier chapter and a current member of the Society
of Cable Telecommunications Engineers, Inc. Mr. Dyste joined Northland in
1986 as an engineer and served as Operations Consultant to Northland
Communications Corporation from August 1986 until April 1987. From 1977 to
1985, Mr. Dyste owned and operated Bainbridge TV Cable. He is a graduate of
Washington Technology Institute.                                                                                                                                                                                    
|
| |  | H. LEE JOHNSON (AGE 59). Mr. Johnson has served as Divisional Vice President
for Northland since March 1994. He is responsible for the management of
systems serving subscribers in Alabama, Georgia, Mississippi, North Carolina
and South Carolina. Prior to his association with Northland he served as
Regional Manager for Warner Communications, managing four cable systems in
Georgia from 1968 to 1973. Mr. Johnson has also served as President of
Sunbelt Finance Corporation and was employed as a System Manager for
Statesboro CATV when Northland purchased the system in 1986. Mr. Johnson has
been involved in the cable television industry for over 33 years and is a
current member of the Society of Cable Television Engineers. He is a graduate
of Swainsboro Technical Institute and has attended numerous training
seminars, including courses sponsored by Jerrold Electronics, Scientific
Atlanta, The Society of Cable Television Engineers and CATA.
|
| |  | R. GREGORY FERRER (AGE 47). Mr. Ferrer joined Northland in March 1984 as
Assistant Controller and currently serves as Vice President and Treasurer of
Northland Communications Corporation. Mr. Ferrer also serves as Vice
President and Assistant Treasurer of Northland Telecommunications
Corporation. Mr. Ferrer is responsible for coordinating all of Northlands
property tax filing, insurance requirements and system programming contracts
as well as interest rate management and other treasury functions. Prior to
joining Northland, he was a Certified Public Accountant at Benson &
McLaughlin, a local public accounting firm, from 1981 to 1984. Mr. Ferrer
received his Bachelor of Arts in Business Administration from Washington
State University with majors in marketing in 1978 and accounting and finance
in 1981.                                                                                                                                     
|
| |  | MATTHEW J. CRYAN (AGE 38).
Mr. Cryan is Vice President - Budgets and
Planning and has been with Northland since September 1990. Mr. Cryan is
responsible for the development of current and long-term operating budgets
for all Northland entities. Additional responsibilities include the
development of financial models used in support of acquisition financing,
analytical support for system and regional managers, financial performance
monitoring and reporting and programming analysis and supervision of all
billing related matters of Northland. Prior to joining Northland, Mr. Cryan
was employed as an analyst with NKV Corp., a securities litigation support
firm located in Redmond, Washington. Mr. Cryan graduated from the University
of Montana in 1988 with honors and holds a Bachelor of Arts in Business
Administration with a major in finance.                                                                                                    
|
| |  | RICK J. MCELWEE (AGE 41). Mr. McElwee is Vice President and Controller for
Northland. He joined Northland in May 1987 as System Accountant and was
promoted to Assistant Controller of Northland Cable Television, Inc. in 1993.
Mr. McElwee became Divisional Controller of Northland Telecommunications
Corporation in 1997 and in January 2001, he was promoted to Vice President
and Controller of Northland Telecommunications Corporation. Mr. McElwee is
responsible for managing all facets of the accounting and financial reporting
process for Northland. Prior to joining Northland, he was employed as an
accountant with Pay n Save Stores, Inc., a regional drugstore chain. Mr.
McElwee graduated from Central Washington University in 1985 and holds a
Bachelor of Science in Business Administration with a major in accounting.                                                                                                                             






| |  | ITEM 11.    EXECUTIVE COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | None of the employees of the Company are deemed to be executive officers
of the Company. Services of the executive officers and other employees of NTC
are provided to the Company for which the Company pays NTC a fee pursuant to
the Management Agreement and overhead reimbursements. The executive officers
and other employees of NTC who provide services to the Company are
compensated in their capacity as executive officers and employees of NTC and
therefore receive no compensation from the Company. No portion of the
management fee paid by the Company is allocated to specific employees for the
services performed by such employees.

24



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##### Table of Contents





| |  | DIRECTOR COMPENSATION                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------
|
| |  | The Company does not currently compensate members of its Board of Directors
for their services as directors.






| |  | ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (a) CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Security ownership of
management as of December 31, 2002 is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The Company is a wholly owned subsidiary of Northland Telecommunication
Corporation, a Washington corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The following table sets forth certain information with respect to the
beneficial ownership of common stock of NTC as of the date of this filing by:
(i) each person who is known by the Company to beneficially own 5% or more of
the outstanding shares of common stock of NTC; (ii) each director of the
Company; (iii) each executive officer of the Company; and (iv) the Companys
executive officers and directors as a group. The address of each such person
is in care of the Company, 101 Stewart Street, Suite 700, Seattle, Washington
98101.

|                                                |  |                     |           |                     |  |  |      |   |  |  |  | 
|----------------------------------------------- |  | ------------------- | --------- | ------------------- |  |  | ---- | - |  |  |  | 
|                                                |  | NUMBER OF           |           | PERCENTAGE OF       |  |  |      |  
|                                                |  | SHARES BENEFICIALLY |           | SHARES BENEFICIALLY |  |  |      |  
|BENEFICIAL OWNER                                |  | OWNED               |           | OWNED               |  |  |      |  
|                                                |  |                     |           |                     |  |  |      |  
|John S. Whetzell                                |  |                     | 1,011,624 |                     |  |  | 22.5 | %
|Adele P. Butler                                 |  |                     | 530,000   |                     |  |  | 11.8 | %
|Pamela B. McCabe                                |  |                     | 510,144   |                     |  |  | 11.4 | %
|Robert M. Arnold                                |  |                     | 384,000   |                     |  |  | 8.6  | %
|Richard I. Clark                                |  |                     | 313,933   |                     |  |  | 7.0  | %
|Robert A. Mandich                               |  |                     | 278,400   |                     |  |  | 6.2  | %
|Gary S. Jones                                   |  |                     | 53,773    |                     |  |  | 1.2  | %
|John E. Iverson                                 |  |                     | 50,000    |                     |  |  | 1.1  | %
|Richard J. Dyste                                |  |                     | 31,149    |                     |  |  | *    |  
|H. Lee Johnson                                  |  |                     | 24,245    |                     |  |  | *    |  
|R. Gregory Ferrer                               |  |                     | 11,372    |                     |  |  | *    |  
|Matthew J. Cryan                                |  |                     | 5,693     |                     |  |  | *    |  
|Rick J. McElwee                                 |  |                     | 5,000     |                     |  |  | *    |  
|All executive officers and directors as a group |  |                     |           |                     |  |  |      |  
|(ten persons)                                   |  |                     | 1,506,789 |                     |  |  | 33.5 | %



---

| |  | *     Represents less than 1% of the shares beneficially owned.                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (b)  CHANGES IN CONTROL. NTC has pledged the stock of the Company as
collateral pursuant to the terms of the Companys Revised Senior Credit
Facility.

25



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##### Table of Contents








| |  | ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (a)    TRANSACTIONS WITH MANAGEMENT AND OTHERS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Company is part of an affiliated group of corporations and limited
partnerships controlled, directly or indirectly, by NTC (the NTC
Affiliates). NTC, in turn, is owned by the individuals and in the
percentages set forth in the table above. In addition to the Company, NTC has
three other direct, wholly owned subsidiaries: Northland Communications
Corporation (NCC); Northland Cable Services Corporation (NCSC); and
Northland Media, Inc. (NMI). In turn, NCC is the sole shareholder of
Northland Cable Properties, Inc. (NCPI) and is the managing general partner
of Northland Cable Properties Seven Limited Partnership (NCP-7) and
Northland Cable Properties Eight Limited Partnership (NCP-8). NCC is also
the managing member of Northland Cable Networks, LLC (NCN LLC). In
addition, NCPI is the majority member and manager of Northland Cable
Ventures, LLC (NCV), NCSC is the sole shareholder of Cable Ad-Concepts,
Inc. (CAC) and NMI is the sole shareholder of Statesboro Media, Inc. and
Corsicana Media, Inc. Each of the Companys directors is also a director of
NTC and each of its wholly-owned direct subsidiaries and certain other NTC
Affiliates and the Companys officers are also officers of certain of the NTC
Affiliates.
|
| |  | MANAGEMENT AGREEMENT WITH NTC AND AFFILIATES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | NTC currently supervises all aspects of the business and operations of the
Company pursuant to an Operating Management Agreement between the Company and
NTC dated August 23, 1994 (the Management Agreement). The Management
Agreement continues in effect until terminated by either party on 30-days
written notice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | The Management Agreement provides that NTC shall render or cause to be
rendered supervisory services to the Company, including, among other things
supervising and monitoring: (i) the affairs, management and operations of the
Company and its systems; (ii) the accounting and other financial books and
records of the Company and its systems; (iii) the hiring, training and
supervision of the Companys employees; and (iv) the Companys fulfillment of
its contractual obligations in connection with its systems. In return for its
management services, NTC receives a management fee, payable monthly, equal to
5.0% of the Companys gross revenues (the Management Fee). For the years
ended December 31, 2002, 2001 and 2000, the Company paid a Management Fee of
$3.1 million, $3.1 million and $3.0 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | NTC provides or causes to be provided certain centralized services to the
Company and other affiliated entities. NTC is entitled to reimbursement from
the Company for various expenses incurred by it or its affiliates on behalf
of the Company allocable to its management of the Company, including travel
expenses, pole and site rental, lease payments, legal expenses, billing
expenses, insurance, governmental fees and licenses, headquarters supplies
and expenses, pay television expenses, equipment and vehicle charges,
operating salaries and expenses, administrative salaries and expenses,
postage and office maintenance. NTC has historically assigned its
reimbursement rights to NCC. In addition, Northland Cable Service
Corporation (NCSC), an affiliate of the Parent, was formed to provide billing
system support to cable systems owned and managed by the Parent. Further,
NCSC provides technical support associated with the build out and upgrade of
Northland affiliated cable systems. Cable Ad Concepts, a subsidiary of NCSC,
assists in the development of local advertising as well as billing for video
commercial advertisements to be cablecast on Northland affiliated cable
systems.                                                              
|
| |  | The amounts billed to the Company are based on costs incurred by affiliates
in rendering the services. The costs of certain services are allocated to
the Company, based upon the personnel time spent by the employees rendering
the service. The cost of other services is allocated to the Company and
affiliates based upon relative size and revenue. NTC has, from time to time,
reduced the amount of costs allocated to the Company, to the extent the
allocated costs would result in noncompliance with debt covenants.
Management believes that the combination of management fees and allocated
costs shown in the accompanying consolidated statements of operations exceed
direct costs for all periods presented. The Company reflected $269,527,
$869,582 and $1,903,306 of expenses on the accompanying statements of
operations for these services for the years ended December 31, 2002, 2001,
and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                       
|
| |  | ARRANGEMENTS BETWEEN NORTHLAND CABLE NEWS, INC. AND AFFILIATES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Pursuant to an arrangement, which commenced in July 1994, Northland Cable
News, Inc. receives monthly program license fees from the Company as well as
NCP-7, NCPI and NCV as payment for Northland Cable News programming provided
to such affiliates. The aggregate amount of such fees is based upon costs
incurred in providing such programming, and is allocated among the
Participating Affiliates based upon relative subscriber counts. Total license
fees
received from affiliates for the year ended December 31, 2000, were $363,475.
As of January 2001 the Company ceased operations of NCN.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

26



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##### Table of Contents





| |  | OPERATING AGREEMENTS WITH AFFILIATES                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company has operating management agreements with affiliated entities
managed by NCC. Under the terms of these agreements, the Company or an
affiliate serves as the managing agent for certain cable television systems
and is reimbursed for certain operating, administrative, and programming
expenses. The Company paid $175,163, $90,098, and $84,526, net, under the
terms of these agreements during 2002, 2001, and 2000, respectively.
|
| |  | (b)  CERTAIN BUSINESS RELATIONSHIPS. John E. Iverson, a Director and Assistant
Secretary of the Company, is a member of the law firm of Ryan, Swanson &
Cleveland P.L.L.C., which has rendered and is expected to continue to render
legal services to the Company and its affiliates.                                                                                                                                                             
|
| |  | (c)  INDEBTEDNESS OF MANAGEMENT. None.                                                                                                                                                                                                                                                                                                                                                                                                             






| |  | ITEM 14.    CONTROLS AND PROCEDURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Within 90 days prior to the date of filing this report, an evaluation was
performed under the supervision and with the participation of the
Companys management, including the Chief Executive Officer and
President (Principal Financial and Accounting Officer), of the
effectiveness of the design and operation of the Companys disclosure
controls and procedures (as defined in Rule 13a-14(c) of the Exchange
Act). Based on and as of the time of such evaluation, the Companys
management, including the Chief Executive Officer and President
(Principal Financial and Accounting Officer), concluded that the
Companys disclosure controls and procedures were effective in timely
alerting them to material information relating to the Company required
to be included in the Companys reports filed or submitted by it under
the Exchange Act. There have been no significant changes in the
Companys internal controls or in other factors that could significantly
affect internal controls subsequent to the time of such evaluation.

27



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##### Table of Contents






PART IV






|ITEM15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
|---------------------------------------------------------------------------

|                                                                                                                  |  |             
|----------------------------------------------------------------------------------------------------------------- |  | ------------
|                                                                                                                  |  | SEQUENTIALLY
|                                                                                                                  |  | NUMBERED    
|                                                                                                                  |  | PAGE        
|(a) FINANCIAL STATEMENTS:                                                                                         |  |             
|Independent Auditors Report                                                                                      |  | F-1         
|Report of Prior Independent Public Accountants                                                                    |  | F-2         
|Consolidated Balance SheetsDecember 31, 2002 and 2001                                                            |  | F-3         
|Consolidated Statements of Operations and Comprehensive Income (Loss) for the years
ended December 31, 2002, 2001 |  | F-5         
|Consolidated Statements of Changes in Shareholders Deficit for
the years ended December 31, 2002, 2001 and 2000  |  | F-6         
|Consolidated Statements of Cash Flows for the years
ended December 31, 2002, 2001 and 2000                        |  | F-7         
|Notes to Financial StatementsDecember 31, 2002                                                                   |  | F-9         



|(b) | REPORTS ON FORM 8-K :                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------
|   
|    | Form 8-K filed on March 25, 2003 announcing the sale of the
Port Angeles, Washington systems to Wave Division Networks,
LLC
|   
|(c) | EXHIBITS:                                                                                                                  

|         |  |                                                                                                                                                  
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|99  (a). |  | Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|         |  |                                                                                                                                                  
|99  (b). |  | Certification of the President Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002          

28



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##### Table of Contents






SIGNATURES



| |  | Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |                                                                     
| |  | --------------------------------------------------------------------
| |  | NORTHLAND CABLE TELEVISION, INC.                                    
| |  |                                                                     
| |  | By   /s/             
            
            
    John S. Whetzell
| |  |                                                                     
| |  | John S. Whetzell, Chief Executive Officer                           

Date:     3/31/03



| |  | Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             |  |                                                                       |  |        
|---------------------------- |  | --------------------------------------------------------------------- |  | -------
|SIGNATURES                   |  | CAPACITIES                                                            |  | DATE   
|                             |  |                                                                       |  |        
|                             |  |                                                                       |  |        
|/s/         John S. Whetzell |  |                                                                       |  |        
|                             |  | Director, Chairman of the Board and
Chief Executive Officer           |  | 3-31-03
|John S. Whetzell             |  |                                                                       |  |        
|                             |  |                                                                       |  |        
|/s/         Richard I. Clark |  |                                                                       |  |        
|                             |  | Director, Executive Vice President, Treasurer
and Assistant Secretary |  | 3-31-03
|Richard I. Clark             |  |                                                                       |  |        
|                             |  |                                                                       |  |        
|/s/         Gary S. Jones    |  |                                                                       |  |        
|                             |  | President                                                             |  | 3-31-03
|Gary S. Jones                |  |                                                                       |  |        
|                             |  |                                                                       |  |        
|/s/         John E. Iverson  |  |                                                                       |  |        
|                             |  | Director and Secretary                                                |  | 3-31-03
|John E. Iverson              |  |                                                                       |  |        

29



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##### Table of Contents






CERTIFICATIONS

I, Gary Jones certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Northland Cable
Television, Inc. and Subsidiary;                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                



| |  | a) | Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) | Evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| |  | c) | Presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and board of
directors:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a) | All significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants
auditors any material weakness in internal controls; and
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) | Any fraud, whether or not material that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                       



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Date: 3-31-03                                                                                                                                                                                                                                                                                                                                                          

|    |                                                                    | 
|--- | ------------------------------------------------------------------ | 
|/s/ | GARY S. JONES                                                      | 
|    |                                                                    | 
|    | Gary S. JonesPresident(Principal Financial and Accounting Officer) | 

30



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##### Table of Contents



I, John Whetzell certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Northland Cable
Properties Television, Inc. and Subsidiary;                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                



| |  | a) | Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) | Evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| |  | c) | Presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and board of
directors:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a) | All significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants
auditors any material weakness in internal controls; and
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) | Any fraud, whether or not material that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                       



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Date: 3-31-03                                                                                                                                                                                                                                                                                                                                                          

|    |                                         | 
|--- | --------------------------------------- | 
|/s/ | JOHN S. WHETZELL                        | 
|    |                                         | 
|    | John S. WhetzellChief Executive Officer | 

31





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##### Table of Contents



Independent Auditors Report

The Shareholder
Northland Cable Television, Inc.:

We have audited the accompanying consolidated balance sheets of Northland Cable
Television, Inc. and subsidiary (a Washington Corporation and wholly owned
subsidiary of Northland Telecommunications Corporation) as of December 31, 2002
and 2001, and the related consolidated statements of operations and
comprehensive income (loss), changes in shareholders deficit, 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. The
2000 consolidated financial statements of Northland Cable Television, Inc. and
subsidiary were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those consolidated financial
statements, before the revision described in note 2 to the 2002 consolidated
financial statements, in their 2000 report dated February 23, 2001.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the 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 2002 and 2001 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Northland Cable Television, Inc. and subsidiary as of December 31, 2002 and
2001, and the 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.

As discussed above, the 2000 consolidated financial statements of Northland
Cable Television, Inc. and subsidiary were audited by other auditors who have
ceased operations. As described in note 2, these consolidated financial
statements have been revised to include the transitional disclosures required
by Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, which was adopted by the Company as of January 1, 2002. In
our opinion, the disclosures for 2000 in note 2 are appropriate. However, we
were not engaged to audit, review, or apply any procedures to the 2000
consolidated financial statements of Northland Cable Television, Inc. and
subsidiary other than with respect to such disclosures and, accordingly, we do
not express an opinion or any other form of assurance on the 2000 consolidated
financial statements taken as a whole.

|        
|--------
|/s/ KPMG

Seattle, Washington
February 14, 2003, except as to note 12, which is as of March 11, 2003

F.1



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##### Table of Contents



Report of Prior Independent Public Accountants

To the Shareholder of
Northland Cable Television, Inc.:

We have audited the accompanying consolidated balance sheets of Northland Cable
Television, Inc. (a Washington corporation and a wholly owned subsidiary of
Northland Telecommunications Corporation) and subsidiary as of December 31,
2000 and 1999, and the related consolidated statements of operations, changes
in shareholders deficit and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Northland Cable Television,
Inc. and subsidiary as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.

|                       
|-----------------------
|/s/ Arthur Andersen LLP

Seattle, Washington
February 23, 2001

This audit report of Arthur Andersen LLP, our former independent public
accountants, is a copy of the original report dated February 23, 2001 rendered
by Arthur Andersen LLP on our consolidated financial statements included in our
Form 10-K filed on March 30, 2001, and has not been reissued by Arthur Andersen
LLP since that date. We are including this copy of the February 23, 2001 Arthur
Andersen LLP audit report pursuant to Rule 2-02 (e) of Regulation S-X under the
Securities Act of 1933.

F.2



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Consolidated Balance Sheets

December 31, 2002 and 2001

|                                                                                                     |                                                                       |                               |                                                 |             |             |             |            |             |             |             | 
|---------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------- | ----------------------------------------------- | ----------- | ----------- | ----------- | ---------- | ----------- | ----------- | ----------- | 
|Assets                                                                                               |                                                                       | 2002                          |                                                 | 2001       
|                                                                                                     |                                                                       |                               |                                                 |            
|Current assets:                                                                                      |                                                                       |                               |                                                 |             |             |             |            |            
|                                                                                                     | Cash and cash equivalents                                             |                               | $                                               | 1,666,097   |             |             |            | 2,724,099   |            
|                                                                                                     | Due from Parent and affiliates                                        |                               |                                                 | 796,464     |             |             |            | 295,650     |            
|                                                                                                     | Accounts receivable                                                   |                               |                                                 | 2,684,548   |             |             |            | 3,437,560   |            
|                                                                                                     | Prepaid expenses                                                      |                               |                                                 | 457,409     |             |             |            | 547,480     |            
|                                                                                                     |                                                                       |                               |                                                 |             |             |             |            |            
|                                                                                                     |                                                                       |                               | Total current assets                            |             |             | 5,604,518   |            |             |             | 7,004,789   | 
|                                                                                                     |                                                                       |                               |                                                 |             |             |             |            |            
|Investment in cable television properties:                                                           |                                                                       |                               |                                                 |             |             |             |            |            
|                                                                                                     | Property and equipment, at cost                                       |                               |                                                 | 118,081,523 |             |             |            | 110,755,761 |            
|                                                                                                     |                                                                       | Less accumulated depreciation |                                                 |             | (63,160,487 | )           |            |             | (53,518,610 | )          
|                                                                                                     |                                                                       |                               |                                                 |             |             |             |            |            
|                                                                                                     |                                                                       |                               | 54,921,036                                      |             |             |             | 57,237,151 |            
|                                                                                                     | Franchise agreements (net of accumulated amortization of
$48,279,931) |                               |                                                 | 53,393,281  |             |             |            | 53,384,986  |            
|                                                                                                     | Goodwill (net of accumulated amortization of $2,407,104)              |                               |                                                 | 3,937,329   |             |             |            | 3,937,329   |            
|                                                                                                     |                                                                       |                               |                                                 |             |             |             |            |            
|                                                                                                     |                                                                       |                               | Total investment in
cable television
properties |             |             | 112,251,646 |            |             |             | 114,559,466 | 
|                                                                                                     |                                                                       |                               |                                                 |             |             |             |            |            
|Loan fees (net of accumulated amortization of $2,650,564
and $1,970,213, respectively)               |                                                                       |                               | 3,188,581                                       |             |             |             | 3,861,735  |            
|Other intangible assets (net of accumulated amortization of
$3,765,621 and $3,402,025, respectively) |                                                                       |                               | 136,608                                         |             |             |             | 500,204    |            
|                                                                                                     |                                                                       |                               |                                                 |             |             |             |            |            
|                                                                                                     |                                                                       |                               | Total assets                                    |             | $           | 121,181,353 |            |             |             | 125,926,194 | 
|                                                                                                     |                                                                       |                               |                                                 |             |             |             |            |            

(Continued)

F.3



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Consolidated Balance Sheets

December 31, 2002 and 2001

|                                      |                                         |                                                                 |                                             |             |            |             |             |             |            |             |  
|------------------------------------- | --------------------------------------- | --------------------------------------------------------------- | ------------------------------------------- | ----------- | ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | -
|Liabilities and Shareholders Deficit |                                         | 2002                                                            |                                             | 2001       
|                                      |                                         |                                                                 |                                             |            
|Current liabilities:                  |                                         |                                                                 |                                             |             |            |             |             |            
|                                      | Accounts payable                        |                                                                 | $                                           | 650,757     |            |             |             | 1,103,869   |           
|                                      | Subscriber prepayments                  |                                                                 |                                             | 2,121,413   |            |             |             | 1,898,112   |           
|                                      | Accrued expenses                        |                                                                 |                                             | 5,525,890   |            |             |             | 6,395,484   |           
|                                      | Converter deposits                      |                                                                 |                                             | 125,179     |            |             |             | 157,534     |           
|                                      | Due to affiliates                       |                                                                 |                                             | 228,220     |            |             |             | 242,741     |           
|                                      | Interest rate swap agreements           |                                                                 |                                             | 120,377     |            |             |             | 1,919,587   |           
|                                      | Current portion of notes payable        |                                                                 |                                             | 2,775,920   |            |             |             |            |           
|                                      |                                         |                                                                 |                                             |             |            |             |             |            
|                                      |                                         |                                                                 | Total current liabilities                   |             |            | 11,547,756  |             |             |            | 11,717,327  |  
|Notes payable, net of current portion |                                         |                                                                 | 165,255,262                                 |             |            |             | 171,031,182 |            
|                                      |                                         |                                                                 |                                             |             |            |             |             |            
|                                      |                                         |                                                                 | Total liabilities                           |             |            | 176,803,018 |             |             |            | 182,748,509 |  
|                                      |                                         |                                                                 |                                             |             |            |             |             |            
|Commitments and contingencies         |                                         |                                                                 |                                             |             |            |             |             |            
|Shareholders deficit:                |                                         |                                                                 |                                             |             |            |             |             |            
|                                      | Common stock (par value $1.00 per share |                                                                 |                                             |             |            |             |             |             |           
|                                      |                                         | Authorized 50,000 shares; 10,000 shares issued and outstanding) |                                             |             |            |             |             |             |            |            
|                                      |                                         | and additional paid-in capital                                  |                                             |             | 12,359,377 |             |             |             | 12,359,377 |            
|                                      | Accumulated other comprehensive income  |                                                                 |                                             |            |            |             |             | 268,000     |           
|                                      | Accumulated deficit                     |                                                                 |                                             | (67,981,042 | )          |             |             | (69,449,692 | )         
|                                      |                                         |                                                                 |                                             |             |            |             |             |            
|                                      |                                         |                                                                 | Total shareholders deficit                 |             |            | (55,621,665 | )           |             |            | (56,822,315 | )
|                                      |                                         |                                                                 |                                             |             |            |             |             |            
|                                      |                                         |                                                                 | Total liabilities and shareholders deficit |             | $          | 121,181,353 |             |             |            | 125,926,194 |  
|                                      |                                         |                                                                 |                                             |             |            |             |             |            

See accompanying notes to consolidated financial statements.

F.4



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Consolidated Statements of Operations and Comprehensive Income (Loss)

Years ended December 31, 2002, 2001, and 2000

|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |             |   |             |  
|---------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------- | ----------- | ---- | ---------- | ---- | ----------- | - | ---------- | - | ----------- | - | ----------- | -
|                                   |                                                                                                                                                      |  |                                             |             | 2002 |            | 2001 | 2000        |  
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |  
|Revenues:                          |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   | Service revenues                                                                                                                                     |  | $                                           | 61,276,784  |      |            |      | 62,067,659  |   |            |   | 60,144,509  |  
|                                   | Programming and production revenues from
affiliates                                                                                                  |  |                                             |            |      |            |      |            |   |            |   | 363,475     |  
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   |                                                                                                                                                      |  | Total revenues                              |             |      | 61,276,784 |      |             |   | 62,067,659 |   |             |   | 60,507,984  |  
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|Operating expenses:                |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   | Cable system operations (including $335,276,
$221,840, and $305,673, net paid to affiliates),
excluding depreciation and amortization recorded below |  |                                             | 23,121,769  |      |            |      | 22,119,572  |   |            |   | 20,950,091  |  
|                                   | General and administrative (including
$109,414, $737,840, and $1,682,160, net,
paid to affiliates)                                                   |  |                                             | 8,896,571   |      |            |      | 9,966,491   |   |            |   | 10,348,509  |  
|                                   | Management fees paid to Parent                                                                                                                       |  |                                             | 3,063,839   |      |            |      | 3,103,383   |   |            |   | 3,002,889   |  
|                                   | Depreciation and amortization                                                                                                                        |  |                                             | 10,674,194  |      |            |      | 20,737,176  |   |            |   | 19,829,737  |  
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   |                                                                                                                                                      |  | Total operating expenses                    |             |      | 45,756,373 |      |             |   | 55,926,622 |   |             |   | 54,131,226  |  
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   |                                                                                                                                                      |  | Income from operations                      |             |      | 15,520,411 |      |             |   | 6,141,037  |   |             |   | 6,376,758   |  
|Other income (expense):            |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   | Interest expense and amortization of loan fees                                                                                                       |  |                                             | (15,912,922 | )    |            |      | (18,522,714 | ) |            |   | (18,364,730 | )
|                                   | Unrealized gain (loss) on interest rate swap
agreements                                                                                              |  |                                             | 2,067,210   |      |            |      | (2,187,587  | ) |            |   |            |  
|                                   | (Loss) gain on disposal of assets                                                                                                                    |  |                                             | (229,276    | )    |            |      | 12,759,329  |   |            |   | (590,156    | )
|                                   | Other, net                                                                                                                                           |  |                                             | 23,227      |      |            |      | (54,783     | ) |            |   | 402,628     |  
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   |                                                                                                                                                      |  | Net income (loss) before extraordinary
item |             |      | 1,468,650  |      |             |   | (1,864,718 | ) |             |   | (12,175,500 | )
|Extraordinary item:                |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   | Loss on extinguishment of debt                                                                                                                       |  |                                             |            |      |            |      |            |   |            |   | (2,092,943  | )
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   |                                                                                                                                                      |  | Net income (loss)                           |             | $    | 1,468,650  |      |             |   | (1,864,718 | ) |             |   | (14,268,443 | )
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|Other comprehensive (loss) income: |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   | Cumulative effect of change in accounting
principle                                                                                                  |  |                                             |            |      |            |      | 689,000     |   |            |   |            |  
|                                   | Reclassification of accumulated other
comprehensive income to unrealized gain (loss) on interest rate swap agreements                                |  |                                             | (268,000    | )    |            |      | (421,000    | ) |            |   |            |  
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   |                                                                                                                                                      |  | Other comprehensive (loss) income           |             |      | (268,000   | )    |             |   | 268,000    |   |             |   |            |  
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            
|                                   |                                                                                                                                                      |  | Total comprehensive income (loss)           |             | $    | 1,200,650  |      |             |   | (1,596,718 | ) |             |   | (14,268,443 | )
|                                   |                                                                                                                                                      |  |                                             |             |      |            |      |             |   |            |   |            

See accompanying notes to consolidated financial statements.

F.5



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Consolidated Statements of Changes in Shareholders Deficit

Years ended December 31, 2002, 2001, and 2000

|                           |                                              |             |        |                 |                     |             |            |         |   |         |         |          |         |  |             |             |            |   |             |             |            |  
|-------------------------- | -------------------------------------------- | ----------- | ------ | --------------- | ------------------- | ----------- | ---------- | ------- | - | ------- | ------- | -------- | ------- |  | ----------- | ----------- | ---------- | - | ----------- | ----------- | ---------- | -
|                           |                                              |             |        | Common stock    |                     |             |            |         |   |         |         |          |         |  |             |            
|                           |                                              |             |        | and additional  |                     |             |            |         |   |         |         |          |         | 
|                           |                                              |             |        | paid-in capital |                     | Accumulated |            |         |   |         |         |         
|                           |                                              |             |        |                 | other comprehensive | Accumulated |            |         |   |        
|                           |                                              |             |        | Shares          |                     | Amount      |            | income  |   | deficit |         | Total   
|                           |                                              |             |        |                 |                     |             |            |         |   |         |         |         
|Balance, December 31, 1999 |                                              |             | 10,000 |                 |                     | $           | 11,560,527 |         |   |         |        |          |         |  | (53,316,531 | )           |            |   | (41,756,004 | )          
|                           | Net loss                                     |             |        |                |                     |             |            |        |   |         |         |         |         |  |             | (14,268,443 | )          |   |             | (14,268,443 | )         
|                           |                                              |             |        |                 |                     |             |            |         |   |         |         |          |         |  |             |             |            |   |             |            
|Balance, December 31, 2000 |                                              |             | 10,000 |                 |                     |             | 11,560,527 |         |   |         |        |          |         |  | (67,584,974 | )           |            |   | (56,024,447 | )          
|                           | Equity contribution
in-kind from Parent      |             |        |                |                     |             |            | 798,850 |   |         |         |         |         |  |             |            |            |   |             | 798,850     |           
|                           | Net loss and other comprehensive             |             |        |                 |                     |             |            |         |   |         |         |          |         |  |             |             |            |   |             |             |           
|                           |                                              | income, net |        |                 |                    |             |            |         |  |         |         |          | 268,000 |  |             |             | (1,864,718 | ) |             |             | (1,596,718 | )
|                           |                                              |             |        |                 |                     |             |            |         |   |         |         |          |         |  |             |             |            |   |             |            
|Balance, December 31, 2001 |                                              |             | 10,000 |                 |                     |             | 12,359,377 |         |   |         | 268,000 |          |         |  | (69,449,692 | )           |            |   | (56,822,315 | )          
|                           | Net income and other comprehensive
loss, net |             |        |                |                     |             |            |        |   |         |         | (268,000 | )       |  |             | 1,468,650   |            |   |             | 1,200,650   |           
|                           |                                              |             |        |                 |                     |             |            |         |   |         |         |          |         |  |             |             |            |   |             |            
|Balance, December 31, 2002 |                                              |             | 10,000 |                 |                     | $           | 12,359,377 |         |   |         |        |          |         |  | (67,981,042 | )           |            |   | (55,621,665 | )          
|                           |                                              |             |        |                 |                     |             |            |         |   |         |         |          |         |  |             |             |            |   |             |            

See accompanying notes to consolidated financial statements.

F.6



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Consolidated Statements of Cash Flows

Years ended December 31, 2002, 2001, and 2000

|                                      |                                                                                           |                                                                 |                 |                                                     |            |            |            |             |             |           |            |             |            |   |             |  
|------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------------------- | --------------- | --------------------------------------------------- | ---------- | ---------- | ---------- | ----------- | ----------- | --------- | ---------- | ----------- | ---------- | - | ----------- | -
|                                      |                                                                                           |                                                                 |                 |                                                     |            | 2002       |            | 2001        |             | 2000     
|                                      |                                                                                           |                                                                 |                 |                                                     |            |            |            |             |             |          
|Cash flows from operating activities: |                                                                                           |                                                                 |                 |                                                     |            |            |            |             |             |           |            |            
|                                      | Net income (loss)                                                                         |                                                                 | $               | 1,468,650                                           |            |            |            | (1,864,718  | )           |           |            | (14,268,443 | )         
|                                      | Adjustments to reconcile net income (loss) to
 net cash provided by operating activities: |                                                                 |                 |                                                     |            |            |            |             |             |           |            |             |           
|                                      |                                                                                           | Depreciation and amortization                                   |                 |                                                     | 10,674,194 |            |            |             | 20,737,176  |           |            |             | 19,829,737 |  
|                                      |                                                                                           | Amortization of loan costs                                      |                 |                                                     | 680,351    |            |            |             | 673,875     |           |            |             | 818,867    |  
|                                      |                                                                                           | Loss on extinguishment of debt                                  |                 |                                                     |           |            |            |             |            |           |            |             | 2,092,943  |  
|                                      |                                                                                           | Loss (gain) on disposal of assets                               |                 |                                                     | 229,276    |            |            |             | (12,759,329 | )         |            |             | 590,156    |  
|                                      |                                                                                           | Unrealized (gain) loss on interest rate                         |                 |                                                     |            |            |            |             |             |           |            |             |            |  
|                                      |                                                                                           |                                                                 | swap agreements |                                                     |            | (2,067,210 | )          |             |             | 2,187,587 |            |             |            |  |            
|                                      |                                                                                           | Changes in certain assets and liabilities,
net of  acquisition: |                 |                                                     |            |            |            |             |             |           |            |             |           
|                                      |                                                                                           |                                                                 |                 | Due to/from affiliates                              |            |            | (515,335   | )           |             |           | 1,053,288  |             |            |   | (978,229    | )
|                                      |                                                                                           |                                                                 |                 | Accounts receivable                                 |            |            | (473,076   | )           |             |           | (19,146    | )           |            |   | 38,671      |  
|                                      |                                                                                           |                                                                 |                 | Prepaid expenses                                    |            |            | 90,071     |             |             |           | 31,593     |             |            |   | (56,137     | )
|                                      |                                                                                           |                                                                 |                 | Accounts payable                                    |            |            | (285,504   | )           |             |           | 412,588    |             |            |   | (171,026    | )
|                                      |                                                                                           |                                                                 |                 | Subscriber prepayments                              |            |            | 223,301    |             |             |           | 159,036    |             |            |   | (280,286    | )
|                                      |                                                                                           |                                                                 |                 | Other current liabilities, net                      |            |            | (901,949   | )           |             |           | (532,603   | )           |            |   | 922,304     |  
|                                      |                                                                                           |                                                                 |                 |                                                     |            |            |            |             |             |           |            |            
|                                      |                                                                                           |                                                                 |                 | Net cash provided by operating
activities           |            |            | 9,122,769  |             |             |           | 10,079,347 |             |            |   | 8,538,557   |  
|                                      |                                                                                           |                                                                 |                 |                                                     |            |            |            |             |             |           |            |            
|Cash flows from investing activities: |                                                                                           |                                                                 |                 |                                                     |            |            |            |             |             |           |            |            
|                                      | Acquisition of cable systems                                                              |                                                                 |                 |                                                    |            |            |            | (3,855,373  | )           |           |            | (3,100,000  | )         
|                                      | Investment in property and equipment                                                      |                                                                 |                 | (8,262,327                                          | )          |            |            | (13,103,679 | )           |           |            | (9,816,559  | )         
|                                      | Proceeds from disposition of cable systems                                                |                                                                 |                 | 1,017,457                                           |            |            |            | 18,526,332  |             |           |            |            |           
|                                      | Proceeds from disposal of assets                                                          |                                                                 |                 | 79,591                                              |            |            |            | 78,885      |             |           |            | 98,007      |           
|                                      | Franchise fees and other intangibles                                                      |                                                                 |                 | (8,295                                              | )          |            |            |            |             |           |            | (138,426    | )         
|                                      |                                                                                           |                                                                 |                 |                                                     |            |            |            |             |             |           |            |            
|                                      |                                                                                           |                                                                 |                 | Net cash (used in) provided by
investing activities |            |            | (7,173,574 | )           |             |           | 1,646,165  |             |            |   | (12,956,978 | )
|                                      |                                                                                           |                                                                 |                 |                                                     |            |            |            |             |             |           |            |            

(Continued)

F.7



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Consolidated Statements of Cash Flows

Years ended December 31, 2002, 2001, and 2000

|                                                  |                                          |                                                     |           |            |            |      |           |             |             |   |           |             |           | 
|------------------------------------------------- | ---------------------------------------- | --------------------------------------------------- | --------- | ---------- | ---------- | ---- | --------- | ----------- | ----------- | - | --------- | ----------- | --------- | 
|                                                  |                                          |                                                     |           | 2002       |            | 2001 |           | 2000       
|                                                  |                                          |                                                     |           |            |            |      |           |            
|Cash flows from financing activities:             |                                          |                                                     |           |            |            |      |           |             |             |   |           |            
|                                                  | Proceeds from notes payable              |                                                     | $         |           |            |      |           | 6,800,000   |             |   |           | 85,640,000  |          
|                                                  | Principal payments on notes payable, net |                                                     |           | (3,000,000 | )          |      |           | (18,308,818 | )           |   |           | (77,955,103 | )        
|                                                  | Loan fees                                |                                                     |           | (7,197     | )          |      |           | (44,020     | )           |   |           | (2,081,101  | )        
|                                                  |                                          |                                                     |           |            |            |      |           |             |             |   |           |            
|                                                  |                                          | Net cash (used in) provided by
financing activities |           |            | (3,007,197 | )    |           |             | (11,552,838 | ) |           |             | 5,603,796 | 
|                                                  |                                          |                                                     |           |            |            |      |           |             |             |   |           |            
|                                                  |                                          | (Decrease) increase in cash                         |           |            | (1,058,002 | )    |           |             | 172,674     |   |           |             | 1,185,375 | 
|Cash and cash equivalents, beginning of year      |                                          |                                                     | 2,724,099 |            |            |      | 2,551,425 |             |             |   | 1,366,050 |            
|                                                  |                                          |                                                     |           |            |            |      |           |             |             |   |           |            
|Cash and cash equivalents, end of year            |                                          | $                                                   | 1,666,097 |            |            |      | 2,724,099 |             |             |   | 2,551,425 |            
|                                                  |                                          |                                                     |           |            |            |      |           |             |             |   |           |            
|Supplemental disclosure of cash flow information: |                                          |                                                     |           |            |            |      |           |             |             |   |           |            
|                                                  | Cash paid for interest                   |                                                     | $         | 15,764,020 |            |      |           | 17,678,819  |             |   |           | 16,515,395  |          
|                                                  | Cash paid for state income taxes         |                                                     |           | 10,573     |            |      |           | 3,192       |             |   |           | 25,136      |          
|                                                  |                                          |                                                     |           |            |            |      |           |             |             |   |           |            
|Supplemental disclosure of noncash activities:    |                                          |                                                     |           |            |            |      |           |             |             |   |           |            

| |  | In association with the acquisition of the cable television systems in 2001, the Company assumed certain
capital balances related to the accounts receivable, prepaid expenses, accrued expenses,
deposits, and subscriber prepayments. The Company also received an in-kind equity contribution from its
Parent in the amount of $798,850.
A hold back note of approximately $1,000,000 was held in escrow until June of 2002 related to the 2001
sale of the Bainbridge Island system.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

F.8



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

(1)    Organization and Significant Accounting Policies



| | (a) |  | Formation and Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Northland Cable Television, Inc. (NCTV), a Washington corporation, was
formed to own and operate cable television systems. As of December 31,
2002, NCTV had 88 nonexclusive franchises to operate cable television
systems. These franchises expire at various dates through 2022.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | Northland Cable News, Inc. (NCN), a Washington corporation, which was
formed to develop and distribute programming to certain of the Companys
affiliated entities, is a wholly owned subsidiary of NCTV. NCN ceased its
operations as of January 1, 2001. NCTV and NCN are collectively referred to
as the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |     |  | The Company is subject to certain risks as a cable television operator.
These include competition from alternative technologies (e.g., satellite),
requirements to renew its franchises, availability of capital and note
payable covenants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (b) |  | Related Companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     |  | The Company and its affiliates, Northland Communications Corporation and
subsidiary (NCC); Northland Cable Services Corporation and subsidiary
(NCSC); and Northland Media, Inc. and subsidiaries (NMI) are wholly owned
subsidiaries of Northland Telecommunications Corporation (NTC or Parent).
NCC is the managing general partner of two limited partnerships, and is the
managing member of Northland Cable Networks, LLC (the LLC), all of which
own and operate cable television systems. Additionally, NCC owns and
operates cable systems through its wholly owned subsidiary, Northland Cable
Properties, Inc. (NCPI). Northland Cable Ventures, LLC, is a majority-owned
subsidiary of NCPI which was formed to own and operate cable television
systems. NCSC is the parent company of Cable Ad-Concepts, Inc. (CAC). NCSC
provides billing services and technical support to cable systems owned by
the limited partnerships and the LLC, which are managed by NCC, and wholly
owned systems of the Company and NCC. CAC develops and produces video
commercial advertisements to be cablecast on Northland affiliated cable
systems. NMI was formed as a holding company to own and operate AM radio
stations.

(2)    Summary of Significant Accounting Policies



| | (a) |  | Principles of Consolidation                                                                                                                                                                                                                                                            
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The consolidated financial statements include the accounts of NCTV and
its wholly owned subsidiary, NCN. All significant intercompany accounts
and transactions have been eliminated.                                                                                                  
|
| | (b) |  | Acquisition of Cable Television Systems                                                                                                                                                                                                                                                
|
| |     |  | Cable television system acquisitions are accounted for as purchase
transactions and their cost is allocated to the estimated fair market value
of net tangible assets acquired and identifiable intangible assets,
including franchise agreements. Any excess is allocated to goodwill.
|
| |     |  | During 2001 and 2000, the Company purchased cable television systems for a
purchase price of approximately $4,600,000 and $3,100,000, respectively.
The purchase price was allocated to property and equipment, franchise
agreements and other intangibles as follows:                 

(Continued)

F.9



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

|                                           |  |      |           |      |  |  |           | 
|------------------------------------------ |  | ---- | --------- | ---- |  |  | --------- | 
|                                           |  | 2001 |           | 2000
|                                           |  |      |           |     
|Franchise agreements and other intangibles |  | $    | 2,959,733 |      |  |  | 2,931,000 | 
|Property and equipment                     |  |      | 1,640,267 |      |  |  | 169,000   | 
|                                           |  |      |           |      |  |  |           | 
|                                           |  | $    | 4,600,000 |      |  |  | 3,100,000 | 
|                                           |  |      |           |      |  |  |           | 



| | (c) |  | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Cash and cash equivalents include cash and investments in short-term,
highly liquid securities, which have maturities when purchased of three
months or less.                                                                                                                                                                                                                                                                                                                                                                         
|
| | (d) |  | Accounts Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     |  | Accounts receivable consist primarily of amounts due from customers for
cable television or advertising services provided by the Company, and are
stated at net realizable value. Receivables are written-off when the
Company deems specific customer invoices to be uncollectible.                                                                                                                                                                                                                                                  
|
| | (e) |  | Property and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | Property and equipment are recorded at cost. Costs of additions and
substantial improvements, which include materials, labor and other indirect
costs associated with the construction of cable transmission and
distribution facilities, are capitalized. Indirect costs include employee
salaries and benefits, travel and other costs. These costs are estimated
based on historical information and analysis. The Company periodically
performs evaluations of these estimates as warranted by events or changes
in circumstances.
|
| |     |  | In accordance with Statement of Financial Accounting Standards (SFAS) No.
51, Financial Reporting by Cable Television Companies, the Company also
capitalizes costs associated with initial customer installations. The
costs of disconnecting service or reconnecting service to previously
installed locations are charged to operating expense in the period
incurred. Costs for repairs and maintenance are also charged to operating
expense, while equipment replacements are capitalized.                                      
|
| |     |  | At the time of retirements, sales or other dispositions of property, the
original cost and related accumulated depreciation are removed from the
respective accounts, and the gains and losses are included in the statement
of operations.                                                                                                                                                                                                                                                                                           
|
| |     |  | Depreciation of property and equipment is calculated using the
straight-line method over the following estimated service lives:                                                                                                                                                                                                                                                                                                                                                                                                       

|                                           |  |            
|------------------------------------------ |  | -----------
|Buildings                                  |  | 20  years  
|Distribution plant                         |  | 2-10  years
|Other equipment and leasehold improvements |  | 5-20  years



| |  |  | The Company recorded depreciation expense of $10,310,598, $9,600,831 and
$8,658,847 in 2002, 2001 and 2000, respectively.
| |  |  | -------------------------------------------------------------------------------------------------------------------------

(Continued)

F.10



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| |     |  | The Company periodically evaluates the depreciation periods of property and
equipment to determine whether events or circumstances warrant revised
estimates of useful lives. The Company also reviews the carrying value of
its property and equipment for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. As
of December 31, 2002, there has been no indication of such impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (f) |  | Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 required that the Company cease
amortization of goodwill and any other intangible assets determined to have
indefinite lives, and established a new method of testing these assets for
impairment on an annual basis or on an interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting unit
below its carrying value or if the fair value of intangible assets with
indefinite lives falls below their carrying value on an annual basis. The
amortization of existing goodwill ceased on December 31, 2001. The Company
determined that its franchise agreements met the definition of indefinite
lived assets due to the history of obtaining franchise renewals, among
other considerations. Accordingly, amortization of these assets ceased on
December 31, 2001. The Company tested these intangibles for impairment as
of January 1, 2002 and again during the fourth quarter of 2002 and
determined that the fair value of the assets exceeded their carrying value.
The Company will continue to test these assets for impairment annually, or
more frequently as warranted by events or changes in circumstances. The
book value of the Companys intangible assets is presented in the following
table:

(Continued)

F.11



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

|                                    |  |   |                   |  |                   |  |              |   |                |  |              |  |              |  |             |  |  |  |             |   |  |  |            |  | 
|----------------------------------- |  | - | ----------------- |  | ----------------- |  | ------------ | - | -------------- |  | ------------ |  | ------------ |  | ----------- |  |  |  | ----------- | - |  |  | ---------- |  | 
|                                    |  |   | December 31, 2002 |  | December 31, 2001
|                                    |  |   |                   |  |                  
|                                    |  |   | Gross Carrying    |  | Accumulated       |  | Net Carrying |   | Gross Carrying |  | Accumulated  |  | Net Carrying
|                                    |  |   | Amount            |  | Amortization      |  | Amount       |   | Amount         |  | Amortization |  | Amount      
|                                    |  |   |                   |  |                   |  |              |   |                |  |              |  |             
|Indefinite-lived intangible assets: |  |   |                   |  |                   |  |              |   |                |  |              |  |              |  |             |  |  |  |             |   |  |  |           
|Franchise
agreements                |  | $ | 101,673,212       |  |                   |  | (48,279,931  | ) |                |  | 53,393,281   |  |              |  | 101,664,917 |  |  |  | (48,279,931 | ) |  |  | 53,384,986 | 
|Goodwill                            |  |   | 6,344,433         |  |                   |  | (2,407,104   | ) |                |  | 3,937,329    |  |              |  | 6,344,433   |  |  |  | (2,407,104  | ) |  |  | 3,937,329  | 
|                                    |  |   |                   |  |                   |  |              |   |                |  |              |  |              |  |             |  |  |  |             |   |  |  |            | 
|                                    |  |   | 108,017,645       |  |                   |  | (50,687,035  | ) |                |  | 57,330,610   |  |              |  | 108,009,350 |  |  |  | (50,687,035 | ) |  |  | 57,322,315 | 
|Definite-lived
intangible assets:   |  |   |                   |  |                   |  |              |   |                |  |              |  |              |  |             |  |  |  |             |   |  |  |            | 
|Loan fees                           |  |   | 5,839,145         |  |                   |  | (2,650,564   | ) |                |  | 3,188,581    |  |              |  | 5,831,948   |  |  |  | (1,970,213  | ) |  |  | 3,861,735  | 
|Other intangible
assets             |  |   | 3,902,229         |  |                   |  | (3,765,621   | ) |                |  | 136,608      |  |              |  | 3,902,229   |  |  |  | (3,402,025  | ) |  |  | 500,204    | 
|                                    |  |   |                   |  |                   |  |              |   |                |  |              |  |              |  |             |  |  |  |             |   |  |  |            | 
|                                    |  |   | 9,741,374         |  |                   |  | (6,416,185   | ) |                |  | 3,325,189    |  |              |  | 9,734,177   |  |  |  | 5,372,238   |   |  |  | 4,361,939  | 
|                                    |  |   |                   |  |                   |  |              |   |                |  |              |  |              |  |             |  |  |  |             |   |  |  |            | 
|                                    |  | $ | 117,759,019       |  |                   |  | (57,103,220  | ) |                |  | 60,655,799   |  |              |  | 117,743,527 |  |  |  | (56,059,273 | ) |  |  | 61,684,254 | 
|                                    |  |   |                   |  |                   |  |              |   |                |  |              |  |              |  |             |  |  |  |             |   |  |  |            | 



| |  |  | As required by SFAS No. 142, the statement has not been retroactively
applied to the results for the periods prior to adoption. A reconciliation
of net loss for the years ended December 31, 2001 and 2000, as if
amortization of franchise agreements and goodwill had not been recorded is
presented below:
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               |   |      |            |      |  |  |             |  
|---------------------------------------------- | - | ---- | ---------- | ---- |  |  | ----------- | -
|                                               |   | 2001 |            | 2000
|                                               |   |      |            |     
|Reported net loss                              | $ |      | (1,864,718 | )    |  |  | (14,268,443 | )
|Add back: amortization of franchise agreements |   |      | 10,343,687 |      |  |  | 10,351,363  |  
|Add back: amortization of goodwill             |   |      | 171,903    |      |  |  | 173,111     |  
|                                               |   |      |            |      |  |  |             |  
|Adjusted net income (loss)                     | $ |      | 8,650,872  |      |  |  | (3,743,969  | )
|                                               |   |      |            |      |  |  |             |  



| |  |  | As of December 31, 2002, intangible assets subject to amortization consist
of loan fees and other intangibles, which are being amortized using the
straight-line method over periods of five to ten years (current weighted
average remaining useful life of 4.5 years). The Company recorded
amortization expense of $1,043,947, $11,810,220 and $11,989,757 in 2002,
2001 and 2000,
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

F.12



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| |  |  | respectively. Amortization of loan fees and other intangibles for each of
the next five years is expected to be as follows:
| |  |  | ---------------------------------------------------------------------------------------------------------------------------

|     |  |   |           | 
|---- |  | - | --------- | 
|2003 |  | $ | 745,973   | 
|2004 |  |   | 706,456   | 
|2005 |  |   | 706,449   | 
|2006 |  |   | 699,975   | 
|2007 |  |   | 466,336   | 
|     |  |   |           | 
|     |  | $ | 3,325,189 | 
|     |  |   |           | 



| | (g) |  | Self Insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | NCTV began self-insuring for aerial and underground plant in 1996.
Beginning in 1997, NCTV began making quarterly contributions into an
insurance fund maintained by NTC which covers all Northland entities and
would defray a portion of any loss should NCTV be faced with a significant
uninsured loss. To the extent NCTVs losses exceed the funds balance,
NCTV would absorb any such loss. If NCTV were to sustain a material
uninsured loss, such reserves could be insufficient to fully fund such a
loss. The capital cost of replacing such equipment and physical plant,
could have a material adverse effect on NCTV, its financial condition,
prospects and debt service ability.                            
|
| |     |  | Amounts paid to NTC, which maintains the fund for the Company and its
affiliates, are expensed as incurred and are included in the consolidated
statements of operations. To the extent a loss has been incurred related
to risks that are self-insured, the Company records an expense and an
associated liability for the amount of the loss, net of any amounts to be
drawn from the
fund. For the years ended December 31, 2001 and 2000, the NCTV was charged
$18,728 and $76,244, respectively, by the fund. Management suspended
contributions during 2001 based on its assessment that the current balance
would be sufficient to meet potential claims. As of December 31, 2002, the
fund had a balance of $562,420.
|
| | (h) |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | Cable television service revenue, including service and maintenance, is
recognized in the month service is provided to customers. Advance payments
on cable services to be rendered are recorded as subscriber prepayments.
Revenues resulting from the sale of local spot advertising are recognized
when the related advertisements or commercials appear before the public.
Local spot advertising revenues earned were $3,137,013 $2,744,460 and
$2,770,571 in 2002, 2001 and 2000, respectively.                                                                                                                                                                                                                        
|
| | (i) |  | Derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |  | The Company has only limited involvement with derivative instruments and
does not use them for trading purposes. They are used to manage
well-defined interest rate risks. The Company periodically enters into
interest rate swap agreements with major banks or financial institutions
(typically its bank) in which the Company pays a fixed rate and receives a
floating rate with the interest payments being calculated on a notional
amount.                                                                                                                                                                                                                                                                          

(Continued)

F.13



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| |     |  | The Company is exposed to credit related losses in the event of
nonperformance by counterparties to financial instruments but does not
expect any counterparties to fail to meet their obligations, as the Company
currently deals only with its bank. The exposure in a derivative contract
is the net difference between what each party is required to pay based on
the contractual terms against the notional amount of the contract, which in
the Companys case, are interest rates.                                                                                                                                          
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended. SFAS No.
133 requires that all derivative instruments be recorded on the balance
sheet at fair value. SFAS No. 133 also established new accounting rules
for hedging instruments which, depending on the nature of the hedge,
require that changes in the fair value of derivatives either be offset
against the change in fair value of the hedged assets or liabilities
through earnings, or be recognized in other comprehensive income until the
hedged item is recognized in earnings.
|
| |     |  | The Company has elected not to designate its derivatives as hedges under
SFAS No. 133. Accordingly, subsequent to the effective date of SFAS No.
133, the Company has recorded any change in the fair value of these
agreements in its statements of operations and a corresponding
asset/liability on the balance sheet.                                                                                                                                                                                                                                                                                                           
|
| | (j) |  | Advertising Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     |  | The Company expenses advertising costs as they are incurred. Advertising
costs were $1,368,011, $1,425,061 and $1,574,499 in 2002, 2001 and 2000,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (k) |  | Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | The Company follows SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. The Company manages its business and
makes operating decisions at the operating segment level. Following the
operating segment aggregation criteria in SFAS No. 131, the Company reports
business activities under a single reporting segment, telecommunications
services. Additionally, all of its activities take place in the United
States of America.                                                                                                                                                                  
|
| | (l) |  | Concentration of Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | The Company is subject to concentrations of credit risk from cash
investments on deposit at various financial institutions that at times
exceed insured limits by the Federal Deposit Insurance Corporation. This
exposes the Company to potential risk of loss in the event the institution
becomes insolvent.                                                                                                                                                                                                                                                                                                                     
|
| | (m) |  | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | Financial instruments consist of cash, interest rate swap agreements and
notes payable. The fair value of cash approximates its carrying value.
The fair value of interest rate swap agreements is the estimated amount
that a bank would receive or pay to terminate the swap agreement at the
reporting date and is equal to their carrying value. The fair value of the
notes payable approximates their carrying value because of their variable
interest rate nature (note 7).                                                                                                                                                 

(Continued)

F.14



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| | (n) |  | Recently Issued Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Statement of Financial Accounting Standards No. 143 In September 2001,
the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations.
SFAS No. 143 requires entities to record the fair value of a liability for
an asset retirement obligation in the period in which it is incurred. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. Statement No. 143 will be effective for
the Company beginning January 1, 2003. The Company has not yet estimated
the impact of implementation on its financial position or results of
operations.                                                                                                                                                                                                                                               
|
| |     |  | Statement of Financial Accounting Standards No. 145 In April 2002, the
FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No.
145 provides for the rescission of several previously issued accounting
standards (including the treatment of loss on extinguishment of debt), new
accounting guidance for the accounting for certain lease modifications and
various technical corrections that are not substantive in nature to
existing pronouncements. SFAS No. 145 will be effective beginning January
1, 2003, except for the provisions relating to the amendment of SFAS No.
13, which will be effective for transactions occurring subsequent to May
15, 2002. Adoption of SFAS No. 145 will not have a material impact on the
Companys financial statements.
|
| |     |  | Statement of Financial Accounting Standards No. 146- In September 2002,
the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized at fair value
when the liability is incurred and is effective for exit or disposal
activities that are initiated after December 31, 2002. Adoption of SFAS
No. 146 will not have a material impact on the Companys financial
statements.                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | FASB Interpretation No. 45 In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others.
The interpretation establishes disclosure requirements for December 31,
2002 financial statements for companies that make certain types of
guarantees. Beginning in 2003, the interpretation requires that companies
record the fair value of certain types of guarantees as a liability in the
financial statements. The Company has reviewed the interpretation and has
concluded that its 2002 disclosures are adequate and does not expect the
interpretation to have a material impact on the Companys financial
position or results of operations in 2003.                                                                           
|
| | (o) |  | Estimates Used in Financial Statement Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                             
|
| | (p) |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | Certain prior year amounts have been reclassified to conform to the current
year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

(Continued)

F.15



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

(3)    Transactions with Related Parties



| | (a) |  | Management Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company pays management fees to NTC equal to 5% of NCTVs gross
revenues, excluding revenues from the sale of cable television systems or
franchises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (b) |  | Reimbursements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | NTC provides or causes to be provided certain centralized services to the
Company and other affiliated entities. NTC is entitled to reimbursement
from the Company for various expenses incurred by it or its affiliates on
behalf of the Company allocable to its management of the Company, including
travel expenses, pole and site rental, lease payments, legal expenses,
billing expenses, insurance, governmental fees and licenses, headquarters
supplies and expenses, pay television expenses, equipment and vehicle
charges, operating salaries and expenses, administrative salaries and
expenses, postage and office maintenance. NTC has historically assigned
its reimbursement rights to NCC. In addition, Northland Cable Service
Corporation (NCSC), an affiliate of the Parent, was formed to provide
billing system support to cable systems owned and managed by the Parent.
Further, NCSC provides technical support associated with the build out and
upgrade of Northland affiliated cable systems. Cable Ad Concepts, a
subsidiary of NCSC, assists in the development of local advertising as well
as billing for video commercial advertisements to be cablecast on Northland
affiliated cable systems.
|
| |     |  | The amounts billed to the Company are based on costs incurred by affiliates
in rendering the services. The costs of certain services are allocated to
the Company, based upon the personnel time spent by the employees rendering
the service. The cost of other services is allocated to the Company and
affiliates based upon relative size and revenue. NTC has, from time to
time, reduced the amount of costs allocated to the Company, to the extent
the allocated costs would result in noncompliance with debt covenants.
Management believes that the combination of management fees and allocated
costs shown in the accompanying consolidated statements of operations
exceed direct costs for all periods presented. The Company reflected
$269,527, $869,582 and $1,903,306 of expenses on the accompanying
statements of operations for these services for the years ended December
31, 2002, 2001, and 2000, respectively.                                                                                                                                                                                                                                                                                         
|
| |     |  | The Company has operating management agreements with affiliated entities
managed by NCC. Under the terms of these agreements, the Company or an
affiliate serves as the managing agent for certain cable television systems
and is reimbursed for certain operating, administrative, and programming
expenses. The Company paid $175,163, $90,098, and $84,526, net, under the
terms of these agreements during 2002, 2001, and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

(4)    Northland Cable News



| | As discussed in note 1, NCN was formed to develop and distribute local news,
sports, and information programming to NCTV and certain of the Companys
affiliates. The Companys payment obligations under the $100 million of
senior notes discussed in note 7 are fully and unconditionally, jointly and
severally guaranteed on a senior subordinated basis by NCN. The guarantee of
NCN is subordinated to the prior payment in full of all senior debt of NCN
(as of December 31, 2002 NCN had no senior debt
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

F.16



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| | outstanding) and the amounts for which NCN will be liable under the guarantee
issued from time to time with respect to senior debt. Management ceased the
operations of NCN on January 1, 2001, and does not believe that this has a
material effect on the Companys financial position, results of operations,
or financing agreements. Separate financial statements of NCN have not been
presented because management has determined that they would not be material
to financial statement readers. Summary financial information of NCN is
presented below:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |                                                                                                   |            |   |                       |        | 
|----------------------------- | ------------------------------------------------------------------------------------------------- | ---------- | - | --------------------- | ------ | 
|                              |                                                                                                   |            |   | Year endedDecember 31
|                              |                                                                                                   |            |   |                      
|                              |                                                                                                   |            |   | 2000                 
|                              |                                                                                                   |            |   |                      
|Income statement information: |                                                                                                   |            |   |                      
|                              | Revenues from affiliates (including
$374,423 of intercompany revenue
eliminated in consolidation) |            | $ | 737,898               |       
|                              | Operating expenses                                                                                |            |   | (650,004              | )     
|                              | Other, net                                                                                        |            |   | (19,923               | )     
|                              |                                                                                                   |            |   |                      
|                              |                                                                                                   | Net income |   | $                     | 67,971 | 
|                              |                                                                                                   |            |   |                      

(5)    Property and Equipment

|                         |  |             |             |      |  |  |             | 
|------------------------ |  | ----------- | ----------- | ---- |  |  | ----------- | 
|                         |  | December 31
|                         |  |            
|                         |  | 2002        |             | 2001
|                         |  |             |             |     
|Land and buildings       |  | $           | 2,465,286   |      |  |  | 2,470,446   | 
|Distribution plant       |  |             | 109,320,012 |      |  |  | 102,032,363 | 
|Other equipment          |  |             | 5,608,299   |      |  |  | 5,692,587   | 
|Leasehold improvements   |  |             | 45,216      |      |  |  | 32,033      | 
|Construction in progress |  |             | 642,710     |      |  |  | 528,332     | 
|                         |  |             |             |      |  |  |             | 
|                         |  | $           | 118,081,523 |      |  |  | 110,755,761 | 
|                         |  |             |             |      |  |  |             | 

(6)    Accrued Expenses

|                        |  |             |           |      |  |  |           | 
|----------------------- |  | ----------- | --------- | ---- |  |  | --------- | 
|                        |  | December 31
|                        |  |            
|                        |  | 2002        |           | 2001
|                        |  |             |           |     
|Programmer license fees |  | $           | 1,891,885 |      |  |  | 1,708,679 | 
|Franchise fees          |  |             | 1,084,796 |      |  |  | 1,189,739 | 
|Interest                |  |             | 1,476,956 |      |  |  | 2,008,405 | 
|Taxes                   |  |             | 271,855   |      |  |  | 759,822   | 
|Other                   |  |             | 800,398   |      |  |  | 728,839   | 
|                        |  |             |           |      |  |  |           | 
|                        |  | $           | 5,525,890 |      |  |  | 6,395,484 | 
|                        |  |             |           |      |  |  |           | 

(Continued)

F.17



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

(7)    Notes Payable

|                               |  |             |             |      |  |  |             | 
|------------------------------ |  | ----------- | ----------- | ---- |  |  | ----------- | 
|                               |  | December 31
|                               |  |            
|                               |  | 2002        |             | 2001
|                               |  |             |             |     
|Senior subordinated notes      |  | $           | 100,000,000 |      |  |  | 100,000,000 | 
|Revised senior credit facility |  |             | 68,031,182  |      |  |  | 71,031,182  | 
|                               |  |             |             |      |  |  |             | 
|                               |  |             | 168,031,182 |      |  |  | 171,031,182 | 
|Less current portion           |  |             | (2,775,920  | )    |  |  |            | 
|                               |  |             |             |      |  |  |             | 
|                               |  | $           | 165,255,262 |      |  |  | 171,031,182 | 
|                               |  |             |             |      |  |  |             | 



| | (a) |  | Revised Senior Credit Facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On August 14, 2000, the Company refinanced its existing senior bank
indebtedness resulting in a charge to expense of approximately $2,350,000
in loan fees. This amount was offset by a gain of approximately $250,000 on
the termination of certain interest rate swap agreements. The original
indebtedness was repaid with borrowings under the Revised Senior Credit
Facility. The Revised Senior Credit Facility established a $35 million
364-day revolving credit loan. In August 2001, the revolver converted to a
term loan due on June 30, 2007. The other two components consisted
originally of a seven-year revolving credit loan in the aggregate principal
amount of $40 million and a seven-year term loan in the aggregate principal
amount of $35 million. The allowable borrowings on the $40 million revolver
were reduced by approximately $17,300,000 during 2001. Amounts outstanding
under the Revised Senior Credit Facility mature on June 30, 2007. The
Revised Senior Credit Facility is collateralized by a first lien position
on all present and future assets and stock of the Company. Interest rates
vary
based on certain financial covenants; 4.73% (weighted average) as of
December 31, 2002. Graduated principal and interest payments are due
quarterly, beginning September 30, 2003, until maturity on June 30, 2007.
The estimated fair value of the revolving credit and term loan facility is
equal to its carrying value because of its variable interest rate nature.
Under the revolving credit and term loan agreement, the Company has agreed
to restrictive covenants which require the maintenance of certain ratios,
as defined in the credit agreement, including a Pro Forma Debt Service
ratio not less than 1.25 to 1 and a Leverage Ratio of no greater than 6.00
to 1, among other restrictions. The Company submits quarterly debt
compliance reports to its creditor under this arrangement. As of December
31, 2002, the Company was in compliance with the terms of the loan
agreement.
|
| | (b) |  | Senior Subordinated Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | In 1997, the Company issued $100,000,000 in principal amount of 10.25%
Senior Subordinated Notes (the Notes) due November 15, 2007. The estimated
fair value of the $100,000,000 Notes at December 31, 2002, was
approximately $67,125,000, based on available market information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

(Continued)

F.18



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| |  |  | The Notes are presently redeemable at the option of the Company, in whole
or in part, at the following prices (expressed as percentages of principal
amount) if redeemed during the 12-month period beginning on November 15 of
the years dated below, in each case together with interest accrued to the
redemption date:
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |                     |  |            |         |  
|----- | ------------------- |  | ---------- | ------- | -
|      |                     |  | Percentage
|      |                     |  |           
|Year: |                     |  |            |        
|      | 2002                |  |            | 105.125 | %
|      | 2003                |  |            | 103.417 | %
|      | 2004                |  |            | 101.708 | %
|      | 2005 and thereafter |  |            | 100.000 | %



| |     |  | The indenture pursuant to which the Notes were issued, among other things,
limits the ability of the Company and its subsidiaries to incur additional
indebtedness or issue preferred stock; make certain restricted payments,
grant liens on assets; merge, consolidate, or transfer substantially all of
their assets; enter into certain transactions with related persons; make
certain payments affecting subsidiaries; sell assets; and issue capital
stock of subsidiaries. Additionally, the Company has agreed to restrictive
covenants, as defined in the indenture, which require
the maintenance of certain ratios, including a Debt to Cash Flow ratio of
6.00 to 1, among other restrictions. The Company submits annual debt
compliance reports to a trustee. As of December 31, 2002, the Company was
in compliance with the terms of the Notes.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | In the event of a change of control of the Company as defined in the
indenture, holders of the Notes will have the right to require the Company
to make an offer to repurchase such Notes, in whole or in part, at a price
of 101% of the aggregate principal amount thereof plus accrued and unpaid
interest to the date of repurchase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (c) |  | Principal Payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |     |  | Annual maturities of notes payable after December 31, 2002 based on amounts
outstanding at December 31, 2002 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|     |  |   |             | 
|---- |  | - | ----------- | 
|2003 |  | $ | 2,775,920   | 
|2004 |  |   | 8,327,756   | 
|2005 |  |   | 11,103,676  | 
|2006 |  |   | 19,581,913  | 
|2007 |  |   | 126,241,917 | 
|     |  |   |             | 
|     |  | $ | 168,031,182 | 
|     |  |   |             | 



| | (d) |  | Interest Rate Swap Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates. Interest rate swap transactions
generally involve the exchange of fixed and floating interest payment
obligations without exchange of underlying principal amounts. At December
31, 2002, the Company had one interest rate swap agreement outstanding with
its bank, having a notional principal amount of $27,000,000, and a maturity
date of January 10, 2003. This agreement

(Continued)

F.19



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| |  |  | effectively changes the Companys interest rate exposure to fixed rate of
3.17%, plus an applicable margin based on certain financial covenants (the
margin at December 31, 2002 was 2.50%).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company has elected not to designate its derivatives as hedges under
SFAS 133. Accordingly, upon adoption on January 1, 2001, the Company
recorded the fair market value of its existing derivatives, $689,000, as
accumulated other comprehensive income, a component of shareholders
deficit. This cumulative effect of a change in accounting principle was
amortized into earnings over the term of the swap agreements. Each quarter
the change in the fair market value of the Companys derivative instruments
has been recorded as unrealized gain (loss) on interest rate swap
agreements. At December 31, 2002, the Company would have paid
approximately $120,377 to settle these agreements based on fair value
estimates received.

(8)    Other, Net



| | Other, net included as a component of other income (expense) in the
consolidated statements of operations consists of:
| | ----------------------------------------------------------------------------------------------------------------------

|                |  |                        |         |      |  |      |          |   |  |  |         | 
|--------------- |  | ---------------------- | ------- | ---- |  | ---- | -------- | - |  |  | ------- | 
|                |  | Year ended December 31
|                |  |                       
|                |  | 2002                   |         | 2001 |  | 2000
|                |  |                        |         |      |  |     
|Interest income |  | $                      | 62,170  |      |  |      | 122,705  |   |  |  | 192,870 | 
|Other           |  |                        | (38,943 | )    |  |      | (177,488 | ) |  |  | 209,758 | 
|                |  |                        |         |      |  |      |          |   |  |  |         | 
|                |  | $                      | (23,227 | )    |  |      | (54,783  | ) |  |  | 402,628 | 
|                |  |                        |         |      |  |      |          |   |  |  |         | 

(9)    Income Taxes



| | The operations of the Company and its affiliates are included for federal
income tax purposes in a consolidated federal income tax return filed by NTC.
For financial reporting purposes, the provision for income taxes is computed
as if the Company filed a separate federal income tax return utilizing the
tax rate applicable to NTC on a consolidated basis.                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Deferred income taxes are determined on the asset and liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No, 109,
Accounting for Income Taxes. The asset and liability method requires the
recognition of deferred income taxes for the expected future tax consequences
of temporary differences between the carrying amounts on the financial
statements and the tax bases of assets and liabilities.

(Continued)

F.20



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| |  |  | The primary components of deferred income taxes are as follows:
| |  |  | ---------------------------------------------------------------

|                          |                                 |   |             |             |      |  |            |             |  
|------------------------- | ------------------------------- | - | ----------- | ----------- | ---- |  | ---------- | ----------- | -
|                          |                                 |   | December 31
|                          |                                 |   |            
|                          |                                 |   | 2002        |             | 2001
|                          |                                 |   |             |             |     
|Deferred tax assets:      |                                 |   |             |             |      |  |            |            
|                          | Net operating loss carryforward |   | $           | 28,800,000  |      |  |            | 23,800,000  |  
|                          | Franchise agreements            |   |             | 3,300,000   |      |  |            | 5,400,000   |  
|                          | Other, net                      |   |             | 830,000     |      |  |            | 1,140,000   |  
|                          |                                 |   |             |             |      |  |            |            
|                          |                                 |   | 32,930,000  |             |      |  | 30,340,000 |            
|                          | Valuation allowance             |   |             | (22,360,000 | )    |  |            | (21,840,000 | )
|                          |                                 |   |             |             |      |  |            |            
|                          |                                 |   | 10,570,000  |             |      |  | 8,500,000  |            
|Deferred tax liabilities: |                                 |   |             |             |      |  |            |            
|                          | Property and equipment          |   |             | 10,570,000  |      |  |            | 8,500,000   |  
|                          |                                 |   |             |             |      |  |            |            
|                          |                                 | $ |            |             |      |  |           |            
|                          |                                 |   |             |             |      |  |            |            



| |  |  | The federal income tax net operating loss carryforward of approximately
$80,000,000 expires from 2003 through 2022. Management believes that the
available objective evidence creates sufficient uncertainty regarding the
realization of the net deferred tax assets due to the recurring operating
losses being incurred by the Company. Accordingly, a valuation allowance has
been provided for the net deferred tax assets of the Company. The increase in
the valuation allowance was $520,000, $940,000, and $4,820,000 for the years
ended December 31, 2002, 2001, and 2000, respectively.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The difference between the statutory tax rate and the tax benefit of zero
recorded by the Company is due to the Companys full valuation allowance
against its net deferred tax asset.                                                                                                                                                                                                                                                                                                                                                                                                             

(10)    Commitments and Contingencies



| | (a) |  | Lease Arrangements                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company leases certain tower sites, office facilities, and pole
attachments under leases accounted for as operating leases. Rental expense,
including month-to-month leases, was $900,499, $894,665, and $1,055,907 in
2002, 2001, and 2000, respectively. Minimum lease payments, excluding
month- to-month leases, through the end of the lease terms are as follows:

|           |      |   |         |        | 
|---------- | ---- | - | ------- | ------ | 
|           | 2003 |   | $       | 91,150 | 
|           | 2004 |   |         | 74,296 | 
|           | 2005 |   |         | 55,331 | 
|           | 2006 |   |         | 44,663 | 
|           | 2007 |   |         | 37,006 | 
|Thereafter |      |   | 53,831  |       
|           |      |   |         |       
|           |      | $ | 356,277 |       
|           |      |   |         |       



| |  |  | Each of the periods presented above includes $21,600 to be paid to
affiliates.
| |  |  | ------------------------------------------------------------------------------

(Continued)

F.21



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| | (b) |  | Effects of Regulation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The operation of a cable system is extensively regulated at the federal,
local, and in some instances, state levels. The Cable Communications Policy
Act of 1984, as amended, the Cable Television Consumer Protection and
Competition Act of 1992 (the 1992 Cable Act), and the 1996
Telecommunications Act (the 1996 Telecom Act, and, collectively, the Cable
Act) establish a national policy to guide the development and regulation of
cable television systems. The Federal Communications Commission (FCC) has
principal responsibility for
implementing the policies of the Cable Act. Many aspects of such regulation
are currently the subject of judicial proceedings and administrative or
legislative proposals. Legislation and regulations continue to change.
|
| |     |  | Cable Entry into Internet The U.S. Supreme Court recently ruled that
cable television systems may deliver high-speed Internet access and remain
within the protections of Section 703 of the Telecommunications Act of 1996
(the Pole Attachment Act). National Cable & Telecommunications Assoc. v.
Gulf Power Co., Nos. 00-832 and 00-843, 534 U.S. (January 16, 2002). The
Court reversed the Eleventh Circuits decision to the contrary and
sustained the FCC decision that applied the Pole Attachment Acts rate
formula and other regulatory protections to cable television systems
attachments over which commingled cable television and cable modem services
are provided.                                                                                      
|
| |     |  | Cable Rate Regulation Although the FCC established the rate regulatory
scheme pursuant to the 1992 Cable Act, local municipalities, commonly
referred to as local franchising authorities, are primarily responsible for
administering the regulation of the lowest level of cable service called
the basic service tier. The basic service tier typically contains local
broadcast stations and public, educational, and government access channels.
Before a local franchising authority begins basic service rate regulation,
it must certify to the FCC that it will follow applicable federal rules.
Many local franchising authorities have voluntarily declined to exercise
their authority to regulate basic service rates.                                          
|
| |     |  | In a particular effort to ease the regulatory burden on small cable
systems, the FCC created special rate rules applicable for systems with
fewer than 15,000 subscribers owned by an operator with fewer than 400,000
subscribers. The special rate rules allow for a simplified cost-of-service
showing for basic service tier programming. All of Northlands systems are
eligible for these simplified cost-of-service rules, and have calculated
rates in accordance with those rules.                                                                                                                                                                                                                                                                                   
|
| |     |  | Electric Utility Entry into Telecommunications and Cable Television The
1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services, including cable
television, notwithstanding the Public Utility Holding Company Act.
Electric utilities must establish separate subsidiaries, known as exempt
telecommunications companies and must apply to the FCC for operating
authority. Like telephone companies, electric utilities have substantial
resources at their disposal, and could be formidable competitors to
traditional cable systems. Several of these utilities have been granted
broad authority to engage in activities that could include the provision of
video programming.                
|
| |     |  | Must Carry and Retransmission Consent The 1992 Cable Act contains
broadcast signal carriage requirements. Broadcast signal carriage is the
transmission of broadcast television signals over a cable system to cable
customers. These requirements, among other things, allow local commercial
television broadcast stations to elect once every three years between must
carry status or                                                                                                                                                                                                                                                                                                                                                                                  

(Continued)

F.22



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| |  |  | retransmission consent status. Less popular stations typically elect must
carry, which is the broadcast signal carriage rule that allows local
commercial television broadcast stations to require a cable system to carry
the station. Must carry requests can dilute the appeal of a cable systems
programming offerings because a cable system with limited channel capacity
may be required to forego carriage of popular channels in favor of less
popular broadcast stations electing must carry. More popular stations, such
as those affiliated with a national network, typically elect retransmission
consent, which is the broadcast signal carriage rule that allows local
commercial television broadcast stations to negotiate terms (such as
mandating carriage of an affiliated cable network or a digital broadcast
signal) for granting permission to the cable operator to carry the
stations. Retransmission consent demands may require substantial payments
or other concessions.                                                                                                                                                                                                              
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Access Channels Local franchising authorities can include franchise
provisions requiring cable operators to set aside certain channels for
public, educational, and governmental access programming. Federal law also
requires cable systems to designate a portion of their channel capacity, up
to 15% in some cases, for commercial leased access by unaffiliated third
parties. The FCC has adopted rules regulating the terms, conditions, and
maximum rates a cable operator may charge for commercial leased access use.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | Inside Wiring In an order issued in 1997, the FCC established rules that
require an incumbent cable operator upon expiration of a multiple dwelling
unit service contract to sell, abandon, or remove home run wiring that
was installed by the cable operator in a multiple dwelling unit building.
These inside wiring rules are expected to assist building owners in their
attempts to replace existing cable operators with new programming providers
who are willing to pay the building owner a fee, where this fee is
permissible.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | State and Local Regulation Cable television systems generally are
operated pursuant to nonexclusive franchises granted by a municipality or
other state or local government entity in order to cross public
rights-of-way. Federal law now prohibits local franchising authorities from
granting exclusive franchises or from unreasonably refusing to award
additional or renew existing franchises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | Cable franchises generally are granted for fixed terms and in many cases
include monetary penalties for noncompliance and may be terminable if the
franchisee fails to comply with material provisions. The specific terms and
conditions of franchises vary materially among jurisdictions. Each
franchise generally contains provisions governing cable operations, service
rates, franchising fees, system construction and maintenance obligations,
system channel capacity, design and technical performance, customer service
standards, and indemnification protections. A number of states subject
cable systems to the jurisdiction of centralized state governmental
agencies, some of which impose regulation of a character similar to that of
a public utility. Although local franchising authorities have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, local franchising authorities cannot insist on
franchise fees exceeding 5% of the systems gross cable-related revenues,
cannot dictate the particular technology used by the system, and cannot
specify video programming other than identifying broad categories of
programming.

(Continued)

F.23



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| |  |  | Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the local franchising authority may seek to impose new and more
onerous requirements, such as significant upgrades in facilities and
service or increased franchise fees as a condition of renewal.
Historically, most franchises have been renewed and transfer consents
granted to cable operators that have provided satisfactory services and
have complied with the terms of their franchise.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(11)    Acquisition of Systems and Disposition of Assets



| | (a) |  | Completed Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On March 31, 2000, the Company acquired the operating assets and franchise
rights to cable systems servicing approximately 1,600 basic subscribers in
the communities of Kingston and Hansville, Washington, located in Kitsap
County, from North Star Cable, Inc. The systems were acquired at a purchase
price of $3,100,000 adjusted at closing for the proration of certain
revenues and expenses. The acquisition was financed through borrowings
under the Senior Credit Facility.
|
| |     |  | On September 30, 2001 the Company acquired a cable system serving the areas
in and around Highlands, North Carolina, serving approximately 3,200 basic
subscribers, from an affiliated limited partnership managed by NCC. The
system was acquired at a purchase price of approximately $4,600,000 and was
financed with approximately $3,800,000 of cash on hand and an in-kind
equity contribution from the Companys parent of $798,850.                                             
|
| |     |  | On December 21, 2001, the Company sold its cable system serving the areas
of Bainbridge Island, Kingston, and Hansville, Washington, which
represented approximately 6,450 basic subscribers, to TCI Cable Partners
of St. Louis, L.P. The systems were sold at a purchase price of
approximately $19,800,000. The Company recognized a gain of approximately
$12,700,000 related to the transaction.                                                                                  
|
| |     |  | Pro forma operating results of the Company for 2001, assuming the
acquisitions and disposition described above had been made at the beginning
of 2001, follow:                                                                                                                                                                                                                                                                                                                          

|                         |  |                   |             |  
|------------------------ |  | ----------------- | ----------- | -
|                         |  | Year ended       
|                         |  | December 31, 2001
|                         |  |                  
|                         |  | (unaudited)      
|Service revenues         |  | $                 | 59,642,077  |  
|                         |  |                   |             |  
|Net loss                 |  |                   | (13,666,204 | )
|                         |  |                   |             |  
|Total comprehensive loss |  | $                 | (13,398,204 | )
|                         |  |                   |             |  



| | (b) |  | Pending Transactions                                                                                                                                                                   
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the

(Continued)

F.24



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| |  |  | impairment or disposal of long-lived assets and provides guidance on
classification and accounting for such assets when held for sale.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On October 28, and December 31, 2002, the Company executed purchase and
sale agreements to sell the operating assets and franchise rights of its
cable systems serving the communities of Port Angeles, Washington and
Aiken, South Carolina (the Systems), respectively. The Systems will be
sold independently of each other to unaffiliated third parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  |  | Port Angeles, Washington                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | The terms of the purchase and sale agreement dated October 28, 2002
included a sales price of $2,056 per subscriber, and required that
approximately $879,000 of the gross proceeds be placed in escrow to secure
compliance with representations and warranties, to be released to the
Company one year from the closing of the transaction. On December 23,
2002, an amendment to the purchase and sale agreement was executed,
decreasing the sales price to $2,000 per subscriber at closing. The
adjustment to the purchase price affects only the holdback portion of the
proceeds, reducing the amount to approximately $575,000. After adjusting
for the amended holdback and transaction related costs, management
estimates that the net proceeds to be received upon closing will be
approximately $10,600,000, all of which will be used to pay down amounts
outstanding under the Companys Senior Credit Facility.
|
| |  |  | As of December 31, 2002, the transaction was subject to certain closing
conditions, including the prospective buyer obtaining and providing
evidence of financing sufficient to complete the transaction. As the sale
of the assets was not probable, the assets associated with the transaction
were considered to be held for use, as defined in SFAS No. 144, at December
31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | In January 2003, the prospective buyer provided the Company with the
evidence of financing discussed above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | As of December 31, 2002, the Port Angeles system served approximately 5,700
subscribers. The approximate book value of property and equipment,
franchise agreements and other intangible assets, as of December 31, 2002,
to be sold in association with this transaction are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                                                      |  |   |           | 
|--------------------------------------------------------------------- |  | - | --------- | 
|Property and equipment, net of accumulated depreciation of $5,400,000 |  | $ | 2,700,000 | 
|Intangible assets, net of accumulated amortization of $0              |  |   | 8,000     | 
|                                                                      |  |   |           | 
|                                                                      |  | $ | 2,708,000 | 
|                                                                      |  |   |           | 



| |  |  | Aiken, South Carolina                                                                                                                                                                                                                                                                                                                                                                                  
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Aiken system is being sold for $2,760 per subscriber at closing.
According to the terms of the agreement, approximately $3,700,000 of the
total purchase price will be held in escrow to secure compliance with
representations and warranties for a period of one year, at which time it
will be released to the Company. Management estimates that after
accounting for the required holdback and

(Continued)

F.25



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##### Table of Contents



NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A Wholly Owned Subsidiary of Northland Telecommunications Corporation)

Notes to Consolidated Financial Statements

December 31, 2002 and 2001



| |  |  | transaction related costs, the Company will receive net proceeds of
approximately $41,500,000 upon closing, which will also be used to repay
amounts outstanding under the Companys Senior Credit Facility.                                                                                                                                                                                                                
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | As of December 31, 2002, the transaction was subject to certain closing
conditions, including the consent to the transaction by the Companys
lenders. As the required consents had not been obtained as of December 31,
2002, the assets were not available for immediate sale. Accordingly,
pursuant to SFAS No. 144, the assets associated with the transaction were
considered to be held for use, at December 31, 2002.
|
| |  |  | As of December 31, 2002, the Aiken system served approximately 16,100
subscribers. The approximate book value of property and equipment,
franchise agreements and other intangible assets, as of December 31, 2002,
to be sold in association with this transaction are as follows:                                                                                                                                         

|                                                                                                 |  |   |            |  | 
|------------------------------------------------------------------------------------------------ |  | - | ---------- |  | 
|Property
and equipment, net of accumulated depreciation of $4,900,000                            |  | $ | 7,400,000  | 
|Franchise
agreements and other intangible assets, net of accumulated amortization of $10,700,000 |  |   | 14,400,000 | 
|                                                                                                 |  |   |            | 
|                                                                                                 |  | $ | 21,800,000 | 
|                                                                                                 |  |   |            | 

| |  |  | Summary approximate operating results for the Systems for the years ended
December 31, 2002, 2001 and 2000 are as follows: |  |  |  | 
| |  |  | -------------------------------------------------------------------------------------------------------------------------- |  |  |  | 

|                 |                                |   |            |           |      |  |            |           |  |  |            |           | 
|---------------- | ------------------------------ | - | ---------- | --------- | ---- |  | ---------- | --------- |  |  | ---------- | --------- | 
|                 |                                |   | 2002       |           | 2001 |  | 2000      
|                 |                                |   |            |           |      |  |           
|Revenue          |                                | $ | 12,500,000 |           |      |  | 12,000,000 |           |  |  | 11,700,000 |          
|Expenses:        |                                |   |            |           |      |  |            |           |  |  |            |          
|                 | Cable system operations        |   |            | 4,600,000 |      |  |            | 4,200,000 |  |  |            | 4,000,000 | 
|                 | General and administrative     |   |            | 1,900,000 |      |  |            | 2,000,000 |  |  |            | 2,200,000 | 
|                 | Management fees paid to Parent |   |            | 600,000   |      |  |            | 600,000   |  |  |            | 600,000   | 
|                 | Depreciation and amortization  |   |            | 1,700,000 |      |  |            | 3,900,000 |  |  |            | 3,800,000 | 
|                 |                                |   |            |           |      |  |            |           |  |  |            |          
|Operating income |                                | $ | 3,700,000  |           |      |  | 1,300,000  |           |  |  | 1,100,000  |          
|                 |                                |   |            |           |      |  |            |           |  |  |            |          

(12)    Subsequent Event



| | On March 11, 2003, the Company sold the operating assets and franchise rights
of the Port Angeles, Washington system to an unaffiliated third party. The
system was sold at a purchase price of approximately $11,400,000, which
resulted in the recognition of a gain. Net proceeds from the transaction
were used to repay amounts outstanding under the Companys Revised Senior
Credit Facility.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

F 26



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##### Table of Contents






EXHIBITS INDEX

|        |  |                                                                                                                                                                                         
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                         
|Number  |  | Description                                                                                                                                                                             
|99 (a)  |  | Certification of the Chief Executive Officer, Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes Oxley Act of 2002                                  
|99 (b)  |  | Certification of the President (as Principal Financial and
Accounting Officer), Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002