##### 



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended
    
    Commission File NumberSeptember 30, 2003
    
    1-13332


CABLETEL COMMUNICATIONS CORP.

(Exact name of registrant as specified in its charter)


Ontario, Canada
    
    8647 8526(State or other jurisdiction of
incorporation or organization)
    
    (Canadian Federal Tax Account No.)


230 Travail Rd.
Markham, Ontario, Canada L3S 3J1

---

(Address of principal executive offices)


Registrants telephone number, including area code: (905) 475-1030

Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o

Indicate the number of shares outstanding of each of the Registrants classes
of common stock as of the latest practicable date:

Class
    
    Outstanding as at November 10, 2003Common Stock, no par value
    
    7,167,612


1



---



##### 



CABLETEL COMMUNICATIONS CORP.
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 2003

INDEX

Page No.Part I.
    
    Financial Information
    
    
    3Item 1.
    
    Financial Statements
    
    
    3Balance Sheet as at September 30, 2003 and December 31, 2002
    
    
    3Statement of Operations and Deficit For the 3 and 9 month periods ended September 30, 2003 and 2002
    
    
    4Statement of Cash Flows For the 3 and 9 month periods ended September 30, 2003 and 2002
    
    
    5Notes to Financial Statements
    
    
    6 - 27Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28 - 36Item 3.
    
    Quantitative and Qualitative Disclosures of Market Risk
    
    
    37Item 4.
    
    Controls and Procedures
    
    
    40Part II.
    
    Other Information
    
    
    41Item 1.
    
    Legal Proceedings
    
    
    41Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    41




| |  | The Company is a Foreign Private Issuer as defined in Rule 3b-4 under
the Securities Exchange Act of 1994, as amended. Although as a Foreign
Private Issuer the Company is eligible to file reports on Form 6-K, the
Company has voluntarily elected to file quarterly reports on Form 10-Q.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2



---



##### 



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CABLETEL COMMUNICATIONS CORP.

CONSOLIDATED BALANCE SHEETS
(Canadian Funds)
Unaudited

ASSETS

AuditedSeptember 30,
    
    December 31,2003
    
    2002(Unaudited)CURRENTCash
    
    $
    26,334
    
    
    $
    63,169Accounts receivable
(net of allowance of $141,865; 2002 - $109,914)
    
    
    9,498,019
    
    
    
    14,291,574Inventory (Note 2)
    
    
    7,281,532
    
    
    
    10,488,445Other receivables (Note 9i)
    
    
    246,250
    
    
    
    235,000Income taxes recoverable
    
    
    
    
    
    
    120,000Prepaid expenses and deposits
    
    
    415,438
    
    
    
    1,407,16917,467,573
    
    
    
    26,605,357PROPERTY, PLANT AND EQUIPMENT(Note 3)
    
    
    1,318,851
    
    
    
    2,198,086DEFERRED REFINANCING FEES(Note 8)
    
    
    433,334
    
    
    
    633,334GOODWILL
    
    
    
    
    
    
    161,616PRODUCT DEVELOPMENT COSTS(net of amortization of $129,397; 2002 - $103,517)
    
    
    5,751
    
    
    
    31,631$
    19,225,509
    
    
    $
    29,630,024LIABILITIESCURRENTBank indebtedness (Note 4)
    
    $
    8,638,889
    
    
    $
    12,461,424Accounts payable
    
    
    4,382,974
    
    
    
    6,736,089Accrued liabilities
    
    
    1,825,218
    
    
    
    1,994,647Current portion of long-term debt (Note 5)
    
    
    1,798,622
    
    
    
    2,067,55816,645,703
    
    
    
    23,259,718LONG-TERM DEBT(Note 5)
    
    
    453,480
    
    
    
    1,154,08817,099,183
    
    
    
    24,413,806COMMITMENTS AND CONTINGENCIES(Note 10)SHAREHOLDERS EQUITYCAPITAL STOCK(Note 6)AUTHORIZEDUnlimited First preferred shares, issuable in
seriesUnlimited Common sharesISSUED7,167,612 Common shares (2002 - 7,167,612)
    
    
    16,136,761
    
    
    
    16,136,761Paid in Capital  Warrant
    
    
    164,000
    
    
    
    164,000DEFICIT
    
    
    (14,174,435
    )
    
    
    (11,084,543
    )2,126,326
    
    
    
    5,216,218$
    19,225,509
    
    
    $
    29,630,024


See accompanying notes to financial statements.

3



---



##### 



CABLETEL COMMUNICATIONS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Canadian Funds)
(Undaudited)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,

For the Three Month
    
    For the Nine MonthPeriod Ended September 30,
    
    Period Ended September 30,2003
    
    2002
    
    2003
    
    2002SALES
    
    $
    9,433,123
    
    
    $
    13,650,216
    
    
    $
    29,328,440
    
    
    $
    41,794,281COST OF SALES
    
    
    7,740,034
    
    
    
    10,463,565
    
    
    
    24,933,197
    
    
    
    33,496,624GROSS PROFIT
    
    
    1,693,089
    
    
    
    3,186,651
    
    
    
    4,395,243
    
    
    
    8,297,657EXPENSESSelling, general and administrative
    
    
    1,700,862
    
    
    
    2,878,464
    
    
    
    5,699,017
    
    
    
    7,274,515Special charge (Note 11)
    
    
    
    
    
    
    
    
    
    
    280,000
    
    
    
    Amortization
    
    
    42,510
    
    
    
    72,311
    
    
    
    137,733
    
    
    
    192,616Interest  bank indebtedness
    
    
    166,832
    
    
    
    227,877
    
    
    
    491,689
    
    
    
    554,662Interest  long-term debt
    
    
    71,406
    
    
    
    101,370
    
    
    
    240,300
    
    
    
    195,6291,981,610
    
    
    
    3,280,022
    
    
    
    6,848,739
    
    
    
    8,217,422INCOME (LOSS) BEFORE THE FOLLOWING
    
    
    (288,521
    )
    
    
    (93,371
    )
    
    
    (2,453,496
    )
    
    
    80,235Loss on disposition of assets
    
    
    
    
    
    
    
    
    
    
    31,269
    
    
    
    Write down of long-lived assets
(Note 3)
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    Write off of goodwill (Note 12)
    
    
    
    
    
    
    
    
    
    
    198,606
    
    
    
    Write off of other assets (Note 12)
    
    
    
    
    
    
    11,041
    
    
    
    
    
    
    
    615,850Loss on settlement of debt (Note 5ii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164,000
    
    
    
    11,041
    
    
    
    629,875
    
    
    
    779,850LOSS BEFORE INCOME TAXES
    
    
    (288,521
    )
    
    
    (104,412
    )
    
    
    (3,083,371
    )
    
    
    (699,615
    )Income taxes
    
    
    9,000
    
    
    
    9,000
    
    
    
    6,521
    
    
    
    27,000NET LOSS FOR THE PERIOD
    
    $
    (297,521
    )
    
    $
    (113,412
    )
    
    $
    (3,089,892
    )
    
    $
    (726,615
    )DEFICIT,beginning of period
    
    $
    (13,876,914
    )
    
    $
    (10,679,629
    )
    
    $
    (11,084,543
    )
    
    $
    (10,066,426
    )DEFICIT,end of period
    
    $
    (14,174,435
    )
    
    $
    (10,793,041
    )
    
    $
    (14,174,435
    )
    
    $
    (10,793,041
    )Earnings (loss) per share(Note 7)Basic
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.10
    )Fully diluted
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.10
    )


See accompanying notes to financial statements.

4



---



##### 



CABLETEL COMMUNICATIONS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian Funds)
(Unaudited)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,

For the Three Month
    
    For the Nine MonthPeriod Ended September 30,
    
    Period Ended September 30,2003
    
    2002
    
    2003
    
    2002OPERATING ACTIVITIESLoss for the period
    
    $
    (297,521
    )
    
    $
    (113,412
    )
    
    $
    (3,089,892
    )
    
    $
    (726,615
    )Amortization
    
    
    105,211
    
    
    
    89,660
    
    
    
    349,988
    
    
    
    266,399Amortization of prepaid refinancing
fees
    
    
    66,667
    
    
    
    100,000
    
    
    
    200,000
    
    
    
    100,000Write down of long-lived assets
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    Write off of goodwill
    
    
    
    
    
    
    
    
    
    
    198,606
    
    
    
    Write off of other assets
    
    
    
    
    
    
    11,041
    
    
    
    
    
    
    
    615,850Loss on settlement of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164,000Loss on disposition of assets
    
    
    
    
    
    
    
    
    
    
    31,269
    
    
    
    Imputed interest
    
    
    (3,750
    )
    
    
    (3,999
    )
    
    
    (11,250
    )
    
    
    (11,999
    )Change in accounts receivable
    
    
    168,076
    
    
    
    (1,300,360
    )
    
    
    4,793,555
    
    
    
    (4,669,205
    )Change in inventory
    
    
    2,235,620
    
    
    
    141,930
    
    
    
    3,206,913
    
    
    
    687,957Change in prepaid expenses,
deposits and other
    
    
    (166,326
    )
    
    
    (114,885
    )
    
    
    991,731
    
    
    
    (1,110,076
    )Change in accounts payable
and accrued liabilities
    
    
    (691,332
    )
    
    
    (309,915
    )
    
    
    (2,522,544
    )
    
    
    1,663,059Change in income taxes recoverable
    
    
    
    
    
    
    
    
    
    
    120,000
    
    
    
    (80,192
    )1,416,645
    
    
    
    (1,499,940
    )
    
    
    4,668,376
    
    
    
    (3,100,822
    )FINANCING ACTIVITIESBank indebtedness incurred (repayment)
    
    
    (1,212,646
    )
    
    
    1,621,983
    
    
    
    (3,822,535
    )
    
    
    3,536,534Repayment of long-term debt
    
    
    (202,525
    )
    
    
    (128,814
    )
    
    
    (969,544
    )
    
    
    (388,134
    )(1,415,171
    )
    
    
    1,493,169
    
    
    
    (4,792,079
    )
    
    
    3,148,400INVESTING ACTIVITIESGoodwill acquired
    
    
    
    
    
    
    
    
    
    
    (36,990
    )
    
    
    Disposition of (purchase of) equipment
    
    
    (4,846
    )
    
    
    (23,460
    )
    
    
    123,858
    
    
    
    (49,020
    )(4,846
    )
    
    
    (23,460
    )
    
    
    86,868
    
    
    
    (49,020
    )CHANGE IN CASH
    
    
    (3,372
    )
    
    
    (30,231
    )
    
    
    (36,835
    )
    
    
    (1,442
    )CASH, beginning of period
    
    
    29,706
    
    
    
    41,081
    
    
    
    63,169
    
    
    
    12,292CASH, end of period
    
    $
    26,334
    
    
    $
    10,850
    
    
    $
    26,334
    
    
    $
    10,850SUPPLEMENTARY CASH FLOW INFORMATIONInterest paid
    
    $
    238,238
    
    
    $
    333,246
    
    
    $
    731,989
    
    
    $
    762,290Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    


See accompanying notes to financial statements.

5



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|1. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------



| |  | These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada, which, except as
described in Note 14, conform, in all material respects, with the
accounting principles generally accepted in the United States.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | General
| | --- |  | -------



| |  |  | In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal
recurring adjustments) which are necessary to present fairly the
consolidated financial position as at September 30, 2003 and the
consolidated results of operations and the consolidated cash flows
for the three and nine months ended September 30, 2003 and 2002.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | While management believes that the disclosures presented are
adequate to make the information not misleading, it is suggested
that these consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes included in
the Companys latest annual report on Form 10-K.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The interim financial statements follow the same accounting policies
and methods of their application as the most recent annual financial
statements. However, the interim financial statements do not
include all disclosures necessary to conform in all respects to the
requirements of Canadian generally accepted accounting principles
for annual financial statements.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Consolidation
| | --- |  | -------------



| |  |  | The consolidated financial statements include the accounts of the
wholly-owned subsidiaries, Stirling (Israel) Ltd., and Stirling
Connectors, U.S.A., Inc., and as of November 1, 2002, Allied Wire
and Cable Ltd., (Allied) as a result of the Companys ability to
convert its convertible debenture into 100% ownership of all Allied
issued and outstanding common shares for a nominal consideration.
On May 9, 2003, the Company exercised its option to acquire all the
outstanding shares of Allied.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The consolidated financial statements include the accounts of the
Company after eliminations of inter-company transactions.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------



| | (c) |  | Revenue Recognition
| | --- |  | -------------------



| |  |  | Sales are recognized when legal title to the goods has been passed
to the customer, which generally occurs when products are shipped
from the Companys plant or warehouses, and collection is reasonably
assured.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|2. |  | INVENTORY
|-- |  | ---------



| |  | Inventory is valued at the lower of cost (first-in, first-out) and net
realizable value. Cost includes appropriate elements of duty, freight,
material, labour and overhead.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

September 30,
    
    December 31,2003
    
    2002Raw Material
    
    $
    229,627
    
    
    $
    293,783Work in process
    
    
    440,737
    
    
    
    483,497Finished goods
    
    
    6,611,168
    
    
    
    9,711,165$
    7,281,532
    
    
    $
    10,488,445




|3. |  | PROPERTY, PLANT AND EQUIPMENT
|-- |  | -----------------------------

September 30, 2003
    
    December 31, 2002Accumulated
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    Amortization
    
    Net
    
    Cost
    
    Amortization
    
    Net$
    
    $
    
    $
    
    $
    
    $
    
    $Leasehold improvements
    
    
    711,090
    
    
    
    340,261
    
    
    
    370,829
    
    
    
    711,090
    
    
    
    296,093
    
    
    
    414,997Equipment
    
    
    3,997,274
    
    
    
    3,049,252
    
    
    
    948,022
    
    
    
    4,136,094
    
    
    
    2,353,005
    
    
    
    1,783,0894,708,364
    
    
    
    3,389,513
    
    
    
    1,318,851
    
    
    
    4,847,184
    
    
    
    2,649,098
    
    
    
    2,198,086




| |  | For the three and nine months ended September 30, 2002, the Company did
not amortize equipment with a carrying amount of $837,142 relating to
certain manufacturing equipment during a period the equipment was not in
use. The Company assessed future cash flow based on the Companys
expected plan of operations and it was determined there was no impairment
in value. The Company had re-utilized all these assets in its
manufacturing operations during the year ended December 31, 2002.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During the second quarter of 2003, the Company re-assessed the carrying
value of its manufacturing equipment and determined that there was an
impairment in value and accordingly, the Company took a write down
amounting to $400,000 based on the net realizable value of the assets. At
September 30, 2003 the Company re-assesed the carrying value of its
manufacturing equipment and determined that there was no further
impairment in value.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|4. |  | BANK INDEBTEDNESS
|-- |  | -----------------



| |  | On May 16, 2002, Cabletel entered into a Revolving Credit Facility
Agreement with LaSalle Business Credit, a division of ABN AMBRO BANK N.V.,
Canada Branch (LaSalle) for a three year committed fifteen million
Canadian dollars (CDN$15,000,000) facility, or its United States dollar
equivalent. Canadian Dollar borrowings under the Revolving Credit
Facility bears interest at the LaSalle Prime Reference Rate plus two
percent (2.0%). United States dollar borrowings under the Revolving
Credit Facility bears interest at the LaSalle U.S. Base Reference Rate
plus two percent (2.0%). The facilities are secured by a first priority
security position on all personal property (including without limitation
accounts, contract rights, inventory, machinery and equipment, and general
intangibles, existing and future, second position in the case of certain
machinery and equipment securing a prior loan by the Business Development
Bank of Canada, and general intangibles), existing and future.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The facility contains certain customary covenants. As of September 30,
2003, as a result of a variation from the required minimum adjusted net
worth, interest coverage ratio and debt service ratio, the Company had a
technical violation of the applicable covenants. The Company is working
with its lender to resolve the matter and expects to receive either a
waiver or amendment to the agreement shortly. There can be no assurance
that the Company will be successful in obtaining either a waiver or
amendment. In the event that the Company is unable to obtain such waiver
or amendment the lender would have a right to call a default of the
amounts outstanding under the loan agreement, an event that would also
result in cross defaults with respect to certain of the Companys other
obligations. In such event, the Company would most likely not be in a
position to satisfy its obligations and would have to consider alternative
courses of action, including, but not limited to, seeking protection under
applicable bankruptcy laws.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As of November 1, 2002, the Company began consolidating the results of
Allied, as a result of the Companys ability to convert its convertible
debenture into 100% ownership of all issued and outstanding common shares
of Allied for a nominal consideration. Subsequently, on May 9, 2003,
Cabletel exercised its option and acquired all the outstanding shares of
Allied. Allied is currently in negotiations with its senior bank lender
with regards to an extension of its senior bank facility beyond its
current maturity date. Allieds obligations to its senior bank lender are
not recourse to the Company. However, if Allied is unable to obtain such
an extension, the Company may be required to write-off its investment in
Allied, which could adversely affect the consolidated results of the
Company.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|5. |  | LONG-TERM DEBT
|-- |  | --------------

September 30,
    
    December 31,2003
    
    2002(i)
    
    Term loan-Leaseholds
    
    $
    300,011
    
    
    $
    324,337(ii)
    
    Term loan-Equipment
    
    
    330,400
    
    
    
    401,200(iii)
    
    Term loan-Note
    
    
    1,621,691
    
    
    
    2,496,1092,252,102
    
    
    
    3,221,646Less: Current portion
    
    
    1,798,622
    
    
    
    2,067,558$
    453,480
    
    
    $
    1,154,088




| | (i) |  | Long-term debt bears interest at 10% per annum, payable in
equal monthly installments of $5,264 (principal and interest) for
ten years until February 14, 2010. This debt was obtained for the
improvements of the building covered by a lease agreement and is
payable to the landlord, together with the monthly lease payments.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | Long-term debt bears interest at Business Development Bank of
Canada (BDC) prime plus 0.75% per annum (September 30, 2003 
7.25% per annum; December 31, 2002  7.25% per annum) payable
monthly over a period of 5 years. This debt was provided by the BDC
to purchase production machinery used in the manufacturing of
connectors.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) |  | Contemporaneously with the Company entering into the new
Revolving Credit Facility, the Company renegotiated credit terms with
a major supplier. That renegotiation included the conversion of US
$2.2 million in outstanding payables owed by the Company into a
senior subordinated promissory note, which resulted in the Company
taking a charge of $164,000 on loss of settlement of debt. The
senior subordinated promissory note is in the principal amount of US
$2.2 million, bears interest at the rate of 12% per annum and is
repayable in agreed upon monthly installments of between US $60,000
and US $120,000 over the next two years. In connection with that
renegotiation, the Company also issued to the supplier a Warrant to
acquire up to 200,000 shares of the Companys common stock at an
exercise price of Cdn $1.64 per share up to and including May 31,
2007. The fair value of the Warrant was estimated on the date of the
grant using the fair value recognition method, with the following
assumptions: risk free interest rate of 5%, dividend yield of 0%,
theoretical volatility of .90 and the expected life of 2 years.
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company is in the process of renegotiating the payment terms of
its US $2.2 million subordinated promissory note, (as of September
30, 2003, US $1.3 million), referred to in Note 5(ii) above. The
Company has obtained the consent of the payee to pay one half of
each of the full US $120,000 installments due under the note on each
of May 31, June 30, and July 31, 2003, and one quarter of the
installments due on each of August 31, September 30, October 31, and
November 30, 2003. In connection with that restructuring, Cabletel
has been in discussions with the payee of the note regarding a
restructuring which would reduce
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



| |  |  | the monthly payment below the required US $120,000 to US $30,000 per
month for the first six months and US $45,000 per month for the
remainder of the payments.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Although discussions with the payee have commenced, and an agreement
in principle has been reached, to date Cabletel and the payee have
not completely finalized the terms of a restructuring. Unless an
agreement is completed by November 15, 2003, Cabletel will be
required to pay the full US $120,000 installment due on November 30,
2003, plus the amount of Cabletels total underpayment of US
$450,000 with respect to May 31, June 30, July 31, August 31,
September 30, October 31, and November 30, 2003 installments.
Unless an agreement is reached, Cabletel does not expect to be in a
position to make those payments. If Cabletel is unable or otherwise
fails to make those payments in full it would constitute a default
of the terms of the note, which is unsecured and subordinated to the
rights of the senior bank lenders under Cabletels senior credit
facility. If no agreement is reached, Cabletel may not be in a
position to make all of the required payments, an event that could
permit the payee to call an event of default under the note, an
event that would also result in cross defaults with respect to
certain of the Companys other obligations. In such event, the
Company would most likely not be in a position to satisfy its
obligations and would have to consider alternative courses of
action, including, but not limited to, seeking protection under
applicable bankruptcy laws.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | CAPITAL STOCK
|-- |  | -------------

Number
    
    AmountBalance, December 31, 2002
    
    
    7,167,612
    
    
    $
    16,136,761Balance, September 30, 2003
    
    
    7,167,612
    
    
    $
    16,136,761




| |  | Stock Option Plan
| |  | -----------------



| |  | Under the terms of a stock option plan approved by the shareholders in
May, 1994 and amended in November of 1999, and March of 2002, the Company is
authorized to grant directors, officers, employees and others, options to
purchase common shares at prices based on the market price of shares as
determined on the date of grant. At September 30, 2003, 537,500 options remain
available to be granted. Stock options become exercisable at dates determined
by the Compensation Committee.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|6. |  | CAPITAL STOCK(continued)
|-- |  | ------------------------

Common shares have been reserved for stock options on the following basis:

Option
    
    WeightedShares
    
    Price
    
    Average$
    
    $Outstanding and ExercisableBalance at December 31, 2002
    
    
    1,444,000
    
    
    
    1.53  9.28
    
    
    
    3.88Cancelled
    
    
    31,500
    
    
    
    2.10  4.44
    
    
    
    3.20Balance at September 30, 2003
    
    
    1,412,500
    
    
    
    1.53  9.28
    
    
    
    3.89


In connection with the settlement of outstanding accounts payable (Note 5iii),
common shares have been reserved for warrants on the following basis:

Exercise
    
    WeightedShares
    
    Price
    
    Average$
    
    $Outstanding and ExercisableBalance at December 31, 2002
    
    
    200,000
    
    
    
    1.64
    
    
    
    1.64Balance at September 30, 2003
    
    
    200,000
    
    
    
    1.64
    
    
    
    1.64


In December 2001, the CICA issued Handbook Section 3870 Stock-Based
Compensation and Other Stock-Based Payments. Effective for the Companys
fiscal year beginning January 1, 2002, the new section requires the use of a
fair-value based approach of accounting for certain specified stock-based
awards. For all other employee stock-based awards, the section encourages but
does not require that a fair-value based approach be used. Had compensation
expense for the Companys stock-based compensation plan been determined based
on the fair value at the grant dates for awards under the Plan consistent with
the method under CICA Handbook Section 3870, the Companys net income and
earnings per share would have been reported as the pro-forma amounts indicated
in the table below.

11



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|6. |  | CAPITAL STOCK(continued)
|-- |  | ------------------------

The fair value of each option grant was estimated on the date of the grant
using the fair value recognition method, with the following assumptions: risk
free interest rate of 5%; dividend yield of 0%; theoretical volatility
assumption of .90; three years vesting provision on certain options granted in
2002 and the expected lives of options of 3 years.

As Reported

3 months
    
    3 months
    
    9 months
    
    9 monthsSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002As Reported
    
    As Reported
    
    As Reported
    
    As ReportedNet income (loss)
    
    $
    (297,521
    )
    
    $
    (113,412
    )
    
    $
    (3,089,892
    )
    
    $
    (726,615
    )Net
income (loss) per shareBasic and Fully Diluted
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.10
    )


Pro-Forma

3 months
    
    3 months
    
    9 months
    
    9 monthsSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Pro-Forma
    
    Pro-Forma
    
    Pro-Forma
    
    Pro-FormaNet loss
    
    $
    (297,521
    )
    
    $
    (113,412
    )
    
    $
    (3,089,892
    )
    
    $
    (1,407,398
    )Net earnings (loss) per shareBasic and Fully Diluted
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.20
    )Weighted average fair value of
options granted during this period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $1.25




|7. |  | EARNINGS PER SHARE
|-- |  | ------------------



| | (a) |  | Basic Earnings per Share
| | --- |  | ------------------------



| |  |  | The weighted average number of shares outstanding amounted to
7,167,612 for the three and nine months ended September 30, 2003 and
7,167,612 for the three and nine months ended September 30, 2002.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|7. |  | EARNINGS PER SHARE(continued)
|-- |  | -----------------------------



| | (b) |  | Fully Diluted Earnings per Share
| | --- |  | --------------------------------



| |  |  | The Company adopted the recommendations of CICA Handbook Section
3500, Earnings per Share (EPS), effective January 1, 2001. The
revised section requires the presentation of both basic and diluted
EPS on the face of the income statement regardless of the
materiality of difference between them and requires the use of the
treasury stock method to compute the dilutive effect of options as
opposed to the former imputed earnings approach.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the three and nine months ended September 30, 2003 the exercise
of outstanding stock options do not have a dilutive effect on
earnings (loss) per share. All the options as indicated in Note 6,
outstanding during the three and nine months ended September 30,
2003 being 1,412,500 were not included in the calculation of diluted
earnings per share as to do so would have been anti-dilutive. Also
not included in the calculation of diluted earnings per
share for the three and nine months ended September 30, 2003 were
200,000 warrants as to do so would have been anti-dilutive. For the
three and nine months ended September 30, 2003 the weighted average
number of shares for diluted earnings per share was the same as that
for basic earnings per share.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The following table sets forth the computation of basic and diluted
earnings per share:
| |  | ---------------------------------------------------------------------------------------

For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Numerator:Net loss and numerator for
basic loss and for diluted
loss per share
    
    $
    (297,521
    )
    
    $
    (113,412
    )
    
    $
    (3,089,892
    )
    
    $
    (726,615
    )Denominator:Weighted-average shares for basic
loss per share
    
    
    7,167,612
    
    
    
    7,167,612
    
    
    
    7,167,612
    
    
    
    7,167,612Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dilutive potential of common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted weighted-average
shares and assumed conversions
for diluted earnings per share
    
    
    7,167,612
    
    
    
    7,167,612
    
    
    
    7,167,612
    
    
    
    7,167,612Basic loss per share
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.10
    )Diluted loss per share
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.10
    )


13



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|8. |  | DEFERRED REFINANCING FEES
|-- |  | -------------------------



| |  | Deferred refinancing fees relate to costs incurred in connection with the
Companys refinancing of its long-term bank debt with ABN AMRO. (See note
4) Deferred refinancing fees are amortized over three years being the life
of the loan.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------



| | (i) |  | On December 12, 2000, the Companys Board of Directors approved
two executive loan agreements (i) to the President of the Company in
the amount of $150,000 and (ii) to the Chief Financial Officer of the
Company in the amount of $100,000. The loans mature on December 19,
2003, and are unsecured and interest-free. The Company carries these
loans at estimated fair value using a discount rate of 7% per annum.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | For the three months ended September 30, 2003 and 2002 the
Company paid to the Sullivan Group, an entity controlled by the
President of the Company, $13,950 and $13,950 respectively and for the
nine months ended September 30, 2003 and 2002, $41,850 and $41,850
respectively relating to charges in connection with Mr. Wallings
compensation.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10. |  | COMMITMENTS AND CONTINGENCIES
|--- |  | -----------------------------



| |  | The Company is party to legal actions arising in the ordinary course of
its business. In managements opinion, the Company has adequate insurance
coverage and/or legal defenses with respect to any of these actions and
does not believe that they will materially affect the Companys
consolidated financial position or results of operations.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|11. |  | SPECIAL CHARGES
|--- |  | ---------------



| |  | For the nine months ended September 30, 2003, Cabletel recorded special
charges of $280,000 related to termination expenses of approximately 25%
of Cabletels workforce. As of September 30, 2003, the unpaid balance of
these charges included in accrued liabilities was $192,086. For the three
and nine months ended September 30, 2003 the Company has paid out $87,914
relating to the special charge.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|12. |  | ACQUISITION OF ALLIED WIRE AND CABLE LTD.
|--- |  | -----------------------------------------



| |  | On November 1, 2002, the Company entered into a transaction with Allied
Wire and Cable Ltd., and certain related companies pursuant to which
Cabletel has been granted an option to acquire all of the capital stock of
Allied for a nominal consideration. As part of the transaction, Cabletel
agreed to provide an additional $100,000 in inventory on extended terms
and advance $50,000 in cash to Allied. As previously reported, the
Companys second quarter ended June 30, 2002 results included a write-off
related to Allied. The company took that write-off in connection with the
termination of its previously announced agreement to acquire Allied.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As set out in note 1(b), Allied has been accounted for by the purchase
method and as such results of operations for this business have been
included for the period beginning November 1, 2002. To date approximately
$198,606 of goodwill has been recorded in connection with the transaction.
The acquisition was accounted for as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net assets acquiredTotal current assets
    
    $
    986,504Total liabilities
    
    
    (1,303,071
    )Other
    
    
    217,575Acquisition costs
    
    
    (99,614
    )(198,606
    )Goodwill
    
    
    198,606$
    0Consideration given
    
    $
    0




| |  | During the second quarter ending June 30, 2003, the Company assessed the
carrying value of the goodwill and determined that it had been impaired due to
Allieds poor performance and continued uncertainty in the telecommunications
industry, as well as uncertainty as to whether or not Allied will be successful
in obtaining an extension of its senior bank facility beyond its current
maturity date. As a result the Company has decided to write-off the total
carrying amount of $198,606.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|13. |  | SEGMENTED INFORMATION
|--- |  | ---------------------



| |  | The Company operates in three separate segments  distribution of
broadband communications equipment, distribution of technology equipment
and manufacturing of coaxial cable connectors.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | It should be noted that industry segment information may be of limited
usefulness in comparing an industry segment of the Company with a similar
industry segment of another enterprise.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Selected information by operating segment is summarized below for the
three and nine months ended September 30, 2003 and 2002.
| |  | ------------------------------------------------------------------------------------------------------------------------------



| |  | Summary of Business Segment
| |  | ---------------------------

For the Three Months Ended
    
    For the Nine MonthsSeptember 30,
    
    Ended September 30,Net Revenue
    
    2003
    
    2002
    
    2003
    
    2002Distribution
    
    $
    6,057,386
    
    
    $
    10,454,523
    
    
    $
    20,054,468
    
    
    $
    34,298,626Manufacturing
    
    
    2,067,634
    
    
    
    2,820,681
    
    
    
    6,846,339
    
    
    
    6,223,171Technology
    
    
    2,008,630
    
    
    
    608,458
    
    
    
    4,357,195
    
    
    
    1,858,317Less: Inter-company eliminations
    
    
    (700,527
    )
    
    
    (233,446
    )
    
    
    (1,929,562
    )
    
    
    (585,833
    )Total Net Revenue
    
    $
    9,433,123
    
    
    $
    13,650,216
    
    
    $
    29,328,440
    
    
    $
    41,794,281Gross ProfitDistribution
    
    $
    938,263
    
    
    $
    2,045,862
    
    
    $
    2,666,397
    
    
    $
    5,968,899Manufacturing
    
    
    478,339
    
    
    
    1,018,376
    
    
    
    1,191,787
    
    
    
    2,045,090Technology
    
    
    276,487
    
    
    
    122,413
    
    
    
    537,059
    
    
    
    283,668Total Gross Profit
    
    $
    1,693,089
    
    
    $
    3,186,651
    
    
    $
    4,395,243
    
    
    $
    8,297,657Selling, general and administrative expenses
    
    
    (1,700,862
    )
    
    
    (2,878,464
    )
    
    
    (5,699,017
    )
    
    
    (7,274,515
    )Special charge
    
    
    
    
    
    
    
    
    
    
    (280,000
    )
    
    
    Amortization
    
    
    (42,510
    )
    
    
    (72,311
    )
    
    
    (137,733
    )
    
    
    (192,616
    )Interest expense  bank indebtedness
    
    
    (166,832
    )
    
    
    (227,877
    )
    
    
    (491,689
    )
    
    
    (554,662
    ) long-term debt
    
    
    (71,406
    )
    
    
    (101,370
    )
    
    
    (240,300
    )
    
    
    (195,629
    )(1,981,610
    )
    
    
    (3,280,022
    )
    
    
    (6,848,739
    )
    
    
    (8,217,422
    )Consolidated Earnings (Loss) Before
the Following
    
    
    (288,521
    )
    
    
    (93,371
    )
    
    
    (2,453,496
    )
    
    
    80,235Write down of long lived assets
    
    
    
    
    
    
    
    
    
    
    (400,000
    )
    
    
    Write off of goodwill
    
    
    
    
    
    
    
    
    
    
    (198,606
    )
    
    
    Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    (31,269
    )
    
    
    Write-off of other assets
    
    
    
    
    
    
    (11,041
    )
    
    
    
    
    
    
    (615,850
    )Loss on settlement of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (164,000
    )
    
    
    
    (11,041
    )
    
    
    (629,875
    )
    
    
    (779,850
    )Loss Before Income Taxes
    
    $
    (288,521
    )
    
    $
    (104,412
    )
    
    $
    (3,083,371
    )
    
    $
    (669,615
    )


16



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|13. |  | SEGMENTED INFORMATION(continued)
|--- |  | --------------------------------



| |  | Identifiable Assets:
| |  | --------------------

September 30,
    
    December 31,2003
    
    2002Distribution and Technology
    
    $
    11,179,340
    
    
    $
    20,213,322Manufacturing
    
    
    8,046,169
    
    
    
    9,296,702Other unallocated assets
    
    
    
    
    
    
    120,000Total Identifiable Assets
    
    $
    19,225,509
    
    
    $
    29,630,024


Expenditures on Property,
    
    For the Three Months
    
    For the Nine MonthsPlant and Equipment
    
    Ended September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Distribution and Technology
    
    $
    1,997
    
    
    $
    22,302
    
    
    $
    (122,951
    )
    
    $
    57,111Manufacturing
    
    
    2,849
    
    
    
    1,158
    
    
    
    (907
    )
    
    
    (8,091
    )Total Expenditures
    
    $
    4,846
    
    
    $
    23,460
    
    
    $
    (123,858
    )
    
    $
    49,020




| |  | Amortization
| |  | ------------



| |  | (Includes amortization in cost of sales, product development costs and
deferred refinancing fees.)
| |  | --------------------------------------------------------------------------------------------------

For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Distribution and Technology
    
    $
    39,866
    
    
    $
    16,966
    
    
    $
    129,666
    
    
    $
    157,365Manufacturing
    
    
    65,345
    
    
    
    72,694
    
    
    
    220,322
    
    
    
    109,034Deferred refinancing fees
    
    
    66,667
    
    
    
    100,000
    
    
    
    200,000
    
    
    
    100,000Total Amortization
    
    $
    171,878
    
    
    $
    189,660
    
    
    $
    549,988
    
    
    $
    366,399




| |  | Summary by Geographical Area
| |  | ----------------------------



| |  | Net Revenue
| |  | -----------



| |  | (Revenues are attributed based on the location of the customer.)
| |  | ----------------------------------------------------------------

For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Canada
    
    $
    8,066,016
    
    
    $
    11,062,981
    
    
    $
    24,411,663
    
    
    $
    36,156,943United States
    
    
    1,314,457
    
    
    
    2,061,997
    
    
    
    4,409,811
    
    
    
    4,743,162Other
    
    
    52,650
    
    
    
    525,238
    
    
    
    506,966
    
    
    
    894,176Total Net Revenue
    
    $
    9,433,123
    
    
    $
    13,650,216
    
    
    $
    29,328,440
    
    
    $
    41,794,281


17



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|13. |  | SEGMENTED INFORMATION(continued)
|--- |  | --------------------------------



| |  | Sales Information
| |  | -----------------



| |  | Distribution
| |  | ------------



| |  | Sales to a customer within the Distribution segment for the three months
ended September 30, 2003 amounted to approximately $1,316,769 or 14% of
total revenue. Sales to this customer for the nine months ended September
30, 2003 amounted to approximately $3,814,614 or 13% of total revenue. At
September 30, 2003 this customer accounted for approximately 30% of total
Cabletel accounts receivable. The customers account was current as per
the terms and conditions of sale. The conditions of sale to this
particular customer include payment terms of 180 days.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Sales to another customer within the Distribution segment for the three
months ended September 30, 2003 amounted to approximately $1,198,193 or
13% of total revenue. Sales to this customer for the nine months ended
September 30, 2003 amounted to approximately $6,002,261 or 20% of total
revenue. At September 30, 2003 this customer accounted for approximately
9% of total Cabletel accounts receivable. The customers account was
current as per the terms and conditions of sale.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Manufacturing
| |  | -------------



| |  | Sales to a customer within the Manufacturing segment for the three months
ended September 30, 2003 amounted to approximately $862,492 or 42% of the
Manufacturing segments total sales or approximately 9% of the Companys
total consolidated sales. For the nine months ended September 30, 2003,
sales to this customer within the Manufacturing segment amounted to
approximately $3,323,985 or 49% of the Manufacturing segments total sales
or approximately 11% of the Companys total consolidated sales. At
September 30, 2003 this customer accounted for approximately 15% of the
Companys total consolidated accounts receivable. At September 30, 2003,
the customers account was current as per the terms and conditions of
sale. Approximately $350,000 of this receivable is insured through Export
Development Canada.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|14. |  | UNITED STATES ACCOUNTING PRINCIPLES
|--- |  | -----------------------------------



| |  | The following table reconciles the net earnings (loss) as reported on the
statements of operations and deficit prepared in accordance with Canadian
GAAP to the net income that would have been reported had the financial
statements been prepared in accordance with U.S. GAAP.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) |  | Under Canadian GAAP costs classified as development
costs are charged in the income statement unless they meet
certain criteria; in which case, the costs must be deferred and
amortized. Under U.S. GAAP all costs classified as either
research or development costs are charged in the income
statement as incurred.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Reconciliation of Net Earnings From Canadian GAAP to United States GAAP
| |  | -----------------------------------------------------------------------

For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Net loss in accordance with
Canadian GAAP
    
    $
    (297,521
    )
    
    $
    (113,412
    )
    
    $
    (3,089,892
    )
    
    $
    (726,615
    )Reduction in amortization
of development costs (net
of income taxes)
    
    
    4,658
    
    
    
    4,658
    
    
    
    13,974
    
    
    
    13,974Net loss in accordance
with U.S. GAAP
    
    $
    (292,863
    )
    
    $
    (108,754
    )
    
    $
    (3,075,918
    )
    
    $
    (712,641
    )


19



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|14. |  | UNITED STATES ACCOUNTING PRINCIPLES(continued)
|--- |  | ----------------------------------------------

Balance Sheet Presentation Comparing Canadian GAAP to United States GAAP

September 30,
    
    December 31,2003
    
    2002CDN GAAP
    
    US GAAP
    
    CDN GAAP
    
    US GAAPASSETSCURRENTCash
    
    $
    26,334
    
    
    $
    26,334
    
    
    $
    63,169
    
    
    $
    63,169Accounts receivable
    
    
    9,498,019
    
    
    
    9,498,019
    
    
    
    14,291,574
    
    
    
    14,098,457Inventory
    
    
    7,281,532
    
    
    
    7,281,532
    
    
    
    10,488,445
    
    
    
    9,874,445Other receivables
    
    
    246,250
    
    
    
    246,250
    
    
    
    235,000
    
    
    
    235,000Income taxes recoverable
    
    
    
    
    
    
    
    
    
    
    120,000
    
    
    
    120,000Prepaid expenses, deposits and other
    
    
    415,438
    
    
    
    415,438
    
    
    
    1,407,169
    
    
    
    1,398,46017,467,573
    
    
    
    17,467,573
    
    
    
    26,605,357
    
    
    
    25,789,531PROPERTY, PLANT AND EQUIPMENT
    
    
    1,318,851
    
    
    
    1,318,851
    
    
    
    2,198,086
    
    
    
    1,980,511DEFERRED REFINANCING FEES
    
    
    433,334
    
    
    
    433,334
    
    
    
    633,334
    
    
    
    633,334GOODWILL
    
    
    
    
    
    
    
    
    
    
    161,616
    
    
    
    INVESTMENT IN ALLIED
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,847PRODUCT DEVELOPMENT COSTS
    
    
    5,751
    
    
    
    
    
    
    
    31,631
    
    
    
    $
    19,225,509
    
    
    $
    19,219,758
    
    
    $
    29,630,024
    
    
    $
    28,520,223LIABILITIESCURRENTBank indebtedness
    
    $
    8,638,889
    
    
    $
    8,638,889
    
    
    $
    12,461,424
    
    
    $
    11,741,424Accounts payable
    
    
    4,382,974
    
    
    
    4,382,974
    
    
    
    6,736,089
    
    
    
    6,377,919Accrued liabilities
    
    
    1,825,218
    
    
    
    1,824,499
    
    
    
    1,994,647
    
    
    
    1,982,022Long-term debt
    
    
    1,798,622
    
    
    
    1,798,622
    
    
    
    2,067,558
    
    
    
    2,067,55816,645,703
    
    
    
    16,644,984
    
    
    
    23,259,718
    
    
    
    22,168,923LONG-TERM DEBT
    
    
    453,480
    
    
    
    453,480
    
    
    
    1,154,088
    
    
    
    1,154,08817,099,183
    
    
    
    17,098,464
    
    
    
    24,413,806
    
    
    
    23,323,011SHAREHOLDERS EQUITYCAPITAL STOCK
    
    
    16,300,761
    
    
    
    16,300,761
    
    
    
    16,300,761
    
    
    
    16,300,761DEFICIT
    
    
    (14,174,435
    )
    
    
    (14,179,467
    )
    
    
    (11,084,543
    )
    
    
    (11,103,549
    )2,126,326
    
    
    
    2,121,294
    
    
    
    5,216,218
    
    
    
    5,197,212$
    19,225,509
    
    
    $
    19,219,758
    
    
    $
    29,630,024
    
    
    $
    28,520,223


20



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|14. |  | UNITED STATES ACCOUNTING PRINCIPLES(continued)
|--- |  | ----------------------------------------------



| | (a) |  | Earnings Per Share
| | --- |  | ------------------



| |  | Net loss per share calculations under U.S. GAAP would not differ
materially from that reported under Canadian GAAP and accordingly earnings
per share would be disclosed as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Net loss per share:Basic loss per share
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.10
    )Diluted loss per share
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.10
    )Weighted average shares outstanding:Basic
    
    
    7,167,612
    
    
    
    7,167,612
    
    
    
    7,167,612
    
    
    
    7,167,612Diluted
    
    
    7,167,612
    
    
    
    7,167,612
    
    
    
    7,167,612
    
    
    
    7,167,612




| | (b) |  | Comprehensive Income
| | --- |  | --------------------



| |  |  | Statement of Financial Accounting Standards No. 130 (SFAS 130),
Reporting Comprehensive Income, establishes standards for the
reporting and display of comprehensive income and its components and
requires restatement of all previously reported information for
comparative purposes. For the three and nine months ended September
30, 2003, and 2002 the Companys comprehensive income was the same
as net earnings.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003

14.  UNITED STATES ACCOUNTING PRINCIPLES (continued)



| | (c) |  | Accounting for stock options and pro-forma disclosures required under SFAS 123
| | --- |  | ------------------------------------------------------------------------------



| |  |  | Issued by the Financial Accounting Standards Board in October, 1996,
Statement of Financial Accounting Standards No. 123, (SFAS 123),
Accounting for Stock-Based Compensation, establishes financial
accounting and reporting standards for stock-based employee
compensation plans as well as transactions in which an entity issues
its equity instruments to acquire goods or services from
non-employees. This statement defines a fair value based method of
accounting for employee stock option or similar equity instruments,
and encourages all entities to adopt that method of accounting for
all their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, (APB 25),
Accounting for Stock Issued to Employees.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Entities electing to remain with the accounting in APB 25 must make
pro-forma disclosures of net income and, if presented, earnings per
share, as if the fair value based methods of accounting defined by
SFAS 123 had been applied. SFAS 123 is applicable to fiscal years
beginning after December 15, 1996.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company accounts for its stock options under Canadian GAAP,
which, in the Companys circumstances are not materially different
from the amounts that would be determined under the provisions of
the APB 25 and related interpretations in accounting for its stock
option plan. No compensation expense has been charged to the
statement of operations for the plan for the three and nine months
ended September 30, 2003 or September 30, 2002. Had compensation
expense for the Companys stock-based compensation plan been
determined based on the fair value at the grant dates for awards
under the Plan consistent with the method under SFAS 123, the
Companys net income and earnings per share would have been reported
as the pro-forma amounts indicated in the table below.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The fair value of each option grant was estimated on the date of the
grant using the fair value recognition method, with the following
assumptions for the three and nine months ended September 30, 2002;
risk free interest rate of 5% dividend yield of 0%, theoretical
volatility assumption of .90, three years vesting provision on all
options granted in 2002 and the expected lives of options of 3 to 7
years. No options were granted during the three and nine months
ended September 30, 2003.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|14. |  | UNITED STATES ACCOUNTING PRINCIPLES(continued)
|--- |  | ----------------------------------------------



| |  | As Reported
| |  | -----------

For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002As Reported
    
    As Reported
    
    As Reported
    
    As ReportedNet loss U.S. GAAP
    
    $
    (292,863
    )
    
    $
    (108,754
    )
    
    $
    (3,075,918
    )
    
    $
    (712,641
    )Net loss per shareBasic
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.10
    )Diluted
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.10
    )




| |  | Pro-Forma
| |  | ---------

For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Pro-Forma
    
    Pro-Forma
    
    Pro-Forma
    
    Pro-FormaNet loss U.S. GAAP
    
    $
    (292,863
    )
    
    $
    (108,754
    )
    
    $
    (3,075,918
    )
    
    $
    (1,393,424
    )Net loss per shareBasic
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.19
    )Diluted
    
    
    ($0.04
    )
    
    
    ($0.02
    )
    
    
    ($0.43
    )
    
    
    ($0.19
    )Weighted average fair value of
Options granted during this
period
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    $1.25




| | (d) |  | Recent United States Accounting Pronouncements
| | --- |  | ----------------------------------------------



| |  |  | Under Staff Accounting Bulletin 74, the Company is required to
disclose certain information related to new accounting
standards which had not yet been adopted due to delayed
effective dates.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) |  | Statement of Financial Accounting Standards
(SFAS) No. 141, SFAS 142, SFAS 143 and SFAS 144
| | --- |  | ---------------------------------------------------------------------------------------------



| |  |  | In July 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 141, Business Combinations, and SFAS No. 142
Goodwill and Other Intangible Assets.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August 2001, the FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations.
| |  |  | --------------------------------------------------------------------------------------------

23



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|14. |  | UNITED STATES ACCOUNTING PRINCIPLES(continued)
|--- |  | ----------------------------------------------



| |  |  | In October 2001, the FASB issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets.
| |  |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | On January 1, 2002, the Company adopted SFAS No. 141, SFAS No.
142, SFAS No. 143 and SFAS No. 144. The adoption of these
statements did not have a material impact on the Companys
results of operations or financial condition.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | Statement of Financial Accounting Standards No. 146 (SFAS No. 146)
| | ---- |  | ------------------------------------------------------------------



| |  |  | In July 2002, the FASB issued SFAS No. 146, which addresses
significant issues regarding the recognition, measurement, and
reporting of costs that are associated with exit and disposal
activities, including restructuring activities that are
currently accounted for pursuant to the guidance that the
Emerging Issues Task Force (EITF) has set forth in EITF issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring).
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SFAS No. 146 revises the accounting for certain lease
termination costs and employee termination benefits, which are
generally recognized in connection with restructuring
activities. The adoption of this Statement is not expected to
have a material effect on the Companys results of operations
or financial condition.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) |  | Statement of Financial Accounting Standards No. 148 (SFAS No. 148)
| | ----- |  | ------------------------------------------------------------------



| |  |  | In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. SFAS
No. 148 amends the transition and disclosure provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, to provide
three alternative methods of transition for an entity that
voluntarily adopts the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also
amends the disclosure provisions of SFAS No. 123 to require
prominent disclosure about the effects on reported net income
of an entitys accounting policy decisions with respect to
stock-based
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|14. |  | UNITED STATES ACCOUNTING PRINCIPLES(continued)
|--- |  | ----------------------------------------------



| |  |  | compensation. Finally, SFAS No. 148 amends APB Opinion No. 28,
Interim Financial Reporting, to require disclosure about
those effects in interim financial information. The provisions
related to the alternative transition methods and the new
disclosure requirements were effective for the Company as of
December 31, 2002. There was no impact on the companys
financial condition or results of operations as a result of the
adoption of SFAS No. 148, but the Companys disclosures related
to stock-based compensation have been modified in accordance
with the new requirements. The interim reporting provisions of
SFAS No. 148 were effective for the Company as of March 31,
2003, and management has modified the Companys quarterly
disclosures in accordance with the new requirements.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) |  | FASB Interpretation No. 45 (FIN 45)
| | ---- |  | -----------------------------------



| |  |  | In November 2002, the FASB issued FIN 45, which expands
previously issued accounting guidance and disclosure
requirements for certain guarantees. FIN 45 requires the
Company to recognize an initial liability for the fair value of
an obligation assumed by issuing a guarantee. The provision
for initial recognition and measurement of the liability will
be applied on a prospective basis to guarantees issued or
modified after December 31, 2002. FIN 45 has been adopted with
no material effect on the Companys results of operations or
financial condition.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) |  | FASB Interpretation No. 46 (FIN 46)
| | --- |  | -----------------------------------



| |  |  | In January 2003, FASB issued FIN 46, Consolidation of Variable
Interest Entities which requires the consolidation of variable
interest entities, as defined. FIN 46 is applicable to
financial statements to be issued by the Company after 2002;
however, disclosures are required currently if the Company
expects to consolidate any variable interest entities. The
Company does not currently hold an interest in a variable
interest entity, thus the initial application of this
Interpretation did not affect the Companys results of
operations, financial position or disclosures.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|14. |  | UNITED STATES ACCOUNTING PRINCIPLES(continued)
|--- |  | ----------------------------------------------



| | (vi) |  | Statement of Financial Accounting Standards No. 149
(SFAS No. 149)
| | ---- |  | ------------------------------------------------------------------



| |  |  | In April 2003, the FASB issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities. This Statement amends and clarifies financial
accounting and reporting for derivative instruments and for
hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 149
clarifies the conditions under which a contract with an initial
net investment meets the characteristic of a derivative;
clarifies when a derivative contains a financing component;
amends the definition of an underlying to conform it to
language used in FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others; and
amends certain other existing pronouncements. This Statement
is effective for contracts entered into or modified by the
Company after June 30, 2003 and for hedging relationships
designated by the Company after June 30, 2003. All provisions
of this Statement will be applied prospectively. At the
present time the Company does not engage in any hedging
activities, accordingly the application of this Statement is
not expected to have a material effect on the Companys results
of operations or financial position.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) |  | Statement of Financial Accounting Standards No. 150 (SFAS No. 150)
| | ----- |  | ------------------------------------------------------------------



| |  |  | In May 2003, the FASB issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement establishes standards
for the classification and measurement of certain financial
instruments with characteristics of both liabilities and
equity. It clarifies when an issuer must classify certain
financial instruments as liabilities (or as assets, in some
circumstances), rather than including them within stockholders
equity or separately classifying them as mezzanine equity.
This statement was effective for the Company for financial
instruments entered into or modified after May 31, 2003, and
otherwise is effective for the Company in the third quarter of
2003. The Company has not
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26



---



##### 



CABLETEL COMMUNICATIONS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)

SEPTEMBER 30, 2003



|14. |  | UNITED STATES ACCOUNTING PRINCIPLES(continued)
|--- |  | ----------------------------------------------



| |  |  | issued any financial instruments within the scope of SFAS No.
150; therefore, the application of SFAS No. 150 is not expected
to affect the Companys results of operations, financial
position or disclosures.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|15. |  | SUBSEQUENT EVENTS
|--- |  | -----------------



| | (i) |  | In May, 2002 the Company entered into a new revolving credit
facility with its main bank lender. The new CDN $15 million
facility, which replaced Cabletels previous working capital line,
has a three-year term and provides for up to a $3 million increase
over the maximum availability under Cabletels prior facility. As of
September 30, 2003, as a result of a variation from the required
minimum adjusted net worth, interest coverage ratio and debt service
ratio, the Company had a technical violation of the applicable
covenants. The Company is working with its lender to resolve the
matter and expects to receive either a waiver or amendment to the
agreement shortly. There can be no assurance that the Company will
be successful in obtaining either a waiver or amendment. In the
event that the Company is unable to obtain such waiver or amendment
the lender would have a right to call a default of the amounts
outstanding under the loan agreement, and event that would also
result in cross defaults with respect to certain of the Companys
other obligations. In such event, the Company would most likely not
be in a position to satisfy its obligations and would have to
consider alternative courses of action, including, but not limited
to, seeking protection under applicable bankruptcy laws.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | As of October 15, 2003, the Company had reached, in principle,
a final agreement in connection with the re-negotiation of payment
terms with a major supplier (See note 5iii). The Company expects to
complete the agreement within sixty days. If for whatever reason the
agreement cannot be completed by December 15, 2003, the payee could
call an event of default. The lender would have a right to call a
default of the amounts outstanding under the note agreement, an event
that would also result in cross defaults with respect to certain of
the Companys other obligations. In such event, the Company would
most likely not be in a position to satisfy its obligations and would
have to consider alternative courses of action, including, but not
limited to, seeking protection under applicable bankruptcy laws.
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27



---



##### 





|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------

CRITICAL ACCOUNTING POLICIES

Managements Discussion and Analysis of Financial Condition and Results
of Operations includes discussion and analysis of our consolidated financial
statements, which have been prepared in conformity with accounting principles
generally accepted in Canada, which, except as described in Note 14 of the
accompanying financial statements, conform, in all material respects, with the
accounting principles generally accepted in the United States. The preparation
of these financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. These estimates and their underlying assumptions form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other objective sources. Management bases
its estimates, as appropriate, when changes in events or circumstances indicate
that revisions may be necessary. Significant accounting estimates reflected in
our financial statements include the allowance for doubtful accounts, inventory
excess and obsolescence reserves, discounts, allowances and rebates, income tax
valuation allowances and impairment reviews for investments, fixed assets,
goodwill and other intangibles. Although these estimates are based on
managements knowledge of and experience with past and current events and on
managements assumptions about future events, it is at least reasonably
possible that they may ultimately differ materially from actual results.

Management believes that the following critical accounting policies
require more significant judgments and estimates in the preparation of the
Companys consolidated financial statements. We maintain allowances for
doubtful accounts for estimated losses expected to result from the inability of
our customers to make required payments. These estimates are based on
managements evaluation of the ability of our customers to make payments,
focusing on customer financial difficulties and age of receivable balances. An
adverse change in financial condition of a significant customer or group of
customers could materially affect managements estimates related to doubtful
accounts. We record estimated reductions to revenue for customer programs and
incentive offerings, such as discounts, allowances, and rebates. These
estimates are based on contract terms, historical experience, and other
factors. Management believes it has sufficient historical experience to allow
for reasonable and reliable estimation of these reductions to revenue.
However, declining market conditions could result in increased estimates of
sales returns and allowances resulting in incremental reductions to revenue.
We maintain allowances for excess and obsolete inventory. These estimates are
based on managements assumptions about and analysis of relevant factors
including current levels of orders and backlog, shipment experience, forecasted
demand and market conditions. We do not believe our products are subject to a
significant risk of obsolescence in the short term and management believes it
has the ability to adjust inventory levels to declining demand. However, if
actual market conditions become less favorable than anticipated by management,
additional allowances for excess and obsolete inventory could be required.
Management reviews intangible assets, investments and other long-lived assets
for impairment when events or changes in circumstances indicate that their
carrying values may not be fully recoverable. Goodwill is tested for
impairment annually and on an interim basis when events or circumstances
change. Management assesses potential impairment of the carrying values of
these assets based on market prices, if available, or assumptions about and
estimates of future cash flows expected to arise from these assets. Future
cash flows may be adversely impacted by operating performance, market
conditions, and other factors. If an impairment is indicated by this analysis,
the impairment charge to be recognized, if any, would be measured as the amount
by which the carrying value exceeds fair value, estimated by management based

28



---



##### 



on market prices, if available, or forecasted cash flows, discounted using a
discount rate commensurate with the risks involved. Assumptions related to
future cash flows and discount rates involve management judgment and are
subject to significant uncertainty. If actual future cash flows, discount
rates and other assumptions used in the assessment and measurement of
impairment differ from managements estimates and forecasts, additional
impairment charges could be required. Discussion of 2003 impairment charges is
located within the Companys Management Discussion and Analysis of Financial
Condition and Results of Operations for the three and nine months ended
September 30, 2003.

The following discussion should be read in conjunction with the Companys
Consolidated Financial Statements and Notes thereto.

Results of Operations

Three and Nine Months Ended September 30, 2003

Consolidated net sales for the three months ended September 30, 2003
decreased by $4,217,093 or 31% to $9,433,123 compared to consolidated net sales
of $13,650,216 for the three months ended September 30, 2002. Consolidated net
sales of $29,328,440 for the nine months ended September 30, 2003 decreased by
$12,465,841 or 30% compared to consolidated net sales of $41,794,281 for the
nine months ended September 30, 2002. The primary reason for the decrease for
the three and nine month periods ending September 30, 2003 is attributable to
the financial and market conditions that impacted growth in the cable, and
satellite industry resulting in reduced capital spending within the industry.
There is a risk that the softening will continue within the industry with
respect to reduced capital expenditures among the major cable companies
throughout the remainder of the year.

The following table shows comparative sales by segment:

For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Distribution
    
    $
    6,057,386
    
    
    $
    10,454,523
    
    
    $
    20,054,468
    
    
    $
    34,298,626Manufacturing
    
    
    2,067,634
    
    
    
    2,820,681
    
    
    
    6,846,339
    
    
    
    6,223,171Technology
    
    
    2,008,630
    
    
    
    608,458
    
    
    
    4,357,195
    
    
    
    1,858,317Less: Inter-company sales
    
    
    (700,527
    )
    
    
    (233,446
    )
    
    
    (1,929,562
    )
    
    
    (585,833
    )Net Sales
    
    $
    9,433,123
    
    
    $
    13,650,216
    
    
    $
    29,328,440
    
    
    $
    41,794,281


Net sales of $6,057,386 in the Distribution segment for the three months
ended September 30, 2003 reflects a decrease of $4,397,137 or 42% compared to
$10,454,523 for the three months ended September 30, 2002. Net sales of
$20,054,468 in the Distribution segment for the nine months ended September 30,
2003 reflects a decrease of $14,244,158 or 42% compared to $34,298,626 for the
nine months ended September 30, 2002. The primary reason for the decrease for
the three and nine month periods ending September 30, 2003 in the Distribution
segment is attributable to financial and market conditions that impacted growth
in the cable, technology and satellite industry resulting in reduced capital
spending within the industry during the year.

29



---



##### 



Net sales in the Manufacturing segment of $2,067,634 for the three months
ended September 30, 2003, reflects a decrease of $753,047 or 27% compared to
net sales of $2,820,681 for the three months ended September 30, 2002. The
decrease for the three month period is primarily due to a reduced demand for
the Manufacturing segments products as a result of a reduction in capital
spending within the cable and satellite industry. Net sales in the
Manufacturing segment of $6,846,339 for the nine months ended September 30,
2003 reflects an increase of $623,168 or 10% compared to $6,223,171 for the
nine months ended September 30, 2002. The increase for the nine month period
is due to increased sales to a customer in Israel during the first quarter of
2003.

Net sales of $2,008,630 in the Technology segment for the three months
ended September 30, 2003 reflects an increase of $1,400,172 or 230% compared to
$608,458 for the three months ended September 30, 2002. Net sales of
$4,357,195 in the Technology segment for the nine months ended September 30,
2003 reflects an increase of $2,498,878 or 134% compared to $1,858,317 for the
nine months ended September 30, 2002. The increase is primarily due to the
acquisition and consolidation of Allied, representing approximately $501,289 in
sales for the three months ended September 30, 2003 and $1,594,812 for the nine
months ending September 30, 2003.

Gross profit for the three months ended September 30, 2003 of $1,693,089
decreased by $1,493,562 or 47% compared to gross profit of $3,186,651 for the
three months ended September 30, 2002. Gross margin for the three months ended
September 30, 2003 was 17.9% compared to 23.3% for the three months ended
September 30, 2002. Gross profit for the nine months ended September 30, 2003
of $4,395,243 decreased by $3,902,414 or 47% compared to gross profit of
$8,297,657 for the nine months ended September 30, 2002. Gross margin for the
nine months ended September 30, 2003 was 15% compared to 20% for the nine
months ended September 30, 2002. The primary reason for the decrease in gross
margin for the three and nine months ended September 30, 2003 is due to a
slowdown in the industry that resulted in a more competitive environment. The
Manufacturing segment experienced production shut downs during periods when
tooling changes were required as well as when demand for product was soft. In
addition, for the nine months ended September 30, 2003, the Company took a
charge for inventory obsolescence amounting to approximately $641,000 that was
expensed through cost of sales in the second quarter.

Gross profit of $938,263 in the Cabletel Distribution segment for the
three months ended September 30, 2003 reflects a decrease of $1,107,599 or 54%
compared to $2,045,862 for the three months ended September 30, 2002. Cabletel
Distribution segment gross margin for the three months ended September 30, 2003
was 15.5%, a decrease compared to a gross margin of 19.6% for the three months
ended September 30, 2002. Gross profit of $2,666,397 in the Cabletel
Distribution segment for the nine months ended September 30, 2003 reflects a
decrease of $3,302,502 or 55% compared to $5,968,899 for the nine months ended
September 30, 2002. Cabletel Distribution segment gross margin for the nine
months ended September 30, 2003 was 13.3% a decrease compared to a gross margin
of 17.4% for the nine months ended September 30, 2002. The decrease for the
three and nine months ended September 30, 2003 is due to a slowdown in the
industry that resulted in a more competitive environment. In addition for the
nine months ended September 31, 2003, the Company recorded a charge for
inventory obsolescence amounting to approximately $641,000 that was expensed
through cost of sales.

30



---



##### 



Gross profit of $478,339 in the Manufacturing segment for the three months
ended September 30, 2003 reflects a decrease of $540,037 or 53% compared to a
gross profit of $1,018,376 for the three months ended September 30, 2002.
Manufacturing segment gross margin for the three months ended September 30,
2003 was 23% a decrease compared to gross margin of 36% for the three months
ended September 30, 2002. Gross profit of $1,191,787 in the Manufacturing
segment for the nine months ended September 30, 2003 reflects a decrease of
$853,303 or 42% compared to gross profit of $2,045,090 for the nine months
ended September 30, 2002. Manufacturing segment gross margin for the nine
months ended September 30, 2003 was 17.4% a decrease compared to a gross margin
of 32.9% for the nine months ended September 30, 2002. The decrease for the
three and nine months ended September 30, 2003 is primarily due to a slowdown
in the industry that resulted in a more competitive environment. The
Manufacturing segment also experienced production shut downs during periods
when tooling changes were required as well as when demand for product was soft.

Gross profit of $276,487 in the Technology segment for the three months
ended September 30, 2003 reflects an increase of $154,074 or 126% compared to
$122,413 for the three months ended September 30, 2002. Technology segment
gross margin for the three months ended September 30, 2003 was 13.8%, which is
a decrease compared to the prior period gross margin of 20%. Gross profit of
$537,059 in the Technology segment for the nine months ended September 30, 2003
reflects an increase of $253,391 or 89.3% compared to $283,668 for the nine
months ended September 30, 2002. Technology segment gross margin for the nine
months ended September 30, 2003 was 12%, a decrease compared to the prior
period gross margin of 15%. For the three and nine months ended September 30,
2003, the Technology segment experienced the effects of a slowdown in the
industry resulting in a more competitive environment.

Selling, general and administrative expenses for the three months ended
September 30, 2003 decreased $1,177,602 or 41% to $1,700,862 compared to
$2,878,464 for the three months ended September 30, 2002. As a percentage of
sales, selling, general and administrative expenses for the three months ended
September 30, 2003 were 18% compared to 21% for the three months ended
September 30, 2002. Selling, general and administrative expenses for the nine
months ended September 30, 2003 decreased $1,575,498 or 22% to $5,699,017
compared to $7,274,515 for the nine months ended September 30, 2002. As a
percentage of sales, selling, general and administrative expenses for the nine
months ended September 30, 2003 were 19% compared to 17.4% for the nine months
ended September 30, 2002. The Company has made a conscious effort to reduce
certain costs in an attempt to return the Company to profitability. Such cost
cutting measures included reductions in the Companys labour force as well as
reductions in marketing costs. Included in selling, general and administrative
expenses is a foreign exchange gain of $247,046 for the three months ended
September 30, 2003 compared to a foreign exchange loss of $432,306 for the
three months ended September 30, 2002 and a foreign exchange gain of $1,051,691
for the nine months ended September 30, 2003 compared to a foreign exchange
loss of $403,944 for the nine months ended September 30, 2002.

Interest expense decreased $91,009 to $238,238 for the three months ended
September 30, 2003 compared to $329,247 for the three months ended September
30, 2002. Interest expense on bank indebtedness for the three months ended
September 30, 2003 decreased by $61,045 due to lower levels of borrowings under
the Companys credit facility, and interest expense on long-term debt decreased
by $29,964 primarily due to the repayment of a portion of the Companys
long-term obligation with a major supplier. For the nine months ended
September 30, 2003, interest expense decreased by $18,302 to

31



---



##### 



$731,989 compared to $750,291 for the nine months ended September 30, 2002.
Interest on bank indebtedness decreased by $62,973, and interest on long-term
debt increased by $44,671. The decrease in interest expense on bank
indebtedness reflects lower levels of borrowings of the Companys line of
credit during the first nine months of the year while interest expense on
long-term debt was incurred on a long-term note from the renegotiation of
credit terms with a major supplier during the second quarter of 2002.

Earnings from operations before non-recurring items and income taxes for the
three months ended September 30, 2003 was a loss of $288,521 compared to a loss
of $93,371 for the three months ended September 30, 2002. Total operating
expenses of $1,981,610 for the three months ended September 30, 2003 were
$1,298,412 lower than $3,280,022 reported for the three months ended September
30, 2002. Earnings from operations before non-recurring items and income taxes
for the nine months ended September 30, 2003 was a loss of $2,453,496 compared
to income of $80,235 for the nine months ended September 30, 2002. Total
operating expenses of $6,848,739 for the nine months ended September 30, 2003
were $1,368,683 lower than $8,217,422 reported for the nine months ended
September 30, 2002. Included in operating expenses for the nine months ended
September 30, 2003 is a special charge amounting to $280,000 relating to a
severance liability in connection with a reduction in the Companys work force
related to termination expenses of approximately 25% of Cabletels workforce.
As of September 30, 2003, the unpaid balance of these charges included in
accrued liabilities was $192,086. For the three and nine months ended
September 30, 2003 the Company has paid out $87,914 relating to the special
charge.

For the nine months ended September 30, 2003, the Company wrote down
manufacturing equipment amounting to $400,000. The Company re-assessed the
carrying value of its equipment and determined that there was an impairment in
value and accordingly, took a write down based on the net realizable value of
the equipment.

For the nine months ended September 30, 2003, the Company recorded a write
off of goodwill amounting to $198,606 in connection with its acquisition of
Allied. The Company assessed the carrying value of the goodwill and determined
that it had been impaired due to Allieds poor performance and continued
uncertainty in the telecommunications industry, as well as uncertainty as to
whether or not Allied will be successful in obtaining an extension of its
senior bank facility beyond its current maturity date.

For the nine months ended September 30, 2002, the Company recorded a
non-cash item amounting to $164,000 related to the issuance of warrants in
connection with a settlement of debt with a major supplier. In connection with
the debt settlement the Company issued to the supplier a Warrant to acquire up
to 200,000 shares of the Companys common stock at an exercise price of Cdn.
$1.64 per share up to and including May 31, 2007. In addition, for the nine
months ended September 30, 2002, the Company wrote off other assets amounting
to $615,850 relating to an amount owed to the Company by Allied.

For the three months ended September 30, 2003, the Company incurred a net
loss of $297,521 compared to a net loss of $113,412 for the three months ended
September 30, 2002. Basic and fully diluted loss per share was $0.04 for the
three months ended September 30, 2003 compared to basic and fully diluted loss
per share of $0.02 for the three months ended September 30, 2002. For the nine
months ended September 30, 2003, net loss was $3,089,892 compared to a net loss
of $726,615 for the nine months ended September, 30, 2002. Basic and fully
diluted loss per share was $0.43 for the nine months ended

32



---



##### 



September 30, 2003 compared to basic and fully diluted loss per share of $0.10
for the nine months ended September 30, 2002.

Financial Liquidity and Capital Resources

As described in further detail below, the Company is in negotiations with
a number of its creditors regarding waivers of and / or the restructuring of
certain of its obligations. Further, at September 30, 2003, the Companys
current assets exceed its current liabilities by $871,870, creating short term
liquidity issues for the Company. In order to address these liquidity issues,
the Company is exploring a number of options, including (i) raising additional
financing through the issuance of debt or equity securities, (ii) the
restructuring of existing obligations and (iii) selling certain assets of the
Company. If the Company is not successful with such plans, the Company may not
be in a position to continue to operate as a going concern. In such event, the
Company will be required to consider alternative courses of action, including,
but not limited to, seeking protection under applicable bankruptcy laws.

Historically, the Companys principal sources of liquidity both on a
short-term and long-term basis are cash flows provided by operations and
availability under our senior secured revolving credit facility. Reduced sales
and profitability could reduce cash provided by operations and limit
availability under the secured credit facility. In addition, increases in
working capital, due to seasonal fluctuations in sales and collections, among
other things could reduce our operating cash flows in the short term.

Net cash provided by operating activities for the three months ended
September 30, 2003 was $1,416,645. Cash flow from reductions in inventory and
receivables amounted to $2,235,620 and $168,076 respectively. Decreases in
accounts payables and accrued liabilities amounted to $691,332 and cash used by
prepaid expenses, deposits and other amounted to $166,326. Net cash provided
by operating activities for the nine months ended September 30, 2003 was
$4,668,376. Cash flow from reductions in inventory amounted to $3,206,913 while
decreases in accounts payables and accrued liabilities amounted to $2,522,544.
Cash provided by reductions in accounts receivable and prepaid expenses,
deposits and other amounted to $4,793,555 and $991,731, respectively. Income
taxes recoverable decreased by $120,000 for the nine months ended September 30,
2003.

Net cash of $1,415,171 was used during the three months ended September
30, 2003 by financing activities. Of such amount $1,212,646 was used to repay
bank indebtedness and $202,525 was used to repay long-term debt on a term loan
from the landlord of the Companys head office building, long-term debt on a
note payable to a major supplier and to repay long-term debt on an equipment
loan. Net cash of $4,792,079 was used during the nine months ended September
30, 2003 by financing activities. Of such amount $3,822,535 was used to pay
down bank indebtedness and $969,544 was used to repay long-term debt on a term
loan from the landlord of the Companys head office building, long-term debt on
a note payable to a major supplier and to repay long-term debt on an equipment
loan.

Net cash used in investing activities for the three months ended September
30, 2003 was $4,846 relating to the purchase of capital assets. Net cash
provided by investing activities for the nine months ended September 30, 2003
was $86,868 relating to the acquisition of goodwill amounting to $36,990 which
was offset by the disposal of assets amounting to 123,858.

33



---



##### 



On May 16, 2002, Cabletel entered into a Revolving Credit Facility
Agreement with LaSalle Business Credit, a division of ABN AMBRO BANK N.V.,
Canada Branch (LaSalle) for a three year committed fifteen million Canadian
dollars (CAD$15,000,000), or its United States dollar equivalent. The new
facility replaces the Companys previous $12 million credit facility with HSBC
Bank Canada. At September 30, 2003 the Company owed $8,164,756 on its
Revolving Credit Facility compared to $11,741,424 at December 31, 2002.

The facility contains certain customary covenants. As of September 30,
2003, as a result of a variation from the required minimum adjusted net worth,
interest coverage ratio and debt service ratio, the Company had a technical
violation of the applicable covenants. The Company is working with its lender
to resolve the matter and expects to receive either a waiver or amendment to
the agreement shortly. There can be no assurance that the Company will be
successful in obtaining either a waiver or amendment. In the event that the
Company is unable to obtain such waiver or amendment the lender would have a
right to call a default of the amounts outstanding under the loan agreement, an
event that would also result in cross defaults with respect to certain of the
Companys other obligations. In such event, the Company would most likely not
be in a position to satisfy its obligations and would have to consider
alternative courses of action, including, but not limited to, seeking
protection under applicable bankruptcy laws.

As of November 1, 2002, the Company began consolidating the results of
Allied, as a result of the Companys ability to convert its convertible
debenture into 100% ownership of all issued and outstanding common shares of
Allied for a nominal consideration. Subsequently, on May 9, 2003, Cabletel
exercised its option and acquired all the outstanding shares of Allied. Allied
is currently in negotiations with its senior bank lender with regards to an
extension of its senior bank facility beyond its current maturity date.
Allieds obligations to its senior bank lender are not recourse to the Company.
If Allied is unable to obtain such an extension, the Company would be required
to write off its investment and receivables due from goods sold in the ordinary
course of business amounting to approximately $300,000, which could adversely
affect the consolidated results of the Company.

The Company has undertaken a restructuring initiative which was
implemented during the third quarter seeking to reduce operating costs and
total indebtedness. The restructuring plan includes but is not limited to the
following key components:



| |  | A reduction in the size of its workforce by approximately 25%.
|- |  | --------------------------------------------------------------



| |  | Explore the sale of non-core assets.
|- |  | ------------------------------------



| |  | A reduction of occupancy costs through the consolidation of its operation into fewer facilities.
|- |  | ------------------------------------------------------------------------------------------------



| |  | Efforts to renegotiate terms with key suppliers.
|- |  | ------------------------------------------------

The Company has commenced these efforts and believes that, if successful,
they should result in cost savings and increased working capital. However, no
assurances can be given that the restructuring plan can be successfully
completed.

In particular, in connection with its restructuring plan, the Company is
in the process of renegotiating the payment terms of its US $2.2 million
subordinated promissory note, (as of September 30, 2003, US $1.3 million). The
Company has obtained the consent of the payee to pay one half of each of the
full US $120,000 installments due under the note on each of May 31, June 30,
and July 31, 2003, and one quarter of the installments due on each of August
31, September 30, and October 31, 2003. In connection

34



---



##### 



with that restructuring, Cabletel has been in discussions with the payee of the
note regarding a restructuring which would reduce the monthly payment below the
required US $120,000 to US $30,000 per month for the first six months and US
$45,000 per month for the remainder of the payments.

Although discussions with the payee have commenced, and an agreement in
principle has been reached, to date Cabletel and the payee have not completely
finalized the terms of a restructuring. Unless an agreement is completed by
November 15, 2003, Cabletel will be required to pay the full US $120,000
installment due on November 30, 2003, plus the amount of Cabletels total
underpayment of US $450,000 with respect to May 31, June 30, July 31, August
31, September 30, October 31, and November 30, 2003 installments. Unless an
agreement is reached, Cabletel does not expect to be in a position to make
those payments. If Cabletel is unable or otherwise fails to make those
payments in full it would constitute a default of the terms of the note, which
is unsecured and subordinated to the rights of the senior bank lenders under
Cabletels senior credit facility. If no agreement is reached, Cabletel may
not be in a position to make all of the required payments, an event that could
permit the payee to call an event of default under the note, an event that
would also result in cross defaults with respect to certain of the Companys
other obligations. In such event, the Company would most likely not be in a
position to satisfy its obligations and would have to consider alternative
courses of action, including, but not limited to, seeking protection under
applicable bankruptcy laws.

At September 30, 2003, the Companys current assets exceeded its current
liabilities by $821,870. However, during the three and nine months ended
September 30, 2003, the liquidation of inventory slowed from prior experience,
primarily as a result of the slowdown in the industry. As a result the Company
has been slower than usual in meeting vendor terms. Should this trend continue
it may present a long-term liquidity concern for the Company.

The Company does not currently have adequate working capital to meet its
obligations with respect to payments for product associated with its
manufacturing segments supplier in the far east. The Company is exploring
various options and negotiating with the supplier payment terms that would be
acceptable to both parties. However, should an agreement not be reached in a
timely manner, the operations of Cabletels manufacturing segment as well as
the operations of the supplier in the far east could be severely impacted.

The Companys agent in Israel has asserted a claim against Cabletel under
Israel law seeking payment for commissions he claims are due to him. The
agent has also been successful in obtaining an injunction against the Companys
Israel bank account which prevents Cabletel from withdrawing funds on that
account and that also prevents the Companys Israel customers from making
payments directly to Cabletel. The injunction restricts funds which are in
excess of the amount the agent claims is owed to him. The Company believes
this matter will be settled without litigation for a lesser amount than that
claimed by the agent. The Company has provided for, in its consolidated
financial statements, the balance it believes is due to the agent. However,
should the matter proceed to litigation there can be no assurances of the
outcome. Should the Company not have access to these funds in a timely manner,
the operations of the Company could be impacted adversely.

In order to meet its liquidity needs and fulfill its other obligations,
the Company is exploring a number of options including, without limitation, (i)
raising additional financing through the issuance of debt or equity securities,
and (ii) selling certain assets of the Company. However, there can be no
assurance that the Company will be successful in implementing its plans.

35



---



##### 



The ability of the Company to continue as a going concern and to realize
the carrying value of its assets is dependent on the success of future
operations, and the continuing financial support of its main bank lender and
the Companys suppliers and the ability to find new sources of finance. These
consolidated financial statements do not reflect adjustments in the carrying
values of the assets and liabilities, the reported revenues and expenses, and
the balance sheet classifications used, if the Company were not able to
continue its normal course of business.

There can be no assurances that the Company will be successful in raising
any additional funds, or that it will be able to timely raise additional funds
in order to meet its liquidity needs, or if creditors pursue remedies before
additional funds can be raised, the Company will be required to consider
alternative courses of action including, without limitation, seeking to
reorganize by filing of a voluntary petition seeking protection under the
bankruptcy laws.

The Company does not engage in any hedging activities, including, currency
hedging activities, in connection with purchases of merchandise from the United
States, sales to foreign countries, and distribution operation in Israel.

Other

The Companys Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in Canada. Any
material impact of the recently issued Statements of the United States
Financial Accounting Standards Board (FASB) which have not been adopted and,
for which a Canadian counterpart has not been issued, are described in a
footnote to the Companys Consolidated Financial Statements at the required
time of adoption of the Statement in the United States.

36



---



##### 





|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
|------- |  | -------------------------------------------------------

Market Risk

Cabletel is exposed to various market risks, including interest rates and
foreign currency rates. Market risk is the potential loss arising from adverse
changes in market rates and prices, such as foreign currency exchange and
interest rates. The Company does not enter into derivative financial
instruments for trading or speculative purposes.

Forward Looking Statements

Certain information and statements contained in this Management Discussion
and Analysis of Financial Condition and Results of Operations and other
sections of this report, including statements using terms such as may,
expect, anticipate, intend, estimate, believe, plan, continue,
could be, or similar variations or the negative thereof, constitute forward
looking statements with respect to the financial condition, results of
operations, and business of Cabletel, including statements that are based on
current expectations, estimates, forecasts, and projections about the markets
in which the Company operates, the margins it expects from its products and its
expectations regarding selling, general and administrative expenses, as well as
managements beliefs and assumptions regarding these markets. Any statements
that are not statements about historical facts also are forward looking
statements. The Private Securities Litigation Reform Act of 1995 (the
Litigation Reform Act) provides a safe harbor for forward looking
statements. These Cautionary Statements are being made pursuant to the
provisions of the Litigation Reform Act and with the intention of obtaining the
benefits of the terms of the safe harbor provisions of the Act. In order to
comply with the terms of the safe harbor, the Company cautions investors that
any forward looking statements made by the Company are not guarantees of future
performance and that a variety of factors could cause the Companys actual
results to differ materially from the anticipated results or other expectations
expressed in the Companys forward looking statements. Several factors that
could cause results or events to differ from current expectations are discussed
below. These factors are not intended to be an all-encompassing list of risks
and uncertainties that may affect the operations, performance, development and
results of the Companys business. In providing forward looking statements,
the Company is not undertaking any obligation to update publicly or otherwise
these statements, whether as a result of new information, future events or
otherwise.

RISK FACTORS

Risk that the Company may not be able to continue as a Going Concern

The company is in negotiations with a number of its creditors regarding
waivers of and/or the restructuring of certain of its obligations. Further, at
September 30, 2003, the Companys current assets exceed its current liabilities
by $871,870, creating short term liquidity issues for the Company. In order to
address these liquidity issues, the Company is exploring a number of options,
including (i) raising additional financing through the issuance of debt or
equity securities, (ii) the restructuring of existing obligations and (iii)
selling certain assets of the Company. If the Company is not successful with
such plans, the Company may not be in a position to continue to operate as a
going concern. In such event, the Company will be required to consider
alternative courses of action, including, but not limited to, seeking
protection under applicable bankruptcy laws.

37



---



##### 



Rapid Technological change and voice data convergence

Cabletel expects that data communications traffic will grow substantially
in the future compared to the modest growth expected for voice traffic. The
growth of data traffic is expected to have a significant impact on traditional
voice networks and create market discontinuities that should drive the
convergence of data and telephony. Many of the Companys traditional customers
have already been investing in data networking and that trend is expected to
continue. Due to the evolving nature of the communications industry and the
technologies involved, there can be no assurance as to the rate of such
convergence.

Rapidly changing technologies, evolving industry standards, frequent new
product introductions, and relatively short product life cycles characterize
the markets for Cabletels products. The Companys success is expected to
depend, in substantial part, on the timely and successful introduction of new
products and upgrades of current products to comply with emerging industry
standards and to address competing technological and product developments
achieved by its competitors. The success of new or enhanced products is
dependent on a number of factors including the timely introduction of such
products, market acceptance of new technologies and industry standards, and the
pricing and marketing of such products. An unanticipated change in one or more
of the technologies affecting telecommunications and data networking, or in
market demand for products based on specific technology could have a material
adverse effect on the business, results of operations, and financial condition
of the Company if it fails to respond in a timely and effective manner to such
changes.

Competition

All aspects of Cabletels business are highly competitive. Cabletel
competes for sales with national, regional and local distributors, wholesalers
and manufacturers of products for the cable television industry. Various
manufacturers that supply Cabletel also sell their products to Canadian cable
television operators directly or through commissioned agents. In addition,
because of the convergence of the cable telecommunications and computer
industries and rapid technological development, new competitors may seek to
enter the Canadian cable television distribution market. Many of Cabletels
competitors or potential competitors are substantially larger and have greater
resources than the Company. Increased competition could result in price
reductions, reduced profit margins, and loss of market share, each of which
could have a material adverse effect on the business, results of operations,
and financial condition of the Company.

Cabletels commodity products compete on the basis of price and delivery
time. Cabletels higher technology products, such as transmitters and
receivers, compete on the basis of product and specifications and
functionality, as well as price.

International Growth, Foreign Exchange, and Interest Rates

Cabletel is exposed to various market risks, including interest rates and
foreign currency rates. Changes in these rates may adversely affect its
results of operations and financial condition. To manage

38



---



##### 



the volatility relating to these typical business exposures, Cabletel may enter
into various derivative transactions, when appropriate. Cabletel does not hold
or issue derivative instruments for trading or other speculative purposes. As
of September 30, 2003, the Company had no material contracts denominated in
foreign currencies.

The Company is exposed to foreign currency exchange rate risk as a result
of sales of its products in various foreign countries. In addition the
Companys Distribution segment imports approximately 80% of its products from
the United States for resale in Canada. In order to minimize the risks
associated with foreign currency fluctuations, most sales contracts are issued
in either Canadian or U.S. dollars. The Company constantly monitors the
exchange rate between the U.S. dollar, the Canadian dollar and the New Israel
shekel to determine if any adverse exposure exists relative to its costs of
manufacturing. The Company does not maintain New Israel shekel denominated
currency. Instead, U.S. dollars are exchanged for shekels at the time of
payments.

Cabletel intends to continue to pursue growth opportunities in
international markets. In many international markets, long-standing
relationships, including local content requirements and type approvals, create
barriers to entry. In addition, pursuit of such international growth
opportunities may require significant investments for an extended period before
returns on such investments, if any, are realized. Such projects and
investments could be adversely affected by reversals or delays in opening of
foreign markets to new competitors, exchange controls, currency fluctuations,
investment policies, repatriation of cash, naturalization, social and political
risks, taxation and other factors, depending on the country in which such
opportunities arise. Difficulties in foreign financial markets and economies,
and of foreign financial institutions, could adversely affect demand from
customers in the affected countries.

In order to grow internationally, it is expected that the Company will be
required to provide significant amounts of customer financing in connection
with the sale of products and services.

Capital Spending of Key Customers

Changes in spending patterns of Cabletels key customers will have a
direct effect on the results of the Companys operations and financial
condition. In particular, sales to Rogers Cable Systems Limited, East Link
Cablesystems, Persona Communications Inc., Shaw Communications Inc., and COGECO
Cable Inc., Cabletels largest customers which have accounted for approximately
33%, 28%, 4%, 3% and 3% respectively for the 12 month period ending December
31, 2002, of the Companys total sales. Any future decision by Rogers
Cablesystems Limited or East Link Cablesystems, to reduce purchases could have
a material adverse effect on the Companys business, results of operations, and
financial condition.

General Industry and Market Conditions and Growth Rates

Cabletels future operating results may be affected by various trends and
factors that must be managed in order to achieve desired operating results. In
addition, there are trends and factors beyond the Companys control, which
affect its operations. Such trends and factors include general domestic or
global economic conditions as well as competitive, technological, and
regulatory developments and trends specific to the Companys industry,
customers and markets. These conditions and events could be substantially

39



---



##### 



different than believed or expected and these differences may cause actual
results to vary materially from the forward looking statements made or the
results which could be expected to accompany such statements.

Cabletel competes in a highly volatile and rapidly growing industry that
is characterized by vigorous competition for market share and rapid
technological development carried out amidst uncertainty over adoption of
industry standards and protection of intellectual property rights. These
factors could result in aggressive pricing practices and growing competition
both from start-up companies and from well-capitalized communication companies.

Consolidations in the Telecommunications Industry

The telecommunications industry has experienced the consolidation of many
industry participants and this trend is expected to continue. Cabletel and one
or more of its competitors may each supply products to the corporations that
have merged or will merge. This consolidation could result in delays in
purchasing decisions by the merged corporations with the Company playing a
greater or lesser role in supplying the communications products to the merged
entity. These purchasing decisions of the merged companies could have a
material adverse effect on the Companys business, results of operations, and
financial condition.

Mergers among the supplier base have recently increased and this trend is
also expected to continue. The larger combined companies with pooled capital
resources may be able to provide solution alternatives with which the Company
would be put at a disadvantage to compete. The larger breadth of product
offerings these consolidated suppliers could provide could result in customers
electing to trim their supplier base for the advantages of one-stop shopping
solutions for all their product needs. These consolidated supplier companies
could have a material adverse effect on the Companys business, results of
operations, and financial conditions. Current and future strategic alliances
and acquisitions will play a strong role in the Companys ability to compete
within this changing landscape.

ITEM 4. CONTROLS AND PROCEDURES

The Companys Chief Executive Officer and Chief Financial Officer
(collectively, the Certifying Officers) are responsible for establishing and
maintaining disclosure controls and procedures for establishing and maintaining
disclosure controls and procedures for the Company. Such officers have
concluded (based upon their evaluation of these controls and procedures as of a
date within 90 days of filing of this report) that the Companys disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in this report is accumulated and communicated to the
Companys management, including its Certifying Officers as appropriate, to
allow timely decisions regarding required disclosure. The Certifying Officers
also have indicated that there were no significant changes in the Companys
internal controls or other factors that could significantly affect such
controls subsequent to the date of their evaluation, and there were no
corrective actions with regard to significant deficiencies and material
weaknesses.

40



---



##### 



PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Company is party to legal actions arising in the ordinary course of
its business. In managements opinion, the Company has adequate insurance
coverage and/or legal defenses with respect to any of these actions and does
not believe that they will materially affect the Companys consolidated
financial position or results of operations.

The Companys agent in Israel has asserted a claim against Cabletel under
Israel law seeking payment for commissions he claims are due to him. (Regev
vs. Cabletel). The agent has also been successful in obtaining an injunction
against the Companys Israel bank account which prevents Cabletel from
withdrawing funds on that account and that also prevents the Companys Israel
customers from making payments directly to Cabletel. The Company believes this
matter will be settled without litigation for a lesser amount than that claimed
by Regev. The Company has provided for, in its consolidated financial
statements, the balance it believes is due to Regev. However, should the
matter proceed to litigation there can be no assurances of the outcome.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits
| | --- |  | --------



| | (i) |  | 31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14 (a)
| | --- |  | -------------------------------------------------------------------------



| | (ii) |  | 31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14 (a)
| | ---- |  | -------------------------------------------------------------------------



| | (iii) |  | 32.1 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 (furnished pursuant to Item 601 (b) (32)
(ii) of Regulation S-K)
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) |  | 32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601 (b) (32)
(ii) of Regulation S-K)
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------



| |  |  | None
| |  |  | ----

41



---



##### 



SIGNATURES

Pursuant to requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be filed on its behalf by the
undersigned, thereunto duly authorized.

CABLETEL COMMUNICATIONS CORP.Date: November 11, 2003
    By:
    /s/ Gregory WallingGregory Walling
President and Chief Executive OfficerDate: November 11, 2003
    By:
    /s/ Ron EilathRon Eilath
Chief Financial Officer and Secretary Treasurer


42