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 March 31, 2003 |
Commission File Number 1-13332 |
CABLETEL COMMUNICATIONS CORP.
Ontario, Canada (State or other jurisdiction of incorporation or organization) |
8647 8526 (Canadian Federal Tax Account No.) |
230 Travail Rd.
Markham, Ontario, Canada L3S 3J1
(Address of principal executive offices)
Registrants 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
Indicate the number of shares outstanding of each of the Registrants classes of common stock as of the latest practicable date:
Class | Outstanding as at May 12, 2003 | |
|
||
Common Stock, no par value | 7,167,612 |
1
CABLETEL COMMUNICATIONS CORP.
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 2003
INDEX
Page No. | ||||||||
Part I. | Financial Information |
3 | ||||||
Item 1. | Financial Statements |
3 | ||||||
Balance
Sheet as at March 31, 2003 and December 31, 2002 |
3 | |||||||
Statement
of Operations and Deficit for the 3 month period ended March 31, 2003 and 2002 |
4 | |||||||
Statement
of Cash Flows for the 3 month period ended March 31, 2003 and 2002 |
5 | |||||||
Notes to Financial Statements |
6-26 | |||||||
Item 2. | Managements Discussion and Analysis of Financial
Condition and Results of Operations |
27-37 | ||||||
Item 3. | Quantitative and Qualitative Disclosures of Market Risk |
38 | ||||||
Item 4. | Controls and Procedures |
38 | ||||||
Part II. | Other Information |
39 | ||||||
Item 1. | Legal Proceedings |
39 | ||||||
Item 6. | Exhibits and Reports on Form 8-K |
39 |
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)
March 31, | December 31, | |||||||||||
2003 | 2002 | |||||||||||
ASSETS |
||||||||||||
CURRENT |
||||||||||||
Cash |
$ | 39,893 | $ | 63,169 | ||||||||
Accounts
receivable (net of allowance of $120,865; 2002 $109,914) |
10,941,445 | 14,291,574 | ||||||||||
Inventory (Note 2) |
10,543,436 | 10,488,445 | ||||||||||
Other receivables (Note 8i) |
238,750 | 235,000 | ||||||||||
Income taxes recoverable |
| 120,000 | ||||||||||
Prepaid expenses, deposits and other |
1,067,369 | 1,407,169 | ||||||||||
22,830,893 | 26,605,357 | |||||||||||
PROPERTY, PLANT AND EQUIPMENT (Note 3) |
1,923,390 | 2,198,086 | ||||||||||
DEFERRED REFINANCING FEES |
566,667 | 633,334 | ||||||||||
GOODWILL |
168,589 | 161,616 | ||||||||||
PRODUCT DEVELOPMENT COSTS (net of amortization of $112,144; 2002 $103,517) |
23,004 | 31,631 | ||||||||||
$ | 25,512,543 | $ | 29,630,024 | |||||||||
LIABILITIES |
||||||||||||
CURRENT |
||||||||||||
Bank indebtedness (Note 4) |
$ | 9,455,842 | $ | 12,461,424 | ||||||||
Accounts payable |
6,646,836 | 6,736,089 | ||||||||||
Accrued liabilities |
1,648,740 | 1,994,647 | ||||||||||
Current portion of long-term debt (Note 5) |
2,200,813 | 2,067,558 | ||||||||||
19,952,231 | 23,259,718 | |||||||||||
LONG-TERM DEBT (Note 5) |
591,499 | 1,154,088 | ||||||||||
20,543,730 | 24,413,806 | |||||||||||
COMMITMENTS AND CONTINGENCIES (Note 9) |
||||||||||||
SHAREHOLDERS EQUITY |
||||||||||||
CAPITAL STOCK (Note 6) |
||||||||||||
AUTHORIZED |
||||||||||||
Unlimited First preferred shares, issuable in
series |
||||||||||||
Unlimited Common shares
ISSUED |
||||||||||||
ISSUED |
||||||||||||
7,167,612 Common shares (2002 7,167,612) |
16,136,761 | 16,136,761 | ||||||||||
Paid in Capital Warrant |
164,000 | 164,000 | ||||||||||
DEFICIT |
(11,331,948 | ) | (11,084,543 | ) | ||||||||
4,968,813 | 5,216,218 | |||||||||||
$ | 25,512,543 | $ | 29,630,024 | |||||||||
See accompanying notes to financial statements.
3
CABLETEL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Canadian Funds)
FOR THE THREE MONTHS ENDED MARCH 31,
2003 | 2002 | ||||||||
SALES |
$ | 11,118,347 | $ | 13,183,686 | |||||
COST OF SALES |
9,119,653 | 10,735,672 | |||||||
GROSS PROFIT |
1,998,694 | 2,448,014 | |||||||
EXPENSES |
|||||||||
Selling, general and administrative |
1,924,019 | 2,147,769 | |||||||
Amortization |
50,406 | 65,085 | |||||||
Interest bank indebtedness |
160,806 | 147,524 | |||||||
Interest long-term debt |
91,078 | 17,685 | |||||||
2,226,309 | 2,378,063 | ||||||||
EARNINGS (LOSS) FROM OPERATIONS |
(227,615 | ) | 69,951 | ||||||
Loss on disposition of assets |
31,269 | | |||||||
EARNINGS (LOSS) BEFORE INCOME TAXES |
(258,884 | ) | 69,951 | ||||||
Income taxes (recovery) |
(11,479 | ) | 9,000 | ||||||
NET EARNINGS (LOSS) FOR THE PERIOD |
(247,405 | ) | 60,951 | ||||||
DEFICIT, beginning of period |
(11,084,543 | ) | (10,066,426 | ) | |||||
DEFICIT, end of period |
$ | (11,331,948 | ) | $ | (10,005,475 | ) | |||
Earnings (loss) per share (Note 7) |
|||||||||
Basic |
($0.03 | ) | $ | 0.01 | |||||
Fully diluted |
($0.03 | ) | $ | 0.01 | |||||
See accompanying notes to financial statements.
4
CABLETEL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian Funds)
FOR THE THREE MONTHS ENDED MARCH 31,
2003 | 2002 | ||||||||
OPERATING ACTIVITIES |
|||||||||
Net income (loss) for the period |
$ | (247,405 | ) | $ | 60,951 | ||||
Amortization |
125,314 | 65,093 | |||||||
Amortization of deferred refinancing fees |
66,667 | | |||||||
Loss on disposition of assets |
31,269 | | |||||||
Imputed interest |
(3,750 | ) | (4,000 | ) | |||||
Change in accounts receivable |
3,350,129 | 1,225,161 | |||||||
Change in inventory |
(54,991 | ) | 387,039 | ||||||
Change in prepaid expenses, deposits and other |
339,800 | (9,536 | ) | ||||||
Change in accounts payable and accrued liabilities |
(435,160 | ) | (722,322 | ) | |||||
Change in income taxes recoverable |
120,000 | (34,981 | ) | ||||||
3,291,873 | 967,405 | ||||||||
FINANCING ACTIVITIES |
|||||||||
Bank indebtedness |
(3,005,582 | ) | (941,307 | ) | |||||
Repayment of long-term debt |
(429,334 | ) | (30,777 | ) | |||||
(3,434,916 | ) | (972,084 | ) | ||||||
INVESTING ACTIVITIES |
|||||||||
Goodwill acquired |
(6,973 | ) | | ||||||
Disposition of assets |
126,740 | 5,911 | |||||||
119,767 | 5,911 | ||||||||
CHANGE IN CASH |
(23,276 | ) | 1,232 | ||||||
CASH, beginning of period |
63,169 | 12,292 | |||||||
CASH, end of period |
$ | 39,893 | $ | 13,524 | |||||
SUPPLEMENTARY CASH FLOW INFORMATION |
|||||||||
Interest paid |
$ | 251,884 | $ | 169,209 | |||||
Income taxes paid |
$ | | $ | | |||||
See accompanying notes to financial statements.
5
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 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 12, 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 March 31, 2003 and the consolidated results of operations and the consolidated cash flows for the three months ended March 31, 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 Companys 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 Companys ability to convert its convertible debenture into 100% ownership of all Allied issued and outstanding common shares for a nominal consideration. | |||
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 Companys plant or warehouses, and collection is reasonably assured. |
6
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
2. | INVENTORY |
March 31, | December 31, | |||||||
2003 | 2003 | |||||||
Raw Material |
$ | 275,481 | $ | 293,783 | ||||
Work in process |
476,361 | 483,497 | ||||||
Finished goods |
9,791,594 | 9,711,165 | ||||||
$ | 10,543,436 | $ | 10,488,445 | |||||
3. | PROPERTY, PLANT AND EQUIPMENT |
March 31, 2003 | December 31, 2002 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Cost | Amortization | Net | Cost | Amortization | Net | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Leasehold improvements |
711,090 | 310,816 | 400,274 | 711,090 | 296,093 | 414,997 | ||||||||||||||||||
Equipment |
3,978,085 | 2,454,969 | 1,523,116 | 4,136,094 | 2,353,005 | 1,783,089 | ||||||||||||||||||
4,689,175 | 2,765,785 | 1,923,390 | 4,847,184 | 2,649,098 | 2,198,086 | |||||||||||||||||||
For the 3 months ending March 31, 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 Companys 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. | ||
4. | BANK INDEBTEDNESS | |
On May 16, 2002, Cabletel entered into a Revolving Credit Facility Agreement with LaSalle Business Credit, a division of ABN AMRO 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%). |
7
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
4. | BANK INDEBTEDNESS (continued) | |
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 prior loan by the Business Development Bank of Canada, and general intangibles), existing and future. | ||
The facility contains certain customary covenants. As of March 31, 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 it could adversely affect the Company. | ||
As of November 1, 2002, the Company began consolidating the results of Allied, as a result of the Companys ability to convert its 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. If Allied is unable to obtain such an extension, this could adversely affect the consolidated results of the Company. | ||
5. | LONG-TERM DEBT |
March 31, | December 31, | |||||||||||
2003 | 2002 | |||||||||||
(i | ) | Term loan-Leaseholds |
$ | 316,426 | $ | 324,337 | ||||||
(ii) | Term loan-Equipment |
389,400 | 401,200 | |||||||||
(iii) | Term loan-Note |
2,086,486 | 2,496,109 | |||||||||
2,792,312 | 3,221,646 | |||||||||||
Less: Current portion |
2,200,813 | 2,067,558 | ||||||||||
$ | 591,499 | $ | 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. |
8
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
5. | LONG-TERM DEBT (continued) |
(ii) | Long-term debt bears interest at Business Development Bank of Canada (BDC) prime plus 0.75% 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. BDC has provided a total facility of $700,000 which is available to the company for capital purchases and is collateralized by the assets acquired under this facility. | ||
(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 on settlement of debt. The senior subordinated promissory note is in the principal amount of US $2.2 million, and 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 Companys 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. |
6. | CAPITAL STOCK |
Number | Amount | |||||||
Balance, December 31, 2002 | 7,167,612 | $ | 16,136,761 | |||||
|
||||||||
Balance, March 31, 2003 | 7,167,612 | $ | 16,136,761 | |||||
|
9
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
6. | CAPITAL STOCK (continued) | |
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 March 31, 2003, 506,000 options remain available to be granted. Stock options become exercisable at dates determined by the Compensation Committee. |
Common shares have been reserved for stock options on the following basis:
Option | Weighted | |||||||||||
Shares | Price | Average | ||||||||||
$ | $ | |||||||||||
Outstanding and Exercisable |
||||||||||||
Balance at December 31, 2002 |
1,444,000 | 1.53 9.28 | 3.88 | |||||||||
Balance at March 31, 2003 |
1,444,000 | 1.53 9.28 | 3.88 | |||||||||
In connection with the settlement of outstanding accounts payable (Note 5iii), common shares have been reserved for warrants on the following basis:
Exercise | Weighted | |||||||||||
Shares | Price | Average | ||||||||||
$ | $ | |||||||||||
Outstanding and Exercisable |
||||||||||||
Balance at December 31, 2002 |
200,000 | 1.64 | 1.64 | |||||||||
Balance at March 31, 2003 |
200,000 | 1.64 | 1.64 | |||||||||
10
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
6. | CAPITAL STOCK (continued) | |
In December 2001, the CICA issued Handbook Section 3870 Stock-Based Compensation and Other Stock-Based Payments. Effective for the Companys 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 Companys 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 Companys 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: 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. |
March 31, | March 31, | ||||||||
2003 | 2002 | ||||||||
As Reported | As Reported | As Reported | |||||||
Net income (loss) |
($247,405 | ) | $ | 60,951 | |||||
Net income (loss) per share |
|||||||||
Basic and Fully Diluted |
($0.03 | ) | $ | 0.01 |
March 31, | March 31, | ||||||||
2003 | 2002 | ||||||||
Pro-Forma | Pro-Forma | Pro-Forma | |||||||
Net loss |
(247,405 | ) | $ | (619,832 | ) | ||||
Net earnings (loss) per share |
|||||||||
Basic and Fully Diluted |
($0.03 | ) | ($0.09 | ) | |||||
Weighted average fair value of
options granted during this period |
| $ | 1.25 |
11
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
7. | EARNINGS PER SHARE |
(a) | Basic Earnings per Share | ||
The weighted average number of shares outstanding amounted to 7,167,612 for the three months ended March 31, 2003 and 7,167,612 for the three months ended March 31, 2002. | |||
(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 months ended March 31, 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 months ended March 31, 2003 being 1,444,000 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 months ended March 31, 2003 were 200,000 warrants as to do so would have been anti-dilutive. For the three months ended March 31, 2002 the weighted average number of shares for diluted earnings per share amounted to 7,623,211. For the three months ended March 31, 2002, options not included in the calculation of diluted earnings per share amounted to 1,030,401 as to do so would have been anti-dilutive. |
12
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
7. | EARNINGS PER SHARE (continued) | |
The following table sets forth the computation of basic and diluted earnings per share: |
March 31, | March 31, | |||||||
2003 | 2002 | |||||||
Numerator: |
||||||||
Net earnings (loss) and numerator for
basic earnings (loss) and for diluted
earnings (loss) per share |
$ | (247,405 | ) | $ | 60,951 | |||
Denominator: |
||||||||
Weighted-average shares for basic
earnings per share |
7,167,612 | 7,167,612 | ||||||
Effect of dilutive securities: |
||||||||
Employee stock options |
| 455,599 | ||||||
Warrants |
| | ||||||
Dilutive potential of common shares |
| 455,599 | ||||||
Adjusted weighted-average
shares and assumed conversions
for diluted earnings per share |
7,167,612 | 7,623,211 | ||||||
Basic earnings (loss) per share |
($0.03 | ) | $ | 0.01 | ||||
Diluted earnings (loss) per share |
($0.03 | ) | $ | 0.01 | ||||
8. | RELATED PARTY TRANSACTIONS |
(i) | On December 12, 2000, the Companys 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 March 31, 2003 the Company paid to the Sullivan Group, an entity controlled by the President of the Company, $13,950 and $13,950 for the three months ended March 31, 2002 relating to charges in connection with Mr. Wallings compensation. |
13
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
8. | RELATED PARTY TRANSACTIONS (continued) |
(iii) | For the three months ended March 31, 2003 and 2002 the Company incurred charges from Cassels, Brock & Blackwell LLP, a legal firm of which Mr. Peterson, the former Chairman of the Company is a Senior Partner, amounting to $64,863 and $20,546 respectively for services they provided. On April 11, 2003, Mr. Peterson resigned as Chairman of the Company. |
9. | COMMITMENTS AND CONTINGENCIES |
The Company is party to legal actions arising in the ordinary course of its business. In managements 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 Companys consolidated financial position or results of operations. |
10. | 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 has agreed to provide an additional $100,000 in inventory on extended terms and advance $50,000 in cash to Allied. As previously reported, the Companys second quarter 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. Approximately $168,589 of goodwill was recorded in connection with the transaction. The acquisition was accounted for as follows: |
14
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
10. | ACQUISITION OF ALLIED WIRE AND CABLE LTD. (continued) |
Net assets acquired |
||||||||
Total current assets |
$ | 986,504 | ||||||
Total liabilities |
(1,303,071 | ) | ||||||
Other |
217,575 | |||||||
Acquisition costs |
(69,597 | ) | ||||||
(168,589 | ) | |||||||
Goodwill |
168,589 | |||||||
0 | ||||||||
Consideration given |
0 | |||||||
11. | 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 months ended March 31, 2003 and 2002. |
15
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
11. | SEGMENTED INFORMATION (continued) | |
Summary of Business Segment | ||
Net Revenue |
2003 | 2002 | |||||||
Distribution |
$ | 7,835,293 | $ | 10,937,555 | ||||
Manufacturing |
2,515,827 | 1,755,223 | ||||||
Technology |
1,203,792 | 711,317 | ||||||
Less: Inter-company eliminations |
(436,565 | ) | (220,409 | ) | ||||
Total Net Revenue |
$ | 11,118,347 | $ | 13,183,686 | ||||
Gross Profit |
2003 | 2002 | ||||||||
Distribution |
$ | 1,286,460 | $ | 1,835,421 | |||||
Manufacturing |
543,872 | 511,013 | |||||||
Technology |
168,362 | 101,580 | |||||||
Total Gross Profit |
$ | 1,998,694 | $ | 2,448,014 | |||||
Selling, general and administrative expenses |
(1,924,019 | ) | (2,147,769 | ) | |||||
Amortization |
(50,406 | ) | (65,085 | ) | |||||
Interest expense other |
(160,806 | ) | (147,524 | ) | |||||
long-term debt |
(91,078 | ) | (17,685 | ) | |||||
Loss on disposal of assets |
(31,269 | ) | | ||||||
(2,257,578 | ) | (2,378,063 | ) | ||||||
Consolidated earnings (loss) before income taxes |
(258,884 | ) | 69,951 | ||||||
Identifiable Assets: |
2003 | 2002 | |||||||
Distribution and Technology |
$ | 16,280,988 | $ | 18,704,003 | ||||
Manufacturing |
9,231,555 | 8,375,845 | ||||||
Other unallocated assets |
| 154,981 | ||||||
Total Identifiable Assets |
$ | 25,512,543 | $ | 27,234,829 | ||||
16
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
11. | SEGMENTED INFORMATION (continued) | |
Expenditures on (Dispositions of) Property, Plant and Equipment |
2003 | 2002 | |||||||
Distribution and Technology |
(124,948 | ) | $ | 2,065 | ||||
Manufacturing |
(1,792 | ) | (7,976 | ) | ||||
Total Expenditures (Dispositions) |
$ | (126,740 | ) | $ | (5,911 | ) | ||
Amortization | ||
(Includes amortization in cost of sales, from product development costs and prepaid financing fees.) |
2003 | 2002 | |||||||
Distribution and Technology |
$ | 114,299 | $ | 53,305 | ||||
Manufacturing |
77,682 | 11,788 | ||||||
Total Amortization |
$ | 191,981 | $ | 65,093 | ||||
Summary by Geographical Area | ||
Net Revenue (Revenues are attributed based on the location of the customer.) |
2002 | 2002 | |||||||
Canada |
$ | 9,039,085 | $ | 11,648,872 | ||||
United States |
1,832,128 | 1,264,344 | ||||||
Other |
247,134 | 270,470 | ||||||
Total Net Revenue |
$ | 11,118,347 | $ | 13,183,686 | ||||
Property, Plant and Equipment (Property, Plant, Equipment and goodwill by geographical area are based on location of facilities.) |
2002 | 2002 | |||||||
Canada |
$ | 2,084,493 | $ | 2,219,859 | ||||
United States |
7,486 | 15,585 | ||||||
Total Property, Plant and Equipment |
$ | 2,091,979 | $ | 2,235,444 | ||||
17
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
11. | SEGMENTED INFORMATION (continued) | |
SALES INFORMATION | ||
Distribution | ||
Sales to a customer within the Distribution segment for the three months ended March 31, 2003 amounted to approximately $1,296,531 or 12% of total revenue. At March 31, 2003 this customer accounted for approximately 27% of total Cabletel accounts receivable. The customers 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 March 31, 2003 amounted to approximately $3,448,298 or 31% of total revenue. At March 31, 2003 this customer accounted for approximately 18% of total Cabletel accounts receivable. The customers 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 March 31, 2003 amounted to approximately $1,622,809 or 65% of the Manufacturing segments total sales or approximately 5% of the Companys total consolidated sales. At March 31, 2003 this customer accounted for approximately 22% of the Companys total consolidated accounts receivable. At March 31, 2003, the customers account was current as per the terms and conditions of sale. |
18
CABLETEL COMMUNICATIONS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
12. | 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. | ||
(ii) | Due to the fact that the Company does not have legal ownership of the common shares of Allied, U.S. GAAP does not allow consolidation of Allied results of operations. |
Reconciliation of Net Earnings From Canadian GAAP to United States GAAP |
2003 | 2002 | |||||||
Net earnings (loss) in accordance with
Canadian GAAP |
$ | (247,405 | ) | $ | 60,951 | |||
Reduction of Allied net loss |
187,539 | | ||||||
Reduction in amortization of
development costs (net of income taxes) |
4,658 | 4,658 | ||||||
Net earnings (loss) in accordance with
U.S. GAAP |
$ | (55,208 | ) | $ | 65,609 | |||
19
CABLETEL COMMUNICATIONS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
12. | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
Balance Sheet Presentation Comparing Canadian GAAP to United States GAAP
March 31, | December 31, | |||||||||||||||||
2003 | 2002 | |||||||||||||||||
CDN GAAP | US GAAP | CDN GAAP | US GAAP | |||||||||||||||
ASSETS |
||||||||||||||||||
CURRENT |
||||||||||||||||||
Cash |
$ | 39,893 | $ | 39,494 | $ | 63,169 | $ | 63,169 | ||||||||||
Accounts receivable |
10,941,445 | 10,972,911 | 14,291,574 | 14,098,457 | ||||||||||||||
Inventory |
10,543,436 | 10,543,436 | 10,488,445 | 9,874,445 | ||||||||||||||
Other receivables |
238,750 | 238,750 | 235,000 | 235,000 | ||||||||||||||
Income taxes recoverable |
| | 120,000 | 120,000 | ||||||||||||||
Prepaid expenses, deposits and other |
1,067,369 | 1,057,439 | 1,407,169 | 1,398,460 | ||||||||||||||
22,830,893 | 22,262,538 | 26,605,357 | 25,789,531 | |||||||||||||||
PROPERTY, PLANT AND EQUIPMENT |
1,923,390 | 1,863,064 | 2,198,086 | 1,980,511 | ||||||||||||||
DEFERRED REFINANCING FEES |
566,667 | 566,667 | 633,334 | 633,334 | ||||||||||||||
GOODWILL |
168,589 | | 161,616 | | ||||||||||||||
INVESTMENT IN ALLIED |
| 119,717 | | 112,624 | ||||||||||||||
PRODUCT DEVELOPMENT COSTS |
23,004 | | 31,631 | | ||||||||||||||
$ | 25,512,543 | $ | 24,811,986 | $ | 29,630,024 | $ | 28,516,000 | |||||||||||
LIABILITIES |
||||||||||||||||||
CURRENT |
||||||||||||||||||
Bank indebtedness |
$ | 9,455,842 | $ | 8,873,574 | $ | 12,461,424 | $ | 11,741,424 | ||||||||||
Accounts payable |
6,646,836 | 6,349,338 | 6,736,089 | 6,377,919 | ||||||||||||||
Accrued liabilities |
1,648,740 | 1,658,981 | 1,994,647 | 1,982,022 | ||||||||||||||
Long-term debt |
2,200,813 | 2,200,813 | 2,067,558 | 2,067,558 | ||||||||||||||
19,952,231 | 19,082,706 | 23,259,718 | 22,168,923 | |||||||||||||||
LONG-TERM DEBT |
591,499 | 591,499 | 1,154,088 | 1,154,088 | ||||||||||||||
20,543,730 | 19,674,205 | 24,413,806 | 23,323,011 | |||||||||||||||
SHAREHOLDERS EQUITY |
||||||||||||||||||
CAPITAL STOCK |
16,300,761 | 16,300,761 | 16,300,761 | 16,300,761 | ||||||||||||||
DEFICIT |
(11,331,948 | ) | (11,162,980 | ) | (11,084,543 | ) | (11,107,772 | ) | ||||||||||
4,968,813 | 5,137,781 | 5,216,218 | 5,192,989 | |||||||||||||||
$ | 25,512,543 | $ | 24,811,986 | $ | 29,630,024 | $ | 28,516,000 | |||||||||||
20
CABLETEL COMMUNICATIONS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
12. | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
Statement of Cash Flow Presentation Comparing Canadian GAAP to United States GAAP
2003 | 2002 | ||||||||||||||||
CDN | US | CDN | US | ||||||||||||||
GAAP | GAAP | GAAP | GAAP | ||||||||||||||
OPERATING ACTIVITIES |
|||||||||||||||||
Net income (loss) for the period |
$ | (247,405 | ) | $ | (55,208 | ) | $ | 60,951 | $ | 65,609 | |||||||
Imputed interest |
(3,750 | ) | (3,750 | ) | (4,000 | ) | (4,000 | ) | |||||||||
Amortization |
125,315 | 116,687 | 65,093 | 56,466 | |||||||||||||
Amortization of prepaid
refinancing fees |
66,667 | 66,667 | | | |||||||||||||
Loss on disposition of assets |
31,269 | | | | |||||||||||||
Change in accounts receivable |
3,350,129 | 3,125,546 | 1,225,161 | 1,225,161 | |||||||||||||
Change in inventory |
(54,991 | ) | (79,499 | ) | 387,039 | 387,039 | |||||||||||
Change in prepaid expenses,
deposits and other |
339,800 | 341,021 | (9,536 | ) | (9,536 | ) | |||||||||||
Change in accounts payable and
accrued liabilities |
(435,160 | ) | (351,622 | ) | (722,322 | ) | (718,353 | ) | |||||||||
Change in income taxes
recoverable |
120,000 | 120,000 | (34,981 | ) | (34,981 | ) | |||||||||||
3,291,873 | 3,279,842 | 967,405 | (967,405 | ) | |||||||||||||
FINANCING ACTIVITIES |
|||||||||||||||||
Bank indebtedness |
(3,005,582 | ) | (2,867,850 | ) | (941,307 | ) | (941,307 | ) | |||||||||
Repayment of long-term debt |
(429,334 | ) | (429,334 | ) | (30,777 | ) | (30,777 | ) | |||||||||
(3,434,916 | ) | (3,297,184 | ) | (972,084 | ) | (972,084 | ) | ||||||||||
INVESTING ACTIVITIES |
|||||||||||||||||
(Purchase) disposition of equipment |
126,740 | 760 | 5,911 | 5,911 | |||||||||||||
Investment in Allied |
| (7,093 | ) | | | ||||||||||||
Goodwill acquired |
(6,973 | ) | | | | ||||||||||||
119,767 | (6,333 | ) | 5,911 | 5,911 | |||||||||||||
CHANGE IN CASH |
(23,276 | ) | (23,675 | ) | 1,232 | 1,232 | |||||||||||
CASH, beginning of period |
63,169 | 63,169 | 12,292 | 12,292 | |||||||||||||
CASH, end of period |
$ | 39,893 | $ | 39,494 | $ | 13,524 | $ | 13,524 | |||||||||
21
CABLETEL COMMUNICATIONS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
12. | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
(a) | Earnings Per Share | ||
Earnings per share calculations under U.S. GAAP reflecting the Statement of Financial Accounting Standards No. 128 (SFAS 128), for the three months ended March 31, 2003 and 2002 would not differ materially from the calculations required by the pronouncements of CICA handbook Section 3500 which was adopted at the commencement of Fiscal 2001. | |||
Net income (loss) per share calculations under U.S. GAAP would not differ materially from that of CDN. GAAP and accordingly earnings (loss) per share would be disclosed as follows: |
2003 | 2002 | ||||||||
Net income (loss) under U.S. GAAP |
$ | (55,208 | ) | $ | 65,609 | ||||
Net income (loss) per share: |
|||||||||
Basic |
($0.01 | ) | $ | 0.01 | |||||
Diluted earnings per share |
($0.01 | ) | $ | 0.01 | |||||
Weighted average shares outstanding: |
|||||||||
Basic |
7,167,612 | 7,167,612 | |||||||
Diluted |
7,167,612 | 7,623,211 | |||||||
(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 months ended March 31, 2003, and 2002 the Companys comprehensive income was the same as net earnings. |
22
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31,2003
12. | 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 Companys 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 months ended March 31, 2003 or March 31, 2002. Had compensation expense for the Companys 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 Companys 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 months ended March 31, 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 3 months ended March 31, 2003. |
23
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
12. | UNITED STATES ACCOUNTING PRINCIPLES (continued) | |
As Reported |
2003 | 2002 | ||||||||
As Reported | As Reported | ||||||||
Net income (loss) |
|||||||||
- U.S. GAAP |
$ | (55,208 | ) | $ | 65,609 | ||||
Net earnings (loss) per share |
|||||||||
Basic |
($0.01 | ) | $ | 0.01 | |||||
Diluted |
($0.01 | ) | $ | 0.01 |
Pro-Forma |
2003 | 2002 | ||||||||
Pro-Forma | Pro-Forma | ||||||||
Net income (loss) |
|||||||||
- U.S. GAAP |
$ | (286,992 | ) | $ | (615,174 | ) | |||
Net earnings (loss) per share |
|||||||||
Basic |
($0.04 | ) | ($0.09 | ) | |||||
Diluted |
($0.04 | ) | ($0.09 | ) | |||||
Weighted average fair value of
options granted during this period |
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. |
24
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
12. | 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 Companys 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 Companys 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. The Company is currently evaluating SFAS No. 148 to determine if it will adopt SFAS No. 123 to account for Employee stock options using the fair value method. |
25
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
MARCH 31, 2003
12. | UNITED STATES ACCOUNTING PRINCIPLES (continued) |
(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. The adoption of FIN 45 is not expected to materially affect the Companys 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. |
13. | SUBSEQUENT EVENTS | |
As of November 1, 2002, the Company began consolidating the results of Allied, as a result of the Companys ability to convert its convertible debenture into 100% ownership of all issued and outstanding common shares of Allied for a nominal consideration. On May 9, 2003, the Company exercised its option to acquire all the outstanding shares of Allied. Cabletel intends to integrate the operations of Allied within its Technology segment. |
26
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
CRITICAL ACCOUNTING POLICIES
Managements 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 12 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 managements knowledge of and experience with past and current events and on managements 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 Companys 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 managements 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 managements 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 managements 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
27
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 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 managements estimates and forecasts, additional impairment charges could be required. Discussion of 2003 impairment charges is located within the Companys Management Discussion and Analysis of Financial Condition and Results of Operations for the three months ended March 31, 2003.
The following discussion should be read in conjunction with the Companys Consolidated Financial Statements and Notes thereto.
Results of Operations
Three Months Ended March 31, 2003
Consolidated net sales for the three months ended March 31, 2003 decreased by $2,065,339 or 16% to $11,118,347 compared to consolidated net sales of $13,183,686 for the three months ended March 31, 2002. Reduced volumes in the Distribution and Technology segments are reflective of the financial and market conditions that impacted growth in the cable, technology and satellite industry resulting in reduced capital spending within the industry for the period.
The following table shows comparative sales by segment:
Net Sales | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2003 | 2002 | |||||||
Distribution |
$ | 7,835,293 | $ | 10,937,555 | ||||
Manufacturing |
2,515,827 | 1,755,223 | ||||||
Technology |
1,203,792 | 711,317 | ||||||
Less: Inter-company sales |
(436,565 | ) | (220,409 | ) | ||||
Net Sales |
$ | 11,118,347 | $ | 13,183,686 | ||||
28
Net sales in the Distribution segment of $7,835,293 for three months ended March 31, 2003 reflects a decrease of $3,102,262 or 28% compared to $10,937,555 for the three months ended March 31, 2002. The lower sales volumes primarily attributable to the financial and market conditions that impacted growth in the cable, technology and satellite industry resulting in reduced capital spending during the period.
Net sales in the Manufacturing segment of $2,515,827 for the three months ended March 31, 2003, reflects an increase of $760,604 or 43% compared to $1,755,223 for the three months ended March 31, 2002. The increase is primarily due to increased sales to the United States amounting to $1,832,128 or 45% compared to $1,264,344 for the three months ended March 31, 2002.
Net sales in the Technology segment of $1,203,792 for the three months ended March 31, 2003 reflects an increase of $492,475 or 69% compared to $711,317 for the three months ended March 31, 2002. The increase is primarily due to the consolidation of Allied, representing approximately $464,000 in sales for the three months ending March 31, 2003.
Gross profit for the three months ended March 31, 2003 of $1,998,694 decreased by $449,320 or 18% compared to gross profit of $2,448,014 for the three months ended March 31, 2002. Gross margin for the three months ended March 31, 2003 was 18% compared to 19% for the three months ended March 31, 2002. The primary reason for the decrease in gross margin for the three months ended March 31, 2003 results primarily from a slowdown in the industry resulting in a more competitive environment. In addition, the Manufacturing segment experienced a shut down during a period when tooling changes were being carried out on machinery to convert them over to production of a new line of connector.
Gross profit of $1,286,460 in the Distribution segment for the three months ended March 31, 2003 reflects a decrease of $548,961 or 30% compared to $1,835,421 for the three months ended March 31, 2002. Distribution segment gross margin for the three months ended March 31, 2003 was 16% a decrease compared to a gross margin of 17% for the three months ended March 31, 2001. The primary reason for the decrease in gross margin for the three months ended March 31, 2003 results primarily from a slowdown in the industry resulting in a more competitive environment.
Gross profit of $543,872 in the Manufacturing segment for the three months ended March 31, 2003 reflects an increase of $32,859 or 6% compared to gross profit of $511,013 for the three months ended March 31, 2002. Manufacturing segment gross margin for the three months ended March 31, 2003 was 22% reflecting a decrease compared to a gross margin of 29% for the three months ended March 31, 2002. The primary reason for the decrease in gross margin is due to the Manufacturing segment experiencing a shut down during a period when tooling changes were being carried out on machinery to convert them over to production of a new line of connector.
29
Gross profit of $168,362 in the Technology segment for the three months ended March 31, 2003 reflects an increase of $66,782 or 66% compared to $101,580 for the three months ended March 31, 2002. Technology segment gross margin for the three months ended March 31, 2003 was 14%, which is comparable to the prior period gross margin of 14%. The Technology segment is experiencing the effects of a slowdown in the industry resulting in a more competitive environment.
Selling, general and administrative expenses for the three months ended March 31, 2003 decreased $223,750 or 10% to $1,924,019 compared to $2,147,769 for the three months ended March 31, 2002. As a percentage of sales, selling, general and administrative expenses for the three months ended March 31, 2003 were 17% compared to 16% for the three months ended March 31, 2002. The Company is continuing to make a conscious effort to reduce costs in an attempt to return the Company to profitability.
Interest expense increased $86,675 to $251,884 for the three months ended March 31, 2003 compared to $165,209 for the three months ended March 31, 2002. Interest expense on bank indebtedness for the three months ended March 31, 2003 of $160,806 increased by $13,282 up from $147,524 for the three months ended March 31, 2002. Interest expense on Long-term debt was $91,078 reflecting an increase of $73,393 up from $17,685 for the three months ended March 31, 2003. The increase in interest expense on bank indebtedness reflects higher interest rates on slightly lower levels of borrowings. 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 and is not comparable to the same period last year.
Loss from operations before taxes for the three months ended March 31, 2003 was $258,884 compared to earnings from operations before taxes of $69,951 for the three months ended March 31, 2002. Total operating expenses of $2,226,309 for the three months ended March 31, 2003 were $151,754 lower than $2,378,063 reported for the three months ended March 31, 2002. Included in the loss for the three months ended March 31, 2003 was a loss from operations before taxes of $187,539 applicable to the consolidation of Allied.
Net loss for the three months ended March 31, 2003 was $247,405 compared to net income of $60,951 for the three months ended March 31, 2002. Basic and fully-diluted loss per share was ($0.03) for the three months ended March 31, 2003 compared to basic and fully-diluted income per share of $0.01 for the three months ended March 31, 2002.
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Financial Liquidity and Capital Resources
Historically, the Company has funded its working capital requirements through cash flow generated by its operations and bank indebtedness. Net cash of $3,434,916 was used during the three months ended March 31, 2003 for financing activities. Of such amount $3,005,582 was used to repay bank indebtedness and $429,334 was used to repay long-term debt on a note payable to a major supplier and on a term loan from the landlord of the Companys head office building.
Net cash provided by operating activities for the three months ended March 31, 2003 was $3,291,873. Cash flow from reductions in accounts receivables amounted to $3,350,129 and reductions in prepaid expenses, deposits and other amounted to $339,800. Reductions in income taxes recoverable were $120,000. Offsetting the for-mentioned inflows were outflows of cash used to reduce accounts payable and accrued liabilities in the amount of $435,160 and inventory of $54,991.
Net cash provided by investing activities for the three months ended March 31, 2003 was $119,767 relating to the disposition of capital assets amounting to $126,740, offset by cash used to acquire additional goodwill amounting to 6,973 relating to Allied.
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 Companys previous $12 million credit facility with HSBC Bank Canada. 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.
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 prior loan by the Business Development Bank of Canada, and general intangibles), existing and future.
The facility contains certain customary covenants. As of March 31, 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 it could adversely affect the Company.
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As of November 1, 2002, the Company began consolidating the results of Allied, as a result of the Companys ability to convert its convertible debenture into 100% ownership of all issued and outstanding common shares of Allied for a nominal consideration. On May 9, 2003, Cabletel exercised its option to acquire all the outstanding common 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. If Allied is unable to obtain such an extension, this could adversely affect the consolidated results of the Company, as 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 $250,000.
At March 31, 2003, the Companys current assets exceeded its current liabilities by $2,878,662. However, during the quarter ended March 31, 2003, the liquidation of inventory slowed from prior experience, primarily a result of the slowdown in the industry. The Company does not believe that this fact presents a long-term liquidity concern for the Company. However, no assurances can be given to that effect.
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 Companys 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 Companys Consolidated Financial Statements at the required time of adoption of the Statement in the United States.
Inflation
The Company believes that the relatively moderate rates of inflation in recent years have not had a significant impact on its net revenues or profitability. Historically, the Company has been able to offset any inflationary effects by either increasing or improving cost efficiencies.
Subsequent Events
As of November 1, 2002, the Company began consolidating the results of Allied, as a result of the Companys ability to convert its convertible debenture into 100% ownership of all issued and outstanding common shares of Allied for a nominal consideration. On May 9, 2003, the Company exercised its option to acquire all the outstanding shares of Allied. Cabletel intends to integrate the operations of Allied within its Technology segment.
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RECENT UNITED STATES ACCOUNTING PRONOUNCEMENTS
(i) | Statement of Financial Accounting Standards (SFAS) No. 141, SFAS 142, SFAS 143 and SFAS 144. | ||
In July 2001, the 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. | |||
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 Companys 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 Companys 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. The Company is currently evaluating SFAS No. 148 to determine if it will adopt SFAS No. 123 to account for Employee stock options using the fair value method and, if so, when to begin transition to that method. |
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(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. The adoption of FIN 45 is not expected to materially affect the Companys 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. |
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 managements 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 Companys actual results to differ materially from the anticipated results or other expectations expressed in the Companys 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 Companys 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.
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Risk Factors
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 Companys 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 Cabletels products. The Companys 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 Cabletels 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 Cabletels 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.
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Cabletels commodity products compete on the basis of price and delivery time. Cabletels 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 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 Cabletels key customers will have a direct effect on the results of the Companys 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., Cabletels 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 Companys total sales. Any future decision by Rogers Cablesystems Limited or East Link Cablesystems, to reduce purchases could have a material adverse effect on the Companys business, results of operations, and financial condition.
General Industry and Market Conditions and Growth Rates
Cabletels 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 Companys 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 Companys industry, customers and markets. These conditions and events could be substantially different than believed or expected and these
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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 Companys 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 Companys business, results of operations, and financial conditions. Current and future strategic alliances and acquisitions will play a strong role in the Companys ability to compete within this changing landscape.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK. |
The following discussion of the Companys risk-management activities includes forward looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward looking statements.
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 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 March 31, 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 and manufacturing operations conducted in Israel. 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.
ITEM 4. | CONTROLS AND PROCEDURES |
The Companys 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 Companys 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 Companys 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 Companys 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.
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PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
The Company is party to legal actions arising in the ordinary course of its business. In managements 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 Companys consolidated financial position or results of operations.
ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K |
(a) | Exhibits | ||
(99.1) Certification of Chief Executive Officer | |||
(99.2) Certification of Chief Financial Officer | |||
(b) | Reports on Form 8-K | ||
(i) | The Company filed a current report on Form 8-K dated March 31, 2003. Under ITEM 5 of that 8-K the Company announced that it had entered into a waiver and amendment to its credit agreement with its senior bank lender that has resolved previously announced technical violations with respect to the year ended December 31, 2002. | ||
(ii) | The Company filed a current report on Form 8-K dated April 21, 2003. Under ITEM 5 of that 8-K the Company announced that the Honourable David R. Peterson, P.C., Q.C. has resigned from his positions as Chairman of the Board of Directors. |
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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: May 9, 2003 | By: /s/ Gregory Walling | |||
Gregory Walling President and Chief Executive Officer |
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Date: May 9, 2003 | By: /s/ Ron Eilath | |||
Ron Eilath Chief Financial Officer and Secretary Treasurer |
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CERTIFICATIONS
I, Greg Walling, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cabletel Communications Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and |
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and |
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and |
6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Gregory Walling
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CERTIFICATION
I, Ron Eilath, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cabletel Communications Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and |
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and |
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and |
6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Ron Eilath
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