4 cabletv l5 catv report v2 (1)

Investment Summary Level 5 Research is initiating coverage of 4Cable TV International, Inc. (OTCQB: CATV) with a BUY rating and a price target of $1.00/share at the end of 2015 based upon our valuation estimates. Our BUY rating is based on the following: Reasons to Buy:

Ø Industry changing proprietary equipment that allows cable providers to extend their networks 10,000 feet beyond current termination points, which will enable cable providers to increase subscribers by about 10%.

Ø Large addressable U.S. market with around 10 million termination points in the industry. Ø Multibillion-dollar global market available. 10% penetration of U.S. market equates to

about $1 billion in equipment sales of 4Cable’s RF2F™ solution. Ø Strong R&D with several more large market products in the pipeline to meet unaddressed

network needs for large cable providers. Ø Product in testing with several major providers and in discussions with all major and

second tier providers. Ø Revenues poised to break out in 2015, as larger cable providers begin to submit purchase

orders. Ø 4Cable is significantly undervalued, and could become a takeout candidate as orders

begin from the major cable providers.

Key Data

Sector Cable Network Equipment

Rating BUY Target Price $1.00 /share Current Market Price $0.1201 Market Cap (in mn) $5.41 Shares Outstanding (in mn) 45.05 Float (in mn) 10.75 Source: Yahoo Finance as of October 10, 2014

Courtesy of BigCharts.com

4Cable TV International, Inc., based in Conway, SC since 2005, is a global manufacturer of outdoor transmission equipment for the cable and broadband industry. The Company's patent-pending innovations offer broadband, phone and digital/cable TV service providers with cost-effective solutions that maximize bandwidth, extend system penetration, and save energy. 4Cable's flagship product lines are the DSR No Diplexer Node, the RF2F™ Cable TV Network Extension System, and the PowerMiser™ amplifier.

4Cable TV International, Inc. (OTCQB: CATV) Initiating Coverage – Buy Large Market Cable Network Solutions |October 13, 2014

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Ø 4Cable recently announced the successful completion of lab and field-testing of their RF2F™ product with a tier 1 service provider.

Ø 4Cable has not begun marketing in Europe, which is equivalent in size to the US market.

Risks to analysis and valuation:

Ø 4Cable does not currently have orders from tier 1 cable providers. Ø 4Cable is entering testing with several potential customers, these tests may not have

expected results, thought 4Cable has recently announced successful completion of testing with one tier 1 provider.

Ø New products in R&D may not find acceptance in market. Ø 4Cable will need inventory financing if it receives large orders. This type of funding can be

difficult to find in the current economic environment.

About 4Cable TV International, Inc. 4Cable TV International, Inc. is a designer and manufacturer of proprietary outdoor broadband transmission equipment for the cable and broadband services delivery industry. 4Cable was formed in 2005 by industry engineering professionals to develop solutions enable cable service providers to extend their distance limited network capabilities. 4Cable has since designed, tested, and begun manufacturing and sales of their RF2F™ flagship technology. RF2F™ is an elegant, low cost, product that allows Cable Multi-System Operators (MSO) to extend their networks up to 10,000 feet beyond the network termination points, at a cost that makes the expansion feasible. In addition to RF2F™, 4Cable has developed the PowerMiser to lower MSO’s in network power usage, just announced the release of their Optical Mini Node and has several other products near completion in their R&D pipeline.

RF2F™ RF2F™ (Radio Frequency coax to Fiber) converts coaxial (coax) cable signals into light signals for fiber optic cables, which allows MSO’s to extend their cable delivery networks up to 10,000 feet (nearly 2 miles) past the current network termination points. This network extension will allow service providers to reach at least 10% more subscribers that they are currently unable to service. Also, the RF2F™ creates the possibility of increasing services to businesses in existing cable networks as well as providing new services to homes and businesses beyond the termination points of the network. The ability to add subscribers onto existing networks through network expansion with RF2F™ can greatly increase revenue for the carriers at an acceptable cost. 4Cable has developed several versions of the RF2F™ to service 1,2,4,or 8 subscribers from a box. The cost of providing service for a customer beyond the network termination points with RF2F™ is between $1,200 and $1,500 per subscriber and could go lower depending on how many new subscribers are in the area, and how far they are from the termination point. The current average cost of customer acquisitions for MSO’s is between $3,500 and $5,000, so the RF2F™ price is below that level and carries a payback period of about 1 year making the RF2F™ fiscally feasible for the MSO’s. The RF2F™ has the potential to be a new profit center for cable companies everywhere. There have been many companies that have tried to develop solutions to extend cable networks with different technologies, including wireless, but none have succeeded due to excessive costs or they did not work. If a competitor was to try to knock off the RF2F™ product it would take 2.5 to 3 years to get it through R&D and customer testing before it could sell one unit. The RF2F™ will be fully penetrated into the customer base by the time a competitor is able to begin sales.


Gene Faulkner the V.P. of Sales and Marketing for 4Cable recently said in a September 23, 2014 press release, “After a year of successfully field testing our patent-pending RF2F™ technology with several Top Tier MSO’s and Independent Cable Operators we are poised to rollout our product line to Cable Systems across the country.” Level 5 believes the group of MSO’s and Independent Cable Operators Mr. Faulkner referred to include Comcast, Time Warner Cable, Cablevision, Charter, Suddenlink, Cox Cable, Cable One, Wave Broadband and the Armstrong Group. Level 5 also believes that some of these companies may have already approved the RF2F™ and 4Cable could be eligible to sell into one or more of these companies based on the an October 1, 2014 press release stating a top five MSO completed testing and approved the RF2F™ technology. RFoG (RF over Glass)

RFoG is an RF signal distribution technology that combines existing cable TV infrastructure with the efficiencies of fiber optics to effectively reach the home. Other products require new back office infrastructure while RFoG utilizes existing infrastructure. RF2F™ is an extension of the RFoG technology.

PowerMiser™ PowerMiser™ is an energy saving RF amplifier designed to cut power consumption of RF amplifiers. RF amplifiers are used extensively in cable networks to boost the signal along the network pathway. As RF amplifiers have become more powerful their power usage has also increased. The PowerMiser™ amplifiers use nearly 50% less power than traditional amplifiers. This product is expected to have more of an impact outside of the U.S. as Europe and Asia have much higher electricity costs and the saving from PowerMiser in those markets could be very significant for the MSO’s. As 4Cable develops their international sales over the next few years, the PowerMiser™ could become a strong product for the Company. Level 5 does not expect it to take off domestically due to the U.S.’s low cost of electricity.

Node+0 Node+0 is an application that combines the RFoG technology with the PowerMiser™ to take fiber signal all the way to the last device before the subscriber.

SOLAR-CATV SOLAR-CATV is an extension of the PowerMiser™ and Node+0 products and utilizes solar power allowing cable operators to extend service to areas without adding power sources. This product is possible because of the PowerMiser™ technology allows the product to use 50% less solar arrays and batteries due to the power saving technology.

Optical Mini-node As demand for more broadband and community growth occur there must be corresponding infrastructure build to meet the demand. 4Cable’s Mini-nodes are a cost effective solution to meet these growth needs. Cable companies use optical nodes to operate services for their Hybrid Fiber Coax networks, which serve their subscribers. When cable companies get new subscribers for broadband, the nodes in place may not have the capacity to serve these new customers. The preference for MSO’s is to use mini-nodes for this type of expansion instead of normal nodes as the mini-nodes are thousand of dollars cheaper. Mini-nodes are available for between $600-900 from multiple suppliers. 4Cable has developed their own mini-node that surpasses the performance and size specs of the competition. 4Cable’s mini-node was developed in accordance with specifications requested by current clients and carries a price of $500 per unit. The Optical Mini-node was introduced to the cable industry at the SCTE Cable-Tec Expo 2014 in Denver on September 22, 2014. 4Cable indicated that the response by the industry was very positive at the conference and received


demonstration requests and/or price requests from every MSO that viewed the 4Cable Optical Mini-node. Cable Industry Overview The cable industry in the U.S. consists of the top five cable delivery companies that are referred to in this report as tier 1 companies. They consist of the top 4 on the Broadband Internet Table to the right and Cox Communication. The rest of the cable providers are referred to as second and third tier companies, with a cut off of 500,000 subscribers. Each company has multiple termination points in their networks where the networks cannot be expanded without great expenditure. In general, it costs cable companies about $23,000 to expand their network one mile primarily due to the limited capabilities of coaxial cable. Level 5 has been told by a senior engineer from one of the top tier cable companies that there are more than 1,000,000 termination points for every 10,000,000 subscribers. If the cable companies were to expand their network, even on a limited basis, the cost would be excessive. Global broadband spending in the 2nd quarter of 2014 by cable companies was over $2 billion according to Lightwave Magazine. This spending was led by North America, partly making up for a weather affected slow 1st quarter and partly driven by growing demand for more bandwidth. Lightwave goes on to say that North American demand should continue to grow with money leveraged from the Connect America Fund. As demand for broadband grows globally, spending for cable network delivery equipment will grow right along with the demand. The Connect America Fund is implemented by the Federal Communications Commission (FCC) to accelerate broadband buildout to 18 million Americans in rural areas of the country. The FCC of views broadband is now a necessity in the United States and no longer a luxury. There is another area that is driving broadband expansion; this is at the termination points of the cable networks that are at the end of the 250-foot limitation of coax cable. Beyond many of these points are homes and businesses that are potential subscribers for the cable companies, but even a small expansion to reach them is too costly. Cable companies now pay between $3,500 and $5,000 to acquire a single subscriber. Comcast is paying about $4,100 per subscriber in their recent acquisition bid for Time Warner Cable. With a cost effective network expansion solution, cable companies could expand their networks and thus their subscriber base by 10% or more. Additional subscribers will drive more revenues and profits for the cable companies.

Broadband Internet Subscribers at End of 2Q 2014

Cable Companies Comcast 21,271,000 Time Warner* 11,965,000 Charter 4,850,000 Cablevision 2,779,000 Suddenlink 1,103,300 Mediacom 987,000 WOW (WideOpenWest)** 769,600 Cable ONE 482,725 Other Major Private Cable Companies*** 6,475,000 Total Top Cable 50,682,625 Telephone Companies AT&T 16,448,000 Verizon 9,077,000 CenturyLink 6,055,000 Frontier^ 1,900,500 Windstream 1,153,800 FairPoint 333,421 Cincinnati Bell 270,300 Total Top Telephone Companies 35,238,021 Total Broadband 85,920,646 Sources: The Companies and Leichtman Research Group, Inc. * Subscriber totals slightly adjusted from prior quarters ** Includes a minor system acquisition, net adds are not reported on a pro forma basis *** Includes LRG estimates for Cox, and Bright House Networks ^ LRG estimate, does not include wireless subscribers Company subscriber counts may not represent solely residential households Totals reflect pro forma results from system sales and acquisitions Top cable and telephone companies represent approximately 93% of all subscribers


Investment Thesis Level 5 Research regards 4Cable’s potential as one of the best business opportunities we have seen in a small company. 4Cable’s proprietary and elegant RF2F™ solution to extent cable networks beyond the termination points of cable networks addresses a multibillion-dollar global market. The cost of the RF2F™ will allow the cable companies to exploit pockets of potential subscribers throughout their network at an acquisition cost that will payback within 12 months. The RF2F™ cost per subscriber goes down when using RF2F™ boxes that serve more than one subscribers. The RF2F™ serving a single subscriber within 1,000 feet costs $1025 and the cost to serve 4 subscribers is about $494 per subscriber within 1,000 feet of the termination point. This compares to the current price of $23,000 per mile or about $4,600 for 1,000 feet to service a subscriber. This cost advantage is going to be hard for the cable companies to ignore, especially when they are constantly under pressure from shareholders to grow revenues and lower costs. Growing revenue and lowering costs is exactly what the RF2F™ will do for the cable companies. Level 5 estimates there are nearly 10,000,000 termination points in the U.S. throughout all the large and small cable and broadband systems. Also, as the government financed rural buildout expands, the RF2F™ could be a vital network piece to keep those costs down, giving 4Cable a new market into which it can sell. 4Cable sells the RF2F™ at an average price of $1,000 per box giving 4Cable a potential $1 billion U.S. based market for the RF2F™. 4Cable is currently in discussions, testing or approved for sale with all of the tier 1 cable companies in regards to the RF2F™. On October 1st 4Cable announced that a tier 1 MSO concluded their lab tests and field tests of the RF2F™ and now 4Cable is able to sell the RF2F™ into that MSO’s network. Level 5 expects that the RF2F™ will complete trials in most, if not all the top tier MSO’s within the next 6-12 months and 4Cable will begin to see orders from some of the top tier MSO’s within the next 12 months. As 4Cable penetrates the U.S. market over the next few years, the RF2F™ will be noticed internationally and begin to grow demand outside the U.S. The cable systems in Europe are similar in technology to those in the U.S. and the market potential for the RF2F™ in Europe is similar to the $1 billion U.S. opportunity.

Valuation Analysis Level 5 believes that 4Cable is currently undervalued. With the strong technology offering and the 2013 sales of $1.028 million proves the demand of 4Cable’s products. Today 4Cable is worth at least 10 times 2013 revenue, or $10.3 million ($0.23/share). The intellectual property alone may be worth more than that. Looking forward, the big question is how quickly will the orders will grow from the top tier MSO’s. It is easy to foresee a time when 4Cable receives orders for 100,000 RF2F’s in a year generating $100 million in revenue, but the question is when will that occur. Cable companies traditionally are slow to grow their orders; they start implementation into the networks on a small scale, and then accelerate the order size as the products prove themselves in actions. Level 5 expects it will take 4Cable 5 years to significantly penetrate the $1 billion U.S. market. Level 5 expects that top tier MSOs will begin to order in 2015, but the orders will be back end loaded. Level 5 estimates that revenue in 2015 will come in a range of $3-5 million, mostly from top and second tier MSO’s. 4Cable should see greater than 100% revenue growth in 2016 as orders begin to accelerate. Given all of 4Cable’s opportunity for the RF2F™, Level 5 believes that a 15 times revenue multiple is conservative, especially if the top tier MSO orders materialize. This multiple would give 4Cable a valuation of $45-75 million at the end of 2015. Level 5 is going to use the low-end of our revenue expectations of $3 million to determine our valuation of $45 million market cap by the end of 2015. Level 5 want to make it clear that this is only the beginning of the investment opportunity in 4Cable TV International. 4Cable has strong growth ahead for several years. 4Cable currently has 45.05 million shares outstanding, leaving Level 5 with a price target of $1.00/share at the end of 2015.


Investment Risks There are two primary risks to 4Cable’s success. The first is now that 4Cable is in the door of the top MSO’s, converting the testing and conversations into orders. Some of the MSO’s may decide to grow through acquisitions instead of organically with network expansion. The second risk is financial. While 4Cable is not desperate for money, if they receive large orders from the top MSO’s, which are multi-billion dollar companies, 4Cable could find itself in need of manufacturing and inventory financing. This type of financing can be very difficult to get quickly in this economic environment for a small company, even with top rated customers. If 4Cable cannot fulfill orders in a timely fashion, the orders could be pulled. Level 5 is more concerned about potential financial, manufacturing and delivery issues than MSO acceptance. If the order ramp is reasonable, the financing should become available. Management Steven K. Richey, President and CEO Steven K. Richey is the President and CEO of 4Cable TV. Prior to founding 4Cable TV he was Vice President of New Product Development at dB-tronics where he was responsible for the final engineering and any new board designs needed to upgrade thousand of amplifiers that are now in operation. Richey brings over 50 years of varied CATV experience to 4Cable, including being in charge of repairs at a major manufacturer (AMECO) and former chief engineer at CADCO. While at CADCO he coined the term “Emergency Alert System “ and both developed and pioneered the first emergency alert system and the first comb generator-based Emergency Alert System in 1972. Later he developed the first satellite block down converter now used in all satellite systems. He was the owner/operator of 8 Cable systems in Texas and Oklahoma and went on to build a 150 system private cable operation. In the early 1990s as an international long distance operator he was involved with some of the first VoIP experiments. He is a published author with over 30 articles to date. He is a 2011 Inductee into the Prestigious Cable TV Pioneers and a SCTE Senior Member. Andrew F. Staniak, Vice President and Chief Technology Officer Andrew F. Staniak is the Vice President and CTO of 4Cable TV. Prior to co- founding 4Cable TV he was the CTO of dB-tronics and did the research and qualifications on over 100 amplifier bandwidth upgrades. Staniak brings more then 47 years of varied CATV experience to 4Cable including directing the ANTEC Design Validation Laboratory. While at ANTEC, Staniak was charged with evaluating the best GaAs hybrids for the new generation of fiber nodes and RF amplifiers. He has been directly responsible for the engineering management of many thousands of miles of CATV system construction. At 4Cable he is responsible for making sure that all of our design and our Upgrade Quality Assurance Programs adhere strictly to the agreed upon and published specifications. As a service to our customers, we make his expertise available through this on-line resource. Ross DeMello, Chief Financial Officer Ross DeMello was appointed to the Company’s Board of Directors in March 2014. He brings over three decades of experience in financial accounting in public practice and industrial sectors. As a successful global business development leader, strategist, and financial executive, DeMello has led several companies globally. His accomplishments include growing owner operated businesses through mergers and acquisitions, assisting in business valuations, and planning exit strategies. He has held directorship positions in junior mining and exploration companies, and was a CEO of an entertainment company listed on the VSE, MSE and the TSX exchanges. Mr. DeMello is also a member of the Certified General Accountants Association and is the chair of 4Cable’s Audit Committee. Gene Faulkner, Vice President Sales and Marketing Gene Faulkner joined 4Cable TV in September 2013 as Vice President Sales and Marketing. From 2011 to 2013 Mr. Faulkner was Key Account Manager for Sunrise Telecom, Inc. calling on major MSO’s. For 2 years prior to that he was self-employed as a technical trainer. Prior to that he was VP-


HFC Group for ACI Communications from 2002 to 2009 where he was in charge of US operations. He began his Cable TV career in 1980 as National Sales Manager for Control Technology and between 1980 and 2002 he worked in various sales positions for a number of companies. He is a published author, having published an article on standby power supplies in the March 1988 issue of Communications Technology Magazine. Paul A. Passey, Executive Vice President Paul A. Passey joined 4Cable TV in July 2014 as Executive Vice President. Paul comes to this profession from the semiconductor industry as an Engineer supporting the manufacturing and customer support of Standard Logic and Programmable Logic Integrated Circuits. Paul began his career at Signetics in 1979 (later known as Philips Semiconductors) in the Standard Logic division resolving product test yield issues. After a couple of years, Paul became more involved with customer support and then on to being the engineer overseeing the creating of a product from the design stage on to production release. In 1999, the Programmable Logic group was purchased by Xilinx. Paul continued working for them until 2004 dealing mainly with Failure Analysis of IC’s that failed in the customer’s applications. From 2007-2009, Paul worked for AVX managing the Bumping/Dicing department in the manufacturing of high precision resistors. Paul also had his own company “Radio Paul” where he manufactured HF wire antennas and sold HF/VHF ham radio antennas worldwide. Paul is a graduate of Brigham Young University where he earned a B.S. in Electronics Engineering Technology; and a graduate from the University of Phoenix with a Master’s in Business Administration.

Disclosures: The analysts contributing to this report do not currently hold any shares of CATV. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analyst’s personal views as to the subject securities and issuers. L5Research.com certifies that no part of any analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from the Company and sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-‐looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of L5Research.com. L5Research.com or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. L5Research.com uses the following rating system for the securities it covers: Speculative Buy: A rating, which at the time it is instituted and or reiterated, that indicates and expectation of a total return of over 10% over the next 12 months and the company carries a greater risk of failure do to present conditions. Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return between negative 10% and 10% over the next 12 months. Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Under Review [UR]: A rating, which at the time it is instituted and or reiterated indicates the temporary removal of the prior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be relied upon for UR-‐rated securities. Not Covered [NC]: L5Research.com does not publish research or have an opinion about this security.

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4 cabletv l5 catv report v2 (1)