CANBRAS COMMUNICATIONS CORP.
NEX BOARD : CBC.H

CANBRAS COMMUNICATIONS CORP.

October 26, 2005 15:21 ET

Canbras Announces Third Quarter Results

MONTREAL, QUEBEC--(CCNMatthews - Oct. 26, 2005) - Canbras Communications Corp. (NEX BOARD:CBC.H) ("Canbras" or the "Corporation") today released unaudited interim consolidated financial results for the third quarter of 2005. As the Corporation completed the sale of all of its operations in December 2003 (the "Sale Transaction") to Horizon Cablevision do Brasil, S.A. ("Horizon") pursuant to a share purchase agreement ("SPA"), the Corporation's unaudited interim consolidated financial statements for the third quarter of 2005 reflect only the winding up activities of the Corporation. Such unaudited interim consolidated financial statements are attached hereto and readers are encouraged to refer to them for additional details.

Further Distributions to Shareholders

As disclosed in connection with the August 11, 2005 release of Canbras' second quarter results, the Corporation expects to make two additional distributions to shareholders totaling approximately $0.28 per share ($15.4 million in the aggregate) following receipt by the Corporation of updated tax clearance certificates. The first of the two distributions is expected to take place before the end of 2005 and to be in an amount to be determined at the time such distribution is declared. Canbras now believes that the earliest date by which it will be able to make a final distribution to shareholders is June 30, 2007, one year later than previously estimated due to newly anticipated delays in resolving contingent claims against the Company.

The foregoing dates and amounts are based on a number of important assumptions and delays or reductions could be significant. For a discussion of the factors that could cause delays or reductions, readers are encouraged to refer to the Corporation's Interim Report to Shareholders for the Third Quarter of 2005.

Third Quarter Results

As at September 30, 2005, Canbras' shareholders' equity was $16,253 thousand down from $16,374 thousand at June 30, 2005. This decrease reflects the net loss of $121 thousand for the third quarter of 2005 comprised of administrative expenses which were partially offset by interest income. Administrative expenses of $213 thousand for the period were comprised mainly of professional fees of $172 thousand, as well as office costs and other administrative expenses of $41 thousand. During the third quarter of 2005, the Corporation recorded interest income of $93 thousand.

Canbras' cash, cash equivalents and temporary investments as at September 30, 2005 were $16,523 thousand up from $7,086 thousand at June 30, 2005. The increase was due principally to the receipt in cash of a note receivable associated with the Sale Transaction of $9,500 thousand, partially offset by cash required for operations. Cash, cash equivalents and temporary investments held by the Corporation pending shareholder distributions are being invested in high-grade money market instruments.

Accrued liabilities were $294 thousand at September 30, 2005, compared to $240 thousand at June 30, 2005. The increase is mainly due to the accrual of professional fees.

At September 30, 2005, $5,945 thousand was being held in temporary investments compared to nil at June 30, 2005. This increase is attributable to a lengthening of the maturity profile for part of the Corporation's investment portfolio as these amounts are not anticipated to be required until 2006. The amount of $10,578 thousand being held in the form of cash and cash equivalents at the end of the third quarter is expected to be used principally for a shareholder distribution prior to the end of 2005.

Estimated Future Net Assets

Estimated future net assets at June 30, 2007, the earliest date by which Canbras now believes it will be able to make a final distribution to shareholders, are $15.4 million ($0.28 per share), prior to any such distributions. This amount reflects Canbras' net assets as at September 30, 2005 of $16.2 million less estimated net costs of wind-up and assumes no unforeseen claims against the Corporation will arise.

Estimated future net assets at June 30, 2007 of $15.4 million have declined by $127 thousand from the estimate of future net assets at June 30, 2006 made on August 11, 2005 in connection with the Corporation's 2005 second quarter financial results due to the later than previously foreseen final distribution date.

Forward looking statements

This news release may contain certain forward-looking statements that reflect the current views and/or expectations of Canbras with respect to future events. Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future events, and may contain words like "believe" "anticipate", "expect", "will likely result", or words or phrases of similar meaning. Such statements are subject to a number of important risks and uncertainties which are difficult to predict and assumptions which may prove to be inaccurate. Whether actual events and developments conform with the Corporation's expectations and predictions are subject to a number of known and unknown risks and uncertainties. For additional information with respect to risk factors relevant to Canbras, see the Corporation's 2004 Annual Report, Interim Report to Shareholders for the Third Quarter of 2005 and other documents filed with Canadian Securities Commissions. Canbras disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.



Canbras Communications Corp
Consolidated Balance Sheets
(in thousands of Canadian dollars)
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Unaudited
As at As at
September 30 December 31
2005 2004
---------------- ---------------
Assets
Current assets
Cash and cash equivalents $10,578 $268
Temporary investments (note 3) 5,945 6,999
Note and accrued interest
receivable (note 4) - 10,678
Prepaid expenses and other 24 82
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$16,547 $18,027
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Liabilities
Current liabilities
Accounts payable and
accrued liabilities (note 4) $294 $803
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Shareholders' equity
Capital stock (note 5) 266,112 266,112
Contributed surplus 61 61
Deficit (249,920) (248,949)
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16,253 17,224
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$16,547 $18,027
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Sale of operations (notes 1 and 4)

Commitments and contingencies (note 8)



Canbras Communications Corp
Consolidated Interim Statements of Operations (Unaudited)
(in thousands of Canadian dollars, except per share amounts)
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----------------------------------------------
Three Months ended Nine Months ended
September 30, September 30,
----------------------------------------------
2005 2004 2005 2004
---------- --------- ---------- ---------

Legal, auditor and other
professional fees $(172) $(38) $(511) $(287)
Office and administrative
expenses (41) (147) (141) (563)
Interest income 93 330 420 1,047
Foreign exchange and other (1) 38 - 8
Loss on settlement of
note receivable (note 4) - - (739) -
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Net (loss) earnings $(121) $183 $(971) $205
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(Loss) earnings
per share - basic and
diluted (note 5) $(0.00) $0.00 $(0.02) $0.00
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Weighted average number
of shares outstanding
(note 5) 55,098,071 55,098,071 55,098,071 55,098,071
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Canbras Communications Corp
Consolidated Interim Statements of Deficit (Unaudited)
(in thousands of Canadian dollars)

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Three Months Nine Months
ended ended
September 30, September 30,
-------------------------------------------
2005 2004 2005 2004
------- ------- ------- -------

Deficit, beginning of
period,
as previously
reported $(249,799) $(248,407) $(248,949) $(248,372)
Cumulative effect
on prior years
of change in
accounting
policy for
stock-based compensation - - - (57)
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Deficit, beginning
of period, as
restated (249,799) (248,407) (248,949) (248,429)
Net (loss) earnings
for the period (121) 183 (971) 205
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Deficit, end of
period $(249,920) $(248,224) $(249,920) $(248,224)
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Canbras Communications Corp
Consolidated Statements of Cash Flows (Unaudited)
(in thousands of Canadian dollars)
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Three Months ended Nine Months ended
September 30, September 30,
----------------------------------------
2005 2004 2005 2004
------- ------- ------- -------

Cash (used for) provided
by operating activities
Net earnings (loss) $(121) $183 $(971) $205
Items not affecting cash
Foreign exchange and other - (1) - 17
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$(121) 182 $(971) 222

Changes in non-cash
working capital items
(note 6) 9,558 (254) 10,227 (2,552)
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9,437 (72) 9,256 (2,330)
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Cash provided by
investing activities
(Increase) decrease in
temporary investments (5,945) - 1,054 -
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(5,945) - 1,054 -
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Effect of exchange rate
changes on cash and
cash equivalents - 2 - (14)
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Net increase (decrease)
in cash and cash
equivalents 3,492 (70) 10,310 (2,344)
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Initial distribution
to shareholders - (11,571) - (11,571)
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Cash and cash equivalents,
beginning of period 7,086 19,047 268 21,321
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Cash and cash equivalents,
end of period $10,578 $7,406 $10,578 $7,406
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(See note 6 for supplementary cash flow information)


Canbras Communications Corp.
Notes to the Interim Consolidated Financial Statements (Unaudited)
Nine months period ended September 30, 2005
(All tabular dollar amounts in thousands of Canadian dollars, except
per share amounts)
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1. Description of the business and basis of presentation

Canbras Communications Corp. (the "Corporation" or "Canbras"), originally incorporated under the laws of British Columbia on August 7, 1986, was continued under the Canada Business Corporations Act effective June 22, 1998. The indirect majority shareholder of Canbras is Bell Canada International Inc. ("BCI"). Canbras, through its subsidiaries (collectively the "Canbras Group") was engaged in the acquisition, development and operation of broadband communications services in Brazil including cable television ("CATV"), Internet access and data services.

On October 8, 2003, the Corporation announced that, pursuant to the sale process commenced by it in 2002, it had entered into definitive agreements for the sale of all of its operations to Horizon Cablevision do Brasil S.A. ("Horizon"). Subsequently, on December 24, 2003, the Corporation announced that following the receipt of the requisite approval of Canbras' shareholders at the special shareholders' meeting held on December 17, 2003, the Corporation had completed the sale of all of its operations to Horizon (the "Sale Transaction"). In addition, the Corporation also obtained the requisite shareholder approval to wind-up and dissolve the Corporation following the final distribution to shareholders of the net proceeds received by the Corporation from the Sale Transaction (see note 4). On January 14, 2004, following the filing by Canbras of a Statement of Intent to Dissolve, the Corporation was issued, by the Director under the Canada Business Corporations Act, a Certificate of Intent to Dissolve and, upon conclusion of the winding up process, Canbras intends to apply for a Certificate of Dissolution.

The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2004 as set out in the 2004 Annual Report of the Corporation, prepared in accordance with generally accepted accounting principles in Canada ("GAAP"). Capitalized terms used herein, and not otherwise defined, have the meanings defined in the 2004 Annual Report of the Corporation.

2. Significant accounting policies

In the opinion of the Corporation, the unaudited interim consolidated financial statements have been prepared on a basis consistent with the annual audited financial statements, and contain all adjustments necessary for a fair presentation of the financial position as at September 30, 2005 and the results of operations and cash flows for the three and nine months ended September 30, 2005 and 2004, respectively.

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, the recognition of revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

(a) Cash and cash equivalents

The Corporation considers all highly liquid investments, with a term to maturity of three months or less when purchased, to be cash equivalents.

(b) Temporary investments

Temporary investments may consist of treasury bills, bankers' acceptances and commercial paper with an initial maturity date greater than three months at the date of acquisition which the Corporation intends to hold to maturity. The temporary investments are carried at cost with discounts or premiums arising on purchase amortized to maturity.

2. Significant accounting policies (cont'd)

(c) Financial Instruments

The Canadian Institute of Chartered Accountants ("CICA") recently issued revisions to section 3860 of the CICA Handbook, Financial instruments - Disclosure and presentation. The revisions change the accounting for certain financial instruments that have liability and equity characteristics. It requires instruments that meet specific criteria to be classified as liabilities on the balance sheet. Some of these financial instruments were previously classified as equities.

These revisions came into effect on January 1, 2005. Because Canbras does not have any instruments with these characteristics, adopting this section on January 1, 2005 did not affect the unaudited interim consolidated financial statements of the Corporation.

For a complete description of the Corporation's significant accounting policies, refer to Canbras' consolidated financial statements for the year ended December 31, 2004.

3. Temporary Investments

As at September 30, 2005, the Corporation had investment grade commercial paper in the amount of $5,945,000. The commercial paper matures at varying dates to January 26, 2006. The effective yields on the commercial paper range from 2.65% to 2.80%. At September 30, 2005, the estimated fair value of the commercial paper amounted to $5,949,000.

4. Note receivable

Pursuant to the Sale Transaction, Canbras sold to Horizon all of its equity and debt interests in its subsidiary Canbras Participacoes Ltda. ("CPAR"). Through CPAR, Canbras held substantially all of its interests in its broadband subsidiaries operating in the Greater Sao Paulo and surrounding areas, including all of its interests in its core subsidiary, Canbras TVA Cabo Ltda. Canbras received gross proceeds of $32,600,000, comprised of $22,168,000 in cash and a one year promissory note in the original principal amount of $10,432,000, bearing interest at 10% (the "Note") due December 19, 2004. The Note was issued by CPAR and guaranteed by Horizon, and the amount of the Note was subject to reduction in respect of indemnification obligations of the Corporation under the sale agreement entered into with Horizon (the "SPA").

As of December 20, 2004, the deadline for the filing of such claims, the Corporation had received written notices from Horizon asserting claims for indemnification under the SPA in an aggregate amount of R$58.1 million, or approximately $30.2 million at the June 30, 2005 exchange rate. The Horizon notices stated that it was reserving its rights to supplement, review, adjust and otherwise modify its claims in accordance with the SPA.

Under the terms of the SPA, the Corporation's indemnification obligations were limited to the balance of the purchase price due under the SPA, which balance was represented by the Note, plus accrued interest thereon at 10% per annum.

Based on analyses of the Horizon Claims as well as Canbras' analysis of Horizon's ability to pay the amounts that may come due under the Note, the Note and accrued interest thereon were recorded on Canbras' consolidated balance sheet at December 31, 2004 at a value of $10.7 million which was net of a provision for loss of $0.8 million recorded during the fourth quarter of 2004. On July 21, 2005, the Corporation announced that it received $9.5 million in cash in exchange for the cancellation of the Note and final settlement of all present or future indemnification claims of Horizon in connection with the Sale Transaction (the "Horizon Settlement"). Accordingly, because the amount at which the Note was settled was known prior to the date the financial statements for the second quarter of 2005 were released, a net loss of $739 thousand was recorded in the second quarter of 2005, which loss was net of certain liabilities related to the Sale Transaction that were included in the March 31, 2005 balance sheet in the amount of $678 thousand which were no longer required.



5. Capital stock

Capital stock is comprised of the following:

(a) Authorized
An unlimited number of common shares
(b) Issued and outstanding
Number Amount
---------------------------
Balance at December 31, 2004 55,098,071 $ 266,112
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Balance at September 30, 2005 55,098,071 $ 266,112
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(c) Stock options

At September 30, 2005, 520,300 stock options were outstanding, all of which were exercisable. The stock options are exercisable on a one-for-one basis for common shares of the Corporation. The total stock options outstanding have exercise prices ranging from $4.00 to $11.75 per share over the remaining term of the options of between 1.25 to 3.25 years. As a result of the consummation of the Horizon Sale in December 2003, the Corporation's Board of Directors determined that no stock options would be issued by the Corporation at and after January 1, 2004.



6. Supplemental cash flow information
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---------------------------------------------
Three Months ended Nine Months ended
---------------------------------------------
September 30, September 30,
---------------------------------------------
---------------------------------------------
2005 2004 2005 2004
-------- --------- --------- ---------

Changes in non-cash
working capital items

Note and accrued
interest receivable $ 9,500 $ (262)$ 10,678 $ (781)
Prepaid expenses
and other 4 83 58 360
Accounts payable and
accrued liabilities 54 (75) (509) (2,131)
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Source (use) of cash $ 9,558 $ (254) $ 10,227 $ (2,552)
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7. Financial instruments

(a) Concentration of credit risk

The Corporation's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents and temporary investments. Credit risk is minimized substantially by ensuring that these financial assets are invested in treasury bills, bankers' acceptances and commercial paper with investment grade credit ratings. In addition, dollar limits are established on a per investment basis.

(b) Fair value of financial instruments

The fair value of cash and cash equivalents, temporary investments and current liabilities approximates their carrying amount, given their relatively short-term to maturity.

8. Commitments and Contingencies

The Corporation has provided indemnification to its officers and directors, and former officers and directors, against costs, charges and expenses, including amounts paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal or other proceeding to which such individual may be made a party by reason of his association with the Corporation. The Corporation is obligated to indemnify such individuals to the extent that they acted honestly and in good faith with a view to the Corporation's best interest and had reasonable grounds for believing their conduct was lawful, all as permitted by the Canada Business Corporations Act. In addition, the Corporation has provided indemnification, on substantially the same terms and conditions, to certain persons who had served at the Corporation's request as directors or managers of certain of its former subsidiaries operating in Brazil. These indemnification obligations are not subject to any dollar limit. In May 2004, the Corporation received requests for indemnification in respect of legal fees and related expenses to be incurred by two individuals who formerly served as directors or managers of certain of the Corporation's former Brazilian subsidiaries in connection with certain legal proceedings brought in Brazil against the previous owners of such subsidiaries. To date, none of these former Brazilian subsidiaries nor the two individuals have been directly named in the Brazilian legal proceedings, however, there can be no assurance at this time that they will not ultimately be made parties to such legal proceedings. As a result, the Corporation is paying the legal fees and related expenses in connection with the monitoring of these Brazilian legal proceedings on behalf of such individuals. The Corporation is expensing these costs as incurred.

During the fourth quarter of 2004, a former employee commenced legal proceedings against the Corporation and affiliates of the Corporation relative to an alleged promise of employment with its affiliates following termination of employment with the Corporation. The Corporation has included a provision in the consolidated financial statements for the estimated amount of its potential liability for this claim. With the exception of such provisional amount, the Corporation believes the claim is without merit and will defend its position vigorously. However, there can be no assurance that such provision is sufficient to cover the Corporation's ultimate liability for such claim.

9. Comparative figures

Certain comparative figures have been reclassified to conform with the presentation adopted in 2005.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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