Aastra Technologies Limited First Quarter ended March 31, 2003

Aastra Technologies Limited First Quarter ended March 31, 2003

AASTRA TECHNOLOGIES LIMITED MESSAGE TO OUR SHAREHOLDERS First Quarter ended March 31, 2003 To our Shareholders: Aastra Technologies Limited is pleased to report its financial results for the first quarter ended March 31, 2003. Net earnings for the three months ended March 31, 2003 were $6.0 million or $0.35 diluted earnings per share compared to $5.6 million or $0.37 diluted earnings per share in the same period last year. These first quarter 2003 financial results represent the Company s 20 th consecutive quarter of profitability. Earnings before income taxes, amortization and interest for the quarter ended March 31, 2003 were $8.0 million or 20% of sales compared to $10.5 million or 23% of sales last year for the same quarter, a 24% decrease. Net earnings for the 2003 quarter included a $0.8 million capital gain realized on the disposal of an equity investment in another public company. Excluding this capital gain, net earnings for the quarter would have been $5.2 million or $0.30 diluted earnings per share. Cash flow from operations during the first quarter of 2003 was $6.0 million or $0.35 per share compared to $16.7 million or $1.14 per share in the comparable quarter of 2002. Net sales for the three months ended March 31, 2003 were $40.1 million, a decrease of 12% from net sales of $45.3 million for the same period last year. The Company experienced weaker sales across all product lines in the first quarter of 2003, as the weakness in the communication equipment market became more severe. Net sales of Communication Access Terminals were $26 million in the first quarter of 2003 compared to $38 million in the comparable quarter of last year. Net sales of the Network Access Products segment were $14 million in the first quarter of 2003, compared to $7 million in the first quarter of 2002. This segment included the Remote Access Server product line which was purchased from Nortel Networks in May of 2002. Gross margins continued to be strong in the first quarter of 2003 at 45% of sales, an increase from 41% for the same period last year. The increase in gross margin has occurred partly as a result of the higher product gross margins as a result of our recent acquisitions. In addition, the Company has continued its efforts to re-engineer certain products in order to reduce costs while enhancing the features of its products. Research and development expenses remained consistent with the comparable quarter of 2002 at $4.3 million, as the increase from development activities in the Remote Access Server product line was offset by the decrease in development expenses related to the cable modem group. The cable modem development group was significantly reduced late in 2002. During the first quarter of 2003, the Company recorded a benefit of $0.5 million relating to government assistance received under the Technology Partnerships Canada program. Research and development efforts continue in the video and data network access markets as well as the introduction of new communication terminals.

Selling, general and administrative expenses were $4.7 million or 12% of sales in the first quarter of 2003 compared to $3.6 million or 8% in the same period last year. The increase in operating costs is mainly a result of the acquisition of the Remote Access Server product line subsequent to the first quarter of 2002. Amortization of capital and intangible assets has remained consistent with the first quarter of last year at $2.0 million. Amortization decreased from the fourth quarter of 2002 at $3.2 million due to the write-downs of excess cable modem lab and test equipment charged in that quarter. Investment income increased to $1.3 million during the quarter as a result of a higher average bank balance and a capital gain of $0.8 million realized on the disposal of an equity investment in another public company. Finally, income tax expense decreased to $1.4 million or 18% of pre-tax income during the quarter as a result of a continued significant shift in taxable income to lower tax jurisdictions. As a result of a public offering completed in December 2002 and the continued positive cash flow generated from operations, the Company ended the quarter with a significant balance of over $95 million in cash, cash equivalents and short-term investments. Although the communications equipment market has experienced a significant downturn which has impacted the Company s business, the Company believes that it is well positioned to leverage its strong financial position to grow its business by exploiting strategic acquisition opportunities that may arise in this environment as well as developing internal growth. Aastra Technologies Limited (TSX: AAH ), headquartered in Concord, Ontario, Canada, develops and markets products and systems for accessing communication networks (including the Internet). Aastra s products include a full range of residential and business telephone terminals, screen telephones capable of accessing Internet content, cable modems, network access servers and high quality digital video encoders, decoders and gateways for the broadcast, cable and telecommunications market. Aastra serves the majority of telephone companies and certain cable operators and broadcasters in North America with a growing presence in Europe, South America and Asia. For more information on Aastra, visit our Web site at http://www.aastra.com. For the Board of Directors, Mr. Anthony Shen President & COO Mr. Francis Shen Chairman & CEO

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion has been prepared by management and is a review of the consolidated operating results and financial position of Aastra Technologies Limited ( Aastra or the Company ) based upon accounting principles generally accepted in Canada. This discussion and analysis should be read in conjunction with the consolidated financial statements of the Company, as well as the notes thereto, for the respective periods. All amounts are expressed in Canadian dollars unless otherwise stated. Financial Highlights Closed the quarter with $95.5 million of cash and short-term investments Generated $6 million or $0.35 per share of cash from operations Closed the quarter with 20th consecutive quarters of profitability Overview of Results of Operations Three months ended March 31, 2003 Three months ended March 31, 2002 Sales 100.0% 100.0% Cost of goods sold 55.4% 59.5% Gross Margin 44.6% 40.5% Operating Expenses: Research and development 10.8% 9.5% Selling, general & 11.6% 7.9% administrative Amortization 4.9% 4.3% Foreign exchange loss 2.2% - Interest (3.3%) (0.2%) Earnings before income taxes 18.4% 19.0% Income tax expense 3.4% 6.7% Net earnings 15.3% 12.3%

Sales The Company experienced weaker sales across all product lines in the first quarter of 2003. Sales for the quarter ended March 31, 2003 were $40.1 million, a decrease of 12% from $45.3 million in the 2002 comparative quarter. Sales by Segment Three months ended ($ 000 s) March 31, 2003 March 31, 2002 Communication Access Terminals 25,786 38,042 Network Access Products 14,267 7,286 Sales $40,053 $45,328 Aastra operates in two primary business segments: Communication Access Terminals and Network Access Products. The Communication Access Terminals segment includes a full range of residential and enterprise telephone terminals, screen-phones capable of accessing Internet content and cable modems. These products are sold through distributors and service providers, which include cable and telephone companies. The Network Access Product segment includes a line of high quality digital video encoders, decoders and gateways and includes the Remote Access Server product line acquired from Nortel Networks in 2002. Sales of Communication Access Terminals were $26 million in the first quarter of 2003 compared to $38 million in the first quarter of 2002. This segment continues to be effected by the depressed market for communications equipment. Sales in the Network Access Products segment reached $14 million in the first quarter of 2003, as compared to $7 million in the first quarter of 2002. The first quarter of the 2003 total included sales of $9 million of Remote Access Server products compared to $7 million in the first quarter of 2002. The Remote Access Server product line was purchased from Nortel Networks in May of 2002. Gross Margin Gross margin continued to be strong in the first quarter of 2003 at 45% from 41%, in the comparable quarter of 2002. This significant increase in gross margin is due to a continued favourable shift in product mix and a continued focus on cost reduction in our existing product lines. Recent acquisitions, specifically, the Network Access Server product line purchased from Nortel and the Digital Video product line purchased from Lucent Technologies, produced a 54% gross margin in the Network Access Segment during the first quarter ended March 31, 2003. Gross margin in the Communication Access Terminal segment remained stable at 39% gross margin compared to the first quarter 2002.

The company continues to use its understanding of new technology to reduce cost while improving the performance of its products in order to improve overall gross margins. In addition, Aastra continues to negotiate price reductions on certain products from its extensive network of third party contract manufacturers, which has also had a favourable effect on gross margin. Research and Development Expenses In line with the Company s focus on strategically investing in research and new product and software development, research and development expenditures remained consistent at $4.3 million or 10.8% of sales in the first quarter of 2003, increasing slightly from 9.5% of sales in the comparable quarter of 2002. An extensive amount of research and development investment is expected to occur relating to both existing product categories as well as the new product lines acquired. In 2001, Aastra significantly increased its development activities focused on emerging access technologies, which continues into 2003. In the Communication Access Terminal segment, the Company continues to focus on the development of additional screen phones for the residential and enterprise market that complement its current product lines. Research and development expenditures also continue in the video and data network access markets. Segment research and development expense for the first quarter 2003 were $1.1 million or 4.2% of sales in the Communication Access Terminal segment and $3.2 million or 22.6% of sales in the Network Access Products segment. More importantly, the Company continues to explore synergies between its development groups in an effort to take advantage of convergence opportunities in voice, video and data which is being financed, in part, by the Government of Canada. Aastra continues to view the investment in strategic research and development as critical to its continued growth and success. Aastra entered into an agreement with Technology Partnerships Canada early in 2002. This program will provide the Company to a maximum of $9.9 million in funding to reimburse 33% of eligible costs of a research project aimed at developing new wireless communication devices. The agreement specifies the repayment to be 2.2% of Gross Project Revenues to a maximum of $20.6 million or until the repayment period expires on December 31, 2012. Selling, General and Administrative Expenses Selling, general and administrative expenses increased to $4.7 million or 11.6% of sales in the first quarter of 2003 as compared to $3.6 million or 7.9% of sales in the comparable quarter last year. As a result of the 2002 acquisition, the company now has offices in several locations including new offices in Massachusetts and the United Kingdom. Management continues to focus on maintaining the company s variable cost structure with the integration of its recent acquisitions and continues to implement certain cost saving measures in an effort to contain its selling, general and administrative expenses. Net Earnings Excluding the amortization of tooling, which is recorded in cost of sales, amortization expense remained consistent at $2.0 million in the first quarter of 2003 compared to the first quarter of 2002. Amortization decreased from the fourth quarter of 2002 at $3.2 million due to the write-downs of excess cable modem lab and test equipment charged in that quarter.

Investment income increased in the first quarter of 2003 to $1.3 million as a result of a higher average bank balance and a capital gain of $0.8 million realised on the disposal of an equity investment in another public company. Income tax expense decreased to $1.4 million or 18% of pre-tax income during the first quarter of 2003 compared to $3.0 million or 35% of pre-tax income in the comparable quarter for 2002. The resulting net earnings for the first quarter of 2003 was $6.0 million or $0.35 diluted earnings per share compared to $5.6 million or $0.37 diluted earnings per share in the comparable quarter of 2002. Liquidity and Capital Resources As a result of a public offering completed in December 2002 and the continued positive cash flow generated from operations, the company ended the first quarter of 2003 with $95.5 million of cash, cash equivalents and short-term investments. Cash flow from operations for the first quarter 2003 was $6.0 million, which decreased significantly from $16.7 million in the comparable quarter of 2002. Accounts receivable decreased by $9 million to $25 million as at March 31, 2003, as compared to $35 million as at December 31, 2002. Aged receivables increased slightly to 59 days for the first quarter of 2003 from 58 days for the fourth quarter of 2002. During the three months ended March 31, 2003, Aastra invested $0.3 million in capital asset additions and issued $0.3 million of common shares in accordance with the stock option plan. At the end of March 31, 2003, Aastra had net working capital of $130.1 million compared to $122.5 million as at December 31, 2002. Management believes that current bank balances and cash generated from operations will be sufficient to satisfy the Company's operating requirements for the next 12 months. The Company may require additional external sources of debt or equity financing to fund future research and development activities or acquisitions. The Company has unused debt facilities of up to $20 million, which is described in note 8 to the 2002 Annual Financial Statements. The number of outstanding common shares of Aastra Technologies Limited on April 28, 2003 were 16,921,609. Forward-looking Statements This Management s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties. Forward-looking statements include statements of plans, objectives and expectations and are intended to be identified by the use of words such as anticipate, believe, estimate and expect and other similar expressions. The Company wishes to caution readers not to place undue reliance on such forward-looking statements as actual results could differ materially from those anticipated. All forward-looking statements reflect management s current views with respect to future events and are subject to certain risks and uncertainties and assumptions that have been made. Business Risks and Uncertainties There have been no material changes in any business risks or uncertainties facing Aastra since the year ended December 31, 2002.

Current Outlook While the Company is pleased to report it s 20 th consecutive quarterly profit for the first quarter 2003, revenue levels and general market conditions have been disappointing. The continued uncertain economic climate in 2003 will undoubtedly continue to impact Aastra in all segments of its current business operations. Focusing on the future, the Company will continue to allocate resources toward new product development initiatives in an attempt to provide growth opportunities thereby, offsetting the negative impact of a weaker economy. Expectations for the balance of 2003 include expanding the telecom product line with new screen-phone offerings and introducing new products into the video market. In addition, the Company intends to continue to focus on two primary areas for long-term growth, the marriage of telephony technologies with broadband gateways and integrating high-end digital video technologies with Network Access Products. Aastra ended the first quarter of 2003 with a strong financial position including $96 million in cash, cash equivalents and short-term investments as well as $20 million of unused credit facilities. Although the communications equipment market has experienced a significant downturn which has impacted the Company s business, the Company believes that it is well positioned to leverage its strong financial position to grow its business by exploiting strategic acquisition opportunities that may arise in this environment in addition to developing internal growth.

AASTRA TECHNOLOGIES LIMITED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) 1 ST QUARTER Three-month period ended March 31 st 2003 2002 Sales $ 40,053,308 $ 45,327,883 Cost of goods sold 22,179,625 26,952,217 $ 17,873,683 $ 18,375,666 Selling, general and administrative 4,656,732 3,586,165 Research and development 4,325,254 4,305,775 Amortization 1,951,390 1,967,914 Foreign exchange loss 900,144 - Investment Income (1,339,489) (92,038) Earnings before income taxes $ 7,379,652 $ 8,607,850 Income taxes 1,357,856 3,012,748 Net earnings for the period $ 6,021,796 $ 5,595,102 Basic earnings per share for the period $ 0.36 $ 0.38 Diluted earnings per share for the period $ 0.35 $ 0.37 * Actual common shares outstanding as at March 31, 2003 16,917,984 (2002 14,618,735) ** Weighted average common shares outstanding as at March 31, 2003 16,899,834 (2002 14,588,048) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 1 st QUARTER Three-month period Ended March 31 st 2003 2002 Cash provided by (used for) operations: Net earnings for the period $ 6,021,796 $ 5,595,102 Amortization of capital assets 1,623,426 1,744,533 Amortization of intangible assets 765,103 727,096 Change in non cash operating working capital (2,411,684) 8,616,848 5,998,641 16,683,479 Cash provided by (used in) financing activities: Issuance of common shares 330,607 642,837 330,607 642,837 Cash provided by (used for) investing activities: Short-term investments (22,238,779) - Net purchase of capital assets (256,366) (169,159) (22,495,145) (169,159) Foreign exchange loss on cash held in foreign currency (900,144) - Increase in cash and cash equivalents (17,066,041) 17,157,157 Cash and cash equivalents, beginning of period 78,187,019 18,779,317 Cash and cash equivalents, end of period $ 61,120,978 $ 35,936,474

AASTRA TECHNOLOGIES LIMITED CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS AT MARCH 31 ST 2003 AS AT DECEMBER 31 ST 2002 Assets Current assets: Cash and cash equivalents $ 61,120,978 $ 78,187,019 Short-term investments 34,367,376 12,128,597 Accounts receivable 25,480,872 34,632,444 Inventories 44,384,932 43,365,087 Deposits and prepaid expenses 565,378 513,450 Future income taxes 2,526,789 3,371,673 $ 168,446,325 $ 172,198,270 Future income taxes 2,208,301 1,363,417 Capital assets, net 22,778,869 24,145,929 Goodwill 6,353,018 6,353,018 Intangible assets 15,991,552 16,756,655 $ 215,778,065 $ 220,817,289 Liabilities and Shareholders Equity Current liabilities: Accounts payable and accrued liabilities 32,598,976 41,925,109 Income taxes payable 1,820,828 5,344,300 Deferred revenue 3,922,030 2,464,052 $ 38,341,834 $ 49,733,461 Shareholders equity: Share capital 99,574,384 99,243,777 Retained earnings 77,861,847 71,840,051 177,436,231 171,083,828 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) $ 215,778,065 $ 220,817,289 1 st QUARTER Three-month period ended March 31 st 2003 2002 Retained earnings, beginning of period $ 71,840,051 $ 42,655,920 Net earnings 6,021,796 5,595,102 Retained earnings, end of period $ 77,861,847 $ 48,251,022

AASTRA TECHNOLOGIES LIMITED Notes to Consolidated Financial Statements (Unaudited) Three months ended March 31, 2003 and 2002 Aastra Technologies Limited (the "Company") is incorporated under the Canada Business Corporations Act. Its principal business activities include the design, development and marketing of products and systems for accessing communication networks, including the Internet. 1. Significant accounting policies: (a) Basis of presentation: These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Aastra Telecom Inc., Aastra Telecom U.S., Inc., Aastra Telecom (Barbados) SRL, Global ADSI Solutions, Inc., Aastra Eaccess Inc., Aastra Telecom (Far East) Limited, Aastra Telecom (UK) Limited, Aastra U.S. Holdings, Inc. and Aastra Technologies Iceland ehf.av.. Aastra Technologies Iceland ehf.av. was incorporated in Iceland during 2002. The disclosures contained in these unaudited interim consolidated financial statements do not include all requirements of generally accepted accounting principles for annual financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2002, as they follow the same accounting policies and methods of application, except as described in Note 2. 2. Segmented and geographical information: Segment disclosures: The Company operates in two business segments, Network Access Products and Communication Access Terminals. The Company's reportable segments are strategic business units which offer different products and services and differ in technology and product risks. The Network Access Products segment develops and markets high quality digital video encoders, and decoders and gateways for the broadcast, cable and telecommunications markets and also includes the remote access solutions product line acquired from Nortel Networks in 2002. The Communication Access Terminals segment develops and markets cable modems and a full line of residential and business telephones for the cable and telecommunication markets.

Network Communication Three months ended Access Access Total March 31, 2003 Products Terminals consolidated Revenue from external customers $ 14,267,378 $ 25,785,930 $ 40,053,308 Cost of goods sold 6,508,875 15,670,750 22,179,625 Segment gross profit 7,758,503 10,115,180 17,873,683 Segment research and development expenses 3,231,506 1,093,748 4,325,254 $ 4,526,997 $ 9,021,432 13,548,429 Expenses (income): Selling, general and administrative 4,656,732 Amortization 1,951,390 Foreign exchange loss 900,144 Interest (1,339,489) 6,168,777 Consolidated earnings before income taxes $ 7,379,652 Segment assets $ 50,129,598 $ 165,648,467 $ 215,778,065 Network Communication Three months ended Access Access Total March 31, 2002 Products Terminals consolidated Revenue from external customers $ 7,250,754 $ 38,077,129 $ 45,327,883 Cost of goods sold 3,667,476 23,284,741 26,952,217 Segment gross profit 3,583,278 14,792,388 18,375,666 Segment research and development expenses 1,283,719 3,022,056 4,305,775 $ 2,299,559 $ 11,770,332 14,069,891 Expenses (income): Selling, general and administrative 3,586,165 Amortization 1,967,914 Interest (92,038) 5,462,041 Consolidated earnings before income taxes $ 8,607,850 Segment assets $ 34,356,669 $ 120,007,395 $ 154,364,064

Revenue attributable to geographic location based on the location of the customer: Sales to Three months ended third party Intercompany March 31, 2003 customers sales Total United States $ 20,925,538 $ 2,375,046 $ 23,300,584 Canada 9,610,253 9,610,253 Other countries 9,517,517 14,391,717 23,909,234 40,053,308 16,766,763 56,820,071 Elimination (16,766,763) (16,766,763) Consolidated revenue $ 40,053,308 $ $ 40,053,308 Sales to Three months ended third party Intercompany March 31, 2002 customers sales Total United States $ 26,820,271 $ 4,190,721 $ 31,010,992 Canada 12,965,295 12,956,295 Other countries 5,551,317 6,436,296 11,987,613 45,327,883 10,627,017 55,954,900 Elimination (10,627,017) (10,627,017) Consolidated revenue $ 45,327,883 $ $ 45,327,883 Capital assets and goodwill by geographical area: March 31, March 31, 2003 2002 Capital assets and goodwill: Canada $ 10,221,837 $ 10,457,675 United States 15,710,722 12,047,706 Other countries 3,199,328 2,773,461 Consolidated capital assets and goodwill $ 29,131,887 $ 25,278,842

3. Reconciliation between basic and diluted earnings per share: The following table reconciles the numerators and denominators of the basic and diluted earnings per share computation. Basic earnings per share calculation: March 31, March 31, 2003 2002 Numerator for basic earnings per share: Net earnings $ 6,021,796 $ 5,595,102 Denominator for basic earnings per share: Weighted average common shares 16,899,834 14,588,048 Basic earnings per share $ 0.36 $ 0.38 Diluted earnings per share calculation: March 31, March 31, 2003 2002 Numerator for diluted earnings per share: Net earnings $ 6,021,796 $ 5,595,102 Denominator for diluted earnings per share: Weighted average common shares 16,899,834 14,588,048 Net common shares that would be issued assuming the proceeds from stock options and share purchase warrants are used to repurchase common shares at the average share price 538,305 715,324 Diluted common shares 17,438,139 15,303,372 Diluted earnings per share $ 0.35 $ 0.37

4. Stock-based Compensation Pro forma Net earnings and Earnings per Share: This note should be read in conjunction with Note 10 of the consolidated financial statements as at December 31, 2002. The Company accounts for stock-based compensation for exempt awards to employees under the settlement method of accounting. Had compensation cost for the Company s stock option plan been determined based on the fair value method of accounting for stock-based compensation, the Company s net income and earnings per share would have been reduced to the pro forma amounts indicated below. The fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the three months ended March 31, 2003: dividend yield of nil; expected volatility of 52.7%; weighted average risk-free interest rate of 4.80%; and expected lives of four years. The following disclosures omit the effect of awards granted before fiscal years beginning on or after January 1, 2002. Three months ended March 31, 2003 Three months ended March 31, 2002 Net earnings, as reported $ 6,021,796 $ 5,595,102 Stock compensation expense 110,430 869 Pro forma net earnings $ 5,911,366 $ 5,594,233 Basic earnings per share, as reported $ 0.36 $ 0.38 Pro forma Basic earnings per share $ 0.35 $ 0.38 Diluted earnings per share, as reported $ 0.35 $ 0.37 Pro forma Diluted earnings per share $ 0.34 $ 0.37 5. Guarantees: Effective January 1, 2003, the Company adopted the new Canadian Institute of Chartered Accountants ( CICA ) Accounting Guideline AcG-14 Disclosure of Guarantees, which requires certain disclosures of obligations under guarantees. The Company provides routine commercial letters of credit, letters of guarantee, contractual vendor rebates and indemnifications to various third parties, whose terms range in duration and often are not explicitly defined.