<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 20-F
(MARK ONE)
[ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (FEE REQUIRED)
                                       OR
[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 For the fiscal year ended December 31, 1999 (No Fee Required)
                                       OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM N/A TO N/A (NO FEE
     REQUIRED)
COMMISSION FILE NUMBER 333-7668
                      POLSKA TELEFONIA CYFROWA SP. Z O.O.
             (Exact Name of Registrant as Specified in Its Charter)
                                     POLAND
                (Jurisdiction of Incorporation or Organization)
                      AL. JEROZOLIMSKE 181, 02-222 WARSAW
                    (Address of Principal Executive Offices)

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
                                                           NAME OF EACH EXCHANGE
             TITLE OF EACH CLASS                            ON WHICH REGISTERED
             -------------------                           ---------------------
<S>                                            <C>
                     None                                           None
</TABLE>

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                                      None
                                (TITLE OF CLASS)

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(D)
OF THE ACT:

     10 3/4% Senior Subordinated Guaranteed Discount Notes Due July 1, 2007
   11 1/4% SENIOR SUBORDINATED GUARANTEED DISCOUNT NOTES DUE DECEMBER 1, 2009

INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT.

           471,000 Outstanding Ordinary Shares of PLN 1,000 per Share

INDICATE BY CHECK MARK WHETHER THE 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  ___      NO  ___
INDICATE BY CHECK MARK WHICH FINANCIAL STATEMENT ITEM THE REGISTRANT HAS ELECTED
TO FOLLOW.
                         ITEM 17  ___      ITEM 18  ___
NAME AND ADDRESS OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS FROM
THE SECURITIES AND EXCHANGE COMMISSION:

                                Alexander Lloyd
                                Clifford Chance
                             200 Aldersgate Street
                                London EC1A 4JJ
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<PAGE>   2

     We, Polska Telefonia Cyfrowa Sp. z o.o., are a limited liability company
(spolka z ograniczona odpowiedzialnoscia) organized under the laws of the
Republic of Poland. References to the "10 3/4% Notes" are to the 10 3/4% Senior
Subordinated Guaranteed Discount Notes due July 1, 2007 which were issued by PTC
International Finance B.V., our wholly owned finance subsidiary which was
organized under the laws of The Netherlands. References to the "11 1/4% Notes"
are to the 11 1/4% Senior Subordinated Guaranteed Discount Notes due December 1,
2009, which were issued by PTC International Finance II S.A. a company organized
under the laws of Luxembourg which is a wholly owned finance subsidiary of PTC
International Finance (Holding) B.V., which in return is our second wholly owned
finance subsidiary organized under the laws of the Netherlands. Both the 10 3/4%
Notes and 11 1/4% Notes are fully and unconditionally guaranteed by us (the
"Company Guarantee"). PTC International Finance B.V., PTC International Finance
(Holding) B.V. and PTC International Finance II, S.A. essentially have no
independent operations and do not file separate reports under the Securities
Exchange Act of 1934 (the "Exchange Act").

     We publish our Financial Statements in Polish Zloty. In this annual report
on Form 20-F (the "Form 20-F"), references to "zloty" or "PLN" are to Polish
currency, references to "U.S. dollars", "USD" or "$" are to United States
currency, references to "Deutschmark" or "DM" are to German currency and
references to "Euros" are to the single currency of those member states of the
European Union (the "EU") that entered the third stage of economic and monetary
union pursuant to the Maastricht Treaty on January 1, 1999. As at January 1,
1999, the Euro replaced the "ECU", the European Currency Unit at a ratio of one
Euro to one ECU.

     The Federal Reserve Bank of New York does not certify for customs purposes
a noon buying rate for Zloty. For the convenience of the reader, this Form 20-F
contains translations of certain Zloty amounts into U.S. dollars at the rate of
PLN 4.1483 = $1.00, the exchange rate quoted for accounting purposes by the
National Bank of Poland ("NBP"), the Polish central bank, on December 31, 1999
(the "Fixing Rate"). These translations should not be construed as
representations that such zloty amounts actually represent such U.S. dollar
amounts or could be, or could have been, converted into U.S. dollars at the
rates indicated or at any other rate.

     Our Financial Statements for the year ended December 31, 1999 (the
"Financial Statements") attached to this Form 20-F have been prepared in
accordance with International Accounting Standards ("IAS"), which differs in
certain respects from generally accepted accounting principles in the United
States ("U.S. GAAP") (see Note 28 to the Financial Statements). Unless otherwise
stated herein, all financial information presented in this Form 20-F has been
prepared in accordance with IAS.

     CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THIS ANNUAL
REPORT ON FORM 20-F CONTAINS CERTAIN FORWARD LOOKING STATEMENTS (AS DEFINED IN
SECTION 21E OF THE EXCHANGE ACT) WITH RESPECT TO OUR PLANS TO COMPLETE ITS
CELLULAR NETWORK, EXPECTATIONS AS TO FUNDING ITS CAPITAL REQUIREMENTS AND OTHER
STATEMENTS OF EXPECTATION, BELIEF, FUTURE PLANS AND STRATEGIES, ANTICIPATED
DEVELOPMENTS AND OTHER MATTERS THAT ARE NOT HISTORICAL FACTS. THESE FORWARD
LOOKING STATEMENTS ARE ACCOMPANIED BY, AND SHOULD BE READ IN CONJUNCTION WITH,
AN EXPLANATION OF FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED AS SUCH FORWARD LOOKING STATEMENTS. BY THEIR NATURE,
FORWARD LOOKING STATEMENTS INVOLVE RISK AND UNCERTAINTY, AND THE FACTORS
DESCRIBED IN THE CONTEXT OF SUCH FORWARD LOOKING STATEMENTS, AND OTHER FACTORS
REFERRED TO IN THIS ANNUAL REPORT ON FORM 20-F, PARTICULARLY IN ITEM 1.
"DESCRIPTION OF BUSINESS" AND ITEM 9. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," COULD CAUSE ACTUAL RESULTS AND
DEVELOPMENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY SUCH
FORWARD LOOKING STATEMENTS. WE ARE CLAIMING THE BENEFITS OF THE SAFE HARBOR
PROVISION REFERRED TO ABOVE.

     Our registered office and its headquarters are located at Al. Jerozolimske
181, 02-222 Warsaw; telephone (480 22 573-6000).

                                        2
<PAGE>   3

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>         <C>                                                           <C>
PART I
Item 1.     Description of Business.....................................    4
Item 2.     Description of Property.....................................   17
Item 3.     Legal Proceedings...........................................   17
Item 4.     Control of Registrant.......................................   18
Item 5.     Nature of Trading Market....................................   19
Item 6.     Exchange Controls and Other Limitations Affecting Security     19
            Holders.....................................................
Item 7.     Taxation....................................................   20
Item 8.     Selected Financial Data.....................................   21
Item 9A.    Management's Discussion and Analysis of Financial Condition    24
            and Results of Operations...................................
Item 9B.    Qualitative and Quantitative Disclosures About Market          31
            Risk........................................................
Item 10.    Directors and Officers of Registrant........................   33
Item 11.    Compensation of Directors and Officers......................   33
Item 12.    Options to Purchase Securities From Registrant or              33
            Subsidiaries................................................
Item 13.    Interest of Management in Certain Transactions..............   34
PART II
Item 14.    Description of Securities to be Registered..................   37
PART III
Item 15.    Defaults Upon Senior Securities.............................   37
Item 16.    Changes in Securities and Changes in Security for Registered   37
            Securities..................................................
PART IV
Item 17.    Financial Statements........................................   37
Item 18.    Financial Statements........................................   37
Item 19.    Financial Statements and Exhibits...........................   38
</TABLE>

                                        3
<PAGE>   4

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW

     We are the largest GSM wireless telephony services provider in Poland with
1.8 million subscribers and a 44.7% share of the total Polish wireless market as
of December 31, 1999. We have both a national GSM 900 and a national GSM 1800
license. As of December 31, 1999, our GSM network covered approximately 84.4% of
the geographic area of Poland representing approximately 95% of the total Polish
population. We are completing the initial roll out of our SDH microwave backbone
network that will connect certain key portions of our network and will reduce
reliance on leased lines, provide better transmission quality and reduce
operating costs. The initial phase of this SDH microwave backbone network is
expected to be complete by the end of the second quarter of 2000. In addition,
we plan to selectively roll out GSM 1800 service, which will allow us to
increase capacity and to offer seamless nationwide dual-band (GSM 900/1800)
service. All our products and services are sold under the brand "Era GSM", one
of the most recognized brand names in Poland. To distribute our products and
services, we use a network of 31 dealers with 844 points of sale, a direct sales
force of 88 representatives and a national network of 46 retail outlets.

     We have achieved rapid growth in our subscriber base since we launched
service in September 1996. For the year ended December 31, 1999, we generated an
average of approximately 81,000 net subscriber additions per month. Since July
1999, we have experienced monthly churn of approximately 2.2%, which is at a
level comparable with that achieved by Western Europe and U.S. wireless
providers. As of December 31, 1999, we provided wireless service to
approximately 1.4 million post-paid subscribers and 365,000 pre-paid
subscribers. For the year ended December 31, 1999, we had revenue and EBITDA of
PLN 2,592.1 million (US$ 624.8 million) and PLN 598.3 million (US$ 144.2
million), respectively. Historical revenues and EBITDA for the year ended
December 31, 1999 increased by 60.9% and 36.2%, respectively, as compared to the
same period in 1998.

     We provide a broad range of high-quality wireless telephone services,
including call forwarding, call waiting, voicemail, account information, short
messaging services, information services and wireless internet access.
Additionally, we offer a range of differentiated tariff plans to attract and
retain subscribers with varying service needs. In particular, our strategic
focus has been on acquiring and retaining high volume users, converting select
pre-paid customers to post-paid plans and minimizing churn to increase recurring
cash flow from each subscriber. We also provide roaming capabilities to our
subscribers through 141 international roaming agreements with GSM operators in
74 countries, including all European countries with GSM services.

     Historically, we have benefited from the experience, expertise and support
of Deutsche Telekom MobilNet GmbH ("DeTeMobil"), Elektrim S.A. ("Elektrim"), and
MediaOne International B.V. ("MediaOne" -- formerly US West International B.V.).
Both DeTeMobil and MediaOne have significant experience in operating cellular
networks in other Central European markets and worldwide. Elektrim is one of
Poland's leading industrial and manufacturing groups, focusing on power
construction and engineering, electro-technical equipment and
telecommunications. Employees seconded from our shareholders have trained and
supervised a number of local managers, who now hold key positions in the
Company, including the Director General and the Director of Strategy, Marketing
& Sales. As of December 31, 1999, the number of seconded employees was 11,
representing less than 1% of the work force.

SERVICES AND PRODUCTS

POST-PAID SERVICES

     We offer subscribers a basic post-paid service package, consisting of
network access, call divert and forwarding, short message service, calling line
identity (clip) and voice mail which are all pursuant to six alternative tariff
plans. The variety in tariff plans permit subscribers to select the monthly
fees, air-time charges and value added services that best suit their service
requirements and frequency of calls. A potential subscriber commences service
upon payment of the purchase price of the handset and the subscriber identity
module ("SIM") card.

                                        4
<PAGE>   5

     We have reduced the activation fee from time to time, in connection with
particular promotions in order to attract subscribers. Nevertheless, our basic
activation fee remains slightly above that charged by competitors. Currently, we
do not offer free activation or SIM cards as part of our promotional campaigns
so as to prevent the attraction of subscribers who are lower service users and,
who may present higher credit risks than subscribers willing to pay the full
activation fee.

     Our tariff structure for services consists of a monthly service fee,
air-time charges and additional monthly charges for the use of certain value
added services. Our services are offered through six tariff plans that vary the
monthly service fee inversely with per minute air-time charges. The "Halo" or
"Hello" plan, is a bridge plan from the pre-paid service (a lower monthly fee
and a higher per minute charge). The "Bialy" or "White" plan, is designed for
low volume consumers (less than 80 minutes of air-time for outgoing calls per
month). The "Po Prostu" or "Plain and Simple" plan is designed for consumers who
prefer a consistent per minute charge (a slightly higher monthly charge and a
flat per minute charge anytime anywhere in Poland). The "Blekitny" or "Blue"
plan is designed for medium volume consumers (between 80 and 280 minutes of
air-time for outgoing calls per month). The "Granatowy" or "Navy Blue" plan,
which is designed for high volume consumers (more than 280 minutes of air-time
for outgoing calls per month). The "VIP" plan, which is designed for high-end,
high-volume subscribers (a high monthly charge and a very low per minute
charge). In addition, to optimize our network utilization, calls within our
network from 11:00 PM to 6:00 AM are offered at night zone pricing, which is the
lowest per minute price of all available tariffs.

     The following table sets forth a summary of our tariff rates (excluding the
22% VAT charged on the sale of services in Poland), applicable as of October 15,
1999 for domestic calls by an Era GSM subscriber:

<TABLE>
<CAPTION>
                                                    AIR-TIME                AIR-TIME                      PERCENTAGE OF
                                               TARIFF RATES(1) --      TARIFF RATES(1) --                     TOTAL
                                    MONTHLY      OUTSIDE ERA GSM         WITHIN ERA GSM                    SUBSCRIBERS
                       ACTIVATION   SERVICE   ---------------------   ---------------------               -------------
TARIFF PACKAGE           CHARGE       FEE       PEAK      OFF-PEAK      PEAK      OFF-PEAK      NIGHT     1998    1997
--------------         ----------   -------   ---------   ---------   ---------   ---------   ---------   -----   -----
                         (PLN)       (PLN)    (PLN/MIN)   (PLN/MIN)   (PLN/MIN)   (PLN/MIN)   (PLN/MIN)
<S>                    <C>          <C>       <C>         <C>         <C>         <C>         <C>         <C>     <C>
Hello................    99.00       19.90      2.39        0.89        1.74        0.74        0.24        N/A     N/A
White................    99.00       39.90      1.69        0.89        1.54        0.74        0.24      74.3%   67.6%
Plain and Simple.....    99.00       59.90      1.00        1.00        1.00        1.00        0.24        N/A     N/A
Blue.................    99.00       89.90      1.09        0.59        0.94        0.44        0.24      18.0%   23.6%
Navy Blue............    99.00      129.90      0.89        0.49        0.74        0.34        0.24       7.7%    8.8%
VIP..................    99.00      199.90      0.55        0.55        0.55        0.55        0.24        N/A     N/A
</TABLE>

---------------

(1)  Our subscribers pay for the first minute of each call regardless of the
     call's length and then for each thirty-second interval (or portion thereof)
     thereafter.

     We have not increased the rates on any of our packages since we began
offering services to our subscribers in September 1996. On February 1, 1998, VAT
charged on the cost of telecommunications services was increased from 7% to 22%
thereby increasing the final cost of telecommunications services to our
subscribers

     Due to relatively low average household incomes in Poland (less than PLN
2,500 per month), we believe that many of our subscribers, including medium- and
high-volume users, prefer to enroll in a tariff plan with a lower monthly
service charge. We believe that a certain number of our Hello plan subscribers
will migrate to the Plain and Simple, Blue or Navy Blue plans as they become
accustomed to using our services.

PRE-PAID SERVICES

     Since June 1998, we have offered a pre-paid GSM service package under the
product name "Tak Tak." This pre-paid service enables our customers to take
advantage of a GSM service without paying a monthly subscription fee or entering
into a contract. Our Tak Tak pre-paid service is designed to appeal to those who
want to limit the amount they spend on their mobile calls. We offer two types of
pre-paid tariff services: i)"You and Me", which provides a 15% discount to our
subscribers for up to two of their favorite callers; and ii) "All Day", which
provides our subscribers with a flat per minute price all day and a lower more
competitive price on calls

                                        5
<PAGE>   6

from 11.00 PM to 6.00 AM. We believe that Tak Tak has become synonymous with
pre-paid cellular service in Poland.

     Our customers who choose pre-paid service can purchase either a SIM pack
starting from approximately PLN 99 (a SIM card, which is required to open a
pre-paid account, with a stored value of PLN 50) or the pre-paid bundle pack (a
handset and a SIM pack) for approximately PLN 299 to PLN 449 depending on the
handset chosen. Our subscribers can then purchase pre-paid vouchers of different
denominations and validity periods. Pre-paid vouchers are sold in all of our
company retail stores and in over 5,500 other outlets including national news
stands, gas stations, Era GSM stores and through dealers. If the pre-paid
account is not topped up with a new voucher within a six-month period, the
pre-paid account expires and any remaining balance is forfeited. As of December
31, 1999, our total subscribers included 365,155 Tak Tak customers.

     The following table sets forth the charges to the pre-paid card for local
and national calls:

<TABLE>
<CAPTION>
                                       CALLS OUTSIDE THE ERA GSM    CALLS WITHIN THE ERA GSM
                                               NETWORK(1)                  NETWORK(1)
                                       --------------------------   ------------------------
                                                    OFF-PEAK AND                OFF-PEAK AND
PREPAID TARIFF PACKAGE                    PEAK        WEEKENDS        PEAK        WEEKENDS       NIGHT
----------------------                 ----------   -------------   ---------   ------------   ---------
                                       (PLN/MIN)    (PLN/MIN)       (PLN/MIN)   (PLN/MIN)      (PLN/MIN)
<S>                                    <C>          <C>             <C>         <C>            <C>
You and Me tariff....................     2.59          1.20          1.74          0.94         0.24
  All Day tariff.....................     1.99          1.99          1.39          1.39         0.24
</TABLE>

---------------

(1)  Our subscribers pay for the first minute of each call, regardless of the
     call's length and then for each thirty second interval (or portion thereof)
     thereafter.

VALUE ADDED SERVICES

     In addition to providing basic GSM telecommunications services, we also
provide call divert and voice mail to all subscribers of our basic services, and
voice mail to all our pre-paid customers. Our subscribers pay only for the
additional air-time used in accessing these services. We also provide additional
value added services, and are continually developing new services to meet the
needs of the evolving Polish market and to create new revenue streams. ERANET,
our internet service, combines internet access with an email address that
delivers messages directly to our subscriber's handset. Fax and data services
are available for an additional monthly fee, and short message service is
charged per message with the exception of INFO ERA, which is a short message
service information service charged on a monthly basis. Our other services such
as conference calling and calling line identity are included in the price of
premium tariff plans. Subscribers of our regular plans may purchase these
services separately. "Between us," our family and friends discount program,
gives our subscribers a 15% discount on calls to their two (pre-paid) and three
(post-paid) favorite numbers, while packages of low-priced minutes provide more
value to our subscribers who call regularly and incentive for passive users to
call more often.

     As the market for GSM services develops over time, we intend to introduce
additional value added services. We anticipate that these additional services
will include advanced voice mail services that allow our subscribers to not only
(i) send and receive messages, but also to (ii) forward, prioritize and send
messages to multiple recipients, and to (iii) fax mail, which provides the same
features of advanced voice mail for faxes.

HANDSETS AND ACCESSORIES

     We sell handsets and accessories separately from GSM services, and
subscribers may also purchase a SIM card either with or without a handset. We
sell a variety of handsets ranging from basic to the most advanced models
manufactured by some of the world's leading manufacturers of mobile telephones,
including Alcatel, Ericsson, Motorola, Nokia, Panasonic and Siemens. In
connection with certain promotions, we offer reduced price handsets that can
only be used on our own network. The accessories we offer are priced
competitively and are designed to enhance the convenience and functionality of a
subscriber's handset, including carrying cases, batteries, car kits and
recharging equipment. See Item 9. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Cost of Sales."
                                        6
<PAGE>   7

     We do not intend to achieve positive overall margins on handset sales. We
do not discount handsets except in connection with service subscriptions. See
"Marketing and Distribution -- Marketing Activities." In addition, certain
discounted handsets sold during a promotion are configured so as to accept only
ERA SIM cards (a "SIM lock"). We intend to use SIM locks only to recoup the
discounted cost of the handset and we will enable subscribers to unlock the
handset on request in order to permit its use on other networks once we have
recovered the discounted cost.

     We believe that the prominent position of our major shareholders within the
cellular telecommunications market provides us a substantial benefit when
negotiating with handset vendors.

INTERNATIONAL ROAMING

     Our digital wireless network uses GSM technology. GSM is the world's most
widely used digital wireless technology, with more than 253 million users in
more than 131 countries as of November 1999. Because GSM is a standardized
technology used throughout most of Europe and internationally, our subscribers
can make and receive calls outside their home calling area in other locations
that also operate a cellular telecommunications network on the GSM standard. As
of December 31, 1999, we had entered into 141 international roaming agreements
with GSM operators in 74 countries. The agreements cover all of the principal
countries in Europe. In general, these international roaming agreements provide
that when our subscribers use the services of a corresponding GSM network
operator in another country, we are responsible for payments of charges for
those services used in accordance with the corresponding GSM network operator's
tariff. We pass these charges through to the relevant subscriber, together with
an additional surcharge of 15%.

     Currently, we receive relatively small amounts of revenue from charges for
roaming calls. Although we expect these revenues to increase along with the
network and subscriber base, we do not expect overall revenues from charges for
roaming calls to be material to overall results of operations. See Item 9.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Revenues."

CUSTOMER SERVICE

     We believe that high-quality customer service plays an important role in
distinguishing us from our competitors, expanding our subscriber base and
sustaining customer loyalty. On December 31, 1999, we employed 733 customer
service representatives in the Customer Service Center located in Warsaw who
operate a 24-hour toll-free customer service hotline for subscribers, including
directory assistance, mobile telephone service guidance, billing and other
information. We also have installed information systems to quickly activate
service for new subscribers and to provide clear and accurate monthly bills. We
have introduced an internet home page to provide information about us, our
available services and our network, and to allow customers to subscribe to our
services, as well as to order handsets at a 15% discount from the normal list
price. In 1998, we were awarded ISO 9002 status for customer service. We are
currently the only company in Poland to have been awarded this status for
customer service. Furthermore, we provide additional customer support services,
such as handset repair, at our 30 customer service centers located in our retail
outlets.

BILLING AND SUBSCRIBER MANAGEMENT

     The integrity and flexibility of our billing and subscriber management
system are important components to our strategy of providing efficient and
responsive customer service as it provides accurate and timely subscriber
information and analysis. DeTeMobil supervised the installation of the our
billing and subscriber management system and continues to provide us with
operational training and technical support.

     Our subscribers are billed on a monthly basis and may pay their bills
either at our retail stores, banks or post offices. We also use data obtained
from our billing system to generate a customer lifetime value profile for each
of our subscribers. This contributes to the development of our different tariff
packages and the measurement of the effectiveness of our promotional and
advertising campaigns, which we then use in developing our new services and
marketing strategies.

                                        7
<PAGE>   8

     As in other emerging-market countries, Poland does not have a nationwide
credit bureau for individuals, and it is difficult to verify the
creditworthiness of potential subscribers. We do, however, have an internal
credit risk management team that conducts credit checks on our new subscribers,
primarily by verifying addresses and through bank references, and we are in the
process of developing a credit risk profile model. We also have created a
proprietary credit database and use our billing system to generate subscriber
usage reports on customers that have exceeded pre-assigned credit limits or have
failed to pay their bill. Based on these reports, our credit and risk management
team can contact subscribers, and depending on the circumstances, a subscriber's
service may be deactivated. We also provide independent dealers and retail
stores with weekly electronic subscriber management reports. Additionally, our
dealer commission structure is linked to the life of each subscriber
acquisition. Overall, we aggressively pursue collections and disconnect
subscribers who pose a credit risk.

     The effective management of our customer churn has allowed us to maximize
profitability and cash flows. Since the beginning of 1997, our average monthly
churn rate has been 2.4%. However, during the fourth quarter of 1998 and the
first quarter of 1999, our monthly churn increased. In response, we initiated a
handset upgrade program for valued customers, instituted improved credit
information sharing throughout the national distribution network, and launched
the first loyalty plan in the Polish telecommunications sector. Under our
customer loyalty program, our long-standing customers benefit from awards such
as Era GSM merchandise, free air time and other rewards from our exclusive
partners, which include LOT Polish Airlines, British Airways, Panasonic and
Kodak.

MARKETING AND DISTRIBUTION

     Our marketing and distribution efforts are designed to develop brand
leadership for "Era GSM", including "Tak Tak", and to enable us to target
specific segments of the Polish telecommunications market, particularly those
subscriber profiles with high customer lifetime values. Currently, we target the
professional and business segments with post-paid products and the mass market
with pre-paid products.

MARKETING ACTIVITIES

     Our marketing efforts currently are focused on potential subscribers who
are likely to recognize the enhancements in productivity that may result from
having a mobile phone, and others who are unable to otherwise access wireline
telephony because of the long waiting times for telephone installation common in
Poland. Our primary target market for GSM services is small-to-medium-size
businesses, professionals and large corporations who generally use tariff plans
consistent with high volume usage, such as the Blue, Navy Blue or VIP tariff
plans. We seek to attract business subscribers by providing certain value added
services, including call waiting and conference call facilities, free of charge
as part of the Blue, Navy Blue and VIP tariff plans.

     We have used extensive national advertising campaigns to create awareness
and to promote the benefits of subscribing to an Era GSM service. We advertise
primarily through television advertising and also use print media, billboards
and radio advertising. The brand name "Era GSM" was selected after an extensive
name search and customer research program because it is short and easy to
remember. We have also developed the product name "Tak Tak" to promote our
pre-paid services. We believe Tak Tak has become synonymous with pre-paid
services in Poland. In October 1999, we launched a consumer loyalty program
called "Stokrotka" or "Gratitude," which is the first major type of such program
offered in the telecommunications industry in Poland. This campaign is designed
to provide our subscribers incentives based on usage, payment and longevity.
Using a program similar to airline mileage award programs, our subscribers are
awarded benefits such as Era GSM merchandise and free cellular air-time.

     We also believe that demand for GSM services in Poland is stimulated by
promotional campaigns in which reduced prices for GSM services and accessories
are offered. We have engaged in such campaigns from time to time, including
offering handsets at reduced prices and reduced activation fees during specific
periods. In general, however, we avoid promotional techniques, such as providing
free air-time or waiving activation or monthly fees, because we believe that
these types of incentives tend to attract passive or inactive subscribers as
well as subscribers who are higher credit risks.

     We disallow subscribers who purchase services as a result of a promotional
campaign to change tariff plans or cancel their subscriber contracts prior to
the expiration of a minimum period (generally two years), except by
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<PAGE>   9

paying us an additional amount equal to the discount on the full cost of their
handset. Other subscribers may change tariff plans at will upon payment of a
small fee to us and may cancel their subscriber contract upon one month's notice
to us without charge.

DISTRIBUTION CHANNELS

     We have established distribution channels through a number of independent
dealers and our own retail stores and sales force.

     Our largest distribution channel is our network of 31 independent dealers,
which operated through 844 outlets, consisting primarily of retail stores, as of
December 31, 1999. In addition to our services and products, these dealers
typically sell other electric products, such as cameras and office automation
equipment. During 1999, our dealers accounted for the acquisition of 77.5% of
the basic service subscribers. We generally enter into an agreement with each of
our dealers, which provides that the dealer will not market or sell
telecommunications services of our competitors. Our ability to enforce this
provision may be limited by the terms of our GSM Licenses and Polish
anti-monopoly regulation. Our dealer agreements generally have no predetermined
term but may be cancelled by either party at any time subject to three months'
notice.

     We pay our dealers a commission based on the number of new subscribers
acquired and a bonus for acquiring subscribers in excess of quarterly targets
established by us. We retain the right to "claw back" a certain percentage of
the commission paid to a dealer to the extent that our subscribers do not remain
an active service user during a period of up to six months after activation. We
established a Partnership Incentive Plan to award our dealers that achieve high
volumes of activations per point of sale and are timely with payments to us for
product and activation sales. The Partnership Incentive Plan provides for
increased commissions and additional bonuses to our dealers. We also offer our
dealers a cooperative advertising plan whereby we pay a portion of the dealer's
cost of advertising.

     We provide our dealers with handsets during promotions at a price slightly
lower than the promotion price. Those handsets that remain unsold at the end of
a promotion may be returned to us. We also cooperate with dealers to increase
our brand awareness by providing them with ancillary point of sale materials,
event financing, packaging, brochures and promotional stands.

     Our retail distribution channels currently consist of 46 owned retail
stores. These stores are located in the central, high traffic areas of Polish
cities and only sell our cellular services, handsets and ancillary products. Our
employees at the retail stores are paid a salary, plus commissions based on the
number of activations they sell. During 1999, our retail channel accounted for
17.3% of the total number of new subscribers for our basic services.

     We believe that our retail stores are a valuable promotional vehicle for
our services and products, offering a wider range of customer services and
support than those offered by our dealers at the relevant point of sale. Each of
our retail stores has customer service staff capable of immediately activating a
new subscriber as well as responding to billing and other inquiries from our
current subscribers. We also provide handset servicing in the retail stores,
including providing our subscribers with temporary replacement handsets in the
event that the broken handset is returned to the manufacturer for repair.

     We believe that our direct sales force provides an important resource to
our strategy of increasing the proportion of our subscribers using the Blue,
Navy Blue and VIP tariff plans, as well as attracting higher usage customers.
Our direct sales force has 88 representatives responsible for the acquisition
and servicing of our major business accounts. Our representatives are paid a
base salary plus a commission for each new activation. During 1999, our direct
sales channel accounted for 5.2% of the total number of new subscribers for our
basic services.

     We believe that our retail sales and direct sales force, by offering higher
quality service, can achieve a higher level of sales to high-volume subscribers
than through dealers, and in the case of our direct sales force, a more focused
marketing effort on desirable major accounts.

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<PAGE>   10

NETWORK AND FACILITIES

NETWORK INFRASTRUCTURE

     Assisted by our internal engineering specialists, DeTeMobil employees
designed and planned our network infrastructure and utilized DeTeMobil's
proprietary cell site planning software to do so. We now rely on our internal
engineering employees to operate and maintain our network, assisted by four
secondees from DeTeMobil. Components, subsystems and interfaces constituting our
network have been (and continue to be) supplied on a turnkey basis by Siemens
and Ericsson. In addition, we have recently entered into an agreement with
Alcatel to also supply us with network equipment.

     Our infrastructure of cellular networks is based upon the division of the
geographical area covered by our network into a number of cells that have
diameters ranging from a few hundred meters to up to 30 kilometers. Each cell
contains one or more transceivers at a base-station ("BTS") that communicate by
radio signal with active cellular subscribers in the cell. Transmissions between
cellular telephones and BTSs generally cover no more than the diameter of the
cell, and therefore can be made at relatively low power. In a GSM cellular
network, the BTSs installed in each cell are connected to base station
controllers ("BSCs"), which in turn, are connected to a mobile switching center
("MSC"). MSCs are connected to other MSCs in the same network and to other fixed
cellular networks. MSCs control the routing (and call record) of calls and allow
cellular telephone users to move freely from cell to cell while continuing
calls. Connections between BTSs, BSCs and MSCs consist of transmission lines,
including fibre optic cables, copper cables and microwave links.

     The major elements of our GSM network are: (i) the Base Station Subsystem
which as of December 31, 1999, was made up of 2,637 Base Stations controlled by
84 Base Station Controllers; (ii) the 17 Mobile Switching Centers and (iii) the
Operations and Maintenance Subsystem and the Network Management Center, both of
which are located in Warsaw and enable us to centrally manage and coordinate
network operations and maintenance. From our Network Management Center in
Warsaw, we monitor service over our entire network. To mitigate the effects of
potential switching failures or failures of other network elements, we have
installed back up equipment and have constructed alternative routes between our
critical network elements. As of December 31, 1999, our network covered
approximately 84.4% of the geographic area of Poland representing approximately
95% of the total Polish population.

     We were granted nationwide GSM Licenses to operate in the 900 MHz bandwidth
(license granted February 1996) and in the 1800 MHz bandwidth (license granted
in August 1999). The increase in available bandwidth will create significant
additional capacity for both our voice and data services.

     The smaller cell radius of GSM 1800, requires a larger amount of network
equipment, and generally raises the cost of operating such a system,
particularly in rural areas. Although we have commenced operation of our GSM
1800 service in March 2000, we intend to selectively roll-out this service. The
costs of building-out our GSM 1800 network will be lessened by the fact that we
intend for this network to primarily serve urban, densely populated areas and
other areas of high telephone usage, in which our GSM 900 network already
features a high density of BTSs and relatively small cell sizes. Calls will be
switched between our GSM 900 and 1800 networks to maximize capacity and
efficiency, but our customers will not notice any difference or interruption as
calls are switched between the networks.

     Several transmission lines for GSM network connections between BTSs, BSCs
and MSCs have been leased from TPSA. In order to reduce dependence on TPSA, we
have entered into a contract with Ericsson to construct a SDH microwave backbone
network. Our SDH microwave backbone network will connect the major centers
served by our GSM networks, and will reduce but not eliminate our need for
leased lines from TPSA. We expect that the initial phase of the roll-out of our
SDH microwave backbone network will be completed in the second quarter of 2000.

NETWORK QUALITY

     Our network has been designed to provide comprehensive high-density
coverage in major urban centers within Poland. The high density of coverage in
urban areas, which results from using cells of approximately one kilometer in
diameter as opposed to cells of approximately 30 kilometers in diameter in rural
areas, enables
                                       10
<PAGE>   11

subscribers to receive and make wireless transmissions anywhere within those
urban areas, including inside buildings. We believe that our ability to provide
indoor reception and transmission in major urban areas is a significant
advantage in the Polish cellular telecommunications market. We also believe that
our focus on high-density coverage in urban areas at the early stage of our
network development has been more economical than attempting to increase density
of coverage in these locations at a later stage.

     We regularly monitor congestion on our network and attempt to alleviate
congestion by adding BTSs where necessary. During 1999, we had an average
dropped call rate (the percentage of calls not completed or involuntarily
terminated because all circuits are busy or because access to our network is
unavailable measured between 8:00 AM and 10:00 PM Monday through Friday) of
approximately 1.5%. The dropped call rate depends both on the performance our
network and, to the extent a call is originated or terminated in another
network, on the performance of that other network. We are unable to accurately
estimate the dropped call rate for calls transferred from one of our own mobile
switching centers to a wireline subscriber. The additional capacity granted
under our GSM 1800 License will further alleviate congestion on our network,
which should also decrease our dropped call rate. Additionally, we were awarded
ISO 9002 status in 1999 for the operational quality of our Network Management
Center's monitoring activities.

     We have been assigned six digit telephone numbers with the prefixes 602,
604 and 606 and consequently, have the ability to generate approximately three
million numbers. We believe, therefore, that we have sufficient numbers to meet
anticipated subscriber demand. Moreover, we believe that additional telephone
numbers would be available if and when we needed them.

SUPPLIERS

     Ericsson and Siemens designed, manufactured, delivered, installed,
commissioned and prepared our GSM network, including mobile switching centers,
base stations and base station controllers, operation support systems and cross
connect systems equipment. These suppliers now provide maintenance and repair
services for our network, and we intend to utilize these suppliers, together
with Alcatel, to provide new equipment necessary for our GSM 1800 network and
the completion of the final stages of our GSM 900 network. We believe, however,
that there are a number of other companies capable of supplying GSM network
equipment, given the compatibility and interchangeability of equipment among
different vendors ensured by GSM standard specifications.

CELL SITE PLANNING

     Cell site planning, which historically we carried out jointly with our
major suppliers, is now principally done internally. Our design for network
coverage is determined with the aid of a specialized software package developed
by DeTeMobil. We have entered into an agreement with DeTeMobil governing our
continued use of this software.

NETWORK CONSTRUCTION

     Our GSM 900 network covers 84.4% of Poland's geography and 95% of Poland's
population. We have established a project management team that reviews the
progress of our GSM 900 network build-out on a monthly basis to ensure that the
pace of the build-out is sufficient to meet the requirements of our GSM 900
License. In addition, with each of our major suppliers, we have entered into
contracts of intent relating to network equipment purchases for 1999 and a
portion of 2000. These arrangements contemplate that the suppliers will receive
financial incentives for achieving certain targets related to the schedule for
our network build-out.

     Our GSM 1800 network construction is underway and we expect to commence GSM
1800 operations in March 2000. There is only one requirement in our GSM 1800
License relating to achieving specified levels of population or geographic
coverage. Under the terms of our GSM 1800 License we must achieve combined
geographic coverage by both of our GSM 900 and 1800 networks, taken together, of
90% by June 2004. Our GSM 900 License requires 84.9% GSM 900 geographic coverage
by the end of 2000. Since the achievement of required coverage is less pressing
under our GSM 1800 License, we intend to roll-out our GSM 1800 network
selectively, choosing areas most in need of the higher capacity afforded by such
networks. The costs of further
                                       11
<PAGE>   12

construction of our networks will thus become primarily "variable" costs rather
than "fixed" costs, as decisions to expand will be driven principally by
increases in call volume, rather than the need to meet license requirements.

MAINTENANCE OF THE NETWORK

     Each of our network construction agreements provide that the vendor is
obligated to provide maintenance, spare parts and relevant upgrades for the
software and hardware supplied under such agreements for a period of 15 years
following the date of our commercial acceptance of the relevant component. The
suppliers warrant equipment for 24 months from the date of acceptance and
provide maintenance training to our employees. With respect to software, each
supplier is required to (i) take action to remedy any defect or malfunction in
the software provided within four hours of the occurrence of a defect or
malfunction, or reimburse us for the services of a third party, (ii) provide a
help desk to support us, (iii) release upgrades or updates for its software to
us, and (iv) cooperate with us on the management of release procedures for its
software. With respect to hardware, each supplier is required to (i) make
replacement parts available to us at market rates, (ii) repair and replace parts
of our network pursuant to either a monthly account with us or compensation on a
case by case basis and (iii) make us aware of and offer to provide us such
enhancements, upgrades and evolutionary improvements to hardware in our network.

THE LICENSES

GSM 900 LICENSE TERMS

     General.  Following a competitive tender, on February 23, 1996 we received
a license which granted us: (i) a concession to provide telecommunications
services according to European telecommunications GSM standards in the 900 MHz
frequency band, (ii) a permit to install and use GSM network equipment, (iii) an
allocation of 37 channels within the 900 MHz frequency band and (iv) an
allocation of telephone numbers with the prefix 602 and 604.

     Fees.  We are required to pay to the Polish government a fee equal to the
Zloty equivalent of Euro 217,731,831 for our GSM concession. This fee is payable
in six installments with the first installment due upon the grant of the license
and one installment on each March 31 thereafter. We paid Euro 101,494,831 of
this fee in 1996, Euro 1,980,000 on March 31, 1997, Euro 8,107,000 on March 31,
1998, Euro 15,730,000 on March 31, 1999, and will be required to pay Euro
34,320,000 on March 31, 2000 and Euro 56,100,000 on March 31, 2001. See Notes 18
and 19 to the Financial Statements as of and for the years ended December 31,
1999 and 1998, respectively. In addition, we are required to pay to the Polish
State Radiocommunication Agency an annual fee for each of the permit and
frequency allocation in an amount that is determined under the ordinance of the
Ministry of Finance and the Ministry of Communications. This amount was set at
PLN 2,368,000 for the first year of operation (following the award of our GSM
900 License), PLN 3,872,000 for the second year, PLN 3,990,000 for the third
year and PLN 4,500,000 for each of the following years.

     In addition, we are required to pay an initial fee of PLN 500 for the
permit and frequency allocation for each base station and PLN 250 for any
changes in this permission. We are also obligated to pay a fixed annual fee of
PLN 160 for each of the channels used by each base station.

     Term.  Our GSM 900 License was issued for a term of fifteen years and
provides that we may make an application to extend the term for an agreed period
one year prior to its expiration date. Our GSM 900 License is not transferable.
Therefore, any transfer of business would require a revocation and reissuance of
our GSM 900 License. In addition, the approval of the Ministry of Communications
is required in the event that an acquisition of our shares or any rights to our
shares by a single entity would, together with any shares or rights currently
held by that entity, result in that entity having rights to an ownership
percentage of our shares in excess of any of 10%, 25%, 33% or 50%.

     Under the terms of our GSM 900 License, we are not entitled to request
additional frequency until five years after the commencement of commercial
operations and we are subject to compliance with the terms and

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<PAGE>   13

conditions of our GSM 900 License. In November 1997, however, the Ministry of
Communications allocated us eight additional channels.

     License Conditions.  Our GSM 900 License is subject to a number of
commercial and technical conditions. While Polish law provides that our GSM 900
License may be revoked or limited in the event that we fail to meet any of these
conditions, we believe that we are currently in material compliance with all of
our GSM 900 License conditions.

     Our GSM 900 License contains certain coverage and technical criteria,
including a requirement that the dropped call rate not exceed 5% during peak
hours and that we attain geographical coverage of 63.4%, 79.6%, 84.2% and 84.9%
and population coverage of 73.1%, 90.1%, 94.8% and 95.6% by the end of 1997,
1998, 1999 and 2000, respectively. We have met the coverage requirements for
each year ended 1997, 1998 and 1999, respectively.

     Our GSM 900 License requires us to provide certain emergency connections
free of charge and to provide certain priority services to Polish governmental
entities.

     Our GSM 900 License generally requires us to comply with certain
competition and anti-monopoly rules currently in force in Poland. Our GSM 900
License also specifically prohibits exclusive arrangements with "service
providers." We believe, however, that our dealers are not "service providers" as
the term is used in our GSM 900 License with reference to air-time providers,
and therefore, our exclusive contracts with our dealers do not constitute a
violation of our GSM 900 License conditions. See "-- Marketing and
Distribution."

     In its original form, our GSM 900 License prohibited the establishment of
transmission links between elements of our GSM network and required us to lease
transmission lines from TPSA. Our GSM 900 License also prohibited any form of
interconnection between our network and other wireless networks including
wireless networks outside Poland, without using TPSA's transmission lines. On
January 17, 1997, however, pursuant to a complaint from the Polish Ombudsman,
the Polish Supreme Administrative Court repealed these prohibitions on the
grounds that the Minister of Communications had insufficiently substantiated the
rationale for imposing this repeal. In response, the Minister of Communications
issued a decision dated May 13, l997, amending our GSM 900 License to permit us
to install and use a transmission infrastructure to connect elements of our own
GSM network. We are still required to use transmission lines leased from TPSA to
interconnect each mobile switching center and to interconnect our network with
that of TPSA's unless TPSA is unable to provide such leased lines to us within
one month following the request. Also, the interconnection with other mobile
telephony networks was permitted only between mobile switching centers, which
meant in practice that we had to use leased lines from TPSA to connect with
other mobile telephony networks. On April 27, 1998 the Supreme Administrative
Court repealed these restrictions on the grounds that the Minister of
Communications did not provide sufficient reasons for its decision and on the
grounds that the restrictions might be incompatible with the competition
provisions of the Europe Agreement dated 16 December 1991. Pursuant to this
judgement, we are free to connect components of our network and to interconnect
with other cellular providers in Poland without the use of leased lines from
TPSA. We are also free to lease lines from other operators which can provide
such service. This judgement also allows us to build the SDH microwave backbone
network.

     We currently lease transmission lines from TPSA to interconnect the
elements of our GSM network. Tariffs for the lease of these transmission lines
are based on the distance between elements of our GSM network and the length and
capacity of the relevant transmission line. The Polish Office for Competition
and Consumer Protection found these increases to be anti-competitive. Pursuant
to the Interconnect Decision, described below, we are entitled to a 60% discount
on TPSA's standard leased line tariffs and certain additional incremental
discounts. See "-- Interconnect Agreements." We may, in appropriate
circumstances, seek to lease transmission lines from third parties such as
railway or electricity companies.

GSM 1800 LICENSE TERMS

     General.  On August 11, 1999 we received a license granting us: (i) a
concession to provide telecommunications services according to European
telecommunications GSM/DCS standards in the 1800 MHz frequency band; (ii) a
permit to install and use GSM/DCS network equipment; (iii) an allocation of 48
channels within the
                                       13
<PAGE>   14

1800 MHz frequency band; and (iv) an allocation of telephone numbers with the
prefix 606. This license permitted us to use these new 1800 MHz frequencies
beginning March 1, 2000. We have begun to install the necessary GSM/DCS
equipment and commenced offering GSM 1800 service in selected areas on March 1,
2000.

     Fees.  We are required to pay to the Polish government a fee equal to the
Zffioty equivalent of Euro 100,293,000 for our GSM/DCS concession which is
payable in four installments. We paid Euro 50,146,500 of this fee in 1999 and we
will be required to pay Euro 16,715,500 on each of August 31, 2000, 2001 and
2002. See Notes 18 and 19 to the Financial Statements as of and for the years
ended December 31 1999 and 1998, respectively. In addition, we are required to
pay to the Polish State Radiocommunication Agency an annual fee for each of the
permit and frequency allocation in an amount that is determined under the
ordinance of the Ministry of Finance and the Ministry of Communications. This
amount has been set at PLN 3,072,000 for the first year of license operations,
PLN 3,648,000 for the second year, PLN 4,224,000 for the third year and PLN
4,800,000 for each of the following years.

     Term.  Our GSM 1800 License was issued for a term of fifteen years and
provides that we may make an application to extend the term for an agreed period
one year prior to its expiration date. Our GSM 1800 License is not transferable.
Therefore, any transfer of business would require a revocation and reissuance of
our GSM 1800 License. In addition, the approval of the Ministry of
Communications is required in the event that an acquisition of our shares or
rights to acquire our shares by a single entity would, together with any shares
or rights currently held by that entity, result in that entity having rights to
an ownership percentage of our shares in excess of any of 10%, 25%, 33% or 50%.

     License Conditions.  Our GSM 1800 License is subject to a number of
commercial and technical conditions. While Polish law provides that our GSM 1800
License may be revoked or limited in the event that we fail to meet any of these
conditions, we believe that we are currently in material compliance with all of
our GSM 1800 License conditions.

     Similar to our GSM 900 License, our GSM 1800 License requires that we meet
certain coverage and technical criteria, including a requirement that the
dropped call rate not exceed 5% during peak hours and that we attain
geographical coverage combined with the 900 MHz and 1800 MHz frequencies of 90%
by July 2004.

     Our GSM 1800 License requires us to provide certain emergency connections
free of charge and to provide certain priority services to Polish governmental
entities.

     Our GSM 1800 License generally requires us to comply with certain
competition and anti-monopoly rules currently in force in Poland. Our GSM 1800
License also specifically prohibits exclusive arrangements with other service
providers. We believe, however, that our dealers are not "service providers" as
the term is used in our GSM 1800 License with reference to air-time providers,
and therefore, exclusive contracts with our dealers will not constitute a
violation of our GSM 1800 License conditions. See "-- Marketing and
Distribution."

     Our GSM 1800 License prohibits the establishment of transmission links
between elements of our GSM network and requires us to lease transmission lines
from TPSA. In addition, our GSM 1800 License prohibits the establishment of
transmission links between components of our own network and the TPSA network or
other cellular networks. Our GSM 1800 License also prohibits us from any form of
interconnection between our network and other cellular networks including
cellular networks outside Poland, without using TPSA's transmission lines.
Similar provisions under the original GSM 900 License, however, were repealed by
the Polish Supreme Administrative Court on January 17, 1997 and on April 27,
1999. We anticipate that the Polish Ombudsman and the Supreme Administration
Court will find that these restrictions should be repealed; however, this repeal
is not guaranteed.

     We intend to lease transmission lines from TPSA in order to interconnect
the elements of our GSM 1800 network. Generally, tariffs for the lease of these
transmission lines are based on the distance between the elements of our GSM
network and the length and capacity of the relevant transmission line. The
current TPSA interconnect agreement covers the leasing of transmission lines
from TPSA for the GSM 1800 network, as the GSM 1800 MHz license is permission to
extend the network capacity rather than build a new network.

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<PAGE>   15

COMPETITION

     We are one of three wireless communications providers in Poland providing
GSM mobile telecommunications services in both the 900 MHz and 1800 MHz
frequency band. We believe that the existing level of competition is likely to
increase in all areas of the Polish telecommunications market over the next few
years, particularly in light of the anticipated liberalization of the Polish
domestic and international long distance markets in coming years. Increased
competition, in the form of both new entrants and existing operators that widen
the scope of their telecommunication activities, could force us and our
competitors to take measures that could raise subscriber acquisition costs or
reduce the share of net new subscriber additions.

     We face competition primarily from Polkomtel (a joint venture between Tele
Danmark A.S., Vodafone AirTouch and Polish companies), and Centertel, (a joint
venture between TPSA and France Telecom Mobiles International) and wireline
telephone services. Polkomtel was awarded its GSM 900 License in February 1996
and currently provides services under the trade name "Plus GSM" and was awarded
its GSM 1800 License in September 1999. Polkomtel is completing the process of
building out its GSM 900 network. In November 1997, the Ministry of
Communications awarded eight additional channels in the 900 MHz frequency band
(which had previously been reserved for military use) to each operator.

     Centertel provides analog and GSM 1800 digital wireless telecommunications
services in Poland. Centertel launched its analog service in June 1992 and as of
December 31, 1999 reported approximately 147,000 subscribers. Centertel's analog
network has the most coverage of any of the Polish mobile networks, covering
approximately 93% of the territory and 98% of the population. Centertel
announced that it intends to invest only in the maintenance and any necessary
technical upgrades of its analog network. In March 1998, Centertel launched its
GSM 1800 service and as of December 31, 1999, reported approximately 537,000
subscribers. Their network is being constructed to cover the area designated by
the terms of Centertel's GSM 1800 license, which includes ten of Poland's
largest metropolitan areas and four arterial transport routes. As of December
1999, Centertel claimed its network covered 29% of the territory of Poland and
approximately 42.5% of the population. Centertel has a GSM 900 license since
July 1999. Centertel competes on price terms against other networks.

     We also compete with wireline telecommunications providers in Poland,
principally TPSA, insofar as low wireline penetration rates and long waiting
times for telephone installation have encouraged consumers who are otherwise
unable to access wireline telephony to acquire mobile telecommunications
services. TPSA currently owns approximately 96% of Poland's existing fixed-line
telecommunications infrastructure and is the only entity within Poland that i)
provides domestic long distance telecommunications services (although additional
domestic long distance licenses may be issued in 2000) or is ii) authorized to
provide international telecommunications services. Consequently, wireless
telecommunications operators are required to enter into interconnection
agreements with TPSA in order to complete calls made from or to receive calls
made to their networks. See "-- Interconnect Agreements."

     In October 1998, the Ministry of Communications commenced the privatization
of TPSA with an initial public offering of 25% of the total number of its
outstanding shares. The government of Poland also intends to sell additional
shares to a strategic investor, and is considering bids from other
telecommunication companies. The privatization of TPSA, including the investment
in TPSA by a strategic investor, may result in increased investment by TPSA in
wireline telephone penetration (or wireless telephone services through its
investment in Centertel) or other telecommunications technology and in increased
services for TPSA subscribers, potentially lessening demand for our services.

     In addition to the privatization of TPSA, the government has furthered its
efforts to liberalize and increase competition in the telecommunications
industry in Poland by announcing its intention to auction at least three
additional domestic long distance telephone licenses in 2000 and an additional
international long distance telephone license in 2003. Similar liberalization in
other countries suggests that Poland's liberalization may lead to continued
tariff re-balancing (increased local call rates) which would make cellular
service more price competitive with fixed line service. No assurance can be
given, however, that these benefits will be obtained as a result of
liberalization. However, the increase in competition in the market and any
potential investments by TPSA in wireline telephone penetration will result in
more overall telephone lines in Poland, which in turn should increase overall
subscriber usage.
                                       15
<PAGE>   16

INTERCONNECT AGREEMENTS

     Like other wireless operators, our wireless network requires
interconnection with a fixed-line network to enable subscribers to initiate and
receive calls to and from persons using fixed-line networks or other cellular
networks. We therefore require a switched access arrangement with TPSA,
Polkomtel and Centertel. The terms of these arrangements, particularly with
TPSA, are important to financial results.

     TPSA is the only entity in Poland currently permitted to provide domestic
long distance and international telecommunications services and is Poland's
largest provider of fixed-line telecommunications services. Prior to May 22,
1997, we operated with TPSA on a bill and keep system for domestic calls on the
basis of an agreement (the "TPSA Initial Agreement"). On May 22, 1997, the
Ministry of Communications issued a decision (the "Interconnect Decision")
establishing a system of interconnect payments whereby we would pay TPSA for
calls terminating in TPSA's network and TPSA would pay us for calls terminating
in our network. In addition, the Interconnect Decision reduced the proportion of
our tariff payable to TPSA for international calls to 67%. While we subsequently
settled interconnection charges with TPSA on the basis of the Interconnect
Decision for all periods since the Interconnect Decision was issued, TPSA
thereafter appealed the Interconnect Decision to the Supreme Administrative
Court. While this appeal has not been withdrawn, we nevertheless entered into an
Agreement on the Terms and Conditions of Co-operation and Mutual
Interconnection, dated December 9, 1998 (the "Framework Agreement"), with TPSA,
pursuant to which TPSA paid us an amount of PLN 6.6 million for interconnect
charges covering the period from the beginning of our commercial activity in
September 1996 to May 21, 1997. In addition to acknowledging the Interconnect
Decision, the Framework Agreement established a cooperative environment between
us and TPSA with respect to communications in case of network problems and
future negotiations in the event there are significant market changes. On
December 9, 1999, the TPSA Framework Agreement was amended to provide for a
settlement process and calculation in the event we cancelled the use of leased
lines.

     In addition to TPSA, we entered into an agreement in 1999 with Netia
Telekom, a fixed line service provider. Under the agreement, interconnect points
were established in three major Polish cities (Gdansk, Lublin and Katowice)
during 1999 and in Warsaw during the first quarter of 2000. Additional
interconnect points are planned for other cities (Poznan and Bydgoszcz) by the
end of the second quarter 2000.

     We have also entered into a contract with Ericsson to construct a microwave
backbone transmission network in order to minimize the use of leased lines. We
believe that, when completed, our backbone network will reduce cost of sales and
dependence on external suppliers. Construction of the initial phase of our
backbone network began in November 1998 and is expected to be completed by June
2000. The backbone transmission network will reduce but not eliminate our need
for leased lines and interconnection fees, as our backbone transmission network
will not offer the complete geographic coverage of Poland that TPSA lines do,
but rather will cover connections between areas of major population density and
high call volume. Further, we will have to continue to interconnect with TPSA to
provide international coverage. In addition, we successfully petitioned to amend
our GSM 900 License in May 1997 to waive the requirement to utilize lines leased
from TPSA in conducting GSM 900 operations; however, our GSM 1800 License still
requires the utilization of lines leased from TPSA in conducting GSM 1800
operations. We have petitioned for an amendment to its GSM 1800 License similar
to the amendment obtained for our GSM 900 License. Although we believe our
chances to obtain such an amendment are good, no assurance can be given that
such an amendment will be obtained.

     We also entered into an interconnect agreement with Polkomtel on December
17, 1997 that provides Polkomtel subscribers direct access to our network and
our subscribers direct access to the Polkomtel's network on a symmetric billing
basis whereby we (Polkomtel and us) pay each other an agreed upon charge for the
time our respective subscribers use each other's network.

EMPLOYEES

     As of December 31, 1999, we had 2,606 employees, including 1,523 in sales,
marketing and strategy, 667 in network operations and 416 in finance and
administration. Eleven of our employees are expatriates seconded from either
DeTeMobil or MediaOne. Our employees, other than seconded employees, enter into
an initial three-

                                       16
<PAGE>   17

month employment contract. After completion of this initial contract, our
employees enter into an employment contract of indefinite term subject to
termination upon a stated notice period.

     Our employees are not covered by any collective bargaining agreements. We
do not have any history of strikes or work stoppages and no material
labor-related claims are pending. We believe that relations with our employees
are good.

     We do not currently have a pension plan or stock option plan, but the
introduction of a pension plan is under consideration.

ITEM 2.  DESCRIPTION OF PROPERTY

     Our principal properties consist of telecommunications network
infrastructure and related buildings throughout Poland. The majority of base
station sites are leased for a minimum period of five to ten years. As of
December 31, 1999, we entered into lease agreements for 3,172 base station
sites. We have a financial lease for our main office space in Warsaw and
operating leases for office space in Katowice, Poznan, Gdansk and Krakow. We
also lease each of our retail stores.

ITEM 3.  LEGAL PROCEEDINGS

     Interconnect.  We have neither received a judgement from the Supreme
Administrative Court regarding TPSA's appeal of the Interconnect Decision, nor
has TPSA withdrawn this appeal despite the interconnect agreement between the
two companies. See item 1. "Description of Business -- Interconnect Agreements".

     Internet License.  On February 1, 2000, we received a summons from the
State Telecommunications and Postal Inspection (PITiP) as a result of an
inspection conducted by the agency in January 2000 of our Internet access
services (VoIP). The summons ordered us to cease providing international
telephone service over the Internet network. In response, we applied for
reconsideration of the case, and on February 10, 2000, we received a decision
from the Minister of Communications which rendered the summons invalid. It was
determined that we could continue to offer Internet access services for
subscribers who have data transmission service until May 2000, when it is
anticipated that a new regulation will be prepared by the Ministry of
Communications.

     Data Security.  An investigation by the General Inspector for Personal Data
Protection's office was conducted in the fourth quarter of 1999 of our sales
practices. Although the post-control protocol report resulting from the
inspection neither outlined a legal situation or suggested changes, it did
reveal that we require our customers to provide more identification than the
GIODO office generally believes is necessary. In our opinion, such documentation
is necessary to verify the identity of our subscribers who enter into an
extended agreement for telecommunications services, and also, to assist us in
minimizing the risk of subscriber fraud. Together with other telecom operators
in Poland, we submitted a proposal to the Ministry of Communications regarding
changes to the existing law. The Ministry of Communications has not taken a
position on the matter, nor has it responded to the proposal.

                                       17
<PAGE>   18

ITEM 4.  CONTROL OF REGISTRANT

     The following table sets forth information regarding the ownership of our
471,000 ordinary shares outstanding.

<TABLE>
<CAPTION>
                                                             NUMBERS OF SHARES    PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER                         BENEFICIALLY OWNED    BENEFICIALLY OWNED
------------------------------------                         ------------------   --------------------
<S>                                                          <C>                  <C>
Elektrim Telekomunikacja Sp. zo.o.(1)......................       226,079                47.9998%
Panska 77/79
00-834 Warszawa
DeTeMobil Deutsche Telekom MobilNet GmBH...................       105,975                   22.5%
Landgrabenweg 151
53227 Bonn Germany
MediaOne International B.V.(2).............................       105,975                   22.5%
Foppingadreef 20-22
BS Amsterdam
The Netherlands
Polpager Sp. z o.o.........................................        18,840                    4.0%
ul. Zurawia 24/4
00-515 Warsaw, Poland
Elektrim Autoinvest S.A.(3)................................         5,181                    1.1%
ul. Panska 85
00-834 Warsaw, Poland
Carcom WARSZAWA Sp. z o.o.(4)..............................         8,949                    1.9%
Ul. Krucza 16/22
00-526 Warsaw, Poland
Elektrim S.A...............................................             1                 0.0002%
Panska 77/79
00-834 Warszawa
</TABLE>

---------------

(1)  Elektrim S.A. owns 51% and Vivendi S.A. (a French telecommunication
     company) owns 49% of the outstanding shares in Elektrim Telekomunikacja Sp.
     zo.o.

(2)  On March 23, 2000, DeTeMobil acquired 100% ownership in MediaOne
     International B.V.

(3)  Elektrim S.A. owns 45% of the outstanding capital of Elektrim Autoinvest
     S.A, but has 51% management control.

(4)  Elektrim S.A. and Vivendi S.A. each own 50% of the outstanding capital of
     Carcom WARSZAWA Sp. z o.o.

     On March 23, 2000, MediaOne Group Inc. sold its wholly-owned subsidiary,
MediaOne International B.V. (a 22.5% share owner in our company) to Deutsche
Telekom. As a result, Deutsche Telekom currently owns 45% of our outstanding
shares: 22.5% directly through DeTeMobil and 22.5% indirectly through the
acquisition of MediaOne International B.V.

     In August 1999, Elektrim S.A. announced that it had acquired an additional
15.8% of our shares for a purchase price of U.S. $679.4 million. Prior to August
1999, Elektrim S.A. owned 34.1% of the shares. DeTeMobil is disputing the
transfer of shares for a portion (representing approximately 3.0% of the shares)
of Elektrim's announced acquisition based on the claim that DeTeMobil had the
first rights of refusal to purchase these shares under our shareholders
agreement. DeTeMobil sought an injunction to prevent such transfer of shares on
our registry book in the Warsaw Regional Court, but the Court denied the
injunction. DeTeMobil has announced that it will appeal this decision. DeTeMobil
also announced in October the commencement of an arbitration claim (at the
International Arbitration Court in Vienna) against Elektrim S.A. and certain
smaller shareholders. The claim seeks the declaration that a portion of our
shares involved in Elektrim's announced

                                       18
<PAGE>   19

acquisition should have been sold to DeTeMobil in recognition of its first
refusal rights. The timing of the resolution of this arbitration is uncertain.

     On December 9, 1999, Elektrim S.A. registered with the Warsaw Regional
Court the transfer of 226,079 (47.9998%) of our shares to Elektrim
Telekomunikacja Sp. z o.o. Elektrim S.A. retained one share (0.0002%) of direct
ownership. At the request of Elektrim S.A., the Management Board also filed
these changes in our share registry book and filed the new list of shareholders
with the Warsaw Regional Court. However, two of five Management Board members
did not follow the request and did not sign the change in our share registry
book and the new list of shareholders, as they had reservations given
DeTeMobil's dispute over the right of first refusal to purchase 3% of our shares
which were earlier acquired by Elektrim S.A. The new list of shareholders
together with formal statements of the two Board members' reservations were
filed with the Court. DeTeMobil sought an injunction with the Warsaw Regional
Court to not accept the change in our share registry book and new list of
shareholders, which was later rejected by the Court on February 16, 2000.

     If the issues relating to Elektrim's announced acquisition are settled in
Elektrim's favor, Elektrim will undisputably own, directly or indirectly, 51.0%
of our shares. However, the Shareholders Agreement provides that many important
actions cannot be approved by the Supervisory Board unless all members of the
Supervisory Board who are present at meetings and who were appointed by the
"Operating Parties" vote or consent to approve of such actions. At the time of
Elektrim's announced acquisition of minority shares, the Operating Parties were
DeTeMobil, Elektrim S.A. and MediaOne. As of the filing of this Form 20-F, our
Operating Parties are DeTeMobil and Elektrim Telekomunikacja Sp. z o.o. The
Shareholders Agreement also requires that at least one member of each of the
Operating Parties be in attendance at all meetings. The actions which must be
approved by representatives of all of the Operating Parties include amendments
to our five-year business plan and annual budgets, acquisitions or dispositions
of assets above certain values, incurrence of indebtedness (other than in the
ordinary course of business or below certain limits) and entry into long-term
contracts (with certain exceptions). The Supervisory Board includes nine
members, of which currently include two appointed by each of DeTeMobil,
Elektrim, and MediaOne. Elektrim's two seats on the Board will belong to
Elektrim Telekomunikacja Sp. z o.o. and MediaOne's two seats on the Board will
belong to DeTeMobil as a consequence of the share transfers aforementioned. The
three other Board members have been historically appointed by our smaller Polish
shareholders, whose shares are part of Elektrim's announced acquisition.
Consequently, Elektrim Telekomunikacja Sp. z o.o. will be entitled to appoint
two of such members, and may be entitled to appoint the third of such members as
well.

ITEMS 5.  NATURE OF TRADING MARKET

     Our 10 3/4% Senior Subordinated Guaranteed Discount Notes due July 1, 2007
of the principal amount of approximately US$253.2 million are traded in the
over-the-counter market and there is no active public trading market for such
securities.

     Our 11 1/4% Senior Subordinated Guaranteed Discount Notes due December 1,
2009 of an aggregate principal amount of Euro 300.0 million and US$ 150.0
million were replaced through an exchange offering in March 2000. The terms of
the Exchange Notes are substantially identical to the old Notes, except that
they can be freely traded.

     There is no established trading market for our equity securities.

ITEM 6.  EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

     The export or import of capital to or from Poland is regulated by the
Foreign Exchange Law of December 2, 1994 (the "Foreign Exchange Law"). With
certain exceptions, the Foreign Exchange Law requires a foreign exchange permit
for the transfer of the currency from Poland in amounts exceeding Euro 5,000.

     On June 18, 1997, we were granted a foreign exchange permit by the National
Bank of Poland, valid until July 31, 2007, that allowed us to issue a guarantee
of amounts payable by PTC International B.V. in respect of the 10 3/4% Notes for
an amount up to $550 million, including amounts payable on redemption,
repurchase or at final maturity, interest and any additional amounts, and to
transfer amounts payable under our Company
                                       19
<PAGE>   20

Guarantee outside Poland. The Polish Foreign Exchange Law has since been
modified, and as the 11 1/4% Notes were issued from a wholly owned foreign
subsidiary and as we have only provided a guarantee of these bonds, a foreign
exchange permit was not required in the issuance of the 11  1/4% Notes.

ITEM 7.  TAXATION

THE NETHERLANDS

     The following general summary is based upon the tax laws of The Netherlands
as in effect on the date of filing this Form 20-F and is subject to any change
that may come into effect after that date.

     (a)   All payments under the Notes may be made free of withholding or
           deduction for or on account of any tax of whatsoever nature imposed,
           levied, withheld or assessed by The Netherlands or any political
           subdivision or taxing authority thereof or therein;

     (b)   A holder of a Note who derives income from a Note or who realizes a
           gain on the disposal or redemption of a Note will not be subject to
           Dutch taxation on income or capital gains unless:

        (i)   the holder is, or is deemed to be, resident in The Netherlands; or

        (ii)   such income or gain is attributable to an enterprise or part
               thereof which is carried on through a permanent establishment or
               a permanent representative in The Netherlands; or

        (iii)  the holder has, directly or indirectly, a substantial interest or
               a deemed substantial interest in the Issuer and such interest or
               the Notes do not form part of the assets of an enterprise; or

        (iv)  if the holder is an individual not having a substantial interest
              or deemed substantial interest in the Issuer, any of certain
              connected persons has a substantial interest or a deemed
              substantial interest in the Issuer and such interest or the Notes
              do not form part of the assets of an enterprise;

     (c)   Dutch net wealth tax will not be levied on a holder of a Note unless
           the holder is an individual and:

        (i)   the holder is, or is deemed to be, resident in The Netherlands; or

        (ii)   such Note is attributable to an enterprise or part thereof that
               is carried on through a permanent establishment or a permanent
               representative in The Netherlands;

     (d)   Dutch gift, estate or inheritance taxes will not be levied on a
           transfer of a Note by way of gift, or on the death of an individual
           holder unless:

        (i)   the holder is, or is deemed to be, resident in The Netherlands; or

        (ii)   the transfer is construed as a gift made by or on behalf of a
               person who, at the time of the gift or death, is, or is deemed to
               be, resident in The Netherlands; or

        (iii)  such Note is attributable to an enterprise or part thereof that
               is carried on through a permanent establishment or a permanent
               representative in The Netherlands;

     (e)   There is no Dutch registration tax, capital tax, stamp duty or any
           other similar tax or duty other than court fees and contributions for
           the registration with the Trade Register of the Chamber of Commerce
           payable in The Netherlands in respect of or in connection with the
           execution, delivery and enforcement by legal proceedings (including
           any foreign judgment in the courts of The Netherlands) of any
           agreement relating to the issue of the Notes or the execution and
           delivery of the Notes or the performance of the Issuer's obligations
           under the Notes;

     (f)   There is no Dutch value added tax payable in respect of payments in
           consideration for the issue of a Note or in respect of the payment of
           interest or principal under the Notes or the transfer of the Notes;

     (g)   A holder of a Note will not become resident, or deemed to be
           resident, in The Netherlands by reason only of the holding of a Note
           or the execution and delivery of the Notes.

                                       20
<PAGE>   21

POLAND

     The following general summary is based upon the income tax laws of Poland
and interpretations thereof by the Polish Ministry of Finance as in effect on
the date of filing this Form 20-F and is subject to any change that may come
into effect after that date.

PAYMENTS OF PRINCIPAL, INTEREST AND REDEMPTION PREMIUM UNDER THE NOTES

     All payments of interest, principal and redemption premium under the Notes
by PTC International Finance may be made free of withholding taxes withheld or
assessed by Poland or any political subdivision or taxing authority thereof or
therein. A holder of a Note who derives income from a Note or who realizes a
gain on the disposal or redemption of a Note will be subject to Polish taxation
on income or capital gains if the holder is, or is deemed to be, resident in
Poland for the purposes of the relevant provisions in the tax laws of Poland.

PAYMENTS OF PRINCIPAL, INTEREST AND REDEMPTION PREMIUM UNDER THE COMPANY
GUARANTEE TO HOLDERS OF THE NOTES

     Generally, a Polish withholding tax of 20% applies to payments under the
Company Guarantee of interest and the initial issue discount in respect of the
Notes, in each case paid to non-residents of Poland. Withholding tax may,
however, be reduced by an appropriate double taxation treaty to which Poland is
a party and the "interest" article of which provides for full or partial
exemption from withholding on interest payments. Treaties providing for full
exemption from withholding on interest payments are currently in effect between
Poland and (i) the United States and (ii) the United Kingdom, among others.

     The difference between the issue price and the redemption price of the
Notes in the case of early redemption may be treated as income obtained in
Poland if paid out by us pursuant to the terms of the Company Guarantee.

STAMP DUTY CONSEQUENCES OF THE ASSUMPTION BY US OF THE OBLIGATIONS OF THE ISSUER
UNDER THE NOTES

     Polish stamp duty at a rate of 2% applies to any sale of property rights
that are to be exercised in Poland. Accordingly, in the event that we assume the
obligations of the Issuer on the Notes, Polish stamp duty may apply to sales or
dispositions of the Notes or any right therein by holders of Notes.

ITEM 8.  SELECTED FINANCIAL DATA

     The following information should be read in conjunction with item 9
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements (including the Notes thereto) included
elsewhere in this Form 20-F. The Financial Statements have been prepared in
accordance with International Accounting Standards, which differ in certain
respects from U.S. GAAP. See Note 28 to the Financial Statements as of and for
the years ended December 31, 1999, 1998, and 1997, respectively. The financial
data set forth below has been audited by Arthur Andersen Sp. z o.o., independent
auditors. The financial data included below as of and for the years ended
December 31, 1999, 1998 and 1997 have been derived from the audited Financial
Statements, and in our opinion, includes all adjustments (consisting of normal
recurring accruals) necessary for the fair presentation of our financial data
for such period.

                                       21
<PAGE>   22

STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                 -------------------------------------------------------
                                                            1999                  1998           1997
                                                 --------------------------    -----------    ----------
                                                     PLN           US$(1)          PLN           PLN
                                                  (IN THOUSANDS, EXCEPT SUBSCRIBER AND CHURN RATE DATA)
<S>                                              <C>             <C>           <C>            <C>
INTERNATIONAL ACCOUNTING STANDARDS
Net Sales:
Service revenues and fees......................    2,369,444       571,184      1,445,340       534,439
Sales of telephones and accessories............      222,617        53,665        165,471       112,623
                                                  ----------      --------      ---------      --------
Total net sales................................    2,592,061       624,849      1,610,811       647,062
                                                  ----------      --------      ---------      --------
Cost of sales:
Cost of services sold..........................     (939,037)     (226,367)      (613,898)     (330,112)
Cost of sales of telephones and accessories....     (723,814)     (174,484)      (334,516)     (181,037)
                                                  ----------      --------      ---------      --------
Total cost of sales............................   (1,662,851)     (400,851)      (948,414)     (511,149)
                                                  ----------      --------      ---------      --------
Gross margin...................................      929,210       223,998        662,397       135,913
Operating expenses:
Selling and distribution costs.................     (454,807)     (109,637)      (277,123)     (139,685)
Administration and other operating costs.......     (157,752)      (38,028)      (104,152)      (46,910)
                                                  ----------      --------      ---------      --------
Total operating expenses.......................     (612,559)     (147,665)      (381,275)     (186,595)
                                                  ----------      --------      ---------      --------
Operating profit (loss)........................      316,651        76,333        281,122       (50,682)
Interest and other financial income (expenses),
  net..........................................     (398,263)      (96,006)      (165,799)      (74,001)
                                                  ----------      --------      ---------      --------
Profit (loss) before taxation..................      (81,612)      (19,673)       115,323      (124,683)
Taxation (charge) benefit......................      (40,891)       (9,857)      (109,807)        4,247
                                                  ----------      --------      ---------      --------
Net income (loss)..............................     (122,503)      (29,530)         5,516      (120,436)
                                                  ----------      --------      ---------      --------
U.S. GAAP
Revenues.......................................    2,592,061       624,849      1,610,811       647,062
Cost of sales..................................   (1,656,459)     (399,310)      (948,031)     (504,652)
Operating expenses.............................     (622,027)     (149,947)      (384,860)     (196,570)
Interest and other financial income (expenses),
  net..........................................     (416,487)     (100,399)      (188,564)     (104,698)
Taxation.......................................      (37,953)       (9,149)      (108,516)        7,983
                                                  ----------      --------      ---------      --------
Net income (loss)..............................     (140,865)      (33,956)       (19,160)     (150,875)
                                                  ----------      --------      ---------      --------
OTHER FINANCIAL AND OPERATING DATA
EBITDA (IAS) (2)...............................      598,348       144,239        439,413        25,690
EBITDA (U.S. GAAP) (2).........................      588,880       141,957        432,280        19,263
Subscribers at end of period...................    1,751,475            --        780,740       295,179
Monthly churn rate(3)..........................          2.6            --            2.2           2.2
</TABLE>

                                       22
<PAGE>   23

BALANCE SHEET DATA

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                --------------------------------------------------------
                                                                                 1998           1997
                                                                              -----------    -----------
                                                    PLN          US$(1)           PLN            PLN
                                                 (IN THOUSANDS, EXCEPT SUBSCRIBER AND CHURN RATE DATA)
<S>                                             <C>            <C>            <C>            <C>
INTERNATIONAL ACCOUNTING STANDARDS
Long-term assets and deferred taxes...........   4,011,762        967,086      2,331,345      1,473,602
Total assets..................................   5,953,964      1,435,278      2,754,401      1,928,642
                                                 =========      =========      =========      =========
Long-term liabilities, deferred tax
  liabilities and provisions..................   4,606,954      1,110,564      1,892,329      1,500,020
Total liabilities.............................   5,786,158      1,394,826      2,464,092      1,643,842
                                                 =========      =========      =========      =========
Shareholders' equity..........................     167,806         40,452        290,309        284,800
U.S. GAAP
Long-term assets..............................   3,969,987        957,015      2,283,177      1,477,858
Total assets..................................   5,939,661      1,431,830      2,750,018      1,888,576
                                                 =========      =========      =========      =========
Shareholders' equity..........................      78,343         18,886        219,208        238,375
</TABLE>

---------------

(1)  Solely for the convenience of the reader, Zloty amounts have been
     translated into U.S. dollars at the rate of PLN 4.1483 per $1.00, the
     Fixing Rate announced by the National Bank of Poland on December 31, 1999.
     The Fixing Rate announced for the years ended December 31, 1998 and 1997 by
     the National Bank of Poland were PLN 3.504 per $1.00 and PLN 3.518 per
     $1.00, respectively. The translated amounts should not be construed as
     representations that the Zloty has been, could have been, or could in the
     future be converted into U.S. dollars at this or any other rate of
     exchange.

(2)  EBITDA represents operating profit (loss) before depreciation and
     amortization. EBITDA is included as supplemental disclosure because it is
     generally accepted as providing useful information regarding a company's
     ability to service and incur debt. EBITDA should not, however, be
     considered in isolation as a substitute for net income, cash flow provided
     from operating activities or other income or cash flow data or as a measure
     of a company's profitability or liquidity.

(3)  The churn rate is calculated as the average of the monthly churn rates in
     the relevant period. The monthly churn rate is calculated as the total
     number of voluntary and involuntary deactivations and suspensions during
     the relevant month expressed as a percentage of the average number of
     subscribers for the month (calculated as the average of the month end total
     number of subscribers and the total number of subscribers at the end of the
     previous month).

                                       23
<PAGE>   24

ITEM 9A.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with item 8
"Selected Financial Data," and with our Financial Statements and the Notes
thereto included elsewhere in this Form 20-F. The Financial Statements, and the
related financial information set forth in this section, have been prepared in
accordance with International Accounting Standards, which differ in certain
respects from U.S. GAAP. For a description of the material differences between
International Accounting Standards and U.S. GAAP see Note 28 to the Financial
Statements as of and for the three years ended December 31, 1999, 1998 and 1997,
respectively. In addition, for a reconciliation of financial results under
International Accounting Standards and Polish statutory accounting regulations,
see Note 27 to the Financial Statements as of and the three years ended December
31, 1999, 1998, and 1997, respectively.

OVERVIEW

     Formed in December 1995, we were awarded a 15-year non-exclusive GSM 900
License in February 1996 by the Polish Ministry of Communications. Thereafter,
we commenced construction of our GSM network and, in September 1996, started
offering services to our subscribers under the brand name Era GSM. Since that
time, we have experienced rapid growth and development. In August 1999, we were
granted a GSM 1800 License, also on a 15-year non-exclusive basis. Our GSM 1800
License will enable us to substantially enhance call volume capacity,
particularly in major urban centers. We commenced services under our GSM 1800
License on March 1, 2000.

     The following table sets forth information about our subscribers and GSM
cellular network coverage as of the dates indicated:

<TABLE>
<CAPTION>
                                                               AS OF OR FOR THE YEARS ENDED
                                                                       DECEMBER 31,
                                                              -------------------------------
                                                                1999        1998       1997
                                                              ---------    -------    -------
<S>                                                           <C>          <C>        <C>
CUSTOMERS:
Net customer additions......................................    970,735    485,561    258,436
Total Customers.............................................  1,751,475    780,740    295,179
of which:
  Post-paid customers.......................................  1,386,320    597,582    295,179
  Pre-paid customers........................................    365,155    183,158          0
Growth of total customers from prior year end (%)...........        124%       164%       703%
Churn (%)...................................................       28.4%      26.2%      25.8%
TRAFFIC:
Average monthly revenue per customer (PLN)..................        159        227        245
  Change from prior year (%)................................        (28)%      (12)%        6%
Coverage of GSM cellular network in Poland:
  Geographical area covered.................................       84.4%        80%        65%
  Population Covered........................................         95%        91%        75%
</TABLE>

FACTORS AFFECTING REVENUES

     The main source of our revenue is airtime tariffs, which consist primarily
of charges for calls that originate or terminate in the Era GSM network. Other
significant revenue sources include monthly service fees, service activation
fees and revenues from the sale of telephones and accessories. Airtime tariffs
include revenues from incoming and outgoing calls, a relatively small amount of
charges for "roaming" calls and revenue from the sale of pre-paid airtime cards.
Airtime charges are paid by the initiators of calls, and where one of our
subscribers travels outside Poland, that subscriber is also charged for the
international and roaming charges on their incoming calls. We anticipate that,
as our network and subscriber base grows and our business matures in coming
years, airtime revenues and monthly service fees will account for an increasing
proportion of our total revenues, while the proportion of total revenues derived
from sales of handsets and accessories, as well as new subscriber activation
fees, will decrease.
                                       24
<PAGE>   25

     Our revenues depend on the number of active subscribers, call volume and
harmonized tariff pricing, and strong segmentation focus. Continued subscriber
and call volume growth will depend on a number of factors, including pricing and
promotions, as well as general economic and market conditions, the level of
competition for obtaining new subscribers and the capacity and coverage of our
network. We expect that average minutes of use and revenue per subscriber will
fall as the cellular penetration level in Poland increases, especially if
increases in our subscriber base occurs primarily among those segments of the
population with relatively low usage rates, such as non-business subscribers.
This trend has been accentuated over the last twelve-month period by the
increase in our pre-paid subscriber base.

     Our total number of subscribers is affected by the number of new subscriber
activations and by our rate of churn. New subscriber activations are driven by
the success of marketing efforts and unmet demand for telecommunications
services in Poland resulting from the growth of the Polish economy and low
wireline penetration rates. "Churn" refers to disconnected subscriptions, either
voluntary (due to our subscribers switching to competing networks or terminating
their use of cellular communications services) or involuntary (due to nonpayment
of bills or suspected fraudulent use). In 1999, 1998 and 1997, our average
monthly churn rate was 2.6%, 2.2% and 2.2%, respectively. The most significant
cause of our increase in churn in 1998 was our policy to terminate subscribers
for nonpayment of bills in accordance with their contractual obligations. As is
the case in a number of emerging market countries, Poland does not have a
nationwide credit bureau for individuals, and it is difficult to verify the
creditworthiness of potential individual subscribers. While every new subscriber
must satisfy certain standard documentation requirements, we monitor the usage
of our subscribers that exceed pre-assigned credit limits or fail to pay their
bill to better measure creditworthiness after activation. In 1998, we also
strengthened our billing and collection systems, thereby increasing the ability
to identify subscribers who should be terminated from our services. We also
believe that the growing proportion of pre-paid subscribers in our overall
subscriber base may increase our churn rate because pre-paid subscribers are not
contractually bound to continue to use our services.

     We seek to minimize voluntary customer churn by providing a high quality
network, loyalty programs and extensive customer service at competitive prices.
In order to better enable us to recover subscriber acquisition costs from churn,
we require our subscribers who purchase services during promotional campaigns to
pay a fee, equal to the discount on the full cost of their handset or activation
fee, if they change tariff plans or cancel their subscriber contract prior to
the expiration of a minimum period (generally two years). We have also recently
launched a bonus award program similar to airline mileage award programs which
is based on minutes of airtime used by customers. Our success of any customer
retention or cost recovery measures; however, will depend to a large extent upon
competitive factors beyond our control. In particular, the tariff structure and
minimum subscription period requirements implemented by our principal
competitors will be a significant factor.

     Our revenues are also affected by our subscriber mix, with business users
generally having higher average call volume than private users, particularly
pre-paid subscribers, and "passive subscribers" (subscribers that continue to
pay subscription fees but use their handsets infrequently or not at all). Future
call volume will depend on the prices we charge for services, calling patterns,
the availability within Poland of wireline telephones, taxes on
telecommunication services and general economic and market factors.

     Tariff pricing, consisting of the rates we charge subscribers for airtime,
monthly service and service activation, is significantly dependent on
competitive factors. We offer six post-paid tariff structures and two pre-paid
tariff structures, with different airtime and monthly access charges catering to
the usage patterns of different subscriber market segments. Airtime tariffs for
domestic calls vary depending on the time of day a call is made, while tariffs
for international calls vary according to the destination of the call. We charge
separately for certain of the value-added services offered, such as call
waiting, short message service and data and facsimile transmission. There have
been no increases in our prices on any of our tariff plans since first
introduced, except from time to time, we run promotions in which our price for
service activation, handsets or both have been reduced for the promotion period.
Tariffs for inbound traffic are set by interconnect agreements with TPSA,
Polkomtel and Netia. Our level of prices in the future, however, will depend on
the level of competition in the Polish GSM telecommunications services market,
the general level of Polish price inflation, other changes in factors affecting
underlying costs, and increased competition from other technologies, including
both cellular and

                                       25
<PAGE>   26

other mobile telecommunications systems, as well as the availability within
Poland of wireline telephones and any limitations on price increases imposed by
regulators.

     In 1997, VAT charged on the cost of telecommunications services in Poland
was 7%. In February 1998, however, VAT charged on the cost of telecommunications
services was increased to 22%. The new VAT rate increased the final cost of
telecommunications services to our subscribers. However, the impact of this
higher tax rate on our subscriber demand and revenues was offset by the
significant increase in our overall number of subscribers.

     Prior to May 22, 1997, calls between our network and the competitors'
networks, TPSA, Polkomtel and Centertel, were governed by interim interconnect
arrangements pursuant to which calls were generally billed by each operator on a
"bill and keep" basis (i.e., the operator of our network in which the call
initiated was entitled to retain all of the amount charged for the call). On May
22, 1997, however, the Ministry of Communications issued the Interconnect
Decision, that replaced the "bill and keep" system with a system of reciprocal
interconnect payments. In December 1998, we entered into a Framework Agreement
with TPSA which established a financial settlement on the basis of the
interconnect decision for all periods since we commenced commercial operations
in September 1996, resulting in a payment by TPSA to us of PLN 6.2 million on
January 26, 1999. However, TPSA appealed the Interconnect Decision to Supreme
Administrative Court and notwithstanding the Framework Agreement, their appeal
has not yet been withdrawn.

FACTORS AFFECTING EXPENDITURES

     The principal components of our operating expenditures are cost of sales
and operating expenses, the latter consisting of selling and distribution costs
and administration and other operating costs.

COST OF SALES

     Our cost of sales consists primarily of payments to i) equipment suppliers
(principally handsets and related accessories) that we sell to dealers and
subscribers, ii) amortization and depreciation charges associated with licenses
fees and fixed assets, iii) payments for the provision by third parties,
principally TPSA, of leased lines between other operators' networks and our
network, iv) commission payments to the dealers and sales force associated with
subscriber acquisition, and v) payments to other operators, principally TPSA,
for delivering calls that terminate outside our network.

     We anticipate that, as our network and subscriber base grows and the
business matures in coming years, the relative proportions of these expenses
will shift away from the cost of merchandise sales (which currently are very
significant because a large majority of new subscribers have not previously
acquired a GSM-capable handset) and fixed asset amortization and depreciation
charges, toward aggregate leased line and interconnection fees, which vary with
call volumes.

     Prior to the issuance in May 1997 of the Interconnect Decision, we incurred
no interconnect fees since the operator of the network in which the call
initiated was entitled to retain all of the amount charged for the call. The
Interconnect Decision established a system of interconnect charges in which we
pay TPSA for calls terminating in TPSA's network and TPSA pays for calls
terminating in our network. Since the reciprocal charge system has been in
place, the cost of fees payable by us have been more than offset by increases in
revenue from interconnect fees for incoming calls. In addition, as a result of a
new Framework Agreement with TPSA, we are entitled to a 60% discount on certain
of TPSA's standard leased line tariffs, with additional incremental discounts of
between 5% and 15% for long-term arrangements lasting between one and five
years. Nevertheless, the interconnect fees paid to TPSA and the leasing of lines
from TPSA each make up a significant portion of our expenses.

     To reduce dependence on TPSA, we have taken two actions. First, we have
entered into a contract with Ericsson to construct an SDH microwave backbone
network in order to reduce the use of leased lines for GSM 900 operations.
Second, we have entered into an interconnection agreement with Netia Telekom, an
alternative fixed line provider, and are actively pursuing agreements with other
fixed line providers to establish interconnect points throughout Poland.

                                       26
<PAGE>   27

     We believe that, when completed, our backbone network will reduce our cost
of sales and dependence on external suppliers. Construction of the initial phase
of our backbone network began in November 1998 and is expected to be completed
by the end of the second quarter of 2000. The backbone network will reduce, but
not eliminate, our need for leased lines and related fees, as our backbone
network will not offer the complete geographic coverage of Poland that TPSA
lines do, but rather will cover connections between areas of major population
density and high call volume. Although we successfully petitioned to amend our
GSM 900 License in May 1997 and April 1998 to no longer require the utilization
of lines leased from TPSA to conduct GSM 900 operations, our GSM 1800 License
still requires the use of lines leased from TPSA for GSM 1800 operations. We
have petitioned for an amendment to our GSM 1800 License similar to the
amendment obtained for our GSM 900 License. Although we believe our chances to
obtain such an amendment are good, no assurance can be given that such an
amendment will be obtained. We will continue to interconnect with TPSA to
provide international coverage.

OPERATING EXPENSES

     Our operating expenses consist of: i) selling and distribution costs (other
than fixed commissions to the dealers and sales force which acquire subscribers
that are included in cost of sales), including advertising costs and provisions
for doubtful debtors; and ii) administration and other operating costs,
including external services and operations and staffing costs associated with
headquarters and regional offices.

RESULTS OF OPERATIONS

OVERVIEW

     We recorded a net loss of PLN 122.5 million during 1999, as compared with a
net profit of PLN 5.5 million in 1998 and a net loss of PLN 120.4 million 1997.
Operating profits increased to PLN 316.7 million in 1999, compared with
operating profit of PLN 281.1 million for 1998 and operating loss of PLN 50.7
million for 1997. The strong growth in net sales and gross margin in service
revenue and fees was largely offset by increased cost of sales for promotional
telephones and accessories. The net loss for 1999 also reflects an increase in
net interest and other financial expense to PLN 398.3 million, as compared to
PLN 165.8 million and PLN 74.0 million for 1998 and 1997, respectively. In light
of our limited operating history and speed of growth, financial results for
these periods are unlikely to be indicative of future financial results.

     The following table sets forth the gross margin by net sales category for
the periods indicated:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                             ---------------------------------
                                                               1999         1998        1997
                                                             ---------    ---------    -------
                                                                   (IN THOUSANDS OF PLN)
<S>                                                          <C>          <C>          <C>
Net service revenues and fees..............................  2,369,444    1,445,340    534,439
Cost of services sold......................................    939,037      613,898    330,112
                                                             ---------    ---------    -------
Gross margin from service revenues and fees................  1,430,407      831,442    204,327
Gross margin percentage of net service and fees revenue....       60.4%        57.5%      38.2%
Sales of telephones and accessories........................    222,617      165,471    112,623
Cost of sales of telephones and accessories................    723,814      334,516    181,037
                                                             ---------    ---------    -------
Gross margin from sales of telephones and accessories......   (501,197)    (169,045)   (68,414)
Gross margin percentage of net telephones and accessories
  revenue..................................................     (225.1)%     (102.2)%    (60.7)%
Net sales..................................................  2,592,061    1,610,811    647,062
Cost of sales..............................................  1,662,851      948,414    511,149
                                                             ---------    ---------    -------
Gross margin...............................................    929,210      662,397    135,913
Gross margin percentage of total net revenues..............       35.8%        41.1%      20.1%
</TABLE>

NET SALES

     Net sales were PLN 2,592.1 million in 1999, as compared with PLN 1,610.8
million and PLN 647.1 million for 1998 and 1997, respectively. Service revenues
and fees were PLN 2,369.4 million during 1999, as compared
                                       27
<PAGE>   28

with PLN 1,445.3 million in 1998 and PLN 534.4 million in 1997. Service revenues
and fees included interconnect income of PLN 523.0 million for 1999, as compared
to PLN 300.7 million and PLN 79.0 million for 1998 and 1997, respectively. The
growth in service revenues and fees primarily reflects an increase in the number
of subscribers to approximately 1.8 million as of December 31, 1999 (including
365,000 Tak Tak pre-paid GSM service subscribers), as compared with 781,000 and
295,000 subscribers as of December 31, 1998 and 1997, respectively. This trend
was partially offset by a decrease in average revenue per subscriber to PLN 159
for the year ended December 31, 1999 as compared to PLN 227 for 1998 and PLN 245
for 1997.

     Sales of telephones and accessories were PLN 222.6 million during 1999, as
compared with PLN 165.5 million in 1998 and PLN 112.6 million in 1997. Since
beginning operations, we have conducted several promotional campaigns in which
reduced prices for handsets and activation fees during specific periods were
offered. As a result of these promotional campaigns, a significant number of new
subscribers have been added, although revenues from sales of telephones and
accessories have been negatively affected by promotional discounting of the cost
of telephones and accessories to our subscribers.

COST OF SALES

     Total cost of sales were PLN 1,662.9 million during 1999, as compared with
PLN 948.4 million and PLN 511.1 million in 1998 and 1997, respectively. Gross
margin was PLN 929.2 million in 1999, as compared with a gross margin of PLN
662.4 million in 1998 and PLN 135.9 million in 1997. As a percentage of net
sales, gross margin represented 35.8%, 41.1% and 20.1% in 1999, 1998 and 1997,
respectively.

     The decrease in gross margin as a percentage of net sales from 1998 to 1999
of 5.3% is the result of increased gross losses on sales of telephones and
accessories of PLN 332.2 million, which were more than offset by the increase in
gross profit from service revenues and fees of PLN 599.0 million, reflecting
strong growth in our subscriber base. During 1999, we increased promotional
activities, in particular sales of telephones and accessories below cost in an
effort to attract subscribers. As a general matter, we do not intend to achieve
positive overall margins on sales of telephones and accessories. We believe that
a significant majority of future sales and margins will be derived from airtime
revenues and monthly service fees rather than activation fees and the sale of
telephones and accessories, and that discounts on these latter items will have a
decreasing impact upon financial results of operations.

     Cost of sales for services included interconnect costs of PLN 131.6 million
for 1999, compared to PLN 77.5 million and PLN 32.4 million for 1998 and 1997,
respectively.

OPERATING EXPENSES

     Operating expenses were PLN 612.6 million during 1999, as compared with
PLN 381.3 million in 1998 and PLN 186.6 million in 1997. As a percentage of net
sales, however, operating expenses during the year ended December 31, 1999 were
23.6%, as compared with 23.7% and 28.8% in the years ended December 31, 1998 and
1997, respectively. The decrease in operating expenses as a percentage of net
sales reflects the continued increase in revenue and the fixed nature of certain
operating expenditures.

     Selling and distribution costs were PLN 454.8 million in the year ended
December 31, 1999, as compared with PLN 277.1 million for 1998 and PLN 139.7
million for 1997. The selling and distribution costs for the year ended December
31, 1999 include significant but proportional increases in advertising costs for
promotions associated with the continued marketing roll-out, sales force
salaries and wages, and charges to the doubtful debtors provision. The charge to
doubtful debtors provision, increased to PLN 143.9 million for the year ended
December 31, 1999 from PLN 90.7 million for 1998 and PLN 43.7 million for 1997.
This was primarily a result of a substantial increase in the number of
subscribers and the creation of a nearly full provision for doubtful debtors for
prior years.

     Administration and other operating costs, which include external services
fees and operating and staffing costs associated with headquarters and regional
offices, were PLN 157.7 million for the year ended December 31, 1999, as
compared with PLN 104.2 million and PLN 46.9 million in 1998 and 1997,
respectively. The increase in

                                       28
<PAGE>   29

administrative costs for 1999 as compared with the same period in 1998 was
primarily due to increased employee hiring and external services to support
growth.

     A portion of the increased wages and salaries in 1999 was directly offset
by lower cost for social insurance benefits. In 1999, the Polish Government
implemented a shared contribution plan between employers and employees for
social insurance pursuant to which a portion of the contribution burden was
shifted from the employer to the employees. We therefore was required to
equalize the impact of this shift to employees by increasing their compensation
accordingly.

INTEREST AND OTHER FINANCIAL EXPENSES

     Interest and other financial expenses, net for the year ended December 31,
1999 were PLN 398.3 million, as compared to PLN 165.8 million and PLN 74.0
million for 1998 and 1997, respectively. This reflects increased interest
charges and foreign exchange losses primarily due to borrowings and currency
exposure under the Bank Credit Facility, Shareholder Loans, and 10 3/4% Notes
for the purpose of funding our network build-out. Interest charges and foreign
exchange losses from the 11 1/4% Notes were minimal as this obligation
originated in late 1999.

     Net interest expenses were PLN 247.5 million for the year ended December
31, 1999, as compared to PLN 123.8 million and PLN 31.8 million for 1998 and
1997, respectively. Cash interest will not accrue on the 10 3/4% Notes prior to
July 1, 2002. Commencing January 1, 2003 cash interest will be payable on
January 1 and July 1 each year thereafter. Interest on the 11 1/4% Notes and the
Bank Credit Facility accrues continuously, and is payable each half-year for the
11 1/4% Notes and as individual short-term drawdowns mature for the Bank Credit
Facility.

     As a result of the depreciation of the Zloty in relation to other major
currencies, we have incurred a net foreign exchange loss of PLN 150.7 million in
1999, as compared to a net foreign exchange loss of PLN 42.0 million and
PLN 42.2 million during 1998 and 1997, respectively. See Item 9B. "Quantitative
and Qualitative Disclosures of Market Risk -- Inflation and Currency Exchange
Fluctuations."

     Since September 1997, interest and other financial expense, net, has also
included imputed interest expense and net foreign exchange losses on our
obligations to the Polish government in respect of our GSM 900 License (for
which our fee payable to the Polish government is linked to Euros payable in
Zlotys on March 31 of each year). Pursuant to International Accounting
Standards, imputed interest and foreign exchange losses were: i) capitalized in
the cost of our GSM 900 License during the development of our GSM 900 system;
and ii) will be capitalized for our GSM 1800 License through March 1, 2000.
These expenses, which are not reflected in the amount of interest and other
financial expenses, net set forth in the statement of operations, amounted to
PLN 19.0 million in 1999 (for the GSM 1800 License), nothing in 1998, and
PLN 17.9 million in 1997 (for the GSM 900 License).

TAXATION AND OTHER EXPENSES

     The loss before taxation was PLN 81.6 million for the year ended December
31, 1999 compared to a profit before taxation of PLN 115.3 million for 1998 and
a loss before taxation of PLN 124.7 million for 1997. After accounting for
taxation, we incurred a comprehensive net loss of PLN 122.5 million in the year
ended December 31, 1999 compared to a net profit of PLN 5.5 million for 1998 and
a net loss of PLN 120.4 million for 1997. In 1999, several one-time adjustments
were recognized, including losses from the reconciliation of network equipment
for PLN 6.2 million, expensed leasehold improvements of PLN 0.2 million, and
additional increases in bad debt provisions in 1999 pertaining to 1998 of
PLN 21.3 million.

     In accordance with the requirements of the Polish tax authorities, the cost
of our GSM 900 License and GSM 1800 License are recorded on a cash basis, which
are the most significant component of the total deferred tax liability of
PLN 102.5 million as of December 31, 1999, as compared to a deferred tax
liability of PLN 64.0 million and PLN 2.0 million as of December 31, 1998 and
1997, respectively. We have also recorded a deferred tax asset relating to the
realization of accrued expenses of PLN 75.2 million as of December 31, 1999 as

                                       29
<PAGE>   30

compared to the realization of accrued expenses and certain tax loss carry
forwards of PLN 66.7 million and PLN 42.3 million as of December 31, 1998 and
1997, respectively. See Note 11 to the Financial Statements.

     We recorded income tax expense of PLN 40.9 million in 1999, compared with
an income tax expense of PLN 109.8 million in 1998 and an income tax benefit of
PLN 4.2 in 1997. After discussions with Polish tax authorities in 1998, we
decided to change the tax treatment of the cost of our GSM 900 License from
amortization over 15 years to cash basis. As a result, the tax returns for 1996
and 1997 have been restated and the resulting increase in tax loss carry
forwards has also been reflected in the deferred tax computation for 1998. The
change in the tax treatment of our GSM 900 License also resulted in a deferred
tax liability of PLN 102.5 million, PLN 63.2 million and PLN 2.0 million in
1999, 1998 and 1997, respectively. In 1998, we also adopted International
Accounting Standard 12 (revised) "Income Taxes" in accounting for income taxes.
The revised standard permits us to record a deferred tax asset when there is a
reasonable expectation of realization while the previous standard required a
higher level of certainty. This change in accounting for income taxes was
applied retroactively. See Note 11 to the Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

     Historically, our liquidity requirements have arisen primarily from the
need to fund capital expenditures for the expansion of the business and for
working capital needs. We expect to continue to incur substantial additional
capital expenditures in order to expand and improve the quality of our network.
Our management anticipates that total capital expenditures in 2000 will be
PLN 2.2 billion, including expenditures related to network development.

     On December 17, 1997, we entered into a Bank Credit Facility arranged by
Citibank (Poland) S.A. and Citibank International plc. The lenders agreed to
make loans to us, on a term loan or revolving credit basis (at our option) in an
aggregate principal amount of not more than DM 672 million, subject to liquidity
and credit rating conditions. At the end of 1999, we were eligible for the full
loan limit of this facility. This Bank Credit Facility consists of two tranches:
(i) an offshore tranche of up to DM 420.0 million may be drawn in Deutschmarks,
U.S. dollars, Euro or other freely convertible currencies as agreed by the
lenders; and (ii) a domestic tranche equal to the Zloty equivalent of DM 252.0
million available to be drawn in Zloty. As of December 31, 1999, we drew down
PLN 1,076.6 million under the Bank Credit Facility, which consisted of DM 237.7
million and PLN 570 million. We have established overdraft facilities with Bank
Rozwoju Eksportu S.A. These overdraft facilities are limited to the Polish Zloty
equivalent of DM 25 million by terms of the Bank Credit Facility.

     On August 24, 1999, the major shareholders extended to us US$ 75.0 million
in subordinated loans to fund our GSM 1800 License and to provide continued
liquidity. The respective amounts of those loans from our shareholders were as
follows: Elektrim S.A., Zloty equivalent of US$ 40.0 million; DeTeMobil,
US$ 17.5 million; and MediaOne, US$ 17.5 million. Each shareholder loan bears an
interest rate of 12.5% compounded semi-annually on June 17 and December 17. The
full balances of these loans and accrued interest are due on June 19, 2006.
However, interest may be due earlier dependent on our ability to meet Bank
Credit Facility covenants. The shareholder loans remain with the same
shareholders that extended them to us, regardless the subsequent changes in our
shareholder ownership.

     On November 23, 1999, PTC International Finance II S.A., issued Senior
Subordinated Guaranteed Notes for the aggregate principal amount of Euro 300.0
million and US$ 150.0 million to fund future network capital construction and
operating growth. The 11 1/4% Notes bear an interest rate of 11 1/4% with
interest due commencing June 1, 2000 and payable each December 1 and June 1
thereafter. Although the 11 1/4% Notes mature on December 1, 2009, they can be
redeemed up to 35% of the initial aggregate principal amount prior to December
1, 2002 and either the whole or any part of the principal amount after December
1, 2004. The 11 1/4% Notes rank equally with the previously issued 10 3/4%
Notes, which are also guaranteed on a senior subordinated basis.

     Net cash generated from operating activities during the year ended December
31, 1999 was PLN 342.7 million, as compared to net cash generated of PLN 163.8
million and net cash used of PLN 113.4 million during 1998 and 1997,
respectively. Non-cash provisions and net non-operating items for the same
periods totaled PLN 725.2 million, PLN 334.0 million and PLN 186.1 million,
respectively, and principally reflect depreciation, amortization, provisions for
doubtful debtors, unrealized foreign exchange losses and interest expense
resulting
                                       30
<PAGE>   31

from business growth and expanded financial activities. In addition, net cash
used for working capital items was PLN 275.3 million for the year ended December
31, 1999, as compared to net cash used for working capital items of PLN 171.9
million and PLN 174.8 million in 1998 and 1997, respectively. This was primarily
due to increased cash used by subscriber receivables and inventory build up.

     Net cash used in investing activities was PLN 1,828.3 million in 1999 as
compared to PLN 1,004.7 million and PLN 152.7 million in 1998 and 1997,
respectively. Investing cash flows reflect PLN 985.3 million, PLN 966.6 million
and PLN 176.3 million in payments during 1999, 1998 and 1997, respectively, to
suppliers of tangible fixed assets, which consist primarily of network capital
equipment used in the ongoing build-out of our GSM network. These amounts are
less than actual purchases of fixed assets, which totaled PLN 1,146.9 million in
1999, PLN 1,013.6 million in 1998 and PLN 636.6 million in 1997, the difference
reflecting the ability to defer payment on a significant portion of purchases.
In general, our network equipment supply agreements with each of our major
suppliers of network equipment (Ericsson, Siemens and Alcatel) permit deferred
payments on our network equipment purchases until equipment is installed, placed
in commercial operation and formally accepted.

     We also expect that our level of capital expenditures will remain
significant for the medium term, as we continue to expand network capacity,
coverage, and quality in order to expand services offered under the new GSM 1800
License.

     Net cash generated from financing activities was PLN 2,604.0 million in
1999 as compared to PLN 618.4 million and PLN 479.8 million in 1998 and 1997,
respectively. These amounts reflect the net proceeds from long-term bank
borrowings in 1998, the issuance of the Notes in 1997 and 1999, and shareholder
loans in 1999. In addition, we entered into a finance lease relating to the new
headquarters building in March 1997, for which the future minimum lease payments
total PLN 453.0 million over 15 years.

     As a result of the foregoing, the net cash for the year ended December 31,
1999 increased by PLN 1,118.4 million, but decreased by PLN 222.5 million in
1998, and increased by PLN 213.7 million in 1997.

YEAR 2000 COMPLIANCE

     In cooperation with shareholders, equipment suppliers, energy suppliers,
programmers and other telecommunications operators, we implemented a
comprehensive project to minimize Year 2000-related computer hardware or
software malfunctions. As a result of this initiative, we have successfully
prevented operational disruptions in 2000. Actual incremental costs incurred on
our Year 2000 project through December 31, 1999 were approximately USD 794,000,
overspending the USD 650,000 budget for this initiative.

ITEM 9B.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS

     In connection with its transition from a state controlled to a free market
economy, Poland experienced high levels of inflation and significant fluctuation
in the exchange rate for the Zloty. The government adopted policies that slowed
the annual rate of consumer price inflation from nearly 250% in 1990 to
approximately 13.2% in 1997, 8.6% in 1998 and 9.8% in 1999 according to the
Polish Office of Statistics. Since the launch of operations in 1996, the
cumulative inflation in Poland has been 38.6%. The Polish Communications Law
provides that the Ministry of Communications may impose a ceiling on the prices
that telecommunications service providers can charge for their services.

     Sales revenues are denominated in Polish Zloty. A significant portion of
expenses and liabilities, however, are denominated in other currencies. These
include liabilities to the Polish government for our GSM 900 and GSM 1800
Licenses, which are linked to Euro and payable in Zloty, and liabilities to
suppliers of network capital equipment and handsets, which are generally
denominated in Deutschmarks, French Francs or U.S. dollars. Additionally, the
10 3/4%, 11 1/4% and shareholder loans are denominated in U.S. dollars or Euros,
and a significant portion of the Bank Credit Facility is denominated in
Deutschmarks. As a result, operating income and cash flow are and will remain
significantly exposed to an appreciation in these non-Polish currencies against
the Zloty.

                                       31
<PAGE>   32

     Future currency exchange fluctuations are expected to continue to have a
significant effect on our financial condition and results of operations. We
intend to enter into both short and long-term transactions to hedge the risk of
exchange rate fluctuations, to the extent hedging arrangements on commercially
satisfactory terms are obtainable. There is no assurance that we will be able to
obtain hedging arrangements on commercially satisfactory terms. At the end of
1999, we had no open hedging transactions, although, our hedging policy allows
for the use of forwards, swaps and options for minimizing currency and interest
rate risks. As an alternative, we may attempt to structure foreign currency
liabilities to be broadly in line with the currency basket employed by the
National Bank of Poland. This technique will not eliminate foreign exchange
losses; however, we believe the technique may improve the management of the
magnitude of these losses. Starting in late 1998 and continuing through the
current year, we drew funds mainly from the Bank Credit Facility and exhausted
the Zloty denominated tranche first in order to minimize the negative effects of
currency exchange fluctuations.

     The table below summarizes foreign currency denominated long-term
obligations:

<TABLE>
<CAPTION>
                                                                                                                PRESENT
                                                                                                                 VALUE
OBLIGATION                          2000      2001      2002      2003      2004     THEREAFTER     TOTAL       12/31/99
----------                         -------   -------   -------   -------   -------   ----------   ---------   ------------
                                                                                                              (SEE NOTE 19
                                                                                                              TO FINANCIAL
                                                                                                              STATEMENTS)
                                                                    (IN THOUSANDS OF PLN)
<S>                                <C>       <C>       <C>       <C>       <C>       <C>          <C>         <C>
GSM 900 License.................   143,077   233,875        --        --        --          --      376,952        358,586
GSM 1800 License................    69,685    69,685    69,685        --        --          --      209,055        180,571
10 3/4% Notes...................        --        --        --   112,914   112,914   1,389,104    1,614,932        808,446
11 1/4% Notes...................   214,800   210,703   210,703   210,703   210,703   2,926,429    3,984,041      1,867,231
Bank Credit Facility (DM
  Tranche)......................    18,596    18,596    18,596   165,987   190,548     183,975      596,298        522,038
Shareholder Loans...............        --        --        --        --        --     711,421      711,421        325,075
Headquarters Lease..............    29,807    29,807    29,807    29,807    29,807     300,363      449,398        218,339
Weighted Average Effective
  Interest Rate.................    9.9037    9.9037    9.9037    9.9037    9.9037      9.9037       9.9037         9.9037
</TABLE>

     We are exposed to interest rate risk primarily as a result of the Bank
Credit Facility which at the end of 1999 consisted of loans of DM 237.7 million
and PLN 570.0 million at a rate of LIBOR or WIBOR plus 0.95% before and 0.75%,
respectively after March 1, 1999. The table below presents information about the
Bank Credit Facility including estimated principal and interest cash flows based
on weighted interest rates by expected maturity dates for the balance drawn
under the Bank Credit Facility as of December 31, 1999. The weighted average
interest rates computed assumes individual drawdowns on the loan will be
refinanced at the same rate. Each drawdown has a short-term maturity date, which
can be rolled over, subject to the annual repayment schedule for the entire
Facility.

<TABLE>
<CAPTION>
                                                                                                                PRESENT
                                                                                                                 VALUE
BANK CREDIT FACILITY                2000      2001      2002      2003      2004     THEREAFTER     TOTAL       12/31/99
--------------------               -------   -------   -------   -------   -------   ----------   ---------   ------------
                                                                                                              (SEE NOTE 19
                                                                                                              TO FINANCIAL
                                                                                                              STATEMENTS)
<S>                                <C>       <C>       <C>       <C>       <C>       <C>          <C>         <C>
Variable Rate (DM)..............    18,596    18,596    18,596   165,987   190,548     183,975      596,298        522,038
The Weighted Average Effective
  Interest Rate.................    3.6709    3.6709    3.6709    3.6709    3.6709      3.6709       3.6709         3.6709
Variable Rate (PLN).............   137,588   169,669   169,693   166,161   147,193     128,226      918,530        585,671
Weighted Average Effective
  Interest Rate.................   16.6383   16.6383   16.6383   16.6383   16.6383     16.6383      16.6383        16.6383
</TABLE>

                                       32
<PAGE>   33

ITEM 10:  DIRECTORS AND OFFICERS OF REGISTRANT

DIRECTORS

<TABLE>
<CAPTION>
                                                                                    MEMBER OF
                                                                                SUPERVISORY BOARD
NAME                                                          APPOINTED BY            SINCE
----                                                          ------------      -----------------
<S>                                                          <C>                <C>
Piotr Mroczkowski (Chairman)...............................  Elektrim                 1996
Moritz Gerke (Deputy Chairman).............................  DeTeMobil                1997
Jacek Walczykowski (Secretary).............................  Elektrim                 1999
Jan Kolodziejczak..........................................  Elektrim                 1999
Steve Boyd.................................................  MediaOne                 1998
Michael Gunther............................................  DeTeMobil                1997
William "Bill" Norris......................................  MediaOne                 1999
Jan Waga...................................................  Kulczyk Holding          1996
Andrzej Wojcik.............................................  BRE                      1996
</TABLE>

     Members of the Supervisory Board have not changed since the transfers of
shareholder ownership in our company took place in 1999 (Elektrim S.A.'s
acquisition of minority shareholders and transfer of shares to Elektrim
Telekomunikacja) and in the first quarter of 2000 (DeTeMobil's acquisition of
MediaOne).

EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
                                                                                         MEMBER OF
                                                                                      MANAGEMENT BOARD
NAME                                     POSITION                                          SINCE
----                                     --------                                     ----------------
<S>                                      <C>                                          <C>
Boguslaw Kulakowski....................  Director General                                   1999
Wojciech Ploski........................  Director of Strategy, Marketing & Sales            2000
Wilhelm Stueckemann....................  Director of Network Operations                     1996
Stanislaw Majewski.....................  Director of Finance                                1999
Ryszard Pospieszynski..................  Director of Administration                         1996
</TABLE>

     As of March 1, 2000 Wojciech Ploski replaced Karim Khoja as the Director of
Stategy, Marketing and Sales. Mr. Khoja, however, will remain with us through
the transition of share ownership from MediaOne to DeTeMobil.

     Mr. Ploski began working with us in May 1996 as the Deputy Director of
Marketing (Product and Logistics). In September 1997, he assumed the position of
Director of Logistics and Sales. Mr. Ploski was one of the main developers of
our direct, indirect and retail sales network and the purchasing department.
Prior to joining the Company, Mr. Ploski worked for the Curtis Company, a
television manufacturer, for ten years where he held variety of positions,
including the Executive Director of the television factory in Mlawa and the
Commercial Director of Curtis International. Mr. Ploski holds a degree from the
Warsaw University of Technology, Telecommunications Department.

ITEM 11.  COMPENSATION FOR DIRECTORS AND OFFICERS

     For the year ended December 31, 1999, we directly paid an aggregate of PLN
6,462,315 to the members of the Supervisory Board and the Management Board,
including compensation for salary, bonuses and pension plans. In addition, some
of the members of the Management Board were paid by the respective shareholders
which have seconded them. We have reimbursed those shareholders for those
payments in the total amount of PLN 3,034,844 for the year ended December 31,
1999.

ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

     None.

                                       33
<PAGE>   34

ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     We have entered into service agreements with each of DeTeMobil, Elektrim
and MediaOne. These agreements relate to the licensing and development of
software and computer databases, and arrangements for management, sales and
technological support, including secondment of employees of DeTeMobil, Elektrim
and MediaOne.

AGREEMENTS WITH DETEMOBIL

     Framework Agreement for Secondment.  Under the DeTeMobil Framework
Agreement for Secondment of Employees, DeTeMobil allows its employees to be
seconded to us depending on need, for discrete or extended periods of time for
the purpose of assistance with research and management operations. The term of
the Framework Agreement is one year and it is automatically renewable by either
party unless terminated in writing three months prior to the end of the period.

     Under the Agreement, we have the right to request the secondment of an
employee of DeTeMobil by specifying the skills needed. Pursuant to the Framework
Agreement, we are given a specified period during which to accept or reject the
secondment candidate identified by DeTeMobil and during which we are entitled to
interview several other candidates from DeTeMobil for secondment.

     We have all rights to any inventions developed by the seconded employee
alone or together with regular company employees during the time of secondment.
We are obligated to compensate DeTeMobil for any seconded employee as well as
pay any value-added tax applicable under Polish law. DeTeMobil has
responsibility for meeting any filing requirements associated with applicable
tax, social security, procurement of visas and work permits, although we have
agreed to assist DeTeMobil with meeting these requirements.

     Framework Agreement.  Pursuant to the DeTeMobil Framework Agreement,
DeTeMobil provides us with technical, managerial, logistical and administrative
know-how support services, including product development and research skills.
DeTeMobil also provides us with personnel support in the performance of specific
services where requested when possible. The term of the Framework Agreement is
one year and it is automatically renewable unless terminated in writing by
either party, three months prior to the end of the period.

     DeTeMobil may not disclose work results with third parties without the
consent, but may use the knowledge, experience and results obtained from any
services provided for its own purposes. We also agreed with DeTeMobil that any
damage compensation resulting from liability due to gross negligence would be
limited to the amount of the specific service order not to exceed DM 500,000.

     Under the Framework Agreement, compensation for DeTeMobil is provided in
Deutschmarks according to daily and monthly fee schedules. The monthly rates are
based on 40-hour work weeks. In addition, we pay DeTeMobil for the provision of
technical know-how (not including new know-how, the price of which is set forth
in service orders). We are also obligated to pay any applicable tax under Polish
law.

     Billing and Customer Care Upgrade Agreement.  On December 3, 1998, we
entered into an agreement with DeTeMobil to provide enhancements to our billing
and customer care system (BSCS Pink) which was delivered in 1999.

     Payments.  We incurred cost of PLN 27.5 million in aggregate for all
DeTeMobil services rendered, including employee secondments, for 1999.

AGREEMENTS WITH ELEKTRIM

     Elektrim Service Agreement.  We entered into an agreement (the "Service
Agreement") with Elektrim in May 1996 to render services to us in respect of
securing the commercial side of contracts, pursuant to which Elektrim prepares
and implements contracts relating to the development of digital GSM mobile
network. Under the Service Agreement, Elektrim provides us with a working team,
consisting of a minimum of five persons, and performs specific services
including preparation and negotiation of the commercial, financial and legal
aspects of contracts with suppliers. The Elektrim working team supervises
meetings with the contractors and the transfer of

                                       34
<PAGE>   35

payments on time and performs administrative functions such as arranging and
coordinating customs clearance and submitting, filing and processing claims
based on quality defects or quantity shortage.

     Civil Works Agreement.  On December 15, 1999 we entered into a two-year
agreement with Elektrim Volt, one of the companies included under the umbrella
of Elektrim's ownership. This agreement is to provide civil works labor in the
construction and development of our mobile network.

AGREEMENTS WITH MEDIAONE

     All agreements between us and MediaOne listed below were in place for past
operating periods and will either continue or will be transitioned to be
serviced by DeTeMobil in the future as a result of the March 23, 2000
acquisition of MediaOne by DeTeMobil.

     MediaOne Framework Agreement.  On December 13, 1996, we entered into a
Framework Agreement with MediaOne under which MediaOne agreed to provide us with
marketing and sales assistance. Once we requested services, there follows a
period during which we must accept or reject MediaOne's offer of service.
MediaOne may not use outside contractors and must perform the tasks itself
unless the parties agree otherwise. The term of the Framework Agreement is one
year and it is automatically renewable unless terminated in writing by either
party, three months prior to the end of the period.

     We compensate MediaOne for employees seconded from them to us and for
specific technical services in accordance with daily and monthly fee schedules.
To the extent we agree that MediaOne may engage third parties in the provision
of services, we bear the cost of third party services. In addition, we are
obligated to pay MediaOne for know-how relating to sales and marketing.

     Project Outline Agreement.  We entered into a Project Outline Agreement
with MediaOne on April 14, 1997 that sets forth the conditions of cooperation
between the parties with respect to the creation, development and delivery of
software and related services and expires on December 7, 2001. Pursuant to the
Project Outline Agreement, MediaOne granted us the exclusive right to use
software developed by MediaOne or its subcontractors upon request ("individual
software") as well as a non-exclusive license to use software otherwise
developed and owned by MediaOne or its subcontractors (the "standard software").
We agreed not to use the standard software to support the operation of third
party networks. MediaOne supports the use of individual and standard software
provided to us and our employees, including a training program consisting of
four courses, a support services help desk, software updates, and problem
resolution emergency numbers.

     Under the Project Outline Agreement, we acquired three major software
products from MediaOne, in addition to a database that together, form the core
of the Telecommunications Management Network System. The system provides access
to network information and enhances network management. In 1997 we paid MediaOne
an aggregate of US $2,110,000 in fixed fees for software licenses and for the
integration and delivery by MediaOne of the software it provides.

     Implementation Agreement.  On April 14, 1997, we reached an agreement with
MediaOne regarding the type of software to be supplied pursuant to the Project
Outline Agreement, the service and training obligations of MediaOne under the
Project Outline Agreement and the fees to be paid to MediaOne. Pursuant to the
Implementation Agreement, MediaOne provides us with computer platforms and
communications equipment to link several major operating software packages to
each other and to the Telecommunications Management Network System, a management
information base, as well as computer platforms and data communications
equipment which connects networks equipment acquired from suppliers.

     In addition to the services provided under the Framework Agreement and the
Project Outline Agreement, we acquired a targeted list of 800,000 potential
subscribers from MediaOne Polska S.A., a wholly-owned subsidiary of MediaOne,
which operated a telephone directory business in Poland.

     We incurred cost of PLN 14.8 million in aggregate for MediaOne seconded
employees, specific technical services and sales and marketing know-how for
1999.

                                       35
<PAGE>   36

SHAREHOLDERS AGREEMENT

     Our original shareholders with a 5% or greater ownership interest,
Elektrim, MediaOne, DeTeMobil, Polpager Sp. z o.o., Elektrim-Autoinvest S.A. and
Kulczyk Holding S.A. which together held 90.1% of our outstanding ordinary
shares, entered into a Shareholders Agreement dated December 21, 1995. The
Shareholders Agreement was amended on March 11, 1997 pursuant to which Elektrim,
DeTeMobil and MediaOne (together the "Operating Parties") control the
Supervisory Board and appoint the senior executive officers. Under the
Shareholders Agreement, certain actions require the unanimous approval of the
Operating Parties. See "-- Control by Operating Parties."

     Transfer Restrictions/Call Options.  The Shareholders Agreement prohibits
the holders of our shares from transferring any shares without the prior consent
of the Supervisory Board. This consent will be given in cases of transfer of the
entire interest of a party to another party if (i) the transferee assumes any
and all obligations of the transferor to us and the other shareholders; (ii) the
transfer is permitted under the terms of our GSM 900 License and all other
applicable laws; and (iii) no party can establish by clear evidence that the
transfer would result in a material commercial injury to us. Notwithstanding the
foregoing, Elektrim and Elektrim Autoinvest S.A. may transfer their shares to
one of the existing shareholders; provided that Elektrim retains at least a 26%
interest in the company. The Supervisory Board may establish procedures that
require the shareholder intending to transfer its shares, to first offer the
shares to the remaining shareholders. To date, the Supervisory Board has not
established any such procedures.

     Each shareholder who is party to the Shareholders Agreement (except Kulczyk
and Elektrim-Autoinvest) has granted the Operating Parties an option to purchase
its shares at an exercise price equal to the shareholder's proportionate share
of the net asset value of the company plus all capital contributions made after
the financial statement date for the last completed fiscal year. The option
becomes exercisable when either the shareholder admits in writing that it has
materially defaulted or an arbitration court declares the shareholder in
material default. A material default occurs, among other events, when the
shareholder (i) defaults in making a payment for new shares subscribed for in
writing; (ii) is in material default of any obligation under the Shareholders
Agreement; (iii) becomes subject to any liquidation or bankruptcy or settlement
or similar proceeding that remains unresolved for thirty days; (iv) files a
petition under bankruptcy or similar proceedings; or (v) admits in writing its
inability to pay debts when due.

     Control by Operating Parties.  Under the Shareholders Agreement, the
business is controlled by a Supervisory Board, which is authorized to assume the
responsibilities and powers of our shareholders meeting to the extent permitted
by Polish law, and managed by a Management Board.

     Certain actions by us require the unanimous consent of all the Operating
Parties. These include: (i) the acquisition of shares of or entry into
partnership with another entity; (ii) any extension of the business outside
Poland; (iii) a change in business purpose from providing 900 MHz GSM services
or surrender of the 900 MHz License; (iv) the adoption of the business plan,
dividend policy, share transfer restrictions, accounting principles and any
revisions to the overall strategy; (v) the disposal of assets in excess of PLN
500,000, incurring any debts or financing and granting any mortgage or lien over
assets, granting any loan to third parties in excess of an annual aggregate
amount of PLN 100,000 or to any individual in excess of PLN 10,000; (vi) any
change in the competence, voting and rules of procedure of the Supervisory Board
and the Management Board restructuring the management; and (vii) the entry into
any contract for more than one year or any amount in excess of PLN 500,000.

     Covenant Not to Compete.  Pursuant to the terms of the Shareholders
Agreement, our shareholders party thereto are prohibited from entering into any
GSM business (selling equipment and providing services) in Poland (including
businesses involving use of DCS 1800 and similar technology) but may provide
other telephony services in Poland. The shareholders are also prohibited from
assisting third party competitors, except in the ordinary course of business as
currently conducted.

     The shareholders party to the Shareholders Agreement may engage in a
competing business with the explicit approval of the Supervisory Board.

                                       36
<PAGE>   37

SHAREHOLDER LOANS

     On August 24, 1999, three operating shareholders extended loans to us on
substantially identical terms. The total amount of the loans was the Zloty
equivalent of $75 million, provided by our shareholders as follows: $39,843,750
from Elektrim S.A. and $17,578,125 from each of DeTeMobil and MediaOne. These
loans are subordinated to senior debt. Each loan bears interest at 12.5%
annually and must be repaid by June 19, 2006. The maturity of the loans may be
accelerated if: (i) we default on any payment due under them, (ii) amounts owed
by us under the Bank Credit Facility or in respect of the Notes are declared to
be immediately due and payable, or (iii) we are judicially declared to be or
admit to being insolvent. The terms of the Notes and the Indentures prohibit
payment of these loans unless such payment is permitted by the covenant under
the Notes. The shareholder loans remain with the same shareholders that extended
them to us, regardless the subsequent changes in our shareholder ownership.

                                    PART II

ITEM 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED

     None.

                                    PART III

ITEM 15.  DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 16.  CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES

     Not applicable.

                                    PART IV

ITEM 17.  FINANCIAL STATEMENTS

     Not applicable.

ITEM 18.  FINANCIAL STATEMENTS

     See pages F-1 through F-40

                                       37
<PAGE>   38

ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS

FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................  F-1
Consolidated statements of operations for the years ended
  December 31, 1999, 1998 and 1997..........................  F-2
Consolidated balance sheets at December 31, 1999 and 1998...  F-3
Consolidated statements of cash flows for the years ended
  December 31, 1999, 1998 and 1997..........................  F-4
Statements of changes in equity for the years ended December
  31, 1999. 1998 and 1997...................................  F-5
Notes to the consolidated financial statements..............  F-6
</TABLE>

EXHIBITS

10.1  Agreement with Elektrim Volt S.A. for civil works services, dated December
      15, 1999.

                                       38
<PAGE>   39

                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                          POLSKA TELEFONIA CYFROWA Sp. z o.o.
                                          (Registrant)

                                          By:    /s/  Boguslaw Kulakowski
                                            ------------------------------------
                                            Boguslaw Kulakowski, Director
                                              General

                                          By:      /s/  Wojciech Ploski
                                            ------------------------------------
                                            Wojciech Ploski, Director of
                                              Strategy,
                                            Marketing & Sales

March 21, 2000

                                       39
<PAGE>   40

                      POLSKA TELEFONIA CYFROWA SP. Z O.O.

                       CONSOLIDATED FINANCIAL STATEMENTS
                            TOGETHER WITH REPORT OF
                         INDEPENDENT PUBLIC ACCOUNTANTS
                              FOR THE YEARS ENDED
                    DECEMBER 31, 1999 AND DECEMBER 31, 1998

                                       40
<PAGE>   41

                                                                          [LOGO]

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Supervisory Board of
  Polska Telefonia Cyfrowa Sp. z o.o.

     We have audited the accompanying consolidated balance sheets of Polska
Telefonia Cyfrowa Sp. z o.o. (a Polish limited liability company) and its
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, consolidated statements of changes in equity and
consolidated statements of cash flows for each of the three years ended December
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards in the United States and International Standards on Auditing. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Polska
Telefonia Cyfrowa Sp. z o.o. and its subsidiaries, as at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years ended December 31, 1999 in accordance with Statements of
International Accounting Standards issued by the International Accounting
Standards Committee ("IAS").

     Accounting practices used by the Company in preparing the accompanying
financial statements conform with IAS but do not conform with accounting
principles generally accepted in the United States ("US GAAP"). A description of
these differences and a reconciliation of net income and shareholders' equity
from accounting principles generally accepted under IAS and US GAAP are set
forth in Note 28.

[SIG]
Warsaw, Poland
March 6, 2000

                                       F-1
<PAGE>   42

              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                              FOR THE YEARS ENDED
           DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
                             (IN THOUSANDS OF PLN)

<TABLE>
<CAPTION>
                                                           YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                          DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                  NOTES       1999           1998           1997
                                                  -----   ------------   ------------   ------------
<S>                                               <C>     <C>            <C>            <C>
NET SALES......................................     7       2,592,061      1,610,811        647,062
COST OF SALES..................................     8      (1,662,851)      (948,414)      (511,149)
                                                           ----------     ----------     ----------
GROSS MARGIN...................................               929,210        662,397        135,913
OPERATING EXPENSES.............................     8        (612,559)      (381,275)      (186,595)
                                                           ----------     ----------     ----------
OPERATING PROFIT/(LOSS)........................               316,651        281,122        (50,682)
NON-OPERATING ITEMS
Interest and other financial income............     9          58,042         21,398         35,651
Interest and other financial expenses..........    10        (456,305)      (187,197)      (109,652)
                                                           ----------     ----------     ----------
(LOSS)/INCOME BEFORE TAXATION..................               (81,612)       115,323       (124,683)
TAXATION (CHARGE)/BENEFIT......................    11         (40,891)      (109,807)         4,247
                                                           ----------     ----------     ----------
COMPREHENSIVE NET (LOSS)/INCOME................              (122,503)         5,516       (120,436)
                                                           ==========     ==========     ==========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-2
<PAGE>   43

              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                 AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
                             (IN THOUSANDS OF PLN)

<TABLE>
<CAPTION>
                                                                           AT              AT
                                                                      DECEMBER 31,    DECEMBER 31,
                                                             NOTES        1999            1998
                                                             -----    ------------    ------------
<S>                                                          <C>      <C>             <C>
CURRENT ASSETS
Cash and cash equivalents................................     25       1,095,509           5,695
Short-term investments...................................     12         198,468              --
Debtors and prepayments..................................     13         409,410         253,585
Accounts receivable from State Treasury..................     13          54,835          85,064
Inventory................................................     14         183,980          75,946
                                                                       ---------       ---------
                                                                       1,942,202         420,290
DEFERRED TAX ASSET, NET..................................     11              --           2,766
LONG-TERM ASSETS
Tangible fixed assets, net...............................     15       2,573,905       1,671,182
Intangible fixed assets, net.............................     16       1,050,775         629,404
Financial assets.........................................     12         301,829              --
Deferred cost............................................     17          85,253          30,759
                                                                       ---------       ---------
                                                                       4,011,762       2,331,345
                                                                       ---------       ---------
TOTAL ASSETS.............................................              5,953,964       2,754,401
                                                                       =========       =========
CURRENT LIABILITIES......................................     18       1,179,204         571,763
LONG-TERM INTEREST BEARING LIABILITIES...................     19       4,578,412       1,890,218
DEFERRED TAX LIABILITY, NET..............................     11          27,322              --
PROVISIONS FOR LIABILITIES AND CHARGES...................     20           1,220           2,111
                                                                       ---------       ---------
TOTAL LIABILITIES........................................              5,786,158       2,464,092
                                                                       ---------       ---------
SHAREHOLDERS' EQUITY
Share capital............................................     21         471,000         471,000
Accumulated deficit......................................               (303,194)       (180,691)
                                                                       ---------       ---------
                                                                         167,806         290,309
                                                                       ---------       ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...............              5,953,964       2,754,401
                                                                       =========       =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-3
<PAGE>   44

              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
                             (IN THOUSANDS OF PLN)

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
                                                                      (SEE NOTE 25)
<S>                                                    <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS)/INCOME BEFORE TAXATION..................        (81,612)        115,323       (124,683)
ADJUSTMENTS FOR:
Depreciation and amortization......................        281,697         158,291         76,372
Charge to provision for doubtful debtors...........        143,890          90,694         43,714
Charge to provision for inventory..................          4,410          (3,309)         5,009
Other provisions and special funds.................           (891)            835            655
Unrealized foreign exchange losses, net............        143,602          10,880         37,806
Loss on disposal of tangibles and intangibles......          8,146             983            216
Interest expense, net..............................        247,527         123,770         31,801
Other..............................................             --            (593)           614
                                                        ----------      ----------       --------
OPERATING CASH FLOWS BEFORE WORKING CAPITAL
  CHANGES..........................................        746,769         496,874         71,504
Increase in inventory..............................       (110,918)        (38,328)       (14,271)
Increase in debtors, prepayments and deferred
  cost.............................................       (266,196)       (219,943)      (173,612)
Increase in trade payables and accruals............        101,849          86,406         13,072
                                                        ----------      ----------       --------
CASH GENERATED FROM/(USED IN) OPERATIONS...........        471,504         325,009       (103,307)
Interest paid......................................       (103,220)        (47,526)       (10,118)
Income taxes paid..................................        (25,549)       (113,668)            --
                                                        ----------      ----------       --------
NET CASH GENERATED FROM/(USED IN) OPERATING
  ACTIVITIES.......................................        342,735         163,815       (113,425)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of intangible fixed assets...............       (346,019)        (52,855)       (18,677)
Purchases of tangible fixed assets.................       (985,298)       (966,649)      (176,272)
Purchases of short-term investments, net...........       (511,603)          5,084         22,934
Proceeds from sale of equipment and intangibles....          7,309             894          3,932
Interest received..................................          7,277           8,816         15,422
                                                        ----------      ----------       --------
NET CASH USED IN INVESTING ACTIVITIES..............     (1,828,334)     (1,004,710)      (152,661)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings.................        487,972         593,870             --
Proceeds from senior subordinated debt issuance,
  net..............................................      1,843,822              --        479,785
Proceeds from shareholders' loan...................        296,756              --             --
Net change in overdraft facility...................        (24,558)         24,558             --
                                                        ----------      ----------       --------
NET CASH GENERATED FROM FINANCING ACTIVITIES.......      2,603,992         618,428        479,785
NET INCREASE/(DECREASE) IN CASH AND CASH
  EQUIVALENTS......................................      1,118,393        (222,467)       213,699
EFFECT OF FOREIGN EXCHANGE CHANGES ON CASH AND CASH
  EQUIVALENTS......................................        (28,579)              6         11,913
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.....          5,695         228,156          2,544
                                                        ----------      ----------       --------
CASH AND CASH EQUIVALENTS AT END OF YEAR...........      1,095,509           5,695        228,156
                                                        ==========      ==========       ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-4
<PAGE>   45

               POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARY

                  CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
                              FOR THE YEARS ENDED
           DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
                             (IN THOUSANDS OF PLN)

<TABLE>
<CAPTION>
                                                                           CURRENCY
                                                      SHARE    RETAINED   TRANSLATION
                                                     CAPITAL   EARNINGS   ADJUSTMENT     TOTAL
                                                     -------   --------   -----------   --------
<S>                                                  <C>       <C>        <C>           <C>
BALANCE AT JANUARY 1, 1997 (RESTATED).............   471,000    (65,771)       --        405,229
Change in accounting policy with respect to
  implementation of IAS 12 (revised), see Note
  5a..............................................                7,111                    7,111
Change in accounting policy with respect to
  implementation of IAS 38, see Note 5b...........                4,486                    4,486
Currency translation adjustment...................        --         --         7              7
Comprehensive net loss for the year, as originally
  reported........................................        --   (132,033)       --       (132,033)
                                                     -------   --------       ---       --------
BALANCE AT DECEMBER 31, 1997 (RESTATED)...........   471,000   (186,207)        7        284,800
Change in accounting policy with respect to
  implementation of IAS 38, see Note 5b...........                4,047                    4,047
Currency translation adjustment...................        --         --        (7)            (7)
Comprehensive net profit for the year, as
  originally reported.............................        --      1,469        --          1,469
                                                     -------   --------       ---       --------
BALANCE AT DECEMBER 31, 1998 (RESTATED)...........   471,000   (180,691)       --        290,309
Comprehensive net loss for the year...............        --   (122,503)       --       (122,503)
                                                     -------   --------       ---       --------
BALANCE AT DECEMBER 31, 1999......................   471,000   (303,194)       --        167,806
                                                     =======   ========       ===       ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-5
<PAGE>   46

              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             (IN THOUSANDS OF PLN)

1.   INCORPORATION AND PRINCIPAL ACTIVITIES

     Polska Telefonia Cyfrowa Sp. z o.o. (the "Company") was incorporated under
Polish Law as a limited liability company based on a Notarial Act dated December
20, 1995. The Company is located in Warsaw, Al. Jerozolimskie 181 and was
registered in the Regional Court in Warsaw, XVI Commercial Department on
December 27, 1995.

     The principal activities of the Company are providing cellular telephone
communication services in accordance with the GSM 900 and 1800 licenses (see
Note 4b.) granted by the Minister of Telecommunications and the sale of cellular
telephones and accessories compatible with its cellular services.

     During 1996 the Company signed an interim interconnect agreement with
Telekomunikacja Polska S.A. ("TPSA") on a "bill and keep" basis. On May 22, 1997
the Ministry of Communications issued a decision with respect to new
interconnect arrangements between the Company and TPSA. The decision was binding
for both parties, however, certain terms, including the effective date, were
still to be agreed. The decision defined interconnect, international and
leased-lines settlements with TPSA.

     In the course of 1997, TPSA filed in the Supreme Administrative Court an
appeal against the above mentioned decision. In the appeal, it challenges the
entitlement of the Minister to issue the above decision on the basis that the
established interconnect rates are not fair.

     On December 9, 1998, the Company signed a framework agreement with TPSA
defining the terms of mutual interconnect arrangements. Notwithstanding the
interconnect frame agreement, TPSA appeal to the Supreme Administrative Court
has not been withdrawn.

     On February 1, 2000, the Company received a summons from the State
Telecommunications and Postal Inspection as a result of an inspection conducted
by the agency in January 2000 of the Company's Internet services. The summons
ordered the Company to cease providing international telephone service over the
Internet network. In response, the Company applied for reconsideration of the
case, and on February 10, 2000, the Company received a decision from the
Minister of Communications which rendered the summons invalid. It was determined
that the Company could continue to offer Internet access services for
subscribers who have data transmission service until May 2000, when it is
anticipated that a new regulation will be prepared by the Ministry of
Communications.

2.   PRINCIPLES OF CONSOLIDATION

A.   GROUP ENTITIES

     All intercompany balances and transactions are eliminated in consolidation.
The consolidated financial statements include the financial statements of Polska
Telefonia Cyfrowa Sp. z o.o. and its wholly owned subsidiaries, PTC
International Finance B.V. and PTC International Finance (Holding) B.V.

     On June 17, 1997, PTC International Finance B.V. was incorporated under the
laws of the Netherlands for the purpose of issuing long-term Notes ("10 3/4
Notes", see Note 19). The Company has acquired 40 fully-paid shares with a par
value of 1,000 Netherlands Guilders each, issued by PTC International Finance
B.V. PTC International Finance B.V. has no subsidiaries of its own.

     On November 5, 1999 PTC International Finance II S.A. was incorporated
under the laws of Luxembourg and on November 16, 1999, PTC International Finance
(Holding) B.V. was incorporated under the laws of the Netherlands for the
purpose of issuing long-term Notes ("11 1/4 Notes", see Note 19). The Company
has acquired 40 fully-paid shares with a par value of 1,000 Netherlands Guilders
each, issued by PTC International Finance (Holding) B.V. Additionally, the
Company has acquired 125 fully-paid shares with a par value of 1,000 Euro each
issued by PTC International Finance II S.A. and contributed all of its shares
except one, (owned by the

                                       F-6
<PAGE>   47
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company, but held locally, due to legal requirements) to PTC International
Finance (Holding) B.V. in exchange for 1 additional share of PTC International
Finance (Holding) B.V. Thus, PTC International Finance II S.A. became a fully
owned subsidiary of PTC International Finance (Holding) B.V. PTC International
Finance II S.A. has no subsidiaries of its own.

B.   REPORTING CURRENCY

     The Company primarily generates and expends cash through its operating
activities in Polish zloty ("PLN"). Additionally, all of the receivables and the
large part of its short-term liabilities are PLN denominated. Therefore,
Management has designated the PLN as the reporting (functional) currency of the
Company.

     The accompanying consolidated financial statements are reported in
thousands of PLN.

3.   ACCOUNTING STANDARDS

     The Company maintains its books of account in accordance with accounting
principles and practices employed by enterprises in Poland as required by Polish
accounting regulations. The accompanying financial statements reflect certain
adjustments not reflected in the Company's statutory books to present these
statements in accordance with standards issued by the International Accounting
Standards Committee. These adjustments and their effect on earnings for years
ended December 31, 1999, December 31, 1998 and December 31, 1997 are shown in
Note 27 to these Financial Statements.

     The differences between International Accounting Standards ("IAS") and
generally accepted accounting principles in the United States ("U.S. GAAP") and
their effect on net results for the years ended December 31, 1999, December 31,
1998 and December 31, 1997 have been presented in Note 28 to these Financial
Statements.

     The IAS rules that were mandatory as of 31 December 1999 were applied to
these financial statements. In addition, each of the following new standards
have been adopted early and applied throughout all of the years presented
herein:

<TABLE>
<CAPTION>

<S>         <C>
            (revised 1998) "Property, Plant and Equipment",
IAS
  16..
            (revised 1998) "Business Combinations",
IAS
  22..
            "Impairment of Assets",
IAS
  36..
            "Provisions, Contingent Liabilities and Contingent Assets",
IAS
  37..
            "Intangible Assets".
IAS
  38..
</TABLE>

     The effect of the adoption of the new standards is discussed in Note 5.

     In Management's opinion, the financial statements for the years ended
December 31, 1999, 1998 and 1997 include all adjustments necessary for a fair
statement of the results for the period. All such adjustments are of normal,
recurring nature.

4.   PRINCIPAL ACCOUNTING POLICIES

A.   TANGIBLE FIXED ASSETS

     Tangible fixed assets are shown at historical cost less accumulated
depreciation.

                                       F-7
<PAGE>   48
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Depreciation is calculated using the straight-line method over the
estimated useful life of the asset. The following depreciation rates have been
applied:

<TABLE>
<CAPTION>
                                                             ANNUAL RATE           ESTIMATED
                                                                 IN %        USEFUL LIVES IN YEARS
                                                             ------------    ---------------------
<S>                                                          <C>             <C>
Leasehold improvements.....................................                       Lease term
Buildings..................................................      2.5%              40
Plant and equipment........................................  4.0 -- 30.0%          3.3 -- 25
Motor vehicles.............................................       12.5 --          3.3 --  8
                                                                    30.0%
Other......................................................       10.0 --            5 -- 10
                                                                    20.0%
</TABLE>

B.   INTANGIBLE FIXED ASSETS

License

     The Company has acquired from the Polish State, represented by the Ministry
of Communications, a license to provide telecommunication services according to
ETSI/GSM standard in the 900 MHz band, including a permit to install and utilize
telecommunication equipment and network, and allocation of frequencies in the
ETSI/ GSM 1800 MHz band ("the GSM 900 license").

     The GSM 900 license was acquired on February 23, 1996 and has been valued
at the present value of the payments due to the State. For the period of
development of the GSM 900 system, the cost of interest and foreign exchange
losses were capitalized in the cost of the asset. This development period
terminated during the third quarter of 1997. The GSM 900 license is amortized
over the period of its validity, i.e. 15 years from the date of acquisition on a
straight-line basis.

     On August 11, 1999 the Ministry of Communications granted the Company a
license to provide telecommunication services according to ETSI/GSM standard in
the 1800 MHz band, including a permit to install and utilize telecommunication
equipment and network, and allocation of frequencies in the ETSI/GSM 1800 MHz
band ("the GSM 1800 license"). The GSM 1800 license is valid for 15 years from
the date of acquisition, though it allows starting operations of relevant
services from March 1, 2000.

     The GSM 1800 license has been valued at the present value of the payments
due plus the cost of interest and foreign exchange losses capitalized during the
development period. The development period terminates together with the start of
operational validity of the GSM 1800 license. The GSM 1800 license will be
amortized over the period of its operational validity, i.e. 14.5 years.

     The above-described GSM 900 license and the GSM 1800 license are not
transferable assets.

Other intangible fixed assets

     Other intangible assets are stated at cost less accumulated amortization.
Amortization is calculated using the straight-line method over the estimated
useful life of the asset. The following amortization rates have been applied:

<TABLE>
<CAPTION>
                                                                ANNUAL RATE
                                                                    IN %
                                                                ------------
<S>                                                             <C>
Computer software...........................................      10.0 --
                                                                   50.0%
Trademarks..................................................        6.7%
</TABLE>

                                       F-8
<PAGE>   49
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

C.   DEBTORS

     Amounts due from debtors are shown net of provisions for doubtful accounts.
The provisions are based on specific amounts due where realization is unlikely
and on a general basis, calculated using historic collection experience.

D.   INVENTORIES

     Inventories are stated at the lower of cost and net realizable value. Cost
is determined principally under the average method. Provisions are set for
obsolete, slow moving and damaged inventory and are deducted from the related
inventory balances.

E.   SPECIAL FUNDS

     Special funds consist primarily of the social fund.  The social fund is an
employer's obligation based on a government mandated calculation based on number
of employees and the monthly minimum wage in Poland. The amounts calculated
under this formula must be used for the benefits of the employees.

F.   FOREIGN CURRENCY

     Transactions denominated in foreign currencies are recorded in the local
currency (the Polish zloty) at actual exchange rates prevailing at the date of
the transaction. Monetary assets and liabilities denominated in foreign
currencies are reported at the rates of exchange prevailing at the end of the
period. Any gain or loss arising from a change in exchange rates subsequent to
the date of the transaction is recorded in the statement of operations as a
foreign exchange gain or loss and included in non-operating items in the
statement of operations, unless capitalized as discussed in point (b) above
(license) and (l) below (borrowing costs).

G.   VACATION PAY

     Vacation pay is accrued when earned by employees.

H.  TAXATION

     The income tax charge is based on profit for the period and takes into
account deferred taxation. Deferred taxation is calculated using the liability
method. Under the liability method the expected tax effects of temporary
differences are determined using enacted tax rates and reported either as
liabilities for taxes payable or assets representing the amounts of income taxes
recoverable in future periods in respect of deductible temporary differences and
the carryforward of unused losses. Temporary differences are the differences
between the carrying amount of an asset or liability in the balance sheet and
its taxable base.

     Deferred tax assets are recognized for all deductible temporary differences
to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences can be utilized.

I.   NET SALES

     Net sales consist of the value of sales (excluding value added tax) of
goods and services in the normal course of business but excludes extraordinary
disposals of inventory and other assets.

     Revenue is recognized when services are provided or goods are shipped out.
Sales allowances are accounted in the same period when the related portion of
revenue is recognized.

                                       F-9
<PAGE>   50
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

J.   FAIR VALUE OF FINANCIAL INSTRUMENTS

     The fair value of the Company's financial instruments approximates the
reported carrying amounts because of their short-term nature and/or floating
market interest rates, except for long-term Notes and GSM license liability, as
disclosed in Note 19.

K.   USE OF ESTIMATES

     Preparation of financial statements requires Management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

L.   CAPITALIZATION OF BORROWING COSTS

     Borrowing costs (including interest, foreign exchange gains and losses and
the discount relating to the present value of license payments) that are
attributable to the acquisition, construction or production of qualifying assets
is capitalized as part of the cost of those assets. The borrowing costs
capitalized are only those incurred during the period of construction or
production of assets.

M.  ADVERTISING EXPENSE

     The Company charges the cost of advertising to expense as incurred.

N.  CONCENTRATION OF CREDIT RISK

     The Company operates in one industry segment, providing cellular telephone
communication services. Substantially all of the Company's trade debtors are
Polish businesses and individuals. Further, the Company has established a
network of dealers within Poland to distribute its products. The dealers share
many economic characteristics and receivables from each of these dealers present
similar risk to the Company. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base. Ongoing credit evaluations of customers' financial
condition are performed and generally, no collateral is required. The Company
maintains provisions for potential credit losses and such losses, in the
aggregate, have not exceeded management's estimates. No single customer accounts
for 10% or more of revenues.

     The balance of receivables as at December 31, 1999 representing the total
net credit risk exposure at date is presented in Note 13.

5.   CHANGES IN ACCOUNTING POLICIES

A.   DEFERRED TAXES

     Effective January 1, 1998 the Company has adopted IAS 12 (revised) "Income
Taxes" in accounting for its income taxes. The resulting change in accounting
policy was applied retrospectively, resulting in a positive adjustment to the
opening balance of retained losses of PLN 23,637 as at January 1, 1997. The
resulting adjustment to the opening balance of retained loss as at January 1,
1998 resulted in a decrease by PLN 30,748. Additionally, the net loss reported
for the year ended December 31, 1997 was decreased by PLN 7,111.

B.   DEVELOPMENT AND START-UP COSTS CAPITALIZED

     In the fourth quarter of 1999, the Company has adopted IAS 38 "Intangible
Assets" in accounting for its intangible assets. The resulting change in
accounting policy regarding development and start-up costs was applied
retrospectively, resulting in a negative adjustment to the opening balance of
retained losses of PLN 15,063 as at
                                      F-10
<PAGE>   51
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

January 1, 1997. The resulting adjustment to the opening balance of retained
loss as at January 1, 1999 resulted in an increase by PLN 6,530. Additionally,
the net loss reported for the year ended December 31, 1999 was decreased by
PLN 2,367.

6.   FOREIGN CURRENCY MANAGEMENT POLICIES

     Sales revenues are denominated in Polish Zloty. A significant portion of
expenses and liabilities, however, are denominated in other currencies. These
include liabilities to the Polish government for the GSM 900 license and GSM
1800 license, which are linked to Euro and payable in Polish zloty, and
liabilities to suppliers of network capital equipment and handsets, which are
generally denominated in Deutschmarks, French Francs or U.S. dollars.
Additionally, the 10 3/4 Notes, 11 1/4 Notes and shareholder loans are
denominated in U.S. dollars or Euros, and a significant portion of the Bank
Credit Facility is denominated in Deutschmarks. As a result, operating income
and cash flows are and will remain significantly exposed to an appreciation in
these non-Polish currencies against the Polish zloty.

     Future currency exchange fluctuations are expected to continue to have a
significant effect on the financial condition and results of operations. The
Company intends to enter into both short and long-term transactions to hedge the
risk of exchange rate fluctuations, to the extent hedging arrangements on
commercially satisfactory terms are obtainable. There is no assurance that the
Company will be able to obtain hedging arrangements on commercially satisfactory
terms. At the end of 1999, the Company had no open hedging transactions,
although, the Company's hedging policy allows for the use of forwards, swaps and
options for minimizing currency and interest rate risks. As an alternative, the
Company may attempt to structure foreign currency liabilities to be broadly in
line with the currency basket employed by the National Bank of Poland. This
technique will not eliminate foreign exchange losses; however, the Company
believes the technique may improve the management of the magnitude of these
losses. Starting in late 1998 and continuing through the current year, the
Company drew funds mainly from the bank credit facility and exhausted the Polish
zloty denominated tranche first in order to minimize the negative effects of
currency exchange fluctuations.

7.   NET SALES

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Service revenues and fees..........................     2,369,444       1,445,340         534,439
Sales of telephones and accessories................       222,617         165,471         112,623
                                                        ---------       ---------       ---------
                                                        2,592,061       1,610,811         647,062
                                                        =========       =========       =========
</TABLE>

     The Company operates in one segment (providing cellular telecommunication
services and the ancillary sale of cellular telephones and accessories) and in
one market (the Republic of Poland).

                                      F-11
<PAGE>   52
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.   COSTS AND EXPENSES

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Cost of sales:
  Cost of services sold............................       939,037         613,898         330,112
  Cost of sales of telephones and accessories......       723,814         334,516         181,037
                                                        ---------       ---------       ---------
                                                        1,662,851         948,414         511,149
Operating expenses:
  Selling and distribution costs...................       454,807         277,123         139,685
  Administration and other operating cost..........       157,752         104,152          46,910
                                                        ---------       ---------       ---------
                                                          612,559         381,275         186,595
                                                        ---------       ---------       ---------
                                                        2,275,410       1,329,689         697,744
                                                        =========       =========       =========
</TABLE>

     The following costs and expenses were included in cost of sales:

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Merchandise sold...................................       719,404        334,516         176,028
Depreciation and amortization......................       257,071        141,078          69,501
Other external services............................       169,463        127,091          62,356
Commissions........................................       151,578         89,710          77,653
Interconnect.......................................       131,558         77,490          32,413
Leased lines.......................................        98,714         92,869          49,696
Roaming............................................        78,861         44,137          16,273
Wages and salaries.................................        27,489         13,314           7,386
Materials and energy...............................        11,168         10,911           6,429
Social security and other benefits.................         9,228         11,194           4,578
Taxes and other charges............................         5,152          2,493           1,986
Charge to inventory provision......................         4,410         (3,309)          5,009
Other..............................................        (1,245)         6,920           1,841
                                                        ---------        -------         -------
                                                        1,662,851        948,414         511,149
                                                        =========        =======         =======
</TABLE>

                                      F-12
<PAGE>   53
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following costs and expenses were included in selling and distribution
costs:

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Advertising costs..................................      159,623          98,223          41,655
Charge to doubtful debtors provision...............      143,890          90,694          43,714
Wages and salaries.................................       70,386          25,851          16,129
External services..................................       33,773          27,271          17,773
Social security and other benefits.................       18,487          18,554           8,150
Depreciation and amortization......................        9,563           6,005           4,434
Materials and energy...............................        8,918           4,542           4,464
Taxes and other charges............................        6,816           3,628           1,201
Other..............................................        3,351           2,355           2,165
                                                         -------         -------         -------
                                                         454,807         277,123         139,685
                                                         =======         =======         =======
</TABLE>

     The following costs and expenses were included in administration costs:

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
External services..................................       77,623          52,703          21,577
Wages and salaries.................................       41,968          20,496          10,407
Depreciation and amortization......................       15,063          11,208           2,437
Social security and other benefits.................       10,068          11,928           5,869
Materials and energy...............................        6,240           6,259             948
Taxes and other charges............................          708           5,158           2,715
Other..............................................        6,082          (3,600)          2,957
                                                         -------         -------         -------
                                                         157,752         104,152          46,910
                                                         =======         =======         =======
</TABLE>

9.   INTEREST AND OTHER FINANCIAL INCOME

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Foreign exchange gains.............................       45,414          12,816          19,996
Interest income....................................       12,628           8,582          15,655
                                                         -------         -------         -------
                                                          58,042          21,398          35,651
                                                         =======         =======         =======
</TABLE>

10. INTEREST AND OTHER FINANCIAL EXPENSES

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Interest expense...................................      260,155         132,353          47,456
Foreign exchange losses............................      196,150          54,844          62,196
                                                         -------         -------         -------
                                                         456,305         187,197         109,652
                                                         =======         =======         =======
</TABLE>

                                      F-13
<PAGE>   54
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. TAXATION

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Polish current tax charge..........................      (10,555)         (76,223)           --
Polish net deferred tax (charge)/benefit...........      (30,088)         (33,197)        4,361
Foreign current tax charge.........................         (248)            (387)         (114)
                                                         -------         --------         -----
Tax (charge)/benefit...............................      (40,891)        (109,807)        4,247
                                                         =======         ========         =====
</TABLE>

     Tax losses for the period from December 27, 1995 to December 31, 1996 could
have been offset with future taxable income in three equal installments during
the three years following the loss. The 1996 tax losses were utilized as
follows: PLN 58,006 in 1997, PLN 122,550 in 1998 and PLN 87,112 in 1999. The
unused portion of a tax loss installment expired. There are no other tax losses
carry forward available for future periods.

     According to the Polish tax regulations, the tax rates in effect in 1999,
1998 and 1997 were 34%, 36% and 38%, respectively. The tax rates set for years
2000, 2001, 2002, 2003 and 2004 and thereafter are as follows 30%, 28%, 28%, 24%
and 22%, respectively.

     The numerical reconciliation between tax benefit/(charge) and the product
of accounting profit/(loss) multiplied by the applicable tax rates is as
follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Profit/(loss) before taxation......................      (81,612)         115,323        (124,683)
Tax rate...........................................           34%              36%             38%
                                                         -------         --------        --------
Tax benefit/(charge) using statutory rate..........       27,748          (41,517)         47,379
  Permanent differences............................       (5,643)          (5,478)         (3,627)
  Change in temporary differences for which
     realization is not probable and temporary
     differences written off.......................      (62,053)         (44,461)        (31,651)
  Effect of different tax rate in foreign entity...          559              (59)            (10)
  Change in tax rates..............................       14,364           (2,890)         (2,833)
  Loss carry forward expired.......................      (12,049)              --          (5,011)
  Refiling of 1998 tax return......................      (10,555)              --              --
  Adjustments to deferred taxes....................        6,738          (15,402)             --
                                                         -------         --------        --------
Tax (charge)/benefit...............................      (40,891)        (109,807)          4,247
                                                         =======         ========        ========
</TABLE>

                                      F-14
<PAGE>   55
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Deferred tax assets in Poland:
  Bad debt provision........................................         71,807             44,375
  Unrealized foreign exchange loss, net.....................         37,623             13,562
  Accrued interest..........................................         26,029             10,942
  Book versus tax basis of fixed assets.....................         21,631             14,499
  Accrued expenses..........................................          9,457              4,608
  Inventory provision.......................................          2,293              1,285
  Development costs.........................................          1,719              2,938
  Accrued advertising.......................................          1,638                 --
  Tax losses carry forward..................................             --             41,667
                                                                   --------            -------
                                                                    172,197            133,876
Temporary differences for which realization is not probable
  ("valuation allowance")...................................        (97,037)           (67,158)
                                                                   --------            -------
                                                                     75,160             66,718
Deferred tax liabilities in Poland:
  Book versus tax basis of GSM licenses.....................       (102,482)           (63,234)
  Book versus tax basis of fixed assets.....................             --               (718)
                                                                   --------            -------
                                                                   (102,482)           (63,952)
                                                                   --------            -------
Net deferred tax asset/(liability)..........................        (27,322)             2,766
                                                                   ========            =======
</TABLE>

     The increase in valuation allowance results primarily from the increase of
unrealized foreign exchange losses on long-term Notes and bad debt provision for
which tax deductibility is yet uncertain.

12. SHORT-TERM INVESTMENTS

     Short-term investments at December 31, 1999 consisted of the current
portion of US Treasury Bills and Deutsche Treasury Bills, recorded at cost plus
accrued interest which approximate their market value. These Treasury Bills are
part of an escrow fund established to secure payment of interest during the
first two and a half years on 11 1/4 Notes issued by PTC International Finance
II S.A. in 1999. The long-term portion (PLN 301,829 as of December 31, 1999) of
the escrow fund is presented in the balance sheet under financial assets
caption.

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Short-term investments......................................        198,468                 --
</TABLE>

     All of the above funds are restricted to cover payments of the above
mentioned interest coupons.

                                      F-15
<PAGE>   56
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. DEBTORS AND PREPAYMENTS

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Trade debtors and accrued income............................        505,043            356,675
Corporate Income Tax and other taxes recoverable from State
  Treasury..................................................         54,835             85,064
Prepaid expenses............................................         27,862              9,480
Accounts receivable from shareholders.......................            194              3,332
Other debtors...............................................         43,145              1,925
                                                                   --------           --------
                                                                    631,079            456,476
Provision for doubtful debtors..............................       (166,834)          (117,827)
                                                                   --------           --------
                                                                    464,245            338,649
                                                                   ========           ========
</TABLE>

14. INVENTORY

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Telephones..................................................        135,362            50,462
Accessories and other.......................................         56,808            29,264
                                                                    -------            ------
                                                                    192,170            79,726
Inventory provision.........................................         (8,190)           (3,780)
                                                                    -------            ------
                                                                    183,980            75,946
                                                                    =======            ======
</TABLE>

15. TANGIBLE FIXED ASSETS, NET

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Land and buildings..........................................         195,771             79,954
Plant and equipment.........................................       1,954,057            844,729
Motor vehicles..............................................          12,061              8,254
Other fixed assets..........................................         208,389             35,678
Construction in progress....................................         203,627            702,567
                                                                   ---------          ---------
                                                                   2,573,905          1,671,182
                                                                   =========          =========
</TABLE>

     For tangible fixed assets under construction, the Company capitalizes
interest and foreign exchange gains/losses incurred and directly attributable to
the acquisition and construction of the qualifying assets. The financing costs
are capitalized only during the period of construction of the qualifying assets.
During the year ended December 31, 1999, the Company capitalized PLN 14,808 of
net foreign exchange losses and no interest expense. For the year ended December
31, 1998, PLN 22,765 of foreign exchange losses and PLN 4,074 of interest
expense was capitalized and for the year ended December 31, 1997, PLN 9,346 of
foreign exchange losses and PLN 1,234 of interest expense was capitalized.

                                      F-16
<PAGE>   57
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The movement in each year was as follows:

<TABLE>
<CAPTION>
                                         LAND AND     PLANT AND     MOTOR      OTHER FIXED    CONSTRUCTION
                                         BUILDINGS    EQUIPMENT    VEHICLES      ASSETS       IN PROGRESS       TOTAL
                                         ---------    ---------    --------    -----------    ------------    ---------
<S>                                      <C>          <C>          <C>         <C>            <C>             <C>
COST
At January 1, 1997...................          --       30,443       6,612         3,130          116,764       156,949
Additions............................          77           --       4,427           942          631,157       636,603
Transfers............................          --      205,974          --        13,287         (219,261)           --
Disposals............................          --       (4,774)       (138)          (35)              --        (4,947)
                                          -------     ---------     ------       -------       ----------     ---------
At December 31, 1997.................          77      231,643      10,901        17,324          528,660       788,605
                                          -------     ---------     ------       -------       ----------     ---------
DEPRECIATION
At January 1, 1997...................          --          252         449         1,336               --         2,037
Charge...............................          --       20,111       2,587         3,884               --        26,582
Disposals............................          --         (741)        (23)          (35)              --          (799)
                                          -------     ---------     ------       -------       ----------     ---------
At December 31, 1997.................          --       19,622       3,013         5,185               --        27,820
                                          -------     ---------     ------       -------       ----------     ---------
NET BOOK VALUE AT DECEMBER 31,
  1997...............................          77      212,021       7,888        12,139          528,660       760,785
                                          =======     =========     ======       =======       ==========     =========
COST
At January 1, 1998...................          77      231,643      10,901        17,324          528,660       788,605
Additions............................      80,691       11,377       4,453         2,847          914,276     1,013,644
Transfers............................          --      709,360          --        31,469         (740,369)          460
Disposals............................          --         (385)       (439)       (3,110)              --        (3,934)
                                          -------     ---------     ------       -------       ----------     ---------
At December 31, 1998.................      80,768      951,995      14,915        48,530          702,567     1,798,775
                                          -------     ---------     ------       -------       ----------     ---------
DEPRECIATION
At January 1, 1998...................          --       19,622       3,013         5,185               --        27,820
Charge...............................         814       87,741       3,819         9,456               --       101,830
Disposals............................          --          (97)       (171)       (1,789)              --        (2,057)
                                          -------     ---------     ------       -------       ----------     ---------
At December 31, 1998.................         814      107,266       6,661        12,852               --       127,593
                                          -------     ---------     ------       -------       ----------     ---------
NET BOOK VALUE AT DECEMBER 31,
  1998...............................      79,954      844,729       8,254        35,678          702,567     1,671,182
                                          =======     =========     ======       =======       ==========     =========
COST
At January 1, 1999...................      80,768      951,995      14,915        48,530          702,567     1,798,775
Additions............................     119,169           --          --         4,164        1,023,527     1,146,860
Transfers............................          --     1,287,060      9,317       182,419       (1,503,373)      (24,577)
Disposals............................          --       (1,273)       (794)       (2,923)         (19,094)      (24,084)
                                          -------     ---------     ------       -------       ----------     ---------
At December 31, 1999.................     199,937     2,237,782     23,438       232,190          203,627     2,896,974
                                          -------     ---------     ------       -------       ----------     ---------
DEPRECIATION
At January 1, 1999...................         814      107,266       6,661        12,852               --       127,593
Charge...............................       3,352      189,142       5,158        13,678               --       211,330
Transfers............................          --      (12,190)         --             4               --       (12,186)
Disposals............................          --         (493)       (442)       (2,733)              --        (3,668)
                                          -------     ---------     ------       -------       ----------     ---------
At December 31, 1999.................       4,166      283,725      11,377        23,801               --       323,069
                                          -------     ---------     ------       -------       ----------     ---------
NET BOOK VALUE AT DECEMBER 31,
  1999...............................     195,771     1,954,057     12,061       208,389          203,627     2,573,905
                                          =======     =========     ======       =======       ==========     =========
</TABLE>

     Tangible fixed assets held under capital leases (included in above
schedule):

<TABLE>
<CAPTION>
                                             AT DECEMBER 31, 1999           AT DECEMBER 31, 1998
                                          ---------------------------    ---------------------------
                                          LAND     BUILDINGS    OTHER    LAND     BUILDINGS    OTHER
                                          -----    ---------    -----    -----    ---------    -----
<S>                                       <C>      <C>          <C>      <C>      <C>          <C>
Cost..................................    6,293     193,177      990     2,383     78,114       --
Accumulated depreciation..............       --      (4,166)     (41)       --       (814)      --
                                          -----     -------      ---     -----     ------        --
Net...................................    6,293     189,011      949     2,383     77,300       --
                                          =====     =======      ===     =====     ======        ==
</TABLE>

                                      F-17
<PAGE>   58
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. INTANGIBLE FIXED ASSETS, NET

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
GSM licenses................................................         953,226           593,066
Computer software...........................................          97,388            36,164
Trademark...................................................             161               174
                                                                   ---------           -------
                                                                   1,050,775           629,404
                                                                   =========           =======
</TABLE>

     During the year ended December 31, 1999 the Company capitalized PLN 3,416
of foreign exchange losses and 15,569 of interest expense on intangible fixed
assets. No financial expenses were capitalized in intangible assets during the
year ended December 31, 1998 and for the year ended December 31, 1997 PLN 17,948
of interest expense was capitalized.

                                      F-18
<PAGE>   59
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The movement in each year was as follows:

<TABLE>
<CAPTION>
                                                          GSM      COMPUTER    TRADE
                                                       LICENSES    SOFTWARE    MARK      TOTAL
                                                       ---------   ---------   -----   ---------
<S>                                                    <C>         <C>         <C>     <C>
COST
At January 1, 1997..................................     662,093       7,750    206      670,049
Additions...........................................      38,471      12,881     --       51,352
Transfers...........................................          --          --     --           --
                                                       ---------   ---------    ---    ---------
At December 31, 1997................................     700,564      20,631    206      721,401
                                                       ---------   ---------    ---    ---------
AMORTIZATION
At January 1, 1997..................................      11,398         417      5       11,820
Charge..............................................      47,312       2,464     14       49,790
Transfers...........................................          --          --     --           --
                                                       ---------   ---------    ---    ---------
At December 31, 1997................................      58,710       2,881     19       61,610
                                                       ---------   ---------    ---    ---------
NET BOOK VALUE AT DECEMBER 31, 1997.................     641,854      17,750    187      659,791
                                                       =========   =========    ===    =========
COST
At January 1, 1998..................................     700,564      20,631    206      721,401
Additions...........................................          --      26,534     --       26,534
Transfers...........................................          --        (474)    --         (474)
                                                       ---------   ---------    ---    ---------
At December 31, 1998................................     700,564      46,691    206      747,461
                                                       ---------   ---------    ---    ---------
AMORTIZATION
At January 1, 1998..................................      58,710       2,881     19       61,610
Charge..............................................      48,788       7,660     13       56,461
Transfers...........................................          --         (14)    --          (14)
                                                       ---------   ---------    ---    ---------
At December 31, 1998................................     107,498      10,527     32      118,057
                                                       ---------   ---------    ---    ---------
NET BOOK VALUE AT DECEMBER 31, 1998.................     593,066      36,164    174      629,404
                                                       =========   =========    ===    =========
COST
At January 1, 1999..................................     700,564      46,691    206      747,461
Additions...........................................     408,905      82,833     --      491,738
Transfers...........................................          --          --     --           --
                                                       ---------   ---------    ---    ---------
At December 31, 1999................................   1,109,469     129,524    206    1,239,199
                                                       ---------   ---------    ---    ---------
AMORTIZATION
At January 1, 1999..................................     107,498      10,527     32      118,057
Charge..............................................      48,745      21,609     13       70,367
Transfers...........................................          --          --     --           --
                                                       ---------   ---------    ---    ---------
At December 31, 1999................................     156,243      32,136     45      188,424
                                                       ---------   ---------    ---    ---------
NET BOOK VALUE AT DECEMBER 31, 1999.................     953,226      97,388    161    1,050,775
                                                       =========   =========    ===    =========
</TABLE>

                                      F-19
<PAGE>   60
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. DEFERRED COSTS

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Notes issuance cost.........................................        69,897             15,941
Senior debt issuance cost...................................        12,493             14,818
Other.......................................................         2,863                 --
                                                                    ------             ------
                                                                    85,253             30,759
                                                                    ======             ======
</TABLE>

     As explained in Note 19, the Company obtained long-term financing by
issuing 10 3/4 Notes, in July 1997, and 11 1/4 Notes in November, 1999 and
through Citibank loan facility ("Senior debt"), signed in December 1997. These
debt issuance costs have been deferred and are amortized over the period of
financing (10 years for 10 3/4 Notes and 11 1/4 Notes, 8 years for Senior debt).

18. CURRENT LIABILITIES

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Construction payables.......................................         373,528            225,176
Trade creditors.............................................         329,985            122,398
GSM 900 and GSM 1800 licenses liabilities...................         206,666             63,419
Accruals....................................................         154,605             66,385
Deferred income.............................................          48,998             32,602
Amounts due to State Treasury...............................          27,790             14,829
Overdraft facility..........................................              --             24,558
Finance leases payable......................................          28,080              9,978
Accounts payable to shareholders............................           6,201             11,939
Payroll.....................................................           3,351                479
                                                                   ---------          ---------
                                                                   1,179,204            571,763
                                                                   =========          =========
</TABLE>

     In May 1998, the Company entered into a short-term renewable overdraft
agreement with Bank Rozwoju Eksportu S.A. The terms provided for maximum
borrowings of PLN 30,000 thousand and interest based on monthly WIBOR plus 0.5%
p.a. (19.96% as of December 31, 1999). No borrowings were outstanding as of
December 31, 1999 and balance as of December 31, 1998 was PLN 4,430.
Additionally, in December 1998, the Company signed a one-year overdraft facility
with Citibank. The terms provided for maximum borrowings of DEM 15,000 thousand
(balance as of December 31, 1998 PLN 20,128) and interest based on monthly WIBOR
plus 0.5% (17.88% as of December 31, 1998).

                                      F-20
<PAGE>   61
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. LONG-TERM INTEREST-BEARING LIABILITIES

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Loan facility...............................................       1,076,566            596,830
Long-term Notes.............................................       2,654,021            614,993
Construction payables.......................................              --            278,247
GSM 900 and GSM 1800 license liability......................         332,491            331,124
Finance leases payable......................................         190,259             69,024
Shareholders loan...........................................         325,075                 --
                                                                   ---------          ---------
                                                                   4,578,412          1,890,218
                                                                   =========          =========
</TABLE>

     On July 1, 1997, PTC International Finance B.V., a wholly owned subsidiary
of the Company, issued 10 3/4% Senior Subordinated Guaranteed Discount Notes
("10 3/4% Notes"). The 10 3/4 Notes are unsecured, subordinated obligations of
PTC International Finance B.V. and are limited to an aggregate principal amount
at maturity of approximately USD 253 million (PLN 1,050 million as of December
31, 1999). The 10 3/4 Notes are issued at a discount to their principal amount
at maturity to generate gross proceeds of approximately USD 150 million (PLN
493 million at historical exchange rate). The 10 3/4 Notes will mature on July
1, 2007. Cash interest does not accrue on the 10 3/4 Notes prior to July 1,
2002. The obligations of PTC International Finance B.V. under the 10 3/4 Notes
are fully and unconditionally guaranteed by the Company on a senior subordinated
and unsecured basis pursuant to the Company Guarantee. The net proceeds from the
10 3/4 Notes are loaned to the Company.

     The 10 3/4 Notes are traded publicly in the United States and their market
value as of December 31, 1999 was 67% of the nominal value (USD 170 million or
PLN 704 million) whilst the carrying amount is PLN 808 million.

     On November 23, 1999, PTC International Finance II S.A., a wholly owned
subsidiary of PTC International Finance (Holding) B.V. that is wholly owned by
the Company, issued 11 1/4% Senior Subordinated Guaranteed Discount Notes
("11 1/4 Notes"). The 11 1/4 Notes are unsecured, subordinated obligations of
PTC International Finance II S.A. and are limited to an aggregate principal
amount at maturity of Euro 300 million and USD 150 million (PLN 1,873 million as
of December 31, 1999) The 11 1/4 Notes were issued at a discount to their
principal amount at maturity to generate gross proceeds of approximately Euro
296 million and USD 148 million (PLN 1,897 million at historical exchange rate).
The 11 1/4 Notes will mature on December 1, 2009. Cash interest accrues on the
11 1/4 Notes and is payable semi-annually, on each June 1 and December 1,
beginning in year 2000.

     Payment of the first five interest coupons will be made from the funds set
on escrow account and invested in US Treasury Bills and Deutsche Treasury Bills
(see Note 12).

     The obligations of PTC International Finance II S.A. under the 11 1/4 Notes
are fully and unconditionally guaranteed by the Company on a senior subordinated
and unsecured basis pursuant to the Company Guarantee. The proceeds from the
11 1/4 Notes are loaned to the Company.

     The 11 1/4 Notes are expected to be replaced through an exchange offering
on March, 2000. The terms of the Exchange Notes will be substantially identical
to the old Notes, except that they can be freely traded.

     Construction payables are liabilities to GSM construction vendors. The
Company began financing these liabilities in 1998 through its loan facility
agreement, discussed below and through operating cash flow. The above December
31, 1998 balance was to be financed through the long-term loan facility and was
hence classified as long-term. However, since September 30, 1999 the loan
facility available was no longer sufficient to ensure that these would be
settled through the facility. Therefore, all construction payables since
September 30, 1999 were classified as short-term.

                                      F-21
<PAGE>   62
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     On December 17, 1997 the Company signed a loan facility agreement with a
consortium of banks organized by Citibank N.A. Subsequently, the Company made
drawings of PLN 1,077 million, which consisted of DM 238 million (equivalent of
PLN 507 million as of December 31, 1999) and PLN 570 million (equivalent of
DM 267 million as of December 31, 1999) borrowings. The main terms of the
agreement are as follows:

Facility limit.............  equivalent of DM 672 million

Interest...................  LIBOR or WIBOR plus margin of 0.95% p.a. stepping
                             down to 0.40% p.a.

Commitment fee.............  0.375%

Collateral.................  pledge of Company's assets, rights and shares

Repayment date.............  reduction in facility limit starting from December
                             17, 2000 to December 17, 2005

     The fees for the Company's GSM 900 and GSM 1800 licenses are denominated in
Euro and payable in installments. These deferred payments have been discounted
at 6.78% (GSM 900 license from 1996) and at 9.52% (GSM 1800 license from 1999),
which approximated the Company's borrowing rate for Euro as of the date of
acquisition of the license. As at December 31, 1999 the fair market value of the
GSM 900 license liability discounted at 9.52%, amounts to PLN 347 million,
whilst the carrying amount is PLN 359 million.

     The balances payable as of December 31, 1999 were:

<TABLE>
<CAPTION>
                                                              EURO'000     EURO'000      PLN'000
MATURITY                                                      NOMINAL     DISCOUNTED    DISCOUNTED
--------                                                      --------    ----------    ----------
<S>                                                           <C>         <C>           <C>
Due in one year (see Note 18).............................     51,035       49,573       206,666
Due in year two...........................................     72,815       66,587       277,596
Due in year three.........................................     16,716       13,168        54,895
                                                              -------      -------       -------
                                                              140,566      129,328       539,157
                                                              =======      =======       =======
</TABLE>

     The balances payable as of December 31, 1998 were:

<TABLE>
<CAPTION>
                                                              EURO'000     EURO'000      PLN'000
MATURITY                                                      NOMINAL     DISCOUNTED    DISCOUNTED
--------                                                      --------    ----------    ----------
<S>                                                           <C>         <C>           <C>
Due in one year (see Note 18).............................     15,730       15,496        63,419
Due in year two...........................................     34,320       31,851       130,351
Due in year three.........................................     56,100       49,059       200,773
                                                              -------       ------       -------
                                                              106,150       96,406       394,543
                                                              =======       ======       =======
</TABLE>

     In August 1999, the Company's operating shareholders i.e. Elektrim S.A.,
DeTeMobil Deutsche Telekom MobilNet GmbH ("DeTeMobil") and MediaOne
International B.V. ("MediaOne"), extended USD 75 million (PLN 311 million as of
December 31, 1999) in subordinated loans as follows: Elektrim S.A., equivalent
of USD 40 million, DeTeMobil, USD 17.5 million; and MediaOne, USD 17.5 million.
Each shareholder loan bears an interest rate of 12.5% compounded semi-annually
on June 17 and December 17, however both principal amounts and accrued interest
is due on June 19, 2006.

                                      F-22
<PAGE>   63
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. PROVISIONS FOR LIABILITIES AND CHARGES

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Social fund.................................................         1,220                778
Other provisions............................................            --              1,333
                                                                     -----              -----
                                                                     1,220              2,111
                                                                     =====              =====
</TABLE>

     The social fund is an employer's obligation based on a mandated calculation
based on the number of employees and the monthly minimum wage in Poland. The
amounts calculated under this formula must be used for the benefits of the
employees.

21. SHARE CAPITAL

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Allotted, called-up and fully paid:
471,000 ordinary shares of 1,000 PLN each...................        471,000            471,000
                                                                    =======            =======
</TABLE>

22. RELATED PARTY TRANSACTIONS

ELEKTRIM S.A.

     Elektrim S.A. was a 48% shareholder of the Company. In December 1999
Elektrim S.A. sold all of its shares except one share to Elektrim
Telekomunikacja Sp. z o.o. -- its 51% controlled subsidiary. There were no
transactions between the Company and Elektrim Telekomunikacja Sp. z o.o. in
1999.

     The Company purchased services from Elektrim S.A. amounting to PLN 5,615
during the year ended December 31, 1999, PLN 11,665 during the year ended
December 31, 1998 and PLN 7,934 during the year ended December 31, 1997. The
Company realized sales of PLN 560 during the year ended December 31, 1999,
PLN 259 in 1998 and PLN 235 in 1997. Net payables outstanding were PLN 925 at
December 31, 1999 and PLN 915 at December 31, 1998. In addition, the Company
accrued PLN 7,439 of interest on shareholders' loan (see Note 19), which remains
outstanding as of December 31, 1999. No such loans existed in 1998.

MEDIAONE INTERNATIONAL B.V.

     MediaOne International B.V. is a 22.5% shareholder of the Company. The
Company purchased services from MediaOne amounting to PLN 14,426 plus PLN 386 of
interest during the year ended December 31, 1999, PLN 14,382 in 1998 and
PLN 18,762 in 1997. There were no balances outstanding at December 31, 1999 and
net payables outstanding of PLN 3,423 at December 31, 1998. In addition, the
Company accrued PLN 3,305 of interest on shareholders' loan (see Note 19), which
remains outstanding as of December 31, 1999. No such loans existed in 1998.

DETEMOBIL DEUTSCHE TELEKOM MOBILNET GMBH

     DeTeMobil is a 22.5% shareholder of the Company. The Company purchased
services from DeTeMobil amounting to PLN 27,543 during the year ended December
31, 1999, PLN 31,263 in 1998 and PLN 49,989 in 1997. The Company realized sales
of PLN 19,795 during the year ended December 31, 1999, PLN 14,923 in 1998 and
PLN 7,765 in 1997. Net payables outstanding were PLN 5,082 at December 31, 1999
and PLN 4,269 at December 31, 1998. In addition, the Company accrued PLN 3,305
of interest on shareholders' loan (see Note 19), which remains outstanding as of
December 31, 1999. No such loans existed in 1998.

                                      F-23
<PAGE>   64
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Related party transactions were conducted primarily on market terms.

23. FINANCIAL COMMITMENTS

A.   FINANCE LEASES (INCLUDED IN LIABILITIES)

     On March 25, 1997 the Company entered into a finance lease agreement
relating to its new headquarters building and underlying land. The term of the
lease is 15 years and the Company has a right to acquire the leased asset at the
end of the lease. The Company relocated to the first building of its new
headquarter in second half of 1998 and to the second building in July 1999. The
minimum lease payments under capital leases are as follows:

<TABLE>
<CAPTION>
                                                                    AT DECEMBER 31, 1999
                                                           --------------------------------------
                                                           FUTURE VALUE    INTEREST    DISCOUNTED
                                                           ------------    --------    ----------
                                                               PLN           PLN          PLN
<S>                                                        <C>             <C>         <C>
Due in
one year...............................................          29,807      1,727       28,080
year two...............................................          29,807      4,676       25,131
year three.............................................          29,807      7,315       22,492
year four..............................................          29,807      9,673       20,134
year five..............................................          29,807     11,782       18,025
after year five........................................         300,363    195,886      104,477
                                                           ------------    -------      -------
                                                                449,398    231,059      218,339
                                                           ============    =======      =======
</TABLE>

<TABLE>
<CAPTION>
                                                                    AT DECEMBER 31, 1998
                                                           --------------------------------------
                                                           FUTURE VALUE    INTEREST    DISCOUNTED
                                                           ------------    --------    ----------
                                                               PLN           PLN          PLN
<S>                                                        <C>             <C>         <C>
Due in
one year...............................................          10,600        622        9,978
year two...............................................          10,600      1,686        8,914
year three.............................................          10,600      2,639        7,961
year four..............................................          10,600      3,487        7,113
year five..............................................          10,600      4,247        6,353
after year five........................................         119,756     81,073       38,683
                                                           ------------    -------      -------
                                                                172,756     93,754       79,002
                                                           ============    =======      =======
</TABLE>

     The headquarters lease obligation is denominated in USD and payable in PLN.
Its future amount, USD 108,333 thousand, consists of minimum monthly payments of
USD 599 thousand and purchase option of USD 11,825 thousand.

     Annually, the Company's lease liabilities are changed based on the U.S.
consumer price index ("CPI"). In 1999, this resulted in an increase in minimum
monthly payments by USD 4.3 thousand (PLN 17.8 thousand as of December 31,
1999).

                                      F-24
<PAGE>   65
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

B.  OPERATING LEASES (NOT INCLUDED IN LIABILITIES)

     The minimum annual rentals payable on operating leases are as follows:

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Operating leases maturity
Due in one year.............................................        17,475              1,547
Due in two years............................................         9,010              1,148
Due in three years..........................................        14,201              5,445
Due in four years...........................................         6,253              6,450
Due in five years...........................................         2,345              4,578
Due after five years........................................        31,896             26,952
                                                                    ------             ------
                                                                    81,180             46,120
                                                                    ======             ======
</TABLE>

     Assets under operating leases include primarily network sites, office
space, retail outlets and warehouse.

C.   CAPITAL EQUIPMENT COMMITMENTS (NOT INCLUDED IN LIABILITIES)

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,    AT DECEMBER 31,
                                                                     1999               1998
                                                                ---------------    ---------------
<S>                                                             <C>                <C>
Authorized and contracted...................................         319,725            167,396
Authorized and not contracted...............................       1,495,522          1,138,000
                                                                   ---------          ---------
                                                                   1,815,247          1,305,396
                                                                   =========          =========
</TABLE>

     These capital equipment commitments are denominated in Deutschemarks and
amount to approximately DM 852 million at December 31, 1999 and DM 624 million
at December 31, 1998.

24. DIVIDEND RESTRICTION

     The Company's statutory financial statements are prepared in accordance
with Polish accounting regulations. Dividends may only be distributed from the
net profit reported in the Polish annual statutory financial statements. As of
December 31 1999, the Company had no net profit available for distribution.

25. SUPPLEMENTARY CASH FLOW INFORMATION

     Cash and cash equivalents consist of cash on hand, balances deposited with
banks and short-term, highly liquid investments.

<TABLE>
<CAPTION>
                                                              AT DECEMBER 31,    AT DECEMBER 31,
                                                                   1999               1998
                                                              ---------------    ---------------
<S>                                                           <C>                <C>
Balances deposited with banks:
  Current accounts..........................................        29,422            2,958
  Term deposits with original maturity of less then 90
     days...................................................       654,305            2,540
  Bills with original maturity of less then 90 days.........       410,694               --
  Social fund cash..........................................           468               59
Cash on hand................................................           620              138
                                                                 ---------            -----
                                                                 1,095,509            5,695
                                                                 =========            =====
</TABLE>

                                      F-25
<PAGE>   66
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     At December 31, 1999 the Company revalued cash on hand and balances
deposited with banks denominated in foreign currencies. The net result of the
revaluation was PLN 28,579 of foreign exchange losses which were reported under
interest and other financial expenses.

     The social fund cash is restricted for the benefits of the employees as
described in Note 4.e.

NON-CASH TRANSACTIONS

<TABLE>
<CAPTION>
                                                              AT DECEMBER 31,    AT DECEMBER 31,
                                                                   1999               1998
                                                              ---------------    ---------------
<S>                                                           <C>                <C>
Assets acquired under finance lease.........................      119,963            80,497
GSM 1800 license acquisition................................      389,923                --
</TABLE>

26. EMPLOYMENT

     Average headcount in the Company during the presented years was as follow:

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Average headcount....................................     2,170           1,439            853
</TABLE>

27. SUPPLEMENTARY INFORMATION TO IAS FINANCIAL STATEMENTS

     A reconciliation of the Company's comprehensive net profit/(loss) and
shareholders' equity under Polish statutory accounting regulations ("PAS") and
International Accounting Standards ("IAS") is summarized as follow:

<TABLE>
<CAPTION>
                                                            YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                           DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                               1999           1998           1997
                                                           ------------   ------------   ------------
<S>                                                        <C>            <C>            <C>
Comprehensive net profit/(loss) under PAS................    (138,203)        26,913       (132,354)
Foreign translation difference...........................      (1,582)            63             --
IAS adjustment for GSM license amortization..............       4,562          4,520          5,076
IAS adjustment for GSM license discount..................     (22,602)       (24,151)        (6,431)
Unrealized foreign exchange differences..................      29,569          8,610          1,676
Finance lease............................................       1,113          2,104             --
IAS assets adjustment....................................        (964)        11,732             --
Development and start-up costs...........................       3,586          6,324          7,236
Deferred tax benefit/(charge)............................       2,018        (30,599)         4,361
                                                             --------       --------       --------
Comprehensive net profit/(loss) under IAS................    (122,503)         5,516       (120,436)
                                                             ========       ========       ========
</TABLE>

                                      F-26
<PAGE>   67
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     A reconciliation of the Company's shareholders' equity under Polish
statutory accounting regulations ("PAS") and International Accounting Standards
("IAS") is summarized as follow:

<TABLE>
<CAPTION>
                                                                 SHAREHOLDERS' EQUITY AT
                                                       --------------------------------------------
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Shareholders' equity under PAS.......................    151,681         289,758         262,845
Foreign translation difference.......................     (1,652)             56              --
IAS adjustment for GSM license amortization..........     15,621          11,059           6,539
IAS adjustment for GSM licenses discount.............    (53,184)        (30,582)         (6,431)
Unrealized foreign exchange differences..............     39,855          10,286           1,676
Finance lease........................................      3,217           2,104              --
IAS assets adjustment................................     10,768          11,732              --
Development and start-up costs.......................     (5,882)         (9,468)        (15,792)
Deferred tax benefit.................................      7,382           5,364          35,963
                                                         -------         -------         -------
Shareholders' equity under IAS.......................    167,806         290,309         284,800
                                                         =======         =======         =======
</TABLE>

     The above differences are caused by the following reasons:

     -  Recognition of the long-term license liabilities at present value for
        IAS purposes, while they were recorded at undiscounted nominal value
        under Polish accounting regulations. This accounting results in higher
        interest expense under IAS, which is partially offset by lower
        amortization expense (for the GSM 900 license) and foreign exchange
        losses,

     -  Unrealized foreign exchange gains recognized as financial income for IAS
        purposes but deferred for PAS purposes,

     -  Difference in treatment of assets held under finance lease and other
        capital assets written off for PAS purposes,

     -  Development and start-up costs expensed in IAS according to IAS 38
        "Intangible Assets",

     -  Adjustment to deferred tax on temporary differences in preceding
        adjustments.

28. DIFFERENCES BETWEEN IAS AND U.S. GAAP

     The Company's consolidated financial statements are prepared in accordance
with International Accounting Standards, which differ in certain respects from
U.S. GAAP.

     The effect of the principal differences between IAS and U.S. GAAP in
relation to the Company's consolidated financial statements are presented below,
with explanations of certain adjustments that affect total comprehensive net
income/(loss) for the years ended December 31, 1999, December 31, 1998 and
December 31, 1997 and consolidated net assets as of December 31, 1999, December
31, 1998 and December 31, 1997.

                                      F-27
<PAGE>   68
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

RECONCILIATION OF COMPREHENSIVE NET PROFIT/(LOSS):

<TABLE>
<CAPTION>
                                                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Comprehensive net income/(loss) under IAS............    (122,503)         5,516         (120,436)
U.S. GAAP adjustments:
(a)  Removal of foreign exchange differences
     capitalized for IAS.............................     (18,224)       (22,765)         (30,697)
(b)  Depreciation and amortization of foreign
     exchange........................................       6,392          3,931            2,949
(c)  Inventory discount policy.......................          --         (3,548)           3,548
(d)  Development and start-up cost...................      (9,468)        (3,585)          (9,975)
(g)  Deferred tax on above...........................       2,938          1,291            3,736
                                                         --------        -------         --------
Comprehensive net loss under U.S. GAAP...............    (140,865)       (19,160)        (150,875)
                                                         ========        =======         ========
</TABLE>

RECONCILIATION OF CONSOLIDATED SHAREHOLDERS' EQUITY:

<TABLE>
<CAPTION>
                                                            AT              AT              AT
                                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                           1999            1998            1997
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Consolidated shareholders' equity reported under
  IAS................................................     167,806        290,309         284,800
U.S. GAAP adjustments:
(a)  Removal of foreign exchange differences
     capitalized for IAS.............................    (103,240)       (85,016)        (62,251)
(b)  Depreciation and amortization on above..........      13,777          7,385           3,454
(c)  Inventory discounts policy......................          --             --           3,548
(d)  Development and start-up cost...................          --          9,468          13,053
(g)  Deferred tax on above...........................          --         (2,938)         (4,229)
                                                         --------        -------         -------
Consolidated shareholders' equity under U.S. GAAP....      78,343        219,208         238,375
                                                         ========        =======         =======
</TABLE>

(A)  REMOVAL OF FOREIGN EXCHANGE DIFFERENCES CAPITALIZED FOR IAS

     In accordance with IAS 23 "Borrowing Costs", the Company capitalizes
financing costs, including interest and foreign exchange gains or losses, into
assets under construction.

     For tangible fixed assets under construction, the Company capitalizes
interest and foreign exchange gains or losses incurred and directly attributable
to the acquisition and construction of the qualifying assets that would have
been avoided if the expenditure on the qualifying assets had not been made. The
financing costs are capitalized only during the period of construction of the
qualifying assets (see Note 15). As explained in Note 4.b., the Company
capitalized financing costs attributable to the acquisition of its GSM 900 and
GSM 1800 licenses, including interest on the related long-term obligation and
foreign exchange losses because the GSM 900 and GSM 1800 licenses are integral
parts of the network.

     Under Statement of Financial Accounting Standards 52 "Foreign Currency
Translation", however, foreign exchange losses relating to financing obligations
should be included in the statement of operations of the Company. Consequently,
the amounts of foreign exchange differences capitalized in accordance with IAS
23 in the Company's financial statements are expensed under U.S. GAAP.

                                      F-28
<PAGE>   69
              POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(B)  DEPRECIATION AND AMORTIZATION

     The U.S. GAAP adjustments for depreciation and amortization shown above
represent the amounts of depreciation and amortization charges relating to
capitalized foreign exchanges differences in the Company's IAS financial
statements. Since under U.S. GAAP these foreign exchange differences are not
permitted to be capitalized and are instead expensed, the depreciation and
amortization of these capitalized differences under IAS has been reversed.

(C)  INVENTORY DISCOUNTS POLICY

     Until December 31, 1997, an inventory provision was recorded for planned
promotional discounts. In January 1998, the Company discontinued this practice
and recognizes loss on promoted inventory in the period when the promotion is
carried out. Should the principles applied in 1998 been used in 1997, the net
loss for the year ended December 31, 1997 would have been decreased by PLN
3,548.

(D)  DEVELOPMENT AND START-UP COST

     As explained in Note 5.b for IAS purposes the Company has adopted IAS 38
"Intangible Assets" in 1999 giving its effect retrospectively. This has resulted
in writing-off of development and start-up cost when they arose in 1996. For
U.S. GAAP purposes the Company has written off in 1997 consulting cost relating
to structuring its business processes following to clarifications of the
Emerging Issues Task Force in the United States and has written off in 1999
start-up cost following the issuance the SOP 98-5 in the United States.

(E)  PRESENTATION OF DEFERRED TAXATION

     Under IAS, passing certain criteria, the Company may net deferred tax
liabilities and assets and present a net balance in the balance sheet. Under
U.S. GAAP current and non-current portions of the above should be disclosed
separately. As of December 31, 1999 deferred tax assets, as presented in Note
11, included PLN 27,472 of current portion (PLN 46,723 as at December 31, 1998)
and deferred tax liability included PLN 7,637 of current portion (PLN 5,133 as
at December 31, 1998).

(F)  NEW U.S. STANDARDS

     The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which requires that companies
recognize all derivative as either assets or liabilities in the balance sheet at
fair value. Under SFAS 133, accounting for changes in fair value of derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The Company is currently assessing the
effect of this new standard.

     In June 1999, the FASB approved Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137
amends the effective date of SFAS 133. SFAS 133 will now be effective for fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company
currently is assessing the effect of this new standard.

                                      F-29
<PAGE>   70

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                         SEQUENTIALLY
                                                                           NUMBERED
EXHIBIT                            DESCRIPTION                               PAGE
-------                            -----------                           ------------
<S>        <C>                                                           <C>
 10.1      Agreement with Elektrim Volt S.A. for civil works services,
           dated December 15, 1999.
</TABLE>