** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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** **

**FORM 20-F**

 

| **(Mark  One)**       |
|-----------------------|
|                  |   |   |   |   |
| ** **            | **o** | **REGISTRATION  STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|                  |   |   |   |   |
| **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, 2004** |
|                  |   |   |   |   |
| **OR**                |
|                  |   |   |   |   |
| ** **            | **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                  |   |   |   |   |
| **OR**                |
|                  |   |   |   |   |
| ** **            | **o** | **SHELL COMPANY REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **            | ** ** | ** ** |
| ** **            | **DATE OF EVENT REQUIRING THIS  SHELL COMPANY REPORT** |
| ** **            | ** ** |
| ** **            | **FOR THE TRANSITION PERIOD FROM                              TO                           ** |
|                       |  |  |  |  |  |

 

**Commission file number: 1-14816**

** **

****

** **

**TRICOM, S.A.**

(Exact name of Registrant as specified in its charter)

 

**Dominican Republic**

(Jurisdiction of incorporation or organization)

 

**Avenida Lope de Vega No.95, Santo Domingo, Dominican Republic**

(Address of principal executives offices)

 

Securities registered pursuant to Section 12(b) of the Act.

 

**None**

 

Securities registered pursuant to Section 12(g) of the Act.

 

**American DepositarySharesClass A Common Stock, par value RD$10 per share**

** **

Securities for which there is a reporting obligation pursuant toSection 15(d) of the Act.

 

***11-3/8% Senior Notes dueSeptember 1, 2004***

* *

Indicate the number of outstanding shares of each of the issuer’sclasses of capital or common stock as of the close of the period covered by theannual report.

 

**At December 31, 2004, there were 45,458,041 sharesof Class A Common Stock and 19,144,544 shares of Class B Stock issued andoutstanding.**

 

**Indicate bycheck mark if the registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act.**

 

**Yes    ****o****   No   ****x**

 

**If this reportis an annual or transition report, indicate by check mark if the registrant isnot required to file reports pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934.**

 

**Yes    ****o****   No   ****x**

 

**Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.**

 

**Yes ****o****                                            No ****x**

 

**Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):**

 

**Largeaccelerated filer   ****o****   Accelerated filer   ****o****   Non-accelerated filer   ****x**

 

***Indicate by check mark whichfinancial statement item the Registrant has elected to follow.***

* *

**Item 17   ****o                                      Item 18   ****x**

 

***If this reportis an annual report, indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the Exchange Act).***

** **

**Yes    ****o****   No   ****x**

 

 

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**TABLE OF CONTENTS**
| PART I.   |                                                                          |   |
|-----------|-------------------------------------------------------------------------------|--------|
|      |                                                                          |   |
| ITEM 1.   | IDENTITY OF DIRECTORS,  SENIOR MANAGEMENT AND ADVISERS                        |   |
| ITEM 2.   | OFFER STATISTICS AND  EXPECTED TIMETABLE                                      |   |
| ITEM 3.   | KEY INFORMATION                                                               |   |
| ITEM 4.   | INFORMATION ON  THE COMPANY                                                   |   |
| ITEM 5.   | OPERATING AND  FINANCIAL REVIEW AND PROSPECTS                                 |   |
| ITEM 6.   | DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES                                   |   |
| ITEM 7.   | MAJOR  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |   |
| ITEM 8.   | FINANCIAL INFORMATION                                                         |   |
| ITEM 9.   | THE OFFER AND  LISTING                                                        |   |
| ITEM 10.  | ADDITIONAL INFORMATION                                                        |   |
| ITEM 11.  | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |   |
| ITEM 12.  | DESCRIPTION  OF SECURITIES OTHER THAN EQUITY SECURITIES                       |   |
|      |                                                                          |   |
| PART II.  |                                                                          |   |
|      |                                                                          |   |
| ITEM 13.  | DEFAULTS,  DIVIDEND ARREARAGES AND DELINQUENCIES                              |   |
| ITEM 14.  | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |   |
| ITEM 15.  | DISCLOSURE  CONTROLS AND PROCEDURES                                           |   |
| ITEM 16.  | [RESERVED]                                                                    |   |
| ITEM 16A. | AUDIT  COMMITTEE FINANCIAL EXPERT                                             |   |
| ITEM 16B. | CODE OF ETHICS                                                                |   |
| ITEM 16C. | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                       |   |
| ITEM 16D. | EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE                    |   |
| ITEM 16E. | PURCHASES  OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |   |
|      |                                                                          |   |
| PART III. |                                                                          |   |
|      |                                                                          |   |
| ITEM 17.  | FINANCIAL  STATEMENTS*                                                        |   |
| ITEM 18.  | FINANCIAL STATEMENTS                                                          |   |
| ITEM 19.  | EXHIBITS                                                                      |   |

 

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*                                         We have completed Item18 in lieu of this Item.

 

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**GENERALINFORMATION**

 

#### **Forward-LookingStatements**

#### ** **

The statements containedin this Annual Report, which are not historical facts, are forward-looking statementsthat involve risks and uncertainties. Management cautions the reader that theseforward-looking statements are only predictions; actual events or results maydiffer materially as a result of risks facing us. Such risks include, but arenot limited to, the following factors:

 

•                                          Uncertaintyin our debt restructuring process;

 

•                                          UnfavorableDominican Republic bankruptcy laws;

 

•                                          Possibleacceleration of indebtedness by our creditors;

 

•                                          Expectationsas to the amount of cash required to operate as a going concern;

 

•                                          Contingenciesarising out of our placement of Class A Common Stock in December 2002, theissues raised by the report of the Special Committee and the restatement andamendment of our 2002 financial statements;

 

•                                          Unfavorabledecisions in our various legal proceedings resulting in financial difficultiesfor us;

 

•                                          Our abilityto generate cash flow from operations to meet our debt service requirements;

 

•                                          Thevolatility and depreciation of the Dominican peso against the U.S. dollar;

 

•                                          Competitionin Dominican markets for local, long distance and mobile services withmultinational telecommunications providers;

 

•                                          Reducedrevenues due to our business plan of focusing on higher usage customers anddisconnecting lower usage or unprofitable customers;

 

•                                          Customernon-payments;

 

•                                          Decliningrates for international long distance traffic;

 

•                                          Our reliancein the U.S. long distance markets on resellers, many of which have beenadversely affected by intensified competition;

 

•                                          Customerchurn;

 

•                                          Rapid technologicalchange;

 

•                                          Ourdependence on third parties for television programming;

 

•                                          Ourvulnerability to viruses, hackers and other disruptions;

 

•                                          Thecontinuation of a favorable political, economic and regulatory environment inthe Dominican Republic;

 

•                                          The continueddownturn in the Dominican economy;

 

•                                          Inability toenforce claims in the Dominican Republic based on U.S. securities and otherlaws;

 

•                                          Thelikelihood that, as a result of our pending debt restructuring, the holdings ofour current shareholders, including holders of our American Depositary Shares (“ADSs”),would be effectively eliminated; and

 

•                                          Our ADSs nolonger being listed on a national securities exchange.

 

2

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# **PART I.**

# ** **

## **ITEM 1.**           IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

## ** **

Not Applicable.

 

## **ITEM 2.**           OFFER STATISTICS AND EXPECTED TIMETABLE

## ** **

Not Applicable.

 

## **ITEM 3.**           KEY INFORMATION

## ** **

#### **SpecialNote**

#### ** **

We are filing this reportduring October 2007. Although we make reference to certain events and otherdevelopments that have occurred since December 31, 2004, the principal purposeof this report is to describe our business, operations, management, results ofoperations, financial condition, and other matters as at December 31, 2004 andduring the historic periods ended on or before that date. For more detailedinformation on subsequent periods, reference should be made to annual reportsand other filings that we expect to make in respect of those subsequent periods.

 

#### **KeyCompany Developments**

#### ** **

#### ***Default on Indebtedness.***

#### ** **

#### **Commencingin 2001, a combination of macro-economic factors and circumstances specific toour business contributed to a steady and significant decline in our operatingperformance, cash flows and financial condition. These factors included, amongothers, the following:**

#### ** **

•                                          Aworld-wide decline in the telecommunications sector;

 

•**                                         **Adverseeconomic conditions precipitated by the events of September 11, 2001;

 

•                                          The DominicanRepublic banking crisis of 2003 and the resulting currency and economic crisis;

 

•                                          Continuingvolatility and depreciation of the Dominican peso;

 

•                                          Unprofitableinvestments we made in certain new business segments; and

 

•                                          Increasedcompetition in Dominican markets for local, long distance and mobile servicestriggered by entry of multinational telecommunications providers into themarket.

 

#### **As aconsequence of these factors, in September 2003, we announced that we would notbe making a scheduled interest payment on our 11-3/8% Senior Notes dueSeptember 1, 2004. In October 2003, we suspended principal and interestpayments on our unsecured indebtedness and principal payments on our securedindebtedness. Subsequently, on September 1, 2004, we announced that we wouldnot be making the $200 million principal payment on our 11-3/8% Senior Notesdue September 1, 2004. As a result, we have defaulted on substantially all ofour secured and unsecured indebtedness, which was approximately $448.3 millionin principal amount as of December 31, 2004. In addition to our 11-3/8% SeniorNotes due 2004, our indebtedness consists of bank and other borrowings, capitalleases, commercial paper and telecommunication equipment trade financings.**

#### ** **

#### ***Financial Restructuring.***

#### ** **

We have engaged indiscussions with the holders of our indebtedness regarding a restructuring. InApril 2006, we announced that we had reached a non-binding agreement inprinciple with certain of our creditors on a consensual financial restructuringof our balance sheet. These creditors included an Ad Hoc Committee (the “Ad HocCommittee”) comprised of certain holders of our

 

3

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11-3/8% Senior Notes due2004 and other significant creditors, as well as certain affiliates of GFNCorporation Ltd. (“GFN”), our majority shareholder, who are also significantcreditors.

 

Subsequently, wenegotiated and entered into a Plan Support and Lock-Up Agreement and relatedterm sheet (collectively, as amended, the “Plan Support Agreement”) with ourlargest secured creditor and unsecured creditors representing more than 70% byprincipal amount of our unsecured indebtedness. The Plan Support Agreement wasamended in August 2007 to, among other matters, extend certain time deadlinesfor filing our reorganization case. The Plan Support Agreement provides for theconsensual restructuring of our financial obligations, ownership andgovernance, to be effectuated through court supervised reorganizationproceedings in the United States. Subject to certain conditions, the creditorswho have signed the Plan Support Agreement (the “Supporting Creditors”) haveagreed to vote in favor of, and not to object to or oppose, a plan ofreorganization that we are finalizing.

 

In general, the PlanSupport Agreement contemplates an exchange of all of our unsecured borrowedmoney obligations for a pro rata share of (i) new secured notes to be issued byreorganized Tricom and (ii) all of the equity in a to-be-formed holding company.This will result in a substantial reduction of the amount of our indebtedness. Holdersof our existing secured indebtedness will be subject to separate treatment on acase-by-case basis. The interests of the existing holders of our equity,including the American Depository Shares, will be effectively eliminated.

 

The restructuringcontemplated by the Plan Support Agreement is not intended to affect theordinary course trade obligations of the Company.

 

Consummation of theproposed restructuring is subject to significant uncertainties. The PlanSupport Agreement is subject to termination upon the occurrence of certainevents, including failure to meet certain milestones in the restructuringprocess, and failure to resolve certain contingent liabilities to thesatisfaction of the Ad Hoc Committee. It is likely that an extension of time tomeet certain of these milestones and to file our reorganization case will benecessary, and the Supporting Creditors may not grant this. Filing of ourreorganization case requires the approval of the holders of two thirds of thevotes entitled to be cast at a meeting of our shareholders. Creditors that havenot signed the Plan Support Agreement may be able to object to or otherwiseseek to prevent the consummation of the proposed restructuring. Consummation ofthe proposed restructuring will be subject to, among other matters, obtainingcertain governmental approvals. Accordingly, there can be no assurance that asuccessful restructuring of our financial obligations, ownership and governancewill be effectuated.

 

Even though theserestructuring discussions are continuing, our creditors could, and in somecases have sought to, exercise their rights to collect debt owed to them. Theycould also take other actions, including the exercise under Dominican law ofprovisional remedies that could result in, among other things, denying usaccess to our bank accounts, or creditors attaching or seizing our assets. Wedo not expect to have any funding sources until the restructuring process isconcluded, other than funds generated by operations or from the sale of assets,if any. If we are not successful in restructuring our outstanding indebtedness,we may not be able to continue to operate our business as a going concern. Wemay be forced into insolvency proceedings which, in the Dominican Republic,could result in our liquidation. Even if our indebtedness is restructured wemay not be able to generate the cash required to operate or to obtain thefinancing necessary to continue funding our business or working capital andcapital expenditure requirements.

 

#### ***Change in Independent Auditor.***

#### ** **

In March 2005, weannounced that Sotomayor & Associates, LLP (“Sotomayor”) had been retainedto act as our auditor for the year ended December 31, 2004, succeeding themember firm of KPMG International located in the Dominican Republic (“KPMG”). InDecember 2005, we announced that Sotomayor would also be retained as ourauditor for the years ended December 31, 2002 and 2003, replacing KPMG. Sotomayoris a Public Company Accounting Oversight Board (“PCAOB”) registered independentpublic accounting firm with its principal offices in Pasadena, California. Thefirm has acted as independent auditor to Tricom USA, Inc. (“Tricom USA”), ourwholly owned subsidiary in the United States, since 1999.

 

4

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#### ***Special Committee of Board of Directors andRestatement of 2002 Financial Statements.***

#### ** **

Our consolidated balancesheet as of December 31, 2002 and the related consolidated statements ofoperations, stockholders’ equity (deficit) and comprehensive loss and cashflows for the year then ended have been restated to reflect adjustments to thefinancial information and footnotes previously reported in our Annual Report onForm 20-F for the fiscal year ended December 31, 2002. The adjustments relateprimarily to the purchase (the “Placement”) in December 2002 of shares of ourClass A Common Stock by a group of investors for an aggregate purchase price ofapproximately $70 million. They also correct an understatement of related partyindebtedness and make an adjustment to our 2002 deferred income taxes.

 

The need for restatementand amendment of the 2002 financial statements initially arose when our formerindependent auditor, KPMG, advised our Board of Directors on October 28, 2004that it was withholding its consent to filing our Annual Report on Form 20-Ffor the fiscal year ended December 31, 2003. KPMG sought further clarificationof the Placement, which used funds loaned to the investors in the Placement bya bank that was at the time of the Placement affiliated with GFN, our largestshareholder. Subsequently our Board of Directors appointed a Special Committee(the “Special Committee”) to investigate certain matters arising out of thePlacement. Based on the findings of the Special Committee and on otherinformation available to us, we have concluded that our Annual Report on Form20-F for the fiscal year ended December 31, 2002 should be amended. See Item 7,Major Shareholders and Related Party Transactions—2002 Private Placement, for adetailed description of the Placement, the report of the Special Committee andthe restatement and amendment of our 2002 financial statements. In May 2007,our Board of Directors resolved to terminate the activities of the SpecialCommittee. In July 2007, counsel to the Special Committee delivered to ourBoard of Directors the final report of the Special Committee.

 

Although we have, withour current independent auditor, Sotomayor, completed the work necessary toamend and restate our 2002 financial statements, we expect that the process ofobtaining the consent of our former independent auditor for use of our auditedfinancial information in respect of prior years (year ended December 31, 2001and earlier periods) will involve further time and expense. Accordingly, whilenot ruling out the possibility that we will at some time in the future filerestated audited financial statements for the year ended December 31, 2002 andaudited financial statements for the year ended December 31, 2003, we havedecided first to file audited financial statements for the year ended December31, 2004 and to include in such financial statements, in addition to thefinancial statements required by Regulation S-X, our restated audited balancesheet as at December 31, 2002 and related notes.

 

#### ***Executive Officer Resignations.***

#### ** **

On June 17, 2005, weannounced the resignation of Carl H. Carlson as President and Chief ExecutiveOfficer of the Company. Our Board of Directors selected Hector Castro Noboa,Secretary and Vice-Chairman of the Board of Directors, to succeed Mr. Carlsonas our Chief Executive Officer. Hector Castro Noboa, a member of our Board ofDirectors since our formation in 1988, will remain on our Board of Directors.On August 13, 2004, we announced the resignation of Ramón Tarragó as ChiefFinancial Officer. Mr. Tarragó’s duties were assumed by Mr. Erwin Mendez, whowas appointed as Vice President of Finance and Administration. Mr. Mendez hadpreviously served as our Controller since November 2002.

 

#### ***Sale of Assets.***

#### ** **

On February 19, 2004, wesold our Central American trunking assets to a group of Panamanian investorsfor a purchase price of approximately $12.5 million payable in installments. Theassets included our digital trunking network in Panama, as well as our radiofrequency rights in Guatemala and El Salvador. Net proceeds, after transactionexpenses and satisfaction of liabilities directly related to our CentralAmerican operations, totaled approximately $10.7 million. In May 2004, we sold5 MHz of unused 800 MHz band to one of our competitors, Orange Dominicana, S.A.(“Orange”), a subsidiary of France Telecom Group, for a purchase price of $6million, payable in cash and credits for interconnection charges.

 

5

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#### ***Delisting of American Depositary Shares andTermination of Deposit Facility.***

#### ** **

On May 11, 2004, the NewYork Stock Exchange (“NYSE”) determined to suspend trading and pursue delistingof our ADSs, ticker symbol “TDR”. On May 19, 2004, our ADSs began trading onthe OTC (over-the-counter) Bulletin Board (“OTCBB”), under the symbol “TRICY.OB”.On July 25, 2004, the OTCBB suspended trading of our ADSs. Thereafter, our ADSswere traded on the “Pink Sheets” service under the symbol “TRICY.PK”. InDecember 2006, the Bank of New York, the depositary for our ADS facility,notified us and holders of our ADSs, that it was terminating our ADS facility. Upontermination of the ADS facility, most of the depositary’s obligations under theDeposit Agreement also terminated. Holders of our ADSs may obtain delivery ofthe shares of Class A Common Stock underlying our ADSs, upon payment of certaintaxes and processing fees. As a result of the termination, the Bank of New Yorkis no longer obligated to perform any functions in connection with voting theClass A Common Stock underlying our ADSs. With the termination of the ADSfacility, our ADSs ceased trading on the “Pink Sheets” service on March 29,2007.

 

#### **SELECTEDFINANCIAL DATA**

#### ** **

The following tableprovides selected financial and operating data of Tricom for the periodsindicated. It has been derived from our consolidated financial statements forthe periods in question. For fiscal years ended December 31, 2002, 2003, and2004, the information has been derived from our consolidated financial statementswhich have been audited by our current independent registered public accountingfirm, Sotomayor. For the fiscal years ended December 31, 2000 and 2001, theinformation has been derived from our consolidated financial statements, whichwere audited by our former independent auditor, KPMG. We have not, however,obtained the consent of our former independent auditor for use of our auditedfinancial information in respect of those or any other fiscal periods. Accordingly,readers of this Annual Report should treat the Selected Financial Informationfor the fiscal years ended December 31, 2000 and 2001, and any other financialinformation in this Annual Report relating to those or earlier fiscal periods,as if such financial information were unaudited.

 

The information in thefollowing tables should be read in conjunction with “Operating and FinancialReview and Prospects” and the consolidated financial statements included inthis Annual Report.

 

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| ** **                                                                                                            | ** ** | **Year ended December 31, (1)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                            | ** ** | **2000**                                            | ** ** | **2001** | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** |
| ** **                                                                                                            | ** ** | **Unaudited**                                       | ** ** | **Unaudited** | ** ** | **Restated** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                            | ** ** | **(in thousands) (2)**                         | ** ** |
| **Statement  of Operations Data:**                                                                                    |       |                                                |       |   |   |   |   |   |   |   |   |
| Operating  revenues                                                                                                   |       |                                                |       |   |   |   |   |   |   |   |   |
| Long distance                                                                                                         |       | $                                                   | 89,201     |   | $ | 81,383 |   | $ | 80,978 |   | $ | 92,088 |   | $ | 72,009 |   |
| Domestic  telephony                                                                                                   |       | 83,002                                              |       | 87,182 |   | 83,721 |   | 59,475 |   | 64,974 |   |
| Mobile                                                                                                                |       | 36,091                                              |       | 44,721 |   | 45,074 |   | 29,232 |   | 32,124 |   |
| Cable (3)                                                                                                             |       | —                                              |       | 4,736 |   | 21,487 |   | 13,585 |   | 13,651 |   |
| Data and  Internet                                                                                                    |       | 3,907                                               |       | 8,372 |   | 11,007 |   | 4,487 |   | 5,355 |   |
| Other                                                                                                                 |       | 519                                                 |       | 859 |   | 498 |   | 121 |   | 68 |   |
| Total operating  revenues                                                                                             |       | 212,720                                             |       | 227,253 |   | 242,766 |   | 198,988 |   | 188,181 |   |
|                                                                                                                  |       |                                                |       |   |   |   |   |   |   |   |   |
| Operating costs  and expenses:                                                                                        |       |                                                |       |   |   |   |   |   |   |   |   |
| Cost of sales  and services                                                                                           |       | 73,069                                              |       | 73,324 |   | 86,519 |   | 91,010 |   | 89,541 |   |
| Selling, general  and administrative expenses                                                                         |       | 50,963                                              |       | 67,449 |   | 73,923 |   | 60,393 |   | 56,685 |   |
| Restructuring  costs (4)                                                                                              |       | —                                              |       | — |   | — |   | 1,597 |   | 8,146 |   |
| Depreciation and  amortization                                                                                        |       | 37,491                                              |       | 54,773 |   | 66,517 |   | 70,292 |   | 75,254 |   |
| Expense in lieu  of income taxes (5)                                                                                  |       | 10,174                                              |       | 12,646 |   | 5,897 |   | — |   | — |   |
| Asset  impairments (6)                                                                                                |       | —                                              |       | — |   | 17,273 |   | 191,284 |   | — |   |
| Other charges  and special items (7)                                                                                  |       | —                                              |       | — |   | — |   | 15,871 |   | — |   |
| Total operating  costs                                                                                                |       | 171,698                                             |       | 208,193 |   | 250,129 |   | 430,447 |   | 229,626 |   |
| Operating income  (loss) from continuing operations                                                                   |       | 41,022                                              |       | 19,060 |   | (7,363 | ) | (231,459 | ) | (41,445 | ) |
|                                                                                                                  |       |                                                |       |   |   |   |   |   |   |   |   |
| Other income  (expenses):                                                                                             |       |                                                |       |   |   |   |   |   |   |   |   |
| Interest  expense, net                                                                                                |       | (30,736                                             | )          | (39,676 | ) | (62,313 | ) | (64,351 | ) | (63,475 | ) |
| Foreign currency  exchange gain (loss)                                                                                |       | (303                                                | )          | (260 | ) | 3,067 |   | 5,347 |   | (2,674 | ) |
| Other, net                                                                                                            |       | (197                                                | )          | 1,293 |   | (1,502 | ) | 303 |   | 5,740 |   |
| Other expenses,  net                                                                                                  |       | (31,236                                             | )          | (38,643 | ) | (60,749 | ) | (58,701 | ) | (60,409 | ) |
|                                                                                                                  |       |                                                |       |   |   |   |   |   |   |   |   |
| Earnings (loss) before income taxes, minority  interest and cumulative effect of accounting change                    |       | 9,816                                               |       | (19,583 | ) | (68,111 | ) | (290,160 | ) | (101,854 | ) |
| Income taxes  (provision) benefit                                                                                     |       | 588                                                 |       | (511 | ) | (2,016 | ) | (1,359 | ) | (300 | ) |
| Earnings (loss) from continuing operations before  discontinued operations and cumulative effect of accounting change |       | 9,227                                               |       | (20,095 | ) | (70,127 | ) | (291,519 | ) | (102,154 | ) |
|                                                                                                                  |       |                                                |       |   |   |   |   |   |   |   |   |
| Discontinued  operations:                                                                                             |       |                                                |       |   |   |   |   |   |   |   |   |
| Loss from discontinued operations (8)                                                                                 |       | —                                              |       | (4,794 | ) | (9,179 | ) | (46,651 | ) | — |   |
| Minority  interest                                                                                                    |       | —                                              |       | 1,775 |   | 1,871 |   | — |   | — |   |
|                                                                                                                  |       |                                                |       |   |   |   |   |   |   |   |   |
| Total  Discontinued Operations                                                                                        |       | —                                              |       | (3,019 | ) | (7,308 | ) | (46,651 | ) | — |   |
|                                                                                                                  |       |                                                |       |   |   |   |   |   |   |   |   |
| Cumulative  effect of accounting change:                                                                              |       |                                                |       |   |   |   |   |   |   |   |   |
| Installation and activation revenues (9)                                                                              |       | (16,453                                             | )          | — |   | — |   | — |   | — |   |
|                                                                                                                  |       |                                                |       |   |   |   |   |   |   |   |   |
| Net loss                                                                                                              |       | $                                                   | (7,226     | ) | $ | (23,114 | ) | $ | (77,435 | ) | $ | (338,170 | ) | $ | (102,154 | ) |
|                                                                                                                  |       |                                                |       |   |   |   |   |   |   |   |   |
| Loss per common  share-basic and diluted:                                                                             |       |                                                |       |   |   |   |   |   |   |   |   |
| Loss from continuing operations before cumulative  effect of accounting change                                        |       | $                                                   | (0.29      | ) | $ | (0.83 | ) | $ | (1.62 | ) | $ | (4.51 | ) | $ | (1.58 | ) |
| Loss from  discontinued operations                                                                                    |       | —                                              |       | — |   | (0.17 | ) | (0.72 | ) | — |   |
| Net loss – basic  and diluted                                                                                    |       | $                                                   | (0.29      | ) | $ | (0.83 | ) | $ | (1.79 | ) | $ | (5.23 | ) | $ | (1.58 | ) |
|                                                                                                                  |       |                                                |       |   |   |   |   |   |   |   |   |
| Average number of common shares outstanding – basic  and diluted                                                 |       | 24,845                                              |       | 27,724 |   | 43,400 |   | 64,603 |   | 64,603 |   |

 

7

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| ** **                                           | ** ** | **At December 31,**         | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                           | ** ** | **2000**                    | ** ** | **2001** | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** |
| ** **                                           | ** ** | **Unaudited**               | ** ** | **Unaudited** | ** ** | **Restated** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **(in thousands) (2)** | ** ** |
| **Balance  Sheet Data:**                             |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **                                           |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                           |       | $                           | 18,200     |   | $ | 27,776 |   | $ | 6,080 |   | $ | 2,415 |   | $ | 17,590 |   |
| Property, plant  and equipment, net                  |       | 586,224                     |       | 685,917 |   | 668,120 |   | 396,373 |   | 332,908 |   |
| Total assets                                         |       | 682,440                     |       | 829,415 |   | 779,193 |   | 438,845 |   | 387,683 |   |
| Total  liabilities                                   |       | 398,809                     |       | 498,155 |   | 534,689 |   | 532,511 |   | 583,503 |   |
| Shareholders’  equity (deficit)                 |       | 210,796                     |       | 253,534 |   | 244,504 |   | (93,666 | ) | (195,820 | ) |
|                                                 |       |                        |       |   |   |   |   |   |   |   |   |
| **Other  Financial Data:**                           |       |                        |       |   |   |   |   |   |   |   |   |
| ** **                                           |       |                        |       |   |   |   |   |   |   |   |   |
| Capital  expenditures (10)                           |       | $                           | 168,913    |   | $ | 85,024 |   | $ | 53,830 |   | $ | 10,786 |   | $ | 13,277 |   |
| Net cash  provided by operating activities           |       | 42,339                      |       | 33,624 |   | 7,184 |   | 7,270 |   | 22,211 |   |
| Net cash used in  investing activities               |       | (149,395                    | )          | (176,466 | ) | (57,918 | ) | (183 | ) | (2,972 | ) |
| Net cash  provided by (used in) financing activities |       | 111,796                     |       | 137,219 |   | 44,239 |   | (10,752 | ) | (4,064 | ) |
|                                                 |       |                        |       |   |   |   |   |   |   |   |   |
| **Other  Operating Data:**                           |       |                        |       |   |   |   |   |   |   |   |   |
| ** **                                           |       |                        |       |   |   |   |   |   |   |   |   |
| International  minutes (in thousands)(11)            |       | 597,204                     |       | 768,394 |   | 1,069,130 |   | 1,133,973 |   | 885,009 |   |
| Local access  lines in service (at period end)       |       | 148,312                     |       | 177,352 |   | 150,456 |   | 141,856 |   | 153,440 |   |
| Mobile  subscribers (at period end)                  |       | 284,991                     |       | 364,059 |   | 432,058 |   | 435,341 |   | 345,636 |   |
| Cable  subscribers (at period end)                   |       | —                      |       | 64,466 |   | 71,726 |   | 61,433 |   | 59,320 |   |

 

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(1)                               Beginningin 2003, we changed the presentation of our statement of operations in order toalign more accurately our core product and service segments with how managementevaluates our consolidated results of operations. Certain amounts previouslyreported for 2000, 2001 and 2002 have been restated to conform to the newpresentation. For 2001 and 2002, sales incentives are reclassified as areduction of long distance revenues in the case of long distance calling cardsand as a reduction of cellular revenues in the case of prepaid cellularservices, rather than as selling, general and administrative (“SG&A”)expenses. See Notes 2.25 and 2.26 to our consolidated financial statements.

 

(2)                               Exceptper share, ratios and other operating data.

 

(3)                               Weacquired our cable television operations on October 26, 2001.

 

(4)                               Weincurred professional and other costs in connection with negotiation of ourrestructuring.

 

(5)                               OnJune 4, 2002, a Presidential decree modified the tax system imposed on alltelecommunication providers in the Dominican Republic by concession agreements(including by our 1996 concession agreement) in favor of the payment of a taxequal to the greater of 25% of net taxable income or 1.5% of gross revenues,which is the tax applicable to Dominican corporate taxpayers. We began payingincome tax on this basis on September 1, 2002. For each of the periods prior toSeptember 1, 2002 presented, we made payments in lieu of income taxes equal to10% of gross domestic revenues, after deducting charges for access to the localnetwork, plus 10% of net international revenues. We are also required byDominican law to withhold a percentage (15% during 2004) of interest paid tofinancial institutions located outside the Dominican Republic and 25% of allother payments outside the Dominican Republic, excluding payments to foreignsuppliers for goods and equipment imported to the Dominican Republic. We arerequired by the terms of various financings with non-Dominican lenders,including our 11-3/8% Senior Notes due 2004, to pay additional amounts so thatthe net amount received by the lender after any withholding or deduction onaccount of taxes will not be less than the amount the lender would havereceived if such taxes had not been withheld or deducted.

 

(6)                               During2003, we performed our annual impairment review and recorded non-cash chargesof approximately $191.3 million related to our long-lived assets, goodwill andother intangible assets. The asset impairment charges reflected primarily theimpact of the Dominican peso devaluation on our telecommunication business inthe Dominican Republic as well as increased competition in the mobile businessand cancellation of a contract with the Dominican government for the provisionof internet services to public schools. See “Operating and Financial Review andProspects” and Note 28 to our consolidated financial statements.

 

(7)                               Includescosts of terminating operating leases, write-off of certificates of deposit andtax penalties.

 

(8)                               Lossfrom discontinued operations relates to the classification of our CentralAmerican operations and assets as discontinued

 

8

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operations in 2003. In February 2004, we sold ourCentral American operations, including our digital trunking network in Panama,and our radio frequency rights in Guatemala and El Salvador. As a result of thedifference between the net sale proceeds from the sale and the net book valueof our assets in Central America, we recorded a $38.6 million loss fromimpairment of assets held for sale in 2003. See “Operating and Financial Reviewand Prospects” and Note 25 to our consolidated financial statements.

 

(9)                               EffectiveJanuary 1, 2000, we adopted Staff Accounting Bulletin No. 101 of the U.S.Securities and Exchange Commission (“SEC”) concerning the recognition ofrevenue. This pronouncement provides that we recognize net revenues frominstallations and activations over the period in which we retain our clients. Asa result, we recognized a cumulative effect of accounting change of $16.5million in 2000.

 

(10)                         Includescapital lease obligations entered into in 2000 of $17.7 million and in 2001 of$3.3 million. We did not enter into any capital lease obligations after 2001.

 

(11)                         Includesboth inbound and outbound international long distance minutes.

 

#### **EXCHANGERATES**

#### ** **

The Federal Reserve Bankof New York does not report a buying rate for Dominican pesos. The followingtable sets forth the high, low and average official and private market exchangerates for each of the seven most recent years, and the high, low and averageofficial and private market exchange rates for each of the six months endedJune 30, 2007, as reported by the Central Bank of the Dominican Republic. Theaverage annual rates have been calculated by using the average of the exchangerates on the last day of each month during the period. At June 30, 2007, theaverage official exchange rate was RD$32.57 per US$1.00 while the averageprivate market rate was RD$32.62 per US$1.00.

 
| ** **                                 | ** ** | **Official Rate**            | ** ** |
|--------------------------------------------|------------|-----------------------------------|------------|
| **Year Ended December 31,** | ** ** | **High**                          | ** ** | **Low** | ** ** | **Avg.** | ** ** |
| ** **                                 | ** ** | **(RD$ per US$ )** | ** ** |
| ** **                                 | ** ** | ** **                        | ** ** |
| 2000                                       |       | 16.56                             |       | 15.91 |   | 16.18 |   |
| 2001                                       |       | 16.99                             |       | 16.58 |   | 16.69 |   |
| 2002                                       |       | 17.63                             |       | 16.97 |   | 17.45 |   |
| 2003                                       |       | 43.82                             |       | 17.76 |   | 29.37 |   |
| 2004                                       |       | 55.42                             |       | 27.93 |   | 41.93 |   |
| 2005                                       |       | 34.50                             |       | 28.05 |   | 30.28 |   |
| 2006                                       |       | 35.05                             |       | 32.19 |   | 33.30 |   |
|                                       |       |                              |       |   |   |   |   |
| **Month Ended**                            |       |                              |       |   |   |   |   |
| ** **                                 |       |                              |       |   |   |   |   |
| January 31, 2007                           |       | 34.51                             |       | 33.66 |   | 33.90 |   |
| February 28, 2007                          |       | 33.69                             |       | 33.43 |   | 33.51 |   |
| March 31, 2007                             |       | 33.47                             |       | 32.54 |   | 32.96 |   |
| April 30, 2007                             |       | 32.65                             |       | 32.12 |   | 32.40 |   |
| May 31, 2007                               |       | 32.63                             |       | 32.02 |   | 32.29 |   |
| June 30, 2007                              |       | 33.40                             |       | 32.13 |   | 32.57 |   |

 

9

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| ** **                                 | ** ** | **Private Market Rate** | ** ** |
|--------------------------------------------|------------|-----------------------------------|------------|
| **Year Ended December 31,** | ** ** | **High**                          | ** ** | **Low** | ** ** | **Avg.** | ** ** |
| ** **                                 | ** ** | **(RD$ per US$ )** | ** ** |
| ** **                                 | ** ** | ** **                        | ** ** |
| 2000                                       |       | 16.63                             |       | 16.08 |   | 16.37 |   |
| 2001                                       |       | 17.06                             |       | 16.65 |   | 16.88 |   |
| 2002                                       |       | 22.83                             |       | 17.03 |   | 18.54 |   |
| 2003                                       |       | 44.06                             |       | 22.50 |   | 30.93 |   |
| 2004                                       |       | 55.72                             |       | 28.08 |   | 42.11 |   |
| 2005                                       |       | 34.85                             |       | 28.12 |   | 30.39 |   |
| 2006                                       |       | 35.52                             |       | 32.30 |   | 33.34 |   |
|                                       |       |                              |       |   |   |   |   |
| **Month  Ended**                           |       |                              |       |   |   |   |   |
| ** **                                 |       |                              |       |   |   |   |   |
| January 31, 2007                           |       | 33.45                             |       | 33.74 |   | 33.95 |   |
| February 28,  2007                         |       | 33.74                             |       | 33.48 |   | 33.56 |   |
| March 31, 2007                             |       | 33.47                             |       | 32.55 |   | 33.00 |   |
| April 30, 2007                             |       | 32.68                             |       | 32.22 |   | 32.48 |   |
| May 31, 2007                               |       | 32.65                             |       | 32.12 |   | 32.33 |   |
| June 30, 2007                              |       | 33.44                             |       | 32.24 |   | 32.62 |   |

 

#### **RISKFACTORS**

#### ** **

You should carefullyconsider the risks described below and other information in this Annual Report.

 

#### **RisksRelating to our Restructuring**

#### ** **

***Wehave defaulted on payment of our outstanding indebtedness and are inrestructuring discussions with our creditors; certain of our creditors mayexercise their remedies against us which could prevent us from continuing as agoing concern.***

*** ***

In September 2003, weannounced that we would not be making a scheduled interest payment on our11-3/8% Senior Notes due September 1, 2004. In October 2003, we suspendedprincipal and interest payments on our unsecured indebtedness and principalpayments on our secured indebtedness. Subsequently, on September 1, 2004, weannounced that we would not be making the $200 million principal payment on our11-3/8% Senior Notes due September 1, 2004. As a result, our creditorsgenerally have the right to accelerate the maturity of our indebtedness to themand to demand payment of the full amounts payable under their respective debtinstruments. We are continuing discussions with our lenders, including the AdHoc Committee, which is comprised of certain holders of our 11-3/8% SeniorNotes due 2004 and other significant creditors, regarding a restructuring. In2007, we negotiated and entered into a Plan Support Agreement with our largestsecured creditor and unsecured creditors representing more than 70% byprincipal amount of our unsecured indebtedness, providing for the consensualrestructuring of our financial obligations, ownership and governance. Eventhough these discussions are continuing, our creditors could exercise theirrights to collect the debt owed to them or take other actions, including theexercise under Dominican law of provisional remedies that could result in,among other things, denying us access to our bank accounts, or creditorsattaching or seizing our assets. If we are not successful in restructuring ouroutstanding indebtedness, we may not be able to continue to operate ourbusiness as a going concern.

 

***Ourdebt restructuring process is subject to significant uncertainty and is likelyto result in the effective elimination of our current shareholders’ ownership. Ifthe restructuring process is not successful, we may be forced into insolvencyproceedings, which, in the Dominican Republic, could result in our liquidation.***

*** ***

The Plan SupportAgreement contemplates an exchange of all of our unsecured borrowed moneyobligations for a pro rata share of new secured notes to be issued byreorganized Tricom and all of the equity in a to-be-formed holding company. Thiswill result in a substantial reduction of the amount of our indebtedness. Theinterests of the existing holders of our equity, including the AmericanDepository Shares, will be effectively eliminated.

 

Consummation of the proposed restructuring remainssubject to significant uncertainties. Although our goal is to achieve aconsensual restructuring, we may not succeed in accomplishing this. It ispossible that one or more of our creditors may seek to attach 

 

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or seize our assets priorto the proposed restructuring. If a claim is filed requesting our bankruptcy byone or more of our creditors, we may seek the assistance of the Dominican orUnited States courts.

 

In general, if we areforced into bankruptcy in the Dominican Republic our shareholders and holdersof our indebtedness should expect the following three-stage process:

 

•                                          Aconciliation proceeding administered by the Ministry of State for Industry andCommerce (*Secretaría de Estado de Industria y Comercio*)in which the debtor and its creditors attempt to reach an amicable settlement;

 

•                                          If noamicable settlement is reached, a bankruptcy proceeding is initiated before theCourt of First Instance (*Tribunal de PrimeraInstancia*) in which the Court determines whether to issue abankruptcy order declaring the debtor bankrupt; and

 

•                                          If abankruptcy order is issued, the management and/or liquidation of the businessof the debtor and the resolution of creditor claims is administered by up tothree receivers.

 

However, a Dominican court may elect not to apply theamicable settlement and bankruptcy laws because no clear precedents on thissubject exist and because of the effects of the dual revision judicial systemestablished by the Dominican constitution which provides litigants the right toappeal any decision of the court before a Court of Appeals and later tointerpose a certiorari recourse before the Supreme Court. Any bankruptcyproceeding in the Dominican Republic may last for years before a final andirrevocable decision can be obtained.

 

***DominicanRepublic bankruptcy laws may not be as favorable to Tricom or its creditors asU.S. insolvency and bankruptcy laws.***

*** ***

If our restructuring efforts are unsuccessful, we maybecome involved with bankruptcy proceedings in the Dominican Republic. Thebankruptcy laws of the Dominican Republic are significantly different from, andare less developed than, those of the United States. There have been very fewbankruptcy proceedings in the Dominican Republic and none has involved anentity with operations as significant or a capital structure as complex as ours.Except for an amicable settlement process, Dominican bankruptcy law does notprovide for a reorganization process for debtors or for an automatic stay oncollection or foreclosure efforts by secured creditors.

 

Unless creditors’ claims are resolved in an amicablesettlement process or in negotiations among creditors and the debtor, Dominicanlaw provides only for the liquidation of a debtor’s business and distribution ofthe proceeds first to employees, Dominican tax authorities, lawyers, landlords,secured creditors, and finally to unsecured creditors. Amicable settlement andbankruptcy proceedings may be time consuming and subject to significant delays.Our business and market position likely would be adversely and significantlyaffected by the proceedings and the adverse publicity that would accompany it.

 

Dominican courts have broad discretion and, in theabsence of precedent, we cannot predict how courts or appointed receivers wouldapply the law or administer a bankruptcy. The ability of our creditors torealize any value may be limited, particularly in liquidation, in which caseour assets and business units likely would have a significantly diminishedvalue. Our liquidation under Dominican bankruptcy laws could result increditors receiving distributions from such liquidation in Dominican pesos,including with respect to indebtedness denominated in U.S. dollars, thussubjecting such creditors to the currency risks associated with convertingDominican pesos into U.S. dollars.

 

***Successfulcompletion of a consensual restructuring requires the cooperation of ourprincipal shareholders, GFN and Motorola. Entities affiliated with GFN are alsoamong our major creditors.***

 

Under our Bylaws, the holders of two-thirds of thevotes entitled to be cast at a shareholders’ meeting are required to approvethe filing of a voluntary bankruptcy petition. Although the holdings of ourcurrent shareholders would be effectively eliminated in the restructuring, theconsent of our principal shareholders, GFN and Motorola, is necessary in orderfor any restructuring that involves our filing a voluntary bankruptcy petitionto move forward.

 

 

11

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Entities affiliated withone of our major shareholders, GFN, are among our creditors. It is thereforepossible that our major shareholders, in approving our restructuring, may notact in the best interests of our other creditors.

 

***Potentialfor Duplicate Claims.***

 

A portion of our payment obligations have been subjectto one or more assignments or re-documentation both with respect to thirdparties and our affiliates and former affiliates. We are not currently aware ofany claim that has been asserted against us by more than one claimant. However,it is possible that multiple claims relating to the identical underlyingliability may be asserted against us arising from, among other circumstances,alleged defects in the assignment documentation, lack of required consents orfailure to obtain appropriate approvals. Such risk may exist in connection withcertain transfers of debt between our affiliates.

 

***Even if our restructuring process is successfully completed, we may notbe able to service new debt or other obligations resulting from therestructuring.***

 

Any plan of reorganization resulting from ourrestructuring process, whether pursuant to the Plan Support Agreement orotherwise, is likely to involve us issuing or assuming a significant amount ofindebtedness. As a result, we will likely be highly leveraged immediately afterany restructuring is consummated. The degree to which we are leveraged couldhave important consequences to us, including the following:

 

•      A substantial portion of our cash flowwould need to be used to pay interest on our indebtedness and therefore wouldnot be available for use in our business;

 

•      We may be vulnerable to changes in generaleconomic and industry conditions;

 

•      Our ability to obtain additional financingfor working capital, capital expenditures, acquisitions, general corporatepurposes or other purposes could be impaired;

 

•      We may have much more indebtedness thanour competitors in the Dominican Republic, which may be a competitivedisadvantage in our principal market;

 

•      Because some of our borrowings may beshort-term or at variable rates of interest, we may be vulnerable to interestrate fluctuations, which could result in our incurring higher interest expensesif interest rates increase;

 

•      Any devaluation of the Dominican pesowould cause the cost of our U.S. dollar-denominated debt to increase; and

 

•      Our failure to comply with covenants andrestrictions contained in the terms of our borrowings could lead to a defaultwhich could cause all or a significant portion of our debt to becomeimmediately payable.

 

***Notrading market may develop in the securities resulting from our restructuring,and trading in such securities may be subject to significant volatility.***

*** ***

It is likely that a combination of debt and equitysecurities will be issued in connection with the consummation of ourrestructuring. There is currently no trading market in any securities that mayresult from our restructuring and, following consummation of the restructuring,an active trading market for those securities may not develop or be sustained. Thiscould adversely affect the liquidity and market price of our securities andholders might not be able to sell them readily.

 

Active, liquid trading markets generally result inlower price volatility and more efficient execution of buy and sell orders forinvestors. If a liquid trading market for our post-restructuring securitiesdoes not develop, their price may become more volatile, and it may be moredifficult to complete a buy or sell order for such securities.

 

In addition to our operating results, the tradingprices of our post-restructuring securities may fluctuate in response toseveral 

 

12

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extraneous factors,including economic conditions in emerging markets generally, in Latin America,and in our business sector. The market price of our post-restructuringsecurities may decline below the price set in the restructuring.

 

***Whetheror not a restructuring is achieved, certain creditors may be beyond the jurisdictionof the United States courts.***

*** ***

Dominican courts may notrecognize the jurisdiction or decisions of the United States courts, includingbankruptcy courts, and our Dominican creditors may not be subject to thejurisdiction of the United States courts. In a typical restructuring of anentity organized in the United States, all creditors are subject to theautomatic stay provision and are bound by any plan of reorganization resultingfrom the bankruptcy proceedings. We are organized in the Dominican Republic andcertain of our creditors, in particular our Dominican creditors, may not besubject to the jurisdiction of the United States courts. It may therefore benecessary to negotiate separate settlements with such creditors, which may beon terms different from those available to creditors subject to a United Statesbankruptcy proceeding. We may not reach settlements with all such creditors,who may be able to exercise remedies against us and may not be subject to theautomatic stay or other orders of a United States bankruptcy court.

 

***We are involved in various legal proceedings which couldresult in unfavorable decisions and financial difficulties for us.***

*** ***

We are a defendant in a numberof legal proceedings. We cannot be certain that these claims will be resolvedin our favor. We may, in the future, be subject to further legal proceedings,including those arising out of the December 2002 private placement and otherlegal proceedings resulting from our former affiliation with certain bankingand other financial services entities that collapsed during 2003. If anunfavorable judgment is obtained against us in any of these matters, we may notbe able to satisfy the amount of the judgment without significantly impairingour liquidity. There can be no assurance that any of the litigants in ourpending legal proceedings would be amenable to participating in any consensualrestructuring. If a judgment creditor exercises its rights to collect ajudgment, this could result in, among other things, denial of access to ourbank accounts, the attachment or seizure of our assets, or the initiation ofbankruptcy proceedings in the United States or the Dominican Republic. Abankruptcy proceeding in the Dominican Republic could result in ourliquidation.

 

***Consummationof our restructuring will require the consent of our regulator, Indotel andpossibly other government departments in the Dominican Republic.***

*** ***

***Ourrestructuring will likely involve a change of control, an event that willrequire the consent of our regulator, Instituto Dominicano de lasTelecomunicaciones (“Indotel”). As part of the proceedings to determine whethersuch consent will be granted, third parties, including our competitors, mayobject to the transactions constituting the restructuring. In considering ourapplication for consent, Indotel may consult with other government departmentsand governmental agencies in the Dominican Republic, including the Central Bankof the Dominican Republic, any of which may raise objections based on mattersextraneous to our business or the merits of the restructuring. If Indoteldecides in favor of these or any other objections, it could invalidate thetransfer of our telecommunications licenses and other concessions and imposefines on us. It is also possible that Indotel might limit the areas where wecan provide services. Any determination by Indotel that is adverse to us couldhave a material adverse effect both on our ability to consummate ourrestructuring and on our operations and financial position.***

 

***The change of controlcontemplated by our restructuring will likely require the consent of theFederal Communications Commission in the United States and statetelecommunications regulatory agencies in order for Tricom USA to remain incompliance with applicable regulatory requirements.***

 

As our restructuring will likelyinvolve a change of control, such a change affecting carriers authorized by theFederal Communications Commission and state telecommunications regulators inthe United States typically requires the approval of the Federal CommunicationsCommission and state telecommunications regulators.  Since our subsidiary Tricom USA is certifiedby the Federal Communications Commission and several state telecommunicationsregulatory agencies, prior approval of these governmental entities for thechange of control contemplated by the restructuring may be necessary in orderfor Tricom USA to remain in compliance with applicable regulatory requirements.As part of the proceedings to determine whether consent will be granted, thirdparties, including our competitors, may object to the transactions constitutingthe restructuring. In considering our application for consent, the FederalCommunications Commission may consult with other government departments andgovernmental agencies in the United States, including the Department ofHomeland Security, which has been reviewing certain transactions involvingforeign carriers and foreign individuals. Pursuant to the rules of the FederalCommunications Commission and most state telecommunications agencies, we wouldbe required to obtain an approval before consummating the restructuring inorder for Tricom USA to remain in compliance with applicable regulatoryrequirements.

 

***Taxissues concerning the restructuring.***

*** ***

The tax authority of theDominican Republic has authorized us to use significant amounts of accumulatedlosses to offset potential income arising from the cancellation of our debtthat is expected to take place in the context of the restructuring. Thisauthorization is premised on several conditions, in particular, that the rulingonly applies for fiscal year 2007. If we do not consummate our restructuringprior to December 31, 2007, we may be subject to significant additional taxes.

 

In or about 2004, weelected to allocate the interest accrued and to be accrued on the instrumentsunderlying our unsecured 

 

13

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indebtedness to TricomUSA, which is a guarantor of certain, but not all, of these obligations. Ourtax advisors concluded that such allocation was appropriate and as of April 30,2007, approximately $111 million of accrued and unpaid interest plus $17million in penalty interest has been allocated to Tricom USA. It is possible,however, that the Internal Revenue Service, another U.S. agency, or theDominican tax authorities would seek to challenge this allocation. To theextent such interest is allocated back to Tricom, S.A., we would be required topay all requisite withholding taxes on such interest and it is possible, althoughunlikely, that Tricom, S.A. could incur additional fines and penalties in theDominican Republic.

 

**Risks Relating to our CorporateGovernance**

 

***GFN owns stock witha majority of the voting power and will be able to determine many decisionsconcerning us, including matters in connection with any restructuring that mayrequire shareholder approval.***

 

Accordingto records available to us, Mr. Manuel Arturo Pellerano Peña (“Mr. Pellerano”),together with members of his family, either directly or through GFN or theirother wholly-owned subsidiaries, are the beneficial owners of 17,453,874 sharesof our Class A Common Stock and 11,486,720 shares of our Class B Common Stock,representing approximately 50.8% of the issued and outstanding shares of ourClass A Common Stock (calculated in accordance with SEC Rule 13d-3) and 60% ofthe issued and outstanding shares of our Class B Common Stock. Mr. Pellerano,together with members of his family, has the right to appoint a majority of themembers of our Board of Directors and, indirectly, the right to controlselection of our management. Through this control, Mr. Pellerano is able tosignificantly influence our strategic direction, our corporate governance and,to the extent that director or shareholder votes are required, the outcome ofour restructuring. Entities affiliated with GFN are also among our majorcreditors. We have entered into, and may in the future enter into, transactionswith related entities that are controlled by Mr. Pellerano or members of hisfamily. Such transactions may not in all respects be on arm’s length terms andmay not be in the best interests of our other stakeholders, such as creditorsand minority shareholders.

 

***Directors’ andothers’ duties in the Dominican Republic are different from those in the UnitedStates, and the provisions of our Bylaws and Shareholders Agreement may be oflimited benefit to interested parties.***

 

We areorganized under, and our Bylaws and Shareholders Agreement are governed by, thelaws of the Dominican Republic. Under Dominican law, the law concerningfiduciary duties of directors, controlling shareholders and others, is not aswell developed as in the United States. As a result, in practice it may be moredifficult for creditors, minority shareholders and others to enforce theirrights against us or our directors or controlling shareholder than it would beif we were a U.S. company.

 

Ourprincipal corporate documents consist of our Bylaws and the ShareholdersAgreement between our two principal shareholders, GFN and Motorola. See Item 7,Major Shareholders and Related Party Transactions—Shareholders Agreement. Whilethese documents address certain corporate governance issues, one of theirprincipal purposes was to regulate matters as between those two shareholders. Accordingly,the benefit of these documents to other interested parties, such as minorityshareholders and creditors, may be limited. Furthermore, it is difficult topredict how a court of competent jurisdiction in the Dominican Republic wouldinterpret the provisions of these documents in specified circumstances.

 

***Wemay have significant liabilities arising out of a private placement that tookplace in December 2002.***

 

Our consolidated balance sheet as of December 31, 2002 and the relatedstatements of operations, stockholders’ equity (deficit) and comprehensive lossand cash flows for the year then ended have been restated to reflectadjustments to the financial information and footnotes previously reported inour Annual Report on Form 20-F for the fiscal year ended December 31, 2002. Theadjustments relate primarily to the purchase in December 2002 of shares of ourClass A Common Stock by a group of investors for an aggregate purchase price ofapproximately $70 million. See Item 7, Major Shareholders and Related PartyTransactions—2002 Private Placement, for a detailed description of thePlacement, the report of the Special Committee and the restatement andamendment of our 2002 financial statements.

 

The report of the Special Committee contained observations to theeffect that we may have certain undisclosed actual or contingent liabilitiesarising out of the Placement and that the disclosure as to the Placement andrelated transactions contained in our 

 

14

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Annual Report on Form20-F for the fiscal year ended December 31, 2002 may have been deficient and/ornot consistent with information presented to the Special Committee. The reportalso stated that varying conclusions can be reached as to whether we properlyaccounted for the Placement, based on different hypothetical fact scenarios. Asof the filing date of this report, no claims arising out of the events relatingto the Placement have been asserted, in any jurisdiction, in any litigation orsimilar proceedings brought against us or our subsidiaries. Nevertheless, wehave received indications that certain parties involved in the Placementbelieve that they have claims in connection with the Placement, although we areunable at the present time to determine either the probability of such claimsbeing asserted against us, or the validity or amount of such claims if they areasserted. While it is possible that we will in the future need to establishloss contingencies relating to the Placement, our management does not believethat this is necessary at the present time. Claims arising out of the Placementcould, in the aggregate, equal or substantially exceed the $70 million amountof the Placement, in particular if the claimants seek rescission of thePlacement or certain related transactions.

 

***Thereport of the Special Committee raised several issues relating to our corporategovernance, most of which have not been addressed.***

 

In addition to the possibility of liabilities arising out of thePlacement, the Special Committee offered several observations and correctiverecommendations for our Board of Directors’ consideration, including, amongothers, the following:

 

•      The creation of an independent auditcommittee of the Board of Directors, in accordance with current best corporategovernance practices for U.S. public companies;

 

•      Expansion of the scope of review of ourinternal audit function to cover all related party transactions;

 

•      Strengthening the internal legal functionby adoption of more stringent internal policies covering the legal review andsign-off of corporate transactions, and Board of Directors approval of aconsistent policy for retention and use of outside legal counsel in connectionwith any significant corporate transaction;

 

•      Constitution of a formal internalmanagement disclosure committee, comprised of members of ourfinance/accounting, legal and selected business units, having primaryresponsibility for creating and reviewing our public disclosures of materialevents and transactions and other matters;

 

•      Adoption of a comprehensive code ofconduct, covering all directors, officers and employees, in a form consistentwith best internal governance practices for public companies addressing, amongother things, the guidelines for appropriate documentation and independentreview and approval of transactions involving our related parties oraffiliates;

 

•      Adoption of a formal records retentionpolicy covering, among other things, a classification of records to bepreserved (and for how long), who has access to our files and guidelines fordocumenting material transactions, etc.

 

A more detailed description of these recommendations is set forth inour Report on Form 6-K dated December 9, 2005. To date, we have not implementedmost of these recommendations. While adoption of these or similarrecommendations may not prevent the occurrence of transactions raising issuessimilar to those raised by the Placement, our failure to implement theserecommendations could leave us exposed to further liabilities from transactionsthat may occur in the future.

 

***We donot have an audit committee and our internal accounting systems and controlsmay be inadequate to ensure timely and accurate financial reporting.***

 

Our Board of Directors has not appointed an audit committee. Forpurposes of U.S. securities laws, in the absence of an audit committee, ourfull Board of Directors fulfills the functions of the audit committee. Whileour Board of Directors is not currently required to appoint an audit committee,the absence of one is unusual and not in accordance with current best corporategovernance practices for U.S. public companies.

 

15

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During the course of the audit of our consolidated financial statementsfor the years ended December 31, 2002, 2003 and 2004, our independentregistered accounting firm noted several major weaknesses in our financialreporting and related internal controls. Our auditor recommended that ourmanagement assess these weaknesses and implement improvements in themonitoring, revision and supervision of our internal controls over financialreporting. While we have implemented many of these recommendations, we arestill in the process of addressing these issues. Our internal accountingsystems and controls may be inadequate to ensure timely and accurate financialreporting. We may be, and historically may have been, unable to detect orprevent a material misstatement of our consolidated financial statements.

 

***Weare not able at the present time to engage an internationally recognizedauditing firm.***

 

For the fiscal year ended December 31, 2002 and prior years our auditorwas KPMG. This firm performed our audit work for the fiscal year ended December31, 2003, but withheld its consent to filing our Annual Report on Form 20-F forthat year. Since then, KPMG has not performed any further work for us. In March2005, we announced that Sotomayor had been retained to act as our auditor forthe year ended December 31, 2004, and in December 2005, we announced that theywould also be retained as auditor for the years ended December 31, 2002 and2003, replacing KPMG. Sotomayor is a PCAOB registered independent publicaccounting firm with its principal office in Pasadena, California. The firm hasacted as independent auditor to Tricom USA, our wholly owned subsidiary in theUnited States, since 1999. While our auditor’s PCAOB qualification permits itto act as our independent registered public accounting firm, it is not aninternationally recognized firm, and may not have available to it all of theresources necessary to address the more complex audit and accounting issues weface.

 

#### **RisksRelating to our Capital Structure and Liquidity**

#### ** **

***Ourconsolidated financial statements have been prepared on a going concern basis.***

*** ***

Our consolidated financial statements have beenprepared on a going concern basis, which contemplates continuity of operations,realization of assets and satisfaction of liabilities in the ordinary course ofbusiness. However, because of our current financial condition and the effectsof the Dominican economy, including the effects of the fluctuation of theDominican peso on our operating results and other matters, the realization ofassets and satisfaction of our liabilities are subject to substantial uncertainty.In the past, we financed our capital expenditure and working capitalrequirements, to the extent we did not generate sufficient cash flow fromoperations, with borrowings, principally in Dominican markets. In light of ourrecent financial results and adverse developments in the Dominican economy, wemay not be able to generate the cash flow from operations required to operateas a going concern. At the present time, our only source of liquidity is cashflow from operations and proceeds from asset sales. We do not have access tooutside funding sources. Even if we are able to reach agreement with ourlenders concerning a financial restructuring, we may not be able to obtain thefinancing in the future necessary to continue funding our operations or capitalneeds. The report on our financial statements by our independent registeredaccounting firm contains an explanatory paragraph that states that thesefactors, among others, create substantial doubt about our ability to continueas a going concern.

 

***Wedo not generate sufficient cash flow from operations to meet our debt servicerequirements.***

*** ***

Even if we are able to reach agreement with ourlenders concerning a financial restructuring, our ability to pay interest onour indebtedness (even if the principal amount is reduced in a restructuring)and meet our debt service obligations will depend on our future operatingperformance, including our ability to increase revenues and control expenses,which in turn depends on successful implementation of our strategy and onfinancial, competitive, regulatory, technical and other factors, many of whichare beyond our control. It is likely that any new debt issued in exchange forour existing indebtedness will be payable in U.S. dollars and our ability topay interest and principal will continue to be affected by and dependent on theperformance of the Dominican economy. As a result of these and other factors,we may not be able to meet our debt service obligations even if our currentindebtedness is restructured.

 

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***Thevolatility and depreciation of the Dominican peso against the U.S. dollar couldreduce the amount of cash we will have to fund our operations or to purchaseequipment and cable television programming, and to repay indebtedness, even ifour indebtedness is restructured.***

*** ***

For 2002, 2003, and 2004, we earned 32.9%, 30.6% and46.8%, respectively, of our operating revenues in Dominican pesos and theremainder of our operating revenues in foreign currency, primarily in U.S.dollars. The percentage of operating revenues in Dominican pesos could increaseif we successfully increase our share in Dominican local markets in accordancewith our business strategy. From 2003 to 2004, the average annual exchange rateincreased 36.1% representing a strengthening of the U.S. dollar against theDominican peso compared to an increase of 66.4% from 2002 to 2003. Most of ourindebtedness is U.S. dollar-denominated and must be paid in U.S. dollars. Ourcommunications equipment vendors and cable programming providers all requirethat we pay in U.S. dollars. The devaluation of the Dominican peso has and mayfor the foreseeable future significantly adversely affect our operatingresults, as well as our ability to purchase U.S. dollars in order to serviceour debt obligations and pay equipment vendors and cable programming providers.Our purchase of substantial amounts of U.S. dollars in Dominican markets couldadversely affect the value of the Dominican peso in relation to the U.S. dollarand make these purchases more costly for us.

 

#### ***Other Tax Issues.***

#### ** **

The Dominican government has in the past changed taxrates and created new taxes, as well as modified the system of taxation withsome frequency. In addition, it is possible that the Dominican government mayimpose taxes related to the telecommunications industry that may affect ourfinancial performance.

 

#### **RisksRelated to our Operations**

#### ** **

***Ourprincipal competitor for the provision of local, mobile and international longdistance services in the Dominican Republic, Codetel, has substantially greatermarket share and resources, which may prevent us from maintaining or increasingour market share.***

*** ***

We compete primarily with Compañía Dominicana deTeléfonos C. por A., or “Codetel” (formerly Verizon Dominicana, which wasacquired by América Móvil, S.A. de C.V. in December 2006). Codetel has anestablished market presence, networks and resources substantially greater thanours. At December 31, 2004, approximately 84% of the Dominican Republic’s localaccess line customers and approximately 49% of subscribers for mobile services,were customers of Codetel. Codetel’s presence is particularly strong in themarket segments that we now are targeting, including consumer and businesspost-paid subscribers for mobile and local services, which generate greaterrevenues than pre-paid individual subscribers. The growth of our market shareamong consumer and corporate post-paid subscribers depends upon our ability toconvince Codetel customers to either add, or switch to, the telephony serviceswe offer. If Codetel implements significant price reductions for particularservices, we may be forced to reduce our rates in response in order to remaincompetitive. In addition, Codetel could expend significantly greater amounts ofcapital than are available to us in order to upgrade its network and/or sustainprice reductions over a prolonged period. As a result, we may not be able tomaintain or increase our market share for local services or in other markets inwhich we compete with Codetel.

 

***Otherentrants in the Dominican markets, particularly for mobile services, haveincreased competition for our services, and could reduce our market share orincrease price competition.***

*** ***

In addition to Codetel, weface substantial competition in the mobile market:

 

•                                          Orange offerscellular services and has developed an aggressive marketing strategy based onoffering services at discounts. We believe that at December 31, 2004 Orangesubscribers represented in excess of 25% of subscribers for mobile services inthe Dominican Republic. Orange also employs GSM technology, which is theprevalent technology used in Europe and makes its services compatible withhandsets that many tourists use;

 

17

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•                                          All AmericaCables and Radio, Inc., or “Centennial Dominicana” (which was acquired byTrilogy International Partners in early 2007), is an integratedtelecommunications provider that offers mobile and data services.

 

As a result of these and other potential new entrants,we expect to face more competition in the Dominican telecommunications marketin the future, including from international communications companies withsignificantly greater resources than ours, which could adversely affect our abilityto maintain our market share or require us to lower prices.

 

Further investment by foreign companies in Dominicantelecommunications markets could limit the number of U.S. carriers that wouldsend significant traffic to us, thereby adversely affecting our ability togenerate international long distance termination revenues. Due to unfavorablemarket trends, termination rates for international traffic from the UnitedStates and Puerto Rico to the Dominican Republic have declined and couldcontinue to decline, which would further reduce our international revenues andrelated profit margins.

 

***Ourbusiness plan, which now focuses on higher usage customers and includesinvoluntary disconnections of lower usage or unprofitable customers, may notresult in increased revenues or higher average revenue per user from ourremaining customers.***

*** ***

Our business plan for our mobile and local servicesincludes disconnecting subscribers who use our service only to receive callsand who do not make many outgoing calls or do not use our other services. During2003 and 2004, we disconnected a substantial portion of these subscribers. Bydisconnecting these subscribers, we believe we can better use our networks andconcentrate our sales efforts on consumer and business customers that generategreater per subscriber revenues to improve our margins. However, ourdisconnection of subscribers could result in an overall decrease in revenues. Wemay not be able to attract new subscribers that generate greater revenues andwe may need to incur greater marketing and customer acquisition expenses to doso.

 

***Ifwe experience a significant number of customer non-payments our business andresults of operations could be adversely affected.***

*** ***

Our business plan includes increasing our revenuesfrom post-paid services, including mobile telecommunication services and cabletelevision services. Although we have instituted measures to minimize consumercredit risks, these efforts may not be successful as we expand our services inthe post-paid area. Moreover, efforts to minimize credit risk may limit thenumber of our new subscribers. If we experience a significant number ofnon-payments or are unable to attract new post-paid customers, then ourrevenues will decrease and our cash position will be weakened.

 

***Terminationrates for international traffic from the United States and Puerto Rico havedeclined and could continue to decline, which would reduce our internationalrevenues and profit margins from these revenues.***

*** ***

Revenues from our international long distance businessrepresented approximately 34% of our operating revenues in 2002, 46% in 2003and 38% in 2004. Exchange rate and market trends have caused our averagetermination rates for traffic between the United States and the DominicanRepublic to decline from $0.41 per minute during 1996 to $0.069 per minute in2004. We believe that competitive and regulatory pressures could continue topush settlement rates lower. Future decreases in termination rates, without acorresponding increase in our international long distance traffic originatingin the United States and Puerto Rico, would reduce our internationaltermination revenues and adversely affect the profit margins that we realizefrom these revenues.

 

As in the rest of the world, there are changing dynamics in ourinternational business. Modern market technologies such as Voice-over-InternetProtocol (“VoIP”) equipment have created an environment allowing new entrantsinto this business in the Dominican Republic. These companies may extend theirreach to many of our traditional U.S.-based carriers and resellers thatterminate significant traffic in the Dominican Republic.

 

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***Becausewe are receiving an increasing portion of our international minutes from U.S.-basedresellers, we may experience substantial fluctuation in our internationalrevenues.***

*** ***

Since 1997, we havederived an increasing proportion of international revenues from U.S.-basedresellers, which are companies that typically buy long distance minutes in bulkand resell the minutes to other companies or individual end users.  During2004, resellers originated approximately 52.4% of our international longdistance minutes from the United States to the Dominican Republic.  Whilewe enter into agreements with resellers, they are not required to provide uswith any specified amount of traffic.  The volume of minutes and revenueswe receive from these resellers has significantly varied throughout the pastyears because of competition for their business, primarily from Codetel, ourmain competitor, and because of the uncertain financial condition of manyresellers.  The price per minute we charge a reseller is frequentlyrenegotiated and as a result we, together with our competitors, struggle tomaintain stable prices. At December 31, 2004, we received traffic fromapproximately 81 resellers. Intense competition in U.S. markets amonginternational long distance carriers has resulted in bankruptcy filings by manyof our reseller clients.

 

***Ournet growth in, and revenue derived from, subscribers may be reduced by customerdisconnections or churn.***

*** ***

Our results of operations in the past have been, andin the future may be, affected by subscriber disconnections, whether initiatedby our customers or by us. In order to realize net growth in subscribers, wemust replace disconnected subscribers with new subscribers. Our average monthlydisconnection rate, or “churn rate,” was 9.1% for mobile subscribers during2004 compared to 3.9% during 2003, and 2.0% for local access line subscribersduring 2004 compared to 2.7% during 2003. During 2004, our average churn ratefor cable television was 1.8% compared to 3.9% during 2003. The sales andmarketing costs associated with attracting new subscribers are substantial,relative to the costs of providing service to existing subscribers. If we areunable to maintain our credit policies or otherwise limit churn, we willexperience a decline in net growth in subscribers and revenue.

 

***Wemay not have sufficient resources to keep pace with rapid changes intechnologies used to provide telecommunications services which could increasecompetition or require us to make substantial additional expenditures tomaintain and improve our current networks, which could reduce our revenues fromsubscribers and cash flow.***

*** ***

The services we offer are technology intensive. Thedevelopment of new technologies could make the technology we use obsolete. Wemay have to make substantial additional investments in new technologies toremain competitive. New technologies we choose may not prove to be commerciallysuccessful. We would require substantial investment to replace or upgrade allor a substantial part of our network. We have chosen to improve our liquidityby reducing our capital expenditures which affects our ability to improve ournetwork. We spent approximately $13.3 million on capital expenditures in 2004. Thiscompares to $10.8 million in 2003 and $53.8 million expended in 2002. If we donot invest in the latest technology, our network may rapidly become obsoleteand we may not be able to retain our existing customers or attract new ones.

 

***Ifwe are unable to continue offering high-quality programming, our cable revenuesmay decline.***

*** ***

The success of our cable television services dependsupon our ability to acquire popular, high-quality programming content. Welicense a significant portion of our programming from third parties. Ourarrangements with these third parties regarding programming may be terminated,or may not be renewed on favorable terms, if at all. These third parties couldincrease our costs of obtaining programming and we may not be able to passthese costs on to our cable subscribers. As we upgrade the channel capacity ofour cable system and add programming to our basic cable service, we may not beable to pass programming costs on to our cable subscribers. If some or all ofour programming arrangements are terminated or if we cannot negotiate newagreements on terms favorable to us, we may lose existing subscribers and attractfewer new subscribers, which would reduce our revenues.

 

***Ouroperations may be vulnerable to hacking, viruses, thefts and other disruptions.***

*** ***

“Hacking” involves efforts to gain unauthorized accessto information or systems or to cause intentional malfunctions or loss 

 

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or corruption of data,software, hardware or other computer equipment. In addition, the transmissionof computer viruses could expose us to a material risk of loss or litigationand possible liability. Computer viruses, break-ins or other problems couldlead to:

 

•                                          Theinterruption, delay or cessation of services to our subscribers;

 

•                                          Thecompromise of confidential information relating to our subscribers;

 

•                                          Damage to ourreputation and the loss of subscribers; and

 

•                                          Costlylitigation.

 

***TheDominican Republic is highly vulnerable to hurricanes.***

*** ***

Much of our network is above ground, includingsignificant parts of our backbone. A major hurricane could result insignificant damage to and disruption of our network. In addition, our networkmay not be fully insured. Our network is also vulnerable to theft and sabotage.

 

#### **RisksRelating to our Principal Market, the Dominican Republic**

#### ** **

***Ourresults of operations have been, and may continue to be, materially adverselyaffected by the fluctuation of the peso and the economic conditions currentlyprevailing in the Dominican Republic.***

*** ***

We realize a substantial portion of our revenues inDominican pesos and, as a result, the increase in the exchange rate of theDominican peso to the U.S. dollar has had and may continue to have a materialadverse effect on the U.S. dollar value of our operating results and ourability to service our debt which is largely denominated in U.S. dollars. Theaverage annual exchange rate of the Dominican peso to the U.S. dollar increased36.1% in 2004 and by approximately 66.4% and 26.2% in 2003 and 2002,respectively, adversely affecting the Dominican economy. In addition, thedevaluation of the Dominican peso has had a material adverse effect on ourfinancial condition, as our largely Dominican peso-denominated assets havedepreciated in value and our indebtedness is largely U.S. dollar denominated. Anyfurther depreciation of the Dominican peso against the U.S. dollar willcorrespondingly increase the amount of our debt in Dominican pesos, withfurther adverse effects on our results of operations and financial condition.Our total indebtedness as of December 31, 2004 was $448.3 million.

 

It is impossible to predict whether, and to whatextent, the value of the Dominican peso may further depreciate against the U.S.dollar and how these uncertainties will affect the Dominican economy and theconsumption of telecommunication services. Moreover, we cannot predict whetherthe Dominican government will modify its monetary policy and, if so, whatimpact any such changes could have on our financial condition and results ofoperations.

 

***Poverty,social unrest and shortages of basic services in the Dominican Republic couldaffect the use of telecommunications services, which would decrease ourrevenues.***

*** ***

The Dominican Republic has widespread poverty. Fromtime to time, the country has experienced social unrest partly as a result ofprice increases and shortages of water and electricity. Any increase inpoverty, social unrest or shortage of basic services could adversely affect theuse of telecommunications services.

 

***Youmay not be able to enforce claims in the Dominican Republic based on U.S. laws.***

*** ***

A majority of our directors and all of our officersreside outside of the United States. A substantial portion of our assets andthe assets of these persons are located outside the United States. As a result,it may not be possible for investors to effect service of process within theUnited States upon us or these other persons to enforce judgments obtainedagainst us or against them in United States courts predicated upon the civilliability provisions of the United States federal securities laws, otherfederal laws of the United Sates or laws of the individual states of the UnitedStates.

 

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No treaty currently exists between the United Statesand the Dominican Republic providing for reciprocal enforcement of foreignjudgments. We have been advised by our Dominican counsel, that there is doubtas to (1) the ability of a plaintiff to bring an original action in a Dominicancourt which is predicated solely upon the United States securities laws, otherfederal laws of the United States or laws of the individual states of theUnited States and (2) the enforceability in Dominican courts of judgments ofUnited States courts obtained in actions predicated upon civil liabilityprovisions of the United States federal securities laws, other federal laws ofthe United States or laws of the individual states of the United States.

 

Our Dominican counsel also has advised us that theenforceability of actions brought in Dominican courts of liabilities predicatedon U.S. laws would require compliance with certain procedures, including thevalidation by Dominican courts of decisions rendered by United States courts. Compliancewith such procedures could require a substantial amount of time and expense,and local defendants could assert defenses to enforcement based onnoncompliance with such procedures. Foreign plaintiffs bringing originalactions in a Dominican court also can, at the request of the defendant, berequired to post a litigation bond in an amount established by such court inits discretion.

 

The Dominican legal system is based upon civil lawprinciples according to which judges decide both the facts and legal issues ofa case, and they are not bound by legal precedents. As a result, judges havebroader discretion in reaching decisions than do judges in the United States. Inthe past, the United States Department of Commerce has reported that Dominicansand foreign observers have criticized the Dominican judicial system for whatthey perceive as an inequitable resolution of business disputes. The Dominicanlegal system, coupled with the fact that substantially all of our assets arelocated in the Dominican Republic, may present substantial obstacles to theenforcement of judgments against us, as well as our directors and officers inthe Dominican Republic.

 

***Increasesin the inflation rate would adversely affect the Dominican Republic’s economyand the demand for our services.***

*** ***

Inflation in the Dominican Republic has increasedsignificantly during 2003 and 2004. According to the Central Bank, the annualrate of inflation was 28.7% in 2004 and 42.7% in 2003, compared to 10.5% in2002, 4.4% in 2001 and 9.0% in 2000. The increase in inflation in 2003 and 2004was principally due to the depreciation of the Dominican peso against the U.S.dollar, higher fuel prices and growth in public spending. According to theCentral Bank, the average annual exchange rate of the Dominican peso to theU.S. dollar increased 36.1%, 66.4%, and 10.0% in 2004, 2003, and 2002,respectively. Any increase in the value of the U.S. dollar against theDominican peso directly affects the Dominican Republic’s inflation rate becausethe Dominican Republic relies heavily on imports from the United States of rawmaterials and consumer goods. High inflation levels could adversely affect theDominican Republic’s economy and reduce demand for our services.

 

#### **RisksRelating to our Shares and ADSs**

#### ** **

***OurADSs have been delisted and are no longer listed on a national securitiesexchange; our Depositary Agreement has been terminated; our debt restructuringis likely to result in effective elimination of our current shareholders.***

*** ***

On May 11, 2004, the NYSE determined to suspendtrading and pursue delisting of our ADSs, ticker symbol “TDR”. On May 19, 2004,our ADSs began trading on the OTCBB under the symbol “TRICY.OB”. On July 25,2004, the OTCBB suspended trading of our ADSs. Thereafter, our ADSs were tradedon the “Pink Sheets” service under the symbol “TRICY.PK”. In December 2006, theBank of New York, as depositary for our ADS facility, notified us and holdersof our ADSs that they were terminating the ADS facility. With the terminationof the ADS facility, our ADSs ceased trading on the “Pink Sheets” service onMarch 29, 2007. Upon termination of the ADS facility, most of the depositary’sobligations under the Deposit Agreement also terminate. Holders of our ADSs mayobtain delivery of the shares of Class A Common Stock underlying our ADSs, uponpayment of certain taxes and processing fees. As a result of the termination,the Bank of New York is no longer obligated to perform any functions inconnection with voting the Class A Common Stock underlying our ADSs.

 

Following consummation of our debt restructuring, theinterests of our current shareholders, including holders of our ADSs, areexpected to be effectively eliminated.

 

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***GFNmay act without approval of the ADS holders to release directors and officersfrom liability.***

*** ***

Under Dominican law, shareholders are asked to voteupon the performance of management at annual shareholders’ meetings. Ourvigilance officer delivers a report on our financial performance and otherissues related to management’s performance. If the holders of a majority of thevotes entitled to be cast approve management’s performance, all shareholdersare deemed to have released the directors and officers from liability to us orour shareholders arising out of actions taken or any failure to take actions byany of them on our behalf during the prior fiscal year, with certain exceptions.As a result, shareholders likely will fail in any suit brought in a Dominicancourt with respect to such acts or omissions. Officers and directors may not bereleased from any claims or liability for criminal acts, fraud, self-dealing orgross negligence. GFN controls a majority of the votes entitled to be cast atannual shareholders’ meetings and, without the concurrence of othershareholders, is able to approve the performance of management, therebyreleasing management from liability to our shareholders, including holders ofour ADSs.

 

## **ITEM 4.**           INFORMATION ON THE COMPANY

## ** **

Tricom, S.A. isincorporated in the Dominican Republic. Our operations are headquartered atAve. Lope de Vega No. 95, Santo Domingo, Dominican Republic and our telephonenumber at the above address is 809-476-4000. Our website address iswww.tricom.net. Our agent in the United States, appointed for purposes of theindenture governing our 11-3/8% Senior Notes due 2004, is CT CorporationSystem. This agent can be reached at 111 Eighth Avenue, New York, NY 10011 andat telephone number 800-624-0909.

 

#### **BUSINESSOVERVIEW**

#### ** **

#### **Overview**

#### ** **

We are a full servicecommunications services provider in the Dominican Republic. We offer local,long distance, mobile, cable television and broadband data transmission andinternet services. Our mobile network covers approximately 90% of thepopulation in the Dominican Republic. Our network providing local service is100% digital. Telecommunications networks that employ digital technology cantransmit higher quality signals at lower cost. We also own interests inundersea fiber optic cable networks that connect and transmittelecommunications signals between Central America, the Caribbean, the UnitedStates and Europe. Fiber optic cable is composed of glass strands and transmitstelecommunications signals in the form of light. Through our subsidiary, TricomUSA, Inc., we own telecommunication-switching facilities in New York andFlorida. Using these facilities, we originate, transport and terminateinternational long-distance traffic. We believe we are one of the few LatinAmerican-based long distance carriers that is licensed by the U.S. FederalCommunications Commission (“FCC”) to own and operate switching facilities inthe United States.

 

Through our subsidiary,TCN Dominicana, S.A. (“TCN”), we are the largest cable television operator inSanto Domingo and one of the largest cable television operators in theDominican Republic.

 

#### **ServiceOfferings**

#### ** **

Our service offeringsinclude:

 

•              Internationallong distance;

 

•              Domestictelephony;

 

•              Mobile;

 

•              Cable television; and

 

•              Data transmission and Internet.

 

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###### ***InternationalLong Distance.***

###### * *

In the DominicanRepublic, we provide international long distance services to our local accessline and mobile customers. In addition, we offer a prepaid calling card forinternational long distance, the *Bla Bla Bla®*card that can be used from any telephone in the Dominican Republic. We operatetelephone centers that provide access to telephone services to individualcustomers who either do not have telephone services in their own homes or whoare attracted by the competitive pricing of the telephone centers. The centersoffer a wide range of telephone services, including bill payments and serviceof sales in addition to long distance calls.

 

In the United States, oursubsidiary Tricom USA provides international carrier services primarily toresellers, which account for an increasing share of international long distancetraffic between the United States and the Dominican Republic. During 2004,resellers originated approximately 52.4% of the international long distanceminutes from the United States to the Dominican Republic that we received.Minutes delivered by resellers may fluctuate significantly. Through ourtelecommunications switching facilities in the United States, we have been ableto provide resellers with an alternate channel for sending international longdistance traffic. In addition, by having facilities that can originate,transport and terminate international long distance traffic between the UnitedStates and the Dominican Republic, we believe that we are able to send andreceive such traffic at a lower cost to us than by exchanging traffic withtraditional international carriers.

 

Since 1997, Tricom USAhas offered international long distance calling services to the Hispaniccommunity in the United States, targeting primarily Dominican communities. Ourprepaid calling cards were distributed through wholesalers from our New Jerseyoffice and through retailers from our New York location. Our cards were soldprimarily in small retail stores including groceries, drugstores andnewsstands. They were advertised through special promotions during Hispanicevents and by radio, television and newspapers that target Dominican and otherethnic communities, particularly in the New York metropolitan area. Ouradvertising emphasized savings, voice quality and patriotic themes. At thebeginning of 2007, we discontinued our prepaid calling card business in theUnited States.

 

In addition to prepaidcalling cards, Tricom USA offers national and international long distanceservices in New York, New Jersey and Florida, through carrier identificationcode (“CIC”) services. A CIC is a four-digit number used by end-user customersto reach the services of inter-exchange carriers through equal accessarrangements. Major users of this service are calling centers. This service isoffered through a combination of our own and independent sales agents.

 

In addition to itsinterstate and international authorization, Tricom USA is currently certifiedto provide telecommunications services in California, Delaware, Florida,Georgia, Illinois, Indiana, Maryland, Massachusetts, New Jersey, New York,Ohio, Pennsylvania, Rhode Island, Washington DC, and Wisconsin, as well asPuerto Rico, the U.S. Virgin Islands and Canada.

 

###### ***DomesticTelephony.***

###### * *

We are a competitivelocal exchange carrier in the Dominican Republic and at December 31, 2004we had 153,440 local access lines in service compared to 141,856 lines atDecember 31, 2003. According to Indotel, there were approximately 936,155 localaccess lines in service in the Dominican Republic at December 31, 2004. Tricomhad approximately 16.4% of the local access line market at the end of thatperiod. Our local access network covers areas with approximately 65% of thepopulation of the Dominican Republic. We previously deployed a wireless localloop but intend, to the extent economically feasible, to convert most wirelesslocal loop subscribers to wireline over the next several years.

 

All of our basictelephone service customers have access to a range of value-added services,including call forwarding, three-way calling, call waiting, caller ID andvoicemail applications. In addition to local service, we provide internationaland domestic long distance services and internet access to our consumer andbusiness customers.

 

We offer our customersbroad flexibility in assembling customized packages of services, which provideour customers with cost 

 

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savings and enhancedcontrol over their consumption of telephone services. Customers may choose froma menu of services, including domestic and international long distance services,local service and value-added services. They also may bundle their local accessservice with cellular or PCS, paging, cable television and internet services. Servicepackages permit customers to preset their monthly bills based upon, forexample, local service minutes or long distance minutes. Customers areresponsible for paying for usage levels in excess of preset package amounts, atregular per minute rates. We believe that providing customers with suchbudgeting capability increases consumer confidence in using telecommunicationsservices, consequently allowing for increased service penetration, higherlevels of customer satisfaction and lower incidence of delinquent payments.

 

Using wirelineconnections, we can also offer data transmission and other value added servicesattractive to the businesses and higher usage consumer subscribers that we aretargeting. We also sell fully integrated systems and components for bothturnkey systems and private telephone networks used within enterprises. We are adistributor of leading manufacturers of private branch exchanges and keytelephone systems and a leading provider of computer telephony integrationsystems in the Dominican Republic.

 

###### ***Mobile.***

###### * *

Our mobile network coversapproximately 90% of the Dominican Republic’s population. We offer both analogcellular and PCS mobile services. According to Indotel, there wereapproximately 2,534,063 analog and PCS cellular subscribers in the DominicanRepublic at December 31, 2004. At December 31, 2004, we had 345,636 mobilesubscribers compared to 435,341 mobile subscribers at December 31, 2003. Ourmarket share declined from 20.7% to 13.6% during 2004. We attribute thisdecline to intense competitive pressures during the period, coupled with ourlimited ability to make capital expenditures, low investment in marketing andlow equipment subsidies, as compared to our competitors.

 

Our prepaid card programoffers both analog cellular and PCS mobile services to individuals who wouldnot satisfy our credit policies for postpaid services. These cards also appealto customers who prefer to budget their mobile telephone spending. AtDecember 31, 2004, we had 322,680 prepaid mobile subscribers,approximately 93% of our total mobile subscribers in the Dominican Republic.

 

We have offered PCSmobile services since April 1999. This technology provides for addedsecurity and privacy compared with traditional analog systems, and it alsooffers greater capacity. PCS customers are able to receive benefits related todigital service, including digital messaging, caller ID and voicemail. We offera dual-band service, allowing customers to use seamlessly their mobile phonesnationwide over both digital and analog networks.

 

For large corporate,medium and small businesses, with multiple mobile phones included as part ofone service contract, we offer a range of unique mobile fleet managementservices, specifically designed to help our business customers manage theirfleet communication needs. We offer our business customers broad flexibility inassembling customized mobile fleet service plans, which provide for costsavings and enhanced control over their consumption of mobile communicationservices. Our mobile fleet management service offers cost reductions for “on-net”calls, flat rates for calls to wireline and mobile phones, and cost control for“off-net” calls through a comprehensive on-line reporting suite, among otherbenefits.

 

We offer domestic as wellas international roaming services to participating subscribers. Subscribers whopay the roaming rates gain access to our nationwide mobile network, whilesubscribers paying the international roaming fees are able to roam outside ofthe Dominican Republic, using the networks of cellular service providers withwhich Tricom has entered into roaming agreements.

 

We have provided pagingservices since April 1995. At December 31, 2004, we provided pagingservices to 2,992 subscribers. In 1999, we stopped soliciting new pagingsubscribers. We believe that the proliferation of mobile services hascontributed to the decline of paging as a significant part of our businessbecause customers have replaced paging services with prepaid cellular services.

 

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###### * *

###### ***CableTelevision.***

###### * *

We are the largestprovider of cable television services in Santo Domingo and one of the largestin the Dominican Republic. At December 31, 2004, our cable network served59,320 subscribers, including 46,700 basic programming subscribers, 9,961occupied hotel and other commercial rooms (based on our internal calculations)and 2,669 subscribers for cable modem and digital music. In addition topublicly available programming, we license or otherwise acquire programmingfrom various programming providers for broadcast on our cable televisionnetwork. We also produce a limited amount of programming ourselves intended forexclusive broadcast on our network. We currently offer 105 basic and expandedprogramming channels including HBO, Cinecanal, Moviecity, Disney, ESPN, FoxSports and CNN. We also sell our own advertising time, replacing internationalcommercials with local advertisements.

 

*Basic Programming Packages.*Ourbasic programming packages provide access to a maximum of 78 local and foreigncontent channels. Subscribers pay a one time, refundable deposit for eachanalog set top box and a monthly fee for this service. Subscribers do not needa digital decoder to receive the basic service package.

 

*Expanded Programming Packages.*Our expanded programming packages include all of the channels included in ourbasic programming package, with an additional choice of premium packages,including movies and adult programming packages. Expanded programmingsubscribers pay the basic service package monthly fee plus the additional costof the expanded programming. An analog or digital decoder set-top box isrequired for these services, providing a maximum of 105 channels. We arecurrently focusing on marketing our various expanded programming packages toour existing basic subscribers with a view to increase our overall revenues persubscriber.

 

*Digital Cable and Cable ModemService.*We offer digital cable television and high-speedinternet access over coaxial cable via cable modem, under the brand name InternetTornado®. Digital cable television provides movie-quality pictures,digital-quality sound, broadcast services and certain programming not availablethrough our basic or expanded programming packages. Our digital cabletelevision offering includes an on-screen interactive program guide, 17 pay-perview channels, 2 video music channels and 50 channels of commercial freeCD-quality music. A digital decoder set-top box is required for these services.

 

*Digital Music Services.*Weoffer digital audio programming provided by DMX Music International through ourhybrid fiber coaxial network. Customers choose from 50 exclusive music channelsthat play 24 hours a day, seven days a week. Subscribers for this service areprimarily hotels.

 

###### ***DataTransmission and Internet.***

###### * *

In the DominicanRepublic, we are the second largest internet service provider. According toIndotel, there were approximately 116,445 data and internet subscribers in theDominican Republic at December 31, 2004. Comparatively, we had 15,503 subscribersor 13.3% of the data and internet market share. We provide internetconnectivity to the consumer and business markets through traditional dial-upconnections, digital subscriber lines, or xDSLs, dedicated lines and cablemodems. Our cellular PCS services are now fully integrated with our internetservice, offering e-mail and digital messaging through our website,www.tricom.net. In addition, we offer our residential customers internet accessbundled together with local, wireless and other services.

 

We provide broadband datatransmission services to large business customers in the Dominican Republicthrough several means of delivery including fiber optic cable and digitalwireless point-to-point radio links. In addition, we provide these large customerswith data circuits, internet access, private networks and frame relay services.We also offer computer network security services such as firewalls for xDSL andlease lines, bandwidth control and auto-bandwidth, filtering, captive portal,content, and virtual private networks.

 

#### **Marketingand Sales**

#### ** **

Our advertising andpromotional materials in the Dominican Republic emphasize that we are afull-service provider of local access, long distance, mobile, cable television,and broadband data transmission and internet services and that customers canrealize 

 

 

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significant savings fromour service packaging. Our advertising also emphasizes reliability,performance, quality of service and the multiple advantages that users canobtain from our different products and services. Seasonal promotions are alsomade for specific target markets at different points throughout the year. Oursales force is oriented to develop close relationships with business customersto assess their needs and offer customized solutions.

 

###### ***LocalAccess and Mobile Service.***

###### * *

We use telemarketing,mass media, the internet, direct sales and database marketing to promote andsell our local access and mobile services in the Dominican Republic. We useproduct differentiation, pricing and promotions to target consumer and businesscustomers. Our advertising strategy for PCS services focuses on our nationwidecoverage, quality of service and competitive prices.

 

Our sales and marketingapproach for offering local access and mobile services to large businesscustomers is to offer comprehensive and customized telecommunications solutionsfor individual business customers needs. Our sales staff works closely witheach customer to gain a better understanding of its particular operations andto develop customized local and mobile service solutions. Many of our salesexecutives in this market segment have engineering backgrounds or receiveperiodical training sessions in which they learn the fundamentals of ourindustry as well as thorough information on our line of products. Our productdevelopment and customer service departments also offer them continuoussupport.

 

###### ***CallingCards.***

###### * *

In addition to ourDominican local access and mobile services, we have marketed our prepaidcalling cards to individual customers both in the Dominican Republic and theUnited States. In the Dominican market, we have unified all of our calling cardproducts into a single brand called the *Bla Bla Bla®*card, allowing our customers to use the card for domestic and internationallong distance calling as well as prepaid mobile services.

 

We feature our prepaidcard in our basic services advertisements, as well as advertising that isspecific to the prepaid card. Our advertising emphasizes the accuracy andreliability of our billing as well as savings. Our prepaid card is distributedat our commercial offices, call centers and through wholesalers and retailers. Wehave four wholesale distributors in the Dominican Republic as well as an internalsales force targeting smaller retailers.

 

###### ***CableTelevision.***

###### * *

We use a variety ofmethods to attract new subscribers. We generally advertise on our cablebroadcasts as well as on television and radio broadcasts, magazines, newspapersand billboards. Our direct marketing includes flyers and promotional materials.Our telemarketing staff focuses on both attracting new subscribers, as well asupgrading our existing basic subscribers to one of our expanded programmingpackages. We market our cable services under the brand name TelecableÔ.

 

Ourcurrent marketing strategy is intended to  promote subscriber loyalty and timely payments, reinforce ourmarket position by offering better programming content, increase our subscriberbase by increasing the penetration levels in our coverage areas, and convertusers that pirate our cable services to legitimate subscribers.

 

###### ***DataTransmission and Internet.***

###### * *

For data transmissionservices, we target large Dominican businesses, which require moresophisticated technology and demand specialized service and support. Wedeveloped a sales force focused on this sector, which includes multi-nationalcorporations, local business conglomerates, local and international banks andlarge hotels. We also have a specialized sales force targeting medium and 

 

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small businesses withproducts that fit their needs such as virtual private networks, dial up andbroadband internet, among others. Our advertising campaign is focused onpromoting the speed and accuracy of our data transmission services.

 

#### **CustomerService**

#### ** **

In the DominicanRepublic, we provide customer care for all of our services through five servicecenters and 10 commercial offices. At these offices and centers, our customersmay subscribe for services, pay and obtain information about monthly bills andinquire about billing adjustments. We also provide payment services for ourcustomers through several other businesses including supermarkets, banks andother commonly frequented businesses. At December 31, 2004, there wereapproximately 275 such stations, all of which are linked to our central billingand collection system.

 

We maintain a call centerto respond to incoming calls from existing or potential subscribers. The callcenter staff is trained to respond to questions concerning our extensiveproduct and service offerings, as well as to contact potential subscribers,market our services and receive payment for our services by credit card.

 

We use a customerrelationship management system, integrating our information systems and ourcustomer relationship management software. This system allows customer servicerepresentatives to access all billing, service order and other client specificinformation. This enables us to offer speedier service and more efficientfollow through and to monitor every step of the customer service relationship.

 

We provide a 24-hourinteractive voice response service through which customers can registerproblems and make billing inquiries. In addition, customers may access theiraccount information online 24 hours a day, seven days a week, on ourwebsite, www.tricom.net. Our website provides information about our servicesand can be used to purchase products including prepaid cards, mobile phones andaccessories.

 

We provide installationand repair services to our customers and have established service benchmarksfor, among other things, network availability, and installation and repairintervals. We research other companies’ response times and client promises inorder to establish our own policies and ensure our competitive advantage.

 

Our customer servicedepartment gathers information from our customers, which we then use to tailorour products and services to meet customer needs. We regularly survey ourcustomers to determine their satisfaction with our services and to improveservices based upon the explanations offered by customers who voluntarilycancel their services. Furthermore, we have a customer retention departmentthat works to determine the cause for customer churn and also to developappropriate retention strategies to target this segment.

 

#### **Billingand Credit Policies**

#### ** **

We have developed anintegrated billing system for local access, long distance, mobile, internet,paging and value-added services. The integrated billing system enables ourcustomers to obtain a single bill, providing detailed information about chargesfor all services rendered, other than cable television for which customersreceive a separate bill. Our subscribers can call our center and speak with acustomer care representative and obtain account and statement information. Ourcustomers also can access information over the telephone through an interactivevoice response system that enables customers to review recent calling activityand account balances.

 

Cash payments may be madeat walk-in commercial offices, centers and bank branches, or funds may bedebited from credit cards or bank accounts. Our customers may also pay theirbills at any one of our payment stations, which are located in neighborhood gasstations, grocery stores and other retail outlets.

 

Each residential basictelephone service and mobile subscriber is assigned a preset credit limit,which varies depending upon the individual’s monthly usage and payment history.We use credit bureaus to check the credit history of new clients. We requireall individuals wishing to subscribe for mobile services to have a credit cardor prepay for services. We contact any customers exceeding their pre-set creditlimit and request that they pay all or part of the outstanding bill.

 

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Our policy is to suspendservice for all post-paid subscribers if payment is not received within45 days after a bill is issued and to terminate service 45 days afterthe suspension date. Pre-paid services are suspended when the prepaymentbalance is exhausted or the pre-paid card has expired. Upon suspension, bothpre-paid and post-paid service customers may continue to receive incoming callsfor the next 15 days. Service to post-paid subscribers is also suspended when acustomer’s credit limit is reached. In order to reinstate service aftertermination, post-paid subscribers must pay a reinstallation fee, except forinternet services for which no reinstallation fee is required aftertermination.

 

We had an average monthlychurn rate for mobile subscribers of 9.1% in 2004, 3.9% in 2003, and 4.3% in2002. We had an average monthly churn rate for local access line subscribers of2.0% in 2004, 2.7% in 2003, and 3.6% in 2002. We had an average monthly churnrate for cable subscribers of 1.8% in 2004, 3.9% in 2003, and 2.5% in 2002. Wecalculate average monthly churn by dividing the number of subscribersdisconnected during the year by the sum of subscribers at the beginning of eachmonth during the year.

 

Tricom USA distributedits prepaid cards through wholesale distributors. Depending on their credithistory and the length of their relationship with Tricom USA, wholesalers wererequired to pay in full for calling cards upon delivery or were extended creditfor up to 15 days. Distributors of prepaid cards in the Dominican Republicare extended credit for up to 15 days, depending on their business volumes andpayment histories.

 

Tricom USA requires thatnew and smaller reseller customers pay on a weekly basis for long distanceservices. Some customers that have a previous relationship with Tricom USA areextended credit for 15 to 30 days on average, depending on proven reliablefinancial condition. Traditional long distance carriers generally pay TricomUSA for traffic within 60 to 90 days.

 

#### **ManagementInformation Systems**

#### ** **

Our business applicationsare designed to generate accurate information in real time for our employeesand to provide our customers with direct access to pertinent information fromour computer network. For this reason, we have designed a fully integrated,open architecture network.

 

We use Oracle as ourunified database and software application development tool set. We use OracleFinancials as our enterprise resource planning system, which includes thefollowing modules: accounts payable, accounts receivable, general ledger,purchase orders, inventory control and fixed asset accounting. We have alsodeveloped an integrated billing and customer care system that runs on theOracle platform.

 

#### **NetworkInfrastructure**

#### ** **

###### ***InternationalLong Distance Network.***

###### * *

We have our own switchingfacilities in the New York metropolitan area and Florida, which allow us toprovide multiple international signaling protocols. By having our own switchingfacilities, we can provide termination of international long distance trafficat very competitive rates to several countries in addition to the DominicanRepublic.

 

By purchasing and leasinginternational traffic capacity from various systems, we have acquired diverseoptions to route our international traffic. This capacity is fully connected tothe international network. We have purchased capacity in 11 internationalsubmarine fiber optic cables that have been built to send and receiveinternational traffic or connect with other cables that provide service toLatin America, the Caribbean and Europe. We own capacity in the Antillas-1 andArcos-I submarine cables, which connect the Dominican Republic to the UnitedStates via other submarine cable systems. In addition, for redundancy purposes,we maintain two earth stations, which connect to satellite systems serving theAtlantic region, Africa and Europe. The use of these satellite facilities alsoallows us to route international traffic between the Dominican Republic andmost other countries in the world.

 

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###### ***LocalAccess and Mobile Network.***

###### * *

The core of our networkis composed of gateway switches, possessing special features such asultra-high-speed and port-to-port call switching. Our switch time-of-daycapability allows us to distribute our telecommunications traffic efficientlyand provide, as a result, competitive pricing. Our switches also providestatistical call distribution information, which allows us to control our flowof traffic. Without such capabilities, we would have to conduct thesemonitoring tasks manually. The switches also handle common channel signalingprotocols, optimizing the channels available for voice transmission. Withoutthis capability, a network must use each of its channels to signal theorigination and termination for each call, which often results in uncompletedcalls and poor circuit utilization.

 

During 2004, ourintra-city wireline local access network was comprised of approximately 375route miles of fiber optic cable and approximately 2,500 miles of copper cablein more than seven cities. The network is composed of central office switches,remote switching centers and digital loop carriers.

 

We use digital loopcarrier technology, which is a multi-service access platform connected to thecentral office through fiber optic cables. This network layout minimizes thecopper plant and employs digital network transmission equipment used to providemultiple phone conversations. Our central office switches are connected byfiber optic cable to various digital loop carriers located throughout the threelargest cities in the Dominican Republic.

 

We transmit our domestictraffic through a digital wireless point-to-point backbone system, whichprovides both intra-city and inter-city telecommunications services. Apoint-to-point backbone system is a dedicated connection between two endpointsof a communications network. The backbone system and the intra-city accessnetworks reach approximately 90% of the country’s population, including majorcities and certain key tourist and rural areas. The wireless point-to-pointsystem serves the areas that have high telecommunications usage, includinglarge industrial and commercial areas.

 

To oversee and monitorthe activities of our network infrastructure, we have installed a networkmanagement system. This system allows us to manage our central office switchesand remotely monitor all network components. The management system providescontinuous information regarding our equipment, any equipment failure, andnetwork security. In addition, it allows the central office to send commandsand to test our network.

 

Our mobile network in theDominican Republic uses analog technology in the 800 MHz band and our PCSnetwork uses CDMA or digital protocol, in the 800 and 1900 MHz bands. Ouranalog mobile network enables us to provide mobile coverage to those regions ofthe Dominican Republic not covered by our competitor’s digital networks. During2004 we provided PCS service in 24 cities and offered continuous coverage onthe main highway routes of the country.

 

In 2003, we began toupgrade our analog mobile network into a digital CDMA network. Thedigitalization of our analog mobile network enables us to provide wider digitalcoverage at lower maintenance costs, as well as higher levels of reliability,performance and quality.

 

###### ***CableTelevision Network.***

###### * *

Our cable televisionnetwork uses a broadband network employing radio frequency transmission overcoaxial and/or fiber optic cable to transmit multiple channels carrying images,sound and data between a central facility and a subscriber television set.Coaxial cable is a type of cable used for broadband data and cable systems. Thistype of cable has high-quality broadband frequency characteristics, noiseimmunity and physical durability. Fiber optic cable is a communications mediumthat uses hair-thin glass fibers to transmit signals over long distances withless signal loss or distortion than coaxial cable.

 

Our existing cablenetwork consists of four major portions: a master head-end, a fiber trunknetwork, coaxial distribution and nodes. At our master head-end, programmingsignals are received, processed, amplified and then sent through ourdistribution network, which consists of fiber optic and coaxial cablesconnected to nodes. A node, which is typically shared by a number ofsubscribers 

 

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within the same area, isa single connection to any of our distribution network’s main fiber opticcables that receives and transmits signals. During 2004, one node in ourexisting network typically served an average of 700 homes passed. Programmingsignals then travel, via coaxial cable, from nodes into subscribers’ homes. Aspart of our plan for the expansion and upgrade of our network, we plan toredesign our distribution network by installing hubs and additional nodes toimprove the quality and redundancy of our services. Hubs receive signals fromthe head-end and retransmit signals to the nodes, increasing the quality andreliability of the signals.

 

At December 31, 2004, ourcable network consisted of approximately 204 miles of fiber optic cable, 717miles of coaxial cable and 226 nodes. Approximately 98% of our network isconstructed above ground, with a small percentage of the fiber optic cableconstructed underground.

 

The complete channelpackage signal delivered to our customers in Santo Domingo is encoded, usinganalog and digital descrambler systems. This allows us to reduce, but noteliminate, theft or piracy of our cable entertainment services, as well asgiving us the opportunity to offer compressed packages to reach low-incomesubscribers living in marginal areas, and increase penetration levels.

 

The expansion and upgradeof our network involves the conversion of our existing cable network into abroadband bi-directional network which results in increased bandwidth capacity.A broadband bi-directional network allows subscribers to transmit as well asreceive signals. This allows us to offer internet connection, video and gameson demand. A broadband bi-directional network combines the use of fiber opticcable, which can carry hundreds of video, data and voice channels over long distances,with coaxial cable, which requires more extensive signal amplification in orderto obtain the desired transmission levels for delivering programming signalsand nodes. At December 31, 2004, 40% of our network had bi-directionalcapacity.

 

###### ***Data Transmissionand Internet Network.***

###### * *

Data communicationsservices are primarily targeted to the business community and provided at avariety of speeds. Our data communications network consists of datamultiplexing nodes, which are network connection points that allow for thetransmission of two or more signals over a single channel, linked to a fiberoptic ring and digital wireless point-to-point radio links. The “last mile” tothe customer is provided through fiber optic cable and/or digital wirelesspoint-to-point radio links. Our data network has the capability to monitor thecommunications link all the way to the customer’s desktop and to supportmultiple data protocols such as ATM and frame relay.

 

Our technologyinfrastructure is built and maintained to assure reliability, security andflexibility, and is monitored by our technical staff. Each of our servers canfunction separately, and multiple redundant machines serve key components ofour server architecture.

 

We maintain our centralproduction servers at our headquarters data center. Our operations depend onthe ability of the network operating centers to protect their systems againstdamage from fire, hurricanes, power loss, telecommunications failure, break-insand other disruptive events.

 

Our local and mobilenetworks employ monitoring software developed by us and by others to monitoraccess to our production and development servers. Our reporting and trackingsystems generate daily traffic, demographic and advertising reports, which arecopied to backup tapes each night.

 

#### **Competition**

#### ** **

The following table setsforth information about our market share in several of our markets based uponinformation published by Indotel, at December 31, 2004, and information that wegenerate internally about our operations:

 
| **Service**        | ** ** | **Approximate  Market Share  (%)** | ** ** | **Rank**   | ** ** | **Number of  Providers** | ** ** |
|--------------------|------------|-----------------------------------------|------------|------------|------------|-------------------------------|------------|
| ** **         | ** ** | ** **                              | ** ** | ** ** | ** ** | ** **                    | ** ** |
| Local Access       |       | 16.4                                    | %          | 2          |       | 2                             |       |
| Mobile             |       | 13.6                                    | %          | 3/4        |       | 4                             |       |
| Cable Television   |       | 48.9                                    | %          | 1(1)       |       | Multiple                      |       |
| Data and  Internet |       | 13.3                                    | %          | 2          |       | 3                             |       |

 

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(1) In SantoDomingo. Statistics for the country as a whole are unavailable.

 

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###### ***InternationalLong Distance.***

###### * *

The internationaltelecommunications industry is intensely competitive and subject to rapidchange precipitated by changes in the regulatory environment and advances intechnology. Our success depends upon our ability to compete with a variety ofother telecommunications providers in the United States and in each of ourinternational markets. Our competitors include large facilities-basedmultinational carriers and smaller facilities- based wholesale long distanceservice providers in the United States and overseas that have emerged as aresult of deregulation, as well as switched-based resellers of internationallong distance services. Competition primarily is based on price, althoughreliability, quality of transmission, routing capacity and customer servicealso are competitive factors.

 

Tricom and Codetel arethe two principal Dominican carriers terminating Dominican-bound internationallong distance traffic. Centennial Dominicana also offers long distance calls atvery low rates to the United States from the Dominican Republic. However,neither Indotel nor the FCC publishes current information about trafficexchanged. International long distance traffic has expanded in the last fiveyears as the price per minute charged to consumers has declined.

 

###### ***Local,Mobile, Data and Internet.***

###### * *

In the local access anddata and internet markets, our main competitor is Codetel. Codetel is an integratedcommunications service provider, which, at December 31, 2004, had approximately84% of the local access lines and subscribers for local services andapproximately 87% of the data and internet subscribers in the DominicanRepublic. In 2002, Centennial Dominicana, using wireless technology, beganoffering to businesses local access service and broadband internet access butwe believe that it has not obtained a significant percentage of the market forthose services.

 

In mobile service, inaddition to Codetel, we compete with Orange and Centennial Dominicana. Orangeoperates a GSM 1900 MHz network in the main cities of the country. Orange hasan aggressive expansion strategy based on low prices for mobile equipment, astrong distribution network with dealers, and a large marketing budget.Centennial Dominicana offers PCS mobile services.

 

As of December 31, 2004,the Dominican government had also granted eight concessions to othertelecommunications companies, which had not yet commenced operations or had minimaloperations. Each of these concessions allows for the provision of some or allof the telecommunications services that we provide.

 

###### ***CableTelevision.***

###### * *

We are the largest cabletelevision operator in Santo Domingo and one of the largest in the DominicanRepublic as of December 31, 2004. Indotel has indicated that there are morethan 100 cable operators in the Dominican Republic, including illegal cabletelevision providers. However, in our principal markets, Santo Domingo and itssurrounding areas and La Romana, we face little competition from other cabletelevision operators.

 

We also face competitionfrom pirate direct broadcast satellite or DBS transmission. There is no legalDBS service offered in the Dominican Republic. For several years, the Dominicanpay television market has been harmed by the persistent violation of copyrightlaws or “piracy.” We have deployed****encodingtechnology to aid in reducing piracy from our network.

 

All pay televisionservice providers, including cable television systems, direct to home satelliteservices and multi-point, multi-channel distribution system operators, facesubstantial competition from other signal delivery methods, 

 

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including televisionbroadcasters and the Internet. The ability of potential subscribers to directlyreceive traditional public over-the-air television signals from televisionbroadcasters may hinder our ability to obtain additional subscribers.

 

#### **Regulation**

#### ** **

##### ***General.***

##### *** ***

The legal framework of thetelecommunications sector in the Dominican Republic consists of GeneralTelecommunications Law No. 153-98, enacted on May 27, 1998, resolutionsand regulations issued by Indotel and the concession agreements entered into bythe Dominican government or the regulator with individual service providers.

 

In addition to theindustry-specific legal framework, the Constitution of the Dominican Republicaffects the telecommunications sector. Among other individual and socialrights, the Dominican Constitution guarantees Dominican citizens the freedom oftrade. The Constitution specifically provides that monopolies can beestablished only by law and only for the benefit of the Dominican government. Noneof the existing concession agreements grants a monopoly in any sector of thetelecommunications industry to any carrier, and the Dominican government hasannounced a policy of encouraging growth through competition in thetelecommunications industry.

 

In 1930, Codetel wasgranted a concession to operate telecommunications services in the DominicanRepublic. Over the years, while other service providers entered the Dominicantelecommunications market, none was successful in becoming a full-servicetelephone company able to compete with Codetel because Codetel was not requiredto allow other service providers to interconnect their services with itsphysical infrastructure. To provide services, a company would have to installits own wireline telecommunications network. The economics of this requirementhindered competition. As a result, Codetel held a de facto monopoly for morethan 60 years.

 

To increase substantiallythe number of Dominican citizens with access to a telephone and to allow forthe establishment and growth of other modern telecommunications services, the Dominicangovernment adopted a policy of liberalization of the telecommunications sectorbeginning in the late 1980s. In 1990, the Dominican government granted us aconcession to provide a full range of telecommunications services within, fromand to the country. Additionally, advances in wireless technologies made itmore cost-effective for companies to penetrate the market even without beingable to interconnect to Codetel’s network. However, interconnection remainedimportant for full-service competition. In 1994, the Dominican governmentenacted a series of interconnection resolutions requiring all service providersin the Dominican Republic to interconnect with all other service providerspursuant to contracts between them. The guidelines for those contracts are setforth in those resolutions. In May 1994, we entered into aninterconnection agreement with Codetel which became effective inNovember 1994. This agreement allowed us to become the second full-servicetelecommunications provider in the Dominican Republic.

 

##### ***General Telecommunications Law No. 153-98 of 1998.***

##### *** ***

Former TelecommunicationsLaw No. 118 of February 1, 1966 was repealed by Law No. 153-98 ofMay 27, 1998. Law No. 153-98 is the result of a joint government andindustry project conducted with the assistance of the InternationalTelecommunication Union (“ITU”), which studied the telecommunications sector inthe Dominican Republic. As part of this process, the ITU drafted a proposedtelecommunications law and various regulations, including interconnection andtariff regulations, in consultation with Dominican telecommunications carriers.The project was requested by the Technical Secretariat of the DominicanPresidency and the country’s telecommunications carriers, and was funded by thecarriers.

 

Law No. 153-98established a basic framework to regulate the installation, maintenance andoperation of telecommunications networks and the provision oftelecommunications services and equipment. The law adopted the “UniversalService Principle,” by seeking to ensure access to telecommunications servicesat affordable prices in low-income rural and urban areas. The law creates afund for the development of the telecommunications sector that is supported bya 2% contribution payable by customers and collected by telecommunicationsproviders based on billings to customers for telecommunications services.

 

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In addition, the lawcreated an independent regulator with strong regulatory powers, Indotel, andestablished the regulator’s responsibilities, authorities and procedures. Theregulator is headed by a five-member council, the members of which serve afour-year term, and includes a representative from the telecommunicationsindustry. Among other responsibilities, Indotel is charged with implementingtelecommunications development projects to satisfy the requirements of theUniversal Service Principle. Law No. 153-98 grants Indotel control over allfrequency bands and channels of radio transmission and communications withinthe country and over its jurisdictional waters.

 

Law No. 153-98 seeks toencourage competition by, among other things, imposing the obligation tointerconnect with existing participants and prohibiting and punishing differenttypes of monopolistic behavior. The law requires that interconnection chargesbe cost based and eliminates cross subsidies. Pursuant to the law, a raterebalancing process was completed on December 31, 2000 which eliminatedcross subsidies and allowed for rates for services to reflect actual costs. Currently,market participants are free to establish the rates for the services that theyoffer.

 

##### ***Recent Regulatory Initiatives.***

##### *** ***

###### *InterconnectionRegulations.*

###### * *

On June 22, 2002, Indotelissued interconnection regulations including rules on co-location, networkunbundling, open network architecture and equal access. The regulationsrequired that interconnection agreements had to be modified and established adeadline extended by Indotel on several occasions for filing conformingcontracts with Indotel. A dispute arose from the lack of agreement oninterconnection terms and, after several hearings on the case, on April 11,2003 the case was settled with the execution of a new two-year interconnectionagreement for the Dominican market.

 

This agreement, enteredinto by and between all current local carriers (Codetel, Centennial Dominicana,Orange and Tricom), provided for full interconnection between the respectivenetworks interconnected for all types of telecommunications traffic. Further,the agreement included the following access charges per minute of traffic:local traffic, US$0.02; national transportation traffic, US$0.01; nationaltraffic, US$0.03; international transportation traffic, US$0.015; incominginternational traffic, US$0.035 terminating into fixed networks and US$0.09terminating into mobile networks; mobile or cellular traffic, US$0.075. Thesecharges are translated into Dominican pesos and adjusted every six months.

 

The interconnectionagreement was renewed on substantially similar terms in 2005 and a newinterconnection agreement has been in the process of renegotiation during thesecond half of 2007. The exact terms of this interconnection agreement are notknown at the date of this filing. Also in 2005, Indotel issued a statementmandating the convergence of interconnection rates by September 30, 2007 forlocal access and for incoming minutes to the Dominican Republic from abroad. Asof October 1, 2007, the interconnection rates were adjusted to eliminate the 1.5cent difference between interconnection rates for local access andinterconnection rates for incoming international minutes. As a result, it ispossible that our operations and financial position will be adversely affected.

 

###### *ProposedTelecommunications Regulations.*

###### * *

On August 30, 2006,Indotel approved resolution 156-06 titled “General Rule on Number Portability”which states that in the Dominican Republic telecommunications market,customers will be able to move their service from one telecommunicationsprovider to another without losing their telephone numbers. In order toimplement this law, telecommunications carriers will have to update theirnetworks before July 1, 2009.

 

Number portability willapply to customers changing from one mobile service provider to another andfrom one fixed line company to another within the same region. It will notallow number portability from a mobile network to a fixed line service or viceversa or between fixed line regions.

 

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##### ***Our Concession Agreements.***

##### *** ***

###### *Tricom ConcessionAgreement.*

###### * *

In accordance with formerLaw No. 118, we entered into a concession agreement with the Dominicangovernment in 1990 under which we were issued a non-exclusive license toestablish, maintain and operate a system of telecommunications servicesthroughout the Dominican Republic, as well as between the Dominican Republicand international points. The services which we were permitted to provide underthe 1990 concession agreement included telegraphy, radio communications,paging, cellular and local, domestic and international telephone services.

 

In February 1996, weentered into a new concession agreement with the Dominican government whichsuperseded the 1990 concession agreement. Under the 1996 concession agreement,we were granted the same non-exclusive license as provided in the 1990concession agreement to establish, maintain and operate a telecommunicationssystem throughout the Dominican Republic until June 30, 2010. Under itsoriginal provisions, the 1996 concession agreement and the license grantedunder it were renewable automatically for 20-year periods unless, at leastthree years prior to the end of the then existing term, the Dominicangovernment advised us of its intention not to renew.

 

Law No.153-98, which was enacted in 1998, established a new regulatory framework fortelecommunications services in the Dominican Republic. Pursuant to Law No.153-98, where necessary, we were required to adjust our concession agreement toconform to the new legislation. Law No. 153-98 required such adjustments to bemade within one year of its enactment and were to be executed throughprocedures established thereunder. However, to date, Indotel has neither fullyestablished nor implemented these procedures within the term initiallyestablished.

 

Pursuant toLaw No. 153-98, Indotel has the discretion to determine the extent to which anyexisting concession requires adjustments to comply with the new legislation.However, until the adjustments are complete, Law No. 153-98 provides thatconcessions granted prior to its enactment remain in full force and effect. LawNo. 153-98 provides that the adjustment procedures should be implemented in amanner that will maintain the rights granted to the holder of the originalconcession with respect to the scope of services covered by the concession,while guarantying equality among concession holders. Furthermore, under Law No.153-98, a concession may only be cancelled for the reasons expresslyestablished in the concession and for the specific causes described in Law153-98.

 

Once theprocedures for adjusting the concessions and bringing them into compliance withLaw No. 153-98 are established and fully implemented, concessions in theDominican Republic will have terms ranging from five (5) to twenty (20) yearsbased on the term originally provided for in such concession. For concessionsgranted under Law No.118 that did not have a fixed term, Law No. 153-98establishes that the new term is automatically 20 years. The term of suchamended concessions will commence on the date they are approved by a resolutionenacted by Indotel’s board.

 

As of thedate of this filing, we have received an adjustment from Indotel’s board andIndotel’s Executive Director is authorized to amend our concession agreement.Our amended concession agreement will automatically have a term of 20 years.Our concession agreement, once amended, will be renewable for successive20-year periods. However, if the holder of a concession fails to comply withthe provisions of Law No.153-98, Indotel is entitled to deny the request for arenewal of the concession.

 

###### *TCN Concession Agreement.*

###### * *

In 1982, TCN (thenTelecable Nacional) entered into a concession agreement with the Dominicangovernment pursuant which TCN was granted a license to provide close circuitcable television services within the Dominican Republic. Originally, thisconcession was for an unlimited term; however, in 1998 when Law No. 153-98 wasenacted, concessions and licenses in the telecommunications industry becamelimited to a maximum 20 year term, renewable for successive 20-year periods.Accordingly, when amended to conform to Law No. 153-98, TCN’s concessionagreement will have a term of 20 years and will be renewable for successive 20-yearperiods.

 

#### **U.S.Telecommunications Regulation**

#### ** **

The following summarizescertain aspects of United States federal and state telecommunicationsregulation as it applies to Tricom USA. We do not purport to summarize allpresent, pending or proposed regulation, any of which could change the impactof regulations on U.S. telecommunications carriers such as Tricom USA.

 

##### ***Federal Regulation.***

##### *** ***

In 1995, the FCCauthorized Tricom USA (then Domtel Communications, Inc.), pursuant to Section214 of the Communications Act 

 

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of 1934, to be a domesticand international facilities-based carrier and an international resale carrierof voice, data and private line services between the Unites States andinternational points, including the Dominican Republic. The FCC classifiedTricom USA as a non-dominant carrier on all routes, including to the DominicanRepublic.

 

Tricom USA’s domestic andinternational Section 214 authority permits it to provide, respectively,inter-exchange (long distance) service between the states within the UnitedStates and service to and from destinations outside the United States, forwhich it has entered into international settlement or call terminationagreements with other carriers. These agreements and the services of Tricom USAare subject to certain regulatory obligations. These include, but are notlimited to, the obligation to offer services at just and reasonable rates, topay certain regulatory fees, to file certain regulatory reports with the FCC,to contribute to certain federal funds such as the universal service fund, notto unjustly or unreasonably discriminate in charges, practices or other areas,to obtain FCC approval for a transfer of control under certain circumstances,to post its rates, terms and conditions on its website instead of filing themwith the FCC, to obtain FCC approval to reduce or discontinue service, andother obligations. Failure to comply with any regulatory requirements maysubject Tricom USA to penalties including, but not limited to, a fine,regulatory restrictions, license sanctions or revocation.

 

Tricom USA’s core sourceof revenue is its international service. As a result of increased internationalcompetition in the global telecommunications market, the FCC relaxed its formerInternational Settlements Policy (“ISP”), in general, and in particular todestinations qualifying for elimination of the International Settlement Policy,pursuant to a Report and Order dated March 30, 2004. The Dominican Republic isone such destination. Thus, Tricom USA is no longer required to fileinternational agreements with the FCC for Dominican service or service tocountries on the FCC’s list of ISP-exempt destinations. The Report and Orderdated March 30, 2004 did not address international terminations into cellularnetworks, which is a growing destination for Tricom USA, and for which accesscharges are higher than those for fixed line terminations in most countriesoutside the United States including the Dominican Republic, making the cost ofterminating higher. Instead, the FCC issued a Notice of Inquiry on October 26,2004. It cannot be predicted if or how the FCC will rule on this matter or, ifit rules, what impact, if any, that ruling will have on Tricom USA’s business.

 

***StateRegulation.***

*** ***

The public utilitycommission of each state individually regulates the provision oftelecommunications services within its state. This typically requirescertification by the state public service commission as well as corporateregistration with the state’s corporate department, filing of annual orsemi-annual reports and, where appropriate, the payment of taxes. Tricom USAprovides relatively little intra-state service, and it has obtained localexchange (central office code) numbers in, and has a point of presence in,several states. Tricom USA is certified in the following states: California,Delaware, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, NewJersey, New York, Ohio, Pennsylvania, Rhode Island, Washington, D.C. and Wisconsin;as well as Puerto Rico, the U.S. Virgin Islands and Canada.

 

#### **Property,Plant and Equipment**

#### ** **

Our principal propertiesconsist of our fiber optic network, satellite earth stations, nodes and realestate. At December 31, 2004, the net book value of our real estate andequipment was approximately $332.9 million. Our real estate holdings arestrategically located throughout the Dominican Republic, providing theinfrastructure for the telecommunications network and sales facilities. Most ofour properties are related directly to our telecommunications operations andare used for network equipment of various types, such as telephone exchanges,transmission stations, wireless point-to-point radio equipment and digitalswitching nodes. Our current headquarters are located in downtown Santo Domingoin a building that we own.

 

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## **ITEM 5.**           OPERATING AND FINANCIAL REVIEW AND PROSPECTS

## ** **

Our consolidatedfinancial statements have been prepared on a going concern basis, whichcontemplates continuity of operations, realization of assets and satisfactionof liabilities in the ordinary course of business. However, because ofrecurring operating losses, a continuing working capital deficit and thedevaluation of the Dominican peso, the realization of assets and satisfactionof liabilities are subject to uncertainty.

 

In September 2003 weannounced that we would not be making a scheduled interest payment on our11-3/8% Senior Notes due September 1, 2004. In October 2003 we suspendedprincipal and interest payments on our unsecured indebtedness and principalpayments on our secured indebtedness. Subsequently, on September 1, 2004, weannounced that we would not be making the $200 million principal payment on our11-3/8% Senior Notes due September 1, 2004. We have engaged in discussions withcertain holders of our Senior Notes and other lenders to formulate arestructuring plan. See “Liquidity and Capital Resources—Restructuring Overview”.

 

We have financed ourcapital expenditure and working capital requirements, including expensesrelated to our proposed restructuring, with cash flow from operations and,during 2004, from net proceeds from the sale of our Central American trunkingoperations and other assets. We do not expect to have any other funding sourcesuntil our restructuring is completed. Even if a restructuring is achieved, wemay not be able to generate the cash required to operate or to obtain thefinancing necessary to continue funding our business.

 

#### **Presentationof Certain Financial Information and 2002 Restatement**

#### ** **

We prepare ourconsolidated financial statements in conformity with generally acceptedaccounting principles in the United States. We adopted the United States dollaras our functional currency effective January 1, 1997 and maintain ourbooks and records in U.S. dollars.

 

Certain amounts in the2002 consolidated financial statements and notes to the consolidated financialstatements have been reclassified to conform to the 2003 consolidated financialstatements and notes. The reclassifications were to transfer income andexpenses items related to discontinued operations from revenues and expensesfrom continuing operations and other. Reclassifications were made to organizeoperating revenues by products and services according to our five reportablesegments and to simplify the reading of the costs and expenses section bygrouping similar line items that were previously reported individually.

 

Wehave elected to present three years’ of consolidated audited balance sheets andthree years’ of consolidated audited statements of operations and cash flowsfor the periods ended December 31, 2002, 2003 and 2004. Article 3 of RegulationS-X provides that registrants shall file consolidated audited balance sheets asof the end of each of the two most recent fiscal years and audited statementsof income and cash flows for each of the three fiscal years preceding the dateof the most recent audited balance sheet being filed. As more fully discussedin Note 3 to our 2004 consolidated financial statements, we have determined torestate our consolidated audited balance sheet as of December 31, 2002 and therelated statements of operations, stockholders’ equity (deficit) andcomprehensive loss and cash flows for the year then ended to reflectadjustments to the financial information and footnotes previously reported inour Annual Report on Form 20-F for the fiscal year ended December 31, 2002. Theadjustments relate primarily to the purchase (the “Placement”) in December 2002of shares of our Class A Common Stock by a group of investors for an aggregatepurchase price of approximately $70 million. They also correct anunderstatement of related party indebtedness and make an adjustment to our 2002deferred income taxes. Although we have, with our current independent auditor,Sotomayor, completed this restatement process, we expect that the process ofobtaining the consent of our former independent auditor for use of our auditedfinancial information in respect of prior years (year ended December 31, 2001and earlier periods) will involve further time and expense. Accordingly, whilenot ruling out the possibility that we will at some time in the future filerestated audited financial statements for the year ended December 31, 2002 andaudited financial statements for the year ended December 31, 2003, we havedecided first to file audited financial statements for the year ended December31, 2004, and to include in such financial statements, in addition to thefinancial statements required by Regulation S-X, our restated audited balancesheet as at December 31, 2002 and related notes.

 

In this Annual Reportreferences to “$”, “US$” or “U.S. dollars” are to United States dollars, andreferences to “Dominican pesos” or “RD$” are to Dominican Republic pesos. Forpurposes of our financial statements, foreign currency balances are translatedinto U.S. 

 

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dollars at differingrates depending on the item in question. See Note 2.4 of notes to consolidatedfinancial statements. For most balance sheet purposes, the exchange rates weused to translate Dominican peso-denominated amounts as of December 31, 2003and 2004, were RD$41.50 and RD$31.07 per U.S. dollar, respectively. For most revenueand expense purposes, the exchange rates we used were the average annualprivate market rates which were RD$18.54, RD$30.93, and RD$42.11 during theyears ended December 31, 2002, 2003 and 2004, respectively. These translationsshould not be construed as representations that the Dominican peso amountsactually represent such U.S. dollar amounts or could be converted into U.S.dollars at the rate indicated. The Federal Reserve Bank of New York does notreport a buying rate for Dominican pesos. To the extent information relates tothe Dominican Republic government or Dominican Republic macroeconomic data, theinformation in this Annual Report has been extracted from publications issuedby Indotel at www.indotel.org.do and the Central Bank at www.bancentral.gov.do.

 

#### **Overview**

#### ** **

*We derive our operating revenuesprimarily from long distance, domestic telephony, mobile, cable television, anddata and Internet services. The components of each of these services are asfollows.*

* *

Long distance revenues representamounts recognized for the termination of traffic from foreigntelecommunications carriers to the Dominican Republic, including revenuesderived from our U.S.-based international long distance wholesale and prepaidcalling card operations, as well as outbound international and domestic longdistance calls generated by our retail call centers and prepaid cards soldwithin the Dominican Republic.

 

Domestic telephony revenues consistof fees received for local exchange services in the Dominican Republic,including monthly fees, measured local service and measured local charges forvalue-added services, outbound international and domestic long distance callsgenerated by our residential and business customers within the DominicanRepublic, sale of customer premises equipment, installation and activationfees, and interconnection revenues received from other service providers forcalls that terminate in our local network.

 

Mobile revenues consist of feesreceived for cellular and PCS services, including fixed monthly fees, perminute usage charges and additional charges for value-added services, outboundinternational long distance charges, as well as paging services, installationand activation fees, equipment sales, and interconnection charges received fromother service providers for incoming calls that terminate in our mobilenetwork.

 

Cable television revenues consistof monthly fees derived from basic programming, expanded basic programming,expanded basic services, digital music services, internet access via cablemodem, installation fees and revenues from advertising sales to nationaladvertisers on non-broadcast channels we carry over our cable communicationssystems. Cable television revenues, including installation fees, are recognizedwhen the service is provided.

 

Data and Internet revenues consistof fixed monthly fees received from our consumer and business customers forhigh speed broadband data transmission and internet connectivity services,including traditional dial-up connections, dedicated lines, private networks,frame relay, digital subscriber lines, or xDSLs, that provide high-bandwidthtransmission of voice and data over regular telephone lines.

 

Other revenues consist of revenuesthat are not generated from our core businesses, including commissions receivedfor providing package handling services for a courier and commissions receivedfor collection services for utility companies.

 

*Our operating costs and expensesconsist primarily of cost of sales and services, selling, general andadministrative expenses (“SG&A”), depreciation and amortization charges, aswell as asset impairment and other non-operating charges and special items.Major components of our operating costs and expenses are as follows.*

* *

Cost of sales and services consistof amounts paid to foreign carriers for our use of their networks fortermination of outbound traffic and interconnection costs, which are accesscharges paid to other providers in the Dominican Republic, and payments forinternational satellite circuit leases; amounts paid to programming providersfor licenses to broadcast on our cable television network; cost of equipmentand prepaid cards sold; and telephone installation costs.

 

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Selling, general and administrativeexpenses include salaries and other compensation to personnel, buildingoccupancy and maintenance expenses, marketing expenses, bad debt expenses,commissions and other related costs.

 

Depreciation and amortizationexpenses reflect the decline in the value of our fixed assets, due to generalwear and tear or obsolescence, other intangible assets and deferred charges.

 

The following table sets forth thepercentage contribution of each category of revenues to total operatingrevenues for the period indicated:

 
| ** **                | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------|------------|--------------------------------------------|------------|
| ** **                | ** ** | **2002**                                   | ** ** | **2003** | ** ** | **2004** | ** ** |
|                      |       |                                       |       |   |   |   |   |
| Long distance             |       | 33.4                                       | %          | 46.3 | % | 38.3 | % |
| Domestic  telephony       |       | 34.5                                       | %          | 29.9 | % | 34.5 | % |
| Mobile                    |       | 18.6                                       | %          | 14.7 | % | 17.1 | % |
| Cable                     |       | 8.9                                        | %          | 6.8 | % | 7.3 | % |
| Data and  internet        |       | 4.5                                        | %          | 2.3 | % | 2.8 | % |
| Other                     |       | 0.2                                        | %          | 0.1 | % | 0.0 | % |
| Total operating  revenues |       | 100                                        | %          | 100 | % | 100 | % |

 

Note: Percentages may notadd up to 100% due to rounding.

 

The following table setsforth certain items in the statements of operations expressed as a percentageof total operating revenues for the period indicated:

 

| ** **                                                                | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                | ** ** | **2002**                                   | ** ** | **2003** | ** ** | **2004** | ** ** |
|                                                                      |       |                                       |       |   |   |   |   |
| Operating Costs                                                           |       | 103.0                                      | %          | 216.3 | % | 122.0 | % |
| Operating loss                                                            |       | (3.0                                       | )%         | (116.3 | )% | (22.0 | )% |
| Interest  expense, net                                                    |       | (25.7                                      | )%         | (32.3 | )% | (33.7 | )% |
| Other income  (expenses), net                                             |       | (25.0                                      | )%         | (29.5 | )% | (32.1 | )% |
| Loss before  income taxes, discontinued operations, and minority interest |       | (28.1                                      | )%         | (145.8 | )%  | (54.1 | )%  |
| Net loss                                                                  |       | (31.9                                      | )%         | (169.9 | )% | (54.3 | )% |

 

#### **Resultsof Operations**

#### ** **

#### **2004Compared to 2003**

#### ** **

***ForeignExchange Rate.***The average annual foreign exchange rateincreased 36.1% to RD$42.11 per US$1.00 during 2004 from RD$30.93 per US$1.00during 2003. This represents a 36.1% strengthening of the U.S. dollar againstthe Dominican peso from 2003 to 2004 or a corresponding weakening of theDominican peso. This foreign exchange fluctuation significantly affected ouroverall financial performance and results of operations during this period.

 

***OperatingRevenues.***Our total operating revenues decreased 5.4% to$188.2 million during 2004 from $199.0 million in 2003 primarily due to lowerinternational long distance and other revenues coupled with the declining valueof the Dominican peso compared to the U.S. dollar, which affects thetranslation into U.S. dollars of our revenues generated in Dominican pesos.

 

The following is adiscussion of our consolidated revenues for each of the revenue line items inour financial statements.

 

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*Long Distance.*Longdistance revenues decreased 21.8% to $72.0 million during 2004 from $92.1million in 2003. This decrease resulted primarily from lower internationaltraffic volume derived from our U.S.-based wholesale and retail operations, aswell as lower average termination rates to the Dominican Republic. The decreasewas partially offset by an increase in outbound international and domestic longdistance revenues generated by our Dominican Republic operations.

 

International longdistance revenues decreased 24.1% to $65.6 million in 2004 from $86.4 millionin 2003 primarily due to lower traffic volume of minutes to the DominicanRepublic. Inbound minutes decreased by 24.0% to 818 million minutes during 2004from 1,075 million minutes during 2003. Average international long distancetermination rates to the Dominican Republic also decreased to $0.069 per minuteduring 2004 compared to $0.073 per minute during 2003. The decrease in inboundminutes was the result of our strategy to mitigate the effects of volatileexchange rates, which for a period in late 2004 made it difficult to operatethis business line profitably.

 

Long distance domesticrevenues generated by our prepaid cards and calling centers in the DominicanRepublic increased 14.0% to $6.5 million in 2004 from $5.7 million in 2003.This increase in prepaid cards and calling centers was primarily due to a 15.0%increase in domestic long distance minutes to 67.4 million minutes in 2004 from58.6 million minutes in 2003 primarily due to higher sales of prepaid cards.

 

*Domestic Telephony.*Domestictelephony revenues increased 9.2% to $65.0 million during 2004 from $59.5million in 2003, primarily as a result of a higher average number of lines inservice during 2004. At December 31, 2004, we had 153,440 lines in servicecompared to 141,856 lines in service at the comparable date in 2003, an 8.2%increase.

 

Monthly service fees,measured local service charges and outbound international and domestic longdistance revenues accounted for the majority of our domestic telephony revenuesin 2004. Revenues from monthly fees decreased 1.0% to $28.3 million in 2004from $28.6 million in 2003. Measured local service revenues increased 29.2% to$19.9 million in 2004 from $15.4 million in 2003 due to increased inboundminutes and interconnection rates. Outbound international and domestic longdistance revenues, including interconnection charges, generated by ourresidential and business customers increased 22.5% to $9.8 million in 2004 from$8.0 million in 2003 for similar reasons.

 

*Mobile.*****Mobilerevenues increased 9.9% to $32.1 million during 2004 from $29.2 million in2003. The increase in mobile revenues was attributable primarily to an increasein incoming minute rates which accounted for 38.1% of total mobile revenues in2004 and 27.0% in 2003.

 

Airtime revenues,including interconnection charges, increased 8.5% to $20.5 million in 2004 from$18.9 million in 2003 due to increased inbound minutes and interconnectionrates. Outbound international long distance revenues, including interconnectioncharges, generated by the mobile subscriber base increased 38.3% to $8.3million in 2004 from $6.0 million in 2003 for similar reasons.

 

At December 31, 2004, wehad 345,636 mobile subscribers compared to 435,341 at December 31, 2003. Thedecline in subscribers resulted primarily because we initiated disconnectionsof approximately 200,000 low-usage subscribers (incoming-calls only) in thefirst half of 2004. Hence, our average monthly churn rate for mobilesubscribers increased to 9.1% in 2004 from 3.9% in 2003.

 

*Cable.*Revenuesfrom cable television services demonstrated negligible variation during 2004,increasing to $13.7 million from $13.6 million in 2003. Revenues werenegatively affected by the decline in the value of the Dominican peso comparedto the U.S. dollar, which affected the translation of cable revenues generatedin Dominican pesos, and a lower average cable subscriber base during 2004.These factors were offset by significant rate increases.

 

Cable programmingrevenues, including monthly basic and expanded basic programming service fees,decreased 2.0% to $9.9 million during 2004 from $10.1 million during 2003.Revenues from advertising sales and channel rental charges decreased 25.8% to$2.3 million from $3.1 million in 2003.

 

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At December 31, 2004, wehad 59,320 cable subscribers compared to 61,433 at December 31, 2003. Thedecrease in the number of cable subscribers during 2004 reflects decliningeconomic conditions in the Dominican Republic, as well as our investmentpriorities.

 

The number of cablesubscribers at December 31, 2004 includes 46,700 basic and expanded basicprogramming subscribers, 9,961 commercial rooms, which include commercialestablishments (for example, hotels) and multiple dwelling units (for example,apartment buildings and hospitals), for which we receive a bulk rate for ourbasic cable service, and 2,669 subscribers for cable modem, digital audioprogramming and other services.

 

*Data and Internet.*Dataand internet service increased 17.8% to $5.3 million in 2004 from $4.5 millionin 2003, primarily due to growth in our data and internet subscriber base.

 

The number of our dataand internet subscribers increased 10.8% to 15,503 at December 31, 2004 from13,998 at December 31, 2003.

 

*Other.*Othernon-core business revenues decreased 43.6% to $68,486 in 2004 from $121,448 in2003, primarily due to the devaluation of the Dominican peso.

 

***OperatingCosts and Expenses.***Our operating costs and expensesdecreased 46.7% to $229.6 million in 2004 from $430.4 million in 2003. Thisdecrease was mainly due to the effects of an asset impairment charge of $191.2million in 2003, whereas in 2004, we did not have any asset impairment charges.The decrease in operating costs and expenses is also attributable to lowerSG&A expenses.

 

The following is adiscussion of our operating costs and expenses for each of the line items inour financial statements.

 

*Cost ofSales and Services*. Cost of sales and services decreased 1.6%to $89.5 million in 2004 from $91.0 million in 2003, which was primarilyattributable to lower costs for equipment, prepaid cards, line installationsand cable programming, offset by slightly higher transport and access charges.

 

Cost of equipment sales,prepaid cards, and line installations decreased 27.9% to $4.9 million in 2004 from$6.8 million in 2003. In 2004 there was a reduction in the cost of lineinstallations because the effects of an extraordinary expense booked in 2003were not repeated in 2004. This extraordinary expense was the result ofimplementing a new policy in 2003 of charging telephone line (but not cable)installation expenses as costs instead of charging them to capitalexpenditures.

 

Transport and accesscharges increased 2.1% to $79.2 million in 2004 from $77.6 million in 2003,primarily as a result of an increase in interconnection costs. Cableprogramming costs, which are fees paid to providers for signals and programmingcontent totaled $5.4 million in 2004 compared to $6.7 million in 2003, a 19.4%decrease primarily due to a cost reduction negotiated with cable TV programmersto compensate for the exchange rate increase.

 

*Selling, Generaland Administrative*. SG&A expenses decreased 6.1% to $56.7million during 2004 from $60.4 million during 2003. This decrease was primarilydriven by lower salaries and other personnel compensation, and lower marketingand advertising expenses offset by higher provisions for uncollectibleaccounts, and an increase in other related expenses.

 

Salaries and othercompensation to personnel decreased 17.6% to $15.5 million in 2004 from $18.8million in 2003 due to the impact of the Dominican peso devaluation given thatsalaries are paid in Dominican pesos, and a decrease in the number ofemployees. At December 31, 2004, we had 1,615 employees compared to 1,635 employeesat December 31, 2003. Provisions for uncollectible accounts demonstrated asignificant increase of 149.7% to $2.1 million in 2004 from $840,881 in 2003for reasons related to exchange rate fluctuations. Marketing expenses decreased3.7% to $2.6 million in 2004 from $2.7 million during 2003. Other expenses,which include legal expenses, maintenance and repair of vehicles and equipmentand other professional services, increased 15.5% to $29.1 million in 2004 from$25.2 million in 2003.

 

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* *

*Depreciationand Amortization*. Depreciation and amortization increased7.1% to $75.3 million during 2004 from $70.3 million during 2003, primarily dueto a higher fixed asset depreciable base.

 

***OperatingLoss.**** *Operating loss decreased by 82.1%totaling $41.4 million in 2004 compared to an operating loss of $231.5 millionin 2003.  The decrease in operating loss was attributable to lower total operatingcosts and expenses.

 

***OtherExpenses****. *Other expenses increased to $60.4million in 2004 from $58.7 million in 2003, primarily as a result of a foreigncurrency exchange loss compared to a gain in 2003.  Net foreign currency exchange loss totaled$2.7 million in 2004 compared to net foreign currency exchange gains of $5.3million in 2003. Net interest expense decreased to $63.5 million in 2004 from$64.3 million in 2003.

 

***IncomeTaxes.**** *Income taxes decreased 78.6% to$300,182 in 2004 from $1.4 million in 2003 primarily as a result of therecalculation of deferred taxes at December 31, 2003.

 

***DiscontinuedOperations.**** *Discontinued operations representthe results of operations of our Central American activities prior to theirsale in February 2004.  We reportedlosses from discontinued operations after minority interest of $46.7 million in2003.

 

***NetLoss.*****Net losstotaled $102.2 million or $1.58 per share in 2004 compared to a net loss of$338.2 million or $5.23 per share in 2003. The decrease in net loss during 2004is attributable to lower operating costs and expenses, in large part due to theeffect of asset impairment charges in 2003.

 

#### **2003Compared to 2002**

#### ** **

***ForeignExchange Rate.***The average annual foreign exchange rateincreased 66.4% to RD$30.93 per US$1.00 during 2003 from RD$18.54 per US$1.00during 2002. This represents a 66.4% strengthening of the U.S. dollar againstthe Dominican peso from 2002 to 2003, or a corresponding weakening of theDominican peso. This foreign exchange fluctuation significantly affected ouroverall financial performance and results of operations during this period.

*** ***

***OperatingRevenues.***Our total operating revenues decreased 18.0% to$199.0 million during 2003 from $242.8 million in 2002 primarily due to adecline in the value of the Dominican peso compared to the U.S. dollar, whichaffects the translation into U.S. dollars of our revenues generated inDominican pesos.  To partially offset theimpact of the 66.4% increase in the average annual foreign exchange rate, theCompany instituted price increases from 15% to 40% throughout the year on itslong distance, domestic telephony, mobile, cable television, and data andInternet services.

 

The following is adiscussion of our consolidated revenues for each of the revenue line items inour financial statements.

* *

*Long Distance.*  Long distance revenues increased 13.7% to$92.1 million in 2003 from $81.0 million in 2002. This increase resultedprimarily from higher international traffic volume derived from our U.S.-basedwholesale and retail operations, as well as higher average termination rates tothe Dominican Republic. The increase in long distance revenues was partiallyoffset by a decrease in outbound international and domestic long distancerevenues generated by our Dominican Republic operations.

 

International longdistance revenues increased 16.1% to $86.4 million in 2003 from $74.4 millionin 2002 primarily due to an increase in our inbound minutes coupled with highertermination rates to the Dominican Republic. Inbound minutes increased by 5.1%to 1,075 million minutes during 2003 from 1,023 million minutes in 2002.Average international long distance termination rates to the Dominican Republicincreased to $0.073 per minute during 2003 compared to $0.043 per minute during2002.  The increase in the averagetermination rate resulted from new interconnection regulations issued by Indotel,the Dominican telecommunications regulator, and affirmed by all Dominicantelecommunication providers during 2003, which increased access charges forincoming international long distance traffic.

 

 

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Long distance domesticrevenues generated by our prepaid cards and calling centers in the DominicanRepublic decreased 13.6% to $5.7 million in 2003 from $6.6 million in 2002.This decrease in prepaid cards and calling centers was primarily due to theeffects of the exchange rate increase, offset in part by an increase in longdistance minutes. Long distance minutes from prepaid cards and calling centersin the Dominican Republic increased 27.4% to 58.6 million minutes in 2003 from46.0 million minutes in 2002.

 

*Domestic Telephony.*Domestictelephony revenues decreased 28.9% to $59.5 million during 2003 from $83.7million in 2002 primarily as a result of a lower average number of lines inservice during 2003 and the effects of the exchange rate increase. Monthlyservice fees, measured local service charges and outbound international anddomestic long distance revenues accounted for the majority of our domestictelephony revenues in 2003.

 

Revenues from monthlyfees decreased 26.5% to $28.6 million in 2003 from $38.9 million in 2002.Measured local service revenues increased 13.2% to $15.4 million in 2003 from$13.6 million in 2002 due in part to a decrease in the average number of linesin service. Outbound international and domestic long distance revenues,including interconnection charges, generated by our residential and businesscustomers decreased 58.3% to $8.0 million in 2003 from $19.2 million in 2002due to the effects of the exchange rate increase.

 

During 2003, we continuedto disconnect low-usage customers in an effort to improve the profile of ourlocal service customer base. This resulted in a reduction in the number oflines in service at December 31, 2003 from the number at December 31, 2002. AtDecember 31, 2003, we had 141,856 lines in service compared to 150,456 lines inservice at December 31, 2002, a 5.7% decrease. By disconnecting low usagecustomers, we believe we can better use our network to provide services to, andconcentrate our sales efforts on, higher usage residential and businesscustomers.  We believe that thisultimately should increase our revenues and improve our operating results.

 

*Mobile.*****Mobilerevenues decreased 35.3% to $29.2 million during 2003 from $45.1 million in2002. The decrease in mobile revenues was attributable primarily to the effectsof currency devaluation and competitive pressures. Airtime and outboundinternational long distance revenues accounted for the majority of our mobilerevenues in 2003.

 

Airtime revenues,including interconnection charges, decreased 38.6% to $18.9 million in 2003from $30.8 million in 2002 due to the effects of the exchange rate increase.Outbound international long distance revenues, including interconnectioncharges, generated by the mobile subscriber base increased 36.4% to $6.0million in 2003 from $4.4 million in 2002 for similar reasons.

 

At December 31, 2003, wehad 435,341 mobile subscribers compared to 432,058 at December 31, 2002.  As a result of a higher average subscriberbase, total minutes of usage increased 25.9% to 412.7 million minutes in 2003from 327.9 million minutes in 2002.

 

During 2003, we continuedour program of disconnecting our “incoming-calls only” mobile subscribers.Nonetheless, our average monthly churn rate for mobile subscribers decreased to3.9% in 2003 from 4.3% in 2002.

 

*Cable.* Revenues from cable television servicesdecreased 36.7% to $13.6 million during 2003 from $21.5 million in 2002. Thedecrease in revenues resulted from the decline in the value of the Dominicanpeso compared to the U.S. dollar, which affected the translation of cablerevenues generated in Dominican pesos, and a lower average cable subscriberbase during 2003.

 

Cable programmingrevenues, including monthly basic and expanded basic programming service fees,decreased 33.1% to $10.1 million during 2003 from $15.1 million during 2002.Revenues from advertising sales and channel rental charges decreased 31.1% to$3.1 million in 2003 from $4.5 million in 2002.

 

At December 31, 2003, wehad 61,433 cable subscribers compared to 71,726 at December 31, 2002. Thedecrease in the number of cable subscribers during 2003 reflects decliningeconomic conditions in the Dominican Republic.

 

The number of cablesubscribers at December 31, 2003 includes 49,387 basic and expanded basicprogramming subscribers, 10,415

 

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commercial rooms, whichinclude commercial establishments (for example, hotels) and multiple dwellingunits (for example, apartment buildings and hospitals), for which we receive a bulkrate for our basic cable service, and 1,631 subscribers for cable modem,digital audio programming and other services.

 

*Data and Internet. *Data and internet servicedecreased 59.1% to $4.5 million in 2003 from $11.0 million in 2002, primarilydue to the exchange rate increase, as well as lower revenues from broadbandsatellite internet access services, offset in part by the continued growth inthe number of data and Internet consumer and business customers.

 

In 2003, we cancelled,due to lack of payment, our contract with the Dominican Republic Department ofEducation to provide broadband satellite internet access and intranet servicesto every public high school in the Dominican Republic. Revenues from broadbandsatellite internet access services totaled approximately $3 million in 2002.

** **

The number of our dataand Internet subscribers increased 29.3% to 13,998 at December 31, 2003from 10,825 at December 31, 2002.

 

*Other.*Othernon-core business revenues decreased to $121,448 in 2003 from $498,245 in 2002,primarily due to the exchange rate increase.

 

***OperatingCosts and Expenses.*** Our operating costs and expenses increased72.1% to $430.4 million in 2003 from $250.1 million in 2002.  These results reflect non-cash long-term andintangible asset impairment charges, as well as operating charges and specialitems.  The increase in operating costsand expenses is also attributable to higher cost of sales and services anddepreciation and amortization charges, offset by lower SG&A expenses andthe elimination of the expense in lieu of income tax.

 

To offset the impact ofthe exchange rate increase on our operations we implemented a series of expensereduction and cash conservation initiatives during 2003 which resulted in thereduction of SG&A expenses, including headcount reductions, loweringprepaid commission rates and marketing expenses, as well as freezing ourdiscretionary spending.  Additionally, inOctober 2003, we suspended principal and interest payments on substantially allof our unsecured bank debt and Senior Notes.

 

The following is adiscussion of our operating costs and expenses for each of the line items inour financial statements.

 

*Cost ofSales and Services*. Cost of sales and services increased 5.2%to $91.0 million in 2003 from $86.5 million during 2002 which was primarilyattributable to the higher cost of equipment sales, prepaid cards, and lineinstallations, offset by lower transport and access charges and cableprogramming costs.

 

Cost of equipment sales,prepaid cards, and line installations, totaled $6.8 million in 2003 compared to$2.6 million in 2002 due to an extraordinary expense related to a new policy in2003 of charging telephone line (but not cable) installation expenses as costsinstead of charging them to capital expenditures.

** **

Transport and accesscharges increased 0.5% to $77.6 million in 2003 from $77.2 million in 2002,primarily as a result of the effect of the exchange rate increase oninterconnection costs paid in Dominican pesos. Cable programming costs, which are fees paid to providers for signalsand programming content also remained constant totaling $6.7 million in 2003and 2002.

 

*Selling, Generaland Administrative*. SG&A expenses decreased 18.3% to $60.4 million during 2003 from$73.9 million during 2002.  This decreasereflects expense reduction efforts and streamlined operations, as well as lowerDominican peso-denominated expenses resulting from the exchange rate increase.The decrease in SG&A expenses was primarily driven by lower salaries andother personnel compensation, and lower marketing and advertising expensesoffset by higher provisions for uncollectible accounts, and an increase inother related expenses.

 

Salaries and othercompensation to personnel decreased 31.1% to $18.8 million in 2003 from $27.3 millionin 2002 due to the impact of the exchange rate increase given that salaries arepaid in Dominican pesos. At December 31, 2003, we had 1,635 employees comparedto 1,519 employees at December 31, 2002. Provisions for uncollectible accounts decreased by 32.5% to $5.2 millionin 2003

 

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from $7.7 million in 2002for reasons related to exchange rate fluctuations. Marketing expenses decreased60.3% to $2.7 million during 2003 from $6.8 million during 2002.  Other expenses, which include legal expenses,maintenance and repair of vehicles and equipment and other professionalservices, increased 27.9% to $25.2 million in 2003 from $19.7 million in 2002.

 

*Depreciationand Amortization*. Depreciation and amortization increased5.7% to $70.3 million during 2003 from $66.5 million during 2002, primarily dueto a higher fixed asset depreciable base before fixed asset impairment charges.

 

*Expensein Lieu of Income Taxes*. Prior to September 2002, we made payments to the Dominican government inlieu of income tax equal to 10% of gross domestic revenues, after deductingcharges for access to the local network, plus 10% of net internationalrevenues.  Expense in lieu of income taxesalso included a tax of 2% on international revenues collected.  Expense in lieu of income taxes totaled $5.9million in 2002.  Since September 1,2002, in accordance with Presidential decree No. 405-02, we no longer paytaxes in lieu of income tax but pay the tax imposed on all Dominican corporations,a tax equal to the greater of either 25% of net taxable income or 1.5% of grossrevenues.

 

*Asset Impairment. *During the fourth quarter of 2003, we performed our annualimpairment review and recorded a non-cash asset impairment charge of $191.3 millionrelated to long-lived assets, goodwill and other intangible assets.  The asset impairment charges were drivenprimarily by the impact of the exchange rate increase together with competitivepressures on our telecommunication business in the Dominican Republic.

 

Withrespect to fixed assets, we recognized a $165.1 million impairment charge in relation to mobile network assets andcertain other fixed assets in accordance with SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets”. Under SFAS No. 144, we arerequired to reduce the carrying value of assets to fair value and recognizeasset impairment charges if the carrying value of the affected assets exceededprojected future undiscounted cash flows.

 

Wealso recognized a $26.2 millionimpairment charge in relation to goodwill and other intangible assetsof TCN Dominicana, our wholly-owned cable television subsidiary acquiredin 2001, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”.  The goodwill impairment charge was drivenprimarily by the impact of the exchange rate increase on our cable televisionbusiness in the Dominican Republic.

 

*Other OperatingExpenses and Special Items*.  Other charges and specialitems totaled $15.9 million in 2003. During the fourth quarter of 2003, we recorded a $7.4 million non-cashcharge related to the early termination of an operating lease agreement for anaircraft entered into by our wholly owned subsidiary Tricom USA, Inc.  In 2003, we fully reserved the amount of $5.0million corresponding to investments in related companies due to theuncertainty of their realization as a result of the liquidation process thatthe related companies are undergoing. Other operating expenses representing legal and professional advisoryservices expenses totaled $1.6 million in 2003.

 

***OperatingLoss.**** *Operating loss totaled $231.5million in 2003 compared to $7.4****million in2002.  The increase in operating loss is attributable to lower total operatingrevenues, primarily due to the effect of the exchange rate increase impactingour peso-denominated revenues, coupled with higher operating costs andexpenses, primarily non-cash asset impairment charges and other charges andspecial items.

 

***OtherExpenses****. *Other expenses decreased to $58.7million in 2003 from $60.7 million in 2002, primarily due to higher foreigncurrency exchange gains from peso-denominated monetary assets and liabilities,resulting primarily from the effect of the increase in the average annualexchange rate, offset in part by higher interest expense.  Net foreign currency exchange gains totaled$5.3 million in 2003 compared to $3.1 million in 2002. Net interest expenseincreased to $64.3 million in 2003 from $62.3 million in 2002.

 

***IncomeTaxes.**** *Income taxes decreased to $1.4million in 2003 from $2.0 million in 2002 primarily as a result of a lowertaxable revenue base. Since September 1, 2002, we have not been subject to anexpense in lieu of income tax but to the income tax on earnings applicable tocorporations in the Dominican Republic.

 

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***DiscontinuedOperations.**** *On February 19, 2004, we sold ourCentral American trunking assets to a group of Panamanian investors.Discontinued operations represent the results of operations of our CentralAmerican activities prior to their sale. We reported losses from discontinuedoperations, after minority interest, of $46.7 million in 2003 and $7.3 millionin 2002.

 

***NetLoss.*****Net losstotaled $338.2 million or $5.23 per share in 2003 compared to net loss of $77.4million, or $1.79 per share in 2002. The increase in net loss during 2003 isattributable to lower operating revenues, primarily as the result of the impactof the exchange rate increase, together with higher operating costs and expenses,in large part due to the effect of asset impairment charges as well as higherlosses from discontinued operations, described above.

 

#### **AssetSales**

#### ** **

On February 19, 2004, wesold our Central American trunking assets to a group of Panamanian investorsfor a purchase price of approximately $12.5 million payable ininstallments.  The assets included ourdigital trunking network in Panama, as well as our radio frequency rights inGuatemala and El Salvador.  Estimated netproceeds, after transaction expenses and satisfaction of liabilities directlyrelated to the sale of our Central American operations were approximately $10.7million.

 

#### **CriticalAccounting Policies**

#### ** **

###### ***AccountingChange.***

###### * *

In November 2001, the Emerging Issue Task Force (“EITF”)of the Financial Accounting Standards Board (“FASB”) reached a consensus onEITF Issue 01-09, “Accounting for Consideration Given by a Vendor to a Customer(Including a Reseller of the Vendor’s Products)”. The Company adopted theprovision of EITF Issue 01-9, “Accounting for Consideration Given by a Vendorto a Customer (Including a Reseller of the Vendor’s Products)” effectiveJanuary 1, 2003. EITF Issue 01-09 addresses the recognition, measurement, andincome statement classification for sales incentives offered to customers.Sales incentives include discounts and generally any other offers that entitlea customer to receive a reduction in the price of a product by submitting aclaim for a refund or rebate. Under EITF Issue 01-09, the reduction in orrefund of the selling price of the product resulting from any sales incentivesshould be classified as a reduction of revenue. Prior to adopting thispronouncement, we recognized sales incentives paid to distributor of prepaidcalling card as SG&A expenses. As a result of adopting EITF Issue 01-09,sales incentives were restated (reclassified) as a reduction of long distancerevenues in the case of long distance calling cards and as a reduction ofcellular revenues in the case of prepaid cellular services for the years ended December31, 2003 and 2004. Amounts reclassified were $9,295,489 and $6,102,127 in theyears ended December 31, 2003 and 2004, respectively. This pronouncement didnot have any impact on net loss reported in these years.

 

###### ***Long-LivedAssets.***

###### * *

In accordance withStatement of Financial Accounting Statements No.144, long-lived assets, such asproperty, plant, and equipment, and purchased intangibles subject toamortization, are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to the estimated undiscountedfuture cash flows expected to be generated by the asset. If the carrying amountof an asset exceeds its estimated future cash flows, an impairment charge isrecognized by the amount by which the carrying amount of the asset exceeds thefair value of the asset. Assets to be disposed of would be separately presentedin the balance sheet and reported at the lower of the carrying amount or fairvalue less costs to sell, and are no longer depreciated. The assets andliabilities of a disposed group classified as held for sale would be presentedseparately in the appropriate asset and liability sections of the balancesheet.

 

Goodwill is testedannually for impairment, and is tested for impairment more frequently if eventsand circumstances indicate that the asset might be impaired.  An impairment loss is recognized to the extentthat the carrying amount exceeds the asset’s fair value. This determination ismade at the reporting unit level and consists of two steps. First, we determinethe fair value of a reporting unit and compare it to its carrying amount.Second, if the carrying amount of a reporting unit exceeds its fair value, animpairment loss is recognized for any excess of the carrying amount of thereporting unit’s goodwill over the implied fair value of that goodwill. The 

 

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implied fair value ofgoodwill is determined by allocating the fair value of the reporting unit in amanner similar to a purchase price allocation, in accordance with FASBStatement No. 141, Business Combinations. The residual fair value after this allocationis the implied fair value of the reporting unit goodwill.

 

***Goodwilland Other Intangible Assets.***

 

Goodwill represents theexcess of costs over fair value of assets of businesses acquired. We adoptedthe provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets,as of January 1, 2002. Pursuant to Statement 142, goodwill and intangibleassets acquired in a purchase business combination and determined to have anindefinite useful life are not amortized, but instead tested for impairment atleast annually in accordance with the provisions of Statement 142. Statement142 also requires that intangible assets with estimable useful lives beamortized over their respective estimated useful lives to their estimatedresidual values, and reviewed for impairment in accordance with FASB StatementNo. 144, Accounting for Impairment or Disposal of Long-Lived Assets.

 

#### **Effectsof Inflation and Currency Devaluation**

#### ** **

The annual inflation ratein the Dominican Republic was 28.7% for 2004, 42.7% for 2003, and 10.5% for2002, according to data published by the Central Bank of the DominicanRepublic.

 

In terms of annualaverage foreign exchange rates, the U.S. dollar strengthened against theDominican peso in each of the years 2004, 2003, and 2002, resulting in acorresponding weakening of the Dominican peso during these years. Thestrengthening of the U.S. dollar for the year ended December 31, 2004, 2003,and 2002 was approximately 36.1%, 66.4%, and 10.0%, respectively, as derivedfrom data published by the Central Bank of the Dominican Republic.

 

Our results of operationsand financial condition are significantly affected by fluctuations in theDominican peso against the U.S. dollar. The majority of our revenues aredenominated in pesos while we have significant expenses, such as interest,equipment purchase and programming cost denominated in U.S. dollars. We do nothave hedging or other arrangements in place to protect ourselves against theeffects of currency fluctuations.

 

#### **Liquidityand Capital Resources**

#### ** **

***Background.***

*** ***

Historically, ourexpansion strategy required us to incur significant costs and to makesubstantial capital investments in our network infrastructure before realizingrelated revenues.  We funded ourexpansion primarily through private and public equity, short-term and long-termdebt offerings and credit facilities.

 

Since 2001, our liquidityresources have been significantly restricted by the worldwide contraction ofthe telecommunications industry and capital markets, at a time when we werecompleting major network expansion projects. As a result, in 2002 we initiated a rationalization plan to curtail ourspending and capital investments, while maintaining a healthy growth insubscribers and revenues.

 

In 2003, there was asignificant devaluation of the Dominican peso that continued into the middle of2004. The average annual exchange rate of the Dominican peso to the U.S. dollarincreased 66.4% and 36.1%, in 2003 and 2004, respectively, adversely affectingthe Dominican economy. In particular, the failure of one of the largest privatecommercial banks, Banco Intercontinental, in 2003 cost the Dominican Republican amount estimated to be approximately 12% to 15% of Gross Domestic Productand strained the finances of the Central Bank. This banking crisis led toincreased inflation and reduced consumer confidence.

 

***Restructuring.***

*** ***

Commencing in 2001, acombination of macro-economic factors and circumstances specific to ourbusiness contributed to a steady 

 

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and significant declinein our operating performance, cash flows and financial condition.  In light of these factors, our continuingfunding needs, and our inability to service our debt, during late 2003, we tooksteps to conserve cash and to focus our efforts on our core businesses, asfollows:

 

•              *Suspensionof Capital and Interest Payments to Lenders*. In September 2003, weannounced that we would not be making a scheduled interest payment on our11-3/8% Senior Notes due September 1, 2004.  In October 2003 we suspended principal andinterest payments on our unsecured indebtedness and principal payments on oursecured indebtedness.  Subsequently, onSeptember 1, 2004, we announced that we would not be making the $200 millionprincipal payment on our 11-3/8% Senior Notes due September 1, 2004.  As a result, we do not expect to haveavailable any external funding sources until the restructuring process isconcluded;

 

•              *Appointmentof Chief Restructuring Officer*. Our Board of Directors appointed KevinLavin of FTI Consulting as Chief Restructuring Officer to assist innegotiations with bondholders and lenders, to assist in the implementation of acash conservation plan, and to assist in the development of a core businessplan;

 

•              *Reduction ofCapital Spending*. We significantly reduced our capital spending in2003. Capital expenditures were cut from $53.8 million in 2002 to $10.8 millionin 2003. Subsequently, capital expenditures increased to $13.3 million in 2004.We made capital expenditures for improvements in all of our business segmentsas well as for general network maintenance. Our capital expenditures since 2003have been funded by internally generated cash flow, vendor financing, and fromproceeds of asset sales. A large part of our planned capital expenditures arediscretionary and can be postponed or cancelled if we determine that funds arenot available to us;

 

•              *Divestmentof Non-Strategic Assets*. We sold our Central American trunkingassets to a group of Panamanian investors for a purchase price of approximately$12.5 million payable in installments. Estimated net proceeds, aftertransaction expenses and satisfaction of liabilities directly related to theCentral American operations, totaled approximately $10.7 million;

 

•              *Reduction ofSpending*. We have implemented a series of expense reduction and cashconservation initiatives, which have resulted in the reduction of SG&Aexpenses, including headcount reductions, lowering prepaid commission rates andmarketing expenses, as well as freezing our discretionary spending.

 

***Cash Flows.***

*** ***

Our primary source offunds in 2004 was cash generated from our operations. Net cash provided byoperating activities totaled $22.2 million in 2004 compared to $7.3 million in2003 and $7.2 million in 2002. The increase in cash from operations in 2004compared to 2003 resulted from improved operational margins and the effects ofa change in our policy for booking capital expenses payments.

 

During 2004, capitalexpenditures continued to be our primary use of capital resources. Net cashused in investing activities totaled $3.0 million in 2004 compared to $0.2million in 2003 and $58.0 million in 2002. Our capital expenditures totaled$13.3 million in 2004, primarily for the installation of additional local accesslines, network improvements and network maintenance. The increase in cash usedin investing activities in 2004 was primarily due to an increase in our capitalexpenditures and the effects of a change in our policy for booking capitalexpense payments.

 

Net cash used infinancing activities was $4.1 million in 2004 and $10.8 million in 2003 comparedto $44.2 million provided by financing activities in 2002.  Financing activities during 2004 primarilyincluded payments to certain banks and holders of long-term debt.

 

At December 31, 2004, wehad approximately $17.6 million in cash.

 

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***Indebtedness.***

*** ***

Our indebtedness wasapproximately $448.3 million in principal amount at December 31, 2004 comparedto $449.3 million at December 31, 2003. Our indebtedness at December 31, 2004 consisted of $200.0 million of11-3/8% Senior Notes due 2004, and $248.3 million of bank and other borrowings,capital leases, commercial paper and telecommunication equipment trade financings.  In October 2003, we suspended principal andinterest payments on substantially all unsecured bank debt and Senior Notesthrough the restructuring process.  As aresult, all of our indebtedness can be called on demand; accordingly, all ofour indebtedness at December 31, 2004 has been reclassified as current debt.

 

At December 31, 2004, ourcurrent liabilities exceeded our current assets by $534.6 million compared to$497.2 million at December 31, 2003.  Theincrease in negative working capital is primarily due to an increase in accruedbut unpaid interest, resulting from our suspension of substantially allprincipal and interest payments to lenders.

 

***Trend Information.***

*** ***

See information providedabove in Items 3 & 4.

 

***Off-Balance Sheet Arrangements.***

*** ***

We do not maintain anyoff-balance sheet transactions, arrangements, obligations or otherrelationships with unconsolidated entities or others that are reasonably likelyto have a material current or future effect on our financial condition, changesin financial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources, which are not disclosed in the notesto the consolidated financial statements.

 

###### ***ContractualObligations.***

###### * *

The following tablecontains certain information concerning our material contractual obligations atDecember 31, 2004 (in millions of U.S. dollars).

 
| ** **                                 | ** ** | **Payments due by Period** | ** ** |
|--------------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Cash Obligations** | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1 – 3 years** | ** ** | **More than  4 years** | ** ** |
| ** **                                 | ** ** | **(in thousands)**                   | ** ** |
| Short-term debt                            |       | $                                         | 433.7      |   | 433.7 |   | — |   | — |   |
| Long-term debt                             |       | —                                    |       | — |   | — |   | — |   |
| Capital lease  obligations                 |       | 14.5                                      |       | 14.5 |   | — |   | — |   |
| Operating leases                           |       | 0.9                                       |       | 0.2 |   | 0.5 |   | 0.2 |   |
|                                       |       |                                      |       |   |   |   |   |   |   |
| Total  Contractual Cash Obligations        |       | $                                         | 449.1      |   | 448.4 |   | 0.5 |   | 0.2 |   |

 

At December 31, 2003, our11-3/8% Senior Notes due 2004 were rated “Ca” (“Ca” rating indicatesobligations that are highly speculative and likely in, or very near, default,with some prospect of recovery of principal and interest) by Moody’s InvestorsService (“Moody’s”) and “D” (“D” rated indicates payment default or the filingof a bankruptcy petition) by Standard & Poor’s (“S&P”), due to ourfailure to make interest payments on these notes. On April 12, 2004, S&Pwithdrew its rating of our 11-3/8% Senior Notes due 2004 and on December 21,2004, Moody’s withdrew its rating as well.

 

## **ITEM 6.**           DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

## ** **

We are managed by a Boardof Directors, the members of which, in accordance with our by-laws, are electedat the annual general meeting of shareholders and serve for a period of oneyear.  The Board of Directors is composedof a Chairman and Vice President of the Board and nine additional members.  The Board of Directors typically meets atleast once every three months.  Specialmeetings of the Board of Directors may be held at any time.

 

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Each Director (wheneverelected) holds office until the next Annual General Meeting of Shareholdersfollowing his or her election and until his or her successor is elected oruntil earlier resignation or removal.  Ifany vacancies occur in the Board of Directors, or if the authorized number ofdirectors is increased, the directors then in office may continue to act, andsuch vacancies may be filled by a majority of the directors then in office. Noannual general meeting of shareholders has been held since 2002.  Accordingly, most of our directors have beenappointed by action of the Board of Directors pursuant to the provisions of ourby-laws for filling vacancies.

 

The names of ourdirectors and executive officers at December 31, 2004 are set forth belowtogether with their ages and current positions at that date.

 
| **Name**                                                       | ** ** | **Age**  | ** ** | **Position**                                                            |
|----------------------------------------------------------------|------------|----------|------------|-------------------------------------------------------------------------|
|                                                           |       |     |       |                                                                    |
| **Board  of Directors**                                        |       |     |       |                                                                    |
| ** **                                                     |       |     |       |                                                                    |
| ***Named  by GFN Corporation, Ltd.:***                         | * *   | * * | * *   | * *                                                                |
| Ricardo Valdez  Albizu                                         |       | 46       |       | Chairman  (appointed May 28, 2004)                                      |
| Héctor Castro  Noboa                                      |       | 63       |       | Vice President  of the Board                                            |
| Adriano Miguel  Tejada                                         |       | 56       |       | Director  (appointed May 28, 2004)                                      |
| Manuel Arturo  Pellerano                                       |       | 50       |       | Director  (resigned October 30, 2003; reappointed May 28, 2004)         |
| Rosangela  Pellerano                                           |       | 46       |       | Director  (appointed July 28, 2004)                                     |
| Valeriano  Valerio                                             |       | 45       |       | Director  (appointed December 9, 2003)                                  |
|                                                           |       |     |       |                                                                    |
| ***Named  by Motorola, Inc.:***                                | * *   | * * | * *   | * *                                                                |
| James Deane                                                    |       | 61       |       | Director  (appointed May 28, 2004)                                      |
| Thomas Canfield                                                |       | 48       |       | Director  (appointed July 28, 2004)                                     |
| Carlos Castillo                                                |       | 50       |       | Director  (appointed July 28, 2004)                                     |
|                                                           |       |     |       |                                                                    |
| ***Independent  Directors:***                                  | * *   | * * | * *   | * *                                                                |
| Anibal de Castro                                               |       | 55       |       | Director                                                                |
| Gerald Gitner                                                  |       | 59       |       | Director  (appointed August 23, 2004)                                   |
|                                                           |       |     |       |                                                                    |
| Manuel Arturo  Pellerano and Rosangela Pellerano are siblings. |       |     |       |                                                                    |
|                                                           |       |     |       |                                                                    |
| **Executive  Officers**                                        |       |     |       |                                                                    |
| ** **                                                     |       |     |       |                                                                    |
| Carl H. Carlson                                                |       | 46       |       | President, Chief  Executive Officer (appointed October 30, 2003)        |
| Alfredo  Arredondo                                             |       | 40       |       | Vice President,  Information Technology                                 |
| Ryan Larrauri                                                  |       | 32       |       | Vice President, Consumer  Segment Division                              |
| Erwin Mendez                                                   |       | 44       |       | Vice President,  Finance & Administration (appointed July 28, 2004) |
| Maripily Peralta                                               |       | 36       |       | Vice President,  Human Resources                                        |
| Carlos Ramón  Romero                                      |       | 52       |       | Vice President,  Business Segment Division                              |
| Luis Ruiz                                                      |       | 58       |       | Vice President,  Telecable                                              |
| Bela Szabo                                                     |       | 36       |       | Vice President,  International Division                                 |
| Valeriano  Valerio                                             |       | 45       |       | Vice President,  Network Planning & Operations                      |
| Miriam Vargas                                                  |       | 42       |       | Vice President,  Services Division                                      |

* *

In addition, thefollowing directors and executive officers served during 2003 and/or 2004, andresigned from the indicated positions prior to December 31, 2004:

 

Carl H. Carlson, Chairmanof the Board (resigned May 28, 2004);

Edwin Corrie, Director(resigned July 20, 2004);

Marino Ginebra, Director(resigned July 27, 2004);

Richard Haning, Director(resigned effective December 31, 2003);

 

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Juan Felipe Mendoza,Director (resigned November 11, 2003);

Manuel Arturo Pellerano,Chief Executive Officer (resigned October 30, 2003);

Roberto Saladin, Director(appointed May 28, 2004; resigned November 10, 2004);

Theodore W. Shaffner,Director (resigned effective December 31, 2003);

Ralph Smith, Director(resigned effective December 31, 2003);

Ramon Tarragó, Chief FinancialOfficer (resigned July 28, 2004);

Marcos J. Troncoso,Director (resigned April 14, 2004);

Kevin J. Wiley, Director(resigned effective December 31, 2003).

 

Each of the currentmembers of the Board of Directors has been elected pursuant to the terms of anamended and restated shareholders agreement, dated at May 8, 1998, amongTricom, Motorola, Oleander Holdings, Inc., Zona Franca San Isidro, S.A.and certain individuals that are affiliates of GFN or Tricom.

*** ***

The following sets forthfurther information about the members of our Board of Directors and ourexecutive officers current as at December 31, 2004.

*** ***

#### **Boardof Directors**

#### ** **

***RicardoValdez Albizu*****has beenChairman of our Board of Directors since May 2004 and a member of our Board ofDirectors since February 2004. Mr. Albizu has been the Chairman and ChiefExecutive Officer of Zona Franca San Isidro, a diversified industrial park inthe Dominican Republic, since 1997. He obtained his law degree from theUniversidad Autónoma de Santo Domingo in 1984.

* *

***HéctorCastro Noboa*** has served as Vice President of our Board ofDirectors since August 1994 and has been a board member since our formation inJanuary 1988. Mr. Castro was a director and Executive Vice President ofGFN from April 1989 to June 2002. Between March 1993 and September 1997, Mr. Castro served asthe Executive Vice President of Bancrédito. Mr. Castro has also worked for the Deutsche Sudamerikanische Bank(Germany), Citibank (Marketing Vice President), Bonanza Dominicana (ChiefFinancial Officer), Banco Metropolitano (Financial Advisor) and UniversidadNacional Pedro Henríquez Ureña (professor of international economics andmacroeconomics).  Mr. Castro has a degreein Business Economics from Madrid’s Universidad Complutense where he studiedbusiness economics.

 

***ThomasCanfield*** has been a member of our Board of Directorssince July 2004. Since February 2004, Mr. Canfield has served as thecourt-appointed Chief Executive Officer and Plan Administrator of AT&TLatin America Corp., a broadband communications services provider to majormetropolitan business markets in Latin America. Mr. Canfield also served asAT&T Latin America’s General Counsel and Secretary from 2000 to 2004.Before joining AT&T Latin America, from 1991 to 2000, Mr. Canfield was anassociate and counsel in the corporate and international practice groups of theinternational law firm Debevoise & Plimpton LLP for nine years. Mr.Canfield holds a B.A. in History from Wesleyan University and a J.D. fromFordham University School of Law, New York.

 

***CarlosCastillo*** has been a member of our Board of Directorssince July 2004. Since January 2001, Mr. Castillo has been an independentfinancial advisory consultant.  He hasover 20 years of operational and transactional experience in corporate finance,debt restructuring, investment and merchant banking services principally inLatin America. From July 1997 to June 1995, and again from August 1999 toDecember 2000, Mr. Castillo was a Senior Managing Director at Bear Stearns& Co., Inc. Latin America Equity Capital Markets and Investment Banking.Mr. Castillo’s previous experience also includes positions at Bankers TrustCompany and Continental Bank. Mr. Castillo holds a B.S. in Economics fromUniversidad Nacional de Ingenieria in Peru and an MBA from the Wharton Schoolof Business, University of Pennsylvania.

* *

***AníbalDe Castro*** has been a member of our Board of Directorssince May 1998.  Mr. De Castro iscurrently the ambassador of the Dominican Republic to the Court of St. James,Great Britain. He has been President of Editorial AA, a subsidiary of GFN sinceMay 1994 and was Executive Vice President of Omnimedia from May 1994 toJune 2004.  Mr. De Castro served on theBoard of Directors of Corporación Dominicana de Electricidad, the country’sstate-owned electric utility provider from 1979 to 1982, and currently serveson the Board of Directors of several Dominican companies and professionalassociations including Banco de la

 

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Pequeña Empresa and Fondode Financiamiento de la Micro-Empresa. Mr. De Castro graduated from Universidad Autónoma de Santo Domingo witha degree in journalism and holds a B.A. in Economics from the University ofEast Anglia in Great Britain.

 

***JamesDeane*****has been amember of our Board of Directors since May 2004. Since March 1995, he has beenthe Chief Executive Officer and majority shareholder of DSJ Holdings, Inc.,which specializes in the origination of structured trade transactions andprocurement for overseas buyers in Latin America and Africa. From June 1971until January 1992, Mr. Deane was employed by Citibank in Latin America and theU.S., including as Country Corporate Officer in Ecuador and the DominicanRepublic. Mr. Deane earned his Bachelor’s degree in Industrial Engineering fromStanford University and an MBA from the Wharton School of Business, Universityof Pennsylvania.

 

***GeraldGitner*** has been a member of our Board of Directors sinceAugust 2004. Since 1986, Mr. Gitner has served as Chairman of D. G. Associates,Inc.  Since 2002, Mr. Gitner has alsoserved as non-executive Chairman of Kitty Hawk, Inc., which operates anovernight express cargo network and an all cargo airline headquartered inDallas, Texas.  He served as Chairman ofthe Board of Trans World Airlines, Inc. from 1997 to 2002 and as its CEO from1996 to 1999.  He also co-founded andco-chaired from 1990 to 1997 a private leasing company specializing inwide-bodied aircraft. Mr. Gitner is a former Vice Chairman of Pan AmericanWorld Airways and CEO of Pan American World Services. Mr. Gitner was Presidentand Co-founder of People Express Airlines, Inc. from 1980 to 1982. He alsoserved as President and CEO of Atasco USA, a private aviation concern involvedin commercial aircraft leasing and servicing. Mr. Gitner received a B.A. from Boston University.

 

***ManuelArturo Pellerano Peña*** has served as a member of our Boardof Directors since May 2004. Mr. Pellerano served as Chairman of our Board ofDirectors and Director from August 1994 until October 2003 and as ourChief Executive Officer from August 1994 until October 2003. Mr. Pellerano hasbeen a member and the Vice President of the Board of Directors of GFN sinceApril 1989.  Mr. Pellerano graduatedfrom Universidad Nacional Pedro Henríquez Ureña with a degree in economics.

 

***RosangelaPellerano*** Peña has been a member of our Board ofDirectors since July 2004. Ms. Pellerano has over 16 years of experience withinthe Dominican commercial banking industry. From 1987 to 2003, Ms. Pelleranoserved as a Vice President of both the Consumer and Corporate Banking Servicesand International Banking Services divisions of Bancrédito, S.A., a formeraffiliate of GFN Corp., our principal shareholder. Ms. Pellerano is a graduateof Instituto Tecnológico de Santo Domingo where she majored in businessadministration and holds an MBA from Université du Québec in Montreal, Canada.

 

***AdrianoTejada*** has been a member of our Board of Directors sinceMay 2004.  Since 2000, Mr. Tejada hasbeen the editor of several newspapers in the Dominican Republic and served aspress secretary for President Leonel Fernandez from 1997 to 2000. Since June2004, Mr. Tejada has been the Director of Omnimedia, which produces the DiarioLibre newspaper and magazine publications. Mr. Tejada holds a law degree fromUniversidad Católica Madre y Maestra and a Master of Arts in Political Sciencefrom Temple University, Philadelphia. Mr. Tejada also was an associateprofessor and dean at Pontificia Universidad Católica Madre y Maestra and aFulbright scholar who studied journalism and political history at theUniversity of Pittsburgh.

* *

***ValerianoValerio*****has been amember of our Board of Directors since December 2003 and has served as ourFirst Vice President of Network Planning and Operations since June 2000.  Mr. Valerio served as our Second VicePresident of Institutional Relationships between June 1995 and June 2000.  Mr. Valerio graduated with a degree inElectrical Engineering from the Universidad Pedro Henríquez Ureña and studiedat the Nippon Telegraph and Telephone Public Corporation of Tokyo, Japan.

 

#### **ExecutiveOfficers**

#### ** **

***Carl H. Carlson*** has served as President and Chief ExecutiveOfficer since October 2003 and also served as Treasurer of our Board ofDirectors from January 2000 until May 2004. He also served as interim Chairman of our Board of Directors fromDecember 2003 until June 2004.  Mr.Carlson was Executive Vice President and Chief Operating Officer from March1998 until October 2003, Senior Vice President from March 1993 untilMarch 1998, Chief Financial Officer from September 1993 untilSeptember 1995, and Vice President of Finance and Administration fromDecember 1989 until September 1993. Prior to joining Tricom, Mr. Carlson was an 

 

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Assistant Vice President for GFN’s insurancedivision from 1987 until December 1989. From 1983 to 1987, Mr. Carlson was a Vice President at Chase ManhattanBank.  Mr. Carlson is a graduate ofInstituto Technológico de Santo Domingo where he majored in Business Administrationand Accounting and Finance.  Mr. Carlsonearned an MBA from a joint program between the University of South Carolina andPontifica Universidad Católica Madre y Maestra.

 

***Alfredo Arredondo*** has served as Vice President of Information Technology since 2004 andhas held a number of positions in the Company’s Management Information Systemsdepartment since 1991. Before joining Tricom, from 1989 to 1991, he was asystems analyst for Nestle Dominicana. Mr. Arredondo has worked as ProjectManager for development and deployment of all of the Company’sinternally-developed applications, including billing, rating customer care,provisioning and traffic measurement. Mr. Arredondo is a systems engineer fromPontificia Universidad Católica Madre y Maestra and has a post-graduate degreein management from Instituto Tecnológico de Santo Domingo.

 

***RyanLarrauri*** has served as Vice President of our ConsumerSegment Division since June 2001. Before joining Tricom, he was Vice Presidentof Marketing for GFN’s Bancrédito and Compañía Nacional de Seguros from1999.  He has held numerous executivepositions in the textile, consumer goods and financial sectors. Mr. Larrauri isthe published author of *Marketing in the DominicanRepublic, Genesis and Evolution* as well as several other specializedarticles in the field.  Mr. Larrauri hasa B.S. in Marketing from the Universidad Iberoamericana, as well aspost-graduate degrees in Brand Management, International Business, BankManagement and Strategic Planning.

 

***ErwinMendez*** has served as Vice President of Finance andAdministration since July 2004 and was the Company’s Controller since November2002. Before joining Tricom, from May 2001 to November 2002, he was VicePresident of Finance for Centennial Dominicana, then a subsidiary of CentennialCommunications Corp.  Prior to May 2001,Mr. Mendez worked for 14 years for Colgate-Palmolive Company where he servedfrom 1987 to April 2001 in key accounting and financial control positions inthe Dominican Republic and the Caribbean, including assignments as FinanceDirector for Colgate-Palmolive operations in Barbados and Jamaica. Mr. Mendezis a graduate of Universidad APEC in Santo Domingo where he majored inaccounting and finance and holds an MBA from Instituto Tecnológico de Santo Domingo,Dominican Republic.

 

***MaripilyPeralta*** has served as Vice President of Human Resourcessince December 2001. Before joining Tricom, from March 2001 to December 2001,she was Business Manager for Bancrédito. Mrs. Peralta previously held numerousmanagerial-level human resources positions at Tricom and GFN. Mrs. Peraltaholds a B.S. in Business Administration from Universidad APEC as well as apost-graduate degree in Human Resources from Instituto Tecnológico de SantoDomingo. She is presently a member of the Asociación Dominicana de RecursosHumanos (“ADOARH”) and Federación Interamericana de Recursos Humanos. From 2003to 2005, she was the treasurer of ADOARH. Mrs. Peralta has also taught subjects in the field of Human Resources atPontificia Universidad Católica Madre y Maestra.

 

***CarlosRamón Romero*** has served as Vice President of our BusinessSegment Division since January 2002.  Hewas Vice President of the Customer Relationship Management Division fromJuly 2000 to December 2001 and First Vice President of the Consumer andBusiness Segments Division from July 1996 until July 2000.  Immediately prior to his arrival at Tricom,Mr. Romero served as chief executive of a brokerage company, which he startedin February 1994.  Mr. Romero servedas Vice President of the Technical Area of Compañía Nacional de Seguros, asubsidiary of GFN, from 1980 until February 1994.  Mr. Romero earned a B.A. in InternationalServices from the Universidad Nacional Pedro Henríquez Ureña where he has sinceheld various academic posts.

 

***LuisRuiz*** has servedas Vice President of our Cable TV Division since May 2004. Previously, heserved as 2nd VP Cable and Special Services from September 2001 toApril 2004. Before joining Tricom, Mr. Ruiz was Vice President of TelecableNacional C. por A., were he worked from 1982, with the founding group of cabletelevision business in the country, in partnership with TCI (Comcast). Beforethat, Mr. Ruiz worked for Codetel, then a GTE subsidiary, where he held variouspositions in the engineering and services area. Mr. Ruiz has an IndustrialEngineering degree from World University and a Communications Studies degreefrom George Washington University. Active in cable and telecommunicationsbusiness, Mr. Ruiz is Vice President of TEPAL, an organization uniting cabletelevision companies in Latin America.

 

52

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***Bela Szabo***has served as Vice President of our International Division since July 2002. Hewas Director of the International Division from April 2001 to July 2002. Before joining Tricom, Mr. Szabo worked at Texaco from September 1994 to April2001 holding numerous positions in marketing, engineering and as manager ofTexaco’s *Express Lube* division. From 1989 to1994, Mr. Szabo worked for La Universal de Seguros, one of the largestinsurance companies in the Dominican Republic, managing insurance policies toengineering companies.  Mr. Szabo holds a post-graduate degree inCorporate Finance from Barna Escuela de Alta Dirección and is currently finishingan MBA with the same institution. Mr. Szabo also holds an engineering degreefrom the Universidad Nacional Pedro Henríquez Ureña.

 

***ValerianoValerio*****has served asour First Vice President of Network Planning and Operations since June 2000.See additional information in the Board of Directors section above.

 

***MiriamVargas*****has served asVice President of our Services Division since January 2002. She was VicePresident of Finance from January 1997 to December 2001. From 1985 to 1996,Mrs. Vargas was Vice President of Internal Auditing for a number of GFN ́ssubsidiaries including Bancrédito and Compañía Nacional de Seguros. Mrs. Vargasis a graduate of Universidad APEC in Santo Domingo where she majored inaccounting, finance and auditing and holds an MBA from the Universidad Cató1icaMadre y Maestra. Mrs. Vargas is currently finishing an MBA from Barna Escuelade Alta Dirección.

 

#### **ExecutiveCompensation**

#### ** **

Theaggregate amount of compensation we paid during the fiscal years ended December31, 2003 and 2004, to our executive officers, as a group (ten persons), was$1.4 million and $2.0 million, respectively. In addition, we made severancepayments to our executive officers in aggregate amounts of $0.4 million and$0.6 million during the fiscal years ended December 31, 2003 and 2004,respectively.

 

#### **Employees**

 
| ** ** | ** ** | **At December 31,** | ** ** |
|------------|------------|-------------------------------|------------|
| ** ** | ** ** | **2002**                      | ** ** | **2003** | ** ** | **2004** | ** ** |
| Executives |       | 195                           |       | 195 |   | 195 |   |
| Others     |       | 1,324                         |       | 1,440 |   | 1,420 |   |
| Total      |       | 1,519                         |       | 1,635 |   | 1,615 |   |

 

At December 31, 2004, wehad 1,615 employees.  Of this number, 195were executives, directors and managers, and the remaining 1,420 weretechnicians, sales, service and staff employees.  None of our employees belong to laborunions.  We believe that we have goodrelations with our employees.

 

#### **ShareOwnership**

#### ** **

We refer to Item 7 forinformation with respect to Manuel Arturo Pellerano Peña, who, to ourknowledge, is the only director with 1% or greater percentage of ownership inTricom.

 

In connection with ourinitial public offering, our Board of Directors adopted, and GFN and Motorolaapproved, our 1998 Long-Term Incentive Plan pursuant to which 750,000 shares ofClass A Common Stock were reserved for issuance to officers andemployees.  At December 31, 2003 and2004, there were outstanding options to purchase 337,591 and 249,130 shares,respectively, of Class A Common Stock that had been granted to current andformer directors, officers and employees (including certain of the executiveofficers listed above) at exercise prices ranging from $3.00 per share to$16.00 per share.  The options grantedexpire on the tenth anniversary of the date of grant.

 

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## **ITEM 7.**           MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

## ** **

The following table setsforth certain information known to us with respect to beneficial ownership ofour Class A Common Stock at December 31, 2004 (unless otherwise indicated) byeach person who, to our knowledge, beneficially owns 5% or more of our Class ACommon Stock and all officers and directors as a group.  Except as otherwise indicated, the holderslisted below have sole voting and investment power with respect to all sharesbeneficially owned by them.

 

Each share of Class BStock is freely convertible at any time into one share of Class A CommonStock, subject to adjustment, and may not be transferred except to GFN,Motorola or their permitted transferees, as defined.  Each share of Class B Stock has ten votes andeach share of Class A Common Stock has one vote.  GFN and Motorola own 100% of the outstandingshares of Class B Stock.  Currently, GFNand its affiliates have approximately 55.9% of the voting power (includingshares of Class A Common Stock and Class B Stock owned by it and itsaffiliates) and Motorola approximately 32.3%. If our financial restructuring is consummated as currently contemplated,the interests of the existing holders of our equity will be effectivelyeliminated, and, as a result, the voting power of GFN and its affiliates andMotorola will substantially reduced.

 
| **Shareholder**                                                    | ** ** | **Class A  Common  Stock  Beneficially  Owned (1)** | ** ** | **Percentage of  Class A Common  Stock Beneficially  Owned (1)** | ** ** | **Percentage of  Class B Stock  Beneficially  Owned** | ** ** | **Percentage of  Voting Power  (assuming that all  of the Class B  Stock is  Converted into  Class A Common  Stock)**** ****(1)** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                               |       |                                                     |       |                                                                                 |       |                                                                 |       |                                                                                                                                                                                          |       |
| Oleander  Holdings, Inc. (2)                                       |       | 25,565,357                                               |       | 44.9                                                                                 |       | 60.0                                                                 |       | 39.6                                                                                                                                                                                          |       |
| GFN Corporation  Ltd (2).                                          |       | 28,444,145                                               |       | 50.0                                                                                 |       | 60.0                                                                 |       | 44.0                                                                                                                                                                                          |       |
| Manuel Arturo  Pellerano Peña (2)                             |       | 28,940,594                                               |       | 50.8                                                                                 |       | 60.0                                                                 |       | 44.8                                                                                                                                                                                          |       |
| Motorola, Inc.                                                     |       | 7,657,818                                                |       | 14.4                                                                                 |       | 40.0                                                                 |       | 11.9                                                                                                                                                                                          |       |
| Orient Star  Holdings LLC (3)                                      |       | 2,445,606                                                |       | 5.4                                                                                  |       | —                                                               |       | 3.8                                                                                                                                                                                           |       |
| Marino A.  Ginebra Hurtado (4)                                     |       | 3,306,037                                                |       | 7.3                                                                                  |       | —                                                               |       | 5.1                                                                                                                                                                                           |       |
| Global Capital  Finance Ltd.                                       |       | 3,030,303                                                |       | 6.7                                                                                  |       | —                                                               |       | 4.7                                                                                                                                                                                           |       |
| Verkid Finance,  S.A.                                              |       | 3,030,303                                                |       | 6.7                                                                                  |       | —                                                               |       | 4.7                                                                                                                                                                                           |       |
| Directors and  executive officers as a group (20 persons) (5) |       | 29,086,601                                               |       | 51.0                                                                                 |       | 60.0                                                                 |       | 45.0                                                                                                                                                                                          |       |

 

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| (1)    | For  purposes of this table, a person or group of persons is deemed to have  “beneficial ownership” of any shares as of a given date which such person or  group of persons has the right to acquire within 60 days after such  date. Information relating to the percentage beneficially owned is calculated  in accordance with SEC Rule 13d-3 and includes for each of GFN Corporation  Ltd., Manuel Arturo Pellerano Peña, Oleander Holdings Inc. and Motorola the  shares of Class A Common Stock issuable upon conversion of the Class B  Stock beneficially owned by it only. For example, for purposes of calculating  the percentage of Class A Common Stock beneficially owned by GFN Corporation  Ltd in accordance with SEC Rule 13d-3, the number of outstanding shares of  Class A Common Stock does not include shares that would be issuable upon  conversion of Class B Stock owned by Motorola. As a result, the percentage of  Class A Common Stock beneficially owned by any holder of Class B Stock is  greater than the percentage of Class A Common Stock owned by that holder,  assuming conversion of all Class B Stock, shown in the column, “Percentage of  Voting Power.” |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (2)    | Oleander  Holdings, Inc., a Panamanian corporation, is a wholly owned subsidiary  of GFN Corporation Ltd. Manuel Arturo Pellerano Peña and members of his  family control both GFN Corporation Ltd. and Oleander Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (3)    | Inmobiliaria  Carso, S.A. de C.V., as the sole member of Orient Star Holdings LLC, is  deemed to beneficially own indirectly the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

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|   | ADSs  owned directly by Orient Star Holdings LLC.   Carlos Slim Helu, Carlos Slim Domit, Marco Antonio Slim Domit, Patrick  Slim Domit, María Soumaya Slim Domit, Vanessa Paola Slim and Johanna Monique  Slim Domit own all of the outstanding voting securities of Inmobiliaria  Carso, S.A. de C.V., and are deemed to beneficially own indirectly the ADSs  deemed beneficially owned by Inmobiliaria Carso, S.A. de C.V. and directly  owned by Orient Star Holdings LLC.   This information is based on a Schedule 13-G filed with the SEC on  February 14, 2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (4)    | Includes  606,061 shares of Class A Common Stock owned by Mr. Ginebra directly and  2,699,976 shares of Class A Common Stock owned by Walbeck Overseas Ltd., an  entity controlled by Mr. Ginebra.                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (5)    | Includes  11,486,720 shares of Class B Stock and 17,453,874 shares of Class A Common  Stock that may be deemed to be beneficially owned by Mr. Pellerano in his  capacity as a controlling person of GFN.   Also includes 48,884 shares of Class A Common Stock that are issuable  upon exercise of currently exercisable options beneficially owned by  officers.                                                                                                                                                                                                                |

 

#### **ShareholdersAgreement**

 

Each of the currentmembers of the Board of Directors has been elected under the terms of anamended and restated shareholders agreement, dated at May 8, 1998, amongTricom, Motorola, Oleander Holdings Inc., Zona Franca San Isidro, S.A. andcertain nominal shareholders that are affiliates of GFN or Tricom.

 

The shareholdersagreement provides that the Board of Directors will consist, and GFN andMotorola each will vote all of the shares owned by it (or in the case of anytransfer of shares to its permitted transferee, as defined in the shareholdersagreement, will cause such permitted transferees to vote their shares) infavor, of six directors to be designated by GFN, four directors to bedesignated by Motorola and two independent directors.  The shareholders agreement provides that inorder for a person to qualify as an independent director such person must notbe:

 

•              An officer, employee, principalstockholder, consultant or partner of Tricom, apart from such directorship, oran officer, employee, principal stockholder, consultant or partner of an entitythat was dependent upon Tricom or any affiliate of Tricom for more than 5% ofits revenues or earnings in its most recent fiscal year;

 

•              An officer, director, employee,principal stockholder, consultant or partner of a person that is a competitorof Tricom or any of its affiliates, any affiliate of such competitor, or anyother person that was dependent upon such competitor or affiliate of suchcompetitor for more than 5% of its revenues or earnings in its most recentfiscal year; or

 

•              An officer, director, employee,principal stockholder, consultant or partner of Motorola or GFN or an officer,employee, principal stockholder, consultant or partner of an entity that wasdependent upon Motorola or any affiliate of Motorola for more than 5% of its revenuesor earnings in its most recent fiscal year.

 

Each of Motorola and GFNwill be entitled to nominate one independent director so long as it togetherwith its permitted transferees owns at least 25% of the issued and outstandingshares of Class B Stock.  In calculatingthe number of shares of Class B Stock owned by either GFN or Motorola, therewill be included the number of shares of Class B Stock owned by any of itpermitted transferees.

 

The number of directorsother than independent directors that GFN or Motorola each may designate willchange if its percentage ownership of Class B Stock changes as follows:

 

•              If GFN and Motorola each owns 50%of the then outstanding shares of Class B Stock, each would have the right todesignate five directors;

 

•              If either GFN or Motorola ownsshares of Class B Stock:

 

•              Greater than 50% but less than orequal to 60% of the then outstanding shares of Class B Stock, it woulddesignate six directors and the other four directors;

 

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•              Greater than 60% but less than orequal to 70% of the then outstanding shares of Class B Stock, it woulddesignate seven directors and the other three directors;

 

•              Greater than 70% but less than orequal to 80% of the then outstanding shares of Class B Stock, it woulddesignate eight directors and the other two directors;

 

•              Greater than 80% but less than orequal to 90% of the then issued and outstanding shares of Class B Stock, itwould designate nine directors and the other one director; or

 

•              Greater than 90% of the issued andoutstanding Class B Stock, it would designate all ten directors.

 

Until such time as eitherMotorola or GFN owns less than 25% of the outstanding shares of Class B Stock,the shareholders agreement requires the affirmative vote of nine directors toapprove the following actions:

 

•              The acquisition or formation byTricom of any entity or the making of any investments in an other entity ofbusiness, including, but not limited to, the purchasing of equity or debtinterests in or the extension of credit to such entity;

 

•              The incurrence of indebtedness, ifafter giving effect to such incurrence, including the proposed application ofthe proceeds of such indebtedness to pay existing indebtedness, the ratio ofindebtedness to shareholders’ equity would be greater than three to one;

 

•              Approval of annual budgetsrelating to income, capital expenditure, operating expenses and cash flows(provided that this does not require approval of any projected debt incurrencethat otherwise complies with the limits described above or of any otherproposed corporate action for which super-majority approval is not specificallyrequired); and

 

•              The issuance, or redemption, ofClass A Common Stock or other securities or instruments exercisable for orconvertible into Class A Common Stock.

 

In addition, approval bythe independent directors is required for any transaction that has a fairmarket value exceeding $1.0 million which we enter into with either GFN orMotorola and their respective affiliates. The vote of a majority of the directors present at a duly convenedmeeting is required for all other board actions (and at such time that Motorolaor GFN owns less than 25% of the then outstanding shares of Class B Stock forthe four actions specified as requiring a greater vote).

 

Under the shareholdersagreement, if we propose to register any of our securities under the SecuritiesAct of 1933 (other than a registration in connection with a reorganization onForm F-4 or in connection with any employee stock option, stock purchaseor savings plan on Form S-8 or similar registration forms), whether or notfor our own account, GFN and Motorola are entitled to include shares ofClass A Common Stock owned by them in any such registration, subject tothe right of the managing underwriter of any such offering to exclude, due tomarket conditions, some or all of such securities.  In addition, GFN and Motorola each has theright to require us to prepare and file on three occasions a registrationstatement covering registerable securities with a market value of at least$5.0 million, subject to customary blackout periods.  We are generally required to bear theexpenses (except underwriting discounts and commissions and fees and expensesof any special counsel) of all such registrations, whether or not initiated byGFN or Motorola.

 

#### **CertainTransactions with Related Parties**

#### ** **

***Summary Description of Relationships.***

* *

We are, either directly orindirectly, related to various entities through common ownership, contractualrights and/or family ownership, as more fully set forth below.

 

Mr. Pellerano, together with membersof his family, either directly or through wholly-owned subsidiaries were, atDecember 31, 2002, 2003 and 2004, and continue to be, the beneficial owners of17,453,874 shares of our Class A Common Stock and 11,486,720 shares 

 

56

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of our Class B Stock.  This represents 50.8% of the issued andoutstanding shares of our Class A Common Stock (calculated in accordance withSEC Rule 13d-3) and 60% of the issued and outstanding shares of our Class BStock. From August 1994 through October 2003, Mr. Pellerano was the Chairman ofour Board of Directors, President and Chief Executive Officer. He resigned fromour Board of Directors in October 2003 and was reappointed in May 2004. Heretains, together with members of his family, the right to appoint a majorityof the members of our Board of Directors and, indirectly, the right to controlselection of our management.

 

GFN International Investments Corp.,a financial services holding company incorporated in the Cayman Islands, waswholly owned and controlled by Mr. Pellerano and members of his family. GFNInternational Investments Corp. was, until 2003, the parent company of thefollowing entities, among others, which were engaged in the businesses ofbanking, insurance, credit card issuance, securities broker-dealer and otherbusinesses:

 

•                  Banco Nacional deCrédito S.A., a Dominican Republic Bank (“Bancrédito Dominican Republic”);

 

•                  Bancrédito(Panama), S.A., a Panamanian Bank (“Bancrédito Panama”);

 

•                  Bancredit Cayman,Ltd., a Cayman Islands Bank (“Bancredit Cayman”);

 

•                  Acciones y Valores,S.A., a Dominican Republic broker-dealer (“ACYVAL”);

 

•                  Compañía Nacionalde Seguros, a Dominican Republic insurance company (“SEGNA”);

 

•                  Grupo FinancieroNacional, S.A., a Dominican Republic holding company (“GFN, S.A.”); and

 

•                  Compañía Nacionalde Arrendamientos S.A., a Dominican Republic equipment leasing company (“Conaresa”).

 

Mr. Pellerano was, until 2003,President of Bancrédito Dominican Republic, at the time one of the largestcommercial banks in the Dominican Republic, as well as Vice President ofBancrédito Panama and Vice President of the Board of Directors of BancreditCayman.

 

In June 2003, the operations ofBancrédito Dominican Republic and certain of its subsidiaries and relatedentities in the financial sector were sold to a group of entities in theDominican Republic controlled by the Leon family in a transaction alsoinvolving the Central Bank of the Dominican Republic. It is our understandingthat at that time Bancrédito Dominican Republic, ACYVAL, Conaresa, and GFN,S.A. ceased to be controlled by Mr. Pellerano or his family, and thereforeceased to be related to us.

 

In November 2003, the business ofSEGNA was taken over by the Superintendence of Insurance of the DominicanRepublic. It is our understanding that at that time SEGNA ceased to becontrolled by Mr. Pellerano or his family, and therefore ceased to be relatedto us.

 

During September 2003, BancréditoPanama and Bancredit Cayman were intervened by regulators in their respectivecountries and thereafter were put into a process of liquidation as a result oftheir non-compliance with financial obligations to their customers. It is ourunderstanding that at that time these entities ceased to be controlled by Mr.Pellerano or his family, and therefore ceased to be related to us.

 

Each of our directors named by GFNCorporation, Ltd., and certain of our executive officers, currently hold, or inthe past have held, positions with entities, other than Tricom and itssubsidiaries, controlled by Mr. Pellerano and members of his family. See Item6, Directors, Senior Management and Employees.

 

In addition to being our independentauditor for the year ended December 31, 2002 and prior years, KPMG and certainof its other member firms performed audit functions with respect to BancréditoDominican Republic and certain other related parties.

 

 

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The following additional entities,among others, continue to be controlled by Mr. Pellerano and members of hisfamily, and are therefore related parties:

 

•                  Omnimedia, S.A. (“Omnimedia”),a Dominican media holding company;

 

•                  Omni TV, S.A. (“OmniTV”), a Dominincan subsidiary of Omnimedia that provides televisionprogramming;

 

•                  Editorial AA, S.A.,a Dominican publishing company (which was merged into Omnimedia in 2006);

 

•                  Zona Franca SanIsidro, S.A., a free trade zone located in the Dominican Republic;

 

•                  Ellis Portafolio,S.A., Balking Trading, Inc., Eastern Power Corp. and Porter Capital, Ltd.,  which hold certain claims against us; and

 

•                  Compañía Nacionalde Seguridad, S.A., a provider of security services.

 

Motorola is the beneficial owner of7,657,818 shares of our Class B Stock and has certain rights under ourShareholders Agreement, including the right to designate a minority of themembers of our Board of Directors.

 

From time to time we have enteredinto numerous transactions with these related parties. The following discussiondescribes:

 

•                  A series oftransactions relating to a placement of our Class A Common Stock in December2002; and

 

•                  Various othertransactions with related parties that took place during the years endedDecember 31, 2002, 2003 and 2004.

 

***2002 Private Placement.***

 

*Introductionand Background.*

 

This Annual Report onForm 20-F for the fiscal year ended December 31, 2004 includes restatedfinancial statements for the year ended December 31, 2002, reflectingadjustments to the financial information and footnotes previously reported onour Annual Report on Form 20-F for the fiscal year ended December 31, 2002. Theadjustments relate primarily to the purchase (the “Placement”) in December 2002of shares of our Class A Common Stock by a group of investors for an aggregatepurchase price of approximately $70 million.

 

The need for restatementand amendment of our 2002 financial statements initially arose when our formerindependent auditor, KPMG, advised our Board of Directors on October 28, 2004that it was withholding its consent to filing our Annual Report on Form 20-Ffor the fiscal year ended December 31, 2003. KPMG sought further clarificationof the Placement, in which funds were loaned to the investors in the Placementby a bank that was at the time affiliated with GFN Corporation, Ltd., ourlargest shareholder. In a letter dated November 1, 2004, KPMG requested thatour Board of Directors initiate an independent investigation of the Placementto determine whether any illegal acts occurred in any of the jurisdictionsinvolved, the Dominican Republic, Panama, the Cayman Islands and the UnitedStates, and whether the Placement qualified to be recorded as equity on ourconsolidated balance sheet as of December 31, 2002. Subsequently our Board ofDirectors appointed a Special Committee, composed of Thomas Canfield, JamesDeane and Gerald Gitner to determine (i) whether we had any undisclosed actualor contingent liabilities as a result of the Placement, (ii) other factsreasonably necessary to allow us and our advisers to determine the appropriateaccounting treatment to be given to the Placement, and (iii) such other mattersas might be reasonably proposed by KPMG. The Special Committee retained Hunton& Williams LLP as legal counsel, who in turn retained BDO Seidman LLP toassist them in analyzing certain accounting matters. In a letter dated February9, 2005 addressed to the Special Committee, KPMG requested that the scope ofthe Special Committee’s investigation be expanded to include any other relatedparty transactions that may be directly or indirectly associated with thePlacement.

 

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*SpecialCommittee Report.*

 

In September 2005, theSpecial Committee made available to our Board of Directors and seniormanagement its initial report (the “Special Committee Report”) summarizing theSpecial Committee’s findings through that time. As noted in a Form 6-K reportthat we filed on December 9, 2005, the Special Committee did not have anysubpoena powers and was not able to obtain all of the information and documentsit sought. Subject to these and other limitations, the Special Committee Reportcontained, among others, observations to the following effect:

 

•                  Itis possible that we may have certain undisclosed actual or contingentliabilities arising out of the Placement under the laws of the jurisdictions inwhich we operated at the time of the Placement (primarily the DominicanRepublic, Panama and the United States);

 

•                  Thedisclosure as to the Placement and related transactions contained in our AnnualReport on Form 20-F for the fiscal year ended December 31, 2002 may have beendeficient and/or not consistent with information presented to the SpecialCommittee. The Special Committee recommended that we consider amending certainportions of Items 7 and 8 of that 20-F Annual Report;

 

•                  Varyingconclusions can be reached as to whether we properly accounted for thePlacement based on different hypothetical fact scenarios. Under certainhypothetical fact scenarios, the accounting treatment of the Placement asequity would remain unchanged. Under certain alternative hypothetical factscenarios, the proceeds of the Placement would not qualify to be recorded asequity on our consolidated balance sheet as at December 31, 2002, but rathershould be classified outside of permanent equity as “mezzanine financing”.

 

In addition, the SpecialCommittee offered certain corrective recommendations on corporate governanceand related matters, as described in our Form 6-K report filed on December 9,2005. This report addresses amendments to our Annual Report on Form 20-F forthe fiscal year ended December 31, 2002, and does not address those broadercorrective recommendations or the fact that we have not, to date, addressedmost of those recommendations.

 

In March 2005, while theSpecial Committee was conducting its investigation, our Board of Directorsretained Sotomayor as auditors for the year ended December 31, 2004, replacingKPMG. In December 2005, we announced that Sotomayor had also been retained asauditors for the years ended December 31, 2002 and 2003. Since that time wehave, together with our representatives, worked with Sotomayor to analyze therelevant findings of the Special Committee and to determine what amendments toour Annual Report on Form 20-F for the fiscal year ended December 31, 2002would be appropriate. In addition, on several occasions during this process,our representatives and our auditors have consulted with the Special Committee’sadvisors on matters relevant to the accounting treatment of, and disclosure asto the circumstances surrounding, the Placement.

 

In May 2007, our Board ofDirectors resolved to terminate the activities of the Special Committee. InJuly 2007, counsel to the Special Committee delivered to our Board of Directorsthe final report of the Special Committee.

 

*Availabilityof Information.*

 

The informationconcerning the Placement currently available to our management, our auditorsand the Special Committee is limited. The Special Committee noted that thedocumentation relating to the Placement was deficient and recommended that weadopt improvements to our transaction approval, documentation and recordsretention policies. Furthermore, several of the transactions associated withthe Placement did not involve us directly, but rather involved related parties,in particular Banco Nacional de Crédito, S.A. and various other bankingentities that at the time were affiliated with GFN Corporation, Ltd. Followinga banking crisis in the Dominican Republic in 2003, certain of those bankingentities were intervened in various jurisdictions, and are no longer operatedas related entities. As a result of these and other factors, our access tocertain banking and other records underlying the Placement and relatedtransactions is limited. In particular, Hemisphere Bank, the institution atwhich Bancredit Cayman’s “payable through” account was maintained and whoserecords most likely would show the flow of all or a portion of the proceedsrelating to the Placement, has to date declined various requests from theSpecial Committee’s counsel and from our independent auditor to produce copiesof the

 

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relevant accountdocumentation. Furthermore, communication with the liquidators of, and othersuccessors to, the banking entities that were intervened has been sporadic and,while those liquidators and successors may possess documents that would provideadditional information relating to the transactions surrounding the Placement,we have not, to date, been able to obtain or verify the existence of suchdocuments. On certain issues, the only information available to our managementhas been public pronouncements by those entities, which may be susceptible todiffering interpretations. As a result of these and other difficulties inobtaining information relating to the Placement, our understanding of thecircumstances surrounding the Placement is incomplete, and may change over timeif additional information comes to light. Furthermore, the various partiesinvolved in the Placement may have differing interpretations of thetransactions associated with the Placement and the intent behind them. Thisreport is based on our understanding as of the date hereof of the transactionsassociated with the Placement.

 

*Descriptionof Placement.*

 

*(a) Arrangement and Approval ofTransaction.*

 

In December 2002, ACYVAL,a broker-dealer subsidiary of Bancrédito Dominican Republic controlled by Mr.Pellerano, contacted prospective investors for the Placement, and appears tohave ultimately found twelve investors willing to purchase blocks of our ClassA Common Stock. On December 18, 2002, our Board of Directors authorized theissuance of 21,212,121 shares of Class A Common Stock at a price of $3.30 pershare, representing an aggregate gross investment of $70 million. The issuanceof the Class A Common Stock was consummated on December 31, 2002. Other thanour stockholder register and copies of stock certificates, our management doesnot have in its possession documentation, such as subscription or similaragreements, establishing a legal relationship between us and the investors asto the purchase of shares in the Placement.

 

At a certain point in theprocess leading to consummation of the transaction, several members of ourBoard of Directors and senior management intended to participate as investorsin the Placement. Our management believes, however, based in part on its reviewof instructions given to our transfer agent to produce stock certificates, thatultimately the only related parties to participate directly in the Placementwere GFN, S.A. and Mr. Ginebra, as detailed below.

 
| **Name**                                                             | ** ** | **Relationship to Tricom**                                  | ** ** | **Number of Class A  Common Shares** | ** ** | **Amount of Investment** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------|------------|
|                                                                 |       |                                                        |       |                                 |       |                     |       |   |
| GFN, S.A.                                                            |       | Wholly owned and controlled by Mr. Manuel Arturo  Pellerano |       | 2,878,788                            |       | $                        | 9,500,000  |   |
|                                                                 |       |                                                        |       |                                 |       |                     |       |   |
| Marino A.  Ginebra                                                   |       | Director                                                    |       | 606,061                              |       | 2,000,000                |       |
|                                                                 |       |                                                        |       |                                 |       |                     |       |
| Investors  believed by our management to be unaffiliated - See below |       | None to the knowledge of our management - See below         |       | 17,727,272                           |       | 58,500,000               |       |
|                                                                 |       |                                                        |       |                                 |       |                     |       |
| TOTAL                                                                |       |                                                        |       | 21,212,121                           |       | $                        | 70,000,000 |   |

 

While our management hasa general understanding of the identity of the investors in the Placement,including the names of the nominal investors and in some cases the underlyingbeneficial ownership of those nominal investors, the information available tous regarding these matters is incomplete. For example, our management hasreceived unconfirmed reports that one of our then directors, Edwin Corrie,together with members of his family, may have participated in the Placementthrough one of the investors of record.

 

As arranger of thePlacement, ACYVAL received a cash finder’s fee of $1,400,000, which wasdeducted from the proceeds of the Placement.

 

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*(b) Financing.*

 

Our managementunderstands that, in order to effect the Placement, Bancrédito Panama, anentity that at the time was wholly owned and controlled by Mr. Pellerano,agreed to finance 100% of the purchase price of the shares sold in thePlacement, representing total funding of $58,500,000 to the apparentlyunaffiliated investors and $11,500,000 to the affiliated investors. Althoughour management currently only has access to financing documents relating to asmall number of the investors in the Placement, it believes, based in part on publishedresolutions of the liquidator of Bancrédito Panama, and in part onconversations reported to the Special Committee, that this financing wasprovided by Bancrédito Panama to all of the investors in the Placement onsubstantially similar terms. Those terms, while somewhat unclear, suggest thatthe funds were lent by Bancrédito Panama to the investors on a non-recoursebasis and were collateralized only by the shares of Tricom’s Class A CommonStock purchased by the investors in the Placement. Many of the investors mayhave used special purpose entities to acquire and hold the shares purchased inthe Placement and to act as obligor on the financing. Furthermore, certain ofthe investors appear to have entered into arrangements that purported to allowthem to put the shares being financed to Bancrédito Panama upon the occurrenceof certain events. As a result, the investors appear to have mitigated, inwhole or at least in significant part, their economic risk in connection withthe Placement. Bancrédito Panama, on the other hand, by providing loanfinancing backed only by our Class A Common Stock, assumed the economic riskassociated with an investment in our Class A Common Stock because the repaymentof the loans it made appears to have been directly tied to its ability torealize value from our Class A Common Stock in a foreclosure or similarproceeding.

 

*(c) Funds Flow.*

 

To consummate thetransaction, it appears that the funds loaned to the investors in the Placementwere credited or transferred by Bancrédito Panama to Bancredit Cayman on behalfof the investors, and then in turn transferred or credited to our sub-accountwith Bancredit Cayman maintained at Hemisphere Bank in Miami, Florida. Thebanking records in our possession supporting the flow of funds are, however,incomplete and, in certain respects, unclear. As previously mentioned, therecords of Hemisphere Bank have not been made available either to us or theSpecial Committee. From the records that are available, it appears that aseries of book entries were made on the records of Bancrédito Panama andBancredit Cayman, and that money transfers may not have been made through theinternational payments systems. In addition, there may be discrepancies betweenthe records of Bancrédito Panama and Bancredit Cayman and the interpretationsput on those records by the respective liquidators of those entities. Forexample, a resolution of the liquidator of Bancrédito Panama suggests that,contrary to what appear to be the records of Bancredit Cayman, approximately$21 million of the funds loaned to the investors in the Placement were neverturned over to Bancredit Cayman.

 

*(d) Application of Proceeds.*

 

The Special Committee Report states that BancréditoDominican Republic and Bancrédito Panama required, as a condition for thefinancings, that the proceeds be used entirely within the Bancrédito group ofcompanies, in other words, to satisfy indebtedness and other amounts then owedby us to Bancrédito Dominican Republic and its affiliates. Records confirmingrepayment of indebtedness using the proceeds of the Placement are, however,incomplete; our management does not currently have in its possession externalreceipts, correspondence or other documentation evidencing the repayment ofmany of these obligations. Based on the limited records that are available toit, our management believes that the proceeds from the Placement were appliedas follows:

 
| Bancrédito  Panama, for repayment of Tricom loans, credit lines, letters of credit and  past due interest                    |   | $          | 35,582,461 |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|--------|
|                                                                                                                              |   |       |       |
| Bancredit  Cayman, for repayment of Tricom and Telecable loans, overdrafts and past due  interest                                 |   | 9,846,384  |       |
|                                                                                                                              |   |       |       |
| Bancrédito  Dominican Republic, for repayment of Tricom and Telecable loans, credit  lines, overdrafts and letters of credit |   | 16,757,543 |       |
|                                                                                                                              |   |       |       |
| SEGNA, for  repayment of Tricom loans and payment of premium on directors and officers  insurance policy                          |   | 4,464,035  |       |
|                                                                                                                              |   |       |       |
| Conaresa, for  payment of past due amounts owed by Tricom                                                                         |   | 1,754,656  |       |
|                                                                                                                              |   |       |       |
| ACYVAL finder’s  fee                                                                                                         |   | 1,400,000  |       |
|                                                                                                                              |   |       |       |
| Other issuance  costs                                                                                                             |   | 194,921    |       |
|                                                                                                                              |   |       |       |
| TOTAL                                                                                                                             |   | $          | 70,000,000 |   |

 

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The Special CommitteeReport states that, from the perspective of Tricom, Bancrédito DominicanRepublic and its financial institution affiliates, the intended effect of thePlacement appears to have been to replace indebtedness owed by us and variousof our subsidiaries to various Bancrédito entities with loan financing providedby Bancrédito Panama to the investors in the Placement, apparently on anon-recourse basis and backed solely by our shares issued in the Placement.

 

*(e) Filings, etc.*

 

Following consummation ofthe Placement, stock certificates were prepared and ultimately recorded by ourtransfer agent. In October 2003, at the request of the liquidator of BancréditoPanama, the stock certificates were delivered to Bancrédito Panama ascollateral for the loans made to the investors in the Placement.

 

On January 2, 2003, wefiled a Form 6-K with the SEC announcing completion of the Placement. Besidesstating that the investors in the Placement were led by Mr. Pellerano, thefiling made no mention of the participation of related parties in thetransaction. Similarly, in our Annual Report on Form 20-F for the year endedDecember 31, 2002 (both as originally filed on May 23, 2003 and as subsequentlyamended on April 29, 2004), while reference was made to the Placement and Mr.Pellerano’s role as a lead investor, there was no other mention of theparticipation of related parties.

 

*Amendmentsto 2002 Annual Report on Form 20-F.*

 

Based on the findings ofthe Special Committee and on other information available to us at the presenttime, we have concluded that our Annual Report on Form 20-F for the fiscal yearended December 31, 2002 should be amended. Specifically, the following portionsof the 2002 consolidated financial statements included in this Annual Report onForm 20-F as part of the financial statements for the fiscal year endedDecember 31, 2004 have been amended as outlined below:

 

•   Add Note 3 to the consolidated financialstatements included herein, Restatement of 2002 Financial Statements, todescribe the Placement;

 

•   Amend Note 7 to the consolidated financialstatements included herein, Transactions with Related Parties, to describe theinvolvement of various related parties in the transactions constituting thePlacement;

 

•   Amend Note 15 to the consolidated financialstatements included herein, Stockholders’ Equity, to include a description ofthe Placement, and the Company’s determination as to the accounting treatmentof the Placement; and

 

•   Amend Note 18 to the consolidated financialstatements included herein, Commitments and Contingencies, to disclose thenature of certain loss contingencies arising out of the Placement.

 

We have also consideredwhether Item 7 to our Annual Report on Form 20-F for the fiscal year endedDecember 31, 2002 should be amended. In addition to including the descriptionof the Placement and the involvement of the various parties to the transactionsconstituting the Placement contained in this report, we believe that Item 7 toour Annual Report on Form 20-F for the fiscal year ended 

 

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December 31, 2002 shouldhave addressed the following matters:

 

•                  AddGlobal Capital Finance Ltd. and Verkid Finance, S.A., two of the apparentlyunaffiliated investors in the Placement, as beneficial owners of 5% or more ofthe Class A Common Stock of Tricom;

 

•                  Tothe extent that, at the relevant times, they may be considered beneficialowners of the Class A Common Stock issued in the Placement, add BancréditoPanama, Bancredit Cayman and any person controlling either one of them asbeneficial owners of 5% or more of the Class A Common Stock of Tricom; and

 

•                  Makecorresponding adjustments to Mr. Pellerano’s beneficial ownership of Tricom’sClass A Common Stock and that of the directors and executive officers of Tricomas a group.

 

*Other Related Party Transactions.*

 

We have entered into numerous othertransactions with related parties (some of which are no longer related).

 

Investments and Deposits. We madeinvestments and deposits with Bancrédito Dominican Republic and BancréditoPanama, formerly affiliates of GFN and Tricom. At December 31, 2002, theseconsisted of:

 

•                  Cash deposited atBancrédito Dominican Republic in the amount of $2,006,577;

 

•                  Investments incertificates of deposit issued by Bancrédito Dominican Republic in the amountof RD$84,389,130 (approximately $3,750,628), which during 2002 earned interestat rates ranging from 20% to 26% per annum; and

 

•                  Investments incertificates of deposit issued by Bancrédito Panama, in the amount of$14,400,710, which during 2002 earned interest at rates ranging from 9% to 10%per annum.

 

Interest earned on investments anddeposits with related parties was $1,955,588 and $1,273,239 during the yearsended December 31, 2002 and 2003, respectively. We did not earn any interest oninvestments and deposits with related parties during 2004.

 

In September 2003, the BankingSuperintendent of Panama took control of Bancrédito Panama and informed us thatin connection with the liquidation of the bank and payment of its creditors, itdid not intend to pay to us the amount represented by our investment incertificates of deposit issued by Bancrédito Panama. At that time BancréditoPanama ceased to be controlled by Mr. Pellerano or his family, and thereforeceased to be related to us. In December 2003, we wrote off approximately $4.5million corresponding to the remaining amount of this investment, due to thebank’s liquidation. In December 2003, we also wrote off approximately $0.4million corresponding to a certificate of deposit issued by SEGNA.

 

At December 31, 2003 and 2004, we hadno investments or deposits with related parties.

 

Indebtedness. Weincurred indebtedness from Bancrédito Dominican Republic, Bancrédito Panama,Bancredit Cayman, Conaresa, SEGNA, GFN Capital Corporation Ltd., EllisPortafolio, S.A. and certain other current and former affiliates of GFN andTricom, consisting of loans, overdrafts, letters of credit, commercial paperand capital leases. The aggregate principal amount of our indebtedness fromcurrent and former related parties was $91.2 million, $106.3 million and $97.4million at December 31, 2002, 2003 and 2004, respectively, as follows:

 

•                  Unsecured loans,overdrafts and letters of credit owed to various current and former affiliatesof GFN and Tricom in the principal amounts of $34,436,723, $32,827,852 and$33,770,272 at December 31, 2002, 2003 and 2004, respectively, bearing interestat rates ranging from 9.5% to 14.5% per annum, with the preponderance of theobligations bearing interest at rates ranging from 11.5% to 12%. During 2003,certain of these lenders ceased to be related to us. Of the above principalamounts at December 31, 2003 and 2004, $8,008,888 and $8,005,000, respectively,was owed to parties no longer related to us;

 

•                  Commercial paperand promissory notes held by various affiliates of GFN in the principal amountsof $42,247,603, 

 

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$58,980,926and $49,091,066, at December 31, 2002, 2003 and 2004, respectively, bearing interestat rates ranging from 8% to 25% per annum in 2002, from 8.5% to 29% per annumin 2003 and from 11% to 29% per annum in 2004. Related party commercial paperand promissory notes at December 31, 2002 were understated by $23,421,405 inour 2002 financial statements as originally filed;

 

•                  Obligations undervarious capital leases with Conaresa of $14,531,321 at December 31, 2002. During2003, the operations of Conaresa were acquired by the Leon family as part ofthe sale of Bancrédito Dominican Republic. Our obligation to Conaresa underthese capital leases remained unchanged at December 31, 2003 and 2004.

 

Interest incurred on indebtedness due to current andformer related parties was $9,767,033, $15,713,131 and $10,083,449 during 2002,2003 and 2004, respectively. Because our outstanding debt was in default atDecember 31, 2003 and 2004, all of the above obligations were payable on demandat those dates. Accrued interest payable on indebtedness due to current andformer related parties was $479,477, $7,559,378 and $14,879,148 at December 31,2002, 2003 and 2004, respectively.

 

Leasing and Real Estate Transactions. We leasedpremises and equipment from GFN and its affiliates. We paid BancréditoDominican Republic $116,885, $110,540, and $121,089 in 2002, 2003, and 2004,respectively, for the use of premises and equipment. Bancrédito DominicanRepublic ceased to be a related party during 2003.

 

We leasedoffice space to Bancrédito Dominican Republic, for which we had rentreceivables of $143,190 and $55,423 at December 31, 2002 and 2003,respectively.

 

In April 2002, we sold improved landto SEGNA for $3,972,758 and in September 2002 we sold a commercial building toBancrédito Dominican Republic for $1,050,445.

 

Provision of TelecommunicationsServices. We provided telecommunications services to GFN and itsaffiliated companies. These entities paid us $4,136,014, $3,147,585 and $14,939for such services in 2002, 2003 and 2004, respectively.

 

Insurance. Prior to2004, we provided life insurance to our employees and obtained property andcasualty, business interruption, director and officer liability and otherinsurance coverage through SEGNA, at that time an affiliated insurance company.We paid insurance premiums to SEGNA totaling $4,803,472 and $5,890,664 in 2002and 2003, respectively. During 2004, we did not obtain insurance services fromSEGNA or any other affiliates, and do not expect that we will do so in thefuture.

 

At December31, 2002 we had $700,000 of insurance claims related to lost equipment againstSEGNA. This amount was written off during 2003.

 

Programming. We enteredinto a contract with Omni TV, an affiliated entity, to manage our relationshipwith international cable programmers. During 2003 and 2004 we paid Omni TV$4,975,023 and $5,359,768, respectively, for services provided under thiscontract.

 

Pension Management. AFPSiembra, S.A., a related party pension management company, providedadministration services for our pension plan until August 2003. For the yearsended December 31, 2002 and 2003, our expense for this plan was $662,505 and$403,345, respectively.

 

Other Services. Prior to2004, GFN and other related parties provided us with a number of managerialservices for which we were billed based upon the number of hours that aparticular related company employee spent on providing such services, and otherfactors. 

 

Related company employees provided usinternal auditing, public relations, management information services, and legaland personnel management services. For 2002 and 2003, we paid GFN and otherrelated parties $231,245 and $62,618, respectively, for professional services.

 

GFN and another related party,Compañía Nacional de Seguridad, S.A., provided us with security services forwhich we paid $190,047 and $162,498 during 2002 and 2003, respectively.

 

GFN and another related party,Editoria AA, provided us with advertising and promotional services for which wepaid $573,700 and $107,391 during 2002 and 2003, respectively.

 

During 2004, we did not receive anymanagerial services from GFN or other related parties, and do not expect thatwe will do so in the future.

 

Equipment Purchased from Motorola. We havepurchased telecommunications equipment from Motorola, particularly for the 

 

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development of our mobile cellularsystem and our wireless local loop in the Dominican Republic. Aggregateconsideration paid to Motorola was $2,095,593, $1,296,840 and $1,535,297 during2002, 2003 and 2004, respectively.

 

#### **OtherTransactions**

#### ** **

We have purchased mortgageparticipation contracts from savings and loan associations in the DominicanRepublic that are maintained as compensating balances for mortgage loans madeby these associations to several of our officers. At December 31, 2002,2003 and 2004, these mortgage participation contracts totaled $463,542,$630,165 and $986,075, respectively.

 

## **ITEM 8.**              FINANCIAL INFORMATION

## ** **

#### **ConsolidatedFinancial Statements**

#### ** **

See “Item 18. FinancialStatements”.

 

#### **OtherFinancial Information**

#### ** **

***LegalProceedings.***

*** ***

*Payment Opposition by Creditorsof GFN.*

 

In April 2004, wereceived a payment opposition (the “Payment Opposition”) from certain allegedcreditors (the “GFN Creditors”) of various identified affiliates of GFN, ourcontrolling shareholder (the “Identified GFN Entities”). The Payment Oppositionrequired that we not in any way pay, transfer or otherwise enter into any transactionthat may reduce, the amount owing by us to any of the Identified GFN Entities. Theamount alleged to be owed to the GFN Creditors by the Identified GFN Entitiestotaled $32 million. The amount subject to the Payment Opposition was $64million, as permitted by Dominican law. The Payment Opposition was lifted,without our involvement, in May 2005.

 

Certain of the IdentifiedGFN Entities (the “Transferring GFN Entities”) caused certain promissory notes,commercial paper and other obligations issued by us in the aggregate principalamount of approximately $52,600,000 and RD$73,000,000 to be either canceled andreissued, or assigned, to certain other affiliates of GFN (collectively, the “NewHolders”) (the “Transfer”). None of the New Holders was an Identified GFNEntity. While the Payment Opposition was still in effect, we were advised bycounsel that the Transfer may have been a violation of the Payment Opposition. Becausethe Payment Opposition has been lifted and is no longer in effect, we believethat the possibility that we would be exposed to liability for any suchviolation is remote.

 

*Grupo Económico Suit.*

 

In April 2004, a suit wasbrought by certain holders of certificates of deposit and other instrumentsissued by certain affiliates of Bancrédito Dominican Republic, a bankinginstitution formerly controlled by GFN, seeking to have us and severalco-defendants (including, among others, the Central Bank of the DominicanRepublic, the Leon Bank and GFN) held jointly and severally liable for amountsowed by such affiliates to the plaintiffs. Although the Court of First Instanceof Santo Domingo found in favor of the plaintiffs against certain of thedefendants, neither we nor any of our subsidiaries were included among thedefendants against whom judgment was entered. The court upheld the terms of thetripartite contract under which the Leon family acquired Bancrédito DominicanRepublic, and rendered judgment against the parties to the tripartite contractin the amount of $156,000,000, which was subsequently reduced (upon a motionfiled by the same plaintiffs) by the same judge to approximately $13,000,000. Inan appeal filed by certain of the parties found liable by the Court of FirstInstance, the original plaintiffs sought to join us and the other originalco-defendants to the appeal proceedings. In June 2007, the Appellate Courtdeclined to join us or any of our subsidiaries to the appeal proceedings andfurther reduced the trial court’s award against the remaining defendants. Whilethe Appellate Court’s decision has been further appealed to the Supreme Courtof the Dominican Republic, we believe it is unlikely that we will be foundliable in these proceedings.

 

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*Bancrédito Criminal Litigation.*

 

In September 2005, aDominican investigative judge added us and two of our subsidiaries asco-defendants to criminal proceedings brought by certain creditors ofBancrédito and other financial institutions formerly controlled by GFN, ourprincipal shareholder. Several current and former related parties, as well ascertain of our directors and officers, were also defendants in the proceedings.The allegations against us and the other co-defendants included fraud,embezzlement, violations of monetary laws and money laundering. We were addedto these proceedings without prior notice or participation in the existingproceedings.

 

In October 2005, anAppellate Court denied our appeal of the investigative judge’s action and inDecember 2005 the Supreme Court of the Dominican Republic denied our petitionto reconsider the lower court’s decision. Following the Supreme Court’sdecision, we, together with the other co-defendants, entered into settlementswith the private parties that originally brought the criminal actions.

 

In March 2006, theCriminal Court to which the matter was remanded following the Supreme Court’sdecision decided that the criminal actions, which had previously beenconsolidated into one action, be deconsolidated into six different matters,corresponding to the six criminal complaints originally filed. We were a partyto only one of such matters. Subsequently, the Criminal Court dismissed thepublic actions in four out of the six criminal complaints, including the onlyone to which we and our subsidiaries were parties. No objection to, or appealagainst, this decision was filed; accordingly, all civil and criminal liabilityto which we might have been subject as a result of these allegations wasextinguished. In its rulings, the Criminal Court also dismissed criminalcomplaints pending against Mr. Héctor Castro Noboa, our Chief ExecutiveOfficer, and Ms. Rosangela Pellerano, one of our directors.

 

The Criminal Court didnot, however, dismiss all of the complaints against Mr. Manuel ArturoPellerano, one of our directors and the beneficial holder of a majority of thevoting power of our shares. In August 2006, as part of a series of relatedproceedings, Mr. Pellerano was convicted by the Criminal Court of severalviolations of the Dominican Criminal Code and Monetary and Financial Law. Thecourt sentenced each of Mr. Pellerano and a co-defendant to three yearsimprisonment and ordered each of them to pay a fine of RD$1 million(approximately $31,000). The charges on which Mr. Pellerano was convicted,which we understand stem from Mr. Pellerano’s activities at related financialservices entities and not at Tricom itself, include forgery, alteration,manipulation and concealment of banking books and records and financialstatements. Mr. Pellerano’s appeal of the decision of the Criminal Courtremains pending at the date of this filing.

 

*Potential Claims Arising fromShare Placement and Bancredit Cayman Chapter 15 Proceeding.*

 

Note 18 to ourconsolidated financial statements addresses the possibility of claims arisingout of the Placement described in Item 7, Major Shareholders and Related PartyTransactions – 2002 Private Placement. As of the filing date of this report, noclaims arising out of the events relating to the Placement have been assertedin any jurisdiction in any litigation or similar proceedings brought against usor our subsidiaries. Nevertheless, we have received indications that one ormore of the liquidators of the Bancrédito entities in Panama and the CaymanIslands believe that they have claims in connection with the Placement. However,we are unable at the present time to determine either the probability of suchclaims being asserted against us or the validity or amount of such claims ifthey are asserted. The Joint Liquidators of Bancredit Cayman have, inconnection with a Chapter 15 Petition filed in the Bankruptcy Court for theSouthern District of New York, served subpoenas on us and certain of oursubsidiaries seeking documents relating to the Placement. In addition, webelieve that it is possible that other parties may assert claims arising out ofthe Placement. Claims brought on behalf of the Bancrédito entities and otherscould, in the aggregate, equal or substantially exceed the $70 million amountof the Placement, in particular if the claimants seek rescission of thePlacement or certain related transactions. At this time we are not able todetermine with any certainty who might assert claims, the precise nature of anyclaims that may be asserted, the jurisdiction in which such claims may bebrought, the theories on which such claims may be based, the validity of anysuch claims, whether viable defenses would be available to such claims andwhether any judgment or award arising out of such claims would be enforceableagainst our or our subsidiaries’ assets. Accordingly, while it is possible thatwe will in the future need to establish loss contingencies relating to thePlacement for purposes of our financial statements, we do not believe that thisis necessary at the present time. If such claims were brought and determined ina manner adverse to us, our liquidity and financial resources would beadversely affected.

 

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*Potential Claims Arising fromConaresa Leases.*

 

Between 1999 and 2001, weentered into a series of capital leases with Conaresa, at that time a relatedparty. The entity was sold to Banco Leon during 2003 in a transaction alsoinvolving the Central Bank of the Dominican Republic. These lease agreementsprovide for the lease to us of telecommunications equipment, automobiles, andother fixed assets.

 

The installments payableunder the above-mentioned lease agreements include lease rental payments andother expenses such as taxes and fees. The lease agreements also provide forthe payment of penalty (moratorium) interest on overdue balances, to becalculated at a rate established by Conaresa. No fixed or determinable rate isspecified; rather, the lease agreements state that the amount and conditions ofpenalty interest can be unilaterally set by Conaresa.

 

In June 2005, we receiveda payment opposition from GFN, freezing in our hands any payments or otheramounts owed by us to Conaresa, up to an amount of $38.7 million (RD$1.349billion) (double the amount of GFN’s claim against Conaresa, as is customary inthe case of payment oppositions under Dominican law). When an entity receives apayment opposition addressed to one of its creditors, the entity in questionmust refrain from making any payments in violation of the payment opposition(as otherwise it may become liable for damages to the party who served theopposition) until it is lifted by means of a court order or as a result of asettlement between the conflicting parties. In May 2007, we received twofurther notices under which (i) Artag Meridian Ltd., an entity related to GFN,advised that it had acquired GFN’s aforesaid claims; and (ii) theabove-mentioned payment opposition against Conaresa was reiterated, this timeby Artag Meridian, as GFN’s assignee. Following a series of court rulings,appeals and issuances of new payment oppositions, the matter is now pendingbefore an Appellate Court.

 

For the foregoingreasons, at this time we are prevented from making any payments to Conaresa. Furthermore,we have not established any accrual for penalty interest that might arise outof these lease agreements because we believe that any penalty interest claimbased on the lease provision described above would be without merit. Nevertheless,there can be no assurance that any legal proceedings on this issue would beresolved in our favor. Accordingly, while it is possible that we may in thefuture need to establish a loss contingency relating to penalty interestarising out of these lease agreements, we do not believe that this is necessaryat the present time.

 

*Claim for Cost of InterconnectionCircuits.*

 

During the periodcommencing with the enactment of the General Telecommunications Law of 1998 andending with Indotel’s issuance of interconnection regulations in 2002, wepurchased from Codetel, at our sole expense, several hundred T-1, or TrunkLevel 1, switches. These are digital transmission links that are necessary forinterconnection between our network and Codetel’s network. In December 2002, aspart of the process for the adjustment of interconnection agreements beforeIndotel, we claimed that Codetel should reimburse us for 50% of the cost of theT-1 switches we had purchased. The approximate amount of our claim is $6.8million. Indotel rejected our claim, and an appeal before the SuperiorAdministration Court is pending.

 

*False Imprisonment Claim.*

 

InAugust 1999, a Dominican company and two individual plaintiffs brought a claimagainst us in the Dominican courts for alleged losses and damages of up toapproximately RD$200,000,000 (approximately $4,800,000) resulting from theimprisonment by Dominican authorities of the two individuals for 15 days. Theplaintiffs have alleged that their imprisonment was the result of aninvestigation by the local district attorney and police that we instigatedfollowing an irregular increase in telephone traffic at certain telephonenumbers. The court rejected the action for lack of evidence. The plaintiffsappealed, but the Court of Appeals also rejected their claims, and theysubsequently filed a motion for cassation with the Supreme Court of Justice,which is pending. We do not believe that this matter will have a materialadverse effect on our operations or financial position.

 

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*Uninsured Motor Vehicle Cases.*

 

Until2003, our principal property and casualty insurance carrier was CompañíaNacional de Seguros (“SEGNA”), at that time a related party. In 2003, SEGNA’sbusiness was taken over by the Superintendence of Insurance, following whichSEGNA stopped paying on certain pending motor vehicle accident coverageclaims involving our vehicles. Although we moved our property and casualtycoverage to a third party insurance carrier, it was necessary for us to assumedirect liability for the pending claims. We intend to submit a claim in SEGNA’sliquidation at the appropriate time. We believe that the amount of potentialliability likely to arise out of these claims will not exceed $1,000,000, and do not believe that these matters will have amaterial adverse effect on our operations or financial position.

 

*Ordinary Course Tort and ContractClaims.*

 

Weare involved from time to time in various other lawsuits and legalproceedings arising in the ordinary course of our business. These claimsgenerally relate to tort and contract actions for damages. We believe that thefinal resolution of these matters will not have a material adverse effect onour operations or financial position.

 

*Dominican Tax Matters.*

 

In June 2002, we receivednotice from the Dominican tax authority claiming that we owed additionalamounts in respect of taxes in lieu of income taxes for the period from January1, 1999 through June 30, 2001 (the last day through which the tax authority hasaudited our tax payments) and for withholding tax on our wholly-ownedsubsidiary, Tricom Latinoamérica, and on certain other payments.

 

The tax authority claimedthat we had miscalculated the amount of taxes in lieu of income taxes, andsought approximately RD$98.8 million (approximately $5.3 million), plus interestand penalties. This claim was settled with the tax authority during 2003 forapproximately $72,000.

 

The tax authority alsoclaimed that we were required to withhold and pay 25% of the amount of ourinvestment in Tricom Latinoamérica, S.A. The 25% withholding tax generallyapplies for payments made for services rendered by non-Dominican vendors andfor certain dividends. The tax authority sought RD$168.1 million (approximately$9 million at 2002 exchange rates), plus penalties and interest. We contestedthe claim, indicating that there is no requirement to withhold tax on aninvestment in a wholly owned subsidiary. Our motion before the tax authorityfailed and an appeal to the Ministry of Finance was rejected. Following asubsequent appeal the Tax Court, in February 2007, ruled in our favor andrejected the tax authority’s claim. The tax authority decided not to file amotion for cassation before the Supreme Court of the Dominican Republic.

 

In January 2006, we werenotified by the tax authority that we should correct our income tax return forthe fiscal year ended December 31, 2004. According to the tax authority, thereturn sought to use prior period losses to reduce taxable income for thecurrent year in amounts in excess of those the tax authority considered werepermissible under its interpretation of the applicable tax law. In January2006, we presented a petition to the tax authority requesting the eliminationof this notification. In January 2007, we made a written request to the taxauthority seeking its authorization for us to use up to RD$9,480,000,000(approximately $257,216,000) of accumulated losses to offset potential incomearising from the cancellation of our debt within the context of ourrestructuring. In March 2007, the tax authority notified us that thisauthorization had been granted, premised on the following conditions: (a) theruling only applies for fiscal year 2007; (b) we must withdraw our claimagainst the tax authority’s resolution for losses not recognized in an amountof RD$2,464,677,712 (approximately $66,612,911) and (c) we must also forfeitour right to use any losses after December 31, 2007 in excess ofRD$9,480,000,000 (approximately $257,216,000).

 

*Aircraft Lease Termination.*

 

In July 2005, we reacheda settlement with General Electric Credit Corporation of Tennessee and GeneralElectric Capital Corporation of Puerto Rico with respect to claims arising fromour alleged breach of an aircraft lease agreement due to early termination inDecember 2003. As part of the settlement, we signed a 7-year $6 million 9% perannum promissory note payable in monthly installments, with the first yearcomprised of interest-only payments and the principal balance amortized overthe remaining 6 years.

 

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*Bell South Proceedings in Panama.*

 

In February 2004, wesigned a settlement with BellSouth in which BellSouth agreed to withdrawcertain proceedings against Tricom Panama, S.A. pending before the EleventhCourt of the First Judicial Circuit of Panama, Civil Branch. Tricom Panama,S.A. also agreed to withdraw its suit for reconnecting to BellSouth’s networkas part of the same proceedings.

 

*World Access Inc. Bankruptcy.*

 

InApril 2003, Tricom USA was served with a summons and complaint in an adversaryproceeding arising out of the World Access, Inc. et al. bankruptcy case in theUnited States Bankruptcy Court for the Northern District of Illinois. Thecomplaint alleged that transfers in the aggregate amount of approximately$488,000 were made to Tricom USA by one of the debtors, Facilicom InternationalLLC, within the 90 days prior to the filing of the bankruptcy petition, andthat the transfers were avoidable as preferential payments pursuant to theUnited States Bankruptcy Code. An agreement in principle to settle the matterwas reached in March 2007 under which we will undertake to pay $87,500 toFacilicom International LLC. Final documentation of this settlement is pending.

 

*Other.*

 

There are no other legalproceedings to which we are a party, other than routine litigation incidentalto our business that is not otherwise material to our business or financialcondition.

 

## **ITEM 9.**              THE OFFER AND LISTING

## ** **

#### **AmericanDepositary Shares**

#### ** **

Since March 29, 2007, thedate on which our ADS facility was terminated, our ADSs have not traded on anyexchange or other trading market.

 

Prior to May 11, 2004,our ADSs were traded on NYSE under the symbol “TDR”. On that date, followingthe announcement of our financial restructuring update on May 6, 2004, the NYSEsuspended trading and subsequently delisted our ADSs. Trading of our ADSsresumed on May 19, 2004 on the OTCBB under the symbol “TRICY”. On July 25,2004, the OTCBB suspended trading of our ADSs due to the delay in filing ourForm 20-F for the year ended December 31, 2003. Trading of our ADSs thenresumed on the “Pink Sheets” service on August 19, 2004 under the symbol “TRICY.PK”.In December 2006, the Bank of New York as depositary for our ADS facilitynotified us and holders of our ADSs that they were terminating the ADS facilitywhich became effective on March 29, 2007. At December 31, 2004, there were32 record holders in the United States of the ADSs.

 

Shares of ourClass A Common Stock are not traded on any other exchange or automatedquotation system.

 

The following tableprovides the high and low closing prices for the ADSs reported by therespective markets on which they were traded for (1) our five most recent fullfiscal years ended 2000, 2001, 2002, 2003, and 2004, (2) each quarter of2003 and 2004, our two most recent full fiscal years, and (3) each of the lastsix months ending with December 2004:

 

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| ** **          | ** ** | **Tricom ADS Prices** | ** ** |
|---------------------|------------|-----------------------|------------|
| ** **          | ** ** | **High**              | ** ** | **Low** | ** ** |
|                |       |                  |       |   |   |
| **Year  Ended:**    | ** ** | ** **            | ** ** | ** ** | ** ** |
| ** **          | ** ** | ** **            | ** ** | ** ** | ** ** |
| December 31,  2000  |       | 28.50                 |       | 6.55 |   |
| December 31,  2001  |       | 12.46                 |       | 3.15 |   |
| December 31,  2002  |       | 4.00                  |       | 3.00 |   |
| December 31,  2003  |       | 3.05                  |       | 0.82 |   |
| December 31,  2004  |       | 1.95                  |       | 0.07 |   |
|                |       |                  |       |   |   |
| **Quarter  Ended:** | ** ** | ** **            | ** ** | ** ** | ** ** |
| ** **          | ** ** | ** **            | ** ** | ** ** | ** ** |
| March 2003          |       | 3.05                  |       | 2.76 |   |
| June 2003           |       | 2.98                  |       | 1.86 |   |
| September 2003      |       | 2.25                  |       | 1.03 |   |
| December 2003       |       | 1.88                  |       | 0.82 |   |
| March 2004          |       | 1.95                  |       | 1.05 |   |
| June 2004           |       | 1.28                  |       | 0.10 |   |
| September 2004      |       | 0.80                  |       | 0.20 |   |
| December 2004       |       | 0.51                  |       | 0.07 |   |
|                |       |                  |       |   |   |
| **Month  Ended:**   | ** ** | ** **            | ** ** | ** ** | ** ** |
| ** **          | ** ** | ** **            | ** ** | ** ** | ** ** |
| July 2004           |       | 0.49                  |       | 0.25 |   |
| August 2004         |       | 0.80                  |       | 0.20 |   |
| September 2004      |       | 0.25                  |       | 0.25 |   |
| October 2004        |       | 0.51                  |       | 0.25 |   |
| November 2004       |       | 0.30                  |       | 0.10 |   |
| December 2004       |       | 0.15                  |       | 0.07 |   |

## ** **

## **ITEM 10.**               ADDITIONALINFORMATION

## ** **

#### **ShareCapital**

#### ** **

At December 31, 2004 andthe date hereof, we had 55,000,000 shares of our Class A Common Stock, parvalue RD$10 per share, authorized. As of December 31, 2004, 45,458,041 sharesof Class A Common Stock were issued and outstanding. As of December 31, 2004and the date hereof, we also had 25,000,000 shares of our Class B Stock, par valueRD$10 per share, authorized, 19,144,544 shares of which were issued andoutstanding. We have issued 21,212,121 shares of our Class A Common Stock sinceDecember 31, 2001 and we have not issued any shares of our Class B Stock sinceMay 1998.

 

On December 31, 2002, weissued 21,212,121 shares of Class A Common Stock to a group of investors for anaggregate purchase price of $70,000,000. See Item 7, Major Shareholders andRelated Party Transactions—2002 Private Placement.

 

At December 31, 2004,neither we nor any of our subsidiaries owned any shares of our Class A CommonStock or Class B Stock.

 

At December 31, 2004,there were outstanding options to purchase 249,130 shares of our Class A CommonStock for an average exercise price of $6.79 per share. These options are heldby certain of our officers and employees.

 

#### **Memorandumand Articles of Association**

#### ** **

###### ***Board ofDirectors.***

###### * *

Our business and affairsare managed by the Board of Directors, which consists of not more than fifteenor less than eight persons. Our directors are elected annually at the annualgeneral meeting of shareholders. Each director (whenever elected) holds officeuntil the next annual general meeting of shareholders following his or herelection and until his successor is elected and qualified or until his or herearlier resignation or removal.

 

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Any director may resignat any time upon written notice to the Board of Directors, to the Chairman ofthe Board or to the President. Any director may be removed with or withoutcause at any time by an affirmative vote of a majority of the shareholdersentitled to vote. If any vacancies occur in the Board of Directors, of if theauthorized number of directors is increased, the directors then in office maycontinue to act, and such vacancies may be filled by a majority of thedirectors then in office. Any vacancies or newly created directorships also maybe filled by an affirmative vote of a majority of the shareholders entitled tovote at a general meeting of shareholders called for such purpose.

 

Regular meetings of theBoard of Directors may be held at such places within or out of the DominicanRepublic and at such times as the Board of Directors may from time to timedetermine. Special meetings of the Board of Directors may be held at any timeor place within or outside of the Dominican Republic whenever called by theChairman of the Board, by the President or by any two directors. Any member ofthe Board of Directors may participate in a meeting of the Board of Directorsby means of a telephone conference or similar communications equipment providedthat all persons participating in the meeting can hear each other.

 

At all meetings of theBoard of Directors, the presence of a majority of the total number of directorswill constitute a quorum for the transaction of business. The vote of at leasta majority of the directors present at any meeting at which a quorum is presentis necessary to constitute the act of the Board of Directors unless otherwiseprovided by applicable law.

 

###### ***Purpose.***

###### * *

Article 2 of our by-lawsstates that our purpose is:

 

•              To provide, maintain and operatetelecommunications systems in the Dominican Republic and elsewhere;

 

•              To enter into such agreements as may berequired to be interconnected to the switched public telephone network, as wellas to any domestic networks rendering inter-urban services, as may be requiredby said telecommunications systems; and

 

•              To construct, maintain, and exploit aprivate telecommunications system for the transmission of national andinternational calls and for the transmission or reception of messages andsignals of any kind.

 

###### ***CapitalStock.***

###### * *

Our authorized capitalstock consists of 55,000,000 shares of Class A Common Stock and 25,000,000shares of Class B Stock. Both classes of capital stock vote together as asingle class on matters except any matter that would adversely affect therights of either class. These matters would need to be approved by a specialmeeting of the holders of the class of shares to be affected. The Class ACommon Stock has one vote per share and the Class B Stock has ten votes pershare. The economic rights of each class of capital stock are identical.

 

###### ***Registrationand Transfer.***

###### * *

All shares are evidencedby share certificates in registered form. Dominican law requires that allshares be represented by a certificate, although a single certificate mayrepresent multiple shares of stock. Certificates may be issued in the name ofthe registered holder, bearer or to-order form. All of our share certificatesare issued in the name of the registered holder. Dominican law also requiresthat all transfers, encumbrances and liens on nominative shares must berecorded in the share registry and only are enforceable against us and third partiesafter such registration occurs. The Bank of New York is the registrar andtransfer agent for the Class A Common Stock, except during shareholdersmeetings when we maintain the share registry for the Class A Common Stock.

 

###### ***ShareholdersMeetings.***

###### * *

Shareholders are entitledto vote on all matters at ordinary or special shareholders’ meetings. The Boardof Directors will convene an annual shareholders’ meeting at least once a yearin order for shareholders:

 

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•              To elect new directors and a vigilanceofficer;

 

•              To acknowledge the vigilance officer’sreport; and

 

•              For management to report upon ourfinancial performance and for the shareholders to decide whether or not todistribute dividends.

 

Ordinary shareholders’meetings may be convened at other times in order to transact other business,including removal of directors. Special shareholders’ meetings are convened inorder to effect fundamental changes in our structure, including approval ofamendments to our by-laws. Under our by-laws, shareholders’ meetings may beconvened by:

 

•              The Chairman of the Board of Directors;

 

•              A majority of the members of the Board ofDirectors at any time;

 

•              At the request of the holders of 30% ofthe shares entitled to be cast at such meeting; and

 

•              At the request of the vigilance officerin urgent circumstances, which are not defined under Dominican law.

 

Shareholders meetings maybe convened not less than 30 but not more than 60 calendar days after writtennotice has been mailed to shareholders. A majority of the shares entitled to becast constitutes a quorum at all shareholders meetings. Our by-laws providethat holders of two-thirds of the votes entitled to be cast are required toapprove:

 

•              Amendments to the by-laws, includingincreases or decreases of our authorized share capital;

 

•              The issuance of shares of Class B Stockin addition to those shares of Class B Stock outstanding on the date of theadoption of the by-laws, except in connection with a dividend or otherdistribution with respect to, or a subdivision, consolidation orreclassification of all outstanding shares of stock;

 

•              The declaration and payment of anydividend or distribution with respect to our capital stock;

 

•              Any increase or decrease in the number ofdirectors; and

 

•              Our voluntary winding up or liquidationor the filing of a bankruptcy petition.

 

The affirmative vote ofthe holders of a majority of votes entitled to be cast is required to approveall other actions. Shareholders may vote by proxy, and the depositary will castproxies as directed by the holders of the ADSs.

 

###### ***Limitationof Officers’ and Directors’ Liability.***

###### * *

In addition to voting fordirectors at the annual shareholder’s meeting, shareholders are asked to voteupon the performance of management. Our vigilance officer, an officer electedby the shareholders each year, delivers a report on our financial performanceand other issues related to management’s performance. If the holders of amajority of the votes entitled to be cast approve management’s performance, allshareholders are deemed to have released the directors and officers from claimsor liability to us or our shareholders arising out of actions taken or anyfailure to take actions by any of them on our behalf during the prior fiscalyear, with certain exceptions. Shareholders will likely fail in any suitbrought in a Dominican court with respect to the acts or omissions deemed tohave been released. Officers and directors may not be released from any claimsor liability for criminal acts, fraud, self-dealing or gross negligence. If theshareholders do not approve management’s performance, the vigilance officer’sreport may form the basis of any suit brought by the shareholders against ourofficers and directors.

 

Our by-laws provides thatwe will indemnify any person made or threatened to be made a party to anyaction, suit or proceeding,

 

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whether civil, criminal,administrative or investigative, by reason of the fact that such person, or a personof whom he or she is the legal representative, is or was our director, officer,employee or agent or any of our predecessors, or serves or served any otherenterprise as a director, officer, employee or agent at our request or any ofour predecessors. We are required to pay any expenses reasonably incurred by adirector or officer in defending a civil or criminal action, suit or proceedingin advance of the final disposition of such action, suit or proceeding uponreceipt of an undertaking by or on behalf of such director or officer to repaysuch amount if it ultimately is determined that he or she is not entitled to beindemnified by us under our by-laws or otherwise. We may, by action of ourBoard of Directors, provide for the payment of such expenses incurred by ouremployees and agents as it deems appropriate.

 

###### ***LiquidationRights.***

###### * *

Each shareholder isentitled to a proportionate share of any of our assets available upondissolution after the payment of debts owed to creditors. Shareholders aredeemed to be creditors of our Company to the extent of declared and unpaiddividends.

 

###### ***Dividends.***

###### * *

Under Dominican law, onlyshareholders may authorize the declaration and payment of dividends.Shareholders are entitled to receive dividends in proportion to theirrespective capital participation, subject to adjustment as provided in theby-laws. Dividends are payable only from after-tax profits, and only after wehave set aside at least 5% of our annual profits as a legal reserve (until suchreserve equals 10% of paid-in capital). The by-laws provide that shareholdersmay only approve the declaration and payment of dividends or distributions ifthe declaration or payment of such dividend or distribution would not violateany obligation, contractual or otherwise, to which we or any of oursubsidiaries are a party or by which any of them or their respective propertiesor operations are bound.

 

###### ***VotingRights.***

###### * *

The holders of Class ACommon Stock and Class B Stock vote together with respect to all matters. Everyholder of Class A Common Stock is entitled to one vote for each share of ClassA Common Stock held and every holder of Class B Stock is entitled to ten votesfor each share of Class B Stock held by the number of shares of Class A CommonStock into which one share of Class B Stock is then convertible. Under ourby-laws, Class B Stock may not be transferred except to permitted transferees.Permitted transferees include:

 

1.             Oleander;

 

2.             Motorola;

 

3.             Any subsidiary oraffiliate, as defined; and

 

4.             With respect toOleander, Manuel Arturo Pellerano Peña and any member of the family of ManuelArturo Pellerano Peña as of the date of the initial public offering that had aninterest (including indirectly through any corporation, trust or entity) inOleander and:

 

•                                          Thespouse or surviving spouse and natural and adopted children of any such familymember;

 

•                                          Anytrust existing solely for the benefit of family members and any person whowould be a permitted transferee of any such family member under clause (4) andany trustee of such trust;

 

•                                          Uponthe death of any such member or any person who would be a permitted transfereeof any member, such holder’s estate or any executor, administrator or otherlegal representative of such holder; and

 

•                                          Anycorporation, partnership or other entity all of the outstanding equityinterests of which are owned, or all of the outstanding voting power of whichis controlled, directly or indirectly by, or any trust or similar entity thesole beneficiaries of which are, such members and their permitted transferees.

 

 

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If, despite theserestrictions on transfer, a shareholder owning shares of Class B Stocktransferred its shares to a person or entity other than to Oleander, Motorolaor a permitted transferee, the shareholder will only become entitled to onevote per share. If, with respect to any shares of Class B Stock owned by Oleanderand its permitted transferees, the shares of common stock owned by Oleander andits permitted transferees constitute less than 10% of the outstanding commonstock, such shares of Class B Stock will entitle the holder to one vote pershare. If, with respect to any shares of Class B Stock owned by Motorola andits permitted transferees, the shares of common stock owned by Motorola and itspermitted transferees constitute less than 10% of the outstanding common stock,such shares of Class B Stock will entitle the holder to one vote per share.Oleander, Motorola and any permitted transferee may pledge shares of Class BStock without reducing the number of votes to which it is entitled; provided,however, that if such shares of Class B Stock are transferred to or registeredin the name of the pledgee (unless the pledgee is a permitted transferee), thenumber of votes to which such shares of Class B Stock are entitled will bereduced until Oleander, Motorola or any of their permitted transferees eithercures any default that resulted in the transfer or registration or reacquiresthe shares from the pledgee.

 

###### ***Preemptiveand Other Rights.***

###### * *

The holders of Class ACommon Stock and Class B Stock are not entitled to preemptive or similar rights.The shares of Class A Common Stock and Class B Stock are not subject toredemption or a sinking fund. Under our by-laws, we are authorized to issueshares of Class B Stock only in connection with a dividend or otherdistribution with respect to, or a subdivision, consolidation or reclassificationof, all outstanding shares of Class A Common Stock. In the event of anysubdivision, consolidation, reclassification or other change in the Class ACommon Stock, the Board of Directors, in its discretion, in lieu of issuingadditional shares of Class B Stock, may adjust the number of shares of Class ACommon Stock into which the Class B Stock is convertible and the number ofvotes to which each share of Class B Stock is entitled.

 

###### ***Reorganization,Consolidation, Share Exchange or Merger.***

###### * *

In the event of areorganization, consolidation, share exchange or merger of Tricom, each holderof outstanding shares of our stock shall be entitled to receive for each of hisshares the same kind and amount of consideration (whether consisting of cash, propertyor securities) to be received by each other holder of the same class of stock,if any for each of his or her shares.

 

#### **MaterialContracts**

#### ** **

For information on ourmaterial contracts, see Item 3, Key Company Developments and Item 7, MajorShareholders and Related Party Transactions—Certain Transactions with RelatedParties.

 

#### **ExchangeControls**

#### ** **

There are currently norestrictions under Dominican law on the export or import of capital, includingforeign exchange controls, or restrictions on the remittance of dividends,interest or other payments to our non-resident stockholders and bondholders.

 

#### **Taxation**

#### ** **

U.S. HOLDERS ANDPROSPECTIVE PURCHASERS OF OUR ADSs, CLASS A SHARES OR SENIOR NOTES SHOULDCONSULT THEIR OWN TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL, FOREIGNAND OTHER TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OFADSs, CLASS A SHARES OR SENIOR NOTES BASED UPON THEIR PARTICULAR CIRCUMSTANCES.

 

We are in discussionswith certain holders of our indebtedness regarding a consensual restructuringof our financial obligations, ownership and governance through court supervisedreorganization proceedings in the United States. This report does not purportto set forth the tax consequences to any holder of claims against us ofparticipating in either the restructuring currently under discussion or anyother restructuring or similar transaction that may be proposed in the future. Holdersof claims against us should refer to the 

 

74

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applicable plan ofreorganization and supporting disclosure statement, if any, when they becomeavailable, and should also consult with their own tax advisors as to the taxconsequences of participating in any restructuring transaction.

 

The following discussionsummarizes the principal Dominican Republic income tax consequences of aninvestment in the American Depositary Receipts (“ADRs”), ADSs or shares ofClass A Common Stock by a person who is neither domiciled in nor a resident ofthe Dominican Republic for tax purposes and who holds such ADRs, ADSs or sharesof Class A Common Stock for investment purposes and not for purposes of a tradeor business.

 

Cash dividends and otherdistributions paid by us with respect to ADSs or shares of Class A Common Stockheld by any holder could be subject to a 25% withholding tax, which would berequired to be withheld by us and paid to the Dominican tax administration atthe time a cash dividend or other distribution is paid. Such tax withheld maynot be a creditable foreign tax in determining the U.S. tax liability of suchholder.

 

Under the principles ofterritoriality underlying the Dominican constitution, gain from the sale orexchange of ADRs evidencing the ADSs by a foreign holder outside of theDominican Republic would not be subject to taxation by the Dominican taxauthority.

 

The Dominican governmentrequires payment of capital gains tax on gain recognized on the sale orexchange in the Dominican Republic of shares of Class A Common Stock (asdistinguished from sales or exchanges of ADSs). Under current law, the capitalgains tax rate is identical to the regular income tax rate of the person orentity that earned such gain; there is no preferential rate. Thus, acorporation selling shares of Class A Common Stock in the Dominican Republicwould be required to pay the corporate income tax of 25% on any gain from asale or exchange of such shares. An individual also would have to pay incometax at the applicable individual rate on gain from the sale of shares of ClassA Common Stock in the Dominican Republic.

 

The amount of gain onwhich the capital gains tax is assessed is equal to the sale or transfer price(i.e., amount realized on the sale or transfer) minus the acquisition price,adjusted for inflation. Regulations for the application of the Dominican TaxCode clarify how the tax basis is to be calculated and also provide how theinflation adjustment is to be applied.

 

There is no income taxtreaty in force between the Dominican Republic and the United States.

 

There are no Dominicaninheritance or succession taxes applicable to the ownership, transfer ordisposition of ADSs by a foreign holder not domiciled in the Dominican Republicat the moment of death. It is unclear whether Dominican gift taxes would applyto the transfer or other disposition by gift of shares of Class A Common Stockby a non-resident foreign holder; however, ADSs or ADRs are not subject toDominican gift taxes. There are no Dominican stamp, issue, registration orsimilar taxes or duties payable by holders of ADSs or shares of Class A CommonStock.

 

#### **Dividendsand Paying Agents**

#### ** **

Not applicable.

 

#### **Statementby Experts**

#### ** **

Not applicable.

 

#### **Documentson Display**

#### ** **

We file annual andspecial reports and other information with the SEC. You may read and copy anydocument that we file at the Public Reference Room of the SEC at 450 FifthStreet, N.W., Washington, DC 20549. Copies of such materials can be obtained atprescribed rates from the Public Reference Room or by calling the SEC at1-800-SEC-0330. Such material can also be obtained from the SEC’s website athttp://www.sec.gov.

 

75

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## **ITEM 11.           QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

## ** **

The following discussionabout market risks to certain financial instruments includes “forward-looking”statements that involve risks and uncertainties. Actual results could differmaterially from those projected in the forward-looking statements.

 

We are exposed to marketrisks from adverse changes in interest rates and foreign exchange rates. We donot have hedging or other arrangements in place to protect ourselves againstthe effects of interest rate or currency fluctuations. We do not hold or issuefinancial instruments for trading purposes.

 

#### **InterestRate Risks**

#### ** **

Our interest expense issensitive to changes in the general level of interest rates in the UnitedStates and in the Dominican Republic. Our indebtedness at December 31, 2004consisted of $200.0 million of our 11-3/8% Senior Notes due 2004, and $248.3 millionof bank and other borrowings, capital leases, commercial paper andtelecommunication equipment trade financings. In October 2003, we suspendedprincipal and interest payments on our unsecured indebtedness and principalpayments on our secured indebtedness.

 

Our primary exposure tomarket risk for changes in interest rates relates to our borrowings fromDominican banks. This exposure is based on the potential for interest ratevariations, not on exposure to changes in fair market value of our long-termdebt.

 

#### **ForeignExchange Risks**

#### ** **

We are subject tocurrency exchange risks. In 2004, we generated operating revenues of $188.2million which represents approximately RD$7,925 million using the averageprivate market rate for 2004. Approximately 46.8% of our operating revenueswere generated in Dominican pesos. At December 31, 2004, we had $436.2 millionof U.S. dollar-denominated debt outstanding and we had significant otherexpenses, such as programming and equipment purchase costs denominated in U.S.dollars.

 

Our functional currencyis the U.S. dollar and, as a result, we must translate the value of Dominicanpeso-denominated assets into U.S. dollars when compiling our financialstatements. This translation can create foreign exchange gains or losses dependingupon fluctuations in the relative value of the Dominican peso against the U.S.dollar. In 2004, we recognized an approximate $2.7 million foreign exchangeloss.

 

## **ITEM 12.           DESCRIPTIONOF SECURITIES OTHER THAN EQUITY SECURITIES**

## ** **

Not Applicable.

 

# **PART II.**

# ** **

## **ITEM 13.           DEFAULTS,DIVIDEND ARREARAGES AND DELINQUENCIES**

## ** **

#### **Commencingin 2001, a combination of macro-economic factors and circumstances specific toour business contributed to a steady and significant decline in our operatingperformance, cash flows and financial condition. These factors included, amongothers, the following:**

#### ** **

•              A world-wide decline in thetelecommunications sector;

 

•              Adverse economic conditions precipitatedby the events of September 11, 2001;

 

•              The Dominican Republic banking crisis of2003 and the resulting currency and economic crisis;

 

•              Continuing volatility and depreciation ofthe Dominican peso;

 

•              Unprofitable investments we made incertain new business segments; and

 

76

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•                                          Increasedcompetition in Dominican markets for local, long distance and mobile servicestriggered by entry of multinational telecommunications providers into themarket.

 

#### **As aconsequence of these factors, in September 2003, we announced that we would notbe making a scheduled interest payment on our 11-3/8% Senior Notes dueSeptember 1, 2004. In October 2003, we suspended principal and interestpayments on our unsecured indebtedness and principal payments on our securedindebtedness. Subsequently, on September 1, 2004, we announced that we wouldnot be making the $200 million principal payment on our 11-3/8% Senior Notesdue September 1, 2004. As a result, we have defaulted on substantially all ofour secured and unsecured indebtedness, which was approximately $448.3 millionin principal amount as of December 31, 2004. In addition to our 11-3/8% SeniorNotes due 2004, our indebtedness consists of bank and other borrowings, capitalleases, commercial paper and telecommunication equipment trade financings.**

#### ** **

For information on ourrestructuring, see Item 3, Key Information – Financial Restructuring.

 

## **ITEM 14.           MATERIALMODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS**

## ** **

None.

 

## **ITEM 15.           DISCLOSURECONTROLS AND PROCEDURES**

## ** **

*Disclosure Controls andProcedures.* Disclosure controls and procedures are defined bythe SEC as those controls and other procedures that are designed to ensure thatinformation that we are required to disclose in reports filed or submitted byus under the Securities Exchange Act of 1934 is recorded, processed, summarizedand reported within the time periods specified in the SEC’s rules and forms.There are inherent limitations to the effectiveness of any system of disclosurecontrols and procedures, including the possibility of human error and thecircumvention or overriding of the controls and procedures. Accordingly, eveneffective disclosure controls and procedures can only provide reasonableassurance of achieving their control objectives. Our management, with theparticipation of our Chief Executive Officer and Vice President of Finance andAdministration, has evaluated our disclosure controls and procedures as of theend of the period covered by this report and determined that such disclosurecontrols and procedures are effective.

 

*Internal Control Over FinancialReporting.* Subject to the matters referred to in Item 3, “RiskFactors—We do not have an audit committee and our internal accounting systemsand controls may be inadequate to ensure timely and accurate financialreporting,” there were no changes in our internal control over financialreporting that occurred during the period covered by this report that havematerially affected, or are reasonably likely to materially affect, our internalcontrol over financial reporting.

 

## **ITEM 16.            [RESERVED]**

## ** **

**ITEM 16A.**         **AUDIT COMMITTEE FINANCIAL EXPERT**

 

We do not have an auditcommittee and, in the absence of an audit committee, our full Board ofDirectors fulfills the functions of the audit committee pursuant to Section3(a)(58) of the Securities Exchange Act of 1934. Because our ADSs are no longerlisted on the NYSE, we are not required to have an audit committee financialexpert.

 

**ITEM 16B.**         **CODE OF ETHICS**

 

Our Board of Directorshas discussed, but not adopted, a code of ethics that would apply to ourprincipal executive officer and principal financial officer. This code ofethics was not adopted because our Board of Directors could not agree on itsscope and terms. If our Board of Directors adopts such a code of ethics, wewill either file an amendment to this Annual Report on Form 20-F that includesthe code of ethics as an exhibit, or post the text of such code of ethics onour website at www.tricom.net.

 

77

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Our management hasadopted a code of conduct that applies to all employees, including ourprincipal executive officer and principal financial officer. This code ofconduct addresses several issues, including compliance with applicable laws andregulations, preservation of confidential information and avoidance ofconflicts of interest.

 

**ITEM 16C.**           **PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

Sotomayor audited ourbooks and records for the years ended December 31, 2002, 2003 and December 31,2004.

 

#### **AuditFees**

#### ** **

Fees billed by Sotomayorfor professional services for the audits of the 2002, 2003 and 2004 annualconsolidated financial statements, respectively, totaled approximately$422,329, $278,298 and $440,625. Such fees include fees associated with theaudit of our annual consolidated financial statements or services that arenormally provided by Sotomayor in connection with statutory and regulatoryfilings or engagements for those fiscal years. Audit fees paid to our former auditor,KPMG, totaled approximately $399,244 and $392,000 for the years ended December31, 2002 and 2003, respectively.

 

#### **Audit-RelatedFees**

#### ** **

Sotomayor received feesof approximately $805,217 for additional services for the years ended December31, 2002 through 2005, including review and evaluation of quarterly results, ITaudit, fraud audit procedures, the Placement, internal controls, regulatoryissues, and the new audit statement format.

 

#### **TaxFees**

#### ** **

Fees for tax servicesrendered to Tricom USA for work related to the years ended December 31, 2002,2003 and 2004, respectively, totaled approximately $78,155, $55,545 and$55,486.

 

#### **AllOther Fees**

#### ** **

For the fiscalyears ended December 31, 2002, 2003 and 2004, Sotomayor received $97,014,$126,740 and $96,568, respectively, for FCC-related regulatory work, planningand research rendered to Tricom USA.

 

#### **Pre-approvalPolicies and Procedures**

#### ** **

Our Board of Directors,in its capacity fulfilling the functions of the audit committee pursuant toSection 3(a)(58) of the Securities Exchange Act of 1934, has not establishedpre-approval policies and procedures for the engagement of our independentauditors for services. Our Board of Directors expressly approves, on acase-by-case basis, any engagement of our independent auditors for audit andnon-audit services provided to us or our subsidiaries.

 

**ITEM 16D.**           **EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE**

 

Not applicable.

 

**ITEM 16E.****            ****PURCHASES OF EQUITY SECURITIES BY THE ISSUER ANDAFFILIATED PURCHASERS**

 

Not applicable.

 

# **PART III.**

# ** **

## **ITEM 17.**           FINANCIAL STATEMENTS

## ** **

Not Applicable.

 

78

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## **ITEM 18.           FINANCIALSTATEMENTS**

## ** **

The followingconsolidated financial statements are filed as part of this Annual Report onForm 20-F:

 
| 1.     |   | Report of Independent  Registered Public Accounting Firm;                                                                                          |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                               |
| 2.     |   | Consolidated Balance  Sheets as of December 31, 2002, 2003 and 2004;                                                                          |
|   |   |                                                                                                                                               |
| 3.     |   | Consolidated Statements  of Operations for the Years Ended December 31, 2002, 2003 and 2004;                                                  |
|   |   |                                                                                                                                               |
| 4.     |   | Consolidated Statements  of Stockholders’ Equity (Deficit) and Comprehensive Loss for the Years Ended  December 31, 2002, 2003 and 2004; |
|   |   |                                                                                                                                               |
| 5.     |   | Consolidated Statements  of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004; and                                              |
|   |   |                                                                                                                                               |
| 6.     |   | Notes to Consolidated  Financial Statements.                                                                                                       |

 

79

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## **ITEM 19.**           EXHIBITS

## ** **

| **Exhibit Number** | ** ** | ** **                                                                                                                                                                                                                                                                                                                |
|--------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 1.1                |       | Amended and Restated  By-laws of Tricom, S.A. with English translation thereof (incorporated by  reference to Exhibit 3 to our Amendment No. 1 of the Registration Statement  on Form F-1, filed on May 1, 1998 (file no. 333-08574)).                                                                                    |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 2.1                |       | Indenture, dated August  21, 1997, between The Bank of New York, as trustee, and Tricom, S.A.  (incorporated by reference to Exhibit 4.1 to our Registration Statement on  Form F-4, filed on December 29, 1997 (file no. 08150)).                                                                                        |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 2.2                |       | Form of Class A Common  Stock Certificate (incorporated by reference to Exhibit 4.1 to our Amendment  No. 1 to Registration Statement on Form F-1, filed on May 1, 1998 (file no.  333-08574)).                                                                                                                           |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 2.3                |       | Form of American  Depositary Receipt (included as part of Exhibit 2.4) (incorporated by  reference to Exhibit 4.2 to our Registration Statement on Form F-1, filed on  April 2, 1998 (file no. 333-08574)).                                                                                                               |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 2.4                |       | Form of Deposit  Agreement between The Bank of New York, Tricom, S.A. and owners and holders  of American Depositary Receipts (incorporated by reference to Exhibit 4.3 to  our Registration Statement on Form F-1, filed on April 2, 1998 (file no.  333-08574)).                                                        |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 4.1                |       | IDENÒ  Infrastructure Supply Agreement, dated July 31, 2000, between Motorola, Inc.  and Tricom Latinoamérica, S.A. (incorporated by reference to Exhibit 4.1 to  our Annual report on Form 20-F/A, filed on November 21, 2001 (file no.  14816)).                                                              |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 4.2                |       | Concession Agreement,  dated February 20, 1996, between the Dominican State and Tricom, S.A.  (incorporated by reference to Exhibit 10.1 to our Registration Statement on  Form F-4, filed on December 29, 1997 (file no. 333-08150)).                                                                                    |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 4.3                |       | Concession Agreement,  dated April 30, 1990, between the Dominican State and Tricom, S.A.  (incorporated by reference to Exhibit 10.2 to our Registration Statement on  Form F-4, filed on December 29, 1997 (file no. 333-08150)).                                                                                       |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 4.4                |       | Interconnection  Agreement, dated May 17, 1994, between Compañía Dominicana de Telefonos, C.  por A. (“Codetel”) and Tricom, S.A. (incorporated by reference to Exhibit  10.3 to our Registration Statement on Form F-4, filed on December 29, 1997  (file no. 333-08150)).                           |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 4.5                |       | Addendum to  Interconnection Agreement, dated January 2, 1998, between Codetel and Tricom,  S.A. (incorporated by reference to Exhibit 10.4 to our Amendment No. 1 to  Registration Statement on Form F-1, filed on May 1, 1998 (file no.  333-08574)).                                                                   |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 4.6                |       | Amended and Restated  Shareholders Agreement among Tricom, S.A., Motorola, Inc. and Oleander  Holdings, Inc. (incorporated by reference to Exhibit 10.7 to our Amendment  No. 1 to Registration Statement on Form F-1, filed on May 1, 1998 (file no.  333-08574)).                                                       |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 4.7                |       | 1998 Long-Term  Incentive Plan (incorporated by reference to Exhibit 10.11 to our Amendment  No. 1 to Registration Statement on Form F-1, filed on May 1, 1998 (file no.  333-08574)).                                                                                                                                    |
|               |       |                                                                                                                                                                                                                                                                                                                      |
| 4.8                |       | The Guaranty, dated  August 21, 1997, issued by each of Tricom’s subsidiaries in favor of the  holders of 11-3/8% notes due 2004 under the Indenture, dated August 21, 1997  (incorporated by reference to Exhibit 4.2 to our Registration Statement on  Form F-4, filed on December 29, 1997 (file no. 333-08150)). |

 

80

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| 8.1    |   | List of Subsidiaries.                                                                                                                                                                       |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                        |
| 12.1   |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                        |
|   |   |                                                                                                                                                                                        |
| 12.2   |   | Certification of the  Vice President, Finance & Administration pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                              |
|   |   |                                                                                                                                                                                        |
| 13.1   |   | Certification by Chief  Executive Officer of periodic financial report pursuant to 18 U.S.C. Section  1350, as mandated by Section 906 of the Sarbanes-Oxley Act.                           |
|   |   |                                                                                                                                                                                        |
| 13.2   |   | Certification by the  Vice President, Finance & Administration of periodic financial report  pursuant to 18 U.S.C. Section 1350, as mandated by Section 906 of the  Sarbanes-Oxley Act. |

 

81

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### SIGNATURES

###  

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

 

 
|                     | **TRICOM, S.A.** |
|--------------------------|------------------|
|                     |             |
|                     |             |
| Dated: October 29,  2007 |             |     /s/  HECTOR CASTRO NOBOA |   |
|                     |             | Hector Castro Noboa |
|                     |             | Chief Executive officer |

 

----

 

**TRICOM, S.A. AND SUBSIDIARIES**

 

**INDEX TO CONSOLIDATED FINANCIALSTATEMENTS**

 
|                                                                                                                                         |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Report of  Independent Registered Public Accounting Firm                                                                                     |   |   |
|                                                                                                                                         |   |   |
| Consolidated  Balance Sheets as of December 31, 2002, 2003 and 2004                                                                          |   |   |
|                                                                                                                                         |   |   |
| Consolidated  Statements of Operations for the Years Ended December 31, 2002, 2003 and 2004                                                  |   |   |
|                                                                                                                                         |   |   |
| Consolidated  Statements of Stockholders’ Equity (Deficit) and Comprehensive Loss for the  Years Ended December 31, 2002, 2003 and 2004 |   |   |
|                                                                                                                                         |   |   |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004                                                  |   |   |
|                                                                                                                                         |   |   |
| Notes to  Consolidated Financial Statements                                                                                                  |   |   |

 

F-1

----

 
|                                       | ***Sotomayor & Associates, LLP*** |
|---------------------------------------|---------------------------------------|
| ***Certified Public Accountants***    |
| *540 S  Marengo Avenue*               |
| *Pasadena,  California 91101*         |
| *(626)  397-4900*                     |
| *Fax:  (626) 397-4908*                |
| *E-mail:  sotomayor@sotomayorcpa.com* |
| *Web  Site www.sotomayorcpa.com*      |
| * *                              |

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

** **

The Board of Directors and Stockholders

TRICOM, S.A.:

 

We have audited the accompanying consolidated balance sheets ofTRICOM, S.A. and subsidiaries (the Company) as of December 31, 2002, 2003and 2004 and the related consolidated statements of operations, stockholders’equity (deficit) and comprehensive loss and cash flows for the years endedDecember 31, 2002, 2003 and 2004. These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe consolidated financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, 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 abovepresent fairly, in all material respects, the financial position of the Companyas of December 31, 2002, 2003 and 2004, and the results of its operations andits cash flows for the years ended December 31, 2002, 2003, 2004 in conformitywith U.S. generally accepted accounting principles.

 

The accompanying consolidated financial statements have been preparedunder the assumption that the Company will continue as a going concern. Asdiscussed in Notes 4, 25 and 28 to the financial statements, the Company hassuffered recurring losses from operations, which were impacted further in 2003and 2004 by the recognition of impairment losses of long-term assets andintangibles and the loss on the disposal of the Central America operations,which, among other factors, led the Company to default on its long-term debtcommitments. These situations raise substantial doubt about its ability tocontinue as a going concern. Management’s responses to these matters are alsodescribed in Note 4. The accompanying consolidated financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

 

As discussedin Note 2.23 to the consolidated financial statements, effective July 1, 2001the Company adopted the provisions of Statement of Financial AccountingStandards (SFAS) No. 141, “Business Combinations,” and certain provisions ofSFAS No. 142, 

 

F-2

----

 

“Goodwill andOther Intangible Assets,” as required for goodwill and intangible assetsresulting from business combinations consummated after June 30, 2001.

 

As discussed in Note 17 to the consolidated financial statements, theCompany’s 2002 deferred income taxes previously reported as $1,691,779 shouldhave been $2,573,179. This discovery was made subsequent to the initialissuance of the financial statements. The financial statements have beenrestated to reflect this correction.

 

As discussed in Notes 2.1, 3, 7, 15, and 18 to the consolidatedfinancial statements, the Company’s initial 2002 disclosures relative to thePrivate Placement of 21,212,121 shares of Class A Common Stock were notsufficient to fully explain the nature of the transaction with respect torelated parties and unasserted future contingencies. Current managementbelieves that the intent behind the transaction was to increase stockholdersequity and, subject to the matters discussed in the above-referenced notes,believes that the transaction should continue be recorded as such in theCompany’s balance sheet. The financial statements have been restated to reflectthese disclosures.

 

As discussed in Note 29 to the consolidated financial statements, onMay 11, 2004 the New York Stock Exchange, Inc. (NYSE) de-listed Tricom, S.A.’sAmerican Depository Shares (ADSs), ticker symbol TDR.

 

As discussed in Note 2.25 to the consolidated financial statements, theCompany in 2003 adopted the provisions of EITF 01-9, “Accounting forConsideration Given by a Vendor to a Customer (Including a Reseller of theVendor’s Products)” for its sales incentives.

 

As discussed in Note 7 to the consolidated financial statements, theCompany maintains balances and engages in significant transactions with relatedparties.

 

 

Sotomayor & Associates, LLP

Pasadena, California

 

November 24, 2006

 

F-3

----

** **

**TRICOM, S.A. ANDSUBSIDIARIES**

** **

**ConsolidatedBalance Sheets**

** **

**December 31, 2002, 2003 and 2004**

 
| ** **                                                                                  | ** ** | **2002**     | ** **      | **2003**    | ** ** | **2004**        | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------|-----------------|-------------|------------|-----------------|------------|
| ** **                                                                                  | ** ** | **Restated** | ** **      | ** **  | ** ** | ** **      | ** ** |
| **Assets**

                                                                           |       |         |            |        |       |            |       |
| Current assets:                                                                             |       |         |            |        |       |            |       |
| Cash and cash equivalents (Note 7)                                                          |       | $            | 6,080,303       |        | $          | 2,415,498       |       | $ | 17,590,173 |   |
|                                                                                        |       |         |            |        |       |            |       |
| Accounts receivable (Notes 6, 7 and 19):                                                    |       |         |            |        |       |            |       |
| Customers                                                                                   |       | 26,253,107   |            | 16,337,166  |       | 17,512,945      |       |
| Carriers                                                                                    |       | 3,806,849    |            | 6,855,369   |       | 5,806,582       |       |
| Related parties                                                                             |       | 843,190      |            | 55,423      |       | 200,000         |       |
| Other                                                                                       |       | 1,193,975    |            | 221,671     |       | 3,318,057       |       |
|                                                                                        |       | 32,097,121   |            | 23,469,629  |       | 26,837,584      |       |
| Allowance for doubtful accounts                                                             |       | (7,763,109   | )               | (5,152,025  | )          | (3,138,530      | )          |
| Accounts receivable, net                                                                    |       | 24,334,012   |            | 18,317,604  |       | 23,699,054      |       |
|                                                                                        |       |         |            |        |       |            |       |
| Accounts receivable – officers and  employees                                          |       | 811,122      |            | 478,991     |       | 540,003         |       |
|                                                                                        |       |         |            |        |       |            |       |
| Assets held for sale (Note 25)                                                              |       | —       |            | 10,661,300  |       | —          |       |
|                                                                                        |       |         |            |        |       |            |       |
| Inventories, net of allowance of $1,033,993  in 2002, $116,514 in 2003 and $528,991 in 2004 |       | 3,937,678    |            | 1,537,725   |       | 1,698,074       |       |
|                                                                                        |       |         |            |        |       |            |       |
| Certificates of deposit and other  investments, net (Notes 7, 8 and 11)                     |       | 16,364,252   |            | 630,165     |       | 986,075         |       |
|                                                                                        |       |         |            |        |       |            |       |
| Prepaid expenses (Note 7)                                                                   |       | 7,099,415    |            | 106,934     |       | 3,336,381       |       |
|                                                                                        |       |         |            |        |       |            |       |
| Deferred income taxes (Note 17)                                                             |       | 700,571      |            | 12,403      |       | 376,293         |       |
| Total current assets                                                                        |       | 59,327,353   |            | 34,160,620  |       | 48,226,053      |       |
|                                                                                        |       |         |            |        |       |            |       |
| Deferred income  taxes (Note 17)                                                            |       | 607,299      |            | 1,355,769   |       | —          |       |
|                                                                                        |       |         |            |        |       |            |       |
| Property, plant and equipment, net (Notes  5, 7, 9, 11, 14 and 28)                          |       | 668,120,192  |            | 396,372,585 |       | 332,907,563     |       |
|                                                                                        |       |         |            |        |       |            |       |
| Intangible assets  (Note 9)                                                                 |       | 6,946,978    |            | 2,664,641   |       | 2,664,641       |       |
|                                                                                        |       |         |            |        |       |            |       |
| Goodwill, net of  amortization (Note 9)                                                     |       | 21,914,327   |            | —      |       | —          |       |
|                                                                                        |       |         |            |        |       |            |       |
| Other assets at  cost, net of amortization (Notes 7 and 10)                                 |       | 22,276,830   |            | 4,291,369   |       | 3,884,822       |       |
|                                                                                        |       |         |            |        |       |            |       |
| ** **                                                                                  | ** ** | **$**        | **779,192,979** | ** **  | **$**      | **438,844,984** | ** ** | **$** | **387,683,079** | ** ** |

 

See accompanying notes to consolidatedfinancial statements.

 

F-4

----

** **
| ** **                                                                                         | ** ** | **2002**     | ** **      | **2003**     | ** ** | **2004**        | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------|-----------------|--------------|------------|-----------------|------------|
| ** **                                                                                         | ** ** | **Restated** | ** **      | ** **   | ** ** | ** **      | ** ** |
| **Liabilities and Stockholders’ Equity (Deficit)**

                 |       |         |            |         |       |            |       |
| Current liabilities:                                                                               |       |         |            |         |       |            |       |
| Borrowed funds – banks (Note 11)                                                              |       | $            | 32,774,334      |         | $          | 40,594,458      |       | $ | 40,619,394 |   |
| Borrowed funds – related parties (Note 7)                                                     |       | 12,436,723   |            | 8,008,888    |       | 8,005,000       |       |
| Commercial paper (Notes 7 and 12)                                                                  |       | 9,907,583    |            | 59,136,013   |       | 57,119,746      |       |
| Current portion of long-term debt-related  parties (Note 7)                                        |       | 22,000,000   |            | 24,818,964   |       | 25,765,272      |       |
| Current portion of long-term debt (Note 14)                                                        |       | 2,123,757    |            | 302,169,958  |       | 302,236,880     |       |
|                                                                                               |       | 79,242,397   |            | 434,728,281  |       | 433,746,292     |       |
|                                                                                               |       |         |            |         |       |            |       |
| Current portion of obligations under  capital leases – related party (Notes 7 and 13)         |       | 2,738,413    |            | 14,531,321   |       | —          |       |
|                                                                                               |       |         |            |         |       |            |       |
| Current portion of obligations under  capital leases – (Note 13)                              |       | —       |            | —       |       | 14,531,321      |       |
|                                                                                               |       |         |            |         |       |            |       |
| Accounts payable (Note 7):                                                                         |       |         |            |         |       |            |       |
| Carriers                                                                                           |       | 11,032,780   |            | 12,784,288   |       | 7,837,312       |       |
| Related parties                                                                                    |       | 5,939,222    |            | 2,362,460    |       | 1,604,249       |       |
| Suppliers                                                                                          |       | 15,746,551   |            | 10,165,474   |       | 11,585,842      |       |
| Other                                                                                              |       | 1,445,558    |            | 1,702,448    |       | 407,865         |       |
|                                                                                               |       | 34,164,111   |            | 27,014,670   |       | 21,435,268      |       |
|                                                                                               |       |         |            |         |       |            |       |
| Accrued expenses (Note 18)                                                                         |       | 6,241,795    |            | 13,224,636   |       | 14,567,024      |       |
| Other liabilities                                                                                  |       | 1,919,060    |            | 1,180,173    |       | 2,460,831       |       |
| Deferred revenues                                                                                  |       | 9,431,678    |            | 7,370,101    |       | 5,804,750       |       |
| Interest payable – related party (Note 7)                                                     |       | 479,477      |            | 7,559,378    |       | 14,879,148      |       |
| Interest payable                                                                                   |       | 11,116,118   |            | 25,421,857   |       | 75,366,828      |       |
| Deferred income taxes (Note 17)                                                                    |       | 523,404      |            | 329,092      |       | —          |       |
| Total current liabilities                                                                          |       | 145,856,453  |            | 531,359,509  |       | 582,791,462     |       |
| Reserve for severance indemnities (Note  2.13)                                                     |       | 675,742      |            | 124,883      |       | 50,231          |       |
| Deferred income taxes (Note 17)                                                                    |       | 2,573,179    |            | 1,026,905    |       | 661,795         |       |
| Commercial paper  (Notes 7 and 12)                                                                 |       | 41,708,647   |            | —       |       | —          |       |
| Obligations under capital leases, excluding  current portion – related party (Notes 7 and 13) |       | 11,792,908   |            | —       |       | —          |       |
| Long-term debt, excluding current portion (Note  14)                                               |       | 332,082,076  |            | —       |       | —          |       |
| Total liabilities                                                                                  |       | 534,689,005  |            | 532,511,297  |       | 583,503,488     |       |
| Stockholders’  equity (deficit) (Notes 3, 7, 15, 18, 21 and 22):                              |       |         |            |         |       |            |       |
| Class A common stock of RD$10 par value:  Authorized 55,000,000 shares; issued 45,458,041 shares   |       | 24,951,269   |            | 24,951,269   |       | 24,951,269      |       |
| Class B common stock of RD$10 par value:  Authorized 25,000,000 shares; issued 19,144,544 shares   |       | 12,595,095   |            | 12,595,095   |       | 12,595,095      |       |
| Additional paid-in-capital                                                                         |       | 275,496,964  |            | 275,496,964  |       | 275,496,964     |       |
| Accumulated losses                                                                                 |       | (66,515,597  | )               | (404,685,884 | )          | (506,839,980    | )          |
| Other comprehensive loss-foreign currency  translation (Note 2.4)                                  |       | (2,023,757   | )               | (2,023,757   | )          | (2,023,757      | )          |
| Stockholders’ equity (deficit), net                                                           |       | 244,503,974  |            | (93,666,313  | )          | (195,820,409    | )          |
| Commitments and contingencies (Notes 3, 4,  7, 13, 17, 18, 19, 20, 21, and 22)                     |       |         |            |         |       |            |       |
|                                                                                               |       |         |            |         |       |            |       |
| ** **                                                                                         | ** ** | **$**        | **779,192,979** | ** **   | **$**      | **438,844,984** | ** ** | **$** | **387,683,079** | ** ** |

 

See accompanying notes to consolidatedfinancial statements.

 

F-5

----

 

**TRICOM, S.A. ANDSUBSIDIARIES**

** **

**Consolidated Statements of Operations**

** **

**Years ended December 31, 2002, 2003 and 2004**

 
| ** **                                                                                                                                                     | ** ** | **2002**     | ** **  | **2003**     | ** ** | **2004**     | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|-------------|--------------|------------|--------------|------------|
| ** **                                                                                                                                                     | ** ** | **Restated** | ** **  | ** **   | ** ** | ** **   | ** ** |
| Operating revenues (Notes 2.14. 2.24 and  7):                                                                                                                  |       |         |        |         |       |         |       |
| Long distance                                                                                                                                                  |       | $            | 80,978,333  |         | $          | 92,087,847   |       | $ | 72,008,996 |   |
| Domestic telephony                                                                                                                                             |       | 83,721,115   |        | 59,475,203   |       | 64,973,873   |       |
| Mobile                                                                                                                                                         |       | 45,073,631   |        | 29,231,686   |       | 32,123,985   |       |
| Cable                                                                                                                                                          |       | 21,487,466   |        | 13,584,637   |       | 13,651,113   |       |
| Data and Internet                                                                                                                                              |       | 11,007,120   |        | 4,486,692    |       | 5,354,729    |       |
| Other                                                                                                                                                          |       | 498,245      |        | 121,448      |       | 68,486       |       |
|   Total operating revenues                                                                                                                           |       | 242,765,910  |        | 198,987,513  |       | 188,181,182  |       |
|                                                                                                                                                           |       |         |        |         |       |         |       |
| Operating costs and expenses (Notes 2.24, 4 , 6, 7, 9, 10, 16, 17, 18 and 28): |       |         |        |         |       |         |       |
| Cost of sales and  services                                                                                                                                    |       | 86,518,699   |        | 91,009,781   |       | 89,540,886   |       |
| Selling, general and administrative  expenses                                                                                                                  |       | 73,922,555   |        | 60,392,716   |       | 56,685,365   |       |
| Restructuring costs                                                                                                                                            |       | —       |        | 1,597,000    |       | 8,146,000    |       |
| Depreciation and amortization                                                                                                                                  |       | 66,517,193   |        | 70,292,451   |       | 75,253,831   |       |
| Expense in lieu of income taxes                                                                                                                                |       | 5,896,644    |        | —       |       | —       |       |
| Assets impairment                                                                                                                                              |       | 17,273,382   |        | 191,284,301  |       | —       |       |
| Other charges and special items (Note 18  (c) vi, viii)                                                                                                        |       | —       |        | 15,870,544   |       | —       |       |
| Total operating costs                                                                                                                                          |       | 250,128,473  |        | 430,446,793  |       | 229,626,082  |       |
|                                                                                                                                                           |       |         |        |         |       |         |       |
| Operating loss from continuing operations                                                                                                                      |       | (7,362,563   | )           | (231,459,280 | )          | (41,444,900  | )          |
|                                                                                                                                                           |       |         |        |         |       |         |       |
| Other income (expenses) (Note 7)                                                                                                                               |       |         |        |         |       |         |       |
| Interest expense                                                                                                                                               |       | (64,296,876  | )           | (65,554,495  | )          | (63,697,822  | )          |
| Interest income                                                                                                                                                |       | 1,982,764    |        | 1,203,830    |       | 222,776      |       |
| Foreign currency exchange gain (loss) net  of income tax                                                                                                       |       | 3,067,400    |        | 5,347,199    |       | (2,673,823   | )          |
| Other, net                                                                                                                                                     |       | (1,501,800   | )           | 302,949      |       | 5,739,855    |       |
| Other expenses, net                                                                                                                                            |       | (60,748,512  | )           | (58,700,517  | )          | (60,409,014  | )          |
|                                                                                                                                                           |       |         |        |         |       |         |       |
| Loss from continuing operations before  income taxes and discontinued operations                                                                               |       | (68,111,075  | )           | (290,159,797 | )          | (101,853,914 | )          |
|                                                                                                                                                           |       |         |        |         |       |         |       |
| Income taxes (Note 17)                                                                                                                                         |       | (2,015,550   | )           | (1,358,861   | )          | (300,182     | )          |
| Loss from continuing operations before  discontinued operations                                                                                                |       | (70,126,625  | )           | (291,518,658 | )          | (102,154,096 | )          |
|                                                                                                                                                           |       |         |        |         |       |         |       |
| Discontinued  operations (Note 25):                                                                                                                            |       |         |        |         |       |         |       |
| Loss from discontinued operations                                                                                                                              |       | (9,178,970   | )           | (46,651,629  | )          | —       |       |
| Minority interest                                                                                                                                              |       | 1,870,833    |        | —       |       | —       |       |
|                                                                                                                                                           |       | (7,308,137   | )           | (46,651,629  | )          | —       |       |
| Net loss                                                                                                                                                       |       | $            | (77,434,762 | )            | $          | (338,170,287 | )          | $ | (102,154,096 | ) |
|                                                                                                                                                           |       |         |        |         |       |         |       |
| Loss per common  share –  basic and diluted                                                                                                               |       |         |        |         |       |         |       |
| Loss from  continuing operations                                                                                                                               |       | (1.62        | )           | (4.51        | )          | (1.58        | )          |
| Loss from  discontinued operation                                                                                                                              |       | (0.17        | )           | (0.72        | )          | —       |       |
|                                                                                                                                                           |       |         |        |         |       |         |       |
| Net loss per common share – basic and  diluted                                                                                                            |       | $            | (1.79       | )            | $          | (5.23        | )          | $ | (1.58 | ) |
|                                                                                                                                                           |       |         |        |         |       |         |       |
| Average number of common shares used in  calculation:                                                                                                          | ** ** | ** **   | ** **  | ** **   | ** ** | ** **   | ** ** |
| Basic                                                                                                                                                          |       | 43,400,464   |        | 64,602,585   |       | 64,602,585   |       |
| Diluted                                                                                                                                                        |       | 43,400,464   |        | 64,602,585   |       | 64,602,585   |       |

 

See accompanying notes to consolidatedfinancial statements.

 

F-6

----

** **

**TRICOM, S.A. ANDSUBSIDIARIES**

** **

**Consolidated Statements of Stockholders’ Equity(Deficit) and Comprehensive Loss**

** **

**Years Ended December 31, 2002, 2003 and2004**
| ** **                                                                 | ** ** | ** **                                             | ** ** | ** **            | ** ** | ** **       | ** ** | ** **       | ** ** | ** **               | ** ** | **Retained Earnings (Loss)** | ** **  | **Other  Comprehensive  Loss-  Foreign** | ** ** | **Stockholders’ ** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------|------------|------------------|------------|------------------|------------|--------------------------|------------|----------------------------------------|-------------|------------------------------------------|------------|------------------------------|------------|
| ** **                                                                 | ** ** | **Number of Common Shares Issued** | ** ** | **Common Stock** | ** ** | **Additional**   | ** ** | **Appropriated** | ** ** | **Un-**                  | ** ** | **Currency**                           | ** **  | **Equity,**                              | ** ** |
| ** **                                                                 | ** ** | **Class A**                                       | ** ** | **Class B**      | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Paid in Capital** | ** ** | **Legal Reserve**                 | ** **  | **appropriated**                         | ** ** | **Translation**              | ** ** | **(Deficit) Net** | ** ** |
| Balance at  December 31, 2001                                              |       | 24,245,920                                             |       | 19,144,544            |       | $                | 14,753,134 |             | $          | 12,595,095               |       | $                                      | 217,290,020 |                                     | $          | 1,653,007                    |       | $ | 9,266,158 |   | $ | (2,023,757 | ) | $ | 253,533,657 |   |
| Issuance of  common shares, net of issue cost of $1,594,921 (note 15) |       | 21,212,121                                             |       | —                |       | 10,198,135       |       | —           |       | 58,206,944               |       | —                                 |        | —                                   |       | —                       |       | 68,405,079 |   |
| Net loss                                                                   |       | —                                                 |       | —                |       | —           |       | —           |       | —                   |       | —                                 |        | (77,434,762                              | )          | —                       |       | (77,434,762 | ) |
| Balance at  December 31, 2002                                              |       | 45,458,041                                             |       | 19,144,544            |       | 24,951,269       |       | 12,595,095       |       | 275,496,964              |       | 1,653,007                              |        | (68,168,604                              | )          | (2,023,757                   | )          | 244,503,974 |   |
| Net loss                                                                   |       | —                                                 |       | —                |       | —           |       | —           |       | —                   |       | —                                 |        | (338,170,287                             | )          | —                       |       | (338,170,287 | ) |
| Balance at  December 31, 2003                                              |       | 45,458,041                                             |       | 19,144,544            |       | 24,951,269       |       | 12,595,095       |       | 275,496,964              |       | 1,653,007                              |        | (406,338,891                             | )          | (2,023,757                   | )          | (93,666,313 | ) |
| Net loss                                                                   |       | —                                                 |       | —                |       | —           |       | —           |       | —                   |       | 269,602                                |        | (102,423,698                             | )          | —                       |       | (102,154,096 | ) |
| Balance at  December 31, 2004                                              |       | 45,458,041                                             |       | 19,144,544            |       | $                | 24,951,269 |             | $          | 12,595,095               |       | $                                      | 275,496,964 |                                     | $          | 1,922,609                    |       | $ | (508,762,589 | ) | $ | (2,023,757 | ) | $ | (195,820,409 | ) |

 

See accompanying notes to consolidatedfinancial statements.

 

F-7

----

 

**TRICOM, S.A. AND SUBSIDIARIES**

 

**ConsolidatedStatements of Cash Flows**

 

**Years ended December 31, 2002, 2003 and 2004**

 
| ** **                                                                                                     | ** ** | **2002**     | ** **  | **2003**    | ** ** | **2004**     | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------|-------------|-------------|------------|--------------|------------|
| ** **                                                                                                     | ** ** | **Restated** | ** **  | ** **  | ** ** | ** **   | ** ** |
|                                                                                                           |       |         |        |        |       |         |       |
| Cash flows provided by operating  activities:                                                                  |       |         |        |        |       |         |       |
| Net loss from continuing operations before  discontinued operations                                            |       | $            | (70,126,625 | )           | $          | (291,518,658 | )          | $ | (102,154,096 | ) |
| Adjustments to reconcile net loss from  continuing operations to net cash provided by operating activities:    |       |         |        |        |       |         |       |
| Depreciation                                                                                                   |       | 64,102,394   |        | 70,054,454  |       | 75,026,380   |       |
| Impairment charge of long-lived asset,  intangible assets and goodwill                                         |       | 17,273,382   |        | 191,284,301 |       | —       |       |
| Amortization of debt issue cost and bank  debt                                                                 |       | 3,301,996    |        | 7,779,619   |       | —       |       |
| Provision allowance for investments                                                                            |       | —       |        | 4,975,023   |       | —       |       |
| Allowance for doubtful accounts                                                                                |       | 6,702,981    |        | 1,676,649   |       | 2,296,554    |       |
| Amortization of radio frequency rights                                                                         |       | 237,997      |        | 237,997     |       | 227,450      |       |
| Net cash used in activities of discontinued  operations, including changes in operating assets and liabilities |       | (3,939,318   | )           | (4,965,215  | )          | —       |       |
| Charge for obsolescence of equipment  pending installation                                                     |       | —       |        | 590,740     |       | 1,114,558    |       |
| Amortization of deferred mobile equipment  costs, net                                                          |       | 2,176,802    |        | —      |       | —       |       |
| Charge for inventory obsolescence                                                                              |       | 1,941,517    |        | 1,123,217   |       | 196,204      |       |
| Expenses for severance indemnities                                                                             |       | 2,043,077    |        | 1,743,419   |       | 864,800      |       |
| Deferred income tax, net                                                                                       |       | 717,132      |        | (1,277,482  | )          | 297,676      |       |
| Cost of terminating operating lease                                                                            |       | —       |        | 7,371,119   |       |         |       |
| Exchange rate effect in long-term debt                                                                         |       | (6,424,113   | )           | (7,552,955  | )          | 2,673,823    |       |
| (Gain) loss on disposal and sale of assets                                                                     |       | (389,217     | )           | 1,935,518   |       | 782,352      |       |
| Changes in operating assets and liabilities  excluding discontinued operations:                                |       |         |        |        |       |         |       |
| (Increase) decrease in accounts receivable                                                                     |       | (780,132     | )           | 2,751,711   |       | (7,594,438   | )          |
| Decrease (Increase) in accounts receivable  related parties                                                    |       | 4,348,169    |        | 787,767     |       | (144,577     | )          |
| Decrease (increase) in inventories                                                                             |       | 1,276,700    |        | 834,223     |       | (356,553     | )          |
| (Increase) decrease in prepaid expenses                                                                        |       | (1,148,928   | )           | 6,825,908   |       | (3,229,447   | )          |
| (Increase) decrease in other assets                                                                            |       | (4,490,661   | )           | 1,939,127   |       | 406,547      |       |
| Decrease in accounts payable                                                                                   |       | (2,960,764   | )           | (5,887,852  | )          | (5,579,402   | )          |
| Increase in interest payable related  parties                                                                  |       | 140,980      |        | 7,079,901   |       | 7,319,770    |       |
| Increase in interest payable                                                                                   |       | 123,321      |        | 14,304,739  |       | 49,944,971   |       |
| Decrease in other liabilities                                                                                  |       | (389,590     | )           | (1,494,221  | )          | (1,565,351   | )          |
| (Decrease)  increase in deferred revenues                                                                      |       | (224,085     | )           | (2,061,577  | )          | 1,280,657    |       |
| (Decrease)  increase in accrued expenses                                                                       |       | (3,301,017   | )           | 990,167     |       | 1,342,387    |       |
| Decrease in reserve for severance  indemnities                                                                 |       | (3,028,155   | )           | (2,258,675  | )          | (939,450     | )          |
| Total adjustments                                                                                              |       | 77,310,468   |        | 298,788,622 |       | 124,364,911  |       |
| Net cash provided by operating activities                                                                      |       | 7,183,843    |        | 7,269,964   |       | 22,210,815   |       |
| ** **                                                                                                     | ** ** | ** **   | ** **  | ** **  | ** ** | ** **   | ** ** |
| Cash flows from investing activities (Notes  5, 8 and 25):                                                     | ** ** | ** **   | ** **  | ** **  | ** ** | ** **   | ** ** |
| Cancellation (acquisition) of investments                                                                      |       | 4,304,459    |        | 9,259,064   |       | (355,910     | )          |
| Cash (used in) provided by investing  activities of discontinued operations                                    |       | (13,434,437  | )           | 1,344,477   |       | 10,661,300   |       |
| Proceeds from sale of fixed assets                                                                             |       | 5,041,173    |        | —      |       | —       |       |
| Acquisition of property and equipment                                                                          |       | (53,829,690  | )           | (10,786,426 | )          | (13,277,265  | )          |
| Net cash used in investing activities                                                                          |       | (57,918,495  | )           | (182,885    | )          | (2,971,875   | )          |
| Cash flows from financing activities (Notes  3, 4, 7 ,11, 12, 13, 14 and 18):                                  |       |         |        |        |       |         |       |
| Borrowed funds from banks                                                                                      |       | 30,131,228   |        | 3,817,614   |       | —       |       |
| Principal payments to banks                                                                                    |       | (85,041,502  | )           | (13,646,207 | )          | (310,304     | )          |
| Proceeds from issuance of commercial paper                                                                     |       | 21,219,915   |        | 7,519,783   |       | —       |       |
| Borrowed funds from and (to) related  parties                                                                  |       | 73,587,519   |        | 4,255,593   |       | (2,503,341   | )          |
| Principal payments to related parties                                                                          |       | (88,227,162  | )           | (2,082,297  | )          | (3,888       | )          |
| Capital lease payments                                                                                         |       | (3,325,445   | )           | —      |       | —       |       |
| Cash provided by (used in) financing  activities of discontinued operations                                    |       | 1,812,607    |        | (1,812,607  | )          | —       |       |
| Principal payments of long-term debt                                                                           |       | (24,069,419  | )           | (8,803,763  | )          | (1,246,732   | )          |
| Proceeds from issuance of long-term debt                                                                       |       | 49,746,085   |        | —      |       | —       |       |
| Issuance of common stock                                                                                       |       | 68,405,079   |        | —      |       | —       |       |
| Net cash provided by (used in) financing  activities                                                           |       | 44,238,905   |        | (10,751,884 | )          | (4,064,265   | )          |
|                                                                                                           |       |         |        |        |       |         |       |
| Net (decrease) increase in cash and cash  equivalents                                                          |       | (6,495,747   | )           | (3,664,805  | )          | 15,174,675   |       |
|                                                                                                           |       |         |        |        |       |         |       |
| Cash and cash equivalents at beginning of  the year                                                            |       | 12,576,050   |        | 6,080,303   |       | 2,415,498    |       |
|                                                                                                           |       |         |        |        |       |         |       |
| Cash and cash equivalents at the end of the  year                                                              |       | $            | 6,080,303   |        | $          | 2,415,498    | ** ** | $ | 17,590,173 |   |
|                                                                                                           |       |         |        |        |       |         |       |
| Supplementary information:                                                                                     |       |         |        |        |       |         |       |
| Interest paid (net of capitalization)                                                                          |       | $            | (60,747,987 | )           | $          | (36,389,236  | )          | $ | (6,272,758 | ) |
| Expense in lieu of income taxes and income  taxes paid                                                         |       | $            | (8,611,320  | )           | $          | (2,336,999   | )          | $ | (550,676 | ) |

** **

See accompanying notes to consolidatedfinancial statements

 

F-8

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**TRICOM, S.A. ANDSUBSIDIARIES**

** **

**Notes to Consolidated Financial Statements**

** **

**1****                 Organization and Natureof Business**

 

The consolidated financial statements of TRICOM, S.A. (“Tricom” or the “Company”)include operations of the following companies engaged in the telecommunicationsand cable broadcasting industry, with operations in the Dominican Republic, theUnited States and, until August 2004 in the Republic of Panama:

 

TRICOM, S.A.(Parent Company)

GFN Comunicaciones, S.A.

TRICOM Centroamérica, S.A.

Call TelCorporation

TRICOM USA,Inc. and Subsidiaries

TRICOMLatinoamérica, S.A. and Subsidiaries

TCNDominicana, S.A. (TCN or Telecable)

 

TRICOM is adiversified telecommunications company, which provides international anddomestic long distance, basic local service, mobile, internet, and broadbandservices in the Dominican Republic and long distance service throughsubsidiaries in the United States. The Company’s operations in the DominicanRepublic are governed by the Telecommunications Law (Law No.153- 98) and by aConcession Agreement signed with the Dominican Government and ratified by theNational Congress on April 30th, 1990. This agreement is for an initial term of20 years through June 30th, 2010, subject to renewal for an additional 20-yearterm. Law No. 153-98 establishes a basic framework to regulate theinstallation, maintenance and operation of telecommunications networks and theprovision of telecommunications services and equipment. The law adopted the “UniversalServices Principle” by guaranteeing access to telecommunications services ataffordable prices in low-income rural and urban areas. The law creates a fundfor the development of the telecommunications sectors that is supported by a 2%tax on industry participants’ billings of all telecommunications services.

 

TRICOM USA,Inc. (TRICOM USA) is a Company organized under the laws of Delaware andauthorized by the United States Federal Communications Commission (FCC) tooperate as a facilities-based long distance carrier in the United States.

 

TRICOMLatinoamérica, S.A. is a company organized under the laws of the Cayman Islandson May 12, 2000. The activity of this company is to act as the holding companyof the Company’s telecommunications operations in Central America and theCaribbean. These operations were disposed of during 2004.

 

TCNDominicana, S.A. is a company organized on September 13th, 2001 under the lawsof the Dominican Republic, and engaged in the operation of three cabletelevision systems and networks in the Dominican Republic.

 

F-9

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** **

**2****                 Summary of SignificantAccounting Policies**

 

**2.1     ****Financial Presentation and 2002 Restatement**

 

The Company has elected to present three years of consolidated auditedbalance sheets and three years of consolidated audited statements of operationsand cash flows for the periods ended December 31, 2002, 2003 and 2004.

 

Article 3 of Regulation S-X provides that registrants shall fileconsolidated audited balance sheets as of the end of each of the two most recentfiscal years and audited statements of income and cash flows for each of thethree fiscal years preceding the date of the most recent audited balance sheetbeing filed. As more fully discussed in Note 3, the Company has determined torestate its consolidated audited balance sheet as of December 31, 2002 and therelated consolidated statements of operations, stockholders’ equity (deficit)and comprehensive loss and cash flows for the year then ended to reflect adjustments to the financialinformation and footnotes previously reported on the Company’s Annual Report onForm 20-F for the fiscal year ended December 31, 2002. The adjustments relateprimarily to the purchase (the “Placement”) in December 2002 of shares of theCompany’s Class A common stock by a group of investors for an aggregatepurchase price of approximately $70 million. They also address an adjustment tothe Company’s 2002 deferred income taxes.

 

Although the Company, with the concurrence of its current independentauditor, Sotomayor & Associates, LLP, has completed this restatementprocess, the Company expects that the process of obtaining the consent of itsformer independent auditor for use of audited financial information in respectof prior years (year ended December 31, 2001 and earlier periods) will involvefurther time and expense. Accordingly, while not ruling out the possibilitythat it will at some time in the future file restated audited financialstatements for the year ended December 31, 2002 and audited financialstatements for the year ended December 31, 2003, the Company has decided firstto file audited financial statements for the year ended December 31, 2004, andto include in such financial statements, in addition to the financialstatements required by Regulation S-X, its restated audited balance sheet as atDecember 31, 2002 and related notes.

 

**2.2      Principles of Consolidation**

 

Theaccompanying consolidated financial statements include the accounts of TRICOM,S.A. (Parent Company) and its majority owned subsidiaries. All significantinter-company accounts and transactions have been eliminated in consolidation.

 

**2.3      Use of Estimates**

 

Theaccompanying consolidated financial statements have been prepared in conformitywith accounting principles generally accepted in the United States of America.The preparation of consolidated financial statements in conformity with theseprinciples requires management to make a number of estimates and assumptionsrelating to the reported amounts of assets and liabilities and the disclosuresof contingent assets and liabilities at the date of the consolidated financialstatements and the reported amounts of revenues and expenses during the period.Significant items subject to such estimates and assumptions include: thecarrying amount of property, plant and equipment, valuation allowances forreceivables, inventories, intangible assets and deferred income tax assets.Actual results could differ from those estimates.

 

F-10

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**2.4      Foreign Currencies**

 

The Company’s and its subsidiaries’ functional currency is the USdollar. All foreign currency balances are restated in US dollars using bothhistorical and current exchange rates. Under this situation, SFAS 52 requiresthe use of the remeasurement method, also referred to as themonetary/nonmonetary method, when translating the entities’ financialstatements. This method translates monetary assets (cash and other assets andliabilities that will be settled in cash) at the current rate at December 31. Nonmonetaryassets, liabilities, and stockholders’ equity are translated at the appropriatehistorical rates, which are the exchange rates at the dates the transactions inthe nonmonetary account originated. Also, the income statement amounts relatedto nonmonetary assets and liabilities, such as cost of goods sold (inventory),depreciation (property, plant and equipment), and goodwill amortization(goodwill), are translated at the same rate used for the related balance sheettranslation. Other revenues and expenses occurring evenly over the year may betranslated at the weighted-average exchange rate for the period. Remeasurementgains or losses that result from the remeasurement process applied to non-U.S.subsidiaries that are consolidated are reported on the parent company’sconsolidated statements of operations.

 

As of December31, 2002, 2003 and 2004, the rates used by the Company to translate Dominicanpeso denominated accounts were RD$22.50, RD$41.50 and RD$31.07 per one USdollar, respectively. Panamanian Balboas (B/.) were at par with the US dollar.

 

**2.5      Cash and Cash Equivalents**

 

For thepurpose of the statements of cash flows, the Company considers as cash and cashequivalents all cash on hand; cash in banks, time deposits and highly liquiddebt instruments with original maturities at the time of purchase of threemonths or less.

 

## **2.6     **Customerand Carrier Accounts Receivable

## ** **

Customeraccounts receivable are recorded on the date invoiced and recorded with theamount of services provided plus a late charge, if any, which accrues after amaximum grace period of 15 days for individual customers and 30 days forcorporate customers (on the accounts past due). The assessed monthly latecharge is 2.98%.

 

Carrieraccounts receivable are recognized based on the termination of traffic in theCompany’s network.

 

**2.7      Allowance for Doubtful Accounts**

 

The allowancefor doubtful accounts receivable is established through a charge to an expenseaccount. The Company, after analyzing current market trends and collection historyof its receivables portfolio has estimated that customers’ receivables balancesover 90 days past due are uncollectible and are therefore reserved.

 

The allowance for doubtful accounts fromcarriers and others is established through a charge to an expense account basedon an analysis of the collectability of individual accounts and paymenthistory.

 

F-11

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**2.8      Inventories**

 

Inventoriesare valued at the lower of average cost or market. Inventory mainly correspondsto telephone equipment available for sale.

 

The Company’spolicy is to review its inventory for specific usage and future utility. Estimatesof impairment of individual items of inventory are recorded to reduce the itemto the lower of cost or market. The reserve for inventory obsolescence was$1,033,993, $116,514 and $528,991 as of December 31, 2002, 2003 and 2004,respectively.

 

## **2.9      Changein Accounting Estimate**

## ** **

The Company’smanagement reviews the estimated useful lives of its fixed assets. The 2004review indicated the actual lives for certain asset categories generally wereshorter than the useful lives used for depreciation purposes in the Company’sfinancial statements. As a result, the Company revised the estimated usefullives of certain categories of property, principally building, communication,office, production and transmission equipment, hardware and other. The effectof this change in estimate increased accumulated depreciation by approximately$17.4 million.

 

The change inestimates of the useful lives of fixed assets was performed based on comparisonof the company’s useful lives with other companies’ useful lives for similarassets. The Company made these changes to better reflect the estimated periodsduring which such assets will remain in service.

 

**2.10    Property, Plant and Equipment**

 

Property,plant and equipment are carried at cost. Construction costs and equipmentinstallations in process are maintained as construction projects until they arecompleted and/or the equipment is placed in service. Depreciation is recordedfrom the first full month that the assets are placed in service. Property andplant related to cable television operations are carried at cost and includeall direct costs and certain indirect costs associated with the construction ofcable television transmission and distribution systems and new subscriberinstallations.

 

**2.11    Depreciation and Amortization**

 

Thedepreciation method used by the Company is the straight-line method, that is,the uniform distribution of cost over the estimated useful lives of thecorresponding assets. Leasehold improvements are amortized using thestraight-line method over the shorter of the lease term or the estimated usefullife of the improvement. The estimated useful lives of assets are as follows:

 
| **Description**                                    | ** ** | **Years** | ** ** |
|----------------------------------------------------|------------|-----------|------------|
| Buildings and improvements                         |       | 15-40     |       |
| Furniture, equipment and transportation  equipment |       | 3-15      |       |
| Leasehold improvements                             |       | 5-10      |       |
| Communications and transmission equipment          |       | 7-15      |       |
| Computer equipment                                 |       | 4         |       |
| Other equipment                                    |       | 1-10      |       |

 

F-12

----

 

**2.12    Other Assets**

 

Deferred debtissue costs and bank debt incurrence costs are amortized over the debt serviceperiod of the related debt. Radio frequency rights are amortized on a straight-linebasis over their useful lives, which range from 15 to 20 years.

 

Deferredcommissions on prepaid calling cards are recognized when the deferred revenuesare recorded. Commission expense on sales of calling cards outside of theDominican Republic is recognized based on the minutes used. Commission expenseon sales of calling cards within the Dominican Republic is recorded whencollection of outstanding invoices to distributors and/or wholesalers is made.

 

Cellularservice plans that include the price of the telephone equipment generatedeferred assets for the net cost of the equipment, which is amortized over theminimum contract period of 18 months starting with the month following thedelivery of the equipment. Effective January 1, 2003, the Company changedprospectively its policy for recognizing the net cost of such service plans asan expense (see Note 10).

 

**2.13    Severance Indemnities**

 

According tothe Labor Code of the Dominican Republic, employers are required to payseverance indemnities to those workers whose labor contracts are terminatedwithout just cause. Just cause is defined in the Labor Code to includemisstatements by an employee in his job application, termination within threemonths of employment for poor performance, dishonesty, threats of violence,willful or negligent destruction of property, unexcused absences or terminationof the job for which the employee was hired. The Company maintains a minimalreserve to cover severance indemnities based on its experience. At December 31,2002, 2003 and 2004, the non-current liability for severance indemnities was$675,742, $124,883 and $50,231 respectively and corresponds primarily to theaccrued severance obligations assumed in connection with the Company’sacquisition of TCN Dominicana, S.A. in 2001.

 

**2.14    Revenue Recognition**

 

***Long Distance.***

 

Long distancerevenues represent amounts recognized for the transmission of traffic fromforeign telecommunication carriers to the Dominican Republic, includingrevenues derived from the Company’s U.S. based international long distancewholesale and prepaid calling card operations, outbound international anddomestic long distance calls generated by calling card users and retailtelephone centers. Long distance revenues are recognized as the minutes are providedor as the calls are made, except for revenues from prepaid calling cards, whichare recognized as the calling cards are used, net of commission paid for sale.

 

***Domestic Telephony.***

 

Domestictelephony revenues consist of fees received for local exchange services in theDominican Republic, including monthly fees, local measured service and localmeasured charges for value-added services, outbound international and domesticlong distance calls generated by the Company’s residential and businesscustomers within the Dominican Republic, sales of customer equipment andinterconnection revenues received from other service providers for calls thatterminate in the

 

F-13

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Company’snetwork. These revenues are recognized as services are rendered. Installationfees are recognized over the estimated average service life based on theCompany’s experience (eighteen months), net of costs incurred in theinstallation. When installation costs are greater than the installation feescharged, the net costs related to the installation are charged as an expenseimmediately.

 

***Mobile.***

 

Mobile revenues consist of fees received for cellular and PCS services,including fixed monthly fees, per minute usage charges and additional chargesfor value-added services, outbound international long distance charges, as wellas paging services, equipment sales, and interconnection charges received fromother service providers for incoming calls that terminate in the Company’snetwork. These revenues are recognized as services are rendered. Revenuesgenerated by calling cards used for prepaid cellular services are recognized,as the calling cards are used, net of sales commissions paid.

 

***Cable Television.***

 

Cable television revenues consist of monthly fees derived from basicprogramming, expanded basic programming, digital music services, Internetaccess and revenues from advertising sales to national advertisers onnon-broadcast channels carried over the cable communications systems. Cablerevenues are recorded in the period the service is provided, except advertisingservices, which are recognized when commercials are telecast.

 

The Company has entered into transactions that exchange advertisingservices. Such transactions are recorded at the estimated fair value of theadvertisement received or given in accordance with the provisions of EITF IssueNo. 99-17 “Accounting for Advertising Barter Transactions”. Barter transactionswere not material to the Company’s consolidated statements of operations forthe years ended December 31, 2002, 2003 and 2004.

 

***Data and Internet.***

 

Data and Internet revenues consist of fixed monthly fees received fromresidential and corporate customers for high speed broadband data transmissionand Internet connectivity services, including traditional dial-up connections,dedicated lines, private networks, frame relay and digital subscriber lines, orxDSLs, that provide broad-band transmission of voice and data over regulartelephone lines. These revenues are recognized as services are rendered.

 

Activation fees are recognized over the estimated average service lifenet of the cost incurred in the activations based on the Company’s experience.When the activation costs are greater than the activation fees collected, thenet cost related to activation is charged as an expense immediately.

 

***Other Revenues.***

 

Other revenues represent revenues that are not generated from theCompany’s core business activities, including commissions and revenues from theprovision of miscellaneous services. These revenues are recognized when theservice is rendered.

 

F-14

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**2.15    Capitalization of Interest**

 

Interest iscapitalized on qualified projects and included as part of project costs duringthe period necessary for installation.

 

During theyears ended December 31, 2002, 2003 and 2004, interest capitalized as part ofconstruction projects amounted to approximately $3,500,000 $470,000 and$160,000, respectively.

 

**2.16    Expense in Lieu of Income Tax**

 

Up to August31, 2002, the parent company TRICOM, S.A. paid a tax based on a percentage ofthe Company’s domestic gross revenues (less deductions for access to the localnetwork) plus a percentage of the Company’s net international settlementrevenues. An accrual was made for any difference between the dates when theseitems were reported to the tax authorities and when they were reported in theaccompanying consolidated statements of operations. Beginning September 1,2002, the Company is no longer subject to this expense in lieu of income taxes,but to regular income tax on earnings in the Dominican Republic.

 

**2.17    Income Taxes**

 

Income tax on profit or loss comprises current and deferred tax. Incometax is recognized in the consolidated statements of operations. Current tax isthe expected tax payable on the taxable income for the year, using the tax ratein effect at the balance sheet date.

 

Income taxes are accounted for under the asset and liability method. Deferredtax assets and liabilities are recognized for the future tax consequencesattributable to differences between the carrying amounts of existing assets andliabilities and their respective tax bases and operating losses and tax creditcarry forwards. Deferred tax assets and liabilities are measured using enactedtax rates expected to apply to taxable income in the years in which thosetemporary differences are expected to be recovered or settled. The effect ondeferred tax assets and liabilities of a change in tax rates is recognized inincome in the period that includes the enactment date.

 

A deferred tax asset is recognized only to the extent that it isprobable that future taxable profits will be available against which the assetscan be utilized. Deferred tax assets are reduced to the extent that it is nolonger probable that the related tax benefit will be realized.

 

**2.18    Earnings Per Common Share**

 

Basic earningsper share are computed based on the weighted average number of common sharesoutstanding. Diluted earnings per share reflect the increase in average commonshares outstanding that would result from the assumed exercise of outstandingstock options, calculated using the treasury stock method.

 

F-15

----

 

The weightedaverage number of common shares outstanding used in the calculation of basicand diluted (loss) per common share for the years 2002, 2003 and 2004 are asfollows:

 
| ** **                                                                | ** ** | **2002**     | ** ** | **2003**   | ** ** | **2004**   | ** ** |
|---------------------------------------------------------------------------|------------|--------------|------------|------------|------------|------------|------------|
| ** **                                                                | ** ** | **Restated** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Weighted average number of common shares  outstanding - basic and diluted |       | 43,400,464   |       | 64,602,585 |       | 64,602,585 |       |

 

For 2002, 2003and 2004, all stock options and warrants are excluded from consideration ofdiluted loss per share because of the Company’s net loss.

 

**2.19    Pension Plan**

 

Until August 2003, a private pension administration company managed theCompany’s plan, which was converted to a defined contribution plan in 2000.Under this arrangement, both the Company and the employee made fixedcontributions to the employee’s account. The contributions made by the Companywere recognized as expenses on a monthly basis.

 

In August 2003, a new Social Security law (87-01) entered into effectmaking employer and employee pension contributions mandatory for all entitiesbased on a percentage of monthly salaries; 2.58% paid by the employee and 6.42%contributed by the employer.

 

During the years ended December 31, 2002, 2003 and 2004 the Companyrecognized as expenses contributions for approximately $662,000, $457,000 and$137,000, respectively.

 

**2.20    Impairment of Long-Lived Assets**

 

SFAS No. 144provides a single accounting model for long-lived assets to be disposed of.SFAS No. 144 also changes the criteria for classifying an asset as held forsale, broadens the scope of businesses to be disposed of that qualify forreporting as discontinued operations, and changes the timing of recognizinglosses on such operations. The Company adopted SFAS No. 144 on January 1,2002 (see Note 28).

 

In accordancewith SFAS No. 144, long-lived assets, such as property, plant, and equipmentare reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable.Recoverability of assets to be held and used is measured by a comparison of thecarrying amount of an asset to estimated undiscounted future cash flowsexpected to be generated by the asset. If the carrying amount of an assetexceeds its estimated future cash flows, an impairment charge is recognized inthe amount by which the carrying amount of the asset exceeds the fair value ofthe asset. Assets to be disposed of would be separately presented on thebalance sheet and reported at the lower of the carrying amount or fair valueless costs to sell, and are no longer depreciated. The assets and liabilitiesof a disposed group classified as held for sale would be presented separatelyin the appropriate asset and liability sections of the balance sheet.

 

Goodwill andintangible assets not subject to amortization are tested annually forimpairment and more frequently if events and circumstances indicate that theasset might be impaired. An impairment loss is recognized to the extent thatthe carrying amount exceeds the asset’s fair value.

 

F-16

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**2.21    Advertising Costs**

 

Advertisingcosts are expensed as they are incurred. For the years ended December 31, 2002,2003 and 2004 these costs amounted to approximately $6,800,000, $2,450,000 and$2,609,000, respectively, and are included as part of selling, general andadministrative expenses in the accompanying consolidated statements ofoperations.

 

**2.22    Stock Option Plan**

 

The Companyapplies the intrinsic value-based method of accounting prescribed by AccountingPrinciples Board (APB) Opinion No. 25, Accounting for Stock Issued toEmployees, and related interpretations including FASB Interpretation No. 44,Accounting for Certain Transactions Involving Stock Compensation, aninterpretation of APB Opinion No. 25, issued in March 2000, to account for itsfixed-plan stock options. Under this method, compensation expense is recordedon the date of grant only if the current market price of the underlying stockexceeded the exercise price. SFAS No. 123, Accounting for Stock-BasedCompensation, established accounting and disclosure requirements using afair-value-based method of accounting for stock-based employee compensationplans. As allowed by SFAS No. 123, the Company has elected to continue to applythe intrinsic-value-based method of accounting described above, and has adoptedonly the disclosure requirements of SFAS No. 123. The following tableillustrates the effect on net loss if the fair-value-based method had beenapplied to all outstanding and vested awards in each period.

 

 
| ** **                                                                                            | ** ** | **2002** | ** **  | **2003** | ** ** | **2005**     | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|----------|-------------|----------|------------|--------------|------------|
|                                                                                                  |       |     |        |     |       |         |       |
| Net loss – as reported                                                                           |       | $        | (77,434,762 | )        | $          | (338,170,287 | )          | $ | (102,154,096 | ) |
| Add total stock-based employee compensation  determined under fair-value-based method for all rewards |       | (98,450  | )           | (59,709  | )          | (1,218       | )          |
| Pro forma net loss                                                                                    | ** ** | $        | (77,533,212 | )        | $          | (338,229,996 | )          | $ | (102,155,314 | **)** |
| Net loss per share:                                                                                   |       |     |        |     |       |         |       |
| As reported – basic and diluted                                                                  |       | $        | (1.79       | )        | $          | (5.24        | )          | $ | (1.58 | ) |
| Pro forma – basic and diluted                                                                    |       | $        | (1.79       | )        | $          | (5.24        | )          | $ | (1.58 | ) |

 

**2.23    Goodwill and Other Intangible Assets**

 

Goodwillrepresents the excess of cost over fair value of assets of businesses acquired.Effective July 1, 2001, the Company adopted the provisions of SFAS No. 142,Goodwill and Other Intangible Assets, for business combinations consummatedafter June 30, 2001, and as of January 1, 2002 for business combinationsconsummated before June 30, 2001. Goodwill and intangible assets acquired in apurchase business combination and determined to have an indefinite useful lifeare not amortized, but instead tested for impairment at least annually inaccordance with the provisions of SFAS No. 142. SFAS No. 142 also requiresthat intangible assets with estimated useful lives be amortized over theirrespective estimated useful lives to their estimated residual values, andreviewed for impairment in accordance with SFAS No. 144, Accounting for Impairmentor Disposal of Long-Lived Assets.

 

In connectionwith SFAS No. 142’s transitional goodwill impairment evaluation, the Statementrequired the Company to perform an assessment of whether there was anindication that goodwill was impaired as of the date of adoption. To accomplishthis, the Company was required to identify its reporting units and determinethe carrying value of each reporting unit by 

 

F-17

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assigning theassets and liabilities, including the existing goodwill and intangible assets,to those reporting units as of January 1, 2002. The Company was required todetermine the fair value of each reporting unit and compare it to the carryingamount of the reporting unit within six months of January 1, 2002. To theextent the carrying amount of a reporting unit exceeded the fair value of thereporting unit, the Company would be required to perform the second step of thetransitional impairment test, as this is an indication that the reporting unit’sgoodwill may be impaired. The second step was required for one reporting unit.In this step, the Company compared the implied fair value of the reporting unitgoodwill with the carrying amount of the reporting unit goodwill, both of whichwere measured as of the date of adoption. The implied fair value of goodwillwas determined by allocating the fair value of the reporting unit to all of theassets (recognized and unrecognized) and liabilities of the reporting unit in amanner similar to a purchase price allocation, in accordance with SFAS No. 141,Business Combinations. The residual fair value after this allocation was theimplied fair value of the reporting unit goodwill.

 

The impliedfair value of this reporting unit exceeded its carrying amount, thus, theCompany was not required to recognize an impairment loss.

 

Prior to theadoption of SFAS No. 142, goodwill was amortized on a straight-line basis overthe expected periods to be benefited, generally 40 years, and assessed forrecoverability by determining whether the amortization of the goodwill balanceover its remaining life could be recovered through undiscounted futureoperating cash flows of the acquired operation. The amount of goodwill andother intangible asset impairments, if any, was measured based on projecteddiscounted future operating cash flows using a discount rate reflecting theCompany’s average cost of funds.

 

**2.24    Investment Securities**

 

Investmentsecurities at December 31, 2002, 2003 and 2004 consisted of certificates ofdeposit and mortgage participation contracts. The Company classifies itssecurities as held-to-maturity. Held-to-maturity securities are thosesecurities for which the Company has the ability and intent to hold thesecurity until maturity.

 

Held-to-maturitysecurities are recorded at amortized cost, adjusted for the amortization oraccretion of premiums or discounts.

 

A decline inthe market value of held-to-maturity securities below cost, that is deemed tobe other than temporary, results in a reduction in carrying amount to fairvalue. The impairment is charged to earnings and a new cost basis for thesecurity is established. Premiums and discounts are amortized or accreted overthe life of the related held-to-maturity security as an adjustment to yieldusing the effective interest method. Interest income is recognized when earned.

 

## **2.25    Accounting Change**

## ** **

In November2001, the Emerging Issues Task Force (EITF) of the FASB reached a consensus onEITF issue 01-09, “Accounting for Consideration Given by a Vendor to a Customer(Including a Reseller of the Vendor’s Products)”. The Company adopted EITFIssue 01-09 effective January 1, 2003. EITF Issue 01-09 addresses therecognition, measurement, and income statement classification for salesincentives offered to customers or manufacturers or resellers who are notend-customers. Sales incentives include discounts and generally any otheroffers that entitle a customer to receive a reduction in the price of a productby submitting a claim for a refund or rebate. Under EITF 01-09, the reductionin or refund of the selling price of the product resulting from any salesincentives should be classified as a reduction of revenue. Prior to adoptingthis 

 

F-18

----

 

pronouncement,the Company recognized sales incentives paid to distributors of prepaid callingcards as selling, general and administrative expenses. As a result of adoptingEITF Issue 01-09, sales incentives were restated (reclassified) as a reductionof long distance revenues in the case of long distance calling cards and as areduction of cellular revenues in the case of prepaid cellular services for theyears ended December 31, 2003 and 2004. Amounts reclassified were $9,295,489and $6,102,127 in the years ended December 31, 2003 and 2004, respectively.This pronouncement did not have any impact on net loss reported in these years.

 

## **2.26    Reclassifications**

## ** **

Certainamounts in the 2002 consolidated financial statements and notes to theconsolidated financial statements have been reclassified to conform to the 2003and 2004 consolidated financial statements and notes.

 

Reclassificationswere made to transfer revenue, expense and other income (expense) items relatedto discontinued operations from revenue, expenses and other income (expense)items from continuing operations. Reclassifications were also made to organizeoperating revenues by products and services according to the Company’s fivereportable segments (see note 2.14 Revenue Recognition) and to simplify thereading of the costs and expenses section by grouping similar line items thatwere previously reported individually.

 

Additionally,the Company reclassified at December 31, 2004 deferred commissions for prepaidcalling cards in the amount of $1,963,000, net of the related deferredrevenues. This amount was previously presented as part of other assets in theconsolidated balance sheet. Consolidated assets and liabilities at December 31,2003 have been decreased by this amount.

 

**3****                  Restatement of2002 Financial Statements**

 

The consolidated balance sheet as of December 31, 2002 and the related consolidatedstatements of operations, stockholders’ equity (deficit) and comprehensive lossand cash flows for the year then ended have been restated to reflectadjustments to the financial information and footnotes previously reported inthe Company’s Annual Report on Form 20-F for the fiscal year ended December 31,2002. The adjustments relate primarily to the purchase (the “Placement”) inDecember 2002 of shares of the Company’s Class A common stock by a group ofinvestors for an aggregate purchase price of approximately $70 million. Theyalso correct an understatement of related party indebtedness and address anadjustment to the Company’s 2002 deferred income taxes. See Note 17.

 

***Introduction and Background.***

 

The need forrestatement and amendment of the 2002 financial statements initially arose whenthe Company’s former independent auditor, the member firm of KPMG Internationalin the Dominican Republic (“KPMG”), advised the Board of Directors on October28, 2004 that it was withholding its consent to filing the Company’s AnnualReport on Form 20-F for the fiscal year ended December 31, 2003. KPMG soughtfurther clarification of the Placement, which used funds loaned to theinvestors in the Placement by a bank that was at the time affiliated with GFNCorporation, Ltd., the Company’s largest shareholder. In a letter datedNovember 1, 2004 KPMG requested that the Company’s Board of Directors initiatean independent investigation of the Placement to determine whether any illegalacts occurred in any of the jurisdictions involved, the Dominican Republic,Panama, the Cayman Islands and the United States, and whether the Placementqualified to be 

 

F-19

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recorded asequity on the Company’s consolidated balance sheet as of December 31, 2002.Subsequently the Company’s Board of Directors appointed a Special Committee(the “Special Committee”), composed of Thomas Canfield, James Deane and GeraldGitner to determine (i) whether the Company had any undisclosed actual orcontingent liabilities as a result of the Placement, (ii) other factsreasonably necessary to allow the Company and its advisers to determine theappropriate accounting treatment to be given to the Placement, and (iii) suchother matters as might be reasonably proposed by KPMG. The Special Committeeretained Hunton & Williams LLP as legal counsel, who in turn retained BDOSeidman LLP (“BDO”) to assist them in analyzing certain accounting matters.

 

In a letterdated February 9, 2005 addressed to the Special Committee, KPMG requested thatthe scope of the Special Committee’s investigation be expanded to include anyother related party transactions that may be directly or indirectly associatedwith the Placement.

 

***Special Committee Report.***

 

In September2005 the Special Committee made available to the Company’s Board of Directorsand senior management its initial report (the “Special Committee Report”)summarizing the Special Committee’s findings through that time. As noted in aForm 6-K report that the Company filed on December 9, 2005, the SpecialCommittee did not have any subpoena powers and was not able to obtain all ofthe information and documents it sought. Subject to these and other limitations,the Special Committee Report contained, among others, the following observations.

 

•   Itis possible that the Company may have certain undisclosed actual or contingentliabilities arising out of the Placement under the laws of the jurisdictions inwhich it operated at the time of the Placement (primarily the DominicanRepublic, Panama and the United States).

 

•   Thedisclosure as to the Placement and related transactions contained in theCompany’s Annual Report on Form 20-F for the fiscal year ended December 31,2002 may have been deficient and/or not consistent with information presentedto the Special Committee. The Special Committee recommended that the Companyconsider amending certain portions of Items 7 and 8 of that 20-F Annual Report.

 

•   Varyingconclusions can be reached as to whether the Company properly accounted for thePlacement based on different hypothetical fact scenarios. Under certainhypothetical fact scenarios, the accounting treatment of the Placement asequity would remain unchanged. Under certain alternative hypothetical factscenarios, the proceeds of the Placement would not qualify to be recorded asequity on the Company’s consolidated balance sheet as at December 31, 2002, butrather should be classified outside of permanent equity as “mezzaninefinancing.”

 

In addition,the Special Committee offered certain corrective recommendations on corporategovernance and related matters, as described in the Company’s Form 6- K reportfiled on December 9, 2005. This Note 3 addresses the Placement and subsequentrestatement and amendment of the Company’s consolidated financial statementsfor the fiscal year ended December 31, 2002, and does not address those broadercorrective recommendations.

 

In March 2005, while the Special Committee was conducting itsinvestigation, Tricom’s Board of Directors retained Sotomayor & Associates,LLP as auditors for the year ended December 31, 2004, replacing KPMG. InDecember 2005, Tricom announced that Sotomayor & Associates, LLP had alsobeen retained as auditors for the years ended December 31, 2002 and 2003. Sincethat time Tricom and its representatives have worked with Sotomayor &Associates, LLP to analyze the relevant 

 

F-20

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findings of the Special Committee and to determine what amendments toits Annual Report on Form 20-F for the fiscal year ended December 31, 2002would be appropriate. In addition, on several occasions during this process,representatives of Tricom and its auditors have consulted with the SpecialCommittee’s advisors on matters relevant to the accountingtreatment of, and disclosure as to the circumstances surrounding, thePlacement.

 

***Availability of Information.***

 

Theinformation concerning the Placement currently available to the Company’smanagement, its auditors and the Special Committee is limited. The SpecialCommittee noted that the documentation relating to the Placement was deficientand recommended that the Company adopt improvements to its transactionapproval, documentation and records retention policies. Furthermore, several ofthe transactions associated with the Placement did not involve the Companydirectly, but rather involved related parties, in particular Banco Nacional deCrédito, S.A. and various other banking entities that at the time wereaffiliated with GFN Corporation, Ltd. Following a banking crisis in theDominican Republic in 2003, certain of those banking entities were intervenedin various jurisdictions, and are no longer operated as related entities. As aresult of these and other factors, the Company’s access to certain banking andother records underlying the Placement and related transactions is limited. Inparticular, Hemisphere Bank, the institution at which Bancredit Cayman’s “payablethrough” account was maintained and whose records most likely would show theflow of all or a portion of the proceeds relating to the Placement, has to datedeclined various requests from the Special Committee’s counsel and from theCompany’s independent auditor to produce copies of the relevant accountdocumentation. Furthermore, communication with the liquidators of, and othersuccessors to, the banking entities that were intervened has been sporadic and,while those liquidators and successors may possess documents that would provideadditional information relating to the transactions surrounding the Placement,the Company has not, to date, been able to obtain or verify the existence ofsuch documents. On certain issues, the only information available to theCompany’s management has been public pronouncements by those entities, whichmay be susceptible to differing interpretations. As a result of these and otherdifficulties in obtaining information relating to the Placement, the Company’sunderstanding of the circumstances surrounding the Placement is incomplete, andmay change over time if additional information comes to light. Furthermore, thevarious parties involved in the Placement may have differing interpretations ofthe transactions associated with the Placement and the intent behind them. Theinformation as to the Placement contained in these financial statements isbased on the Company’s understanding as of the date hereof of the transactionsassociated with the Placement.

 

***Related Parties.***

 

As defined inFAS 57, the Company is or was directly or indirectly related to variousentities through common ownership, contractual rights and/or family ownership,as more fully set forth in Note 7. The following related parties, which wereengaged in the businesses of banking, insurance, credit card issuance,securities broker-dealer and other businesses, were involved in the Placementand related transactions:

 

•                  Banco Nacionalde Crédito S.A., a Dominican Republic Bank (“Bancrédito Dominican Republic”);

 

•                  Bancrédito (Panama),S.A., a Panamanian Bank (“Bancredito Panamá”);

 

•                  BancreditCayman, Ltd., a Cayman Islands Bank (“Bancredit Cayman”);

 

F-21

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•                  Acciones yValores, S.A., a Dominican Republic broker-dealer (“ACYVAL”);

 

•                  CompañíaNacional de Seguros, a Dominican Republic insurance company (“SEGNA”);

 

•                  Grupo FinancieroNacional, S.A., a Dominican Republic holding company (“GFN, S.A.”);

 

•                  CompañíaNacional de Arrendamientos S.A., a Dominican Republic equipment leasing company(“Conaresa”).

 

***Description of Placement.***

 

*Arrangement and Approval of Transaction.*

 

In December2002 ACYVAL, a broker-dealer subsidiary of Bancrédito Dominican Republiccontrolled by Mr. Pellerano, contacted prospective investors for the Placement,and appears to have ultimately found twelve investors willing to purchaseblocks of the Company’s Class A Common Stock. On December 18, 2002, the Company’sBoard of Directors authorized the issuance of 21,212,121 shares of Class ACommon Stock at a price of $3.30 per share, representing an aggregate grossinvestment of $70 million. The issuance of the Class A Common Stock wasconsummated on December 31, 2002. Other than its stockholder register andcopies of stock certificates, the Company’s management does not have in itspossession documentation, such as subscription or similar agreements,establishing a legal relationship between the Company and the investors as tothe purchase of shares in the Placement.

 

At a certainpoint in the process leading to consummation of the transaction, severalmembers of the Company’s Board of Directors and senior management intended toparticipate as investors in the Placement. The Company’s management believes,however, based in part on its review of instructions given to the Company’stransfer agent to produce stock certificates, that ultimately the only relatedparties to participate directly in the Placement were GFN, S.A. and Mr.Ginebra, as detailed below.

 
| **Name**                                                                | ** ** | **Relationship to the Company**                              | ** ** | **Number of  Class A  Common  Shares** | ** ** | **Amount of  Investment** | ** **     |
|-------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------|----------------|
| ** **                                                              | ** ** | ** **                                                   | ** ** | ** **                             | ** ** | ** **                | ** **     |
| GFN, S.A.                                                               |       | Wholly owned  and controlled by  Mr. Manuel Arturo Pellerano |       | 2,878,788                              |       | $                         | 9,500,000      |   |
|                                                                    |       |                                                         |       |                                   |       |                      |           |   |
| Marino A. Ginebra                                                       |       | Director                                                     |       | 606,061                                |       | 2,000,000                 |           |
|                                                                    |       |                                                         |       |                                   |       |                      |           |
| Investors believed by the Company’s  management to be unaffiliated |       | None to the  knowledge of the Company’s management      |       | 17,727,272                             |       | 58,500,000                |           |
|                                                                    |       |                                                         |       |                                   |       |                      |           |
| **TOTAL**                                                               | ** ** | ** **                                                   | ** ** | **21,212,121**                         | ** ** | **$**                     | **70,000,000** | ** ** |

 

While theCompany’s management has a general understanding of the identity of theinvestors in the Placement, including the names of the nominal investors and,in some cases, the underlying beneficial ownership of those nominal investors,the information available to it regarding these matters is incomplete. Forexample, the Company’s management has received unconfirmed reports that one ofits then directors, Edwin Corrie, together with members of his family, may haveparticipated in the Placement through one of the investors of record.

 

F-22

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As arranger ofthe Placement, ACYVAL received, a cash finder’s fee of $1,400,000, which wasdeducted from the proceeds of the Placement.

 

*Financing.*

 

The Company’smanagement understands that, in order to effect the Placement, BancréditoPanama, an entity that at the time was wholly owned and controlled by Mr.Pellerano, agreed to finance 100% of the purchase price of the shares sold inthe Placement, representing total funding of $58,500,000 to the apparentlyunaffiliated investors and $11,500,000 to the affiliated investors. Althoughthe Company’s management currently only has access to financing documentsrelating to a small number of the investors in the Placement, it believes,based in part on published resolutions of the liquidator of Bancrédito Panama,and in part on conversations reported to the Special Committee, that thisfinancing was provided by Bancrédito Panama to all of the investors in thePlacement on substantially similar terms. Those terms, while somewhat unclear,suggest that the funds were lent by Bancrédito Panama to the investors on anon-recourse basis and were collateralized only by the shares of the Company’sClass A Common Stock purchased by the investors in the Placement. Many of theinvestors may have used special purpose entities to acquire and hold the sharespurchased in the Placement and to act as obligor on the financing. Furthermore,certain of the investors appear to have entered into arrangements thatpurported to allow them to put the shares being financed to Bancrédito Panamaupon the occurrence of certain events. As a result, the investors appear tohave mitigated, in whole or at least in significant part, their economic riskin connection with the Placement. Bancrédito Panama, on the other hand, byproviding loan financing backed only by the Company’s Class A Common Stock,assumed the economic risk associated with an investment in the Company’s ClassA Common Stock because the repayment of the loans it made appears to have beendirectly tied to its ability to realize value from the Company’s Class A CommonStock in a foreclosure or similar proceeding.

 

*Funds Flow.*

 

To consummatethe transaction, it appears that the funds loaned to the investors in thePlacement were credited or transferred by Bancrédito Panama to Bancredit Caymanon behalf of the investors, and then in turn transferred or credited to theCompany’s sub-account with Bancredit Cayman maintained at Hemisphere Bank inMiami, Florida. The banking records in the Company’s possession supporting theflow of funds are, however, incomplete and, in certain respects, unclear. Aspreviously mentioned, the records of Hemisphere Bank have not been madeavailable either to the Company or the Special Committee. From the records thatare available, it appears that a series of book entries were made on therecords of Bancrédito Panama and Bancredit Cayman, and that money transfers maynot have been made through the international payments systems. In addition,there may be discrepancies between the records of Bancrédito Panama andBancredit Cayman and the interpretations put on those records by the respectiveliquidators of those entities. For example, a resolution of the liquidator ofBancrédito Panama suggests that, contrary to what appear to be the records ofBancredit Cayman, approximately $21 million of the funds loaned to theinvestors in the Placement were never turned over to Bancredit Cayman.

 

*Applicationof Proceeds.*

 

The SpecialCommittee Report states that Bancrédito Dominican Republic and BancréditoPanama required, as a condition for the financings, that the proceeds be usedentirely within the Bancredito group of companies, in other words, to satisfyindebtedness and other amounts then owed by the Company to Bancrédito DominicanRepublic and its affiliates. Records 

 

F-23

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confirmingrepayment of indebtedness using the proceeds of the Placement are, however,incomplete; the Company’s management does not currently have in its possessionexternal receipts, correspondence or other documentation evidencing therepayment of many of these obligations.

 

Based on thelimited records that are available to it, the Company’s management believesthat the proceeds from the Placement were applied as follows:

 
| Bancrédito Panama, for repayment of Tricom  loans, credit lines, letters of credit and past due interest                    |   | $          | 35,582,461 |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|--------|
|                                                                                                                             |   |       |       |   |
| Bancredit Cayman, for repayment of Tricom  and Telecable loans, overdrafts and past due interest                                 |   | 9,846,384  |       |
|                                                                                                                             |   |       |       |
| Bancrédito Dominican Republic, for repayment  of Tricom and Telecable loans, credit lines, overdrafts and letters of credit |   | 16,757,543 |       |
|                                                                                                                             |   |       |       |
| SEGNA, for repayment of Tricom loans and  payment of premium on directors and officers insurance policy                          |   | 4,464,035  |       |
|                                                                                                                             |   |       |       |
| Conaresa, for payment of past due amounts  owed by Tricom                                                                        |   | 1,754,656  |       |
|                                                                                                                             |   |       |       |
| ACYVAL finder’s fee                                                                                                         |   | 1,400,000  |       |
|                                                                                                                             |   |       |       |
| Other issuance costs                                                                                                             |   | 194,921    |       |
| TOTAL                                                                                                                            |   | $          | 70,000,000 |   |

 

The SpecialCommittee Report states that, from the perspective of the Company, BancréditoDominican Republic and its financial institution affiliates, the intendedeffect of the Placement appears to have been to replace indebtedness owed bythe Company and various of its subsidiaries to various Bancredito entities withloan financing provided by Bancrédito Panama to the investors in the Placement,apparently on a non- recourse basis and backed solely by the Company’s sharesissued in the Placement.

 

*Filingsetc.*

 

Followingconsummation of the Placement, stock certificates were prepared and ultimatelyrecorded by the Company’s transfer agent. In October 2003, at the request ofthe liquidator of Bancrédito Panama, the stock certificates were delivered toBancredito Panama as collateral for the loans made to the investors in thePlacement.

 

On January 2,2003, the Company filed a Form 6-K with the United States Securities andExchange Commission announcing completion of the Placement. Besides statingthat the investors in the Placement were led by Mr. Pellerano, the filing madeno mention of the participation of related parties in the transaction. Similarly,in its Annual Report on Form 20-F for the year ended December 31, 2002 (both asoriginally filed on May 23, 2003 and as subsequently amended on April 29,2004), while reference was made to the Placement and Mr. Pellerano’s role as alead investor, there was no other mention of the participation of relatedparties.

 

F-24

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*Summaryof Amendments to Financial Statements.*

 

Based on thefindings of the Special Committee and on other information available to Tricomat the present time, the Company has concluded that its Annual Report on Form20-F for the fiscal year ended December 31, 2002 should be amended.Specifically, it has determined that the following portions of the 2002 consolidatedfinancial statements should be amended as outlined below.

 

•        Amend Note 7, Transactionswith Related Parties, to describe the involvement of various related parties inthe transactions constituting the Placement.

 

•        Amend Note 15,Stockholders’ Equity, to include a description of the Placement, and theCompany’s determination as to the accounting treatment of the Placement.

 

•        Amend Note 18, Commitmentsand Contingencies, to disclose the nature of certain loss contingencies arisingout of the Placement.

 

**4****            Liquidity**

 

The consolidated financial statements have been prepared on a goingconcern basis, which contemplates continuity of operations, realization ofassets and satisfaction of liabilities in the ordinary course of business. However,as a result of recurring operating losses and the Company’s on-going debtrestructuring process, such realization of assets and satisfaction ofliabilities are subject to significant uncertainty.

 

At December 31, 2002, 2003 and 2004, the Company’s current liabilitiesexceeded its current assets by $86.5 million , $497.1 million and $534.6million, respectively.

 

In 2003 and 2004 the Dominican peso incurred devaluation with respectto the US dollar of approximately 84% and 25% respectively,  as compared to the prior year, resulting in adecrease in the Company’s total revenues in both 2003 and 2004 as compared tothe prior year, and affecting the Company’s ability to buy US dollars toservice its  dollar-denominated debt.

 

On October 2, 2003, the Company announced that it would not be making ascheduled interest payment to the holders of its 11-3/8% Senior Notes due 2004,and that it had initiated discussions with holders of its Senior Notes and itsbank lenders, and would be continuing discussions with prospective strategicpartners, to formulate a restructuring plan of the Company’s balance sheet.

 

An unofficial committee of bondholders and commercial banks wasestablished. Concurrently with the non-payment of interest due to bondholders,the Company suspended principal and interest payments of all unsecured bankdebt. As a result, the Company does not expect to have any available fundingsources until the restructuring process is concluded.

 

In December 2003, the Company’s Board of Directors appointed a ChiefRestructuring Officer to assist in negotiations with bondholders and otherlenders, the implementation of a cash conservation plan and in the developmentof a core business plan.

 

Further, the Company has engaged several financial advisory and legalfirms to assist in its financial restructuring process. The Company has alsoagreed to pay the fees and expenses of financial advisory and legal firmsengaged by the unofficial committee of bondholders and commercial banks and bythe Company’s majority shareholder, GFN Corporation Ltd, and 

 

F-25

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certain of its affiliates, which are also major creditors of theCompany. The Company also agreed to pay retention bonuses to certain of itsexecutives. Expenses related to the Company’s financial restructuring wereapproximately $1.6 million and $8.1 million for 2003 and 2004 respectively asis presented in the consolidated statements of operations.

 

Details ofthese expenses are as follows, together with the party represented by therespective financial advisory and legal firms:

 
| ** **                                        | ** ** | **2003** | ** **    | **2004**   | ** ** | **Total**     | ** ** |
|---------------------------------------------------|------------|----------|---------------|------------|------------|---------------|------------|
| **Financial Services:**                           |       |     |          |       |       |          |       |
| FTI Consulting (Company)                          |       | $        | 75,000        |       | $          | 1,987,000     |       | $ | 2,062,000 |   |
| Bear Stearns & Co. Inc (Company)              |       | 500,000  |          | 906,000    |       | 1,406,000     |       |
| Chanin Capital Partners (Committee)               |       | —   |          | 1,162,000  |       | 1,162,000     |       |
| Broadspan Capital (GFN)                           |       | —   |          | 677,000    |       | 677,000       |       |
|                                              |       |     |          |       |       |          |       |
| **Legal Services:**                               |       |     |          |       |       |          |       |
| Manatt Phelps & Phillips, LLP  (Committee)    |       | 572,000  |          | 1,082,000  |       | 1,654,000     |       |
| Greenberg Traurig, LLP (Company)                  |       | 366,000  |          | 780,000    |       | 1,146,000     |       |
| DLA Piper Rudnick Gray Cary US, LLP (Co.)         |       | 84,000   |          | 217,000    |       | 301,000       |       |
| White & Case (GFN)                            |       | —   |          | 207,000    |       | 207,000       |       |
| E. Veras Consultoría, S.A (Committee)        |       | —   |          | 127,000    |       | 127,000       |       |
| Cadwalader. Wickersham & Taft, LLP (Company)  |       | —   |          | 113,000    |       | 113,000       |       |
| Headrick Rizik  Alvarez & Fernandez (Vendors) |       | —   |          | 60,000     |       | 60,000        |       |
| Melo Guerrero (Company)                           |       | —   |          | 37,000     |       | 37,000        |       |
| Jimenez Cruz Peña (Company)                  |       | —   |          | 31,000     |       | 31,000        |       |
| Langa & Abinader (GFN)                        |       | —   |          | 19,000     |       | 19,000        |       |
|                                              |       |     |          |       |       |          |       |
| **Executive Compensation:**                       |       |     |          |       |       |          |       |
| Retention bonuses                                 |       | —   |          | 741,000    |       | 741,000       |       |
| ** **                                        | ** ** | **$**    | **1,597,000** | ** ** | **$**      | **8,146,000** |       | **$** | **9,743,000** |   |

 

As part of the restructuring process, effective January 2004, theCompany entered into an agreement for the sale of its Central American trunkingassets to a group of Panamanian investors for a price of approximately $12.5million, payable in installments. Estimated net proceeds, after transactionexpenses and liabilities directly related to the Central American operationsand the payment of a portion of the proceeds to a minority partner, amounted to$10.7 million.

 

For the years ended December 31, 2003 and 2004, the Company generated$7.3 million and $22.2 million, respectively, of cash flows from operations. Sincethe Company has not paid interest to its unsecured lenders since September2003, interest payable as of December 31, 2003 and 2004 amounted toapproximately $33.0 million and $90.2 million, respectively. Had the Companypaid all interest on a current basis, cash flows used in operations would havebeen $(25.7) million and $(68.1) million, respectively.

 

At December 31, 2003 and 2004, the Company’s liabilities exceeded itstotal assets by approximately $93.5 million and $195.8 million, respectively,resulting from several factors including changes in useful lives of long livedassets, increases in accrued interest payable, impairment charges ofapproximately $191 million recognized in the year 2003 brought about by thedevaluation of the Dominican peso, and increased competition for mobiletelecommunication services in the Dominican Republic.

 

F-26

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At December 31, 2003 and 2004, the Company had indebtedness in theaggregate principal amount of $449.3 million and $448.2 million, respectively. Theability of the Company to pay future interest on its indebtedness and meet debtservice obligations will depend on the outcome of the restructuring process, aswell as the Company’s future operating performance, including its ability toincrease revenues and control expenses, which in turn depend on the successfulimplementation of its strategy and on financial, competitive, regulatory,technical and other factors, many of which are beyond the Company’s control.

 

If therestructuring is not possible, the Company’s creditors could initiatebankruptcy proceedings, most likely in the Dominican Republic, or the Companycould be forced to dispose of business segments or assets at unfavorableprices.

 

**5****            Property Plant and Equipment**

 

A detail ofproperty, plant and equipment at December 31, 2002, 2003 and 2004 is asfollows:

 

 
| ** **                                        | ** ** | **2002**    | ** **      | **2003**    | ** ** | **2004**        | ** ** |
|---------------------------------------------------|------------|-------------|-----------------|-------------|------------|-----------------|------------|
| Operations and communications:                    |       |        |            |        |       |            |       |
| Land                                              |       | $           | 9,004,110       |        | $          | 10,442,144      |       | $ | 9,101,411 |   |
| Buildings and improvements                        |       | 20,194,987  |            | 19,681,249  |       | 16,100,996      |       |
| Furniture and equipment                           |       | 13,733,552  |            | 11,974,137  |       | 4,331,723       |       |
| Communications equipment                          |       | 258,976,701 |            | 124,965,398 |       | 186,452,923     |       |
| Transmission equipment                            |       | 422,166,369 |            | 270,672,690 |       | 184,871,539     |       |
| Other equipment                                   |       | 7,359,744   |            | 6,070,555   |       | 2,711,884       |       |
|                                              |       | 731,435,463 |            | 443,806,173 |       | 403,570,476     |       |
| Less accumulated depreciation                     |       | 159,114,008 |            | 119,279,591 |       | 115,826,934     |       |
| Sub-total, operations and communications          |       | 572,321,455 | ** **      | 324,526,582 |       | 287,743,542     |       |
|                                              |       |        |            |        |       |            |       |
| Property and equipment:                           |       |        |            |        |       |            |       |
| Buildings                                         |       | 9,912,339   |            | 9,912,339   |       | 9,751,327       |       |
| Furniture and office equipment                    |       | 30,482,967  |            | 30,786,476  |       | 6,045,887       |       |
| Transportation equipment                          |       | 6,746,925   |            | 6,475,198   |       | 7,268,996       |       |
| Leasehold improvements                            |       | 11,059,817  |            | 8,898,555   |       | 7,400,392       |       |
| Data processing equipment                         |       | 59,224,929  |            | 57,861,430  |       | 36,324,052      |       |
|                                              |       | 117,426,977 |            | 113,933,998 |       | 66,790,654      |       |
| Less accumulated depreciation                     |       | 44,039,805  |            | 55,855,278  |       | 37,417,555      |       |
| Sub-total, property and equipment                 |       | 73,387,172  |            | 58,078,720  |       | 29,373,099      |       |
|                                              |       |        |            |        |       |            |       |
| Communications equipment pending installation     |       | 7,996,892   |            | 5,614,777   |       | 4,847,925       |       |
| Cable company equipment pending  installation (a) |       | 4,342,127   |            | 2,491,566   |       | 533,252         |       |
| Equipment in transit (b)                          |       | 1,244,214   |            | 825,428     |       | 216,495         |       |
| Construction in process (c)                       |       | 8,828,332   |            | 4,835,512   |       | 10,193,250      |       |
|                                              |       |        |            |        |       |            |       |
| Property plant and equipment, net                 | ** ** | **$**       | **668,120,192** | ** **  | **$**      | **396,372,585** | ** ** | **$** | **332,907,563** | ** ** |

 

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(a)          Communicationsequipment, net of allowance for obsolescence, and cable company equipmentpending installation, corresponds to assets acquired for future installationinto the network of the Company. These assets are recorded at average cost,which is lower than market.

 

F-27

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(b)         Equipmentin transit represents accumulated costs of equipment imported by TRICOM, S.A.and TCN, for which additional import related costs are still to be incurred.

 

(c)          Adetail of construction in process at December 31, 2002, 2003 and 2004 is asfollows:

 
| **Operations and communications:** | ** ** | **2002**   | ** **    | **2003**   | ** ** | **2004**      | ** ** |
|----------------------------------------------|------------|------------|---------------|------------|------------|---------------|------------|
|                                         |       |       |          |       |       |          |       |
| Buildings                                    |       | $          | 1,226,265     |       | $          | 32,660        | ** ** | **$** | **—** | ** ** |
| Transmission equipment                       |       | 3,621,570  |          | 2,666,050  |       | 7,180,949     |       |
| Cells                                        |       | 775,995    |          | 1,517,500  |       | 2,530,493     |       |
| Other-property and equipment                 |       | 3,204,502  |          | 619,302    |       | 481,808       |       |
| ** **                                   | ** ** | ** ** | ** **    | ** ** | ** ** | ** **    | ** ** |
| ** **                                   | ** ** | **$**      | **8,828,332** | ** ** | **$**      | **4,835,512** | ** ** | **$** | **10,193,250** | ** ** |

 

**6****            Accounts Receivable**

 

Changes in theallowance for doubtful accounts during the years ended December 31, 2002, 2003and 2004 were as follows:

 
| ** **                     | ** ** | **2002**   | ** **    | **2003**   | ** ** | **2004**      | ** ** |
|--------------------------------|------------|------------|---------------|------------|------------|---------------|------------|
|                           |       |       |          |       |       |          |       |
| Allowance at beginning of year |       | $          | 4,097,001     |       | $          | 7,763,109     |       | $ | 5,152,025 |   |
| Increase for the year, net (a) |       | 7,099,263  |          | 1,676,649  |       | 2,296,554     |       |
| Write-offs during the year     |       | (3,433,155 | )             | (4,287,733 | )          | (4,310,049    | )          |
|                           |       |       |          |       |       |          |       |
| Allowance at end of year       | ** ** | **$**      | **7,763,109** | ** ** | **$**      | **5,152,025** | ** ** | **$** | **3,138,530** | ** ** |

 

----

(a)          Until June 2003, theCompany contracted services from Recaudadora de Valores Tropical S.A  (RVT), an affiliate of the Company’s majorityshareholder, GFN Corporate Ltd, engaged in managing the collection of past dueaccounts (see Note 7). During the years ended December 31, 2002, 2003 and 2004,the Company recognized collection recoveries from customer accounts previouslywritten-off of $420,631, $138,549 and $181,433, respectively. These amounts areincluded as a reduction to selling, general and administrative expenses in theaccompanying consolidated financial statements of operations, net of increase,in the allowance for doubtful accounts.

 

**7****            Transactions with RelatedParties**

 

As defined inFAS 57, the Company is or was directly or indirectly related to various entitiesthrough common ownership, contractual rights and/or family ownership, as morefully set forth below.

 

Mr. ManuelArturo Pellerano (“Mr. Pellerano”) together with members of his family, eitherdirectly or through their wholly-owned subsidiaries GFN Corporation, Ltd.,Oleander Holdings, Inc. and Plan de Pensiones y Jubilaciones de la CompañíaNacional de Seguros (PPJ), were, at December 31, 2002, 2003 and 2004, andcontinue to be, the beneficial owners of 15,939,648 shares of the Company’sClass A Common Stock and 11,486,726 shares of the Company’s Class B CommonStock, representing 48.2% of the issued and outstanding shares of Class ACommon Stock (calculated in accordance with 

 

F-28

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SEC Rule13d-3) and 60% of the issued and outstanding shares of Class B Common Stock.From 1994 through late 2003 Mr. Pellerano was the Company’s Chairman of theBoard of Directors, President and Chief Executive Officer. He resigned from theBoard of Directors in October 2003 and was reappointed in May 2004. He retains,together with members of his family, the right to appoint a majority of themembers of the Board of Directors of the Company and, indirectly, the right tocontrol selection of the Company’s management.

 

GFN InternationalInvestments Corp., a financial services holding company incorporated in theCayman Islands, was at the relevant times wholly owned and controlled by Mr. Pellerano and members of his family. GFNInternational Investments Corp. was, until 2003, the parent company and relatedparties of the following entities, among others, which were engaged in thebusinesses of banking, insurance, credit card issuance, securitiesbroker-dealer and other businesses:

 

•                  Banco Nacionalde Crédito S.A., a Dominican Republic bank (“Bancrédito Dominican Republic”);

•                  Bancrédito(Panama), S.A., a Panamanian Bank (“Bancrédito Panama”);

•                  BancreditCayman, Ltd., a Cayman Islands Bank (“Bancredit Cayman”);

•                  Acciones yValores, S.A., a Dominican Republic broker-dealer (“ACYVAL”);

•                  CompañíaNacional de Seguros, a Dominican Republic insurance company (“SEGNA”);

•                  Grupo FinancieroNacional, S.A., a Dominican Republic holding company (“GFN, S.A.”);

•                  CompañíaNacional de Arrendamientos, S.A., a Dominican Republic equipment leasingcompany (“Conaresa”).

 

Mr. Pelleranowas, until 2003, President of Bancrédito Dominican Republic, one of the largestcommercial banks in the Dominican Republic, as well as Vice President of BancréditoPanama and Vice President of the Board of Directors of Bancredit Cayman.

 

On June 12, 2003 the operations of BancréditoDominican Republic and certain of its subsidiaries and related entities in thefinancial sector were sold to an economic group in the Dominican Republiccontrolled by the Leon family in a transaction also involving the Central Bankof the Dominican Republic. Certain of these entities were engaged in financialtransactions with Tricom. The Company’s consolidated financial statements forthe year ended December 31, 2003 present transactions between the Company andthese entities occurring up until the date of their sale, as related partytransactions.

 

During September 2003, Bancredit Cayman and Bancrédito Panama, S.A.,subsidiaries of GFN International Investments Corp., were intervened by regulatorsin their respective countries and, as of December 31, 2003 and 2004, bothcompanies were in the process of liquidation as a result of theirnon-compliance with the financial obligations to their customers.

 

Each of the directors of the Company named by GFN Corporation, Ltd.,and certain of the Company’s executive officers, currently hold, or in the pasthave held, positions with entities, other than the Company and itssubsidiaries, controlled by Mr. Pellerano and members of his family.

 

In addition tobeing the Company’s independent auditor for the year ended December 31, 2002and prior years, KPMG and certain of its other member firms performed auditfunctions with respect to Bancrédito Dominican Republic and certain otherrelated parties.

 

F-29

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The following additional entities, among others, continue to becontrolled by Mr. Pellerano and members of his family, and are thereforerelated parties:

•                         Omnimedia,a Dominican media holding company;

•                         ZonaFranca San Isidro, a free trade zone located in the Dominican Republic;

•                         EllisPortafolio, which holds certain claims against the Company;

•                         CompañíaNacional de Seguridad, S.A., a provider of security services;

•        EditorialAA, S.A., a Dominican publishing company (merged into Omnimedia in 2006).

 

**2002 Private Placement**

 

As more fullydiscussed in Note 3, in December 2002, a group of investors purchased shares ofthe Company’s Class A common stock for an aggregate purchase price ofapproximately $70 million (the “Placement”). Funds were loaned to the investorsin the Placement by Bancrédito Panama, a bank that was at the time affiliatedwith GFN Corporation, Ltd., the Company’s largest shareholder. The followingrelated parties were involved in the Placement:

 

•                  GFN, S.A., anentity wholly owned and controlled by Mr. Pellerano, Mr. Marino A. Ginebra, adirector of the Company, and possibly other directors of the Company,participated as investors in the Placement;

 

•                  ACYVAL, abroker-dealer subsidiary of Bancrédito Dominican Republic controlled by Mr.Pellerano, received in return for introducing the affiliated and unaffiliatedinvestors in the Placement a cash finder’s fee of $1,400,000;

 

•                  BancréditoPanama, an entity that at the time was wholly owned and controlled by Mr.Pellerano, agreed to finance 100% of the purchase price of the shares sold inthe Placement representing total funding of $58,500,000 to the apparentlyunaffiliated investors and $11,500,000 to the affiliated investors, apparentlyon a non-recourse basis;

 

•                  The proceeds ofthe Placement were used to satisfy indebtedness and other amounts then owed bythe Company to Bancrédito Dominican Republic and its affiliates.

 

**Balances with Related Parties**

 

A detail ofbalances with the above-related companies at December 31, 2002, 2003 and 2004is as follows:

 
| ** **                                      | ** ** | **2002**   | ** **     | **2003**   | ** ** | **2004**        | ** ** |
|-------------------------------------------------|------------|------------|----------------|------------|------------|-----------------|------------|
| Assets:                                         |       |       |           |       |       |            |       |
| Cash in banks (a)                               |       | $          | 2,006,577      | ** ** | $          | **—**      | ** ** | $ | **—** | ** ** |
| Deposits – cash equivalent (b)             |       | 3,750,628  | ** **     | **—** | ** ** | **—**      | ** ** |
| Accounts receivable (c)                         |       | 843,190    |           | 55,423     |       | 200,000         |       |
| Certificates of deposit and other deposits  (d) |       | 14,400,710 | ** **     | **—** | ** ** | **—**      | ** ** |
| Prepaid expenses – insurance (e)           |       | 5,950,537  | ** **     | **—** | ** ** | **—**      | ** ** |
| **Total**                                       | ** ** | **$**      | **26,951,642** | ** ** | **$**      | **55,423**      | ** ** | **$** | **200,000** | ** ** |
| ** **                                      | ** ** | ** ** | ** **     | ** ** | ** ** | ** **      | ** ** |
| Liabilities:                                    |       |       |           |       |       |            |       |
| Borrowed funds (f)                              |       | $          | 12,436,723     |       | $          | 8,008,888       |       | $ | 8,005,000 |   |
|                                            |       |       |           |       |       |            |       |
| Commercial paper (g)                            |       | 42,247,603 |           | 58,980,926 |       | 49,091,066      |       |
|                                            |       |       |           |       |       |            |       |
| Accounts payable (h)                            |       | 5,939,222  |           | 2,362,460  |       | 1,604,249       |       |
|                                            |       |       |           |       |       |            |       |
| Interest payable (i)                            |       | 479,477    |           | 7,559,378  |       | 14,879,148      |       |
|                                            |       |       |           |       |       |            |       |
| Capital leases (Note 13)                        |       | 14,531,321 |           | 14,531,321 | ** ** | **—**      | ** ** |
|                                            |       |       |           |       | ** ** | ** **      | ** ** |
| Current Portion of Long-term-debt (j)           |       | 22,000,000 |           | 24,818,964 |       | 25,765,272      |       |
| **Total**                                       | ** ** | **$**      | **97,634,346** | ** ** | **$**      | **116,261,937** | ** ** | **$** | **99,344,735** | ** ** |

 

F-30

----

 

----

(a)   Represents cash deposited bythe Company at Bancrédito Dominican Republic.

 

(b)   Consists of RD$84,389,130(equivalent to US$3,750,628) invested in certificates of deposit issued byBancrédito Dominican Republic, which during 2002 earned interest at ratesranging from 20% to 26% per annum.

 

(c)   At December 31, 2002, thisamount includes $700,000 of insurance claims related to lost equipment againstCompañia Nacional de Seguros (Segna) and $143,190 relating to office space rentreceivable from Bancrédito Dominican Republic; at December 31, 2003, the amountof $55,423 corresponds to office space rent receivable from BancréditoDominican Republic and at December 31, 2004, the amount of  $200,000 corresponds to an account receivablearising from the sale of land by TCN to Compañia Nacional de Seguros (SEGNA).

 

(d)   Represents investments incertificates of deposit issued by Bancrédito Panama, which during 2002 earnedinterest at rates ranging from 9% to 10% per annum.

 

(e)   Represents insurance premiumspaid to SEGNA for property and casualty, business interruption and director andofficer liability coverage.

 

(f)    At December 31, 2002, thisamount consists of unsecured loans owed to Bancrédito Panama S.A. of $5,314,994and borrowed funds of $6,601,131 bearing interest at an annual rate of 11.5%maturing in December 2007, Bancrédito Dominican Republic of $267,270 and SEGNAof $253,328, which carried annual interest at rates ranging from 13% to 14.5%.

 

At December31, 2002, the Company had available unsecured, short-term lines of credit of approximately$44,300,000 of which $5,835,592 was used.

 

At December31, 2003 and 2004, the amount includes unsecured loans and letters of credit inthe amount of $1,282,802 owed to Bancrédito Panama S.A., bearing interest atrates ranging from 9.5% to 11.5% per annum and a loan owed to Bancrédito PanamaS.A. in the amount of $6,601,131, bearing interest at 11.5% per annum. Thisloan was granted for a five-year period maturing in December 2007. The balanceof $124,955 corresponds to bank overdraft owed to Bancrédito Panama S.A. and BancreditCayman as of December 31, 2003 and 2004. At the beginning of September 2003,Bancrédito Panama S.A. was taken over by the regulatory authorities in Panamaand is in the process of liquidation. As a result the liquidator is demandingthat the loan be repaid early. At December 31, 2003 and 2004 the Company didnot have any available lines of credit.

 

(g)   At December 31, 2002, 2003 and2004, these amounts represent obligations arising from the issuance ofcommercial paper to GFN Group for the amount of $39,210,759, $57,501,505 and$47,339,007, respectively, at interest rates ranging between 8% and 14.9% perannum in 2002, between 8.5% and 14.93% per annum in 2003 and between 11% and14.93% per annum in 2004. At December 31, 2002, 2003 and 2004, these amountsalso include commercial paper issued to GFN Group of RD$68,328,980 (equivalentto $3,036,844), RD$61,395,980 (equivalent to $1,479,421) and RD$54,486,463(equivalent to $1,752,059), respectively, with interest rates ranging between20% and 25% per annum in 2002, and between 20% and 29% per annum in 2003 and2004.

 

(h)   At December 2002, this amountcorresponds to insurance premiums payable to SEGNA; at December 31, 2003 theamount of $1,604,249 is a payable to SEGNA related to a land purchase; $155,436is a payable to Banco Nacional de Crédito, S.A. for 

 

F-31

----

 

space rented;$602,775 is a payable to Omni, T.V. for a cable TV programming contract, and atDecember 31, 2004 this amount is an account payable to SEGNA related to theland purchased in 2003.

 

(i)    The nature of the interestpayable is related to the loans described above in Note (f).

 

(j)    At December 2002 this amountrepresents unsecured loans with the following related offshore entities thataccrued interest on a monthly basis at an annual rate of 11.5% maturing inDecember 2007 as follows:

 
| GFN Capital Corporation, Ltd |   | $ | 22,000,000 |   |
|------------------------------|--------|---|------------|--------|

 

The$22,000,000 loan arose as a result of the refinancing of two loans, one fromBancrédito Dominican Republic of $10 million and the other from BancréditoPanama S.A. of $12 million, with a maturity date in****July2008.

 

During 2003and 2004, the $22,000,000 loan accrued interest on a monthly basis at aninterest rate ranging from 11.5% to 12% per annum. However, the Company is notpaying interest on these loans; consequently, these amounts are presented ascurrent portion of long-term debt.

###  

In addition,at December 31, 2003 and 2004 these include unsecured loans received from GFNS.A. a related Institution in the amount of RD$94,007,000 (equivalent to$2,265,229 in 2003 and $3,025,652 in 2004) and with a 12% annual interest ratein 2003 and 2004, and RD$22,980,000 (equivalent to $553,735 in 2003 and $739,620 in 2004) with a 12% perannum interest rate. At December 31, 2003 and 2004, these loans were classifiedas current liabilities in the accompanying consolidated balance sheets, as aresult of the default in payment of interest and principal.

 

**Other Transactions with Related Parties**

 

A detail oftransactions with related parties during the years ended December 31, 2002,2003 and 2004, is as follows:

 
| ** **                                                     | ** ** | **2002**   | ** ** | **2003**    | ** ** | **2004**    | ** ** |
|----------------------------------------------------------------|------------|------------|------------|-------------|------------|-------------|------------|
|                                                           |       |       |       |        |       |        |       |
| Operating revenues – communications service  revenues (a) |       | $          | 4,136,014  |        | $          | 3,147,585   |       | $ | 14,939 |   |
| Selling, general and administrative  expenses:                 |       |       |       |        |       |        |       |
| Insurance premiums (b)                                         |       | 4,803,472  |       | 5,890,664   |       | —      |       |
| Leased premises and equipment (c)                              |       | 116,885    |       | 110,540     |       | 121,089     |       |
| Security services (d)                                          |       | 190,047    |       | 162,498     |       | —      |       |
| Pension plan contributions (see Note 20)                       |       | 662,505    |       | 403,345     |       | —      |       |
| Advertising services (e)                                       |       | 573,700    |       | 107,391     |       | —      |       |
| Professional services (f)                                      | ** ** | 231,245    |       | 62,618      |       | —      |       |
| Other charges and special items (g)                            | ** ** | **—** |       | 4,975,023   |       | 5,359,768   |       |
|                                                           |       |       |       |        |       |        |       |
| Other income (expenses):                                       |       |       |       |        |       |        |       |
| Interest incurred on loans (h)                                 |       | (9,767,033 | )          | (15,713,131 | )          | (10,083,449 | )          |
| Interest earned (i)                                            |       | 1,955,588  |       | 1,273,239   |       | —      |       |
| Gain on sale of fixed assets (j)                               |       | 451,271    |       | —      |       | —      |       |
| Other, net (k)                                                 |       | (29,616    | )          | —      |       | —      |       |
| Bank charge (l)                                                |       | (112,070   | )          | (122,824    | )          | —      |       |
| Equipment purchased (Motorola) (m)                             |       | (2,095,593 | )          | (1,296,840  | )          | (1,535,297  | )          |
| Issuance cost of common stock (see Note 3)                     |       | 1,478,873  |       | —      |       | —      |       |
|                                                                |            |            |            |             |            |             |            |  |  |  |

 

----

(a)   During the year ended December 31, 2002 theserevenues are related to telecommunications services offered to Segna of 

F-32

----

 

$322,777; Editora AA of $180,308; GFN of $34,911 and Banco Nacional de Crédito,S.A. of $3,598,018. At December 31, 2003 this amount corresponds totelecommunications services to Segna of $581,959; Editora AA of $108,313; GFNof $20,972; Banco Nacional de Crédito, S.A. of $2,424,830 and Zona Franca San 

Isidro of $11,511. At December 31, 2004 this amount corresponds totelecommunications services to Zona Franca San Isidro of $14,939.

 

(b)   During the year ended December 31, 2002 and 2003these amounts represent expense for insurance premiums paid to SEGNA forproperty and casualty, business interruption and director and officer liabilitycoverage.

 

(c)   During the year ended December 31, 2002, 2003 and2004 these amounts correspond to rent paid for space leased from BancréditoDominican Republic.

 

(d)   During the year ended December 31, 2002 and 2003these amounts correspond to expenses for security services at all Tricomlocations provided by Compañía Nacional de Seguridad, S.A. (CONASE).

 

(e)   During the year ended December 31, 2002 and 2003these amounts correspond to expenses for material for promotions and publicityprinted in Editora AA.

 

(f)    During the year ended December 31, 2002 and 2003these amounts correspond to expenses for internal audit services paid to GFN,S.A. At that time the internal audit department was centralized in GFN, S.A.

 

(g)   During the year ended December 31, 2003 and 2004these amounts correspond to payments made to Omni, T.V. arising from a contractsigned between the Company and Omni, T.V. to manage the relationship withinternational cable programmers.

 

(h)   These interest expenses tie to the loans fromcommercial paper and other debt from related parties described in Note 7,Balances with related parties, letters f, g and j.

 

(i)    During the year ended December 31, 2002 this amountties to investments in certificates of deposit described in Note 8. At December31, 2003 this amount ties to investments in certificates of deposit describedin Note 18 (c-viii); the Company wrote-off the investment in December 31, 2003.

 

(j)    InApril 2002 the Company sold improved land to Compania Nacional de SegurosS.A.for $3,972,758 and in September 2002 sold a commercial building to BancréditoDominican Republic for $1,050,445. These transactions generated a gain of$451,271, which is included in other income and expenses in the consolidatedstatement of operations for the year ended December 31, 2002.

 

(k)   Duringthe year ended December 31, 2002 this amount corresponds to intercompanycharges from GFN, S.A. (customer expenses prorated)

 

(l)    Duringthe year ended December 31, 2002 and 2003 these amounts are bank servicescharges related to operations with Banco Nacional de Crédito, S.A.

 

(m)  Duringthe year ended December 31, 2002, 2003 and 2004 these amounts relate to thepurchase of telecommunications equipment that is being disclosed becauseMotorola owns 40% of the class B common stock of the Company.

 

F-33

----

 

**8****            Certificates of Depositand Other Investments**

 

At December31, 2002, these included certificates of deposit with related parties (see Note7) for $14,400,710, earning interest at annual rates from 9% to 10% and acertificate of deposit with an unrelated party for $1,500,000 that earnsinterest at 2.75% per annum. This latter investment serves as a guarantee for ashort-term loan of the same amount.

 

Also includedat December 31, 2003 and 2004 were mortgage participation contracts aggregating$630,165 and $986,075, respectively, purchased from unrelated savings and loansassociations in the Dominican Republic. These contracts earned interest atrates ranging from 9% to 10% per annum in 2003 and from 5% to 10% per annum in2004. These investments are maintained as compensating balances for mortgage loansmade by these savings and loans associations to certain officers and employeesof the Company.

 

At December31, 2003, certain of the above referenced mortgage participation contracts, inthe amount of $349,980, had been frozen by a bank in the Dominican Republic.

 

**9****            Intangible Assets and Goodwill**

 

***Intangible assets.***

 

The summary ofchanges in the Company’s intangible assets (other than goodwill) during theyears ended December 31, 2002, 2003 and 2004, is as follows:

 
| ** **                                                | ** ** | **License** | ** ** | **Broadcasting  Contract** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------------|------------|-------------|------------|----------------------------|------------|------------|------------|
|                                                      |       |        |       |                       |       |       |       |
| Intangible assets in acquisition of TCN  Dominicana, S.A. |       | $           | 9,303,602  |                       | $          | 2,832,275  |       | $ | 12,135,877 |   |
|                                                      |       |        |       |                       |       |       |       |
| Balances at December 31, 2001                             |       | 9,303,602   |       | 2,832,275                  |       | 12,135,877 |       |
|                                                      |       |        |       |                       |       |       |       |
| 4th  Quarter  Impairment charge                 |       | (2,356,624  | )          | (2,832,275                 | )          | (5,188,899 | )          |
|                                                      |       |        |       |                       |       |       |       |
| Balances at December 31, 2002                             |       | 6,946,978   |       | —                     |       | 6,946,978  |       |
|                                                      |       |        |       |                       |       |       |       |
| 4th  Quarter  Impairment charge                 |       | (4,282,337  | )          | —                     |       | (4,282,337 | )          |
| Balances at December 31, 2003                             |       | 2,664,641   |       | —                     |       | 2,664,641  |       |
|                                                      |       |        |       |                       |       |       |       |
| 4th  Quarter  Impairment charge                 |       | —      |       | —                     |       | —     |       |
| Balances at December 31, 2004                             |       | $           | 2,664,641  |                       | $          | —     |       | $ | 2,664,641 |   |

 

The intangibleassets are determined to have indefinite useful lives due to their expectedability to generate cash flows indefinitely. The cable license is based on anagreement signed with the Dominican government, which has an indefinite life.In the case of broadcasting contracts, the contracts can be renewedautomatically without additional payment.

 

For intangibleassets identified as having indefinite useful lives, the Company was requiredto test those intangible assets for impairment in accordance with theprovisions of SFAS No. 142 within the first interim period after adoption.Impairment was measured as the excess of carrying value over the fair value ofan intangible asset with an indefinite life. The results of this analysis didnot require the Company to recognize an impairment loss.

 

F-34

----

 

During thefourth quarter of 2002 and 2003, the Company performed its annual impairmentreview for intangible assets and recorded a charge of $5,188,899 and$4,282,337, respectively which is included as part of impairment of goodwilland other intangible assets in the accompanying consolidated statements of operationsfor the years ended December 31, 2002 and 2003. The impairment charge in thecable license  reflects principally thedevaluation of Dominican peso against the US Dollar during the years endedDecember 31, 2002 and 2003. In the case of the broadcasting contracts, during2002 the Company renegotiated the terms of a significant portion of thesecontracts, which served as the basis for the determination of the impairmentcharge for this intangible asset. During the fourth quarter of 2004, theCompany performed its annual impairment review for intangible assets anddetermined that it was not necessary to record any charge for this concept.

 

***Goodwill.***

 

At December31, 2002, 2003 and 2004, the composition of goodwill was as follows:

 
| **Description**               | ** ** | **Cable Segment** | ** ** | **Central America  Wireless Segment** | ** ** | **Total**   | ** ** |
|-------------------------------|------------|------------------------|------------|-------------------------------------------------|------------|-------------|------------|
| Balances at December 31, 2001 |       | $                      | 21,914,327 |                                            | $          | 2,461,319   |       | $ | 24,375,646 |   |
| Impairment charge             |       | —                 |       | (2,461,319                                      | )          | (2,461,319  | )          |
| Balances at December 31, 2002 |       | 21,914,327             |       | —                                          |       | 21,914,327  |       |
|                          |       |                   |       |                                            |       |        |       |
| Impairment charge             |       | (21,914,327            | )          | —                                          |       | (21,914,327 | )          |
| Balances at December 31, 2003 |       | —                 |       | —                                          |       | —      |       |
| Impairment charge             |       | —                 |       | —                                          |       | —      |       |
| Balances at December 31, 2004 | ** ** | $                      | —     |                                            | $          | —      |       | $ | — |   |

 

During thefourth quarter of 2002, the Company performed its annual impairment review for goodwilland recognized a goodwill impairment loss of $2,461,319 related to its CentralAmerican wireless reporting units since the carrying amount of the reportingunit was greater than the fair value of the reporting unit (as determined usingthe expected present value of future cash flows) and the carrying amount of thereporting unit goodwill exceeded the implied fair value of that goodwill. Theimpairment charge is included as part of goodwill and other intangible assetsin the accompanying consolidated statement of operations for the year endedDecember 31, 2002.

 

Upon adoptionof SFAS No. 142, the Company was required to evaluate its existing intangibleassets and goodwill that were acquired in purchase business combinations, andto make any necessary reclassifications in order to conform to the newclassification criteria in SFAS No. 141 for recognition separate from goodwill.The Company was also required to reassess the useful lives and residual valuesof all intangible assets acquired, and make any necessary amortization periodadjustments by the end of the first interim period after adoption.

 

The goodwillis assigned to the cable and cellular segment and is not deductible for taxpurposes.

 

F-35

----

 

**10****     Other Assets**

 

Other assetsat December 31, 2002, 2003 and 2004 consisted of the following:

 
| **Description**                                   | ** ** | **2002**   | ** **     | **2003**   | ** ** | **2004**      | ** ** |
|---------------------------------------------------|------------|------------|----------------|------------|------------|---------------|------------|
|                                              |       |       |           |       |       |          |       |
| Deferred debt issue costs and bank debt,  net (a) |       | $          | 7,680,649      | ** ** | $          | **—**    | ** ** | $ | **—** |   |
| Deposits                                          |       | 2,258,162  |           | 470,798    |       | 389,815       |       |
| Radio frequency rights, net (b)                   |       | 10,250,812 |           | 3,609,785  |       | 3,073,629     |       |
| Other (c)                                         |       | 2,087,207  |           | 210,786    |       | 421,378       |       |
| Total                                             | ** ** | **$**      | **22,276,830** | ** ** | **$**      | **4,291,369** | ** ** | **$** | **3,884,822** | ** ** |

 

----

(a)          Representcommissions paid to brokers and other expenses incurred at the time of, anddirectly related to, the issuance of the Senior Notes and prepaid interest onbank debt. For the year ended December 31, 2002, amortization of deferred debtissue costs and bank debt amounted to $3,301,996 and are included as part ofinterest expense in the accompanying consolidated statements of operations.

 

(b)         AtDecember 31, 2002, 2003 and 2004, these amounts represent payments forfrequency usage rights to expand the Company’s cellular and PCS capacity in theDominican Republic. For the years ended December 31, 2002, 2003 and 2004, theamortization expense corresponding to the frequency usage rights in theDominican Republic amounted to $237,997, $237,997 and  $227,450 respectively. At December 31, 2004the company transferred certain frequency rights to a third partytelecommunications company in the amount of $308,706. This transactiongenerated revenues in the amount of $5,081,508, which is included in otherincome in the accompanying consolidated statement of operations.

 

(c)          AtDecember 31, 2002, this amount included $1,566,774 corresponding to the netdeferred asset associated with cellular and PCS Service plans offered whichinclude handset equipment, $78,225 of international prepaid facilities and theremaining amount of $442,208 corresponded to bank commissions. At December 2003and 2004 these amounts included $81,022 for equipment held for investment(Enron), $129,764 and $340,356 respectively for prepaid bank fees.

 

**11****     Borrowed Funds – Banks**

 

Funds borrowedby the Company consist of:

 
| **Description**                          | ** ** | **2002** | ** **     | **2003**   | ** ** | **2004**       | ** ** |
|------------------------------------------|------------|----------|----------------|------------|------------|----------------|------------|
| Funds denominated in US dollars (a)      |       | $        | 32,774,334     |       | $          | 39,595,807     |       | $ | 39,285,503 |   |
| Funds denominated in Dominican pesos (b) |       | —   |           | 998,651    |       | 1,333,891      |       |
| ** **                               | ** ** | **$**    | **32,774,334** | ** ** | **$**      | **40,594,458** | ** ** | **$** | **40,619,394** | ** ** |

 

----

(a)          AtDecember 31, 2002, these amounts represented loans with local and internationalbanks, including related parties (see Note 7), that accrue interest at annual rates ranging from 4.6% to 14% in 2002.At December 31, 2002, these amounts included a short-term loan secured by a certificateof deposit of $1,500,000. At December 31, 2003 and 2004 these amounts includedloans made by the Central Bank of the Dominican Republic for $28,373,626, and$29,745,027 respectively, as a result of the draws on stand-by letters ofcredit issued on behalf of the Company by Bancrédito, a financial institutionthat was related to Tricom at the time the letters of credit were issued andthat was sold in 2003 to a third party in a transaction involving the CentralBank. 

 

F-36

----

 

In that saletransaction the Central Bank agreed to assume liability for the letters ofcredit. The loans made by the Central Bank accrue interest at rates rangingfrom 10.25% to 14% per annum. Since September 2003 the Company has not paidinterest on its unsecured debt. At December 31, 2003 and 2004 these amountsalso included a secured loan of $3,000,000; this loan is secured bytransmission equipment with an approximate book value of $5.2 million andaccrues interest at an annual rate of 5% per annum. These amounts also includeda loan in the amount of $5,640,476 with Citibank, Dominican Republic whichaccrues interest at an annual rate of 10%.

 

(b)         At December 31, 2003 and2004, these loans represented RD$41,444,000 (equivalent to $998,650 and$1,333,891 using the prevailing exchange rate at that date, which was RD$41.50and $31.07, respectively, per US$1.00) bearing interest at a rate of 40% perannum.

 

**12****     Commercial Paper**

 

As of December31, 2002, 2003 and 2004, commercial paper issued by the Company consisted of:

 
| ** **                              | ** ** | **2002**   | ** **     | **2003**   | ** ** | **2004**   | ** ** |
|-----------------------------------------|------------|------------|----------------|------------|------------|------------|------------|
| Commercial paper in US dollars (a)      |       | $          | 47,541,631     |       | $          | 57,592,375 |       | $ | 55,367,687 |   |
| Commercial paper in Dominican pesos (b) |       | 4,074,599  |           | 1,543,638  |       | 1,752,059  |       |
| Total commercial paper                  |       | 51,616,230 |           | 59,136,013 |       | 57,119,746 |       |
|                                    |       |       |           |       |       |       |       |
| Less short-term commercial paper        |       | 9,907,583  |           | 59,136,013 |       | 57,119,746 |       |
|                                    |       |       |           |       |       |       |       |
| Long-term commercial paper              | ** ** | **$**      | **41,708,647** | ** ** | **$**      | **—** | ** ** | **$** | **—** | ** ** |

 

----

(a)          AtDecember 31, 2002 through 2004, these instruments accrued interest at annualrates ranging from 8% to 14.93%.

 

(b)         AtDecember 31, 2002, 2003 and 2004, peso-denominated commercial paper consistedof RD$91,678,478, RD$63,927,804 and RD$54,436,463 respectively, accruinginterest at annual rates ranging between 18% and 29%. At December 31, 2002,these obligations were issued through the related company “Acciones y Valores,Puesto de Bolsa, S.A.” to a related bank Bancrédito and through “ValoresProfesionales, S.A.” an unrelated broker, to third party investors. The companyhas redeemed at maturity those peso-denominated financial instruments issued tonon-related parties. At December 31, 2003 and 2004, the Company did not have afacility for the issuance of commercial paper.

 

A portion ofthe commercial paper issued by the Company is held by related parties (see Note7). All commercial paper issued by the Company and outstanding at December 31,2003 and 2004 is due on demand. These obligations are issued through therelated company “Acciones y Valores, S.A.” and through an unrelated company “ValoresProfesionales, S.A.”

 

The followingis a schedule of the maturity for such debt at December 31, 2002, 2003 and2004:

 
| ** **                   | ** ** | **2002**   | ** **     | **2003**   | ** ** | **2004**       | ** ** |
|------------------------------|------------|------------|----------------|------------|------------|----------------|------------|
| Due on demand                |       | $          | —         |       | $          | 59,136,013     |       | $ | 57,119,746 |   |
| One to three months          |       | 3,472,487  |           | —     |       | —         |       |
| Three to six months and more |       | 48,143,743 |           | —     |       | —         |       |
|                         |       |       |           |       |       |           |       |
| Total                        | ** ** | **$**      | **51,616,230** | ** ** | **$**      | **59,136,013** | ** ** | **$** | **57,119,746** | ** ** |

 

F-37

----

 

**13****          Capital Leases**

 

The Companyhas entered into various capital lease contracts with Conaresa, a formerrelated party that until 2003 was owned and controlled by GFN, S.A.

 

At December31, 2003 and 2004, the Company had not made the lease payments due during 2003and 2004 respectively. The contracts for capital leases provide that in casepayments are not made, the lender could cancel the contracts. Due to this fact,the debt has been classified in its entirety as a current liability in theaccompanying balance sheets at December 31, 2003 and 2004.

 

The capitallease contracts also provide for interest and penalty interest in unspecifiedamounts to be determined by the lessor.

 

Assetsrecorded under these capital leases consist of:

 
| ** **                         | ** ** | **2002**    | ** **     | **2003**   | ** ** | **2004**   | ** ** |
|------------------------------------|------------|-------------|----------------|------------|------------|------------|------------|
| Communications and other equipment |       | $           | 41,596,684     |       | $          | —     |       | $ | — |   |
| Transportation                     |       | 1,276,815   |           | 1,276,815  |       | 1,276,815  |       |
| Machinery and equipment            |       | 307,748     |           | 307,748    |       | 307,748    |       |
|                               |       | 43,181,247  |           | 1,584,563  |       | 1,584,563  |       |
| Less accumulated depreciation      |       | (13,941,685 | )              | (1,523,303 | )          | (1,584,563 | )          |
|                               |       |        |           |       |       |       |       |
| ** **                         | ** ** | **$**       | **29,239,562** |       | **$**      | **61,260** | ** ** | $ | — | ** ** |

 

At December31, 2004, the fixed assets under capital leases were fully depreciated.

 

F-38

----

 

**14****          Current Portion ofLong-Term Debt**

 

Theoutstanding debt at December 31, 2003 and 2004 was in default and consequentlyclassified as a current liability in the Company’s balance sheet. Outstandingdebt consists of the following:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | **2002**    | ** **  | **2003**    | ** ** | **2004**    | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| Senior Notes (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | $           | 200,000,000 |        | $          | 200,000,000 |       | $ | 200,000,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |        |        |        |       |        |       |
| Bank loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |        |        |        |       |        |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |        |        |        |       |        |       |
| Loans  denominated in Dominican pesos equivalent to RD$163,787,963, RD$148,023,569  and RD$72,085,630, at December 31, 2002, 2003 and 2004 respectively. These  loans carried annual interest rates of 32% per annum at December 31, 2002 and  ranged from 38% to 40% per annum in 2003 and 2004, respectively. These loans  are secured by transmission and telecommunications equipment with an  approximate book value of $6.4 million at December 31, 2002. During December  2003, the Company renegotiated a deferral of these payments until May 2004.  The Company did not pay the corresponding installments during 2004, and the  loans therefore can be called on demand. Accordingly they were reclassified as  current debt at December 31, 2003;                                                                                                                                                                                                 |       | 7,279,465   |        | 3,566,833   |       | 2,320,104   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |        |        |        |       |        |       |
| Loans  denominated in Dominican pesos equivalent to RD$207,400,000, RD$162,400,000  and RD$162,400,000 at December 31, 2002, 2003 and 2004, respectively. These  loans carried annual interest from 27% to 30% in 2002 and from 24% to 40% in  2003 and from 36% to 40% in 2004. One of these loans is secured by  telecommunications equipment with an approximate book value of $1.3 million  at December 31, 2002;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | 9,217,777   |        | 3,913,253   |       | 5,226,907   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |        |        |        |       |        |       |
| Loans with  variable annual interest between 4.62% and 7.95% in 2002, between 4.90% and  6.48% in 2003 and between 4.90% and 6.48% in 2004. One of these loans is  secured by transmission equipment with an approximate book value of $14.8  million at December 31, 2002. At December 31, 2003, the Company had not  complied with the debt contracts and, as a result, these loans may be called  on demand. At December 31, 2003 and 2004, these loans were classified as  current liabilities in the consolidated balance sheet;                                                                                                                                                                                                                                                                                                                                                                                                                         |       | 61,831,443  |        | 54,491,881  |       | 54,491,878  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |        |        |        |       |        |       |
| Loans which  pay interest at rates ranging and between 9.5% and 14% per annum in 2002,  between 9.5% and 14.5% in 2003 and 2004. Some of the loans are secured by  liens on telecommunications equipment and a mortgage over Real Estate (Tricom  Duarte) with a book value of approximately $15.8 million at December 31,  2002. One loan in an amount of $23,344,884 at December 31, 2002, is secured  by an irrevocable standby letter of credit issued by a related financial  institution (see Note 7). In 2003 and 2004 some of the loans were secured by  liens on telecommunications equipment and at a mortgage over Real Estate  (Tricom Duarte) with a book value of approximately $15.3 million at December  31, 2003. At December 31, 2003, the Company was not in compliance with debt  contracts in an amount of $38,714,515. At December 2003 and 2004 these loans  were classified as current liabilities on the consolidated balance sheet. |       | 55,877,148  |        | 40,197,991  |       | 40,197,991  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |        |        |        |       |        |       |
| Total bank loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | 134,205,833 |        | 102,169,958 |       | 102,236,880 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |        |        |        |       |        |       |
| Total debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 334,205,833 |        | 302,169,958 |       | 302,236,880 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |        |        |        |       |        |       |
| Less current portion of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 2,123,757   |        | 302,169,958 |       | 302,236,880 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |        |        |        |       |        |       |
| Long-term debt excluding current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | $           | 332,082,076 |        | $          | —      |       | $ | — |   |

 

F-39

----

 

(a)               SeniorNotes

 

On August 15, 1997, the Company issued $200,000,000 aggregate principalamount of 11-3/8% Senior Notes due in 2004 (the “Senior Notes”). Interest onthe Senior Notes is payable in semi-annual installments on March 1 andSeptember 1 of each year.

 

On September 2, 2003 the Company did not pay interest due on the SeniorNotes in the amount of $11.3 million. According to the terms governing thenotes, the Company had a period of 30 additional days to comply with thepayment of the interest, but on October 2, 2003 the Company announced that itwould not be able to make the interest payment. The Company commenced a discussionprocess with certain holders of the Senior Notes and other creditors.

 

The Senior Notes are senior unsecured obligations of the Companyranking *pari passu* in right of payment with allother existing and future senior debt, and will rank senior to any futuresubordinated indebtedness.

 

The indenture for the Senior Notes contains certain covenants that,among other things, limit the ability of the Company and its RestrictedSubsidiaries, as defined in the indenture, to incur additional indebtedness andissue preferred stock, pay dividends or make other distributions, repurchaseequity interests or subordinated indebtedness, engage in sale and leasebacktransactions, create certain liens, enter into certain transactions withaffiliates, sell assets of the Company or its Restricted Subsidiaries, engagein any business other than the telecommunications business, issue or sellequity interests of the Company’s Restricted Subsidiaries or enter into certainmergers and consolidations.

 

The Senior Notes are guaranteed fully, unconditionally, jointly andseverally by each of the Company’s Restricted Subsidiaries, as defined in theindenture for the Senior Notes, each of which is wholly owned by the Company. Separatefinancial statements of each of the guarantor subsidiaries have not beenpresented herein because management has determined that such separate financialstatements would not be material to the holders of the Senior Notes.

 

Summarized condensed consolidated financial information of TRICOM, S.A.(Parent Company), the subsidiary guarantors on a combined basis (GFNComunicaciones, TRICOM Centro America, S.A., Call Tel Corporation, TRICOM USAand Subsidiaries, TRICOM Latinoamérica, S.A., TRICOM, S.A. –Panama- and TCNDominicana, S.A.) and the subsidiary non-guarantor (TRICOM Panama, S.A. -formerly Cellular Communications of Panama, S.A. -) at December 31, 2002, 2003and 2004 and for the years ended December 31, 2002, 2003 and 2004 is as follows(see Note 1):

 

F-40

----

 

**Balance sheetdata at December 31, 2002:**

 
| **Assets**                 | ** ** | **Tricom, S.A.  Parent Co.** | ** **      | **Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantor** | ** ** | **Consolidating  Adjustments** | ** **    | **Total  Consolidated** | ** ** |
|----------------------------|------------|----------------------------------------|-----------------|----------------------------|------------|-------------------------------------|------------|--------------------------------|---------------|-------------------------|------------|
| Current assets:            |       |                                   |            |                       |       |                                |       |                           |          |                    |       |
| Cash on hand and in banks  |       | $                                      | (983,728        | )                          | $          | 6,988,743                           |       | $                              | 74,288        |                    | $          | — |   | $ | 6,080,303 |   |
| Accounts receivable, net   |       | 73,710,142                             |            | 14,779,057                 |       | 1,252,796                           |       | (65,407,983                    | )             | 24,334,012              |       |
| Other current assets       |       | 25,343,007                             |            | 3,048,820                  |       | 521,211                             |       | —                         |          | 28,913,038              |       |
| Total current assets       |       | 98,070,421                             |            | 24,816,620                 |       | 1,848,295                           |       | (65,407,983                    | )             | 59,327,353              |       |
|                       |       |                                   |            |                       |       |                                |       |                           |          |                    |       |
| Property and equipment net |       | 547,152,376                            |            | 118,112,502                |       | 2,855,314                           |       | —                         |          | 668,120,192             |       |
|                       |       |                                   |            |                       |       |                                |       |                           |          |                    |       |
| Other non-current assets   |       | 93,109,573                             |            | 9,870,606                  |       | 690,167                             |       | (51,924,912                    | )             | 51,745,434              |       |
|                       |       |                                   |            |                       |       |                                |       |                           |          |                    |       |
| Total assets               | ** ** | **$**                                  | **738,332,370** | ** **                 | **$**      | **152,799,728**                     | ** ** | **$**                          | **5,393,776** | ** **              | **$**      | **(117,332,895** | **)** | **$** | **779,192,979** | ** ** |

 
| **Liabilities and Stockholders’  Equity** | ** ** | **Tricom, S.A.  Parent Co.** | ** **      | **Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantor** | ** ** | **Consolidating  Adjustments** | ** **    | **Total  Consolidated** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------|-----------------|----------------------------|------------|-------------------------------------|------------|--------------------------------|---------------|-------------------------|------------|
|                                                     |       |                                   |            |                       |       |                                |       |                           |          |                    |       |
| Current liabilities:                                     |       |                                   |            |                       |       |                                |       |                           |          |                    |       |
| Borrowed funds — banks                              |       | $                                      | 30,966,821      |                       | $          | 307,513                             |       | $                              | 1,500,000     |                    | $          | — |   | $ | 32 774 334 |   |
| Borrowed funds — related parties                    |       | 5,702,908                              |            | 6,733,815                  |       | —                              |       | —                         |          | 12,436,723              |       |
| Commercial paper and current portion of  long term-debt  |       | 33,778,840                             |            | 252,500                    |       | —                              |       | —                         |          | 34,031,340              |       |
| Current portion of capital leases                        |       | 2,738,413                              |            | —                     |       | —                              |       | —                         |          | 2,738,413               |       |
| Accounts payable                                         |       | 24,912,223                             |            | 73,240,436                 |       | 1,419,435                           |       | (65,407,983                    | )             | 34,164,111              |       |
| Other current liabilities                                |       | 22,108,633                             |            | 6,822,463                  |       | 780,436                             |       |                           |          | 29,711,532              |       |
|                                                     |       |                                   |            |                       |       |                                |       |                           |          |                    |       |
| Total current liabilities                                |       | 120,207,838                            |            | 87,356,727                 |       | 3,699,871                           |       | (65,407,983                    | )             | 145,856,453             |       |
|                                                     |       |                                   |            |                       |       |                                |       |                           |          |                    |       |
| Non-current liabilities                                  |       | 372,739,159                            |            | 16,093,393                 |       | —                              |       | —                         |          | 388,832,552             |       |
|                                                     |       |                                   |            |                       |       |                                |       |                           |          |                    |       |
| Total liabilities                                        |       | 492,946,997                            |            | 103,450,120                |       | 3,699,871                           |       | (65,407,983                    | )             | 534,689,005             |       |
|                                                     |       |                                   |            |                       |       |                                |       |                           |          |                    |       |
| Stockholders’ equity                                |       | 245,385,373                            |            | 49,349,608                 |       | 1,693,905                           |       | (51,924,912                    | )             | 244,503,974             |       |
| Total liabilities and stockholders’ equity          | ** ** | **$**                                  | **738,332,370** | ** **                 | **$**      | **152,799,728**                     | ** ** | **$**                          | **5,393,776** | ** **              | **$**      | **(117,332,895** | **)** | **$** | **779,192,979** | ** ** |

 

F-41

----

 

**Balance sheetdata at December 31, 2003:**

 
| **Assets**                       | ** ** | **Tricom, S.A.  Parent Co.** | ** **      | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-  Guarantor** | ** ** | **Consolidating  Adjustments** | ** **    | **Total  Consolidated** | ** ** |
|----------------------------------|------------|----------------------------------------|-----------------|----------------------------|------------|---------------------------------|------------|--------------------------------|---------------|-------------------------|------------|
|                             |       |                                   |            |                       |       |                            |       |                           |          |                    |       |
| Current assets:                  |       |                                   |            |                       |       |                            |       |                           |          |                    |       |
| Cash on hand and in banks        |       | $                                      | 71,493          |                       | $          | 2,246,523                       |       | $                              | 97,482        |                    | $          | — |   | $ | 2,415,498 |   |
| Accounts receivable, net         |       | 83,171,673                             |            | 15,214,322                 |       | —                          |       | (80,068,391                    | )             | 18,317,604              |       |
| Other current assets             |       | 2,131,773                              |            | 9,729,907                  |       | 1,565,838                       |       | —                         |          | 13,427,518              |       |
|   Total current assets |       | 85,374,939                             |            | 27,190,752                 |       | 1,663,320                       |       | (80,068,391                    | )             | 34,160,620              |       |
|                             |       |                                   |            |                       |       |                            |       |                           |          |                    |       |
| Property and equipment net       |       | 326,328,223                            |            | 70,044,362                 |       | —                          |       | —                         |          | 396,372,585             |       |
|                             |       |                                   |            |                       |       |                            |       |                           |          |                    |       |
| Other non-current assets         |       | 6,681,715                              |            | 1,630,064                  |       | —                          |       | —                         |          | 8,311,779               |       |
|                             |       |                                   |            |                       |       |                            |       |                           |          |                    |       |
|   Total assets         | ** ** | **$**                                  | **418,384,877** | ** **                 | **$**      | **98,865,178**                  | ** ** | **$**                          | **1,663,320** | ** **              | **$**      | **(80,068,391** | **)** | **$** | **438,844,984** | ** ** |

 
| **Liabilities and Stockholders’  Equity**     | ** ** | **Tricom, S.A.  Parent Co.** | ** **      | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-  Guarantor** | ** ** | **Consolidating   Adjustments** | ** **    | **Total  Consolidated** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------|-----------------|----------------------------|------------|---------------------------------|------------|--------------------------------------|---------------|-------------------------|------------|
|                                                         |       |                                   |            |                       |       |                            |       |                                 |          |                    |       |
| Current liabilities:                                         |       |                                   |            |                       |       |                            |       |                                 |          |                    |       |
| Borrowed funds — banks                                  |       | $                                      | 39,529,534      |                       | $          | 1,064,924                       |       | $                                    | —        |                    | $          | — |   | $ | 40,594,458 |   |
| Borrowed funds — related parties                        |       | 1,403,486                              |            | 6,605,402                  |       | —                          |       | —                               |          | 8,008,888               |       |
| Commercial paper and current portion of  long term-debt      |       | 382,042,310                            |            | 4,082,625                  |       | —                          |       | —                               |          | 386,124,935             |       |
| Current portion of capital leases                            |       | 14,531,321                             |            | —                     |       | —                          |       | —                               |          | 14,531,321              |       |
| Accounts payable                                             |       | 18,865,021                             |            | 86,615,765                 |       | 1,602,275                       |       | (80,068,391                          | )             | 27,014,670              |       |
| Other current liabilities                                    |       | 39,508,063                             |            | 14,622,125                 |       | 955,049                         |       | —                               |          | 55,085,237              |       |
|                                                         |       |                                   |            |                       |       |                            |       |                                 |          |                    |       |
|   Total current liabilities                        |       | 495,879,735                            |            | 112,990,841                |       | 2,557,324                       |       | (80,068,391                          | )             | 531,359,509             |       |
|                                                         |       |                                   |            |                       |       |                            |       |                                 |          |                    |       |
| Non-current liabilities                                      |       | 15,998,464                             |            | 2,045,792                  |       | —                          |       | (16,892,468                          | )             | 1,151,788               |       |
|                                                         |       |                                   |            |                       |       |                            |       |                                 |          |                    |       |
|   Total liabilities                                |       | 511,878,199                            |            | 115,036,633                |       | 2,557,324                       |       | (96,960,859                          | )             | 532,511,297             |       |
|                                                         |       |                                   |            |                       |       |                            |       |                                 |          |                    |       |
| Stockholders’ deficit                                   |       | (93,493,322                            | )               | (16,171,455                | )          | (894,004                        | )          | 16,892,468                           |          | (93,666,313             | )          |
|                                                         |       |                                   |            |                       |       |                            |       |                                 |          |                    |       |
|   Total liabilities and  stockholders’ equity | ** ** | **$**                                  | **418,384,877** | ** **                 | **$**      | **98,865,178**                  | ** ** | **$**                                | **1,663,320** | ** **              | **$**      | **(80,068,391** | **)** | **$** | **438,844,984** | ** ** |

 

F-42

----

 

**Balance sheetdata at December 31, 2004:**

** **
| **Assets**                       | ** ** | **TRICOM, S.A.  Parent Co.** | ** **      | **Subsidiary  Guarantors** | ** ** | **Consolidating   Adjustments** | ** ** | **Total  Consolidated** | ** **      |
|----------------------------------|------------|----------------------------------------|-----------------|----------------------------|------------|--------------------------------------|------------|-------------------------|-----------------|
|                             |       |                                   |            |                       |       |                                 |       |                    |            |
| Current assets:                  |       |                                   |            |                       |       |                                 |       |                    |            |
| Cash on hand and in banks        |       | $                                      | 1,029,011       |                       | $          | 16,561,162                           |       | $                       | —          |   | $ | 17,590,173 |   |
| Accounts receivable, net         |       | 78,756,056                             |            | 13,047,460                 |       | (68,104,462                          | )          | 23,699,054              |            |
| Other current assets             |       | 6,039,393                              |            | 897,433                    |       | —                               |       | 6,936,826               |            |
|   Total current assets |       | 85,824,460                             |            | 30,506,055                 |       | (68,104,462                          | )          | 48,226,053              |            |
|                             |       |                                   |            |                       |       |                                 |       |                    |            |
| Property and equipment net       |       | 276,489,285                            |            | 56,418,278                 |       | —                               |       | 332,907,563             |            |
|                             |       |                                   |            |                       |       |                                 |       |                    |            |
| Other non-current assets         |       | 6,295,074                              |            | 254,389                    |       | —                               |       | 6,549,463               |            |
|                             |       |                                   |            |                       |       |                                 |       |                    |            |
|   Total assets         | ** ** | **$**                                  | **368,608,819** | ** **                 | **$**      | **87,178,722**                       | ** ** | **$**                   | **(68,104,462** | **)** | **$** | **387,683,079** | ** ** |

 
| **Liabilities and Stockholders’  Equity**     | ** ** | **TRICOM, S.A.  Parent Co.** | ** **      | **Subsidiary  Guarantors** | ** ** | **Consolidating   Adjustments** | ** ** | **Total  Consolidated** | ** **      |
|--------------------------------------------------------------|------------|----------------------------------------|-----------------|----------------------------|------------|--------------------------------------|------------|-------------------------|-----------------|
|                                                         |       |                                   |            |                       |       |                                 |       |                    |            |
| Current liabilities:                                         |       |                                   |            |                       |       |                                 |       |                    |            |
| Borrowed funds — banks                                  |       | $                                      | 39,719,394      |                       | $          | 900,000                              |       | $                       | —          |   | $ | 40,619,394 |   |
| Borrowed funds-Related Parties                               |       | 1,399,597                              |            | 6,605,403                  |       | —                               |       | 8,005,000               |            |
| Commercial paper and current portion of  long-term debt      |       | 382,096,246                            |            | 3,025,652                  |       | —                               |       | 385,121,898             |            |
| Current portion of capital leases                            |       | 14,531,321                             |            | —                     |       | —                               |       | 14,531,321              |            |
| Accounts payable                                             |       | 21,625,149                             |            | 67,914,580                 |       | (68,104,461                          | )          | 21,435,268              |            |
| Other current liabilities                                    |       | 70,553,586                             |            | 42,524,995                 |       | —                               |       | 113,078,581             |            |
|                                                         |       |                                   |            |                       |       |                                 |       |                    |            |
|   Total current liabilities                        |       | 529,925,293                            |            | 120,970,630                |       | (68,104,461                          | )          | 582,791,462             |            |
|                                                         |       |                                   |            |                       |       |                                 |       |                    |            |
| Non-current liabilities                                      |       | 34,494,785                             |            | 687,001                    |       | (34,469,760                          | )          | 712,026                 |            |
|                                                         |       |                                   |            |                       |       |                                 |       |                    |            |
|   Total liabilities                                |       | 564,420,078                            |            | 121,657,631                |       | (102,574,221                         | )          | 583,503,488             |            |
|                                                         |       |                                   |            |                       |       |                                 |       |                    |            |
| Stockholders’ deficit                                   |       | (195,811,259                           | )               | (34,478,909                | )          | 34,469,759                           |       | (195,820,409            | )               |
|                                                         |       |                                   |            |                       |       |                                 |       |                    |            |
|   Total liabilities and  stockholders’ equity | ** ** | **$**                                  | **368,608,819** | ** **                 | **$**      | **87,178,722**                       | ** ** | **$**                   | **(68,104,462** | **)** | **$** | **387,683,079** | ** ** |

# ** **

F-43

----

 

**Statement ofoperations for the year ended December 31, 2002:**

** **
| ** **                                                                    | ** ** | **TRICOM,  S.A. Parent  Co.** | ** **      | **Subsidiaries  Guarantors** | ** ** | **Subsidiary  Non-  Guarantor** | ** ** | **Consolidating   Adjustments** | ** **     | **Total  Consolidated** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------|-----------------|------------------------------|------------|---------------------------------|------------|--------------------------------------|----------------|-------------------------|------------|
|                                                                          |       |                               |            |                         |       |                            |       |                                 |           |                    |       |
| Operating revenues                                                            |       | $                                  | 177,595,758     |                         | $          | 95,902,431                      |       | $                                    | —         |                    | $          | (30,732,279 | ) | $ | 242,765,910 |   |
| Operating costs                                                               |       | (178,233,879                       | )               | (102,626,873                 | )          | —                          |       | 30,732,279                           |           | (250,128,473            | )          |
| Operating loss from continuing operations                                     |       | (638,121                           | )               | (6,724,442                   | )          | —                          |       | —                               |           | (7,362,563              | )          |
|                                                                          |       |                               |            |                         |       |                            |       |                                 |           |                    |       |
| Other expenses, net                                                           |       | (75,133,214                        | )               | (786,397                     | )          | —                          |       | 15,171,099                           |           | (60,748,512             | )          |
| Loss from continuing operations before  income taxes, discontinued operations |       | (75,771,335                        | )               | (7,510,839                   | )          | —                          |       | 15,171,099                           |           | (68,111,075             | )          |
| Income taxes                                                                  |       | (782,027                           | )               | (1,233,523                   | )          | —                          |       | —                               |           | (2,015,550              | )          |
| Loss from continuing operations before  discontinued operations               |       | (76,553,362                        | )               | (8,744,362                   | )          | —                          |       | 15,171,099                           |           | (70,126,625             | )          |
|                                                                          |       |                               |            |                         |       |                            |       |                                 |           |                    |       |
| Discontinued operations                                                       |       | —                             |            | (9,178,970                   | )          | (5,751,119                      | )          | 5,751,119                            |           | (9,178,970              | )          |
| Minority Interest                                                             |       | —                             |            | 1,870,833                    |       |                            |       | —                               |           | 1,870,833               |       |
|                                                                          |       |                               |            |                         |       |                            |       |                                 |           |                    |       |
| Net loss                                                                      | ** ** | **$**                              | **(76,553,362** | **)**                        | **$**      | **(16,052,499**                 | **)**      | **$**                                | **(5,751,119** | **)**                   | **$**      | **20,922,218** | ** ** | **$** | **(77,434,762** | **)** |

 

 

**Statement ofoperations for the year ended December 31, 2003:**

 
| ** **                                                                    | ** ** | **TRICOM,  S.A. Parent  Co.** | ** **       | **Subsidiaries  Guarantors** | ** ** | **Subsidiary  Non-  Guarantor** | ** ** | **Consolidating   Adjustments** | ** ** | **Total  Consolidated** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------|------------------|------------------------------|------------|---------------------------------|------------|--------------------------------------|------------|-------------------------|------------|
|                                                                          |       |                               |             |                         |       |                            |       |                                 |       |                    |       |
| Operating revenues                                                            |       | $                                  | 137,463,472      |                         | $          | 91,701,176                      |       | $                                    | —     |                    | $          | (30,177,135 | ) | $ | 198,987,513 |   |
| Operating costs                                                               |       | (345,453,194                       | )                | (108,395,571                 | )          | —                          |       | 23,401,972                           |       | (430,446,793            | )          |
| Operating loss from continuing operations                                     |       | (207,989,722                       | )                | (16,694,395                  | )          | —                          |       | (6,775,163                           | )          | (231,459,280            | )          |
|                                                                          |       |                               |             |                         |       |                            |       |                                 |       |                    |       |
| Other expenses, net                                                           |       | (128,061,926                       | )                | (2,934,635                   | )          | —                          |       | 72,296,044                           |       | (58,700,517             | )          |
| Loss from continuing operations before  income taxes, discontinued operations |       | (336,051,648                       | )                | (19,629,030                  | )          | —                          |       | 65,520,881                           |       | (290,159,797            | )          |
|                                                                          |       |                               |             |                         |       |                            |       |                                 |       |                    |       |
| Income taxes                                                                  |       | (2,118,638                         | )                | 759,777                      |       | —                          |       | —                               |       | (1,358,861              | )          |
| Loss from continuing operations before  discontinued operations               |       | (338,170,286                       | )                | (18,869,253                  | )          | —                          |       | 65,520,881                           |       | (291,518,658            | )          |
|                                                                          |       |                               |             |                         |       |                            |       |                                 |       |                    |       |
| Discontinued operations                                                       |       | —                             |             | (46,651,629                  | )          | —                          |       | —                               |       | (46,651,629             | )          |
|                                                                          |       |                               |             |                         |       |                            |       |                                 |       |                    |       |
| Net loss                                                                      | ** ** | **$**                              | **(338,170,286** | **)**                        | **$**      | **(65,520,882**                 | **)**      | **$**                                | **—** | ** **              | **$**      | **65,520,881** | ** ** | **$** | **(338,170,287** | **)** |

 

F-44

----

 

**Statement ofoperations for the year ended December 31, 2004:**

 
| ** **                                           | ** ** | **TRICOM,  S.A. Parent  Co.** | ** **       | **Subsidiary  Guarantors** | ** ** | **Consolidating   Adjustments** | ** ** | **Total  Consolidated** | ** **     |
|------------------------------------------------------|------------|------------------------------------|------------------|----------------------------|------------|--------------------------------------|------------|-------------------------|----------------|
|                                                 |       |                               |             |                       |       |                                 |       |                    |           |
| Operating revenues                                   |       | $                                  | 112,540,316      |                       | $          | 75,640,866                           |       | $                       | —         |   | $ | 188,181,182 |   |
|                                                 |       |                               |             |                       |       |                                 |       |                    |           |
| Operating costs                                      |       | (141,051,483                       | )                | (88,574,599                | )          | —                               |       | (229,626,082            | )              |
| Operating loss from continuing operations            |       | (28,511,167                        | )                | (12,933,733                | )          | —                               |       | (41,444,900             | )              |
|                                                 |       |                               |             |                       |       |                                 |       |                    |           |
| Other expenses, net                                  |       | (73,642,929                        | )                | (28,969,442                | )          | 42,203,357                           |       | (60,409,014             | )              |
| Loss from continuing operations before  income taxes |       | (102,154,096                       | )                | (41,903,175                | )          | 42,203,357                           |       | (101,853,914            | )              |
|                                                 |       |                               |             |                       |       |                                 |       |                    |           |
| Income taxes                                         |       | —                             |             | (300,182                   | )          | —                               |       | (300,182                | )              |
|                                                 |       |                               |             |                       |       |                                 |       |                    |           |
|   Net loss                                 | ** ** | **$**                              | **(102,154,096** | **)**                      | **$**      | **(42,203,357**                      | **)**      | **$**                   | **42,203,357** | ** ** | **$** | **(102,154,096** | **)** |

 

 

**Statement of cashflows for the year ended December 31, 2002:**

** **
| ** **                                           | ** ** | **TRICOM,  S.A. Parent  Co.** | ** **   | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-  Guarantor** | ** ** | **Consolidating  Adjustments** | ** ** | **Total  Consolidated** | ** ** |
|------------------------------------------------------|------------|------------------------------------|--------------|----------------------------|------------|---------------------------------|------------|--------------------------------|------------|-------------------------|------------|
|                                                 |       |                               |         |                       |       |                            |       |                           |       |                    |       |
| Net cash (used in) provided by operating  activities |       | $                                  | (21,180,788  | )                          | $          | 34,179,091                      |       | $                              | (5,814,460 | )                       | $          | — |   | $ | 7,183,843 |   |
| Net cash (used in) provided by investing  activities |       | (32,360,921                        | )            | (29,684,007                | )          | 499,433                         |       | 3,627,000                      |       | (57,918,495             | )          |
| Net cash provided by (used in) financing  activities |       | 41,358,833                         |         | 1,311,379                  |       | 5,195,693                       |       | (3,627,000                     | )          | 44,238,905              |       |
| Net decrease in cash on hand and in banks            |       | (12,182,876                        | )            | 5,806,463                  |       | (119,334                        | )          | —                         |       | (6,495,747              | )          |
|                                                 |       |                               |         |                       |       |                            |       |                           |       |                    |       |
| Cash on hand and in banks at beginning of  the year  |       | 11,200,148                         |         | 1,182,280                  |       | 193,622                         |       | —                         |       | 12,576,050              |       |
|                                                 |       |                               |         |                       |       |                            |       |                           |       |                    |       |
| Cash on hand and in banks at the end of the  year    | ** ** | **$**                              | **(982,728** | **)**                      | **$**      | **6,988,743**                   | ** ** | **$**                          | **74,288** | ** **              | **$**      | **—** | ** ** | **$** | **6,080,303** | ** ** |

 

F-45

----

 

**Statement of cashflows for the year ended December 31, 2003:**

** **
| ** **                                            | ** ** | **TRICOM,  S.A. Parent  Co.** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-  Guarantor** | ** ** | **Consolidating  Adjustments** | ** ** | **Total  Consolidated** | ** ** |
|-------------------------------------------------------|------------|------------------------------------|------------|----------------------------|------------|---------------------------------|------------|--------------------------------|------------|-------------------------|------------|
|                                                  |       |                               |       |                       |       |                            |       |                           |       |                    |       |
| Net cash provided by (used in) operating  activities  |       | $                                  | 608,997    |                       | $          | 7,217,067                       |       | $                              | (556,100   | )                       | $          | — |   | $ | 7,269,964 |   |
| Net cash provided by (used in) investing activities   |       | 3,807,597                          |       | (6,138,482                 | )          | —                          |       | 2,148,000                      |       | (182,885                | )          |
| Net cash (used in) provided by financing  activities  |       | (9,963,504                         | )          | 780,326                    |       | 579,294                         |       | (2,148,000                     | )          | (10,751,884             | )          |
| Net (decrease) increase in cash on hand and  in banks |       | (5,546,910                         | )          | 1,858,911                  |       | 23,194                          |       | —                         |       | (3,664,805              | )          |
|                                                  |       |                               |       |                       |       |                            |       |                           |       |                    |       |
| Cash on hand and in banks at beginning of  the year   |       | 5,618,403                          |       | 387,612                    |       | 74,288                          |       | —                         |       | 6,080,303               |       |
|                                                  |       |                               |       |                       |       |                            |       |                           |       |                    |       |
| Cash on hand and in banks at the end of the  year     | ** ** | **$**                              | **71,493** | ** **                 | **$**      | **2,246,523**                   | ** ** | **$**                          | **97,482** | ** **              | **$**      | **—** | ** ** | **$** | **2,415,498** | ** ** |

 

 

**Statement of cashflows for the year ended December 31, 2004:**

** **
| ** **                                           | ** ** | **Tricom, S.A.  Parent Co.** | ** **    | **Subsidiaries  Guarantors** | ** ** | **Subsidiary  Non-  Guarantor** | ** ** | **Consolidating   Adjustments** | ** ** | **Total  Consolidated** | ** ** |
|------------------------------------------------------|------------|----------------------------------------|---------------|------------------------------|------------|---------------------------------|------------|--------------------------------------|------------|-------------------------|------------|
|                                                 |       |                                   |          |                         |       |                            |       |                                 |       |                    |       |
| Net cash provided by (used in) operating  activities |       | $                                      | 17,563,423    |                         | $          | 12,108,557                      |       | $                                    | —     |                    | $          | (7,461,165 | ) | $ | 22,210,815 |   |
| Net cash (used in) provided by investing  activities |       | (13,763,536                            | )             | 3,330,496                    |       | —                          |       | 7,461,165                            |       | (2,971,875              | )          |
| Net cash used in financing activities                |       | (2,842,369                             | )             | (1,221,896                   | )          | —                          |       | —                               |       | (4,064,265              | )          |
| Net increase in cash on hand and in banks            |       | 957,518                                |          | 14,217,157                   |       | —                          |       | —                               |       | 15,174,675              |       |
|                                                 |       |                                   |          |                         |       |                            |       |                                 |       |                    |       |
| Cash on hand and in banks at beginning of  the year  |       | 71,493                                 |          | 2,246,523                    |       | —                          |       | 97,482                               |       | 2,415,498               |       |
|                                                 |       |                                   |          |                         |       |                            |       |                                 |       |                    |       |
| Cash on hand and in banks at the end of the  year    | ** ** | **$**                                  | **1,029,011** | ** **                   | **$**      | **16,463,680**                  |       | $                                    | —     | ** **              | **$**      | **97,482** | ** ** | **$** | **17,590,173** | ** ** |

 

**15****          Stockholders’ Equity**

 

***Introduction.***

 

The authorizedcapital stock of the Company consists of 55,000,000 shares of Class A commonstock and 25,000,000 shares of Class B common stock.

 

Subject to thematters described in Note 3 and under “December 2002 Private Placement” (the “Placement”)below, all of the Company’s outstanding shares are duly authorized, validlyissued and fully paid. Both classes of capital stock vote together as a singleclass, except on any matter that would adversely affect the rights of eitherclass. The Class A common stock has one vote per share and the Class B stockhas ten votes per share. The economic rights of each class of capital stock areidentical.

 

F-46

----

***December 2002 Private Placement.***

 

In December2002 the Company completed the Placement of 21,212,121 shares of Class A CommonStock, as described in Note 3. Various related parties were involved in thePlacement as described in Notes 3 and 7. In its letter requesting initiation ofthe Special Committee’s investigation, KPMG stated that the investigationshould determine whether the Placement qualified to be recorded as equity onthe Company’s consolidated balance sheet as at December 31, 2002. The resolutionsappointing the Special Committee authorized it to, among other matters, conducta review of the Placement to determine facts reasonably necessary to allow theCompany and its advisors to determine the appropriate accounting treatment tobe given to the Placement. The Special Committee Report included a report byBDO that, in summary, stated that varying conclusions as to whether the Companyproperly accounted for the Placement can be reached based on differenthypothetical fact scenarios. Under certain hypothetical fact scenarios, theaccounting treatment of the Placement as equity would remain unchanged. Undercertain alternative hypothetical fact scenarios, BDO stated that theconsolidated financial statements of the Company included in its Annual Reporton Form 20-F for the fiscal year ended in December 31, 2002 “should be restatedto reflect the proceeds of the Placement as debt, or “mezzanine financing” (andnot as “permanent equity”) if (a) the Placement and/or the conduct of therelevant parties related to the Placement could be deemed fraudulent and/or anyapplicable laws or regulations (including applicable SEC laws and regulations)were violated in connection with the Placement and (b) a court of competentjurisdiction, as a remedy in litigation initiated by the SEC or a third party,has power to, and possibly could, order and compel a rescission of thePlacement.”  The company’s management isnot at this time in a position to definitively determine which, if any, of BDO’shypothetical scenarios most closely resembles the circumstances surrounding thePlacement. Determinations as to the conduct of the relevant parties involved inthe Placement are inherently fact intensive, and therefore uncertain, and incertain of the relevant jurisdictions it is unclear whether or not a rescissionremedy would be available based on the facts currently known to the Company’smanagement. Furthermore, the Company has received advice from counselrepresenting its independent accounting firm questioning whether certain of theaccounting literature cited by BDO in support of its rescission analysis isapplicable to the circumstances surrounding the Placement.

 

In light ofthese uncertainties, and the limited records relating to the Placementavailable to it, the Company’s management has weighed the following factors,among others, in reaching a determination as to the appropriate accountingtreatment of the Placement. On the one hand, the Company’s board minutes andstock books, the records of its transfer agent, the Company’s internalaccounting records, certain resolutions of the liquidator of Bancrédito Panama,the stated purpose of the investor financing provided by Bancredito Panama, andthose records available to the Company’s management documenting the applicationof the proceeds of the Placement, all indicate that Class A common stock wasissued in the Placement, supporting the Company’s management’s belief that theintent behind, and the effect of, the transaction was to increase stockholders’equity. These factors would tend to indicate that the Placement should continueto qualify to be recorded as equity on the Company’s balance sheet as atDecember 31, 2002. On the other hand, the incomplete nature of the records ofthe transaction currently available to the Company’s management, in particularthe lack of subscription or similar documentation establishing a legalrelationship between the Company and the investors, incomplete and in somecases inconsistent records as to both the receipt and application by the Companyof the proceeds of the Placement, the possible non-recourse nature of thefinancing provided to the investors in the Placement, the involvement ofrelated parties in providing that financing, and suggestions that negotiationof the transactions surrounding the Placement was not in all respects at arm’slength, raise questions as to whether the Placement should continue to berecorded as equity in accordance with generally accepted accounting principles.After weighing these factors, the Company’s management has concluded that, onbalance, the Placement should continue to qualify to be recorded as equity onits consolidated balance sheet as at December 31, 2002, but acknowledges thatthis conclusion is not beyond dispute and may change if additional informationbecomes available that is inconsistent with this treatment.

 

F-47

----

 

**16****        Expense in Lieu of Income Taxes**

 

Through August31, 2002, TRICOM, S.A. (Parent Company) paid its income tax based on the terms ofa concession agreement signed with the government of the Dominican Republicthat stipulated a fixed rate of 10% on gross revenues after deduction of localnetwork charges plus 10% of all long distance revenues. This tax was never tobe less than RD$18,000,000 (equivalent to $800,000). Total tax paid under thisconcession amounted to $5,896,644 for the eight month period ended August 31,2002, and is presented as part of operating cost in the accompanyingconsolidated statements of operations.

 

**17   IncomeTaxes**

 

TRICOM, S.A.(Parent Company) and its subsidiaries operate in several jurisdictions andunder different tax laws. The most relevant operations are located in theDominican Republic, the United States of America and until February 2004,Panama. Accordingly, each subsidiary must file income and other tax returns forits operations in these and other jurisdictions. Because of the differences inthe tax legislation in each country, each of the individual subsidiaries mustfile separate income tax returns instead of one return on a consolidated basis.Therefore, the information about corporate income tax expense for the yearsended December 31, 2002, 2003 and 2004, respectively, represents the sum of thetax obligations of each of the consolidated subsidiaries.

 

The provisionfor income taxes consisted of the following:

 
| ** **                   | ** ** | **Current** | ** **     | **Deferred** | ** ** | **Total**    | ** ** |
|------------------------------|------------|-------------|----------------|--------------|------------|--------------|------------|
|                         |       |        |           |         |       |         |       |
| Year ended December 31, 2002 |       |        |           |         |       |         |       |
| U.S. Federal                 |       | $           | —         |         | $          | 164,268      |       | $ | 164,268 |   |
| Dominican Republic (a)       |       | (1,112,460  | )              | (1,067,358   | )          | (2,179,818   | )          |
|                         | ** ** | **$**       | **(1,112,460** | )            | **$**      | **(903,090** | **)**      | **$** | **(2,015,550** | **)** |
| ** **                   | ** ** | ** **  | ** **     | ** **   | ** ** | ** **   | ** ** |
| Year ended December 31, 2003 |       |        |           |         |       |         |       |
| U.S. Federal                 |       | $           | —         |         | $          | 569,073      |       | $ | 569,073 |   |
| Dominican Republic (a)       |       | (2,336,999  | )              | 408,065      |       | (1,927,934   | )          |
| ** **                   | ** ** | **$**       | **(2,336,999** | **)**        | **$**      | **978,138**  | ** ** | **$** | **(1,358,861** | **)** |
| ** **                   | ** ** | ** **  | ** **     | ** **   | ** ** | ** **   | ** ** |
| Year ended December 31, 2004 |       |        |           |         |       |         |       |
| U.S. Federal                 |       | $           | (470,666       | )            | $          | —       |       | $ | (470,666 | ) |
| Dominican Republic           |       | (134,978    | )              | 305,462      |       | 170,484      |       |
| ** **                   | ** ** | **$**       | **(605,644**   | **)**        | **$**      | **305,462**  | ** ** | **$** | **(300,182** | **)** |

 

At December31, 2002 the applicable taxes of the companies in the Dominican Republic weredetermined based on 1.5% of gross revenues for the three month and seventeendays period ended December 31, 2002, in the case of the subsidiary TCNDominicana, and for the four month period ended December 31, 2002 in the caseof TRICOM S.A (Parent Company), as established by fiscal regulations.

 

EffectiveSeptember 1, 2002 TRICOM S.A. (Parent Company) elected to pay its corporateincome tax in accordance with the Tax Code of the Dominican Republic, asamended. This Code establishes a tax that is the higher of 25% of the nettaxable income or 1.5% of gross revenues. As a result of this new tax regime,TRICOM S.A. (Parent Company) paid $782,027 in 2002, based on 1.5% of its grossrevenues, which is presented as income tax expense in the accompanyingconsolidated statements of operations for the year ended December 31, 2002.

 

F-48

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At December31, 2003, the applicable taxes of the companies in the Dominican Republic weredetermined based on 1.5% of gross revenues for the years ended December 31,2003. At December 31, 2004, the applicable taxes of the companies in theDominican Republic were determined based on 25% of the net taxable income ofthe Company for the year ended December 31, 2004.

 

The componentsof deferred tax assets and liabilities are as follows:

 
| ** **                                               | ** ** | **2002**  | ** **     | **2003**    | ** ** | **2004**    | ** ** |
|----------------------------------------------------------|------------|-----------|----------------|-------------|------------|-------------|------------|
| Deferred tax assets:                                     |       |      |           |        |       |        |       |
| Deferred revenues                                        |       | $         | 679,046        |        | $          | 92,559      |       | $ | 376,293 |   |
| Property, plant and equipment in the  Dominican Republic |       | 917,338   |           | 14,277,685  |       | 18,212,994  |       |
| Net operating loss carry forward                         |       | 532,455   |           | 59,780,760  |       | —      |       |
| Tax credit carry forward                                 |       | 96,369    |           | 96,369      |       | —      |       |
| Other                                                    |       | —    |           | 45,390      |       | —      |       |
| Gross deferred tax assets                                |       | 2,225,208 |           | 74,292,763  |       | 18,589,287  |       |
|                                                     |       |      |           |        |       |        |       |
| Valuation allowance                                      |       | (917,338  | )              | (72,924,591 | )          | (18,212,994 | )          |
|                                                     |       |      |           |        |       |        |       |
| Deferred tax assets, net                                 |       | 1,307,870 |           | 1,368,172   |       | 376,293     |       |
|                                                     |       |      |           |        |       |        |       |
| Deferred tax liabilities:                                |       |      |           |        |       |        |       |
| Property and equipment                                   |       | 2,553,088 |           | 886,349     |       | 661,795     |       |
| US IRC Section 481 (a) adjustment                        |       | 229,590   |           | 327,936     |       | —      |       |
| Accrued commission                                       |       | 264,216   |           | —      |       | —      |       |
| Other – net                                         |       | 49,689    |           | 141,712     |       | —      |       |
| Gross deferred tax liabilities                           |       | 3,096,583 |           | 1,355,997   |       | 661,795     |       |
|                                                     |       |      |           |        |       |        |       |
| Deferred tax, net                                        | ** ** | **$**     | **(1,788,713** | **)**       | **$**      | **12,175**  | ** ** | **$** | **(285,502** | **)** |

 

In assessingthe reliability of deferred tax assets, management considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which those temporarydifferences become deductible.

 

Managementconsiders the scheduled reversal of deferred tax liabilities, projected futuretaxable income and tax planning strategies in making this assessment. In the consolidatedfinancial statements for the year ended December 31, 2002, as originallypublished, the Company’s 2002 non-current liability for deferred income taxeswas reported as $1,691,779, but should have been $2,573,179. This discrepancyarose because, when management calculated fiscal assets, they adjusted fiscalassets upwards to reflect an inflation index, as permitted by DominicanRepublic tax law. This is not however, permissible under United Statesgenerally accepted accounting principles. This discovery was made subsequent tothe initial issuance of the 2002 consolidated financial statements. The 2002consolidated financial statements contained herein have been restated toreflect this correction.

 

F-49

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At December31, 2004, Tricom USA, the subsidiary in the United States has an unused netoperating loss carry forward which for US income tax purposes may be used tooffset future taxable income, if any, until 2024 and expires as follows:

 
| **Year**  | ** ** | **Amount** | ** **     |
|-----------|------------|------------|----------------|
|      |       |       |           |
| 2013      |       | $          | 561,115        |   |
| 2015      |       | 38,173     |           |
| 2021      |       | 1,337,981  |           |
| 2022      |       | 11,699,337 |           |
| 2023      |       | 15,227,395 |           |
| 2024      |       | 34,681,203 |           |
| **Total** |       | **$**      | **63,545,204** |   |

 

**18****                      Commitmentsand Contingencies**

 

A summary of commitments and contingencies at December 31, 2002, 2003and 2004 is as follows.

 

***(a)******    Commitments.***

 

*(i)*         TRICOM maintains contracts with foreign entities for the traffic ofoverseas calls. Such contracts require each entity to obtain the necessaryfacilities to establish, maintain and operate its respective terminals. Thecost of each contract is based upon negotiated rates, which are computed basedon the amount of traffic each month. For the years ended December 31, 2002,2003 and 2004 this cost amounted to $9,963,769, $7,371,917 and $4,883,018,respectively, and is included in the cost of sales and services in theaccompanying consolidated statements of operations.

 

*(ii)*       On May 8, 1997, the FederalCommunications Commission (FCC) issued an order to adopt the provisions of theTelecommunications Act of 1996 relating to the preservation and advancement ofuniversal telephone service (the “Universal Service Order”). The UniversalService Order requires all telecommunications carriers providing interstatetelecommunications services to contribute to universal service by contributionto a fund (the “Universal Service Fund”). Universal Service Fund contributionswere assessed based upon intrastate, interstate and international end-usergross telecommunications revenue effective January 1st throughDecember 31st.

 

At December 31,2002, 2003 and 2004 the Company contributed $48,713, $62,268 and $50,504,respectively, to the “Universal Service Fund” on end-user telecommunicationsrevenue of $675,567 in 2002, $2,298,904 in 2003 and $594,498 in 2004. Thecontribution paid is included as part of selling, general and administrativeexpenses in the accompanying consolidated statements of operations.

 

*(iii)*      The subsidiary dedicated tocable television systems operations has contracts with television and networkcompanies around the world for the transmission of programming content in theDominican Republic. Such companies required monthly payments that range between$0.08 and $12.50 per subscriber in 2002, between $0.05 and $0.16 per subscriberin 2003 and between $0.05 and $12.50 per subscriber in 2004.The terms of thesecontracts fluctuate between two and three years and are renewable at the optionof the parties. For the periods ended December 31, 2002, 2003 and 2004, thetotal amount of these payments was $6,541,489, $6,682,249 and $5,359,768,respectively. These amounts are included as part of the cost of sales andservices in the accompanying consolidated statements of operations. Thesubsidiary has a trade agreement with Omnimedia S.A. a related party, toreceive publicity services in exchange for television services (advertisingannouncements). Part of the agreement involves managing the international cableprogrammers. Omnimedia S.A. made payments to these international cableprogrammers, with no income tax retention; 

 

F-50

----

 

according tomanagement the cable programmers offer products not services. According to theincome tax law in Dominican Republic, these payments could be consideredforeign services subject to 25% income tax withholding.

 

*(iv)*       The telecommunications lawof the Dominican Republic (Law 153-98) requires that companies operating inthis sector pay to the Instituto Dominicano de Telecomunicaciones (INDOTEL) amonthly fee equivalent to 2% of their international net income. As of December31, 2002, 2003 and 2004, this expense amounted to $497,550, $668,123 and$462,165, respectively, which is included as part of selling, general andadministrative expenses in the accompanying consolidated statements ofoperations.

 

*(v)*        The Company has employmentagreements with certain of its executive officers, the terms of which expire atJanuary 14, 2006. Such agreements provide minimum salary levels, as well asincentive bonuses that are payable if specified management goals are reached. Theaggregate commitment for future salaries at January 15, 2004, excludingbonuses, is approximately $3,626,028.

 

*(vi)*       The Company has engagedseveral financial advisory firms to assist in its financial restructuring  process. Currently, the Company has monthlycommitments from retainer and advisory fees related to its financialrestructuring in the aggregate of approximately $700,000. In addition, theCompany has contingencies in the aggregate of approximately $1,000,000 forsuccess-based advisory compensation fees upon the completion of the Company’srestructuring process.

 

*(vii)*     The subsidiary Tricom USA,Inc. has guaranteed loans made to Tricom S.A., its parent company. Twoguarantees are to The International Bank of Miami as lender and Export-Import Bankof the United States for $36,002,530 on July 2000 and $20,000,000 on November2000 respectively. The first is a five-year loan with an interest rate equal tothe sum of LIBOR for the applicable period plus 2.25 percent per annum; thesecond has the same interest rate and the loan payment term could be from twoto seven years. The outstanding balance as of year-end is $40,481,013. Thethird is a corporate guarantee to the Export Development of Canada for$1,122,000 on May 27, 2002 with the rate of interest of LIBOR plus 4% per annum.The loan term is 18 months to be paid in 5 consecutive semi-annual installmentscommencing on September 30, 2002. This loan is to be paid in threeinstallments, the last installment is due in June 30, 2004 and the interest rateis equal to the sum of Eurodollar rate and the applicable margin. Since October2003, TRICOM, S.A. has made no interest or principal payments on any of itsdebt. TRICOM, S.A., is negotiating with the lenders but at this time there isno assurance that an agreement will occur.

 

***(b)    Lease Obligations.***

 

The Companymaintains operating leases for the use of office space, telecommunicationscenters, commercial offices, warehouse, automobiles and others. These operatingleases are renewable at the end of the lease period, which is usually one year.Expenses for these leases in 2002, 2003 and 2004, amounted to approximately$2,900,000, $2,000,000 and $922,370, respectively, and are included in selling,general and administrative expenses in the consolidated statements ofoperations. The commitment for lease payments for the next five years is asfollows:

 
| **Year**        | ** ** | **Amount** | ** ** |
|-----------------|------------|------------|------------|
| 2005            |       | $          | 245,489    |   |
| 2006            |       | 226,409    |       |
| 2007            |       | 211,259    |       |
| 2008            |       | 100,034    |       |
| 2009 and beyond |       | 100,034    |       |
|                 |            |            |            |  |

 

F-51

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***(c)******    LegalProceedings.***

 

*(i)*         In August 1999, aDominican company and two individual plaintiffs sued the Company before theDominican courts for alleged losses and damages of up to approximatelyRD$200,000,000 (approximately $6,250,000) resulting from the imprisonment bythe Dominican authorities of two of the individuals for 15 days. The plaintiffsalleged that their imprisonment was the result of an investigation by the localdistrict attorney and the police that the Company instigated following an irregularincrease in telephone traffic at certain telephone numbers. The court rejectedthe action for lack of evidence. However, the plaintiffs appealed, and theappeal is pending decision. After consulting with legal counsel, the Companybelieves that this matter will not have a material adverse effect on itsresults of operations and financial position in the case of an adversedecision.

 

*(ii)*       As of December 31, 2002,2003 and 2004, the Company has been involved in other lawsuits and legalproceedings arising from the ordinary conduct of its business. Such claimsgenerally relate to tort and contractual actions for damages. Claims pursuantto such suits and proceedings amounted to approximately $8,800,000(RD$198,900,000) in 2002, $6,175,000 (RD$226,260,000) in 2003 and $8,000,000(RD$256,000,000) in 2004. Management has evaluated these suits and proceedingsand believes that the final outcome of these matters will not have a materialadverse effect on the Company’s results of operations and financial position.

 

*(iii)*      In addition to the casesmentioned in the foregoing paragraph, a number of motor vehicle accident casesinvolving vehicles owned by TRICOM and covered by TRICOMS’s insurance companyare pending as the result of the impending liquidation by the Superintendenceof Insurance. Any liability to TRICOM in these cases would have been covered bythe insurance policy, but now would be assumed by TRICOM directly, even thougha claim would be made as a part of the liquidation at the proper time. The amountof the potential liability that could be derived from such cases has beensubjected to a cap of up to $1,000,000 (RD$34,000,000). These cases, in theCompany’s view, will not have a material adverse effect on its operations.

 

*(iv)*       Grupo Económico Suit. InApril 2004, a suit was brought seeking to have the Company and many otherco-defendants (including, inter alia, The Central Bank, The Leon Bank and GFN)held jointly and severally liable for the amounts owned by certain affiliatesof Bancrédito Dominican Republic to the plaintiffs. The judge issued herdecision, which basically confirmed that the tripartite contract for theacquisition by the Leon family of Bancrédito had to be honored, and renderedjudgment against certain of the defendants in the amount of $156,000,000, whichwas subsequently reduced (upon a motion filed by the same plaintiffs) by thesame judge to approximately $13,000,000. The judgment, did not include TRICOMor any of its subsidiaries, but there remains the possibility that, as a resultof an appeal, the case could be re-opened, and hence TRICOM could then become aco-defendant before the Court of Appeals. In light of the reasoning behind thejudgment of the Court of First Instance, however, it is unlikely in our viewthat the Company could be affected by any decision of the Court of Appeals.

 

*(v)*        On May 8, 2001, BSC ofPanama, S.A., a subsidiary of BellSouth, which owns one of the two cellulartelecommunication concessions granted by the Panamanian government, requestedthat the Panamanian *Ente Regulador de losServicios Públicos*, or *Ente*,investigate TRICOM Panama, S.A. for violations of the Telecommunications Actand the *Ente*’s regulations.BellSouth claimed that TRICOM Panama:

 

F-52

----

 

•                      Used itsiDEN® based trunking services to provide cellular telecommunications services,in violation of its license; and

 

•                      Although theCompany proved that its iDEN® system has been modified to disable “hands off”capabilities; the fact that the equipment had these capabilities represented abreach of regulations and the Company’s license.

 

The *Ente*has not issued any ruling onBellSouth’s request, but stated publicly that Panamanian regulations do notlimit the provision of wireless services to a particular technology.

 

#### **OnFebruary 12, 2004, the Company signed a transaction agreement with BellSouth,in which, BellSouth agreed to stop the proceeding against TRICOM Panama, S.A.pending in the branch of “Juzgado undécimo del Primer Circuito Judicial dePanamá, Civil Branch” (Panamanian courts). TRICOM Panama, S.A. also agreed towithdraw its demand for reconnecting to Bell South’s network against BellSouthin the same proceeding.**

#### ** **

*(vi)*      TRICOMUSA is the subject of a claim by GE Tennessee for liquidating damages in theamount of $15,171,119 arising from TRICOM USA’s Inc. early termination of anaircraft lease agreement. It is counsel’s opinion that damages awarded in theevent of an unfavorable determination will be substantially less than the fullamount demanded by GE Tennessee. According to counsel the text of the work-outagreement proposed by GE Tennessee’s counsel recites that the total amount dueunder the lease agreement as of November, 2003 was the “termination value” lessthe current fair market value of the aircraft which was estimated at$8,500,000.

 

After theconclusion of the last arbitration hearing of April 2005, but prior to theissuance of an award by the panel of arbitrators, the Company, Tricom S.A., GEPuerto Rico and GE Tennessee executed a term sheet by which they agree tosettle. According to the term sheet, the Tricom USA and Tricom, S.A., jointlyand severally, will be obligated to pay a total of $6,000,000 over seven-yearperiod, with interest at a rate of 9% per annum, in full satisfaction of allamounts. In the event of default then the amount of the obligation willincrease to $7,400,000 less the amount of any principal repayments made priorto those events. The Company’s advisors are in the process of negotiatingdefinitive documentation to effectuate the settlements outlined in the termsheet. During 2003, the Company recognized a liability of $5,871,119 and during2004 recognized a liability for accrued interest of $468,150. This provision isincluded as part of accrued expenses in the balance sheet as at December 31,2004.

 

GE Puerto Ricoalso asserted a claim against Tricom S.A., and Tricom USA for the balance dueunder a loan agreement dated December 26, 2000, pursuant to a cross-collateraland “cross-default agreement” by which the Company agreed that a default byTricom, S.A under the telecommunications loan would also be a default by theCompany.

 

In June 2002,FASB issued Statement of Financial Accounting Standards No. 146 (SFAS 146) “Accountingfor Costs Associated with Exit or Disposal Activities”. This standard requiresthat a liability for a cost associated with an exit or disposal activity berecognized and measured initially at fair value only when the liability isincurred. Statement 146 is to be applied prospectively to exit or disposalactivities initiated after December 31, 2002. During the year 2003, thesubsidiary TRICOM USA, Inc., recognized a liability for early termination ofthe operating lease agreement referenced above, which is included as part ofother charges and special items in operating costs and expenses in theaccompanying consolidated statements of operations for the year ended December1, 2003.

 

F-53

----

 

This cost iscalculated as follows:

 
| Liquidating damages                               |   | $          | 15,171,179 |   |
|---------------------------------------------------|--------|------------|------------|--------|
| Fair market value of retuned leased asset         |   | (8,500,000 | )          |
| Net amount of damages                             |   | 6,671,179  |       |
| Other associated cost                             |   | 700,000    |       |
| Cost of terminating operating lease               |   | 7,371,179  |       |
| Less deposit                                      |   | (1,500,000 | )          |
| Provision for termination of operating  lease (a) |   | $          | 5,871,119  |   |

 

----

(a)           Thisprovision is included as part of accrued expenses in the accompanyingconsolidated balance sheet at December 31, 2003 and 2004.

 

*(vii)*   On April 24,2003, a complaint was filed, and an adversary proceeding commenced against theCompany by certain debtors, including Facilicom International LLC in connectionwith the bankruptcy case of World Access Inc., currently pending in the UnitedStates Bankruptcy Court. Debtors are seeking to reclaim approximately $448,000in preferential payments from the Company. Counsel believes that there is anabsolute bar to the preference action by virtue of a Stipulation entered intoby the Company and the Debtor prior to the filing of the complaint with theBankruptcy Court on March 29, 2002 pursuant to the Bankruptcy Court’s OrderGranting Debtors Global Authority to settle and Compromise Claims. TheStipulation includes a general release between the parties. Counsel believesthat the preference action will ultimately be dismissed as having beenunconditionally released pursuant to the Stipulation.

 

No amountshave been recorded in the accompanying financial statements related to theselegal proceedings.

 

*(viii)*    *Other Charges and Special Items.*

 
| Cost of terminating operating lease |   | $         | 7,371,119        |   |
|-------------------------------------|--------|-----------|------------------|--------|
| Certificates written-off            |   | 4,830,530 | (*)              |
| Insurance claim write-off           |   | 700,000   |             |
| Taxes penalties paid (Note 18 (d))  |   | 2,968,895 |             |
|                                |   | $         |  15,870,544 |   |

 

----

(*)            Corresponds to Certificates of BancréditoPanama and SEGNA S.A written-off by the Company for the amounts of  $4,452,316and $378,214 respectively, representing RD$184.8 million and RD$15.7 millionrespectively.

 

***(d)     Dominican Tax Matters.***

 

During 2001, the fiscal authorities of the Dominican Republicaudited the tax returns of the Company and its compliance with the tax law asit relates to withholding and other taxes for 1999 and 2000 and through June2001. In June 2002, the Company received notice from the Dominican tax serviceclaiming that the Company owed additional amounts in respect of taxes in lieuof income taxes for the period from January 1, 1999 through June 30, 2001 (thelast day through which Dominican authorities have audited tax payments) and forwithholding tax on the wholly-owned subsidiary TRICOM Latinoamérica and oncertain other payments. At December 31, 2003, the amount related to expense inlieu of income tax for which the income tax authorities presented claims to theCompany totaled approximately RD$98.8 million ($5.3 million), plus interest andpenalties. This claim was settled with the tax authorities during 2003 forapproximately $72,000.

 

This amount is presented as part of other expenses in theaccompanying consolidated statements of operations for the year ended December31, 2003.

 

F-54

----

 

The Dominican Tax Authority also claims that the Company wasrequired to withhold and pay to them 25% of the amount of the investment inTRICOM Latinoamérica, S.A. The 25% withholding tax generally applies forpayments made for services rendered by non-Dominican vendors and for certaindividends. The tax authorities are seeking $5 million, plus penalties andinterest of $9 million, for a total of approximately $14 million (RD$435million) at December 31, 2004. The Company contested the claim, indicating thatthere is no requirement to withhold tax on investments in a wholly ownedsubsidiary.

 

The Company has appealed the Tax Authority’s determination tothe Ministry of Finance, and both the Company and the Tax Authority have theright to appeal any determination by the Ministry of Finance to the tax courts.The Company considers that it has complied with its tax obligations, andestimates that no additional amounts of tax are due.

 

On January 6, 2006, Tricom was notified by the Tax Authorityof the Dominican Republic by OGC Num-416 to rectify the tax return for fiscalyear-ended December 31, 2004. According to the Tax Authority, the returnpresents prior period losses, which are being used to reduce taxable income forthe current year.

 

The Tax authority considers that this tax treatment does notapply under the correct interpretation of article 297, paragraph I and IV ofthe Tax Code of the Dominican Republic; later revised by Law No. 147-00 onDecember 27, 2000. The revised tax law established a minimum tax of 1.5% ongross income and the presumption of the existence of taxable income,eliminating any possibility for the taxpayer to offset prior period lossesagainst taxable income.

 

The amount not allowed by the Tax Authority amounts to$291,774,043 (RD$12,286,604,934). On January 17, 2006, the Company presented apetition requesting the elimination of notification OGC No. 416. At the time ofissuance of this report, the Company has not received any response from the TaxAuthority.

 

***(e)******    2002Private Placement.***

 

Under SFAS 5the Company is required to disclose certain loss contingencies and to determinewhether an accrual for the estimated loss arising out of such contingenciesshould be made in its financial statements. This determination is made based onassessments as to the likelihood that the future event will confirm the loss orliability in question. To date, no claims arising out of the events relating tothe Placement have been asserted in any jurisdiction in any litigation orsimilar proceedings brought against the Company or its subsidiaries. Nevertheless,the Company has received indications that one or more of the liquidators of theBancrédito entities in Panama and the Cayman Islands believe that they haveclaims in connection with the Placement, although the Company is unable at thepresent time to determine either the probability of such claims being assertedagainst it, or the validity or amount of such claims if they are asserted. TheJoint Liquidators of Bancredit Cayman have, in connection with a Chapter 15Petition filed in the Bankruptcy Court for the Southern District of New York,served subpoenas on the Company and certain of its subsidiaries seekingdocuments relating to the Placement. In addition, Tricom believes that it ispossible that other parties may assert claims arising out of the Placement. Claimsbrought on behalf of the Bancredito entities and others could, in theaggregate, equal or substantially exceed the $70 million amount of thePlacement, in particular if the claimants seek rescission of the Placement orcertain related transactions.

 

At this timethe Company is not able to determine with any certainty who might assertclaims, the precise nature of any claims that may be asserted, the jurisdictionin which such claims may be brought, the theories on which such claims may bebased, the validity of any such claims, whether viable defenses would beavailable to such claims and whether any judgment or award arising out of suchclaims would be enforceable against the Company’s or its subsidiaries’ assets. Accordingly,while it is possible that the Company will in the future need to establish losscontingencies relating to the Placement, the Company’s management does notbelieve that this is necessary at the present time.

 

F-55

----

 

***(f)******     ConfirmationLetter from Liquidator Bancredit Cayman Limited.***

 

In response toa letter dated October 5, 2006 sent by Tricom S.A to the liquidator ofBancredit CaymanLimited requiring documentary support related to the2002 Private Placement, Tricom S.A. received a response letter dated November24, 2006 from the Bancredit Cayman Limited Liquidator purporting to have aclaim against the Company of $70,000,000 in connection with the "PrivatePlacement" and referencing as support for the claim resolution No 056-2004issued by the Liquidator of Bancrédito Panama S.A., which establishes thatthere were thirteen (13) loans issued to thirteen (13) different borrowers whoinvested the total amount of the loans in Tricom S.A. class A common shares.The details of the borrowers are as follows.

 

 
| **Name**                                                                                                                  | ** ** | **Relationship to the   Company**        | ** ** | **Number of class A  common shares** | ** ** | **Amount of Investment** | ** **     |
|---------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|----------------------------------------------------------|------------|------------------------------------|----------------|
| GFN, S.A.                                                                                                                 |       | Wholly owned  and controlled by Manuel Arturo Pellerano |       | 2,878,788                                                |       | $                                  | 9,500,000      |   |
|                                                                                                                      |       |                                                    |       |                                                     |       |                               |           |   |
| Marino A. Ginebra                                                                                                         |       | Director                                                |       | 606,061                                                  |       | 2,000,000                          |           |
|                                                                                                                      |       |                                                    |       |                                                     |       |                               |           |
| Investors believed by the Company’s  management to be unaffiliated.                                                  |       | None to the  knowledge of the Company’s management |       |                                                     | 17,727,272 |                               |           | 58,500,000 |   |
|                                                                                                                      |       |                                                    |       |                                                     |       |                               |           |   |   |
| **TOTAL**                                                                                                                 |       |                                                    |       | **21,212,121**                                           |       | **$**                              | **70,000,000** |   |
| ** **                                                                                                                |       |                                                    |       |                                                     | ** ** |                               | ** **     | ** ** | ** ** |   |
|                                                                                                                      |
| The funds  received from 2002 Private Placement were used by the Company, according to  its internal records, as follows: |
|                                                                                                                      |
| Bancredito Panama, for repayment of Tricom  loans, credit lines, letters of credit and past due interest                  |       | $                                                       | 35,582,461 |                                                     |
|                                                                                                                      |       |                                                    |       |
| Bancredito Cayman, for repayment of Tricom  and Telecable loans, over drafts and past   due interest            |       | 9,846,384                                               |       |
|                                                                                                                      |       |                                                    |       |
| Bancredito Domican Republic, for repayment  of Tricom and Telecable loans, credit lines, overdrafts and letters of credit |       | 16,757,543                                              |       |
|                                                                                                                      |       |                                                    |       |
| Segna, for repayment of Tricom loans and  payment of premium on directors and officers insurance policy                   |       | 4,464,035                                               |       |
|                                                                                                                      |       |                                                    |       |
| Conaresa, for payment of past due amounts  owed by Tricom                                                                 |       | 1,754.656                                               |       |
|                                                                                                                      |       |                                                    |       |
| ACYVAL finder’s fee                                                                                                  |       | 1,400,000                                               |       |
|                                                                                                                      |       |                                                    |       |
| Other issuance costs                                                                                                      |       |                                                    |       | 194,921                                                  |       |
|                                                                                                                      |       |                                                    |       |                                                     |       |
| **TOTAL**                                                                                                                 |       | **$**                                                   |       | **70,000,000**                                           |       |
|                                                                                                                           |            |                                                         |            |                                                          |            |                                    |                |  |  |  |  |

 

The mentionedresolution of the liquidator of Bancrédito Panama suggests that, $20,964,510.71of the funds loaned to the investors in the Placement were never turned over toBancredit Cayman Limited and acknowledges a claim for such amount owed by BancréditoPanama to Bancredit Cayman Limited. Nevertheless,****thereis not sufficient evidence or documentation to support the $70,000,000 claimper the Bancredit Cayman Limited Liquidator or to justify a contingency accrualin the 2002 financial statements. Under SFAS 5 (see Note 18 (e)) it is possiblethat the Company will in the future need to establish loss contingenciesrelating to the Placement, but, at this time the Company’s management does notbelieve that is necessary.

 

F-56

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***(g)******    PenaltyInterest Arising out of Lease and Other Obligations.***

 

According toSFAS 5, if the conditions for the accrual of a loss contingency are not met buta loss is nevertheless considered probable or reasonably possible, financialstatement disclosure of the loss contingency is required. The disclosure shouldcontain a description of the nature of the loss contingency and the range ofpossible loss, or include a statement that an estimate of the loss cannot bemade.

 

Between 1999and 2002, the Company entered into a series of capital leases with CompañiaNacional de Arrendamientos, S.A. (“Conaresa”), at that time a related company.The entity was sold to Banco Leon during 2003 in a transaction also involvingthe Central Bank of the Dominican Republic. These lease agreements provide forthe lease to the Company of telecommunications equipment, automobiles, andother fixed assets.

 

Theinstallments payable under the above-mentioned lease agreements include leaserental payments and other expenses such as taxes and fees. The lease agreementsalso provide for the payment of penalty (moratorium) interest on overduebalances, to be calculated at a rate established by Conaresa. No fixed ordeterminable rate is specified; rather, the amount and conditions of penaltyinterest can be unilaterally set by Conaresa.

 

In June 2005,the Company received a payment opposition from GFN, S.A. (“GFN”) freezing inthe Company’s hands any payments or other amounts owed by the Company toConaresa, up to an amount of $38.7 million (RD$1.349 billion) (that is, doublethe amount of GFN’s claim against Conaresa, as is customary in the case ofpayment oppositions under Dominican law). When an entity receives a paymentopposition addressed to one of its creditors, the entity in question mustrefrain from making any payments in violation of the payment opposition (asotherwise it may become liable for damages to the party who served theopposition) until it is lifted by means of a court order or as a result of asettlement between the conflicting parties. In May 2007, the Company receivedtwo further notices under which (i) Artag Meridian Ltd., an entity related toGFN, advised that it had acquired GFN’s aforesaid claims; and (ii) theabove-mentioned opposition against Conaresa was reiterated, this time by ArtagMeridian, as GFN’s assignee.

 

For theforegoing reasons, at this time the Company is prevented from making anypayments to Conaresa. Furthermore, the Company has not established any accrualfor penalty interest that might arise out of these lease agreements because itbelieves that any claim based on the lease provision described above would bewithout merit. Nevertheless, there can be no assurance that any legalproceedings on this issue would be resolved in the Company’s favor. Accordingly,while it is possible that the Company may in the future need to establish aloss contingency relating to penalty interest arising out of these leaseagreements, the Company’s management does not believe that this is necessary atthe present time.

 

**19****                      Business andCredit Concentration**

 

In the normalcourse of business, the Company has accounts receivable from carriers. Althoughthe Company’s exposure to credit risk associated with non-payment by thesecarriers is affected by conditions or occurrences within the industry, most ofthese receivables are due from large, well-established companies. The Companydoes not believe that this concentration of credit risk represents a materialrisk of loss.

 

**20****                      Pension Benefits**

 

Effective September1, 2000, AFP Siembra, S.A., a related party pension management company (seeNote 7), assumed the administration of the Company’s pension plan as individualdefined contribution accounts similar to the United States 401(k) plan. Theplan management company maintains the investments on behalf of plan participantsand reports changes in the

 

F-57

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value of theindividual accounts using the unit investment system. Under this plan, eachparticipant has his or her own individual capitalization account, which wasopened with total contributions and benefits accrued in the predecessor pensionplan. Under this arrangement, the Company contributes 5% of the employee’ssalary and the employee contributes 4%. For the years ended December 31, 2002,2003 and 2004, the Company’s expense for this plan was approximately $662,000,$457,000 and $137,000, respectively, and is included as part of general andadministrative expenses in the accompanying consolidated statements ofoperations.

 

The pensionmanagement company guarantees a minimum return of 1.5% over the mean of theaverage bid interest rate offered by certificates of deposit from Dominicancommercial and multiple service banks reported by the Central Bank of theDominican Republic, determined monthly, considering the date on which the fundsentered the individual account.

 

The pensionmanagement company commits to permanently maintain on deposit with banks 90% ofthe instruments that comprise the total amount of the portfolio of funds beingmanaged. The cost of this service is RD$50 (approximately $2) per employee permonth, which is deducted monthly from the contributions that the employer (theCompany) makes. The pension management company earns 1% annually on thecumulative balance of each account under its management.

 

**21****                      Legal Reserve**

 

Article 58 ofthe Code of Commerce of the Dominican Republic requires all companies tosegregate at least 5% of their net earnings as a legal reserve until such reserveequals 10% of its paid-in capital as disclosed in the Consolidated Statementsof Stockholders’ Equity (Deficit). This reserve is not available fordistribution as dividends, except in case of the dissolution of thecorporation.

 

**22****                      Stock OptionPlan**

 

On May 4,1998, the Company initiated a Long-term Incentive Plan (the Plan), in whichcertain employees could be granted options to purchase shares of the Company’scommon stock. The Plan is administered by the Board of Directors of the Companyand has the authority to determine which employees will participate in thePlan.

 

The Planauthorizes grants of options to purchase up to 750,000 of authorized companyshares. Stock options are granted with an exercise price equal to the stock’sfair market value at the date of the grant. All stock options have a term often-years and become exercisable after one to three years from the date of thegrant.

 

At December31, 2002, 2003 and 2004, there were 338,963, 412,409 and 500,870 additionalshares available for grant under the Plan, respectively.

 

Changes in thenumber of shares subject to the option are summarized as follows.

 
| **Description**            | ** ** | **Options** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|----------------------------|------------|-------------|------------|------------------------------------------------|------------|
|                       |       |        |       |                                           |       |
| Balance, December 31, 2001 |       | 483,947     |       | 7.17                                           |       |
| Granted                    |       | 2,000       |       | 3.00                                           |       |
| Surrendered                |       | (74,910     | )          | 7.42                                           |       |
| Balance December 31, 2002  |       | 411,037     |       | 7.11                                           |       |
| Surrendered                |       | (73,446     | )          | 7.58                                           |       |
| Balance, December 31, 2003 |       | 337,591     |       | 7.00                                           |       |
| Surrendered                |       | (88,461     | )          | 7.61                                           |       |
| Balance, December 31, 2004 |       | 249,130     |       | 6.79                                           |       |

 

F-58

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In 2001 the Board ofDirectors approved a stock option re-pricing pursuant to which the Company’semployees could elect to cancel granted options in exchange for new optionswith an exercise price of $7.00, which was the Company’s common stock price onthe New York Stock Exchange at the moment. Approximately 520,000 options were eligible for re-pricing, of which theCompany cancelled 453,130 options and granted 241,994 options.

 

The number of re-pricedoptions was also reduced proportionately. All other conditions were unchanged.Effective July 1, 2000, the FASB issued Financial Interpretation No. 44 (FIN44) which amended APB 25 and requires “variable” accounting for all stockoption re-pricing granted before six months of the cancelled date.  As a result, these options will requirevariable accounting until they are exercised, cancelled, forfeited orexpired.  Under variable accounting,compensation expense must be measured by the difference between the exerciseprice and the market price of the Company’s stock at each reporting periodamortized over the vesting period. The effect of the application of FIN 44during 2002, 2003 and 2004 was not significant.

 

Exercise prices of optionsoutstanding at December 31, 2002, 2003 and 2004 ranged from $3 to $16. Thefollowing table provides certain information with respect to stock optionsoutstanding at December 31, 2002, 2003 and 2004:

 
| ** **                    | ** ** | **2002**                | ** ** |
|-------------------------------|------------|-------------------------|------------|
| ** **                    | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
| **Range of  Exercise Prices** | ** ** | **Number  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|                          |       |                    |       |   |   |   |   |   |   |   |   |
| $3.00-$5.00                   |       | 7,000                   |       | $ | 3.46 |   | 9.26 |   | — |   | $ | — |   |
| $5.01-$7.00                   |       | 383,812                 |       | 6.85 |   | 8.26 |   | 42,143 |   | 6.99 |   |
| $7.01-$9.00                   |       | 7,225                   |       | 8.10 |   | 7.03 |   | 2,709 |   | 8.10 |   |
| $9.01-$16.00                  |       | 13,000                  |       | 16.00 |   | 7.50 |   |   |   |   |   |
|                          |       |                    |       |   |   |   |   |   |   |   |   |
|                          | ** ** | **411,037**             | ** ** | **$** | **7.11** | ** ** | **8.23** | ** ** | **44,852** | ** ** | **$** | **7.55** | ** ** |

 
| ** **                    | ** ** | **2003**                | ** ** |
|-------------------------------|------------|-------------------------|------------|
| ** **                    | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
| **Range of  Exercise Prices** | ** ** | **Number  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|                          |       |                    |       |   |   |   |   |   |   |   |   |
| $3.00-$5.00                   |       | 7,000                   |       | $ | 3.46 |   | 8.26 |   | — |   | $ | — |   |
| $5.01-$7.00                   |       | 317,966                 |       | 6.82 |   | 7.17 |   | 35,287 |   | 6.98 |   |
| $7.01-$9.00                   |       | 4,000                   |       | 8.13 |   | 5.89 |   | 800 |   | 8.13 |   |
| $9.01-$16.00                  |       | 8,625                   |       | 16.00 |   | 6.40 |   | 2,200 |   | 16.00 |   |
|                          |       |                    |       |   |   |   |   |   |   |   |   |
|                          | ** ** | **337,591**             | ** ** | **$** | **7.00** | ** ** | **7.33** | ** ** | **38,287** | ** ** | **$** | **7.52** | ** ** |

 

F-59

----

 
| ** **                    | ** ** | **2004**                | ** ** |
|-------------------------------|------------|-------------------------|------------|
| ** **                    | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
| **Range of  Exercise Prices** | ** ** | **Number  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|                          |       |                    |       |   |   |   |   |   |   |   |   |
| $3.00-$5.00                   |       | 7,000                   |       | $ | 3.46 |   | 7.26 |   | 1,875 |   | $ | 3.65 |   |
| $5.01-$7.00                   |       | 240,130                 |       | 6.81 |   | 6.22 |   | 72,894 |   | 6.77 |   |
| $9.01-$16.00                  |       | 2,000                   |       | 16.00 |   | 6.00 |   | 750 |   | 16.00 |   |
|                          |       |                    |       |   |   |   |   |   |   |   |   |
|                          | ** ** | **249,130**             | ** ** | **$** | **6.79** | ** ** | **6.25** | ** ** | **75,519** | ** ** | **$** | **6.79** | ** ** |

 

The weighted-average fair value at the date of grant for optionsgranted during 2002, 2003 and 2004 were $1.90, $0 and $0, respectively and wereestimated using the Black-Scholes option valuation model with the followingweighted-average assumptions.

 
| ** **             | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** |
|------------------------|------------|----------|------------|----------|------------|----------|------------|
|                   |       |     |       |     |       |     |       |
| Expected life in years |       | 7.50     |       | 6.50     |       | 6.25     |       |
| Interest rate          |       | 4.61     |       | 4.61     |       | 4.27     |       |
| Volatility             |       | 45.31    |       | 69.34    |       | 100.00   |       |
| Expected dividends     |       | —   |       | —   |       | —   |       |

 

**23****       ****Fourth Quarter Results**

 

During the last quarter of2002, the Company recognized expenses of approximately $19 million as a resultof the impairment of long-lived assets, intangible assets and goodwill based onthe requirements of SFAS 142 and 144.

 

During the fourth quarter of2003, the Company recognized expenses of approximately $191 million as a resultof the impairment of long-lived assets, intangible assets and goodwill based onthe requirements of SFAS 142 and 144. Additionally, in the last quarter of 2003, the Company recognized animpairment loss for discontinued operations of approximately $38.6 millionrelated to the Central America operations.

 

During the fourth quarter of2004, the Company recognized approximately $17.4 in depreciation expenses (seeNote 2.9) to reduce the useful life of some Long-Lived Assets.  The company did a survey in thetelecommunications market and determined that the useful lives of some assetswere not reasonable.

 

**24****       ****Segment Information**

 

The Company has adoptedFinancial Accounting Standards Board Statement No. 131, “Disclosures aboutSegment of an Enterprise and Related Information”, which establishes standardsfor reporting information about a company’s operating segments.

 

Beginning in 2003, theCompany changed its income statement reporting presentation in order to moreaccurately align its core product and service segments with how managementevaluates its consolidated results of operations and to simplify the reading 

 

F-60

----

 

and understanding of itsfinancial information, as well as facilitate benchmark comparisons with othertelecommunications companies globally. As a result, certain amounts in the 2002consolidated financial statements and notes to the consolidated financialstatements have been reclassified to conform to the new presentation.

 

The Company has divided itsoperations into six reportable segments, which include five core businessreportable segments based upon similarities in revenue generation, costrecognition, marketing and management of its businesses. The Company’s fivecore business reportable segments are: Long Distance, Domestic Telephony,Mobile, Cable and Data and Internet. The Company’s sixth reportable segmentcorresponds to other revenues that are not generated from its core businesses.

 

The reporting segmentsfollow the same accounting policies used for the Company’s consolidatedfinancial statements and described in the summary of significant accountingpolicies. Management measures and evaluates reportable segments based onseveral factors, of which revenues and operating income (loss) are the primaryfinancial measures.

 

The segments and a descriptionof each are as follows:

 

•                       Long distance, which representsinternational long distance traffic generation and termination services,including those derived from the Company’s U.S.-based wholesale carrier andprepaid calling card operations, as well as outbound international and domesticlong distance calls generated by the Company’s retail call centers and prepaidcards sold within the Dominican Republic;

•                       Domestic telephony, which representslocal exchange services in the Dominican Republic;

•                       Mobile, which represents wirelesscommunication services in the Dominican Republic, including cellular and PCSservices and paging;

•                       Cable, which represents cable televisionbasic and expanded programming services and other related services, includingadvertising sales to national advertisers on non-broadcast channels the Companycarries over its cable communications systems;

•                       Data and Internet, which represents highspeed broadband data transmission and Internet connectivity services, includingtraditional dial-up connections, dedicated lines, private networks, framerelay, digital subscriber lines, or xDSLs; and

•                        Other segments, which represents all ofthe Company’s non-core business revenues.

 

F-61

----

 

**Geographic****:**

 
| ** **                                                                | ** ** | **2002**          | ** **     |
|---------------------------------------------------------------------------|------------|-------------------|----------------|
| ** **                                                                | ** ** | **United States** | ** **     | **Dominican Republic** | ** ** | **Discontinued  Operations –  Central America** | ** ** | **Elimination (a)** | ** ** | **Consolidated** | ** ** |
|                                                                      |       |              |           |   |   |   |   |   |   |   |   |
| Long distance                                                             |       | $                 | 74,052,179     |   | $ | 37,658,433 |   | $ | — |   | $ | (30,732,279 | ) | $ | 80,978,333 |   |
|                                                                      |       | 362,776           |           | 161,424,801 |   | — |   | — |   | 161,787,577 |   |
| Total revenues from external customers                                    | ** ** | **$**             | **74,414,955** | ** ** | **$** | **199,083,234** | ** ** | **$** | **—** | ** ** | **$** | **(30,732,279** | **)** | **$** | **242,765,910** | ** ** |
|                                                                      |       |              |           |   |   |   |   |   |   |   |   |
| Net loss before income tax minority interest and discontinued  operations |       | $                 | (9,229,995     | ) | $ | (58,881,080 | ) | $ | — |   | $ | — |   | $ | (68,111,075 | ) |
| Income tax                                                                |       | (164,267          | )              | 2,179,817 |   | — |   | — |   | 2,015,550 |   |
| Net loss before minority interest and discontinued operations             |       | (9,065,728        | )              | (61,060,897 | ) | — |   | — |   | (70,126,625 | ) |
| Minority interest                                                         |       | —            |           | — |   | 1,870,833 |   | — |   | 1,870,833 |   |
| Loss from discontinued operations                                         |       | —            |           | — |   | (9,178,970 | ) | — |   | (9,178,970 | ) |
| Net loss                                                                  | ** ** | **$**             | **(9,065,728** | **)** | **$** | **(61,060,897** | **)** | **$** | **(7,308,137** | **)** | **$** | **—** | ** ** | **$** | **(77,434,762** | **)** |
| Identifiable assets (include long-lived assets)                           | ** ** | **$**             | **39,678,484** | ** ** | **$** | **801,592,200** | ** ** | **$** | **55,095,282** | ** ** | **$** | **(117,172,987** | **)** | **$** | **779,192,979** | ** ** |

 
| ** **                                                                | ** ** | **2003**          | ** **      |
|---------------------------------------------------------------------------|------------|-------------------|-----------------|
| ** **                                                                | ** ** | **United States** | ** **      | **Dominican  Republic** | ** ** | **Discontinued  Operations – Central America** | ** ** | **Elimination (a)** | ** ** | **Consolidated** | ** ** |
|                                                                      |       |              |            |   |   |   |   |   |   |   |   |
| Long distance                                                             |       | $                 | 77,559,120      |   | $ | 44,099,843 |   | $ | — |   | $ | (29,571,116 | ) | $ | 92,087,847 |   |
|                                                                      |       | 557,420           |            | 107,005,929 |   | — |   | (663,683 | ) | 106,899,666 |   |
| Total revenues from external customers                                    | ** ** | **$**             | **78,116,540**  | ** ** | **$** | **151,105,772** | ** ** | **$** | **—** | ** ** | **$** | **(30,234,799** | **)** | **$** | **198,987,513** | ** ** |
|                                                                      |       |              |            |   |   |   |   |   |   |   |   |
| Net loss before income tax minority interest and discontinued  operations |       | $                 | (12,794,736     | ) | $ | (277,365,061 | ) | $ | — |   | $ | — |   | $ | (290,159,797 | ) |
| Income tax                                                                |       | 569,074           |            | (1,927,935 | ) | — |   | — |   | (1,358,861 | ) |
| Net loss before discontinued operations                                   |       | (12,225,662       | )               | (279,292,996 | ) | — |   | — |   | (291,518,658 | ) |
| Discontinued operations                                                   |       | —            |            | — |   | (46,651,629 | ) | — |   | (46,651,629 | ) |
| Net loss                                                                  | ** ** | **$**             | **(12,225,662** | **)** | **$** | **(279,292,996** | **)** | **$** | **(46,651,629** | **)** | **$** | **—** | ** ** | **$** | **(338,170,287** | **)** |
| Identifiable assets (include long-lived assets)                           | ** ** | **$**             | **40,491,094**  | ** ** | **$** | **441,509,800** | ** ** | **$** | **10,661,300** | ** ** | **$** | **(53,817,210** | **)** | **$** | **438,844,984** | ** ** |

 

F-62

----

 
| ** **                                                                | ** ** | **2004**          | ** **      |
|---------------------------------------------------------------------------|------------|-------------------|-----------------|
| ** **                                                                | ** ** | **United States** | ** **      | **Dominican Republic** | ** ** | **Elimination (a)** | ** ** | **Consolidated** | ** ** |
|                                                                      |       |              |            |   |   |   |   |   |   |
| Long distance                                                             |       | $                 | 61,156,846      |   | $ | 33,503,473 |   | $ | (22,651,323 | ) | $ | 72,008,996 |   |
|                                                                      |       | 832,908           |            | 116,028,939 |   | (689,661 | ) | 116,172,186 |   |
| Total revenues from external customers                                    | ** ** | **$**             | **61,989,754**  | ** ** | **$** | **149,532,412** | ** ** | **$** | **(23,340,984** | **)** | **$** | **188,181,182** | ** ** |
|                                                                      |       |              |            |   |   |   |   |   |   |
| Net loss before income tax minority interest and discontinued  operations |       | $                 | (36,665,106     | ) | $ | (65,188,808 | ) | $ | — |   | $ | (101,853,914 | ) |
| Income tax                                                                |       | (470,666          | )               | 170,484 |   | — |   | (300,182 | ) |
| Net loss                                                                  | ** ** | **$**             | **(37,135,772** | **)** | **$** | **(65,018,324** | **)** | **$** | **—** | ** ** | **$** | **(102,154,096** | **)** |
| Identifiable assets (include long-lived assets)                           | ** ** | **$**             | **41,068,670**  | ** ** | **$** | **414,718,871** | ** ** | **$** | **(68,104,462** | **)** | **$** | **387,683,079** | ** ** |

 

(a)        Revenues represent theelimination of the revenues between subsidiaries and the Company. Identifiableassets represent eliminations of inter-company accounts and investments in commonstock between TRICOM, S.A. (Parent Company) in the Dominican Republic and thesubsidiaries in United States and Central America.

 

**Products and services****:**

** **
| ** **                                      | ** ** | **2002**           | ** **     |
|-------------------------------------------------|------------|--------------------|----------------|
| ** **                                      | ** ** | **Long  Distance** | ** **     | **Domestic  Telephony** | ** ** | **Mobile** | ** ** | **Cable** | ** ** | **Data  and Internet** | ** ** | **Other (b)** | ** ** | **Consolidated** | ** ** |
|                                            |       |               |           |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues from  external customers               |       |               | 80,978,333     |   | 83,721,115 |   | 45,073,631 |   | 21,487,465 |   | 11,007,120 |   | 498,246 |   | 242,765,910 |   |
| Intersegment  revenues                          |       | —             |           | 5,547,502 |   | 3,124,127 |   | — |   | — |   | — |   | 8,671,629 |   |
| Total revenues                                  |       |               | 80,978,333     |   | 89,268,617 |   | 48,197,758 |   | 21,487,465 |   | 11,007,120 |   | 498,246 |   | 251,437,539 |   |
| Reconciling items  intersegment revenues        |       | —             |           | (5,547,502 | ) | (3,124,127 | ) | — |   | — |   | — |   | (8,671,629 | ) |
| Total  consolidated revenues                    | ** ** | ** **         | **80,978,333** | ** ** | **83,721,115** | ** ** | **45,073,631** | ** ** | **21,487,465** | ** ** | **11,007,120** | ** ** | **498,246** | ** ** | **242,765,910** | ** ** |
| Net earnings  (loss) before income tax          |       | (5,267,971         | )              | (36,770,454 | ) | (27,917,176 | ) | 1,905,117 |   | (558,837 | ) | 498,246 |   | (68,111,075 | ) |
| Income tax                                      |       | (227,007           | )              | (233,985 | ) | (125,972 | ) | (1,397,791 | ) | (30,795 | ) | — |   | (2,015,550 | ) |
| Earnings (loss)  before discontinued operations |       | (5,494,978         | )              | (37,004,439 | ) | (28,043,148 | ) | 507,326 |   | (589,632 | ) | 498,246 |   | (70,126,625 | ) |
| Loss from  discontinued operations              |       | —             |           | — |   | (7,308,137 | ) | — |   | — |   | — |   | (7,308,137 | ) |
| Net earnings  (loss)                            | ** ** | **(5,494,978**     | **)**          | **(37,004,439** | **)** | **(35,351,285** | **)** | **507,326** | ** ** | **(589,632** | **)** | **498,246** | ** ** | **(77,434,762** | **)** |
| Identifiable  assets                            | ** ** | **63,263,947**     | ** **     | **304,839,221** | ** ** | **196,784,655** | ** ** | **79,641,461** | ** ** | **16,080,888** | ** ** | **118,582,807** | ** ** | **779,192,979** | ** ** |
| Interest revenues                               | ** ** | **120,369**        | ** **     | **955,749** | ** ** | **663,845** | ** ** | **109,227** | ** ** | **30,192** | ** ** | **103,382** | ** ** | **1,982,764** | ** ** |
| Interest expenses                               | ** ** | **(3,903,324**     | **)**          | **(30,992,938** | **)** | **(21,527,124** | **)** | **(3,542,023** | **)** | **(979,084** | **)** | **(3,352,383** | **)** | **(64,296,876** | **)** |
| Depreciation  expense                           | ** ** | **(4,018,525**     | **)**          | **(31,907,648** | **)** | **(22,162,465** | **)** | **(3,646,561** | **)** | **(1,007,981** | **)** | **(1,359,214** | **)** | **(64,102,394** | **)** |
| Capital  expenditure                            | ** ** | **3,620,296**      | ** **     | **23,446,404** | ** ** | **13,971,185** | ** ** | **10,507,695** | ** ** | **2,284,110** | ** ** | **2,284,110** | ** ** | **53,829,690** | ** ** |

** **

F-63

----

 
|                                            | ** ** | **2003**           | ** **     |
|-------------------------------------------------|------------|--------------------|----------------|
|                                            | ** ** | **Long  Distance** | ** **     | **Domestic  Telephony** | ** ** | **Mobile** | ** ** | **Cable** | ** ** | **Data  and Internet** | ** ** | **Other (b)** | ** ** | **Consolidated** | ** ** |
|                                            |       |               |           |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues from  external customers               |       |               | 92,087,847     |   | 59,475,203 |   | 29,231,686 |   | 13,584,637 |   | 4,486,692 |   | 121,448 |   | 198,987,513 |   |
| Intersegment  revenues                          |       | —             |           | 3,847,892 |   | 2,868,341 |   | — |   | — |   | — |   | 6,716,233 |   |
| Total revenues                                  |       |               | 92,087,847     |   | 63,323,095 |   | 32,100,027 |   | 13,584,637 |   | 4,486,692 |   | 121,448 |   | 205,703,746 |   |
| Reconciling items  intersegment revenues        |       | —             |           | (3,847,892 | ) | (2,868,341 | ) | — |   | — |   | — |   | (6,716,233 | ) |
| Total  consolidated revenues                    | ** ** | ** **         | **92,087,847** | ** ** | **59,475,203** | ** ** | **29,231,686** | ** ** | **13,584,637** | ** ** | **4,486,692** | ** ** | **121,448** | ** ** | **198,987,513** | ** ** |
| Net earnings  (loss) before income tax          |       | (18,957,719        | )              | (77,281,257 | ) | (167,943,116 | ) | (6,735,330 | ) | (19,363,823 | ) | 121,448 |   | (290,159,797 | ) |
| Income tax                                      |       | (564,440           | )              | (718,173 | ) | (226,475 | ) | 190,703 |   | (40,476 | ) | — |   | (1,358,861 | ) |
| Earnings (loss)  before discontinued operations |       | (19,522,159        | )              | (77,999,430 | ) | (168,169,591 | ) | (6,544,627 | ) | (19,404,299 | ) | 121,448 |   | (291,518,658 | ) |
| Loss from  discontinued operations              |       | —             |           | — |   | (46,651,629 | ) | — |   | — |   | — |   | (46,651,629 | ) |
| Net earnings  (loss)                            | ** ** | **(19,522,159**    | **)**          | **(77,999,430** | **)** | **(214,821,220** | **)** | **(6,544,627** | **)** | **(19,404,299** | **)** | **121,448** | ** ** | **(338,170,287** | **)** |
| Identifiable  assets                            | ** ** | **62,382,511**     | ** **     | **229,060,042** | ** ** | **34,558,200** | ** ** | **51,899,330** | ** ** | **575,928** | ** ** | **60,368,973** | ** ** | **438,844,984** | ** ** |
| Interest revenues                               | ** ** | **97,051**         | ** **     | **785,429** | ** ** | **152,161** | ** ** | **109,282** | ** ** | **18,365** | ** ** | **41,542** | ** ** | **1,203,830** | ** ** |
| Interest expenses                               | ** ** | **(5,284,949**     | **)**          | **(42,770,544** | **)** | **(8,285,948** | **)** | **(5,950,956** | **)** | **(1,000,087** | **)** | **(2,262,011** | **)** | **(65,554,495** | **)** |
| Depreciation  expense                           | ** ** | **(5,647,733**     | **)**          | **(45,706,509** | **)** | **(8,854,734** | **)** | **(6,359,457** | **)** | **(1,068,738** | **)** | **(2,417,283** | **)** | **(70,054,454** | **)** |
| Capital  expenditure                            | ** ** | **398,354**        | ** **     | **2,592,634** | ** ** | **2,924,907** | ** ** | **4,545,645** | ** ** | **324,886** | ** ** | **—** | ** ** | **10,786,426** | ** ** |

 

** **
| ** **                               | ** ** | **2004**          | ** ** |
|------------------------------------------|------------|-------------------|------------|
| ** **                               | ** ** | **Long Distance** | ** ** | **Domestic  Telephony** | ** ** | **Mobile** | ** ** | **Cable** | ** ** | **Data  and Internet** | ** ** | **Other (b)** | ** ** | **Consolidated** | ** ** |
|                                     |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues from  external customers        |       | 72,008,996        |       | 64,973,871 |   | 32,123,985 |   | 13,651,113 |   | 5,354,729 |   | 68,488 |   | 188,181,182 |   |
| Intersegment  revenues                   |       | —            |       | 3,527,942 |   | 2,252,883 |   | — |   | — |   | — |   | 5,780,825 |   |
| Total revenues                           |       | 72,008,996        |       | 68,501,813 |   | 34,376,868 |   | 13,651,113 |   | 5,354,729 |   | 68,488 |   | 193,962,007 |   |
| Reconciling items  intersegment revenues |       | —            |       | (3,527,942 | ) | (2,252,883 | ) | — |   | — |   | — |   | (5,780,825 | ) |
| Total  consolidated revenues             | ** ** | **72,008,996**    | ** ** | **64,973,871** | ** ** | **32,123,985** | ** ** | **13,651,113** | ** ** | **5,354,729** | ** ** | **68,488** | ** ** | **188,181,182** | ** ** |
| Net earnings  (loss) before income tax   |       | (32,540,216       | )          | (54,274,468 | ) | (8,301,760 | ) | (5,238,069 | ) | (1,567,889 | ) | 68,488 |   | (101,853,914 | ) |
| Income tax                               |       | (470,666          | )          | — |   | — |   | 170,484 |   | — |   | — |   | (300,182 | ) |
| Net earnings  (loss)                     | ** ** | **(33,010,882**   | **)**      | **(54,274,468** | **)** | **(8,301,760** | **)** | **(5,067,585** | **)** | **(1,567,889** | **)** | **68,488** | ** ** | **(102,154,096** | **)** |
| Identifiable  assets                     | ** ** | **61,817,191**    | ** ** | **195,559,882** | ** ** | **30,383,936** | ** ** | **42,942,282** | ** ** | **1,797,649** | ** ** | **55,182,139** | ** ** | **387,683,079** | ** ** |
| Interest revenues                        | ** ** | **33,230**        | ** ** | **64,026** | ** ** | **39,524** | ** ** | **83,658** | ** ** | **2,338** | ** ** | — | ** ** | **222,776** | ** ** |
| Interest expenses                        | ** ** | **(9,380,827**    | **)**      | **(32,327,083** | **)** | **(15,728,096** | **)** | **(5,320,763** | **)** | **(941,053** | **)** | — | ** ** | **(63,697,822** | **)** |
| Depreciation  expense                    | ** ** | **(13,118,393**   | **)**      | **(46,227,019** | **)** | **(5,831,811** | **)** | **(8,111,033** | **)** | **(157,968** | **)** | **(1,580,156** | **)** | **(75,026,380** | **)** |
| Capital  expenditure                     | ** ** | **298,169**       | ** ** | **6,441,058** | ** ** | **3,991,082** | ** ** | **717,291** | ** ** | **881,475** | ** ** | **948,190** | ** ** | **13,277,265** | ** ** |

 

(b)       Other identifiable assetsinclude administrative/corporate assets which are not revenue generating.  Also include construction in process andcommunication equipment pending installation, which at December 31, had notbeen placed in service and were not specifically associated with any businesssegment. Other remaining assets do not meet any quantifiable test fordetermining reportable segments.

 

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**25****       ****Discontinued Operations**

 

During the last quarter of2003, the Company began negotiating with various Panamanian groups for the saleof its assets located in Panama,****Salvador andGuatemala, which at December 31, 2003 had a book value of $49,228,323. The netsale price of these assets was $10,661,300. The sale was completed in January 2004. As a result of the sale, theCompany recognized an impairment loss on assets held for sale amounting to$38,567,023, which is presented as part of discontinued operations in theconsolidated statements of operations for the year ended December 31, 2003.

 

As a result of the sale, in2003 the Company reclassified its prior period-consolidated financialstatements to reflect the operations in Central America as discontinuedoperations.

 

Summarized financialinformation for Central America operations (discontinued operations) is setforth below.

 
| ** **                    | ** ** | **2002**   | ** **     | **2003**    | ** ** | **2004**        | ** ** |
|-------------------------------|------------|------------|----------------|-------------|------------|-----------------|------------|
|                          |       |       |           |        |       |            |       |
| Revenues                      |       | $          | 2,741,653      |        | $          | 6,202,277       |       | $ | — |   |
|                          |       |       |           |        |       |            |       |
| Operating loss                |       | $          | (9,176,469     | )           | $          | (47,079,031     | )          | $ | — |   |
|                          |       |       |           |        |       |            |       |
| Loss before minority interest |       | (9,178,970 | )              | (46,651,629 | )          |            |       |
| Minority interest             |       | 1,870,833  |           | —      |       | —          |       |
|                          |       |       |           |        |       |            |       |
| Net loss                      |       | **$**      | **(7,308,137** | **)**       | **$**      | **(46,651,629** | **)**      | **$** | **—** |   |

 

The effect of discontinuedoperations does not have any income tax effect for purposes of the consolidatedfinancial statements.

 

The assets of the operationsin Central America are presented in the consolidated balance sheet at December31, 2003 under the caption “Assets held for sale”.  The carrying amounts of the major classes ofthese assets at December 31, 2003 are as follows.

 
| **Assets:**                                           | ** ** | **Amount** | ** **     |
|-------------------------------------------------------|------------|------------|----------------|
| Accounts receivable                                   |       | $          | 955,664        |   |
| Other current assets                                  |       | 596,377    |           |
| Property and equipment, net                           |       | 5,935,090  |           |
| Other non current assets at cost, net of amortization |       | 3,174,169  |           |
| **Total assets held for sale**                        | ** ** | **$**      | **10,661,300** | ** ** |
|                                                       |            |            |                |  |  |

 

**26****       ****New Accounting Standards**

# ** **

In June 2001, the FASBissued SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS No.143). SFAS No. 143 requires the Company to record fair value of an assetretirement obligation as a liability in the period in which it incurs a legalobligation associated with the retirement of a tangible long-lived asset thatresults from the acquisition, construction development and/or normal use of theassets. The Company also records a corresponding asset, which is depreciatedover the life of the asset. Subsequent to the initial measurement of the assetretirement obligation, the obligation will be adjusted at the end of eachperiod to reflect the passage of time and change in the estimated future cashflows underlying the obligation. The Company is required to adopt SFAS No. 143on January 1, 2003. The adoption of SFAS No. 143 is not expected to have amaterial effect on the Company’s financial statements.

 

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In August 2001, the FASBissued SFAS No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets(SFAS No. 144). SFAS No. 144 provides a single accounting model for long-livedassets to be disposed of.  It alsochanges the criteria for classifying an asset as held for sale, broadens thescope of businesses to be disposed of that qualify for reporting asdiscontinued operations and changes the timing of recognizing losses on suchoperations.  In accordance with SFAS No.144, long-lived assets, such as property, plant, and equipment are reviewed forimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto estimated undiscounted future cash flows expected to be generated by theasset. If the carrying amount of an asset exceeds its estimated future cashflows, an impairment charge is recognized in the amount by which the carryingamount of the asset exceeds the fair value of the asset. Assets to be disposedof would be separately presented on the balance sheet and reported at the lowerof the carrying amount or fair value less costs to sell, and are no longerdepreciated. The assets and liabilities of a disposed group classified as heldfor sale would be presented separately in the appropriate asset and liabilitysections of the balance sheet.  Goodwilland intangible assets not subject to amortization are tested annually forimpairment and more frequently if events and circumstances indicate that theasset might be impaired. An impairment loss is recognized to the extent thatthe carrying amount exceeds the asset’s fair value.  SFAS No. 144 is effective for financialstatements issued for fiscal years beginning after December 15, 2001.  The Company adopted SFAS No. 144 on January1, 2002.

 

In November 2001, theEmerging Issues Task Force (EITF) of the FASB reached a consensus on EITF issue01-09, “Accounting for Consideration Given by a Vendor to a Customer (Includinga Reseller of the Vendor’s Products)”. EITF Issue 01-09 addresses the recognition, measurement, and incomestatement classification for sales incentives offered to customers ormanufacturers or resellers who are not end-customers. Sales incentives includediscounts and generally any other offers that entitle a customer to receive areduction in the price of a product by submitting a claim for a refund orrebate. Under EITF 01-09, the reduction in or refund of the selling price ofthe product resulting from any sales incentives should be classified as areduction of revenue.  The Companyadopted EITF Issue 01-09 on January 1, 2003.

 

In April 2002, the FASBissued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendmentof FASB Statement No. 13, and Technical Corrections. SFAS No. 145 amendsexisting guidance on reporting gains and losses on the extinguishment of debtto prohibit the classification of the gain or loss as extraordinary, as the useof such extinguishment has become part of the risk management strategy of manycompanies. SFAS No. 145 also amends SFAS No. 13 to require sale-leasebackaccounting for certain lease modifications that have economic effects similarto sale-leaseback transactions. The provisions of the Statement related to therescission of Statement No. 4 are applied in fiscal years beginning after May15, 2002. Earlier application of these provisions is encouraged. The provisionsof the Statement related to Statement No. 13 were effective for transactionsoccurring after May 15, 2002, with early application encouraged. The adoption ofSFAS No. 145 is not expected to have a material effect on the Company’sfinancial statements.

 

In June 2002, the FASBissued SFAS No. 146, Accounting for Costs Associated with Exit or DisposalActivities. SFAS No. 146 addresses financial accounting and reporting for costsassociated with exit or disposal activities and nullifies Emerging Issues TaskForce (EITF) Issue 94-3, Liability Recognition for Certain Employee TerminationBenefits and Other Costs to Exit an Activity. The provisions of this Statementare effective for exit or disposal activities that are initiated after December31, 2002, with early application encouraged. The adoption of SFAS No. 146 isnot expected to have a material effect on the Company’s financial statements.

 

In November 2002, the FASBissued Interpretation No. 45, Guarantor’s Accounting and DisclosureRequirements for 

 

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Guarantees, IncludingIndirect Guarantees of Indebtedness to Others, an interpretation of FASBStatements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34.This Interpretation elaborates on the disclosures to be made by a guarantor inits interim and annual financial statements about its obligations underguarantees issued. The Interpretation also clarifies that a guarantor isrequired to recognize, at inception of a guarantee, a liability for the fairvalue of the obligation undertaken.   Theinitial recognition and measurement provisions of the Interpretation areapplicable to guarantees issued or modified after December 31, 2002 and are notexpected to have a material effect on the Company’s financial statements. Thedisclosure requirements are effective for financial statements of interim orannual periods ending after December 15, 2002.

 

In December 2002, the FASBissued SFAS No. 148, Accounting for Stock-Based Compensation — Transition andDisclosure, an amendment of FASB Statement No. 123. This Statement amends FASBStatement No. 123, Accounting for Stock-Based Compensation, to provide alternativemethods of transition for a voluntary change to the fair value method ofaccounting for stock-based employee compensation. In addition, this Statementamends the disclosure requirements of Statement No. 123 to require prominentdisclosures in both annual and interim financial statements. The transition andannual disclosure requirements of SFAS 148 are effective for interim periodsbeginning after December 15, 2002.

 

In January 2003, the FASBissued Interpretation No. 46, *Consolidation of VariableInterest Entities (VIE), an interpretation of ARB No. 51*. ThisInterpretation addresses the consolidation by business enterprises of variableinterest entities as defined in the Interpretation. The Interpretation appliesimmediately to variable interests in variable interest entities created afterJanuary 31, 2003, and to variable interests in variable interest entitiesobtained after January 31, 2003.   Theapplication of this Interpretation is not expected to have an effect on theCompany’s consolidated financial statements. The Interpretation requires certain disclosures in financial statementsissued after January 31, 2003 if it is reasonably possible that the Companywill consolidate or disclose information about variable interest entities whenthe Interpretation becomes effective.

 

In December 2003, the FASBissued FASB Interpretation No. 46 (revised December 2003), *Consolidationof Variable Interest Entities*, which addresses how a businessenterprise should evaluate whether it has a controlling financial interest inan entity through means other than voting rights and accordingly shouldconsolidate the entity.  FIN 46R replacesFASB Interpretation No. 46, *Consolidation of VariableInterest Entities*, which was issued in January 2003. The Companywill be required to apply FIN 46R to variable interests in VIEs created afterDecember 31, 2003.  For variableinterests in VIEs created before January 1, 2004, the Interpretation will beapplied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were createdbefore January 1, 2004, the assets, liabilities and no controlling interests ofthe VIE initially would be measured at their carrying amounts with anydifference between the net amount added to the balance sheet and any previouslyrecognized interest being recognized as the cumulative effect of an accountingchange.  If determining the carrying amounts is not practicable, fairvalue at the date FIN 46R first applies may be used to measure the assets,liabilities and no controlling interest of the VIE.  The application of this interpretation is notexpected to have an effect on the Company’s consolidated financial statementsof the year 2004.

 

FASB Statement No. 150, *Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity,*was issued in May 2003*.* This Statement establishes standards for theclassification and measurement of certain financial instruments withcharacteristics of both liabilities and equity. The Statement also includes requireddisclosures for financial instruments within its scope. For the Company, theStatement was effective for instruments entered into or modified after May 31,2003 and otherwise will be effective as of January 1, 2004, except formandatory redeemable financial instruments. For certain mandatory redeemablefinancial instruments, the Statement will be effective for the Company onJanuary 1, 2005. The 

 

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effective date has beendeferred indefinitely for certain other types of mandatory redeemable financialinstruments. The Company currently does not have anyfinancial instruments that are within the scope of this Statement.

 

**27****       ****Fair Values of Financial Instruments**

 

The following table presentsthe carrying amount and estimated fair values of the Company’s financialinstruments at December 31, 2002, 2003 and 2004. The fair value of a financialinstrument is the amount at which the instrument could be exchanged in acurrent transaction between willing parties. Amounts in parentheses representliabilities.

 
| ** **                                       | ** ** | **2002**             | ** ** | **2003**        | ** ** | **2004**             | ** ** |
|--------------------------------------------------|------------|----------------------|------------|-----------------|------------|----------------------|------------|
| ** **                                       | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** |
|                                             |       |                 |       |            |       |                 |       |   |   |   |   |   |   |
| Cash and cash  equivalents                       |       | $                    | 6,080,303  |            | $          | 6,080,303            |       | $ | 2,415,498 |   | $ | 2,415,498 |   | $ | 17,590,173 |   | $ | 17,590,173 |   |
| Accounts  receivable, net                        |       | 24,334,012           |       | 24,334,012      |       | 18,317,604           |       | 18,317,604 |   | 23,699,054 |   | 23,699,054 |   |
| Certificates of  deposit and other Investment    |       | 16,364,252           |       | 16,364,252      |       | 630,165              |       | 630,165 |   | 986,076 |   | 986,076 |   |
| Borrowed funds to  banks and related parties     |       | (45,211,057          | )          | (45,211,057     | )          | (48,603,346          | )          | (48,603,346 | ) | (48,624,394 | ) | (48,624,394 | ) |
| Accounts payable                                 |       | (34,164,111          | )          | (34,164,111     | )          | (27,014,670          | )          | (27,014,670 | ) | (21,435,268 | ) | (21,435,268 | ) |
| Interest payable  banks and related parties      |       | (11,595,595          | )          | (11,595,595     | )          | (32,981,235          | )          | (32,981,235 | ) | (90,245,976 | ) | (90,245,976 | ) |
| Other liabilities  and deferred revenues         |       | (11,874,142          | )          | (11,874,142     | )          | (8,879,366           | )          | (8,879,366 | ) | (8,265,581 | ) | (8,265,581 | ) |
| Accrued expenses                                 |       | (6,241,795           | )          | (6,241,795      | )          | (13,224,636          | )          | (13,224,636 | ) | (14,567,024 | ) | (14,567,024 | ) |
| Commercial paper                                 |       | (51,616,230          | )          | (51,616,230     | )          | (59,136,013          | )          | (59,136,013 | ) | (57,119,746 | ) | (57,119,746 | ) |
| Capital leases                                   |       | (14,531,321          | )          | (14,531,321     | )          | (14,531,321          | )          | (14,531,321 | ) | (14,531,321 | ) | (14,531,321 | ) |
| Long-term debt –  banks and related parties |       | (156,205,833         | )          | (156,205,833    | )          | (126,988,922         | )          | (126,988,922 | ) | (128,002,152 | ) | (128,002,152 | ) |
| Long-term debt –  senior notes              |       | (200,000,000         | )          | (110,000,000    | )          | (200,000,000         | )          | (110,000,000 | ) | (200,000,000 | ) | (110,000,000 | ) |
|                                                  |            |                      |            |                 |            |                      |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The following methods andassumptions were used to estimate the fair value of each class of financial instruments.

 

Cash on hand and in banks,investments in certificates of deposit, notes payable to banks and relatedparties, accounts payable, other liabilities and accrued expenses: The carryingamounts approximate fair value because of the short maturity of theseinstruments. Accounts receivable are adjusted by their valuation allowance and,therefore, are presented at realizable value that approximates fair value.

 

Capital leases, commercialpaper and long-term debt-banks and related parties: The fair value wasestimated by discounting the future cash flows of each instrument at ratescurrently offered to the Company for similar debt instruments by the Company’sbankers.

 

Long-term debt-senior notes:The fair value of this long term debt was estimated based on quoted marketprices on the last business day of the year.

 

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**28****       ****Impairment of Long-Lived Assets**

 

During the years endedDecember 31, 2002 and 2003, the Company recorded asset impairment charges of$17,273,382 and $191,284,301 respectively in the consolidated statements ofoperations. During 2002, the Company recognized $12,084,483 impairment chargesfor tangible assets and $5,188,899 for intangible assets (including goodwill);and $165,087,637 and $26,196,664 respectively during 2003. Refer to note 9 fordetails of the intangible assets impairment charges.

 

The impairment charges fortangible assets are attributable to cellular assets (mobile segment) for$12,084,483 in 2002; and to cellular assets (mobile segment) for $151,369,075and data and Internet (segment) for $13,718,292 in 2003, based on thedeterioration of the telecommunications business in the Dominican Republic,which has been affected by a 84% devaluation of the Dominican peso with respectto the United States dollar (USD) in 2003. The USD is the functional currencyof the Company. Also the Company has been impacted by increased competition formobile telecommunication services and, in the case of data and Internet assetsthe Dominican Government cancelled a contract for Internet services to thepublic schools, which impacted the revenues generated for the related assets.The Company assessed the recoverability of certain long-lived assets inconformity with Statement of Financial Accounting Standard No. 144. The Companywas required to reduce the carrying value of the assets to fair value andrecognized an asset impairment charge because the carrying value of theaffected assets exceeded the projected future discounted cash flows of theseassets. Fair value is generally determined using a discounted cash flowanalysis. The impairment charge is included as part of assets impairment in theaccompanying consolidated statements of operations for the years ended December31, 2002 and 2003.

 

The Company’s managementreviews the estimated useful lives of its fixed assets. This review during 2003indicated those actual lives for certain asset categories generally were longerthan the useful lives used for depreciation purposes in the Company’s financialstatements. As a result, the Company revised the estimated useful lives ofcertain categories of property, principally building, improvementscommunication, office, production, transmission equipments, hardware and other.The effect of this change during 2004 increased accumulated depreciation by $17.4million approximately.

 

The change in estimates ofthe useful lives of fixed assets was based on comparison of the company’suseful lives with other companies’ useful lives of certain machinery andequipment. The Company made these changes to better reflect the estimatedperiods during which such assets will remain in service. Refer to Note 2.9 forchange in accounting estimates of its fixed assets useful lives.

 

**29****       ****De-listing**

 

On May 11 2004, the New YorkStock Exchange, Inc. (NYSE) de-listed TRICOM, S.A.’s American Depositary Shares(ADSs), ticker symbol TDR. The NYSE reached its decision following the Company’sfinancial restructuring update announcement on May 6, 2004.

 

**30****       ****Subsequent Events**

 

On December 2005, theCongress of the Dominican Republic modified some articles of Tax Law inconnection with the entrance of the Free Trade Agreement with the United Statesand Central America (DR-CAFTA). This reform took place at January 1st,2006.

 

The articles mainly affectedby the Reform, were numbers II, III and IV related to the Income Tax (ISR). The corporative income tax rate increasedfrom 25% to 30%, to be applied in 2006 at 30%, 2007 at 29%, 2008 at 27% and2009 at 25%.

 

F-69

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Value Addvaloren Tax (ITBIS): The base ofthe tax was extended, including new products and services.

 

Selective tax forConsumption (ISC): The tax rate increased from 26% to 32.5%. The newtax rate for internal consumption is 13%.

 

Equally, the article V wasadded to institute an annual tax rate to the assets, equivalent 1% of the totalassets of entities, as well as modification to the tax rate to the real estateproperty, to the banking transactions and taxes to fossil fuels.

 

Another important aspect ofthe Reform was the modification of the article 287 (Loss Carry Forward).According with this article the companies will be able to compensate their LossCarry Forward with future taxable income, in a term of 5 years, base on 20% ofthe losses during the first three years and 80% and 70% of taxable income inforth and fifth years respectively.

 

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