** **

**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, 2005**

 

**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 THISSHELL COMPANY REPORT**

 

**FOR THE TRANSITION PERIODFROM                 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, 2005, 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 mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.**

 

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

 

**Indicate bycheck mark whether the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer. See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.**

 

**Largeaccelerated filer  ****o****                Acceleratedfiler  ****o****                Non-acceleratedfiler  ****x**

 

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

* *

**Item 17  ****o                                              Item18  ****x**

 

***If this reportis an annual, indicate by check mark whether the registrant is a shell company(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.

 

1

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**GENERALINFORMATION**

 

#### **Forward-LookingStatements**

#### ** **

The statements containedin this Annual Report, which are not historical facts, are forward-lookingstatements that involve risks and uncertainties. Management cautions the readerthat these forward-looking statements are only predictions; actual events orresults may differ materially as a result of risks facing us. Such risksinclude, but are not 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;

 

•                                          Customer churn;

 

•                                          Rapidtechnological change;

 

•                                          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;

 

•                                          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

 

•                                          OurADSs no longer being listed on a national securities exchange.

 

2

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# **PART I.**

 

**ITEM 1.****                                                     IDENTITYOF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**

## ** **

Not Applicable.

 

**ITEM 2.****                                                     OFFERSTATISTICS AND EXPECTED TIMETABLE**

## ** **

Not Applicable.

 

**ITEM 3.****                                                     KEYINFORMATION**

## ** **

#### **SpecialNote**

#### ** **

We are filing this reportduring October 2007. Although we make reference to certain events and otherdevelopments that have occurred since December 31, 2005, the principal purposeof this report is to describe our business, operations, management, results ofoperations, financial condition, and other matters as at December 31, 2005 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 subsequentperiods.

 

#### **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:**

#### ** **

•                                          A world-widedecline 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;

 

•                                          Continuing volatilityand 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 $447.5 millionin principal amount as of December 31, 2005. 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 11-3/8% Senior Notes due 2004and other significant 

 

3

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creditors, as well ascertain affiliates of GFN Corporation Ltd. (“GFN”), our majority shareholder,who are also significant creditors.

 

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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#### ***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 Héctor Castro Noboa,Secretary and Vice-Chairman of the Board of Directors, to succeed Mr. Carlsonas our Chief Executive Officer. Héctor 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.

 

#### ***Termination of Deposit Facility.***

#### ** **

In December 2006, theBank of New York, the depositary for our ADS facility, notified us and holdersof our ADSs, that it was terminating our ADS facility. Upon termination of theADS facility, most of the depositary’s obligations under the Deposit Agreementalso terminated. Holders of our ADSs may obtain delivery of the shares of ClassA Common Stock underlying our ADSs, upon payment of certain taxes andprocessing fees. As a result of the termination, the Bank of New York is nolonger obligated to perform any functions in connection with voting the Class ACommon Stock underlying our ADSs. With the termination of the ADS facility, ourADSs 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, 2004,and 2005, the information has been derived from our consolidated financialstatements which have been audited by our current independent registered publicaccounting firm, Sotomayor. For the fiscal year ended December 31, 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 that or any other fiscal periods. Accordingly,readers of this Annual Report should treat the Selected Financial Informationfor the fiscal year ended December 31, 2001, and any other financialinformation in this Annual Report relating to that or earlier fiscal periods,as if such financial information were unaudited.

 

Our 2002 financialstatements were restated. See our Annual Report on Form 20-F for the fiscalyear ended December 31, 2004.

 

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.

 

5

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| ** **                                                                                                  | ** ** | **Year ended December 31, ****(1)** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **2001**                                                | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                                                  | ** ** | **Unaudited**                                           | ** ** | **Restated** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Statement of Operations Data:**                                                                           | ** ** | **(in thousands)****(2)**                               | ** ** |
| ** **                                                                                                  |       |                                                    |       |   |   |   |   |   |   |   |   |
| Operating  revenues                                                                                         |       |                                                    |       |   |   |   |   |   |   |   |   |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Long distance                                                                                               |       | $                                                       | 81,383     |   | $ | 80,978 |   | $ | 92,088 |   | $ | 72,009 |   | $ | 70,620 |   |
| Domestic  telephony                                                                                         |       | 87,182                                                  |       | 83,721 |   | 59,475 |   | 64,974 |   | 84,071 |   |
| Mobile                                                                                                      |       | 44,721                                                  |       | 45,074 |   | 29,232 |   | 32,124 |   | 35,485 |   |
| Cable (3)                                                                                                   |       | 4,736                                                   |       | 21,487 |   | 13,585 |   | 13,651 |   | 19,304 |   |
| Data and  internet                                                                                          |       | 8,372                                                   |       | 11,007 |   | 4,487 |   | 5,355 |   | 7,953 |   |
| Other                                                                                                       |       | 859                                                     |       | 498 |   | 121 |   | 68 |   | 91 |   |
| Total operating  revenues                                                                                   |       | 227,253                                                 |       | 242,766 |   | 198,988 |   | 188,181 |   | 217,525 |   |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Operating costs  and expenses:                                                                              |       |                                                    |       |   |   |   |   |   |   |   |   |
| Cost of sales  and services                                                                                 |       | 73,324                                                  |       | 86,519 |   | 91,010 |   | 89,541 |   | 87,696 |   |
| Selling, general  and administrative expenses                                                               |       | 67,449                                                  |       | 73,923 |   | 60,393 |   | 56,685 |   | 77,654 |   |
| Restructuring  costs (4)                                                                                    |       | —                                                  |       | — |   | 1,597 |   | 8,146 |   | 7,803 |   |
| Depreciation and  amortization                                                                              |       | 54,773                                                  |       | 66,517 |   | 70,292 |   | 75,254 |   | 62,041 |   |
| Expense in lieu  of income taxes (5)                                                                        |       | 12,646                                                  |       | 5,897 |   | — |   | — |   | — |   |
| Asset  impairments (6)                                                                                      |       | —                                                  |       | 17,273 |   | 191,284 |   | — |   | — |   |
| Other charges  and special items (7)                                                                        |       | —                                                  |       | — |   | 15,871 |   | — |   | — |   |
| Total operating  costs                                                                                      |       | 208,193                                                 |       | 250,129 |   | 430,447 |   | 229,626 |   | 235,195 |   |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Operating income  (loss) from continuing operations                                                         |       | 19,060                                                  |       | (7,363 | ) | (231,459 | ) | (41,445 | ) | (17,670 | ) |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Other income  (expenses):                                                                                   |       |                                                    |       |   |   |   |   |   |   |   |   |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Interest  expense, net                                                                                      |       | (39,676                                                 | )          | (62,313 | ) | (64,351 | ) | (63,475 | ) | (68,863 | ) |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Foreign currency  exchange gain (loss)                                                                      |       | (260                                                    | )          | 3,067 |   | 5,347 |   | (2,674 | ) | 727 |   |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Other, net                                                                                                  |       | 1,293                                                   |       | (1,502 | ) | 303 |   | 5,740 |   | 1,614 |   |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Other expenses,  net                                                                                        |       | (38,643                                                 | )          | (60,749 | ) | (58,701 | ) | (60,409 | ) | (66,522 | ) |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Loss before  income taxes, minority interest and cumulative effect of accounting change                     |       | (19,583                                                 | )          | (68,111 | ) | (290,160 | ) | (101,854 | ) | (84,192 | ) |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Income taxes  (provision) benefit                                                                           |       | (511                                                    | )          | (2,016 | ) | (1,359 | ) | (300 | ) | 818 |   |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Loss from  continuing operations before discontinued operations and cumulative effect of  accounting change |       | (20,095                                                 | )          | (70,127 | ) | (291,519 | ) | (102,154 | )  | (83,374 | ) |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| 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 | ) | — |   | — |   |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Net loss                                                                                                    |       | $                                                       | (23,114    | ) |   | $  | (77,435 | ) |   | $  | (338,170 | ) |   | $  | (102,154 | ) |   | $  | (83,374 | ) |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Loss per common  share-basic and diluted:                                                                   |       |                                                    |       |   |   |   |   |   |   |   |   |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Loss from  continuing operations before cumulative effect of accounting change                              |       | $                                                       | (0.83      | ) | $ | (1.62 | ) | $ | (4.51 | ) | $ | (1.58 | ) | $ | (1.29 | ) |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Loss from  discontinued operations                                                                          |       | —                                                  |       | (0.17 | ) | (0.72 | ) | — |   | — |   |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Net loss – basic  and diluted                                                                          |       | $                                                       | (0.83      | ) | $ | (1.79 | ) | $ | (5.23 | ) | $ | (1.58 | ) | $ | (1.29 | ) |
|                                                                                                        |       |                                                    |       |   |   |   |   |   |   |   |   |
| Average number  of common shares outstanding – basic and diluted                                       |       | 27,724                                                  |       | 43,400 |   | 64,603 |   | 64,603 |   | 64,603 |   |
|                                                                                                             |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

6

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| ** **                                           | ** ** | **At December 31,** | ** ** |
|------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                           | ** ** | **2001**                      | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                           | ** ** | **Unaudited**                 | ** ** | **Restated** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| **Balance  Sheet Data:**                             | ** ** | ** **                    | ** ** | **(in  thousands) (2)** |   |   |   |
| ** **                                           |       |                          |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                           |       | $                             | 27,776     |   | $ | 6,080 |   | $ | 2,415 |   | $ | 17,590 |   | $ | 32,113 |   |
| Property, plant  and equipment, net                  |       | 685,917                       |       | 668,120 |   | 396,373 |   | 332,908 |   | 298,439 |   |
| Total assets                                         |       | 829,415                       |       | 779,193 |   | 438,845 |   | 387,683 |   | 368,532 |   |
| Total  liabilities                                   |       | 498,155                       |       | 534,689 |   | 532,511 |   | 583,503 |   | 647,727 |   |
|                                                 |       |                          |       |   |   |   |   |   |   |   |   |
| Shareholders’  equity (deficit)                 |       | 253,534                       |       | 244,504 |   | (93,666 | ) | (195,820 | ) | (279,194 | ) |
|                                                 |       |                          |       |   |   |   |   |   |   |   |   |
| **Other  Financial Data:**                           |       |                          |       |   |   |   |   |   |   |   |   |
| ** **                                           |       |                          |       |   |   |   |   |   |   |   |   |
| Capital expenditures  (9)                            |       | $                             | 85,024     |   | $ | 53,830 |   | $ | 10,786 |   | $ | 13,277 |   | $ | 28,624 |   |
| Net cash  provided by operating activities           |       | 33,624                        |       | 7,184 |   | 7,270 |   | 22,211 |   | 43,212 |   |
| Net cash used in  investing activities               |       | (176,466                      | )          | (57,918 | ) | (183 | ) | (2,972 | ) | (28,286 | ) |
|                                                 |       |                          |       |   |   |   |   |   |   |   |   |
| Net cash  provided by (used in) financing activities |       | 137,219                       |       | 44,239 |   | (10,752 | ) | (4,064 | ) | (404) |   |
|                                                 |       |                          |       |   |   |   |   |   |   |   |   |
| **Other  Operating Data:**                           |       |                          |       |   |   |   |   |   |   |   |   |
| ** **                                           |       |                          |       |   |   |   |   |   |   |   |   |
| International  minutes (in thousands)(10)            |       | 768,394                       |       | 1,069,130 |   | 1,133,973 |   | 885,009 |   | 877,728 |   |
| Local access  lines in service (at period end)       |       | 177,352                       |       | 150,456 |   | 141,856 |   | 153,440 |   | 167,763 |   |
| Mobile  subscribers (at period end)                  |       | 364,059                       |       | 432,058 |   | 435,341 |   | 345,636 |   | 393,991 |   |
| Cable  subscribers (at period end)                   |       | 64,466                        |       | 71,726 |   | 61,433 |   | 59,320 |   | 63,878 |   |

 

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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 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 2.23 and 2.24 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 2005) 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 

 

7

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business and cancellation of a contract with theDominican government for the provision of internet services to public schools. See“Operating and Financial Review and Prospects” and Note 25 of notes toconsolidated 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 operations in 2003. In February2004, we sold our Central American operations, including our digital trunkingnetwork in Panama, and our radio frequency rights in Guatemala and El Salvador.As a result of the difference between the net sale proceeds from the sale andthe net book value of our assets in Central America, we recorded a $38.6million loss from impairment of assets held for sale in 2003. See “Operatingand Financial Review and Prospects” and Note 22 of notes to consolidatedfinancial statements.

 

(9)           Includescapital lease obligations entered into in 2001 of $3.3 million. We did not enterinto any capital lease obligations after 2001.

 

(10)         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 six 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$)** | ** ** |
|                        |       |                        |       |   |   |   |   |
| 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 |   |

 

8

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| ** **                  | ** ** | **Private Market Rate** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|
| **Year Ended December 31,** | ** ** | **High**                          | ** ** | **Low** | ** ** | **Avg.** | ** ** |
| ** **                  | ** ** | **(RD$ per US$)**       | ** ** |
|                        |       |                              |       |   |   |   |   |
| 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. Even thoughthese discussions are continuing, our creditors could exercise their rights tocollect the debt owed to them or take other actions, including the exerciseunder Dominican law of provisional remedies that could result in, among otherthings, denying us access to our bank accounts, or creditors attaching orseizing our assets. If we are not successful in restructuring our outstandingindebtedness, we may not be able to continue to operate our business as a goingconcern.

 

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***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 by reorganizedTricom and all of the equity in a to-be-formed holding company. This willresult 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 theproposed restructuring remains subject to significant uncertainties. Althoughour goal is to achieve a consensual restructuring, we may not succeed inaccomplishing this. It is possible that one or more of our creditors may seekto attach or seize our assets prior to the proposed restructuring. If a claimis filed requesting our bankruptcy by one or more of our creditors, we may seekthe assistance of the Dominican or United 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 Dominicancourt may elect not to apply the amicable settlement and bankruptcy lawsbecause no clear precedents on this subject exist and because of the effects ofthe dual revision judicial system established by the Dominican constitutionwhich provides litigants the right to appeal any decision of the court before aCourt of Appeals and later to interpose a certiorari recourse before theSupreme Court. Any bankruptcy proceeding in the Dominican Republic may last foryears before a final and irrevocable 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 restructuringefforts are unsuccessful, we may become involved with bankruptcy proceedings inthe Dominican Republic. The bankruptcy laws of the Dominican Republic aresignificantly different from, and are less developed than, those of the UnitedStates. There have been very few bankruptcy proceedings in the Dominican Republicand none has involved an entity with operations as significant or a capitalstructure as complex as ours. Except for an amicable settlement process,Dominican bankruptcy law does not provide for a reorganization process fordebtors or for an automatic stay on collection or foreclosure efforts bysecured creditors.

 

Unless creditors’ claimsare resolved in an amicable settlement process or in negotiations amongcreditors and the debtor, Dominican law provides only for the liquidation of adebtor’s business and distribution of the proceeds first to employees,Dominican tax authorities, lawyers, landlords, secured creditors, and finallyto unsecured creditors. Amicable settlement and bankruptcy proceedings may betime consuming and subject to significant delays. Our business and marketposition likely would be adversely and significantly affected by theproceedings and the adverse publicity that would accompany it.

 

Dominican courts havebroad discretion and, in the absence of precedent, we cannot predict how courtsor appointed receivers would apply the law or administer a bankruptcy. Theability of our creditors to realize any value 

 

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may be limited,particularly in liquidation, in which case our assets and business units likelywould have a significantly diminished value. Our liquidation under Dominicanbankruptcy laws could result in creditors receiving distributions from suchliquidation in Dominican pesos, including with respect to indebtedness denominatedin U.S. dollars, thus subjecting such creditors to the currency risksassociated with converting Dominican 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, theholders of two-thirds of the votes entitled to be cast at a shareholders’meeting are required to approve the filing of a voluntary bankruptcy petition. Althoughthe holdings of our current shareholders would be effectively eliminated in therestructuring, the consent of our principal shareholders, GFN and Motorola, isnecessary in order for any restructuring that involves our filing a voluntarybankruptcy petition to move forward. Entities affiliated with one of our majorshareholders, GFN, are among our creditors. It is therefore possible that ourmajor shareholders, in approving our restructuring, may not act in the bestinterests of our other creditors.

 

***Potentialfor Duplicate Claims.***

 

A portion of our paymentobligations have been subject to one or more assignments or re-documentationboth with respect to third parties and our affiliates and former affiliates. Weare not currently aware of any claim that has been asserted against us by morethan one claimant. However, it is possible that multiple claims relating to theidentical underlying liability may be asserted against us arising from, amongother circumstances, alleged defects in the assignment documentation, lack ofrequired consents or failure to obtain appropriate approvals. Such risk mayexist in connection with certain transfers of debt between our affiliates ofthe Debtors.

 

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

 

Any plan ofreorganization resulting from our restructuring process, whether pursuant tothe Plan Support Agreement or otherwise, is likely to involve us issuing orassuming a significant amount of indebtedness. As a result, we will likely behighly leveraged immediately after any restructuring is consummated. The degreeto which we are leveraged could have important consequences to us, includingthe following:

 

•                  A substantial portion of our cashflow would need to be used to pay interest on our indebtedness and thereforewould not be available for use in our business;

 

•                  We may be vulnerable to changes ingeneral economic and industry conditions;

 

•                  Our ability to obtain additionalfinancing for working capital, capital expenditures, acquisitions, generalcorporate purposes or other purposes could be impaired;

 

•                  We may have much more indebtednessthan our 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 covenantsand restrictions contained in the terms of our borrowings could lead to adefault which could cause all or a significant portion of our debt to becomeimmediately payable.

 

11

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***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 acombination of debt and equity securities will be issued in connection with theconsummation of our restructuring. There is currently no trading market in anysecurities that may result from our restructuring and, following consummationof the restructuring, an active trading market for those securities may notdevelop or be sustained. This could adversely affect the liquidity and marketprice of our securities and holders might not be able to sell them readily.

 

Active, liquid tradingmarkets generally result in lower price volatility and more efficient executionof buy and sell orders for investors. If a liquid trading market for ourpost-restructuring securities does not develop, their price may become more volatile,and it may be more difficult to complete a buy or sell order for suchsecurities.

 

In addition to ouroperating results, the trading prices of our post-restructuring securities mayfluctuate in response to several extraneous factors, including economicconditions in emerging markets generally, in Latin America, and in our businesssector. The market price of our post-restructuring securities may decline belowthe price set in the restructuring.

 

***Whetheror not a restructuring is achieved, certain creditors may be beyond thejurisdiction of 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.

 

***Weare involved in various legal proceedings which could result in unfavorabledecisions and financial difficulties for us.***

*** ***

Weare a defendant in a number of legal proceedings. We cannot be certain thatthese claims will be resolved in our favor. We may, in the future, be subjectto further legal proceedings, including those arising out of the December 2002private placement and other legal proceedings resulting from our formeraffiliation with certain banking and other financial services entities thatcollapsed during 2003. If an unfavorable judgment is obtained against us in anyof these matters, we may not be able to satisfy the amount of the judgmentwithout significantly impairing our liquidity. There can be no assurance thatany of the litigants in our pending legal proceedings would be amenable toparticipating in any consensual restructuring. If a judgment creditor exercisesits rights to collect a judgment, this could result in, among other things,denial of access to our bank accounts, the attachment or seizure of our assets,or the initiation of bankruptcy proceedings in the United States or theDominican Republic. A bankruptcy proceeding in the Dominican Republic couldresult in our liquidation.

 

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

*** ***

***Our restructuring will likely involve a change of control,an event that will require the consent of our regulator, Instituto Dominicanode las Telecomunicaciones (“Indotel”). As part of the proceedings to determinewhether such consent will be granted, third parties, including our competitors,may object to the transactions constituting the restructuring. In consideringour application for consent, Indotel may consult with other governmentdepartments and governmental agencies in the Dominican Republic, including theCentral Bank of the Dominican Republic, any of which may raise objections basedon matters extraneous to our business or the merits of the restructuring. IfIndotel decides in favor of these or any other objections, it could invalidatethe transfer of our***

 

12

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***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 control contemplated by our restructuring will likelyrequire the consent of the Federal Communications Commission in the UnitedStates and state telecommunications regulatory agencies in order for Tricom USAto remain in compliance with applicable regulatory requirements.***

 

As our restructuring will likely involve a change of control, such achange affecting carriers authorized by the Federal Communications Commissionand state telecommunications regulators in the United States typically requiresthe approval of the Federal Communications Commission and statetelecommunications regulators.  Since oursubsidiary Tricom USA is certified by the Federal Communications Commission andseveral state telecommunications regulatory agencies, prior approval of thesegovernmental entities for the change of control contemplated by therestructuring may be necessary in order for Tricom USA to remain in compliancewith applicable regulatory requirements. As part of the proceedings to determine whether consent will be granted,third parties, including our competitors, may object to the transactionsconstituting the restructuring.  Inconsidering our application for consent, the Federal Communications Commissionmay consult with other government departments and governmental agencies in theUnited States, including the Department of Homeland Security, which has beenreviewing certain transactions involving foreign carriers and foreign individuals.Pursuant to the rules of the Federal Communications Commission and most statetelecommunications agencies, we would be required to obtain an approval beforeconsummating the restructuring in order for Tricom USA to remain in compliancewith applicable regulatory requirements.

 

***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 indebtedness to Tricom USA, which is a guarantor ofcertain, but not all, of these obligations. Our tax advisors concluded thatsuch allocation was appropriate and as of April 30, 2007, approximately $111million of accrued and unpaid interest, plus $17 million in penalty interesthas been allocated to Tricom USA. It is possible, however, that the InternalRevenue Service, another U.S. agency, or the Dominican tax authorities wouldseek to challenge this allocation. To the extent such interest is allocatedback to Tricom, S.A., we would be required to pay all requisite withholdingtaxes on such interest and it is possible, although unlikely, that Tricom, S.A.could incur additional fines and penalties in the Dominican 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.***

 

According to records available to us, Mr. ManuelArturo Pellerano Peña (“Mr. Pellerano”), together with members of his family,either directly or through GFN or their other wholly-owned subsidiaries, arethe beneficial owners of 17,453,874 shares of our Class A Common Stock and11,486,720 shares of our Class B Common Stock, representing approximately 50.8%of the issued and outstanding shares of our Class A Common Stock (calculated inaccordance with U.S. Securities and Exchange Commission (“SEC”) Rule 13d-3) and60% of the issued and outstanding shares of our Class B Common Stock. Mr.Pellerano, together with members of his family, has the right to appoint amajority of the members of our Board of Directors and, indirectly, the right tocontrol selection of our management. Through this control, Mr. Pellerano isable to significantly influence our strategic direction, our corporategovernance and, to the extent that director or shareholder votes are required,the outcome of our restructuring. Entities affiliated with GFN are also amongour major creditors. We have entered into, and may in the future enter into,transactions with related entities that are controlled by Mr. Pellerano ormembers of his family. Such transactions may not in all respects be on arm’slength terms and may not be in the best interests of our other stakeholders,such as creditors and 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 are organized under, and our Bylaws andShareholders Agreement are governed by, the laws of the Dominican Republic. UnderDominican law, the law concerning fiduciary duties of directors, controllingshareholders and others, is not as well developed as in the United States. As aresult, in practice it may be more difficult for creditors, minorityshareholders and others to enforce their rights against us or our directors orcontrolling shareholder than it would be if we were a U.S. company.

 

Our principal corporate documents consist of our Bylawsand the Shareholders Agreement between our two principal shareholders, GFN andMotorola. See Item 7, Major Shareholders and Related PartyTransactions—Shareholders Agreement. While these documents address certaincorporate governance issues, one of their principal purposes was to regulatematters as between those two shareholders. Accordingly, the benefit of thesedocuments to other interested parties, such as minority shareholders andcreditors, may be limited. Furthermore, it is difficult to 

 

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predict how a court of competent jurisdiction in theDominican Republic would interpret the provisions of these documents inspecified circumstances.

 

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

 

Our consolidated balancesheet as of December 31, 2002 and the related statements of operations,stockholders’ equity (deficit) and comprehensive loss and cash flows for theyear then ended were restated to reflect adjustments to the financialinformation and footnotes previously reported in our Annual Report on Form 20-Ffor the fiscal year ended December 31, 2002. The adjustments related primarilyto the purchase in December 2002 of shares of our Class A Common Stock by agroup of investors for an aggregate purchase price of approximately $70 million.See Item 7, Major Shareholders and Related Party Transactions—2002 PrivatePlacement in our Annual Report on Form 20-F for the fiscal year ended December31, 2004, for a detailed description of the Placement, the report of theSpecial Committee and the restatement and amendment of our 2002 financialstatements.

 

The report of the SpecialCommittee contained observations to the effect that we may have certainundisclosed actual or contingent liabilities arising out of the Placement andthat the disclosure as to the Placement and related transactions contained inour Annual Report on Form 20-F for the fiscal year ended December 31, 2002 mayhave been deficient and/or not consistent with information presented to theSpecial Committee. The report also stated that varying conclusions can bereached as to whether we properly accounted for the Placement, based ondifferent hypothetical fact scenarios. As of the filing date of this report, noclaims arising out of the events relating to the Placement have been asserted,in any jurisdiction, in any litigation or similar proceedings brought againstus or our subsidiaries. Nevertheless, we have received indications that certainparties involved in the Placement believe that they have claims in connectionwith the Placement, although we are unable at the present time to determineeither the probability of such claims being asserted against us, or thevalidity or amount of such claims if they are asserted. While it is possiblethat we will in the future need to establish loss contingencies relating to thePlacement, our management does not believe that this is necessary at thepresent time. Claims arising out of the Placement could, in the aggregate,equal or substantially exceed the $70 million amount of the Placement, inparticular if the claimants seek rescission of the Placement or certain relatedtransactions.

 

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

 

In addition to thepossibility of liabilities arising out of the Placement, the Special Committeeoffered several observations and corrective recommendations for our Board ofDirectors’ consideration, including, among others, the following:

 

•                  The creation ofan independent audit committee of the Board of Directors, in accordance withcurrent best corporate governance practices for U.S. public companies;

 

•                  Expansion of thescope of review of our internal audit function to cover all related partytransactions;

 

•                  Strengtheningthe internal legal function by adoption of more stringent internal policiescovering the legal review and sign-off of corporate transactions, and Board ofDirectors approval of a consistent policy for retention and use of outsidelegal counsel in connection with any significant corporate transaction;

 

•                  Constitution ofa formal internal management 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 acomprehensive code of conduct, covering all directors, officers and employees,in a form consistent with best internal governance practices for publiccompanies addressing, among other things, the guidelines for appropriatedocumentation and independent review and approval of transactions involving ourrelated parties or affiliates;

 

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•                  Adoption of aformal records retention policy covering, among other things, a classificationof records to be preserved (and for how long), who has access to our files andguidelines for documenting material transactions, etc.

 

A more detaileddescription of these recommendations is set forth in our Report on Form 6-Kdated December 9, 2005. To date, we have not implemented most of theserecommendations. While adoption of these or similar recommendations may notprevent the occurrence of transactions raising issues similar to those raisedby the Placement, our failure to implement these recommendations could leave usexposed to further liabilities from transactions that 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 Directorshas not appointed an audit committee. For purposes of U.S. securities laws, inthe absence of an audit committee, our full Board of Directors fulfills thefunctions of the audit committee. While our Board of Directors is not currentlyrequired to appoint an audit committee, the absence of one is unusual and notin accordance with current best corporate governance practices for U.S. publiccompanies.

 

During the course of theaudit of our consolidated financial statements for the years ended December 31,2003, 2004 and 2005, our independent registered accounting firm noted severalmajor weaknesses in our financial reporting and related internal controls. Ourauditor recommended that our management assess these weaknesses and implementimprovements in the monitoring, revision and supervision of our internalcontrols over financial reporting. While we have implemented many of theserecommendations, we are still in the process of addressing these issues. Ourinternal accounting systems and controls may be inadequate to ensure timely andaccurate financial reporting. We may be, and historically may have been, unableto detect or prevent a material misstatement of our consolidated financialstatements.

 

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

 

For the fiscal year endedDecember 31, 2002 and prior years our auditor was KPMG. This firm performed ouraudit work for the fiscal year ended December 31, 2003, but withheld itsconsent to filing our Annual Report on Form 20-F for that year. Since then,KPMG has not performed any further work for us. In March 2005, we announcedthat Sotomayor had been retained to act as our auditor for the year endedDecember 31, 2004, and in December 2005, we announced that they would also beretained as auditor for the years ended December 31, 2002 and 2003, replacingKPMG. Sotomayor is a PCAOB registered independent public accounting firm withits principal office in Pasadena, California. The firm has acted as independentauditor to Tricom USA, our wholly owned subsidiary in the United States, since1999. While our auditor’s PCAOB qualification permits it to act as ourindependent registered public accounting firm, it is not an internationallyrecognized firm, and may not have available to it all of the resourcesnecessary to address the more complex audit and accounting issues we face.

 

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

#### ** **

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

*** ***

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 of ourcurrent financial condition and the effects of the Dominican economy, includingthe effects of the fluctuation of the Dominican peso on our operating resultsand other matters, the realization of assets and satisfaction of ourliabilities are subject to substantial uncertainty. In the past, we financedour capital expenditure and working capital requirements, to the extent we didnot generate sufficient cash flow from operations, with borrowings, principallyin Dominican markets. In light of our recent financial results and adversedevelopments in the Dominican economy, we may not be able to generate the cashflow from operations required to operate as a going concern. At the presenttime, our only source of liquidity is cash flow from operations and proceedsfrom asset sales. We do not have access to outside funding sources. Even if weare able to reach agreement with our lenders concerning a financialrestructuring, we may not be able to obtain the financing in the futurenecessary to continue funding our operations or capital needs. The report onour financial statements by our independent 

 

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registered accountingfirm contains an explanatory paragraph that states that these factors, amongothers, create substantial doubt about our ability to continue as a goingconcern.

 

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

*** ***

Even if we are able toreach agreement with our lenders concerning a financial restructuring, ourability to pay interest on our indebtedness (even if the principal amount isreduced in a restructuring) and meet our debt service obligations will dependon our future operating performance, including our ability to increase revenuesand control expenses, which in turn depends on successful implementation of ourstrategy and on financial, competitive, regulatory, technical and otherfactors, many of which are beyond our control. It is likely that any new debtissued in exchange for our existing indebtedness will be payable in U.S.dollars and our ability to pay interest and principal will continue to beaffected by and dependent on the performance of the Dominican economy. As aresult of these and other factors, we may not be able to meet our debt serviceobligations even if our current indebtedness is restructured.

 

***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 2004 and 2005, weearned 46.8% and 52.5% respectively, of our operating revenues in Dominicanpesos and the remainder of our operating revenues in foreign currency,primarily in U.S. dollars. The percentage of operating revenues in Dominicanpesos could increase if we successfully increase our share in Dominican localmarkets in accordance with our business strategy. From 2004 to 2005, theaverage annual exchange rate decreased 27.8% representing a weakening of theU.S. dollar against the Dominican peso compared to an increase of 36.1% from2003 to 2004. Most of our indebtedness is U.S. dollar-denominated and must bepaid in U.S. dollars. Our communications equipment vendors and cableprogramming providers all require that we pay in U.S. dollars. While theDominican peso strengthened against the U.S. dollar in 2005, a significantincrease in the exchange rate in the foreseeable future may again adverselyaffect our operating results, as well as our ability to purchase U.S. dollarsin order to service our debt obligations and pay equipment vendors and cableprogramming providers. Our purchase of substantial amounts of U.S. dollars inDominican markets could adversely affect the value of the Dominican peso inrelation to the U.S. dollar and make these purchases more costly for us.

 

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

#### ** **

The Dominican governmenthas in the past changed tax rates and created new taxes, as well as modifiedthe system of taxation with some frequency. In addition, it is possible thatthe Dominican government may impose taxes related to the telecommunicationsindustry that may affect our financial 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 withCompañía Dominicana de Teléfonos C. por A., or “Codetel” (formerly VerizonDominicana, which was acquired by América Móvil, S.A. de C.V. in December2006). Codetel has an established market presence, networks and resourcessubstantially greater than ours. At December 31, 2005, approximately 81% of theDominican Republic’s local access line customers and approximately 49% of subscribersfor mobile services, were customers of Codetel. Codetel’s presence isparticularly strong in the market segments that we now are targeting, includingconsumer and business post-paid subscribers for mobile and local services,which generate greater revenues than pre-paid individual subscribers. Thegrowth of our market share among consumer and corporate post-paid subscribersdepends upon our ability to convince Codetel customers to either add, or switchto, the telephony services we offer. If Codetel implements significant pricereductions for particular services, we may be forced to reduce our rates inresponse in order to remain competitive. In addition, Codetel could expendsignificantly greater amounts of capital than are available to us in order toupgrade its network and/or sustain price 

 

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reductions over aprolonged period. As a result, we may not be able to maintain or increase ourmarket share for local services or in other markets in which we compete withCodetel.

 

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

*** ***

Inaddition to Codetel, we face substantial competition in the mobilemarket:

 

•                                          OrangeDominicana, S.A. (“Orange”), a subsidiary of France Telecom Group, offerscellular services and has developed an aggressive marketing strategy based onoffering services at discounts. We believe that at December 31, 2005 Orangesubscribers represented in excess of 30% 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;

 

•                                          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 andother potential new entrants, we expect to face more competition in theDominican telecommunications market in the future, including from internationalcommunications companies with significantly greater resources than ours, whichcould adversely affect our ability to maintain our market share or require usto lower prices.

 

Further investment byforeign companies in Dominican telecommunications markets could limit thenumber of U.S. carriers that would send significant traffic to us, therebyadversely affecting our ability to generate international long distancetermination revenues. Due to unfavorable market trends, termination rates forinternational traffic from the United States and Puerto Rico to the DominicanRepublic have declined and could continue to decline, which would furtherreduce our international revenues and related profit margins.

 

***Ourbusiness plan, which now focuses on higher usage customers and includesinvoluntary disconnections of lower usage or unprofitable customers, may not resultin increased revenues or higher average revenue per user from our remainingcustomers.***

*** ***

Our business plan for ourmobile and local services includes disconnecting subscribers who use ourservice only to receive calls and who do not make many outgoing calls or do notuse our other services. During 2003 and 2004, we disconnected a substantialportion of these subscribers. By disconnecting these subscribers, we believe wecan better use our networks and concentrate our sales efforts on consumer andbusiness customers that generate greater per subscriber revenues to improve ourmargins. However, our disconnection of subscribers could result in an overalldecrease in revenues. We may not be able to attract new subscribers thatgenerate greater revenues and we may need to incur greater marketing andcustomer acquisition expenses to do so.

 

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

*** ***

Our business planincludes increasing our revenues from post-paid services, including mobiletelecommunication services and cable television services. Although we haveinstituted measures to minimize consumer credit risks, these efforts may not besuccessful as we expand our services in the post-paid area. Moreover, effortsto minimize credit risk may limit the number of our new subscribers. If weexperience a significant number of non-payments or are unable to attract newpost-paid customers, then our revenues will decrease and our cash position willbe weakened.

 

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***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 ourinternational long distance business represented approximately 46% of ouroperating revenues in 2003, 38% in 2004 and 32% in 2005. Exchange rate andmarket trends have caused our average termination rates for traffic between theUnited States and the Dominican Republic traffic to decline from $0.41 perminute during 1996 to $0.071 per minute in 2005. We believe that competitiveand regulatory pressures could continue to push settlement rates lower. Futuredecreases in termination rates, without a corresponding increase in ourinternational long distance traffic originating in the United States and PuertoRico, would reduce our international termination revenues and adversely affectthe profit margins that we realize from these revenues.

 

As in the rest of theworld, there are changing dynamics in our international business. Modern markettechnologies such as Voice-over-Internet Protocol (“VoIP”) equipment havecreated an environment allowing new entrants into this business in theDominican Republic. These companies may extend their reach to many of ourtraditional U.S.-based carriers and resellers that terminate significanttraffic in the Dominican Republic***.***

 

***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.  During2005, resellers originated approximately 53% of our international long distanceminutes from the United States to the Dominican Republic.  While we enterinto agreements with resellers, they are not required to provide us with anyspecified amount of traffic.  The volume of minutes and revenues wereceive from these resellers has significantly varied throughout the past yearsbecause of competition for their business, primarily from Codetel, our maincompetitor, 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, 2005, we received traffic fromapproximately 90 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 operationsin the past have been, and in the future may be, affected by subscriberdisconnections, whether initiated by our customers or by us. In order torealize net growth in subscribers, we must replace disconnected subscriberswith new subscribers. Our average monthly disconnection rate, or “churn rate,”was 6.7% for mobile subscribers during 2005 compared to 9.1% during 2004, and1.8% for local access line subscribers during 2005 compared to 2.0% during2004. During 2005, our average churn rate for cable television was 1.4%compared to 1.8% during 2004. The sales and marketing costs associated withattracting new subscribers are substantial, relative to the costs of providingservice to existing subscribers. If we are unable to maintain our creditpolicies or otherwise limit churn, we will experience a decline in net growthin 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 aretechnology intensive. The development of new technologies could make thetechnology we use obsolete. We may have to make substantial additionalinvestments in new technologies to remain competitive. New technologies wechoose may not prove to be commercially successful. We would requiresubstantial investment to replace or upgrade all or a substantial part of ournetwork. We have chosen to improve our liquidity by reducing our capitalexpenditures which affects our ability to improve our network. We spentapproximately $28.6 million on capital expenditures in 2005. This compares to$13.3 million in 2004 and $10.8 million expended in 2003. If we do not investin the latest technology, our network may rapidly become obsolete and we maynot be able to retain our existing customers or attract new ones.

 

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

*** ***

The success of our cabletelevision services depends upon our ability to acquire popular, high-qualityprogramming content. We license a significant portion of our programming fromthird parties. Our arrangements with these third parties regarding programmingmay be terminated, or may not be renewed on favorable terms, if at all. Thesethird parties could increase our costs of obtaining programming and we may notbe able to pass these costs on to our cable subscribers. As we upgrade thechannel capacity of our cable system and add programming to our basic cableservice, we may not be able to pass programming costs on to our cablesubscribers. If some or all of our programming arrangements are terminated orif we cannot negotiate new agreements on terms favorable to us, we may loseexisting subscribers and attract fewer new subscribers, which would reduce ourrevenues.

 

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

*** ***

“Hacking” involvesefforts to gain unauthorized access to information or systems or to causeintentional malfunctions or loss or corruption of data, software, hardware orother computer equipment. In addition, the transmission of computer virusescould expose us to a material risk of loss or litigation and possible liability.Computer viruses, break-ins or other problems could lead to:

 

•              The interruption, delay or cessation ofservices to our subscribers;

 

•              The compromise of confidentialinformation relating to our subscribers;

 

•              Damage to our reputation and the loss ofsubscribers; and

 

•              Costly litigation.

 

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

*** ***

Much of our network isabove ground, including significant parts of our backbone. A major hurricanecould result in significant damage to and disruption of our network. Inaddition, our network may not be fully insured. Our network is also vulnerableto 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 substantialportion of our revenues in Dominican pesos and, as a result, the increase inthe exchange rate of the Dominican peso to the U.S. dollar has had and may inthe future have a material adverse effect on the U.S. dollar value of ouroperating results and our ability to service our debt which is largelydenominated in U.S. dollars. While the average annual exchange rate decreased27.8% in 2005, the Dominican peso exchange rate against the U.S. dollarincreased by approximately 36.1% and 66.4% in 2004 and 2003, respectively,adversely affecting the Dominican economy. The fluctuation of the Dominicanpeso in the past few years has had a material adverse effect on our financialcondition, as our largely Dominican peso-denominated assets have depreciated invalue and our indebtedness is largely U.S. dollar denominated. Although theexchange rate recently has improved, in particular following the change ingovernment in 2004, there cannot be any assurance that current exchange rateswill be sustained. Any further depreciation of the Dominican peso against theU.S. dollar will correspondingly increase the amount of our debt in Dominicanpesos, with further adverse effects on our results of operations and financialcondition. Our total indebtedness as of December 31, 2005 was $447.5 million.

 

It is impossible topredict whether, and to what extent, the value of the Dominican peso mayfurther depreciate against the U.S. dollar and how these uncertainties willaffect the Dominican economy and the consumption of telecommunication services.Moreover, we cannot predict whether the Dominican government will modify itsmonetary policy and, if so, what impact any such changes could have on ourfinancial condition and results of operations.

 

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

*** ***

The Dominican Republichas widespread poverty. From time to time, the country has experienced socialunrest partly as a result of price increases and shortages of water andelectricity. Any increase in poverty, social unrest or shortage of basicservices could adversely affect the use of telecommunications services.

 

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

*** ***

A majority of ourdirectors and all of our officers reside outside of the United States. Asubstantial portion of our assets and the assets of these persons are locatedoutside the United States. As a result, it may not be possible for investors toeffect service of process within the United States upon us or these otherpersons to enforce judgments obtained against us or against them in UnitedStates courts predicated upon the civil liability provisions of the UnitedStates federal securities laws, other federal laws of the United Sates or lawsof the individual states of the United States.

 

No treaty currentlyexists between the United States and the Dominican Republic providing forreciprocal enforcement of foreign judgments. We have been advised by ourDominican counsel, that there is doubt as to (1) the ability of a plaintiff tobring an original action in a Dominican court which is predicated solely uponthe United States securities laws, other federal laws of the United States orlaws of the individual states of the United States and (2) the enforceabilityin Dominican courts of judgments of United States courts obtained in actionspredicated upon civil liability provisions of the United States federalsecurities laws, other federal laws of the United States or laws of theindividual states of the United States.

 

Our Dominican counselalso has advised us that the enforceability of actions brought in Dominicancourts of liabilities predicated on U.S. laws would require compliance withcertain procedures, including the validation by Dominican courts of decisionsrendered by United States courts. Compliance with such procedures could requirea substantial amount of time and expense, and local defendants could assertdefenses to enforcement based on noncompliance with such procedures. Foreignplaintiffs bringing original actions in a Dominican court also can, at therequest of the defendant, be required to post a litigation bond in an amountestablished by such court in its discretion.

 

The Dominican legalsystem is based upon civil law principles according to which judges decide boththe facts and legal issues of a case, and they are not bound by legalprecedents. As a result, judges have broader discretion in reaching decisionsthan do judges in the United States. In the past, the United States Departmentof Commerce has reported that Dominicans and foreign observers have criticizedthe Dominican judicial system for what they perceive as an inequitableresolution of business disputes. The Dominican legal system, coupled with thefact that substantially all of our assets are located in the DominicanRepublic, may present substantial obstacles to the enforcement of judgmentsagainst us, as well as our directors and officers in the Dominican Republic.

 

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

*** ***

Inflation in theDominican Republic stabilized in 2005 compared to 2004 and 2003. According tothe Central Bank, the annual rate of inflation was 7.4% in 2005, compared to28.7% in 2004 and 42.7% in 2003. While inflation in 2005 reflected generalprice increases, the high levels of inflation in 2003 and 2004 were principallydue to the depreciation of the Dominican peso against the U.S. dollar, higherfuel prices and growth in public spending. According to the Central Bank, theaverage annual exchange rate of the Dominican peso to the U.S. dollar increased36.1% and 66.4% in 2004 and 2003, respectively, compared to a decrease of 27.8%in 2005. Any increase in the value of the U.S. dollar against the Dominicanpeso directly affects the Dominican Republic’s inflation rate because theDominican 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.

 

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#### **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 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, as depositary for our ADS facility,notified us and holders of our ADSs that they were terminating the ADS facility.With the termination of the ADS facility, our ADSs ceased trading on the “PinkSheets” service on March 29, 2007. Upon termination of the ADS facility, mostof the depositary’s obligations under the Deposit Agreement also terminate. Holdersof our ADSs may obtain delivery of the shares of Class A Common Stockunderlying our ADSs, upon payment of certain taxes and processing fees. As aresult of the termination, the Bank of New York is no longer obligated to performany functions in connection with voting the Class A Common Stock underlying ourADSs.

 

Following consummation ofour debt restructuring, the interests of our current shareholders, includingholders of our ADSs, are expected to be effectively eliminated.

 

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

*** ***

Under Dominican law,shareholders are asked to vote upon the performance of management at annualshareholders’ meetings. Our vigilance officer delivers a report on ourfinancial performance and other issues related to management’s performance. Ifthe holders of a majority of the votes entitled to be cast approve management’sperformance, all shareholders are deemed to have released the directors and officersfrom 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. As a result, shareholders likely will fail inany suit brought in a Dominican court with respect to such acts or omissions. Officersand directors may not be released from any claims or liability for criminalacts, fraud, self-dealing or gross negligence. GFN controls a majority of thevotes entitled to be cast at annual shareholders’ meetings and, without theconcurrence of other shareholders, is able to approve the performance ofmanagement, thereby releasing management from liability to our shareholders,including holders of our 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, 

 

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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:

 

•              International long distance;

 

•              Domestic telephony;

 

•              Mobile;

 

•              Cable television; and

 

•              Data transmission and internet.

 

###### ***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 2005,resellers originated approximately 53.0% 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.

 

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In addition to its interstateand international authorization, Tricom USA is currently certified to providetelecommunications services in California, Delaware, Florida, Georgia,Illinois, Indiana, Maryland, Massachusetts, New Jersey, New York, Ohio,Pennsylvania, Rhode Island, Washington DC, and Wisconsin, as well as PuertoRico, the U.S. Virgin Islands and Canada.

 

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

###### * *

We are a competitivelocal exchange carrier in the Dominican Republic and at December 31, 2005we had 167,763 local access lines in service compared to 153,440 lines atDecember 31, 2004. According to Indotel, there were approximately 896,252 localaccess lines in service in the Dominican Republic at December 31, 2005. Tricomhad approximately 18.7% 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 savings and enhanced control over their consumption oftelephone services. Customers may choose from a menu of services, includingdomestic and international long distance services, local service and value-addedservices. They also may bundle their local access service with cellular or PCS,paging, cable television and internet services. Service packages permitcustomers to preset their monthly bills based upon, for example, local serviceminutes or long distance minutes. Customers are responsible for paying forusage levels in excess of preset package amounts, at regular per minute rates. Webelieve that providing customers with such budgeting capability increasesconsumer confidence in using telecommunications services, consequently allowingfor increased service penetration, higher levels of customer satisfaction andlower 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 area distributor of leading manufacturers of private branch exchanges and key telephonesystems and a leading provider of computer telephony integration systems in theDominican 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 3,623,289 analog and PCS cellular subscribers in the DominicanRepublic at December 31, 2005. At December 31, 2005, we had 393,991 mobilesubscribers compared to 345,636 mobile subscribers at December 31, 2004. Ourmarket share declined from 13.6% to 10.9% during 2005. 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, 2005, we had 370,854 prepaid mobile subscribers,approximately 94% 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.

 

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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.

 

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

###### * *

We are the largestprovider of cable television services in Santo Domingo and one of the largestin the Dominican Republic. At December 31, 2005, our cable network served63,878 subscribers, including 49,199 basic programming subscribers, 11,083occupied hotel and other commercial rooms (based on our internal calculations)and 3,596 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 to ourexisting 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 145,568 data and internet subscribers in theDominican Republic at December 31, 2005. Comparatively, we had 19,771 subscribersor 13.6% 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 internet 

 

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service, offering e-mailand digital messaging through our website, www.tricom.net. In addition, weoffer our residential customers internet access bundled 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 largecustomers with data circuits, internet access, private networks and frame relayservices. We also offer computer network security services such as firewallsfor xDSL and lease 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 significant savings from our service packaging. Our advertising alsoemphasizes reliability, performance, quality of service and the multipleadvantages that users can obtain from our different products and services. Seasonalpromotions are also made for specific target markets at different pointsthroughout the year. Our sales force is oriented to develop close relationshipswith business customers to 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 use productdifferentiation, 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 our industryas 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 aninternal sales force targeting smaller retailers.

** **

###### ***Cable Television.***

###### * *

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 

 

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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 smallbusinesses with products that fit their needs such as virtual private networks,dial up and broadband internet, among others. Our advertising campaign isfocused on promoting 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, 2005, 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 our customersto determine their satisfaction with our services and to improve services basedupon the explanations offered by customers who voluntarily cancel theirservices. Furthermore, we have a customer retention department that works todetermine the cause for customer churn and also to develop appropriateretention 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 

 

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separate bill. Oursubscribers can call our center and speak with a customer care representativeand obtain account and statement information. Our customers also can accessinformation over the telephone through an interactive voice response system thatenables customers to review recent calling activity and 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 their billsat 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.

 

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 6.7% in 2005, 9.1% in 2004, and 4.0% in2003. We had an average monthly churn rate for local access line subscribers of1.8% in 2005, 2.0% in 2004, and 2.7% in 2003. We had an average monthly churnrate for cable subscribers of 1.4% in 2005, 1.8% in 2004, and 3.9% in 2003. 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 

 

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international longdistance traffic at very competitive rates to several countries in addition tothe Dominican Republic.

 

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 international submarinefiber optic cables that have been built to send and receive internationaltraffic or connect with other cables that provide service to Latin America, theCaribbean and Europe. We own capacity in the Antillas-1 and Arcos-I submarinecables, which connect the Dominican Republic to the United States via othersubmarine cable systems. In addition, for redundancy purposes, we maintain twoearth stations, which connect to satellite systems serving the Atlantic region,Africa and Europe. The use of these satellite facilities also allows us toroute international traffic between the Dominican Republic and most othercountries in the world.

 

###### ***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 2005, ourintra-city wireline local access network was comprised of approximately 450route miles of fiber optic cable and approximately 2,800 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. During2005, we provided PCS service in 24 cities and offered continuous coverage onthe main highway routes of the country.

 

###### ***Cable Television 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.This type of 

 

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cable has high-qualitybroadband frequency characteristics, noise immunity and physical durability.Fiber optic cable is a communications medium that uses hair-thin glass fibersto transmit signals over long distances with less signal loss or distortionthan 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 within the same area, is a single connection to any of ourdistribution network’s main fiber optic cables that receives and transmitssignals. During 2005, one node in our existing network typically served anaverage of 700 homes passed. Programming signals then travel, via coaxialcable, from nodes into subscribers’ homes. As part of our plan for theexpansion and upgrade of our network, we plan to redesign our distributionnetwork by installing hubs and additional nodes to improve the quality andredundancy of our services. Hubs receive signals from the head-end andretransmit signals to the nodes, increasing the quality and reliability of thesignals.

 

At December 31, 2005, ourcable network consisted of approximately 204 miles of fiber optic cable, 729miles of coaxial cable and 228 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 longdistances, with coaxial cable, which requires more extensive signalamplification in order to obtain the desired transmission levels for deliveringprogramming signals and nodes. At December 31, 2005, 40% of our network hadbi-directional capacity.

 

###### ***DataTransmission and 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 the transmissionof two or more signals over a single channel, linked to a fiber optic ring anddigital wireless point-to-point radio links. The “last mile” to the customer isprovided through fiber optic cable and/or digital wireless point-to-point radiolinks. Our data network has the capability to monitor the communications linkall the way to the customer’s desktop and to support multiple data protocolssuch 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.

 

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#### **Competition**

#### ** **

The following table setsforth information about our market share in several of our markets based uponinformation published by Indotel, at December 31, 2005, and information that wegenerate internally about our operations:

 
| **Service**        | ** ** | **Approximate  Market Share  (%)** | ** ** | **Rank**   | ** ** | **Number of  Providers** | ** ** |
|--------------------|------------|-----------------------------------------|------------|------------|------------|-------------------------------|------------|
| ** **         | ** ** | ** **                              | ** ** | ** ** | ** ** | ** **                    | ** ** |
| Local Access       |       | 18.7                                    | %          | 2          |       | 2                             |       |
| Mobile             |       | 10.9                                    | %          | 3/4        |       | 4                             |       |
| Cable Television   |       | 52.1                                    | %          | 1(1        | )          | Multiple                      |       |
| Data and  Internet |       | 13.6                                    | %          | 2          |       | 3                             |       |

 

###### ***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 anintegrated communications service provider, which, at December 31, 2005, hadapproximately 81% of the local access lines and subscribers for local servicesand approximately 86% 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, 2005,the Dominican government had also granted eight concessions to othertelecommunications companies, which had not yet commenced operations or hadminimal operations. Each of these concessions allows for the provision of someor all of 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, 2005. Indotel has indicated that there are morethan 100 cable operators in the Dominican 

 

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(1) In Santo Domingo. Statistics for the country as a whole areunavailable.

 

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Republic, includingillegal cable television providers. However, in our principal markets, SantoDomingo and its surrounding areas and La Romana, we face little competitionfrom other cable television 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, includingtelevision broadcasters and the Internet. The ability of potential subscribersto directly receive traditional public over-the-air television signals fromtelevision broadcasters may hinder our ability to obtain additionalsubscribers.

 

#### **Regulation**

#### ** **

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

##### *** ***

The legal framework ofthe telecommunications 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, theDominican government adopted a policy of liberalization of thetelecommunications sector beginning in the late 1980s. In 1990, the Dominicangovernment granted us a concession to provide a full range oftelecommunications services within, from and to the country. Additionally,advances in wireless technologies made it more cost-effective for companies topenetrate the market even without being able to interconnect to Codetel’snetwork. However, interconnection remained important for full-servicecompetition. In 1994, the Dominican government enacted a series ofinterconnection resolutions requiring all service providers in the DominicanRepublic to interconnect with all other service providers pursuant to contractsbetween them. The guidelines for those contracts are set forth in thoseresolutions. In May 1994, we entered into an interconnection agreementwith Codetel which became effective in November 1994. This agreementallowed us to become the second full-service telecommunications provider in theDominican 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 

 

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project was requested bythe Technical Secretariat of the Dominican Presidency and the country’stelecommunications carriers, and was funded by the carriers.

 

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.

 

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 within thecountry 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 the1.5 cent 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.

 

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###### *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.

 

##### ***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 in1998, established a new regulatory framework for telecommunications services inthe Dominican Republic.  Pursuant to LawNo. 153-98, where necessary, we were required to adjust our concessionagreement to conform to the new legislation. Law No. 153-98 required such adjustments to be made within one year ofits enactment and were to be executed through procedures establishedthereunder.  However, to date, Indotelhas neither fully established nor implemented these procedures within the terminitially established.

Pursuant to Law No. 153-98, Indotelhas the discretion to determine the extent to which any existing concessionrequires adjustments to comply with the new legislation.  However, until the adjustments are complete,Law No. 153-98 provides that concessions granted prior to its enactment remainin full force and effect.  Law No. 153-98provides that the adjustment procedures should be implemented in a manner thatwill maintain the rights granted to the holder of the original concession withrespect to the scope of services covered by the concession, while guarantyingequality among concession holders. Furthermore, under Law No. 153-98, a concession may only be cancelledfor the reasons expressly established in the concession and for the specificcauses described in Law 153-98. 

Once the procedures for adjusting theconcessions and bringing them into compliance with Law No. 153-98 areestablished and fully implemented, concessions in the Dominican Republic willhave terms ranging from five (5) to twenty (20) years based on the termoriginally provided for in such concession. For concessions granted under Law No.118 that did not have a fixed term,Law No. 153-98 establishes that the new term is automatically 20 years.  The term of such amended concessions willcommence on the date they are approved by a resolution enacted by Indotel’sboard. 

As of the date of thisfiling, we have received an adjustment from Indotel's board and Indotel’sExecutive Director is authorized to amend our concession agreement.  Our amended concession agreement willautomatically have a term of 20 years. Our concession agreement, once amended, will be renewable for successive20-year periods.  However, if the holderof a concession fails to comply with the provisions of Law No.153-98, Indotelis entitled to deny the request for a renewal 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 successive20-year periods. 

 

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#### **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 of 1934, to be a domestic and internationalfacilities-based carrier and an international resale carrier of voice, data andprivate line services between the Unites States and international points, includingthe Dominican Republic. The FCC classified Tricom USA as a non-dominant carrieron all routes, including to the Dominican Republic.

 

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, tocontribute to certain federal funds such as the universal service fund, not tounjustly or unreasonably discriminate in charges, practices or other areas, toobtain FCC approval for a transfer of control under certain circumstances, topost its rates, terms and conditions on its website instead of filing them withthe FCC, to obtain FCC approval to reduce or discontinue service, and otherobligations. Failure to comply with any regulatory requirements may subjectTricom USA to penalties including, but not limited to, a fine, regulatoryrestrictions, 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. andWisconsin; as well as Puerto Rico, the U.S. Virgin Islands and Canada.

 

 

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

#### ** **

Our principal propertiesconsist of our fiber optic network, satellite earth stations, nodes and realestate. At December 31, 2005, the net book value of our real estate andequipment was approximately $298.4 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.

 

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

## ** **

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 the recentfluctuation 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**

#### ** **

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.

 

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. dollars at differing rates depending on the item in question. SeeNote 2.3 of notes to consolidated financial statements. For most balance sheetpurposes, the exchange rates we used to translate Dominican peso-denominatedamounts as of December 31, 2004 and 2005, were RD$31.07 and RD$34.85 per U.S.dollar, respectively. For most revenue and expense purposes, the exchange rateswe used were the average annual private market rates which were RD$30.93,RD$42.11 and RD$30.93 during the years ended December 31, 2003, 2004 and 2005,respectively. These translations should not be construed as representationsthat the Dominican peso amounts actually represent such U.S. dollar amounts orcould be converted into U.S. dollars at the rate indicated. The Federal ReserveBank of New York does not report a buying rate for Dominican pesos. To theextent information relates to the Dominican Republic government or DominicanRepublic macroeconomic data, the information in this Annual Report has beenextracted from publications issued by Indotel at www.indotel.org.do and theCentral 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:*

 

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Long distance revenues representamounts recognized for the termination of traffic from foreign telecommunicationscarriers to the Dominican Republic, including revenues derived from ourU.S.-based international long distance wholesale and prepaid calling cardoperations, as well as outbound international and domestic long distance callsgenerated by our retail call centers and prepaid cards sold within theDominican 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 mobile network.

 

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 for terminationof outbound traffic and interconnection costs, which are access charges paid toother providers in the Dominican Republic, and payments for internationalsatellite circuit leases; amounts paid to programming providers for licenses tobroadcast on our cable television network; cost of equipment and prepaid cardssold; and telephone installation costs.

 

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,** | ** ** |
|---------------------------|------------|--------------------------------------------|------------|
| ** **                | ** ** | **2003**                                   | ** ** | **2004** | ** ** | **2005** | ** ** |
|                      |       |                                       |       |   |   |   |   |
| Long distance             |       | 46.3                                       | %          | 38.3 | % | 32.5 | % |
| Domestic  telephony       |       | 29.9                                       | %          | 34.5 | % | 38.6 | % |
| Mobile                    |       | 14.7                                       | %          | 17.1 | % | 16.3 | % |
| Cable                     |       | 6.8                                        | %          | 7.3 | % | 8.9 | % |
| Data and  internet        |       | 2.3                                        | %          | 2.8 | % | 3.7 | % |
| Other                     |       | 0.1                                        | %          | 0.0 | % | 0.0 | % |
| Total operating  revenues |       | 100                                        | %          | 100 | % | 100 | % |

 

Note: Percentages may not add up to 100% due to rounding.

 

 

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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,** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                               | ** ** | **2003**                                   | ** ** | **2004** | ** ** | **2005** | ** ** |
|                                                                     |       |                                       |       |   |   |   |   |
| Operating Costs                                                          |       | 216.3                                      | %          | 122.0 | % | 108.1 | % |
| Operating loss                                                           |       | (116.3                                     | )%         | (22.0 | )% | (8.1 | )% |
| Interest  expense, net                                                   |       | (32.3                                      | )%         | (33.7 | )% | (31.7 | )% |
| Other income  (expenses), net                                            |       | (29.5                                      | )%         | (32.1 | )% | (30.6 | )% |
| Loss before  income taxes, discontinued operations and minority interest |       | (145.8                                     | )%         | (54.1 | )% | (38.7 | )% |
| Net loss                                                                 |       | (169.9                                     | )%         | (54.3 | )% | (38.3 | )% |

 

#### **Resultsof Operations**

#### ** **

#### **2005Compared to 2004**

#### ** **

***ForeignExchange Rate.***The average annual foreign exchange ratedecreased 27.8% to RD$30.39 per US$1.00 during 2005 from RD$42.11 per US$1.00during 2004. This represents a 27.8% weakening of the U.S. dollar against theDominican peso from 2004 to 2005 or a corresponding strengthening of theDominican peso. This foreign exchange fluctuation significantly affected ouroverall financial performance and results of operations during this period.

 

***OperatingRevenues.***Our total operating revenues increased 15.6% to$217.5 million during 2005 from $188.2 million in 2004 primarily due to theappreciation of the Dominican peso compared to the U.S. dollar and an increasednumber of subscribers in all business segments.

 

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

 

*Long Distance.*Longdistance revenues decreased 1.9% to $70.6 million during 2005 from $72.0million in 2004. This decrease resulted primarily from lower internationalrevenues generated in the United States and a reduction in the number ofminutes generated from prepaid calling cards and calling centers.

 

International longdistance revenues decreased 1.8% or $1.2 million to $64.4 million in 2005 from$65.6 million in 2004 primarily due to lower international traffic revenuesderived from minutes generated in the United States that terminated in countriesother than the Dominican Republic. This was the result of a strategy to reduceminutes to other destinations which generate a gross margin under 5%. Averageinternational long distance termination rates to the Dominican Republicincreased to $0.071 per minute during 2005 compared to $0.069 per minute during2004, and inbound minutes terminating in the Dominican Republic increased by0.8% to 824 million minutes during 2005 from 817.6 million minutes during 2004.However, the average international long distance rate (which includes alldestinations) decreased to $0.085 per minute during 2005 compared to $0.088during 2004 as a result of a decrease in other destination total minutes.

 

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Long distance domesticrevenues generated by our prepaid cards and calling centers in the DominicanRepublic decreased 3.1% to $6.3 million in 2005 from $6.5 million in 2004. Thisdecrease in prepaid cards and calling centers was primarily due to a 20.6%decrease in total minutes to 53.6 million in 2005 from 67.5 million minutes in2004. This was the result of declining usage of our calling centers because ofincreased wireless service penetration in the Dominican Republic and a greaterusage of VoIP telephony by small calling center operators in order to reducetheir access charge costs.

 

*Domestic Telephony.*Domestictelephony revenues increased 29.4% to $84.1 million during 2005 from $65.0million in 2004, primarily as a result of a higher average number of lines inservice during 2005 and due to the 27.8% exchange rate decrease mentionedabove, which increased our total revenues in U.S. dollars because theserevenues are generated in Dominican pesos. At December 31, 2005, we had 167,763lines in service compared to 153,440 lines in service at December 31, 2004, a9.3% increase.

 

Monthly service fees,measured local service charges, and outbound international and domestic longdistance revenues accounted for the majority of our domestic telephony revenuesin 2005. Revenues from monthly fees increased 47.0% to $41.6 million in 2005from $28.3 million in 2004. Measured local service revenues increased 7.5% to$21.4 million in 2005 from $19.9 million in 2004 due to increased inboundminutes and higher prices. Outbound international and domestic long distancerevenues, including interconnection charges, generated by our residential andbusiness customers increased 4.1% to $10.2 million in 2005 from $9.8 million in2004 for similar reasons.

 

*Mobile.*****Mobilerevenues increased 10.6% to $35.5 million during 2005 from $32.1 million in2004. The increase in mobile revenues was attributable primarily to a highernumber of subscribers and to the 27.8% exchange rate decrease mentioned above,which improved our total revenues in U.S. dollars.

 

Airtime revenues,including interconnection charges, increased 12.7% to $23.1 million in 2005from $20.5 million in 2004 due to increased prices in U.S. dollars generated bythe exchange rate decrease. Revenues from monthly rent increased 27.6% to $3.7million from $2.9 million in 2004 due to the exchange rate decrease and ahigher number of customers. Outbound international long distance revenues,including interconnection charges, generated by the mobile subscriber basedecreased 7.2% to $7.7 million in 2005 from $8.3 million in 2004 due to anoverall decrease in international minutes.

 

At December 31, 2005, wehad 393,991 mobile subscribers compared to 345,636 at December 31, 2004. The14% increase in subscribers resulted primarily from our new activationcommission structure for external distributors and increased marketinginvestment.

 

*Cable.*Revenuesfrom cable television services increased 40.9% during 2005 to $19.3 millionfrom $13.7 million in 2004. Revenues were positively affected by a price increase,an increased number of cable subscribers and the exchange rate decreasementioned above, which benefited the translation of cable revenues generated inDominican pesos.

 

Cable programmingrevenues, including monthly basic and expanded basic programming service fees,increased 54.5% to $15.3 million during 2005 from $9.9 million during 2004.Revenues from advertising sales and channel rental charges increased 8.7% to$2.5 million in 2005 from $2.3 million in 2004.

 

At December 31, 2005, wehad 63,878 cable subscribers compared to 59,320 at December 31, 2004. Theincrease of 7.7% in the number of cable subscribers during 2005 reflects a moreaggressive strategy in terms of sales and advertising.

 

The number of cablesubscribers at December 31, 2005 includes 49,199 basic and expanded basicprogramming subscribers, 11,083 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 3,596 subscribers for cable modem, digital audioprogramming and other services.

 

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*Data and Internet.*Dataand internet service revenues increased 48.1% to $8.0 million in 2005 from $5.4million in 2004, primarily due to conversion of dial-up customers to broadbandservices and growth in our data and internet subscriber base.

 

The number of our dataand internet subscribers increased 31.3% to 19,771 at December 31, 2005 from15,053 at December 31, 2004.

 

*Other.*Othernon-core business revenues increased 32.2% to $90,557 in 2005 from $68,487 in2004.

 

***OperatingCosts and Expenses.***Our operating costs and expensesincreased 2.4% to $235.2 million in 2005 from $229.6 million in 2004. Thisincrease was mainly due to an increase in SG&A expenses due to the exchangerate decrease mentioned above, which increased our total expenses in U.S.dollars because most of our expenses are incurred in Dominican pesos.

 

The following is a discussionof our operating costs and expenses for each of the line items in our financialstatements.

 

*Cost ofSales and Services*. Cost of sales and services decreased 2.0%to $87.7 million in 2005 from $89.5 million in 2004, which was primarilyattributable to lower transport and access charges which decreased due to areduction in the international business related to other destination traffic.

 

Cost of equipment sales,prepaid cards, and line installations, totaled $5.3 million in 2005 compared to$4.9 million in 2004. This increase of 8.2% was the result of increased grosssales in local access lines and mobile, which generated more installations andhigher equipment costs.

 

Transport and accesscharges decreased 2.9% to $76.9 million in 2005 from $79.2 million in 2004,primarily as a result of the reduction of minutes terminating in countriesother than the Dominican Republic as part of the strategy discussed above.

 

*Selling, Generaland Administrative*. SG&A expenses increased 36.9% to$77.6 million during 2005 from $56.7 million during 2004. This increase wasprimarily driven by the exchange rate decrease mentioned above, which increasedour total expenses converted to U.S. dollars because 77% of these expenses weregenerated in Dominican pesos.

 

Salaries and othercompensation to personnel increased 49.7% to $23.2 million in 2005 from $15.5million in 2004 mainly due to an extraordinary expense of $1.5 million relatedto executive severance and the impact of the exchange rate decrease mentionedabove, given that salaries are paid in Dominican pesos. At December 31, 2005,we had 1,671 employees compared to 1,615 employees at December 31, 2004.Building occupancy increased 47.6% to $12.4 million in 2005 from $8.4 millionin 2004 as a result of new cell sites built in new geographic areas to increaseour wireless coverage and the exchange rate effect. Marketing expensesincreased 80.8% to $4.7 million in 2005 from $2.6 million in 2004 because of astrategy to improve our brand positioning and to increase our product sales.Other expenses were basically affected by the exchange rate decrease.

 

*Depreciationand Amortization*. Depreciation and amortization decreased17.7% to $62.0 million during 2005 from $75.3 million during 2004, primarilydue to a decrease in the depreciable asset base.

 

***OperatingLoss.***Operating loss decreased by 57.2% totaling $17.7million in 2005 from $41.4 million in 2004. Thedecrease in operating loss was attributable to a margin improvement.

 

***OtherExpenses****.*Otherexpenses increased to $66.5 million in 2005 from $60.4 million in 2004,primarily as net interest expense increased to $69.6 million in 2005 from $63.7million in 2004.

 

***IncomeTaxes.***Income taxes were negative (a benefit) $817,848 in2005 compared to $300,182 (an expense) in 2004 as a result of the recalculationof deferred taxes at December 31, 2005.

 

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***NetLoss.*****Net losstotaled $83.4 million, or $1.29 per share in 2005 compared to a net loss of$102.2 million, or $1.58 per share in 2004. The decrease in net loss during2005 is attributable to revenues growing faster than costs and expenses.

 

#### **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 our overallfinancial 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.

 

*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.

 

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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.

 

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. This decreasewas mainly due to the effects of an asset impairment charge of $191.2 millionin 2003, whereas in 2004, we did not have any asset impairment charges. Thedecrease in operating costs and expenses is also attributable to lower SG&Aexpenses.

 

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 installationexpenses (but not cable) as costs instead of charging them to capitalexpenditures.

 

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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,General and Administrative*. SG&A expenses decreased 6.1%to $56.7 million during 2004 from $60.4 million during 2003. This decrease wasprimarily driven by lower salaries and other personnel compensation, and lowermarketing and advertising expenses offset by higher provisions foruncollectible accounts, and an increase in other related expenses.

 

Salaries and other compensationto personnel decreased 17.6% to $15.5 million in 2004 from $18.8 million in2003 due to the impact of the Dominican peso devaluation given that salariesare paid in Dominican pesos, and a decrease in the number of employees. AtDecember 31, 2004, we had 1,615 employees compared to 1,635 employees atDecember 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.

 

*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 $41.4million in 2004 compared to an operating loss of $231.5 million in 2003. The decrease in operating loss was attributableto lower total operating costs and expenses.

 

***OtherExpenses****.*Otherexpenses increased 2.9% to $60.4 million in 2004 from $58.7 million in 2003,primarily as a result of a foreign currency exchange loss compared to a gain in2003. Net foreign currency exchange loss totaled $2.7 million in 2004 comparedto net foreign currency exchange gains of $5.3 million in 2003. Net interestexpense decreased to $63.5 million in 2004 from $64.3 million in 2003.

 

***IncomeTaxes.***Income taxes decreased 77.9% to $300,182 in 2004from $1,358,861 in 2003 primarily as a result of the recalculation of deferredtaxes at December 31, 2003.

 

***DiscontinuedOperations.***Discontinued operations represent the resultsof operations of our Central American activities prior to their sale inFebruary 2004. We reported losses from discontinued operations, after minorityinterest, of $46.7 million in 2003.

 

***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.

 

#### **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,

 

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sales incentives were restated (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 for the years ended December 31, 2003 and 2004. Amounts reclassifiedwere $9,295,489 and $6,102,127 in the years ended December 31, 2003 and 2004,respectively. This pronouncement did not have any impact on net loss reportedin 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 lossis recognized to the extent that the carrying amount exceeds the asset’s fairvalue. This determination is made at the reporting unit level and consists oftwo steps. First, we determine the fair value of a reporting unit and compareit to its carrying amount. Second, if the carrying amount of a reporting unitexceeds its fair value, an impairment loss is recognized for any excess of thecarrying amount of the reporting unit’s goodwill over the implied fair value ofthat goodwill. The implied fair value of goodwill is determined by allocatingthe fair value of the reporting unit in a manner similar to a purchase priceallocation, in accordance with FASB Statement No. 141, Business Combinations.The residual fair value after this allocation is the implied fair value of thereporting 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 7.4% for 2005, 28.7% for 2004, and 42.7% for2003, according to data published by the Central Bank of the DominicanRepublic.

 

In terms of annualaverage foreign exchange rates, the U.S. dollar weakened against the Dominicanpeso during 2005 and strengthened during 2004 and 2003 resulting in acorresponding strengthening of the Dominican peso during 2005 and weakening in2004 and 2003. The weakening of the U.S. dollar for the year ended December 31,2005 was approximately 27.8% compared to a strengthening of 36.1% and 66.4% forthe years ended December 31, 2004 and 2003, respectively, as derived from datapublished 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.

 

43

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#### **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 our expansion primarily through private and publicequity, short-term and long-term debt 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 initiateda rationalization plan to curtail our spending and capital investments, whilemaintaining a healthy growth in subscribers 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.

 

In 2005, the averageannual exchange rate decreased 27.8% partially alleviating the impacts of theprevious years’ exchange rate increases.

 

***Restructuring.***

** **

Commencing in 2001, acombination of macro-economic factors and circumstances specific to ourbusiness contributed to a steady and significant decline in our operatingperformance, cash flows and financial condition. In light of these factors, ourcontinuing funding needs, and our inability to service our debt, during late2003, we took steps to conserve cash and to focus our efforts on our corebusinesses, as follows:

 

•              *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 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, we do not expect tohave available any external funding sources until the restructuring process isconcluded;

 

•              *Appointmentof Chief Restructuring Officer*. Our Board of Directors appointedKevin Lavin 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 2004and $28.6 million in 2005. We made capital expenditures for improvements in allof our business segments as well as for general network maintenance. Ourcapital expenditures since 2003 have been funded by internally generated cashflow, vendor financing, and from proceeds of asset sales. A large part of ourplanned capital expenditures are discretionary and can be postponed orcancelled if we determine that funds are not 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, payments to joint venture partners and satisfaction ofliabilities directly related to the Central American operations, totaledapproximately $10.7 million;

 

44

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•              *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 2005 was cash generated from our operations. Net cash provided byoperating activities totaled $43.2 million in 2005 compared to $22.2 million in2004 and $7.3 million in 2003. The increase in cash from operations in 2005compared to 2004 resulted from improved operational margins and the effects ofa change in our policy for booking capital expenses payments.

 

During 2005, capitalexpenditures continued to be our primary use of capital resources. Net cashused in investing activities totaled $28.3 million in 2005 compared to $3.0million in 2004 and $0.2 million in 2003. Our capital expenditures totaled$28.6 million in 2005, primarily for the installation of additional localaccess lines, network improvements and network maintenance. The increase incash used in investing activities in 2005 was primarily due to an increase inour capital expenditures and the effects of a change in our policy for bookingcapital expense payments.

 

Net cash used infinancing activities was $0.4 million in 2005 compared to $4.1 million used in2004 and $10.8 million used in 2003. Financing activities during 2005 primarilyincluded refinancing of a capital lease obligation and payments to certainbanks and holders of long-term debt.

 

At December 31, 2005, wehad approximately $32.1 million in cash.

 

***Indebtedness.***

** **

Our indebtedness wasapproximately $447.5 million in principal amount at December 31, 2005 comparedto $448.3 million at December 31, 2004. Our indebtedness at December 31, 2005consisted of $200.0 million of 11-3/8% Senior Notes due 2004, and $247.5million of bank and other borrowings, capital leases, commercial paper andtelecommunication equipment trade financings. In October 2003, we suspendedprincipal and interest payments on substantially all unsecured bank debt andSenior Notes through the restructuring process. As a result, all of ourindebtedness can be called on demand; accordingly, all of our indebtedness atDecember 31, 2005 has been reclassified as current debt.

 

At December 31, 2005, ourcurrent liabilities exceeded our current assets by $577.7 million compared to$534.6 million at December 31, 2004. The increase in negative working capitalis primarily due to an increase in accrued but unpaid interest, resulting fromour suspension of substantially all principal 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, 2005 (in millions of U.S. dollars).

 

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| ** **                                 | ** ** | **Payments due by Period** | ** ** |
|--------------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Cash Obligations** | ** ** | **Total**                                 | ** ** | **Less than 1  year** | ** ** | **1 – 3 years** | ** ** | **More than  4 years** | ** ** |
| ** **                                 | ** ** | **(in thousands)**                   | ** ** |
| Short-term debt                            |       | $                                         | 433.0      |   | 433.0 |   | — |   | — |   |
| Long-term debt                             |       | —                                    |       | — |   | — |   | — |   |
| Capital lease  obligations                 |       | 14.5                                      |       | 14.5 |   | — |   | — |   |
| Operating leases                           |       | 16.0                                      |       | 3.6 |   | 8.9 |   | 3.5 |   |
|                                       |       |                                      |       |   |   |   |   |   |   |
| Total  Contractual Cash Obligations        |       | $                                         | 463.5      |   | 451.1 |   | 8.9 |   | 3.5 |   |

 

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 ANDEMPLOYEES

## ** **

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 composed of a Chairman and Vice President ofthe Board and nine additional members. The Board of Directors typically meetsat least once every three months. Special meetings of the Board of Directorsmay be held at any time.

 

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. If any vacancies occur in the Board ofDirectors, or if the authorized number of directors is increased, the directorsthen in office may continue to act, and such vacancies may be filled by amajority of the directors then in office. No annual general meeting ofshareholders has been held since 2002. Accordingly, most of our directors havebeen appointed by action of the Board of Directors pursuant to the provisionsof our by-laws for filling vacancies.

 

The names of ourdirectors and executive officers at December 31, 2005 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                 |       | 47         |       | Chairman                               |
| Héctor Castro  Noboa              |       | 64         |       | Vice President  of the Board           |
| Adriano Miguel  Tejada                 |       | 57         |       | Director                               |
| Manuel Arturo  Pellerano               |       | 51         |       | Director                               |
| Rosangela  Pellerano                   |       | 47         |       | Director                               |
| Pablo Linares                          |       | 68         |       | Director  (appointed February 1, 2005) |
|                                   |       |       |       |                                   |
| ***Named  by Motorola, Inc.:***        | * *   | * *   | * *   | * *                               |
| James Deane                            |       | 62         |       | Director                               |
| Thomas Canfield                        |       | 49         |       | Director                               |
| Carlos Castillo                        |       | 51         |       | Director                               |
|                                   |       |       |       |                                   |
| ***Independent  Directors:***          | * *   | * *   | * *   | * *                               |
| Anibal de Castro                       |       | 56         |       | Director                               |
| Gerald Gitner                          |       | 60         |       | Director                               |

 

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| **Name**                                                       | ** ** | **Age** | ** ** | **Position**                                                  |
|----------------------------------------------------------------|------------|---------|------------|---------------------------------------------------------------|
|                                                           |       |    |       |                                                          |
| Manuel Arturo  Pellerano and Rosangela Pellerano are siblings. |       |    |       |                                                          |
|                                                           |       |    |       |                                                          |
| **Executive  Officers**                                        |       |    |       |                                                          |
| ** **                                                     |       |    |       |                                                          |
| Héctor Castro  Noboa                                      |       | 64      |       | President, Chief  Executive Officer (appointed June 15, 2005) |
| Alfredo  Arredondo                                             |       | 41      |       | Vice President,  Information Technology                       |
| Ryan Larrauri                                                  |       | 33      |       | Vice President,  Consumer Segment Division                    |
| Erwin Mendez                                                   |       | 45      |       | Vice President,  Finance & Administration                 |
| Maripily Peralta                                               |       | 37      |       | Vice President,  Human Resources                              |
| Carlos Ramón  Romero                                      |       | 53      |       | Vice President,  Business Segment Division                    |
| Luis Ruiz                                                      |       | 59      |       | Vice President,  Telecable                                    |
| Bela Szabo                                                     |       | 37      |       | Vice President,  International Division                       |
| Valeriano  Valerio                                             |       | 46      |       | Vice President,  Network Planning & Operations            |
| Miriam Vargas                                                  |       | 43      |       | Vice President,  Services Division                            |

 

In addition, thefollowing directors and executive officers served during 2005 and resigned fromthe indicated positions prior to December 31, 2005:

 

Carl H. Carlson,President & Chief Executive Officer (resigned June 15, 2005);

Valerio Valeriano,Director (resigned January 28, 2005).

 

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, 2005.

 

#### **Boardof Directors**

#### ** **

***RicardoValdez Albizu***has been Chairman of our Board of Directorssince May 2004 and a member of our Board of Directors since February 2004. Mr.Albizu has been the Chairman and Chief Executive Officer of Zona Franca SanIsidro, a diversified industrial park in the Dominican Republic, since 1997. Heobtained his law degree from the Universidad 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 andSeptember 1997, Mr. Castro served as the Executive Vice President ofBancrédito. 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 degree in Business Economics from Madrid’sUniversidad Complutense where he studied business 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 an 

 

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associate and counsel inthe corporate and international practice groups of the international law firmDebevoise & Plimpton LLP for nine years. Mr. Canfield holds a B.A. inHistory from Wesleyan University and a J.D. from Fordham University School ofLaw, 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 has over 20 years of operational andtransactional experience in corporate finance, debt restructuring, investmentand merchant banking services principally in Latin America. From July 1997 toJune 1995, and again from August 1999 to December 2000, Mr. Castillo was aSenior Managing Director at Bear Stearns & Co., Inc. Latin America EquityCapital Markets and Investment Banking. Mr. Castillo’s previous experience alsoincludes positions at Bankers Trust Company and Continental Bank. Mr. Castilloholds a B.S. in Economics from Universidad Nacional de Ingenieria in Peru andan MBA from the Wharton School of Business, University of Pennsylvania.

 

***AníbalDe Castro*** has been a member of our Board of Directorssince May 1998. Mr. De Castro is currently the ambassador of the DominicanRepublic to the Court of St. James, Great Britain. He has been President ofEditorial AA, a subsidiary of GFN since May 1994 and was Executive VicePresident of Omnimedia from May 1994 to June 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 Pequeña Empresa and Fondo de Financiamientode la Micro-Empresa. Mr. De Castro graduated from Universidad Autónoma de SantoDomingo with a degree in journalism and holds a B.A. in Economics from the Universityof East Anglia in Great Britain.

 

***JamesDeane*****has been amember of our Board of Directors since June 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 also served as non-executive Chairman of KittyHawk, Inc., which operates an overnight express cargo network and an all cargoairline headquartered in Dallas, Texas. He served as Chairman of the Board ofTrans World Airlines, Inc. from 1997 to 2002 and as its CEO from 1996 to 1999. Healso co-founded and co-chaired from 1990 to 1997 a private leasing companyspecializing in wide-bodied aircraft. Mr. Gitner is a former Vice Chairman ofPan American World Airways and CEO of Pan American World Services. Mr. Gitnerwas President and Co-founder of People Express Airlines, Inc. from 1980 to1982. He also served as President and CEO of Atasco USA, a private aviationconcern involved in commercial aircraft leasing and servicing. Mr. Gitnerreceived a B.A. from Boston University.

 

***PabloLinares*****has been amember of our Board of Directors since February 2005. Mr. Linares has dedicatedover 30 years to international agencies including the Organization of thePetroleum Exporting Countries (“OPEC”), the United Nations, and theInter-American Development Bank (“IADB”). He has served as the representativeof the IADB in the Dominican Republic and Nicaragua, as Chief of the OperationsDivision in Washington, D.C. and as Chief of IADB operations for CentralAmerica, Panama, Colombia, Equator, Mexico, Bolivia, Uruguay and Paraguay inWashington. He has also served as economic advisor to the OPEC Fund forInternational Development and advised on the formation of the African Bank ofDevelopment and the Asian Bank of Development. He currently serves as theExecutive Director of the Dominican Association of Foreign Investment Companiesand consults on projects in the Dominican Republic and other countries. Mr.Linares graduated with degrees in Economy, Management, Finance and Accountingfrom George Washington University, Georgetown University, INCAE in Nicaraguaand the Academias Hispanoamericanas in Caracas, Venezuela, respectively.

 

***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 graduated from Universidad Nacional PedroHenríquez Ureña with a degree in economics.

 

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***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 has been the editor of several newspapers inthe Dominican Republic and served as press secretary for President LeonelFernandez from 1997 to 2000. Since June 2004, Mr. Tejada has been the Directorof Omnimedia, which produces the Diario Libre newspaper and magazinepublications. Mr. Tejada holds a law degree from Universidad Católica Madre yMaestra and a Master of Arts in Political Science from Temple University,Philadelphia. Mr. Tejada also was an associate professor and dean at PontificiaUniversidad Católica Madre y Maestra and a Fulbright scholar who studiedjournalism and political history at the University of Pittsburgh.

 

#### **ExecutiveOfficers**

#### ** **

***HéctorCastro Noboa*** has served as Chief Executive Officerfollowing former CEO Carl H. Carlson’s resignation in June 2005 and has servedas Vice President of our Board of Directors since August 1994. See additionalinformation in the Board of Directors section above.

 

***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’s internally-developedapplications, including billing, rating customer care, provisioning and trafficmeasurement. Mr. Arredondo is a systems engineer from Pontificia UniversidadCatólica Madre y Maestra and has a post-graduate degree in management fromInstituto 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 from 1999. Hehas held numerous executive positions in the textile, consumer goods andfinancial sectors. Mr. Larrauri is the published author of *Marketing inthe Dominican Republic, Genesis and Evolution* as well as severalother specialized articles in the field. Mr. Larrauri has a B.S. in Marketingfrom the Universidad Iberoamericana, as well as post-graduate degrees in BrandManagement, International Business, Bank Management and Strategic Planning.

 

***ErwinMende****z* has served asVice President of Finance and Administration since July 2004 and was theCompany’s Controller since November 2002. Before joining Tricom, from May 2001to November 2002, he was Vice President of Finance for Centennial Dominicana,then a subsidiary of Centennial Communications Corp. Prior to May 2001, Mr. Mendezworked for 14 years for Colgate-Palmolive Company where he served from 1987 toApril 2001 in key accounting and financial control positions in the DominicanRepublic and the Caribbean, including assignments as Finance Director forColgate-Palmolive operations in Barbados and Jamaica. Mr. Mendez is a graduateof Universidad APEC in Santo Domingo where he majored in accounting and financeand holds an MBA from Instituto Tecnológico de Santo Domingo, DominicanRepublic.

 

***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 subjectsin the field of Human Resources at Pontificia Universidad Católica Madre yMaestra.

 

***CarlosRamón Romero***has served as Vice President of our BusinessSegment Division since January 2002. He was Vice President of 

 

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the Customer RelationshipManagement Division from July 2000 to December 2001 and First VicePresident of the Consumer and Business Segments Division from July 1996until July 2000. Immediately prior to his arrival at Tricom, Mr. Romeroserved as chief executive of a brokerage company, which he started inFebruary 1994. Mr. Romero served as Vice President of the Technical Areaof Compañía Nacional de Seguros, a subsidiary of GFN, from 1980 untilFebruary 1994. Mr. Romero earned a B.A. in International Services from theUniversidad Nacional Pedro Henríquez Ureña where he has since held variousacademic 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.

 

***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 currentlyfinishing an MBA with the same institution. Mr. Szabo also holds an engineeringdegree from the Universidad Nacional Pedro Henríquez Ureña.

 

***ValerianoValerio*****has served asour First Vice President of Network Planning and Operations since June 2000.Previously, he served as our Second Vice President of Institutional Relationshipsbetween 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.

 

***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 year ended December31, 2005 to our executive officers, as a group (eleven persons), was $2.1million. In addition, we made severance payments to our executive officers inan aggregate amount of $2 million during the fiscal year ended December 31,2005.

 

#### **Employees**

 
| ** ** | ** ** | **At December 31,** | ** ** |
|------------|------------|-------------------------------|------------|
| ** ** | ** ** | **2003**                      | ** ** | **2004** | ** ** | **2005** | ** ** |
| Executives |       | 195                           |       | 195 |   | 181 |   |
| Others     |       | 1,440                         |       | 1,420 |   | 1,490 |   |
| Total      |       | 1,635                         |       | 1,615 |   | 1,671 |   |

 

At December 31, 2005, wehad 1,671 employees. Of this number, 181 were executives, directors andmanagers, and the remaining 1,490 were technicians, sales, service and staffemployees. None of our employees belong to labor unions. We believe that wehave good relations with our employees.

 

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#### **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 and employees.At December 31, 2004 and 2005, there were outstanding options to purchase249,130 and 163,052 shares, respectively, of Class A Common Stock that hadbeen granted to current and former directors, officers and employees (includingcertain of the executive officers listed above) at exercise prices ranging from$3.00 per share to $16.00 per share. The options granted expire on the tenthanniversary of the date of grant.

 

## **ITEM 7.**          MAJOR SHAREHOLDERSAND 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, 2005 (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 otherwiseindicated, the holders listed below have sole voting and investment power withrespect to all shares beneficially owned by them.

 

Each share of Class B Stockis freely convertible at any time into one share of Class A Common Stock,subject to adjustment, and may not be transferred except to GFN, Motorola ortheir permitted transferees, as defined. Each share of Class B Stock has tenvotes and each share of Class A Common Stock has one vote. GFN and Motorola own100% of the outstanding shares of Class B Stock. Currently, GFN and itsaffiliates have approximately 55.9% of the voting power (including shares ofClass A Common Stock and Class B Stock owned by it and its affiliates) andMotorola approximately 32.3%. If our financial restructuring is consummated ascurrently contemplated, the interests of the existing holders of our equitywill be effectively eliminated, and, as a result, the voting power of GFN and itsaffiliates and Motorola 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                                                                                                                                                                                  |       |
| Immobiliaria  Carso, S.A. de C.V. (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) |       | 29,038,467                                               |       | 51.0                                                                                 |       | 60.0                                                                 |       | 44.9                                                                                                                                                                                  |       |

 

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(1)                                  For purposes of thistable, a person or group of persons is deemed to have “beneficial ownership” ofany shares as of a given date which such person or group of persons has theright to acquire within 60 days after such date. Information relating tothe percentage beneficially owned is calculated in accordance with SEC Rule13d-3 and includes for each of GFN Corporation Ltd., Manuel Arturo PelleranoPeña, Oleander Holdings Inc. and Motorola the shares of Class A CommonStock issuable upon conversion of the Class B Stock beneficially owned by itonly. For example, for purposes of calculating the percentage of Class A CommonStock beneficially owned by GFN Corporation Ltd in accordance with SEC Rule13d-3, the number of outstanding shares of Class A Common Stock does notinclude shares that would be issuable upon conversion of Class B Stock owned byMotorola. As a result, the percentage of Class A Common Stock beneficiallyowned by any holder of Class B Stock is greater than the percentage of Class ACommon Stock owned by that holder, assuming conversion of all Class B Stock,shown in the column, “Percentage of Voting Power.”

 

(2)                                  OleanderHoldings, Inc., a Panamanian corporation, is a wholly owned subsidiary ofGFN Corporation Ltd. Manuel Arturo Pellerano Peña and members of his familycontrol both GFN Corporation Ltd. and Oleander Holdings, Inc.

 

(3)                                  Carlos Slim Helu,Carlos Slim Domit, Marco Antonio Slim Domit, Patrick Slim Domit, María SoumayaSlim Domit, Vanessa Paola Slim and Johanna Monique Slim Domit own all of theoutstanding voting securities of Inmobiliaria Carso, S.A. de C.V., and aredeemed to beneficially own indirectly the ADSs directly owned by InmobiliariaCarso, S.A. de C.V. This information is based on a Schedule 13-G filed with theSEC on February 10, 2006.

 

(4)                                  Includes 606,061 sharesof Class A Common Stock owned by Mr. Ginebra directly and 2,699,976 shares ofClass A Common Stock owned by Walbeck Overseas Ltd., an entity controlled byMr. Ginebra.

 

(5)                                  Includes 11,486,720shares of Class B Stock and 17,453,874 shares of Class A Common Stock that maybe deemed to be beneficially owned by Mr. Pellerano in his capacity as acontrolling person of GFN. Also includes 750 shares of Class A Common Stockthat are issuable upon exercise of currently exercisable options beneficiallyowned 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 any transferof 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 shareholdersagreement provides that in order for a person to qualify as an independentdirector such person must not be:

 

•              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, principalstockholder, consultant or partner of a person that is a competitor of Tricomor any of its affiliates, any affiliate of such competitor, or any other personthat was dependent upon such competitor or affiliate of such competitor formore than 5% of its revenues or earnings in its most recent fiscal year; or

 

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•              An officer, director, employee, principalstockholder, consultant or partner of Motorola or GFN or an officer, employee,principal stockholder, consultant or partner of an entity that was dependentupon Motorola or any affiliate of Motorola for more than 5% of its revenues orearnings 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 calculating the number of shares of Class B Stockowned by either GFN or Motorola, there will be included the number of shares ofClass B Stock owned by any of it permitted 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 thethen outstanding shares of Class B Stock, each would have the right todesignate five directors;

 

•              If either GFN or Motorola owns shares ofClass B Stock:

 

•              Greater than 50% but less than or equalto 60% of the then outstanding shares of Class B Stock, it would designate sixdirectors and the other four directors;

 

•              Greater than 60% but less than or equalto 70% of the then outstanding shares of Class B Stock, it would designateseven directors and the other three directors;

 

•              Greater than 70% but less than or equalto 80% of the then outstanding shares of Class B Stock, it would designateeight directors and the other two directors;

 

•              Greater than 80% but less than or equalto 90% of the then issued and outstanding shares of Class B Stock, it woulddesignate 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 by Tricom ofany entity or the making of any investments in an other entity of business,including, but not limited to, the purchasing of equity or debt interests in orthe extension of credit to such entity;

 

•              The incurrence of indebtedness, if aftergiving effect to such incurrence, including the proposed application of theproceeds of such indebtedness to pay existing indebtedness, the ratio ofindebtedness to shareholders’ equity would be greater than three to one;

 

•              Approval of annual budgets relating toincome, capital expenditure, operating expenses and cash flows (provided thatthis does not require approval of any projected debt incurrence that otherwisecomplies with the limits described above or of any other proposed corporateaction for which super-majority approval is not specifically required); 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 thedirectors present at a duly convened meeting is required for all other boardactions (and at such time that Motorola or GFN owns less than 25% of the thenoutstanding shares of Class B Stock for the four actions specified as requiringa greater vote).

 

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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 andMotorola each has the right to require us to prepare and file on threeoccasions a registration statement covering registerable securities with amarket value of at least $5.0 million, subject to customary blackoutperiods. We are generally required to bear the expenses (except underwritingdiscounts and commissions and fees and expenses of any special counsel) of allsuch registrations, whether or not initiated by GFN 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, 2004 and 2005, and continue to be, the beneficial owners of17,453,874 shares of our Class A Common Stock and 11,486,720 shares of ourClass B Stock. This represents 50.8% of the issued and outstanding shares ofour Class A Common Stock (calculated in accordance with SEC Rule 13d-3) and 60%of the issued and outstanding shares of our Class B Stock. From August 1994through late 2003, Mr. Pellerano was the Chairman of our Board of Directors, Presidentand Chief Executive Officer. He resigned from our Board of Directors inNovember 2003 and was reappointed in May 2004. He retains, together withmembers of his family, the right to appoint a majority of the members of ourBoard of Directors and, indirectly, the right to control selection of ourmanagement.

 

Until 2003, Mr. Pellerano, togetherwith members of his family, controlled various entities that were engaged inthe businesses of banking, insurance, credit card issuance, securitiesbroker-dealer and other businesses, including:

 

•      Banco Nacional de Crédito S.A., aDominican Republic Bank (“Bancrédito Dominican Republic”);

 

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

 

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

 

•      Grupo Financiero Nacional, S.A., aDominican Republic holding company (“GFN, S.A.”); and

 

•      Compañía Nacional de ArrendamientosS.A., a Dominican Republic equipment leasing company (“Conaresa”).

 

The following additional entities, amongothers, continue to be controlled by Mr. Pellerano and members of his family,and are therefore related parties:

 

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

 

•      Omni TV, S.A. (“Omni TV”), aDominican subsidiary of Omnimedia that provides television programming;

 

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

 

•      Zona Franca San Isidro, S.A., a freetrade zone located in the Dominican Republic;

 

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

 

•      Compañía Nacional de 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.

 

***Description of Related Party Transactions.***

 

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

 

Indebtedness. Weincurred indebtedness from Bancrédito Panama, Bancredit Cayman, Conaresa, GFNCapital Corporation Ltd., Ellis Portafolio, S.A. and certain other current andformer affiliates of GFN and Tricom, consisting of loans, overdrafts,commercial paper and capital leases. The aggregate principal amount of ourindebtedness from related parties was $74.9 million and $73.8 million atDecember 31, 2004 and 2005, respectively, as follows:

 

•      Unsecured loans, overdrafts andletters of credit owed to various current and former affiliates of GFN andTricom in the principal amounts of $25,765,272 and $25,356,872 at December 31,2004 and 2005, respectively, bearing interest at rates ranging from 11.5% to12% per annum;

 

•      Commercial paper and promissory notesheld by various affiliates of GFN in the principal amounts of $49,091,066 and$48,448,922, at December 31, 2004 and 2005, respectively, bearing interest atrates ranging from 11% to 29%.

 

Interest incurred on indebtedness due to current andformer related parties was $10,083,499 and $10,658,941 during 2004 and 2005,respectively. Because our outstanding debt was in default at December 31, 2004and 2005, all of the above obligations were payable on demand at those dates. Accruedinterest payable on indebtedness due to current and former related parties was$14,879,148 and $24,186,485 at December 31, 2004 and 2005, respectively.

 

Provision of TelecommunicationsServices. We provided telecommunications services to certainaffiliates of GFN. These entities paid us $14,939 and $157,908 for suchservices in 2004 and 2005, respectively.

 

Programming. We enteredinto a contract with Omni TV, an affiliated entity, to manage our relationshipwith international cable programmers. During 2004 and 2005, we paid Omni TV$5,359,768 and $2,423,657, respectively, for services provided under thiscontract.

 

Equipment Purchased from Motorola. We havepurchased telecommunications equipment from Motorola, particularly for thedevelopment of our mobile cellular system and our wireless local loop in theDominican Republic. Aggregate consideration paid to Motorola was $1,535,297during 2004.

 

#### **OtherTransactions**

#### ** **

We have purchased mortgageparticipation contracts from savings and loan associations in the DominicanRepublic that are 

 

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maintained as compensating balancesfor mortgage loans made by these associations to several of our officers. AtDecember 31, 2004 and 2005, these mortgage participation contracts totaled$986,075 and $647,693, 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 anytransaction that may reduce, the amount owing by us to any of the IdentifiedGFN Entities. The amount alleged to be owed to the GFN Creditors by theIdentified GFN Entities totaled $32 million. The amount subject to the PaymentOpposition was $64 million, as permitted by Dominican law. The PaymentOpposition 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 appealed to the Supreme Court of theDominican Republic, we believe it is unlikely that we will be found liable inthese proceedings.

 

*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 

 

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Allegationsagainst us and the other co-defendants included fraud, embezzlement, violationsof monetary laws and money laundering. We were added to these proceedingswithout prior notice or participation in the existing proceedings.

 

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, manipulationand concealment of banking books and records and financial statements. Mr.Pellerano’s appeal of the decision of the Criminal Court remains pending at thedate of this filing.

 

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

 

Our Annual Report on Form20-F for the year ended December 31, 2004 and our consolidated financialstatements included in that report address the possibility of claims arisingout of the purchase (the “Placement”) in December 2002 of shares of our Class ACommon Stock by a group of investors for an aggregate purchase price ofapproximately $70 million. As of the filing date of this report, no claimsarising out of the events relating to the Placement have been asserted in anyjurisdiction in any litigation or similar proceedings brought against us or oursubsidiaries. Nevertheless, we have received indications that one or more ofthe liquidators of the Bancrédito entities in Panama and the Cayman Islandsbelieve that they have claims in connection with the Placement. However, 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. The Joint Liquidators of Bancredit Cayman have, in connection with aChapter 15 Petition filed in the Bankruptcy Court for the Southern District ofNew York, served subpoenas on us and certain of our subsidiaries seekingdocuments relating to the Placement. In addition, we believe that it is possiblethat other parties may assert claims arising out of the Placement. Claimsbrought on behalf of the Bancrédito 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 time we are not able to determine withany certainty who might assert claims, the precise nature of any claims thatmay be asserted, the jurisdiction in which such claims may be brought, thetheories on which such claims may be based, the validity of any such claims,whether viable defenses would be available to such claims and whether anyjudgment or award arising out of such claims would be enforceable against ouror our subsidiaries’ assets. Accordingly, while it is possible that we will inthe future need to establish loss contingencies relating to the Placement forpurposes of our financial statements, we do not believe that this is necessaryat the present time. If such claims were brought and determined in a manneradverse to us, our liquidity and financial resources would be adverselyaffected.

 

*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 

 

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Banco Leon during 2003 in a transaction also involving the Central Bankof the Dominican Republic. These lease agreements provide for the lease to usof telecommunications equipment, automobiles, and other 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 (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, 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.

 

*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 

 

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to submit a claim inSEGNA’s liquidation at the appropriate time. We believe that the amount ofpotential liability likely to arise out of these claims will not exceed$1,000,000, and do notbelieve that these matters will have a material adverse effect on ouroperations 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 were required towithhold and pay 25% of the amount of our investment in Tricom Latinoamérica,S.A. The 25% withholding tax generally applies for payments made for servicesrendered by non-Dominican vendors and for certain dividends. The tax authoritysought RD$168.1 million (approximately $9 million at 2002 exchange rates), pluspenalties and interest. We contested the claim, indicating that there is norequirement to withhold tax on an investment in a wholly owned subsidiary. Ourmotion before the tax authority failed and an appeal to the Ministry of Financewas rejected. Following a subsequent appeal the Tax Court, in February 2007,ruled in our favor and rejected the tax authority’s claim. The tax authoritydecided not to file a motion for cassation before the Supreme Court of theDominican 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 year comprisedof interest-only payments and the principal balance amortized over theremaining 6 years.

 

*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.

 

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## **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 the NYSE under the symbol “TDR”. On that date,following the announcement of our financial restructuring update on May 6,2004, the NYSE suspended trading and subsequently delisted our ADSs. Trading ofour ADSs resumed on May 19, 2004 on the OTCBB under the symbol “TRICY”. On July25, 2004, the OTCBB suspended trading of our ADSs due to the delay in filingour Form 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, 2005, 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 2001, 2002, 2003, 2004 and 2005, (2) each quarter of2004 and 2005, our two most recent full fiscal years, and (3) each of the lastsix months ending with December 2005:

 
| ** **          | ** ** | **Tricom ADS Prices** | ** ** |
|---------------------|------------|---------------------------------|------------|
| ** **          | ** ** | **High**                        | ** ** | **Low** | ** ** |
| **Year  Ended:**    |       |                            |       |   |   |
|                |       |                            |       |   |   |
| 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 |   |
| December 31,  2005  |       | 0.20                            |       | 0.02 |   |
|                |       |                            |       |   |   |
| **Quarter  Ended:** |       |                            |       |   |   |
|                |       |                            |       |   |   |
| March 2004          |       | 1.95                            |       | 1.05 |   |
| June 2004           |       | 1.28                            |       | 0.10 |   |
| September 2004      |       | 0.80                            |       | 0.20 |   |
| December 2004       |       | 0.51                            |       | 0.07 |   |
| March 2005          |       | 0.16                            |       | 0.07 |   |
| June 2005           |       | 0.12                            |       | 0.08 |   |
| September 2005      |       | 0.25                            |       | 0.08 |   |
| December 2005       |       | 0.15                            |       | 0.02 |   |
|                |       |                            |       |   |   |
| **Month  Ended:**   |       |                            |       |   |   |
|                |       |                            |       |   |   |
| July 2005           |       | 0.08                            |       | 0.08 |   |
| August 2005         |       | 0.13                            |       | 0.08 |   |
| September 2005      |       | 0.25                            |       | 0.08 |   |
| October 2005        |       | 0.15                            |       | 0.08 |   |
| November 2005       |       | 0.10                            |       | 0.05 |   |
| December 2005       |       | 0.11                            |       | 0.02 |   |

 

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## **ITEM 10.**                                              ADDITIONAL INFORMATION

## ** **

#### **ShareCapital**

#### ** **

At December 31, 2005 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, 2005, 45,458,041 sharesof Class A Common Stock were issued and outstanding. As of December 31, 2005and the date hereof, we also had 25,000,000 shares of our Class B Stock, parvalue RD$10 per share, authorized, 19,144,544 shares of which were issued andoutstanding. We have not issued any shares of our Class A Common Stock sinceDecember 2002 and we have not issued any shares of our Class B Stock since May1998.

 

At December 31, 2005,neither we nor any of our subsidiaries owned any shares of our Class A CommonStock or Class B Stock.

 

At December 31, 2005,there were outstanding options to purchase 163,052 shares of our Class A CommonStock for an average exercise price of $6.68 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.

 

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 operate telecommunications systems in the Dominican Republic andelsewhere;

 

•                                          To enter intosuch agreements as may be required to be interconnected to the switched publictelephone network, as well as to any domestic networks rendering inter-urbanservices, as may be required by said telecommunications systems; and

 

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•                                          To construct,maintain, and exploit a private telecommunications system for the transmissionof national and international calls and for the transmission or reception ofmessages and signals 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 per share.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 thirdparties after such registration occurs. The Bank of New York is the registrarand transfer 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:

 

•                                          To elect newdirectors and a vigilance officer;

 

•                                          Toacknowledge the vigilance officer’s report; and

 

•                                          Formanagement to report upon our financial performance and for the shareholders todecide whether or not to distribute 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 Chairmanof the Board of Directors;

 

•                                          A majority ofthe members of the Board of Directors at any time;

 

•                                          At therequest of the holders of 30% of the shares entitled to be cast at suchmeeting; and

 

•                                          At therequest of the vigilance officer in urgent circumstances, which are not definedunder Dominican law.

 

Shareholders meetings mayhe 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 tothe by-laws, including increases or decreases of our authorized share capital;

 

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•                                          The issuanceof shares of Class B Stock in addition to those shares of Class B Stockoutstanding on the date of the adoption of the by-laws, except in connectionwith a dividend or other distribution with respect to, or a subdivision,consolidation or reclassification of all outstanding shares of stock;

 

•                                          Thedeclaration and payment of any dividend or distribution with respect to ourcapital stock;

 

•                                          Any increaseor decrease in the number of directors; and

 

•                                          Our voluntarywinding up or liquidation or 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, whether civil, criminal, administrative orinvestigative, by reason of the fact that such person, or a person of whom heor she is the legal representative, is or was our director, officer, employeeor agent or any of our predecessors, or serves or served any other enterpriseas a director, officer, employee or agent at our request or any of ourpredecessors. 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.

 

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###### ***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.                                       Anysubsidiary or affiliate, as defined; and

 

4.                                       Withrespect to Oleander, Manuel Arturo Pellerano Peña and any member of the familyof Manuel Arturo Pellerano Peña as of the date of the initial public offeringthat had an interest (including indirectly through any corporation, trust orentity) in Oleander and;

 

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

 

•                                          Any trustexisting solely for the benefit of family members and any person who would be apermitted transferee of any such family member under clause (4) and any trusteeof such trust;

 

•                                          Upon thedeath of any such member or any person who would be a permitted transferee ofany member, such holder’s estate or any executor, administrator or other legalrepresentative 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 the solebeneficiaries of which are, such members and their permitted transferees.

 

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 byOleander and its permitted transferees, the shares of common stock owned byOleander and its permitted transferees constitute less than 10% of theoutstanding common stock, such shares of Class B Stock will entitle the holderto one vote per share. If, with respect to any shares of Class B Stock owned byMotorola and its permitted transferees, the shares of common stock owned byMotorola and its permitted transferees constitute less than 10% of theoutstanding common stock, such shares of Class B Stock will entitle the holderto one vote per share. Oleander, Motorola and any permitted transferee maypledge shares of Class B Stock without reducing the number of votes to which itis entitled; provided, however, that if such shares of Class B Stock aretransferred to or registered in the name of the pledgee (unless the pledgee isa permitted transferee), the number of votes to which such shares of Class BStock are entitled will be reduced until Oleander, Motorola or any of theirpermitted transferees either cures any default that resulted in the transfer orregistration or reacquires the 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.

 

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###### ***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,property or securities) to be received by each other holder of the same classof 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 applicable plan of reorganization andsupporting disclosure statement, if any, when they become available, and shouldalso consult with their own tax advisors as to the tax consequences ofparticipating 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.

 

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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.

 

## **ITEM 11.**                                              QUANTITATIVE AND 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, 2005consisted of $200.0 million of our 11-3/8% Senior Notes due 2004, and $247.5million of 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 2005, we generated operating revenues of $217.5million which represents approximately RD$6,610 million using the averageprivate market rate for 2005. Approximately 52.5% 

 

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of our operating revenueswere generated in Dominican pesos. At December 31, 2005, we had $437.2 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 lossesdepending upon fluctuations in the relative value of the Dominican peso againstthe U.S. dollar. In 2005, we recognized an approximate $0.7 million foreignexchange gain.

 

## **ITEM 12.**                                              DESCRIPTION OF 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-widedecline 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 $447.5 million inprincipal amount as of December 31, 2005. 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.**               MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS

## ** **

None.

 

## **ITEM 15.**                                              DISCLOSURE CONTROLS 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 the circumventionor overriding of the controls and procedures. Accordingly, even effectivedisclosure controls and procedures can only 

 

67

----

 

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 tothe matters referred to in Item 3, “Risk Factors—We do not have an auditcommittee and our internal accounting systems and controls may be inadequate toensure timely and accurate financial reporting,” there were no changes in ourinternal control over financial reporting that occurred during the periodcovered by this report that have materially affected, or are reasonably likelyto materially affect, our internal control 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.

 

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, 2004 and December 31, 2005.

 

#### **AuditFees**

#### ** **

Fees billed by Sotomayorfor professional services for the audits of the 2004 and 2005 annualconsolidated financial statements, respectively, totaled approximately $440,625and $506,344. Such fees includefees associated with the audit of our annual consolidated financial statementsor services that are normally provided by Sotomayor in connection withstatutory and regulatory filings or engagements for those fiscal years.

 

#### **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 totaled approximately $55,486 and $55,128 for workrelated to the years ended December 31, 2004 and 2005, respectively.

 

68

----

 

#### **AllOther Fees**

#### ** **

For the fiscalyears ended December 31, 2004 and 2005, Sotomayor received $96,568 and$114,461, respectively, for FCC-related regulatory work, planning and researchrendered 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.

 

## **ITEM 18.**                                              FINANCIAL STATEMENTS

## ** **

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

 

1.                                       Reportof Independent Registered Public Accounting Firm;

 

2.                                       ConsolidatedBalance Sheets as of December 31, 2004 and 2005;

 

3.                                       ConsolidatedStatements of Operations for the Years Ended December 31, 2003, 2004 and2005;

 

4.                                      ConsolidatedStatements of Stockholders’ Equity (Deficit) and Comprehensive Loss for theYears Ended December 31, 2003, 2004 and 2005;

 

5.                                       ConsolidatedStatements of Cash Flows for the Years Ended December 31, 2003, 2004 and2005; and

 

6.                                       Notesto Consolidated Financial Statements.

 

69

----

 

## **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 Latinoamerica, 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)). |

 

70

----

 
| 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. |

 

71

----

 

### SIGNATURES

###  

Pursuant to therequirements of Section 12 of the Securities Exchange Act of 1934, theregistrant certifies that it meets all of the requirements for filing Form 20-Fand has duly caused this annual report to be 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, 2004 and 2005                                                                                |   |   |
|                                                                                                                                         |   |   |
| Consolidated Statements of  Operations for the Years Ended December 31, 2003, 2004 and 2005                                                  |   |   |
|                                                                                                                                         |   |   |
| Consolidated Statements of  Stockholders’ Equity (Deficit) and Comprehensive Loss for the Years Ended  December 31, 2003, 2004 and 2005 |   |   |
|                                                                                                                                         |   |   |
| Consolidated Statements of  Cash Flows for the Years Ended December 31, 2003, 2004 and 2005                                                  |   |   |
|                                                                                                                                         |   |   |
| 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 REGISTEREDPUBLIC ACCOUNTING FIRM**

 

TheBoard of Directors and Stockholders

TRICOM,S.A.:

 

We have audited the accompanying consolidated balance sheets of TRICOM,S. A. and subsidiaries (the Company) as of December 31, 2004 and 2005 and therelated consolidated statements of operations, stockholders’ equity (deficit)and comprehensive loss and cash flows for periods ended December 31, 2003, 2004and 2005. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.

 

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, 2004 and 2005 and the results of its operations and its cashflows for each of the periods ended December 31, 2003, 2004 and 2005, inconformity with 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 3, 22, and 25 to the consolidated financial statements, theCompany has suffered recurring losses from operations, which have been impactedfurther by the recognition of impairment losses of long-term assets andintangibles and the loss in the disposal of the Central America operations,which have led the Company to default in its long and short term debtcommitments. These situations, among others, raise substantial doubt about theCompany’s ability to continue as a going concern. Management’s plans in regardto these matters are also described in Note 3. The accompanying consolidatedfinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

 

 

Sotomayor & Associates, LLP

Pasadena, California

 

June 23, 2006

 

F-2

----

 

**TRICOM, S.A. ANDSUBSIDIARIES**

** **

**ConsolidatedBalance Sheets**

 

**December 31, 2004 and 2005**

 
| ** **                                                                            | ** ** | **2004**    | ** **      | **2005**    | ** ** |
|---------------------------------------------------------------------------------------|------------|-------------|-----------------|-------------|------------|
| **Assets**                                                                            |       |        |            |
| Current assets:                                                                       |       |        |            |        |       |
| Cash and cash  equivalents                                                            |       | $           | 17,590,173      |        | $          | 32,113,028 |   |
|                                                                                  |       |        |            |        |       |
| Accounts  receivable (Notes 5, 6 and 17):                                             |       |        |            |        |       |
| Customers                                                                             |       | 17,512,945  |            | 16,247,151  |       |
| Carriers                                                                              |       | 5,806,582   |            | 4,815,386   |       |
| Related parties                                                                       |       | 200,000     |            | 2,664       |       |
| Other                                                                                 |       | 3,318,057   |            | 1,428,250   |       |
|                                                                                  |       | 26,837,584  |            | 22,493,451  |       |
| Allowance for  doubtful accounts                                                      |       | (3,138,530  | )               | (2,116,291  | )          |
| Accounts  receivable, net                                                             |       | 23,699,054  |            | 20,377,160  |       |
|                                                                                  |       |        |            |        |       |
| Accounts  receivable – officers and employees                                    |       | 540,003     |            | 108,170     |       |
|                                                                                  |       |        |            |        |       |
| Inventories, net  of allowance of $528,991 and $871,435 in 2004 and 2005 respectively |       | 1,698,074   |            | 2,385,186   |       |
|                                                                                  |       |        |            |        |       |
| Certificates of  deposit and other investment, net (Note 7)                           |       | 986,075     |            | 647,693     |       |
|                                                                                  |       |        |            |        |       |
| Prepaid expenses                                                                      |       | 3,336,381   |            | 7,095,561   |       |
|                                                                                  |       |        |            |        |       |
| Deferred income  taxes (Note 15)                                                      |       | 376,293     |            | 966,242     |       |
| Total current  assets                                                                 |       | 48,226,053  |            | 63,693,040  |       |
|                                                                                  |       |        |            |        |       |
| Property, plant  and equipment, net (Notes 4, 12, 13, 22 and 25)                      |       | 332,907,563 |            | 298,439,135 |       |
|                                                                                  |       |        |            |        |       |
| Intangible assets (Note 8)                                                            |       | 2,664,641   |            | 2,664,641   |       |
| Restricted Cash (Note 2.4)                                                            |       | —      |            | 370,378     |       |
|                                                                                  |       |        |            |        |       |
| Other assets at cost, net of amortization (Note 9)                                    |       | 3,884,822   |            | 3,365,176   |       |
|                                                                                  |       |        |            |        |       |
| ** **                                                                            | ** ** | **$**       | **387,683,079** | ** **  | **$**      | **368,532,370** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

F-3

----

 
| ** **                                                                                        | ** ** | **2004**     | ** **      | **2005**     | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------|-----------------|--------------|------------|
| **Liabilities and Stockholders’  Equity (Deficit)**                      |       | ** **   |            |
| Current  liabilities:                                                                             |       |         |            |         |       |
| Borrowed funds –  banks (Note 10)                                                            |       | $            | 40,619,394      |         | $          | 48,865,810 |   |
| Borrowed funds –  related parties (Note 6)                                                   |       | 8,005,000    |            | —       |       |
| Commercial paper  (Note 11)                                                                       |       | 8,028,680    |            | 6,200,000    |       |
| Commercial paper  – related parties (Notes 6 and 11)                                         |       | 49,091,066   |            | 48,448,922   |       |
| Current portion  of long-term debt-related party (Note 6)                                         |       | 25,765,272   |            | 25,356,872   |       |
| Current portion  of long-term debt (Note 13)                                                      |       | 302,236,880  |            | 298,501,504  |       |
|                                                                                              |       | 433,746,292  |            | 427,373,108  |       |
|                                                                                              |       |         |            |         |       |
| Current portion  of obligation under capital leases (Note12)                                      |       | 14,531,321   |            | 14,531,321   |       |
|                                                                                              |       |         |            |         |       |
| Accounts payable  (Note 6):                                                                       |       |         |            |         |       |
| Carriers                                                                                          |       | 7,837,312    |            | 8,196,740    |       |
| Related parties                                                                                   |       | 1,604,249    |            | —       |       |
| Suppliers                                                                                         |       | 11,585,842   |            | 17,257,287   |       |
| Other                                                                                             |       | 407,865      |            | 994,513      |       |
|                                                                                              |       | 21,435,268   |            | 26,448,540   |       |
| Accrued expenses  (Note 16)                                                                       |       | 14,567,024   |            | 11,705,140   |       |
| Other  liabilities                                                                                |       | 2,460,831    |            | 5,659,756    |       |
| Deferred  revenues                                                                                |       | 5,804,750    |            | 2,050,620    |       |
| Interest payable  – related party (Note 6)                                                   |       | 14,879,148   |            | 24,186,485   |       |
| Interest payable                                                                                  |       | 75,366,828   |            | 129,439,767  |       |
| Total current  liabilities                                                                        |       | 582,791,462  |            | 641,394,737  |       |
|                                                                                              |       |         |            |         |       |
| Reserve for  severance indemnities (Note 2.12)                                                    |       | 50,231       |            | 284,321      |       |
| Deferred income  taxes (Note 15)                                                                  |       | 661,795      |            | 433,895      |       |
| Long-term debt (Note 13)                                                                          |       | —       |            | 5,613,904    |       |
| Total  liabilities                                                                                |       | 583,503,488  |            | 647,726,857  |       |
|                                                                                              |       |         |            |         |       |
| Stockholders’ equity (deficit) (Notes 14, 16 and 18):                                        |       |         |            |         |       |
| 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   |       |
| Class B common  stock of RD$10 par value: Authorized 25,000,000 shares; issued 19,144,544  shares |       | 12,595,095   |            | 12,595,095   |       |
| Additional  paid-in-capital                                                                       |       | 275,496,964  |            | 275,496,964  |       |
| Accumulated  deficit                                                                              |       | (506,839,980 | )               | (590,214,058 | )          |
| Other  comprehensive loss-foreign currency translation (Note 2.3)                                 |       | (2,023,757   | )               | (2,023,757   | )          |
| Stockholders’  deficit, net                                                                  |       | (195,820,409 | )               | (279,194,487 | )          |
| Commitments and  contingencies (Notes 6, 10, 11, 12, 13, 14, 15, 16, and 19)                      |       |         |            |         |       |
| ** **                                                                                        | ** ** | **$**        | **387,683,079** | ** **   | **$**      | **368,532,370** | ** ** |
|                                                                                                   |            |              |                 |              |            |  |  |  |  |

 

See accompanyingnotes to consolidated financial statements.

 

F-4

----

 

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

** **

**Consolidated Statementsof Operations**

** **

**Yearsended December 31, 2003, 2004 and 2005**

 
| ** **                                                                       | ** ** | **2003**     | ** **   | **2004**     | ** ** | **2005**     | ** ** |
|----------------------------------------------------------------------------------|------------|--------------|--------------|--------------|------------|--------------|------------|
| ** **                                                                       | ** ** | ** **   | ** **   | ** **   | ** ** | ** **   | ** ** |
| Operating  revenues (Notes 2.5, 2.13 and 6):                                     |       |         |         |         |       |         |       |
| Long distance                                                                    |       | $            | 92,087,847   |         | $          | 72,008,996   |       | $ | 70,620,470 |   |
| Domestic  telephony                                                              |       | 59,475,203   |         | 64,973,873   |       | 84,071,137   |       |
| Mobile                                                                           |       | 29,231,686   |         | 32,123,985   |       | 35,485,447   |       |
| Cable                                                                            |       | 13,584,637   |         | 13,651,113   |       | 19,304,412   |       |
| Data and  Internet                                                               |       | 4,486,692    |         | 5,354,729    |       | 7,952,623    |       |
| Other                                                                            |       | 121,448      |         | 68,486       |       | 90,557       |       |
| Total operating  revenues                                                        |       | 198,987,513  |         | 188,181,182  |       | 217,524,646  |       |
|                                                                             |       |         |         |         |       |         |       |
| Operating costs  and expenses:

(Notes 2.2, 2.6,  2.10, 3, 4, 5, 6, 16 and 25):  |       |         |         |         |       |         |       |
| Cost of sales and services                                                       |       | 91,009,781   |         | 89,540,886   |       | 87,696,237   |       |
| Selling, general  and administrative expenses                                    |       | 60,392,716   |         | 56,685,365   |       | 77,654,448   |       |
| Restructuring costs                                                              |       | 1,597,000    |         | 8,146,000    |       | 7,803,000    |       |
| Depreciation and  amortization                                                   |       | 70,292,451   |         | 75,253,831   |       | 62,040,872   |       |
| Assets  impairment                                                               |       | 191,284,301  |         | —       |       | —       |       |
| Other charges  and special items                                                 |       | 15,870,544   |         | —       |       | —       |       |
| Total operating  costs                                                           |       | 430,446,793  |         | 229,626,082  |       | 235,194,557  |       |
|                                                                             |       |         |         |         |       |         |       |
| Operating income  (loss) from continuing operations                              |       | (231,459,280 | )            | (41,444,900  | )          | (17,669,911  | )          |
|                                                                             |       |         |         |         |       |         |       |
| Other income  (expenses) (Note 6):                                               |       |         |         |         |       |         |       |
| Interest expense                                                                 |       | (65,554,495  | )            | (63,697,822  | )          | (69,561,138  | )          |
| Interest income                                                                  |       | 1,203,830    |         | 222,776      |       | 698,046      |       |
| Foreign currency  exchange gain (loss) net of income tax                         |       | 5,347,199    |         | (2,673,823   | )          | 727,114      |       |
| Other, net                                                                       |       | 302,949      |         | 5,739,855    |       | 1,613,963    |       |
| Other expenses,  net                                                             |       | (58,700,517  | )            | (60,409,014  | )          | (66,522,015  | )          |
|                                                                             |       |         |         |         |       |         |       |
| Loss from  continuing operations before income taxes and discontinued operations |       | (290,159,797 | )            | (101,853,914 | )          | (84,191,926  | )          |
|                                                                             |       |         |         |         |       |         |       |
| Income taxes  benefit (provision) (Note 15)                                      |       | (1,358,861   | )            | (300,182     | )          | 817,848      |       |
| Loss from  continuing operations before discontinued operations                  |       | (291,518,658 | )            | (102,154,096 | )          | (83,374,078  | )          |
|                                                                             |       |         |         |         |       |         |       |
| Discontinued operations (Note 22):                                               |       |         |         |         |       |         |       |
| Loss from  discontinued operations                                               |       | (46,651,629  | )            | —       |       | —       |       |
|                                                                             |       |         |         |         |       |         |       |
| Net loss                                                                         |       | $            | (338,170,287 | )            | $          | (102,154,096 | )          | $ | (83,374,078 | ) |
|                                                                             |       |         |         |         |       |         |       |
| Loss per common share – basic and diluted                                   |       |         |         |         |       |         |       |
| Loss from continuing operations                                                  |       | $            | (4.51        | )            | $          | (1.58        | )          | $ | (1.29 | ) |
| Loss from discontinued operation                                                 |       | (0.72        | )            | —       |       | —       |       |
|                                                                             |       |         |         |         |       |         |       |
| Net loss per  common share – basic and diluted                              |       | $            | (5.23        | )            | $          | (1.58        | )          | $ | (1.29 | ) |
|                                                                             |       |         |         |         |       |         |       |
| Average number  of common shares used in calculation:                            | ** ** | ** **   | ** **   | ** **   | ** ** | ** **   | ** ** |
| Basic                                                                            |       | 64,602,585   |         | 64,602,585   |       | 64,602,585   |       |
| Diluted                                                                          |       | 64,602,585   |         | 64,602,585   |       | 64,602,585   |       |
|                                                                                  |            |              |              |              |            |              |            |  |  |  |  |  |  |

 

See accompanyingnotes to consolidated financial statements.

 

F-5

----

 

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

** **

**Consolidated Statementsof Stockholders’ Equity (Deficit) and Comprehensive Loss**

** **

**YearsEnded December 31, 2003, 2004 and 2005**
| ** **                    | ** ** | **Number of Common Shares** | ** ** | ** **            | ** ** | ** **           | ** ** | ** **       | ** ** | **Retained Earnings (Accumulated Deficit)** | ** ** | **Other Comprehensive  Loss-** | ** **  | ** **                         | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|-----------------------|------------|----------------------|------------|------------------|------------|------------------------------------------------------------|------------|-------------------------------------|-------------|------------------------------------|------------|
| ** **                    | ** ** | **Issued**                                 | ** ** | **Common Stock** | ** ** | **Additional ** | ** ** | **Appropriated** | ** ** | **Un- **                                              | ** ** | **Foreign **                   | ** **  | **Stockholders’ Equity** | ** ** |
| ** **                    | ** ** | **Class A**                           | ** ** | **Class B**      | ** ** | **Class A**     | ** ** | **Class B** | ** ** | **Paid in Capital**                              | ** ** | **Legal Reserve**              | ** **  | **appropriated**                   | ** ** | **Currency Translation** | ** ** | **(Deficit), Net** | ** ** |
| 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 | ) |
| Net loss                      |       | —                                     |       | —                | ** ** | —               |       | —           |       | —                                                     |       | 120,633                             |        | (83,494,711                        | )          | — |   | (83,374,078 | ) |
| Balance at  December 31, 2005 |       | 45,458,041                                 |       | 19,144,544            | ** ** | $                    | 24,951,269 |             | $          | 12,595,095                                                 |       | $                                   | 275,496,964 |                               | $          | 2,043,242 |   | $ | (592,257,300 | ) | $ | (2,023,757 | ) | $ | (279,194,487 | ) |

 

See accompanyingnotes to consolidated financial statements.

 

F-6

----

** **

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

 

**Consolidated Statements of Cash Flows**

 

**Yearsended December 31, 2003, 2004 and 2005**

** **
| ** **                                                                                                      | ** ** | **Year Ended December 31,** | ** **   |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|--------------|
| ** **                                                                                                      | ** ** | **2003**                                   | ** **   | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                                                      | ** ** | ** **                                 | ** **   | ** ** | ** ** | ** ** | ** ** |
| Cash flows  provided by operating activities:                                                                   |       |                                       |         |   |   |   |   |
| Net loss from  continuing operations before discontinued operations                                             |       | $                                          | (291,518,658 | ) | $ | (102,154,096 | ) | $ | (83,374,078 | ) |
|                                                                                                            |       |                                       |         |   |   |   |   |
| Adjustments to  reconcile net loss from continuing operations to net cash provided by  operating activities:    |       |                                       |         |   |   |   |   |
| Depreciation                                                                                                    |       | 70,054,454                                 |         | 75,026,380 |   | 61,823,944 |   |
| Impairment  charge of long-lived asset, intangible assets and goodwill                                          |       | 191,284,301                                |         | — |   | — |   |
| Amortization of  debt issue cost and bank debt                                                                  |       | 7,779,619                                  |         | — |   | — |   |
| Provision  allowance for investments                                                                            |       | 4,975,023                                  |         | — |   | — |   |
| Allowance for  doubtful accounts                                                                                |       | 1,676,649                                  |         | 2,296,554 |   | 3,497,686 |   |
| Amortization of  radio frequency rights                                                                         |       | 237,997                                    |         | 227,450 |   | 216,928 |   |
| Net cash used in  activities of discontinued operations, including changes in operating assets  and liabilities |       | (4,965,215                                 | )            | — |   | — |   |
| Charge for  obsolescence of equipment pending installation                                                      |       | 590,740                                    |         | 1,114,558 |   | 949,094 |   |
| Charge for  inventory obsolescence                                                                              |       | 1,123,217                                  |         | 196,204 |   | 514,641 |   |
| Expenses for  severance indemnities                                                                             |       | 1,743,419                                  |         | 864,800 |   | 2,277,835 |   |
| Deferred income  tax, net                                                                                       |       | (1,277,482                                 | )            | 297,676 |   | (817,848 | ) |
| Cost of  terminating operating lease                                                                            |       | 7,371,119                                  |         | — |   | — |   |
| Exchange rate  effect in long-term debt                                                                         |       | (7,552,955                                 | )            | 2,673,823 |   | (355,740 | ) |
| Loss on disposal  and sale of assets                                                                            |       | 1,935,518                                  |         | 782,352 |   | 319,552 |   |
| Changes in  operating assets and liabilities excluding discontinued operations:                                 |       |                                       |         |   |   |   |   |
| Decrease  (increase) in accounts receivable                                                                     |       | 2,751,711                                  |         | (7,594,438 | ) | 95,616 |   |
| Decrease(increase)  in accounts receivable – related parties                                               |       | 787,767                                    |         | (144,577 | ) | 197,336 |   |
| Decrease  (increase) in inventories                                                                             |       | 834,223                                    |         | (356,553 | ) | (1,201,753 | ) |
| Decrease  (increase) in prepaid expenses                                                                        |       | 6,825,908                                  |         | (3,229,447 | ) | (3,759,180 | ) |
| Increase in  restricted cash                                                                                    |       | —                                     |         | — |   | (370,378 | ) |
| Decrease in  other assets                                                                                       |       | 1,939,127                                  |         | 406,547 |   | 302,717 |   |
| (Decrease)increase  in accounts payable                                                                         |       | (5,887,852                                 | )            | (5,579,402 | ) | 4,925,111 |   |
| Increase in  interest payable – related parties                                                            |       | 7,079,901                                  |         | 7,319,770 |   | 9,307,337 |   |
| Increase in  interest payable                                                                                   |       | 14,304,739                                 |         | 49.944,971 |   | 54,072,939 |   |
| (Decrease)increase  in other liabilities                                                                        |       | (1,494,221                                 | )            | (1,565,351 | ) | 2,372,028 |   |
| (Decrease)increase in deferred revenues                                                                         |       | (2,061,577                                 | )            | 1,280,657 |   | (3,754,130 | ) |
| Increase (decrease) in accrued expenses                                                                         |       | 990,167                                    |         | 1,342,387 |   | (1,983,737 | ) |
| Decrease in  reserve for severance indemnities                                                                  |       | (2,258,675                                 | )            | (939,450 | ) | (2,043,750 | ) |
| Total  adjustments                                                                                              |       | 298,788,622                                |         | 124,364,911 |   | 126,586,248 |   |
| Net cash  provided by operating activities                                                                      |       | 7,269,964                                  |         | 22,210,815 |   | 43,212,170 |   |
|                                                                                                                 |            |                                            |              |  |  |  |  |  |  |  |

 

See accompanying notes toconsolidated financial statements.

 

F-7

----

** **

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

** **

**Consolidated Statements of CashFlows**

** **

**Years ended December 31, 2003,2004 and 2005**

 
| ** **                                                                 | ** ** | **Year Ended December 31,** | ** **  |
|----------------------------------------------------------------------------|------------|--------------------------------------------|-------------|
| ** **                                                                 | ** ** | **2003**                                   | ** **  | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                 | ** ** | ** **                                 | ** **  | ** ** | ** ** | ** ** | ** ** |
| Cash flows from  investing activities (Notes 4, 7 and 22):                 |       |                                       |        |   |   |   |   |
| Cancellation  (acquisition) of investments                                 |       | 9,259,064                                  |        | (355,910 | ) | 338,383 |   |
| Cash provided by  investing activities of discontinued operations          |       | 1,344,477                                  |        | 10,661,300 |   | — |   |
| Acquisition of  property and equipment                                     |       | (10,786,426                                | )           | (13,277,265 | ) | (28,624,156 | ) |
| Net cash used in  investing activities                                     |       | (182,885                                   | )           | (2,971,875 | ) | (28,285,773 | ) |
|                                                                       |       |                                       |        |   |   |   |   |
| Cash flows from  financing activities (Notes 3, 6, 10, 11, 12, 13 and 16): |       |                                       |        |   |   |   |   |
| Borrowed funds  from banks                                                 |       | 3,817,614                                  |        | — |   | 268,979 |   |
| Principal  payments to banks                                               |       | (13,646,207                                | )           | (310,304 | ) | — |   |
| Proceeds from  issuance of commercial paper                                |       | 7,519,783                                  |        | — |   | — |   |
| Principal  payments of commercial paper to banks                           |       | —                                     |        | — |   | (1,828,680 | ) |
|                                                                       |       |                                       |        |   |   |   |   |
| Principal  payments of commercial paper-related parties                    |       | —                                     |        | — |   | (642,145 | ) |
| Borrowed funds  from (to) related parties                                  |       | 4,255,593                                  |        | (2,503,341 | ) | — |   |
| Principal  payments to related parties                                     |       | (2,082,297                                 | )           | (3,888 | ) | — |   |
| Cash used in  financing activities of discontinued operations              |       | (1,812,607                                 | )           | — |   | — |   |
| Payments of  long-term debt                                                |       | (8,803,763                                 | )           | (1,246,732 | ) | (3,749,552 | ) |
| Proceeds from  issuance of long-term debt                                  |       | —                                     |        | — |   | 5,547,856 |   |
| Net cash used in  financing activities                                     |       | (10,751,884                                | )           | (4,064,265 | ) | (403,542 | ) |
|                                                                       |       |                                       |        |   |   |   |   |
| Net (decrease)  increase in cash and cash equivalents                      |       | (3,664,805                                 | )           | 15,174,675 |   | 14,522,855 |   |
|                                                                       |       |                                       |        |   |   |   |   |
| Cash and cash  equivalents at beginning of the year                        |       | 6,080,303                                  |        | 2,415,498 |   | 17,590,173 |   |
|                                                                       |       |                                       |        |   |   |   |   |
| Cash and cash  equivalents at the end of the year                          |       | $                                          | 2,415,498   |   | $ | 17,590,173 | ** ** | $ | 32,113,028 | ** ** |
|                                                                       |       |                                       |        |   |   |   |   |
| Supplementary  information:                                                |       |                                       |        |   |   |   |   |
| Interest paid  (net of capitalization)                                     |       | $                                          | (36,389,236 | ) | $ | (6,272,758 | ) | $ | (5,824,428 | ) |
| Expense in lieu  of income taxes and income taxes paid                     |       | $                                          | (2,336,999  | ) | $ | (550,676 | ) | $ | — |   |

 

# **See accompanying notes to consolidated financialstatements.**

# ** **

F-8

----

# ** **

# **1**                      Organizationand Nature of Business

# ** **

Theconsolidated 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 Tel CorporationTRICOM USA, Inc. And SubsidiariesTCN Dominicana, S.A. (TCN or Telecable)

TRICOMLatinoamérica, S.A.

 

TRICOMis a diversified telecommunications company, which provides international anddomestic long distance, basic local service, mobile, Internet and broadbandservices in the Dominican Republic and long distance services 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 30, 1990. This agreement is for an initial term of20 years through June 30, 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.

 

TRICOMUSA, 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.

 

TRICOM Latinoamérica, S.A. is a company organized underthe laws of the Cayman Islands on May 12, 2000. The activity of this company isto act as the holding company of the Company’s telecommunications operations inCentral America and the Caribbean. These operations were disposed of during2004.

 

TCNDominicana, S.A. is a company organized on September 13, 2001 under the laws ofthe Dominican Republic, and engaged in the operation of three cable televisionsystems and networks in the Dominican Republic.

 

**2****                      Summary of SignificantAccounting Policies**

 

**2.1****                               Principlesof Consolidation**

 

The accompanying consolidated financial statements includethe accounts of TRICOM, S.A. (Parent Company) and its majority ownedsubsidiaries. All significant inter-company accounts and transactions have beeneliminated in consolidation.

 

F-9

----

 

**2.2****                               Useof Estimates**

 

The accompanying consolidated financial statementshave been prepared in conformity with accounting principles generally acceptedin the United States of America. The preparation of consolidated financialstatements in conformity with these principles requires management to make anumber of estimates and assumptions relating to the reported amounts of assetsand liabilities and the disclosures of contingent assets and liabilities at thedate of the consolidated financial statements and the reported amounts ofrevenues and expenses during the period.

 

Significant items subject to such estimates andassumptions include: the carrying amount of property, plant and equipment,valuation allowances for receivables, inventories, intangible assets anddeferred income tax assets. Actual results could differ from those estimates.

 

**2.3****                               ForeignCurrencies**

 

The Company’s and its subsidiaries’ functionalcurrency is the U.S. dollar. All foreign currency balances are restated in USdollars using both historical and current exchange rates. Under this situation,SFAS 52 requires the 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 December 31, 2004 and 2005, the rates used bythe Company to translate Dominican peso balance sheet denominated accounts wereRD$31.07 and RD$34.85 per one US dollar, respectively. The weighted-averageexchange rates used to translate certain revenues and expenses accounts for the2003, 2004 and 2005 statements of operations were RD$30.93, RD$42.11 andRD$30.39 respectively. Panamanian Balboas (B/.) were at par with the U.S.dollar.

 

**2.4****                               Cashand Cash Equivalents**

 

For the purpose of the statements of cash flows, theCompany considers as cash and cash equivalents all cash on hand; cash in banks,time deposits and highly liquid debt instruments with original maturities atthe time of purchase of three months or less. Restricted cash is primarilyrelated to cash held in escrow at financial institutions as determined by thecourt judge and restricted for possible litigation settlements.

 

## **2.5**                               Customerand Carrier Accounts Receivable

## ** **

Customer accounts receivable are recorded on the dateinvoiced and recorded with the amount of services provided plus a late charge,if any, which accrues after a maximum grace period of 15 days for individualcustomers and 30 days for corporate customers (on the accounts past due). Theassessed monthly late charge is 2.98%. Carrier accounts receivable arerecognized based on the termination of traffic in the Company’s network.

 

F-10

----

 

**2.6****                               Allowancefor Doubtful Accounts**

 

The allowance for doubtful accounts receivable isestablished through a charge to an expense account. The Company, afteranalyzing current market trends and collection history of its receivablesportfolio has estimated those customers’ receivables balances over 90 days pastdue are uncollectible and are therefore reserved.

 

The allowance for doubtful accounts from carriers andothers is established through a charge to an expense account based on ananalysis of the collectability of individual accounts and payment history.

 

**2.7****                               Inventories**

 

Inventories are valued at the lower of average cost ormarket. Inventory mainly corresponds to telephone equipment available for sale.

 

The Company’s policy is to review its inventory forspecific usage and future utility. Estimates of impairment of individual itemsof inventory are recorded to reduce the item to the lower of cost or market. Thereserve for inventory obsolescence was $528,991 and $871,435 as of December 31,2004 and 2005, respectively.

 

## **2.8**                               Changein Accounting Estimate

## ** **

The Company’s management reviews the estimated usefullives of its fixed assets. The 2004 review indicated the actual lives forcertain asset categories generally were shorter than the useful lives used fordepreciation purposes in the Company’s financial statements. As a result, theCompany revised the estimated useful lives of certain categories of property,principally building, communication, office, production and transmissionequipment, hardware and other. The effect of this change in estimate increased accumulateddepreciation by approximately $17.4 million.

 

The change in the estimates of the useful lives offixed assets was performed based on a comparison of the company’s useful liveswith other companies’ useful lives for similar assets. The Company made thesechanges to better reflect the estimated periods during which such assets willremain in service.

 

## **2.9**                               Property, Plantand Equipment

## ** **

Property, plant and equipment are carried at cost.Construction costs and equipment installations in process are maintained asconstruction projects until they are completed and/or the equipment is placedin service. Depreciation is recorded from the first full month that the assetsare placed in service. Property and plant related to cable televisionoperations are carried at cost and include all direct costs and certainindirect costs associated with the construction of cable televisiontransmission and distribution systems and new subscriber installations.

 

## **2.10**                        Depreciationand Amortization

## ** **

The depreciation method used by the Company is thestraight-line method, that is, the uniform distribution of cost over theestimated useful lives of the corresponding assets. Leasehold improvements areamortized using the straight-line method over the shorter of the lease term orthe estimated useful life of the improvement. The estimated useful lives ofassets are as follows:

 

F-11

----

 
| **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      |

## ** **

## **2.11**                        Other Assets

## ** **

Radio frequency rights are amortized on astraight-line basis over their useful lives, which range from 15 to 20 years.

 

Deferred commissions on prepaid calling cards arerecognized when the deferred revenues are recorded. Commission expense on salesof calling cards outside of the Dominican Republic is recognized based on theminutes used. Commission expense on sales of calling cards within the DominicanRepublic is recorded when collection of outstanding invoices to distributorsand/or wholesalers is made.

 

Cellular service plans that include the price of thetelephone equipment generate deferred assets for the net cost of the equipment,which is amortized over the minimum contract period of 18 months starting withthe month following the delivery of the equipment. Effective January 1, 2003,the Company changed prospectively its policy for recognizing the net cost ofsuch service plans as an expense (see Note 9).

 

## **2.12**                        Severance Indemnities

## ** **

According to the Labor Code of the Dominican Republic,employers are required to pay severance indemnities to those workers whoselabor contracts are terminated without just cause. Just cause is defined in theLabor Code to include misstatements by an employee in his job application,termination within three months of employment for poor performance, dishonesty,threats of violence, willful or negligent destruction of property, unexcusedabsences or termination of the job for which the employee was hired. TheCompany maintains a minimal reserve to cover severance indemnities based on itsexperience. At December 31, 2004 and 2005, the non-current liability forseverance indemnities presented in the balance sheet was of $50,231 and $284,321respectively.

 

## **2.13**                        Revenue Recognition

## ** **

##### ***Long Distance.***

##### ** **

Long distance revenues represent amounts recognized for the transmissionof traffic from foreign telecommunication carriers to the Dominican Republic,including revenues derived from the Company’s U.S. based international longdistance wholesale and prepaid calling card operations, outbound internationaland domestic long distance calls generated by calling card users and retailtelephone centers. Long distance revenues are recognized as the minutes areprovided or as the calls are made, except for revenues from prepaid callingcards which are recognized as the calling cards are used, net of commissionpaid for sale.

 

F-12

----

 

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

##### ** **

Domestic telephony revenues consist of fees received for local exchangeservices in the Dominican Republic, including monthly fees, local measuredservice and local measured charges for value-added services, outboundinternational and domestic long distance calls generated by the Company’sresidential and business customers within the Dominican Republic, sales ofcustomer equipment, and interconnection revenues received from other serviceproviders for calls that terminate in the Company’s network. These revenues arerecognized as services are rendered. Installation fees are recognized over theestimated average service life based on the Company’s experience (eighteenmonths), net of costs incurred in the installation. When installation cost aregreater than the installation fees charged, the net cost related to theinstallations are charged as an expense immediately.

 

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

##### ** **

Mobile revenues consist of fees received for cellularand PCS services, including fixed monthly fees, per minute usage charges andadditional charges for value-added services, outbound international longdistance charges, as well as paging services, equipment sales, andinterconnection charges received from other service providers for incomingcalls that terminate in the Company’s network. These revenues are recognized asservices are rendered. Revenues generated by calling cards used for prepaidcellular services are recognized, as the calling cards are used, net of salescommissions 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. Cable revenuesare recorded in the period the service is provided, except advertisingservices, which are recognized when commercials are telecast.

 

The Company has entered into transactions thatexchange advertising services. Such transactions are recorded at the estimatedfair value of the advertisement received or given in accordance with theprovisions of EITF Issue No. 99-17 “Accounting for Advertising BarterTransactions”. Barter transactions were not material to the Company’sconsolidated statements of operations for the years ended December 31, 2003,2004 and 2005.

 

##### ***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 estimatedaverage service life net of the cost incurred in the activations based on theCompany’s experience. When the activation costs are greater than the activationfees collected, the net cost related to activation is charged as an expenseimmediately.

 

F-13

----

 

##### ***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.

 

## **2.14**                        Capitalizationof Interest

## ** **

Interest is capitalized on qualified projects andincluded as part of project costs during the period necessary for installation.

 

During the year ended December 31, 2004 interestcapitalized as part of construction projects amounted to approximately$160,000. During 2005 Tricom S.A. did not take new loans; therefore no interesthas been capitalized for this year.

 

## **2.15**                        Income Taxes

## ** **

Income tax on profit or loss comprises current anddeferred tax. Income tax is recognized in the consolidated statements ofoperations. Current tax is the expected tax payable on the taxable income forthe year, using the tax rate in effect at the balance sheet date.

 

Income taxes are accounted for under the asset andliability method. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the carrying amountsof existing assets and liabilities and their respective tax bases and operatinglosses and tax credit carry forwards. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in income in the period that includes the enactment date.

 

A deferred tax asset is recognized only to the extentthat it is probable that future taxable profits will be available against whichthe assets can be utilized. Deferred tax assets are reduced to the extent thatit is no longer probable that the related tax benefit will be realized.

 

## **2.16**                        Earnings PerCommon Share

## ** **

Basic earnings per share are computed based on theweighted average number of common shares outstanding. Diluted earnings pershare reflect the increase in average common shares outstanding that wouldresult from the assumed exercise of outstanding stock options, calculated usingthe treasury stock method.

 

The weighted average number of common sharesoutstanding used in the calculation of basic and diluted (loss) per commonshare for the years 2003, 2004 and 2005 are as follows:

 
| ** **                                                                | ** ** | **2003**   | ** ** | **2004**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Weighted average  number of common shares outstanding - basic and diluted |       | 64,602,585 |       | 64,602,585 |       | 64,602,585 |       |

 

For 2003, 2004 and 2005, all stock options andwarrants are excluded from consideration of diluted loss per share because ofthe Company’s net loss.

 

F-14

----

 

## **2.17**                        Pension Plan

## ** **

Until August 2003, a private pension administrationcompany managed the Company’s plan, which was converted to a definedcontribution plan in 2000. Under this arrangement, both the Company and theemployee made fixed contributions to the employee’s account. The contributionsmade by the Company were recognized as expenses on a monthly basis.

 

 In August 2003,a new Social Security law (87-01) entered into effect making employer andemployee pension contributions mandatory for all entities based on a percentageof monthly salaries; 2.58% paid by the employee and 6.42% contributed by theemployer.

 

During the years endedDecember 31, 2003, 2004 and 2005 the Company recognized as expensescontributions for approximately $457,000, $137,000 and $892,000, respectively.

 

## **2.18**                        Impairmentof Long-Lived Assets

## ** **

SFAS No. 144 provides a single accounting model forlong-lived assets to be disposed of, SFAS No. 144 also changes the criteria forclassifying an asset as held for sale, broadens the scope of businesses to bedisposed of that qualify for reporting as discontinued operations, and changesthe timing of recognizing losses on such operations. The Company adopted SFASNo. 144 on January 1, 2002 (see Note 25).

 

In accordance with SFAS No. 144, long-lived assets,such as property, plant, and equipment are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of assets to be held and used ismeasured by a comparison of the carrying amount of an asset to estimatedundiscounted future cash flows expected to be generated by the asset. If thecarrying amount of an asset exceeds its estimated future cash flows, animpairment charge is recognized in the amount by which the carrying amount ofthe asset exceeds the fair value of the asset. Assets to be disposed of wouldbe separately presented on the balance sheet and reported at the lower of thecarrying 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.

 

Goodwill and intangible assets not subject toamortization are tested annually for impairment and more frequently if eventsand circumstances indicate that the asset might be impaired. An impairment lossis recognized to the extent that the carrying amount exceeds the asset’s fairvalue. This determination is made at the reporting unit level and consists oftwo steps. First, the Company determines the fair value of a reporting unit andcompares it to its carrying amount. Second, if the carrying amount of areporting unit exceeds its fair value, an impairment loss is recognized for anyexcess of the carrying amount of the reporting unit’s goodwill over the impliedfair value of that goodwill. The implied fair value of goodwill is determinedby allocating the fair value of the reporting unit in a manner similar to apurchase price allocation, in accordance with FASB Statement No. 141, BusinessCombinations. The residual fair value after this allocation is the implied fairvalue of the reporting unit goodwill.

 

## **2.19**                        Advertising Costs

## ** **

Advertising costs are expensed as they are incurred. Forthe years ended December 31, 2003, 2004 and 2005 these costs amounted toapproximately $2,450,000, $2,609,000 and $4,711,000, respectively, and areincluded as part of selling, general and administrative expenses in theaccompanying consolidated statements of operations.

 

F-15

----

 

## **2.20**                        Stock OptionPlan

## ** **

The Company applies the intrinsic value-based methodof accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations includingFASB Interpretation No. 44, Accounting for Certain Transactions Involving StockCompensation, an interpretation of APB Opinion No. 25, issued in March 2000, toaccount for its fixed-plan stock options. Under this method, compensationexpense is recorded on the date of grant only if the current market price ofthe underlying stock exceeded the exercise price. SFAS No. 123, Accounting forStock-Based Compensation, established accounting and disclosure requirementsusing a fair-value-based method of accounting for stock-based employeecompensation plans. As allowed by SFAS No. 123, the Company has elected tocontinue to apply the intrinsic-value-based method of accounting describedabove, and has adopted only the disclosure requirements of SFAS No. 123. Thefollowing table illustrates the effect on net loss if the fair-value-basedmethod had been applied to all outstanding and vested awards in each period.

 
| ** **                                                                                             | ** ** | **2003** | ** **   | **2004** | ** ** | **2005**     | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|----------|--------------|----------|------------|--------------|------------|
|                                                                                                   |       |     |         |     |       |         |       |
| Net loss – as  reported                                                                           |       | $        | (338,170,287 | )        | $          | (102,154,096 | )          | $ | (83,374,078 | ) |
| Add total  stock-based employee compensation determined under fair-value-based method  for all rewards |       | (59,709  | )            | (1,218   | )          | (136         | )          |
| Pro forma net  loss                                                                                    |       | $        | (338,229,996 | )        | $          | (102,155,314 | )          | $ | (83,374,214 | ) |
| Net loss per  share:                                                                                   |       |     |         |     |       |         |       |
| As reported –  basic and diluted                                                                  |       | $        | (5.23        | )        | $          | (1.58        | )          | $ | (1.29 | ) |
| Pro forma –  basic and diluted                                                                    |       | $        | (5.23        | )        | $          | (1.58        | )          | $ | (1.29 | ) |

 

## **2.21**                        Goodwill andOther Intangible Assets

## ** **

Goodwill represents the excess of cost over fair valueof assets of businesses acquired. Effective July 1, 2001, the Company adoptedthe provisions of SFAS No. 142, Goodwill and Other Intangible Assets, forbusiness combinations consummated after June 30, 2001, and as of January 1,2002 for business combinations consummated before June 30, 2001. Goodwill andintangible assets acquired in a purchase business combination and determined tohave an indefinite useful life are not amortized, but instead tested forimpairment at least annually in accordance with the provisions of SFAS No. 142.SFAS No. 142 also requires that intangible assets with estimated useful livesbe amortized over their respective estimated useful lives to their estimatedresidual values, and reviewed for impairment in accordance with SFAS No. 144,Accounting for Impairment or Disposal of Long-Lived Assets.

 

In connection with SFAS No. 142’s transitionalgoodwill impairment evaluation, the Statement required the Company to performan assessment of whether there was an indication that goodwill was impaired asof the date of adoption. To accomplish this, the Company was required toidentify its reporting units and determine the carrying value of each reportingunit by assigning the assets and liabilities, including the existing goodwilland intangible assets, to those reporting units as of January 1, 2002. TheCompany was required to determine the fair value of each reporting unit andcompare it to the carrying amount of the reporting unit within six months ofJanuary 1, 2002. To the extent the carrying amount of a reporting unit exceededthe fair value of the reporting unit, the Company would be required to performthe second step of the transitional impairment test, as this is an indicationthat the reporting unit’s goodwill may be impaired. The second step wasrequired for one reporting unit. In this step, the Company compared the impliedfair value of the reporting unit goodwill with the carrying amount of thereporting unit goodwill, both of which were measured as of the date ofadoption. The implied fair value of 

 

 

F-16

----

 

goodwill was determined by allocating the fair valueof the reporting unit to all of the assets (recognized and unrecognized) andliabilities of the reporting unit in a manner similar to a purchase priceallocation, in accordance with SFAS No. 141, Business Combinations. Theresidual fair value after this allocation was the implied fair value of the reportingunit goodwill.

 

The implied fair value of this reporting unit exceededits carrying amount, thus the Company was not required to recognize animpairment loss.

 

Prior to the adoption of SFAS No. 142, goodwill wasamortized on a straight-line basis over the expected periods to be benefited,generally 40 years, and assessed for recoverability by determining whether theamortization of the goodwill balance over its remaining life could be recoveredthrough undiscounted future operating cash flows of the acquired operation. Theamount of goodwill and other intangible asset impairments, if any, was measuredbased on projected discounted future operating cash flows using a discount ratereflecting the Company’s average cost of funds.

 

## **2.22**                        Investment Securities

## ** **

Investment securities at December 31, 2004 and 2005consisted of certificates of deposit and mortgage participation contracts. TheCompany classifies its securities as held-to-maturity. Held-to-maturitysecurities are those securities for which the Company has the ability andintent to hold the security until maturity.

 

Held-to-maturity securities are recorded at amortizedcost, adjusted for the amortization or accretion of premiums or discounts.

 

A decline in the market value of held-to-maturitysecurities below cost, that is deemed to be other than temporary, results in areduction in carrying amount to fair value. The impairment is charged toearnings and a new cost basis for the security is established. Premiums anddiscounts are amortized or accreted over the life of the relatedheld-to-maturity security as an adjustment to yield using the effectiveinterest method. Interest income is recognized when earned.

 

## **2.23**                        AccountingChange

## ** **

In November 2001, the Emerging Issues Task Force(EITF) of the FASB reached a consensus on EITF issue 01-09, “Accounting forConsideration Given by a Vendor to a Customer (Including a Reseller of theVendor’s Products)”. The Company adopted EITF Issue 01-09 effective January 1,2003. EITF Issue 01-09 addresses the recognition, measurement, and incomestatement classification for sales incentives offered to customers. Salesincentives include discounts and generally any other offers that entitle acustomer to receive a reduction in the price of a product by submitting a claimfor a refund or rebate. Under EITF 01-09, the reduction in or refund of theselling price of the product resulting from any sales incentives should beclassified as a reduction of revenue. Prior to adopting this pronouncement, theCompany 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.Commissions of $10,071,926 paid by cellular sales for the year ended December31, 2005 were recorded directly as a reduction of revenue.

 

## **2.24**                        Reclassifications

## ** **

Certain amounts in 2004 consolidated financialstatements and notes to the consolidated financial statements have beenreclassified to conform to the 2003 consolidated financial statements andnotes. 

 

F-17

----

 

The reclassifications were to transfer income andexpense items related to discontinued operations from revenues and expensesfrom continuing operations and other.

 

Reclassifications were made to organize operatingrevenues by products and services according to the Company’s five reportablesegments (see Note 2.13 Revenue Recognition) and to simplify the reading of thecosts and expenses section by grouping similar line items that were previouslyreported individually.

 

Additionally, the Company reclassified at December 31,2004 and 2005 deferred commissions for prepaid calling cards in the amount of$1,963,000 and $2,308,000, respectively, net of the related deferred revenues. Thisamount was previously presented as part of other assets in the consolidated balancesheet. Consolidated assets and liabilities at December 31, 2004 and 2005 havebeen decreased by this amount.

 

# **3**                             Liquidity

# ** **

The consolidated financialstatements have been prepared on a going concern basis, which contemplatescontinuity of operations, realization of assets and satisfaction of liabilitiesin the ordinary course of business. However, as a result of recurring operatinglosses and the Company’s on-going debt restructuring process, such realizationof assets and satisfaction of liabilities are subject to significantuncertainty.

 

At December 31, 2004 and2005, the Company’s current liabilities exceeded its current assets by $534.6million and $577.7 million, respectively.

 

On October 2, 2003, theCompany announced that it would not be making a scheduled interest payment tothe holders of its 11-3/8% Senior Notes due 2004, and that it had initiateddiscussions with holders of its Senior Notes and its bank lenders, and would becontinuing discussions with prospective strategic partners, to formulate arestructuring plan of the Company’s balance sheet.

 

An unofficial committee ofbondholders and commercial banks (the “Special Committee”) was established.Concurrently with the non-payment of interest due to bondholders, the Companysuspended principal and interest payments of all unsecured bank debt. As aresult, the Company does not expect to have any available funding sources untilthe restructuring process is concluded.

 

In December 2003, theCompany’s Board of Directors appointed a Chief Restructuring Officer to assistin negotiations with bondholders and other lenders, the implementation of acash conservation plan and in the development of a core business plan.

 

Further, the Company hasengaged several financial advisory and legal firms to assist in its financialrestructuring process. The Company has also agreed to pay the fees and expensesof financial advisory and legal firms engaged by the unofficial committee ofbondholders and commercial banks and by the Company’s majority shareholder, GFN Corporation Ltd, andcertain of its affiliates, which are also major creditors of the Company. The Companyalso agreed to pay retention bonuses to certain of its executives. Expenses related tothe Company’s financial restructuring were approximately $17.5 million.

 

Details of restructuringexpenses are as follows:

 

F-18

----

 
| ** **                                        | ** ** | **2003**   | ** **    | **2004**   | ** ** | **2005**      | ** ** | **Total**  | ** **    |
|---------------------------------------------------|------------|------------|---------------|------------|------------|---------------|------------|------------|---------------|
| **Financial  Services:**                          | ** ** | ** ** | ** **    | ** ** | ** ** | ** **    | ** ** | ** ** | ** **    |
| FTI Consulting  (Company)                         |       | $          | 75,000        |       | $          | 1,987,000     |       | $          | 2,237,000     |   | $ | 4,299,000 |   |
| Bear Stearns  & Co. Inc (Company)             |       | 500,000    |          | 906,000    |       | —        |       | 1,406,000  |          |
| Chanin Capital  Partners (Committee)              |       | —     |          | 1,162,000  |       | 1,335,000     |       | 2,497,000  |          |
| Broadspan  Capital (GFN)                          |       | —     |          | 677,000    |       | 568,000       |       | 1,245,000  |          |
|                                              |       |       |          |       |       |          |       |       |          |
| **Legal  Services:**                              |       |       |          |       |       |          |       |       |          |
| Manatt Phelps  & Phillips, LLP (Committee)    |       | 572,000    |          | 1,082,000  |       | 984,000       |       | 2,638,000  |          |
| Greenberg  Traurig, LLP (Company)                 |       | 366,000    |          | 780,000    |       | 1,386,000     |       | 2,532,000  |          |
| DLA Piper  Rudnick Gray Cary US, LLP (co.)        |       | 84,000     |          | 217,000    |       | —        |       | 301,000    |          |
| White & Case  (GFN)                           |       | —     |          | 207,000    |       | 577,000       |       | 784,000    |          |
| E. Veras  Consultoria, S.A (Committee)            |       | —     |          | 127,000    |       | 95,000        |       | 222,000    |          |
| Cadawalader.  Wickersham & Taft, LLP (Co.)    |       | —     |          | 113,000    |       | —        |       | 113,000    |          |
| Headrick Rizik  Alvarez & Fernandez (Vendors) |       | —     |          | 60,000     |       | —        |       | 60,000     |          |
| Melo Guerrero  (Company)                          |       | —     |          | 37,000     |       | 35,000        |       | 72,000     |          |
| Jimenez Cruz  Peña (Company)                 |       | —     |          | 31,000     |       | 28,000        |       | 59,000     |          |
| Langa &  Abinader (GFN)                       |       | —     |          | 19,000     |       | 289,000       |       | 308,000    |          |
| Steel, Hector  & Davis (Company)              |       | —     |          | —     |       | 269,000       |       | 269,000    |          |
|                                              |       |       |          |       |       |          |       |       |          |
| **Executive  Compensation:**                      |       |       |          |       |       |          |       |       |          |
| Retention  Bonuses                                |       | —     |          | 741,000    |       | —        |       | 741,000    |          |
| ** **                                        | ** ** | **$**      | **1,597,000** | ** ** | **$**      | **8,146,000** | ** ** | **$**      | **7,803,000** | ** ** | **$** | **17,546,000** | ** ** |

 

As part of the restructuringprocess, effective January 2004, the Company entered into an agreement for the saleof its Central American trunking assets to a group of Panamanian investors fora price of approximately $12.5 million, payable in installments. Estimated netproceeds, after transaction expenses and liabilities directly related toCentral America and the payment of a portion of the proceeds to a minoritypartner, amounted to $10.7 million.

 

For the years ended December31, 2004 and 2005, the Company generated $22.2 and $43.2 million respectivelyof cash flow from operations. Since the Company has not paid interest to itsunsecured lenders from September 2003, interest payable as of December 31, 2004and 2005 amounted to approximately $90.2 and $153.6 million respectively. Hadthe Company paid all interest on a current basis, cash flows used in operationswould have been $(68.1) and $(110.4) million respectively.

 

At December 31, 2004 and2005, the Company’s liabilities exceeded its total assets by approximately$195.8 and $279.2 million respectively, resulting from several factorsincluding impairment charges of approximately $191 million recognized in theyear 2003, brought about by the devaluation of the Dominican peso and theincreased competition for mobile telecommunication services in the DominicanRepublic.

 

At December 31, 2004 and2005, the Company had indebtedness in the aggregate principal amount of $448.2and $447.5 million respectively. The ability of the Company to pay futureinterest on its indebtedness and meet debt service obligations will depend onthe outcome of the restructuring process, as well as the Company’s futureoperating performance, including the ability to increase revenues and controlexpenses, which in turn depends on the successful implementation of itsstrategy and on financial, competitive, regulatory, technical and other factors,many of which are beyond the Company’s control. Interest expense was $63.7million for the year ended December 31, 2004 and $69.5 million for the yearended December 31, 2005.

 

If the restructuring is notpossible, the Company’s creditors could initiate bankruptcy proceedings, mostlikely in the Dominican Republic, or the Company could be forced to dispose ofbusiness segments or assets at unfavorable prices.

 

F-19

----

 

Ifthe restructuring 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.

 

# **4**                      Property,Plant and Equipment

# ** **

A detail of property, plant and equipment at December31, 2004 and 2005 is as follows:

 
| ** **                                        | ** ** | **2004**    | ** **      | **2005**    | ** ** |
|---------------------------------------------------|------------|-------------|-----------------|-------------|------------|
| Operations and  communications:                   |       |        |            |        |       |
| Land                                              |       | $           | 9,101,411       |        | $          | 8,573,661 |   |
| Buildings and  improvements                       |       | 16,100,996  |            | 19,054,404  |       |
| Furniture and equipment                           |       | 4,331,723   |            | 4,068,074   |       |
| Communications  equipment                         |       | 186,452,923 |            | 188,990,966 |       |
| Transmission equipment                            |       | 184,871,539 |            | 197,500,189 |       |
| Other equipment                                   |       | 2,711,884   |            | 1,104,919   |       |
|                                              |       | 403,570,476 |            | 419,292,213 |       |
| Less accumulated  depreciation                    |       | 115,826,934 |            | 164,087,292 |       |
| Sub-total, operations  and communications         |       | 287,743,542 |            | 255,204,921 |       |
|                                              |       |        |            |        |       |
| Property and equipment:                           |       |        |            |        |       |
| Buildings                                         |       | 9,751,327   |            | 9,723,465   |       |
| Furniture and office  equipment                   |       | 6,045,887   |            | 6,003,680   |       |
| Transportation  equipment                         |       | 7,268,996   |            | 8,421,244   |       |
| Leasehold improvements                            |       | 7,400,392   |            | 7,689,963   |       |
| Data processing  equipment                        |       | 36,324,052  |            | 36,690,433  |       |
|                                              |       | 66,790,654  |            | 68,528,785  |       |
| Less accumulated  depreciation                    |       | 37,417,555  |            | 50,861,120  |       |
| Sub-total, property and  equipment                |       | 29,373,099  |            | 17,667,665  |       |
|                                              |       |        |            |        |       |
| Communications  equipment pending installation    |       | 4,847,925   |            | 4,578,188   |       |
| Cable company equipment  pending installation (a) |       | 533,252     |            | 642,331     |       |
| Equipment in transit  (b)                         |       | 216,495     |            | 154,354     |       |
| Construction in process  (c)                      |       | 10,193,250  |            | 20,191,676  |       |
| Property plant and  equipment, net                | ** ** | **$**       | **332,907,563** | ** **  | **$**      | **298,439,135** | ** ** |

 

F-20

----

 

(a)  Communications equipment, net of allowance forobsolescence, and cable company equipment pending installation, corresponds toassets acquired for future installation into the network of the Company. Theseassets are recorded at average cost, which is lower than market.

###  

(b)  Equipment in transitrepresents accumulated costs of equipment imported by TRICOM, S.A. and TCN, forwhich additional import related costs are still to be incurred. 

 

(c)  A detail of construction in process at December 31, 2004 and 2005 isas follows:

 
| ** **                      | ** ** | **2004**  | ** **     | **2005**   | ** ** |
|---------------------------------|------------|-----------|----------------|------------|------------|
| Operations and  communications: |       |      |           |       |       |
| Transmission equipment          |       | $         | 7,180,949      |       | $          | 9,578,625 |   |
| Cells                           |       | 2,530,493 |           | 8,104,352  |       |
| Other-property and  equipment   |       | 481,808   |           | 2,508,699  |       |
|                            |       |      |           |       |       |
| ** **                      | ** ** | **$**     | **10,193,250** | ** ** | **$**      | **20,191,676** | ** ** |

###  

# **5**                      AccountsReceivable

# ** **

Changes in the allowance for doubtful accounts duringthe years ended December 31, 2003, 2004 and 2005 were as follows:

 
| ** **                      | ** ** | **2003**   | ** **    | **2004**   | ** ** | **2005**      | ** ** |
|---------------------------------|------------|------------|---------------|------------|------------|---------------|------------|
|                            |       |       |          |       |       |          |       |
| Allowance at beginning  of year |       | $          | 7,763,109     |       | $          | 5,152,025     |       | $ | 3,138,530 |   |
| Increase for the year,  net (a) |       | 1,676,649  |          | 2,296,554  |       | 3,497,686     |       |
| Write-offs during the  year     |       | (4,287,733 | )             | (4,310,049 | )          | (4,519,925    | )          |
|                            |       |       |          |       |       |          |       |
| Allowance at end of  year       | ** ** | **$**      | **5,152,025** | ** ** | **$**      | **3,138,530** | ** ** | **$** | **2,116,291** | ** ** |

###  

(a)  UntilJune 2003, the Company had contracted services from Recaudadora de ValoresTropical S.A. (RVT), an affiliate of the Company’s majority shareholder, GFNCorporate Ltd, engaged in managing the collection of past due accounts (seeNote 6). During the years ended December 31, 2003, 2004 and 2005, the Companyrecognized collection recoveries from customer accounts previously written-offof $138,549, $181,433 and $276,872, respectively. These amounts are included asa reduction to selling, general and administrative expenses in the accompanyingconsolidated financial statements of operations, net of increase, in theallowance for doubtful accounts.

###  

# **6**                      Transactionswith Related Parties

# ** **

As defined in FAS 57, theCompany is or was directly or indirectly related to various entities throughcommon ownership, contractual rights and/or family ownership, as more fully setforth 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, 2005,  the beneficial owners of 15,939,648 shares ofthe Company’s Class A Common Stock and 11,486,726 shares of the Company’s ClassB Common Stock, representing 48.2% of the issued and outstanding shares ofClass A Common Stock (calculated in accordance with SEC Rule 13d-3) and 60% ofthe issued and outstanding shares of Class B Common Stock. From 1994 throughlate 2003, Mr. Pellerano was the Company’s Chairman of the 

 

F-21

----

 

Board ofDirectors, President and Chief Executive Officer. He resigned from the Board ofDirectors in October 2003 and was reappointed in May 2004. He retains, togetherwith members of his family,the right to appoint a majority of the members of the Board of Directors of theCompany and, indirectly, the right to control selection of the Company’smanagement.

 

GFNInternational Investments Corp., a financial services holding companyincorporated in the Cayman Islands was, at the relevant times, wholly owned and controlled by Mr. Pellerano and members ofhis family. GFN International Investments Corp. was, until 2003, the parentcompany and related parties of the following entities, among others, which wereengaged in the businesses of banking, insurance, credit card issuance, securitiesbroker-dealer and other businesses:

 

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

 

The following additionalentities, among others, continue to be controlled by Mr. Pellerano and membersof his family, and are therefore related parties:

 

•         Omnimedia, a Dominicanmedia holding company;

•         Zona Franca San Isidro, afree trade zone located in the Dominican Republic;

•         Ellis Portafolio, whichholds certain claims against the Company.

 

**Balanceswith Related Parties**

 

A detail of balances with related companies at December 31, 2004 and 2005 is as follows:

 
|                                   |       | **2004**   | ** **     | **2005**   |       |
|----------------------------------------|------------|------------|----------------|------------|------------|
| Assets:                                | ** ** | ** ** | ** **     | ** ** | ** ** |
| Accounts receivable (a)                |       | $          | 200,000        |       | $          | 2,664 |   |
| **Total  Assets**                      |       | $          | **200,000**    | ** ** | **$**      | **2,664** |   |
|                                   |       |       |           |       |       |
| Liabilities:                           |       |       |           |       |       |
| Borrowed funds (b)                     |       | $          | 8,005,000      |       | $          | — |   |
| Commercial paper (c)                   |       | 49,091,066 |           | 48,448,922 |       |
| Accounts payable (d)                   |       | 1,604,249  |           | —     |       |
| Interest payable (e)                   |       | 14,879,148 |           | 24,186,485 |       |
| Current portion of long  term-debt (f) |       | 25,765,272 |           | 25,356,872 |       |
| **Total  Liabilities**                 | ** ** | **$**      | **99,344,735** | ** ** | **$**      | **97,992,279** | ** ** |

###  

### 

(a)                                  At December 2004, theamount of $200,000 corresponds to an account receivable arising from the saleof land by TCN to Campania Nacional de Seguros (SEGNA). At December 31, 2005this amount includes rent receivable of $11,060 for space rented to BancréditoDominican Republic and $2,664 corresponds to communication services to EditoraAA.

###  

(b)                                 At December 31, 2004, this amount include unsecured loans of letter ofcredit in the amount of $1,282,802 owed to Bancrédito Panama, bearing interestat rates ranging from 9.5% to 11.5% per annum; it also includes a loan owed toBancrédito Panama in the amount of $6,601,131, bearing interest at 11.5% perannum. This loan was granted for a five-year period maturing in December 2007.The balance of $121,067 corresponds to bank overdrafts owed to BancréditoPanama and Bancredit Cayman as of December 31, 2004. At the beginning ofSeptember 2003, Bancrédito Panama was taken over by the regulatory authorities 

 

F-22

----

 

                                                in Panama and is in the process ofliquidation. As a result the liquidatoris demanding that the loan be repaid early. At December 31, 2004 and 2005, theCompany did not have any available lines of credit.

 

(c)                                  At December 31, 2004 and 2005, these amountsinclude obligations for the issuance of commercial paper in US$ to a group ofGFN’s related companies for the principal amount of $47,339,007 in both 2004and 2005, bearing interest rates ranging from 11% to 14.93% per annum. Theseamounts also include the issuance of commercial paper in RD$ for the amount ofRD$54,486,463 (equivalent to $1,752,059), and RD$38,680,527 (equivalent to$1,109,915), respectively, with interest rates ranging from 20% and 29% perannum in 2004 and 2005.

 

(d)                                 At December 31, 2004 the amount of $1,604,249is an account payable to SEGNA related to the land purchased in 2003.

 

(e)                                  The nature of the interest payable is related tothe loans described above in Notes (b) and (c).

 

(f)                                    At December 31, 2004 and 2005, these amountsrepresent unsecured loans of $22,000,000 with GFN Capital Corporation, Ltd., arelated offshore entity. Interest accrues monthly at an interest rate rangingfrom 11.5% to 12% per annum in 2004 and 2005, respectively. The loans mature inDecember 2007. The Company is not paying interest on these loans; consequently,these amounts are presented as current portion of long-term debt.

 

Additionally,it includes unsecured loan received from GFN S.A., a related institution, inthe amount of RD$94,007,000 (equivalent to $3,025,652 in 2004 and $2,697,475 in2005) and with a 12% annual interest rates in 2004 and 2005, and RD$22,980,000with a 12% per annum interest rate (equivalent to $739,620 in 2004 and $659,397in 2005). At December 31, 2004 and 2005, this loan has been classified as partof the current liabilities in the accompanying consolidated balance sheets, asresult of the default in payment of interest and principal. As a result ofoperating losses, the Company was unable to remain in compliance with thefinancial covenants arising under substantially all of its long-term noteagreements. The Company has been working with different creditors to restructure theexisting debt.

###  

**Other Transa****ctions with Related Parties**

 

Adetail of transactions with related parties during the years ended December 31 2003,2004 and 2005, are as follows:

 
| ** **                                                     | ** ** | **2003**    | ** ** | **2004**    | ** ** | **2005**    | ** ** |
|----------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
|                                                           |       |        |       |        |       |        |       |
| Operating revenues –  communications service revenues (a) |       | $           | 3,147,585  |        | $          | 14,939      |       | $ | 157,908 |   |
| Selling, general and  administrative expenses:                 |       |        |       |        |       |        |       |
| Insurance premiums (b)                                         |       | (5,890,664  | )          | —      |       | —      |       |
| Security services (c)                                          |       | (162,498    | )          | —      |       | —      |       |
| Pension plan  contributions (see Note 2.17)                    |       | (403,345    | )          | —      |       | —      |       |
| Advertising services  (d)                                      |       | (107,391    | )          | —      |       | —      |       |
| Professional services  (e)                                     |       | (62,618     | )          | —      |       | —      |       |
| Leased premises and  equipment (f)                             |       | (110,540    | )          | —      |       | —      |       |
| Other charges and  special items (g)                           |       | (4,975,023  | )          | (5,359,768  | )          | (2,423,657  | )          |
|                                                           |       |        |       |        |       |        |       |
| Other income  (expenses):                                      |       |        |       |        |       |        |       |
| Interest incurred on  loans (h)                                |       | (15,713,131 | )          | (10,083,449 | )          | (10,658,941 | )          |
| Interest earned (i)                                            |       | 1,273,239   |       | —      |       | —      |       |
| Bank charge (j)                                                |       | (122,824    | )          | —      |       | —      |       |
| Equipment purchased  (Motorola) (k)                            |       | (1,296,840  | )          | (1,535,297  | )          | —      |       |
|                                                                |            |             |            |             |            |             |            |  |  |  |

 

F-23

----

 

----

(a)                                     Duringthe year ended December 31, 2003 this amount corresponds to telecommunicationsservices to Segna of $581,959; Editora AA of $108,313; GFN of $20,972; BancoNacional de Crédito, S.A. of $2,424,830 and Zona Franca San Isidro of $11,511.At December 31, 2004 this amountcorresponds to telecommunications services to Zona Franca San Isidro of$14,939. At December 31, 2005 this amount corresponds to telecommunicationservices to Zona Franca San Isidro of $17,688 and Editora AA of $140,220.

 

(b)                                    During the year ended December 31, 2003 thisamount represents expense for insurance premiums paid to SEGNA for property andcasualty, business interruption and director and officer liability coverage.

 

(c)                                     During the year ended December 31, 2003 thisamount corresponds to expense for security services at all Tricom locationsprovided by Compañía Nacional de Seguridad, S.A. (CONASE).

 

(d)                                    During the year ended December 31, 2003 thisamount corresponds to expenses for material for promotions and publicityprinted in Editora AA.

 

(e)                                     During the year ended December 31, 2003 thisamount corresponds to expenses for internal audit services paid to GFN, S.A. Atthat time the internal audit department was centralized in GFN, S.A.

 

(f)                                       During the year ended December 31, 2003, theamount of $110,540 corresponds to rent paid for space leased from BancreditoDominican Republic.

 

(g)                                    During the years ended December 31, 2003, 2004and 2005 these amounts correspond to payments made to Omni, T.V. arising from acontract signed between the company and Omni, T.V. to manage the relationshipwith international cable programmers.

 

(h)                                    These interest expenses tie to the loans fromcommercial paper and other debt from related parties described in Note 6, balanceswith related parties, Letters b, c and f.

 

(i)                                        During the year ended December 31, 2003 thisamount corresponds to investments in certificates of deposit amounted to$4,830,530. The Company wrote-off the investment in December 31, 2003.

 

(j)                                        During the year ended December 31, 2003 thisamount corresponds to bank service charges related to operations with BancoNacional de Crédito, S.A.

 

(k)                                     During the years ended December 31, 2003 and2004 these amounts relate to the purchase of telecommunications equipment thatis being disclosed because Motorola owns 40% of theclass B common stock of the Company.

 

# **7**                      Certificatesof Deposit and Other Investments

# ** **

At December 31, 2004 and 2005 the Company had mortgageparticipation contracts by $986,075 and $647,693, respectively, purchased fromunrelated savings and loans associations in the Dominican Republic. Thesecontracts earned interest at rates 

 

F-24

----

 

ranging from 5% to 10% per annum in 2004 and 2005 respectively.These investments are maintained as compensating balances for mortgage loansmade by these savings and loans associations to certain officers and employeesof the Company.

 

# **8**                      IntangibleAssets

# ** **

 

There were no acquisitions of intangible assets duringthe years ended December 31, 2004 and 2005. The summary of changes in theCompany’s intangible assets (other than goodwill) during the years endedDecember 31, 2003, 2004 and 2005, is as follows:

 
| ** **                     | ** ** | **License** | ** **    | **Broadcasting   Contract** | ** ** | **Total**  | ** ** |
|--------------------------------|------------|-------------|---------------|----------------------------------|------------|------------|------------|
|                           |       |        |          |                             |       |       |       |
| Balances at December  31, 2002 |       | $           | 6,946,978     |                             | $          | —     |       | $ | 6,946,978 |   |
|                           |       |        |          |                             |       |       |       |
| 4th  Impairment charge         |       | (4,282,337  | )             | —                           |       | (4,282,337 | )          |
| Balances at December  31, 2003 |       | 2,664,641   |          | —                           |       | 2,664,641  |       |
|                           |       |        |          |                             |       |       |       |
| 4th  Impairment charge         |       | —      |          | —                           |       | —     |       |
| Balances at December  31, 2004 |       | 2,664,641   |          | —                           |       | 2,664,641  |       |
|                           |       |        |          |                             |       |       |       |
| 4th  Impairment charge         |       | —      |          | —                           |       | —     |       |
| Balances at December  31, 2005 |       | **$**       | **2,664,641** | ** **                       | **$**      | **—** | ** ** | **$** | **2,664,641** |   |
|                                |            |             |               |                                  |            |            |            |  |  |  |  |  |  |

 

The intangible assets are determined to haveindefinite useful lives due to their expected ability to generate cash flowsindefinitely. The cable license is based on an agreement signed with theDominican government, which has an indefinite life. In the case of broadcastingcontracts, the contracts can be renewed automatically without additionalpayment.

 

At the fourth quarter of 2004 and 2005, the Companyperformed its annual impairment review for intangible assets and it wasdetermined that there were no impairment charges for these quarters.

 

# **9**                      OtherAssets

# ** **

Other assets at December 31, 2004 and 2005 consistedof the following:
| ** **                       | ** ** | **2004**  | ** **    | **2005**   | ** ** |
|----------------------------------|------------|-----------|---------------|------------|------------|
|                             |       |      |          |       |       |
| Deposits                         |       | $         | 389,815       |       | $          | 386,640 |   |
| Radio frequency rights,  net (a) |       | 3,073,629 |          | 2,856,702  |       |
| Other (b)                        |       | 421,378   |          | 121,834    |       |
| ** **                       | ** ** | **$**     | **3,884,822** | ** ** | **$**      | **3,365,176** | ** ** |

 

----

(a)           AtDecember 31, 2004 and 2005, these amounts represent payments for frequencyusage rights to expand the 

 

F-25

----

 

Company’scellular and PCS capacity in the Dominican Republic. For the years ended December31, 2003, 2004 and 2005, the amortization expense corresponding to thefrequency usage rights in the Dominican Republic amounted to $237,997, $227,450and  $216,928 respectively.

 

AtDecember 31, 2004 the Company transferred certain frequency rights to a thirdparty telecommunications 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.

 

(b)                                    A detail of this amount is as follows:

 
| ** **                             | ** ** | **2004** | ** **  | **2005**   | ** ** |
|----------------------------------------|------------|----------|-------------|------------|------------|
| Equipment held for  investment (Enron) |       | $        | 81,022      |       | $          | 81,022 |   |
| Other Bank Commission                  |       | 340,356  |        | 40,812     |       |
| ** **                             | ** ** | **$**    | **421,378** | ** ** | **$**      | **121,834** | ** ** |
|                                        |            |          |             |            |            |  |  |  |  |

# ** **

# **10**               BorrowedFunds - Banks

# ** **

Funds borrowed by the Company consist of:
| ** **                                | ** ** | **2004**  | ** **     | **2005**   | ** ** |
|-------------------------------------------|------------|-----------|----------------|------------|------------|
| Funds denominated in US  dollars (a)      |       | $         | 39,285,503     |       | $          | 47,676,599 |   |
| Funds denominated in  Dominican pesos (b) |       | 1,333,891 |           | 1,189,211  |       |
| ** **                                | ** ** | **$**     | **40,619,394** | ** ** | **$**      | **48,865,810** | ** ** |

 

----

(a)                                     At December 31, 2004and 2005 these amounts included loans made by the Central Bank of the DominicanRepublic for $29,745,027 and $29,745,027 respectively, as a result of draws onstand-by letters of credit issued on behalf of the Company by Bancrédito, afinancial institution that was related to Tricom at the time the letters ofcredit were issued and was sold in 2003 to a third party in a transactioninvolving the Central Bank. In that sale transaction, the Central Bank agreedto assume liability for the letters of credit. The loans made by the CentralBank accrue interest at rates ranging from 10.25% to 14% per annum. The Companyhas not paid interest on its unsecured debt since September 2004.

 

AtDecember 31, 2004 and 2005 these amounts included a secured loan of $3,000,000;this loan is secured by transmission equipment with an approximate book valueof $5.2 million and accrues interest at an annual rate of 5% per annum. Theseamounts also include a loan in the amount of $5,640,476 with Citibank,Dominican Republic which accrues interest at an annual rate of 10%.

 

AtDecember 31, 2005, this amount include unsecured loans of letter of credit inthe amount of $1,282,802 owed to Bancrédito Panama, bearing interest at ratesranging from 9.5% to 11.5% per annum; it also includes a loan owed to BancréditoPanama 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 $121,067 corresponds to bank overdrafts owed to Bancrédito Panama andBancredit Cayman as of December 31, 2005. At December 31, 2005, the Company didnot have any available lines of credit.

 

AtDecember 31, 2004 and 2005, these amounts include unsecured loans with variousbanks totaled $900,000 and $1,286,096, respectively.

 

(b)                                    At December 31, 2004and 2005, these loans represented RD$41,444,000 (equivalent to $1,333,891 and$1,189,211 using the prevailing exchange rate at that date, which was RD$31.07and $34.85, respectively, per US$1.00) bearing interest at a rate of 40% perannum.

 

F-26

----

 

# **11**               CommercialPaper

# ** **

As of December 31, 2004 and 2005, commercial paperissued by the Company consisted of:

 
| ** **                                                  | ** ** | **2004**   | ** ** | **2005**   | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------|------------|
| Commercial paper in US  dollars (a)                         |       | $          | 55,367,687 |       | $          | 6,200,000 |   |
| Commercial paper in US  dollars-related parties (Note 6(c)) |       | —     |       | 47,339,007 |       |
| Commercial paper in  Dominican pesos (b)                    |       | 1,752,059  |       | 1,109,915  |       |
| Total commercial paper                                      |       | 57,119,746 |       | 54,648,922 |       |
|                                                        |       |       |       |       |       |
| Less short-term  commercial paper                           |       | 57,119,746 |       | 54,648,922 |       |
| Long-term commercial  paper                                 |       | $          | —     |       | $          | — |   |

 

----

(a)                                At December 31, 2004and 2005, these instruments accrued interest at annual rates ranging from  8.5% to 14.93%.

 

(b)                              At December 31, 2004and 2005, peso-denominated commercial paper consisted of RD$54,436,463 andRD$38,680,538 (equivalent to $1,752,059 and $1,109,915 using the prevailingexchange rate at that date, which was RD$31.07 and $34.85, per $1.00)respectively accruing interest at annual rates ranging between 20% and 29%. AtDecember 31, 2004 and 2005, the Company did not have a facility for the issuanceof commercial paper (see Note 6(c)).

 

AtDecember 31, 2005, a portion of the commercial paper issued by the Company isheld by related parties (see Note 6 (c)). All commercial paper issued by theCompany and outstanding at December 31, 2004 and 2005 are due on demand. Theseobligations are issued through the related company “Acciones y Valores, S.A.”and through an unrelated company “Valores Profesionales, S.A.”

 

The following is a schedule of the maturity for suchdebt at December 31, 2004 and 2005:

 
| ** **    | ** ** | **2004** | ** ** | **2005** | ** ** |
|---------------|------------|----------|------------|----------|------------|
|          |       |     |       |     |       |
| Due on demand |       | $        | 57,119,746 |     | $          | 54,648,922 |   |
|          |       |     |       |     |       |
| Total         |       | $        | 57,119,746 |     | $          | 54,648,922 |   |

 

F-27

----

 

# **12**               CapitalLeases

# ** **

The Company has entered into various capital lease contracts with Conaresa, aformer related party that until 2003 was owned and controlled by GFN, S.A.

 

At December 31, 2004 and 2005, the Company had notmade the lease payments due during 2004 and 2005 respectively. The contractsfor capital leases provide that in case payments are not made, the lender couldcancel the contracts. Due to this fact, the debt has been classified in itsentirety as a current liability in the accompanying balance sheets at December31, 2004 and 2005.

 

The capital lease contracts also provide for interestand penalty interest in unspecified amounts to be determined by the lessor.

 

Assets recorded underthese capital leases consist of:

 
| ** **                     | ** ** | **2004**   | ** ** | **2005**   | ** ** |
|--------------------------------|------------|------------|------------|------------|------------|
| Transportation                 |       | $          | 1,276,815  |       | $          | 1,276,815 |   |
| Machinery and equipment        |       | 307,748    |       | 307,748    |       |
|                           |       | 1,584,563  |       | 1,584,563  |       |
| Less accumulated  depreciation |       | (1,584,563 | )          | (1,584,563 | )          |
|                           |       |       |       |       |       |
|                           |       | $          | —     |       | $          | — | ** ** |

###  

At December 31, 2004 and 2005, the fixed assets under capital leases were fullydepreciated.

###  

# **13**               CurrentPortion of Long-Term Debt

# ** **

The outstanding debt at December 31, 2004 and 2005 was in default andconsequently classified as a current liability in the Company’s balance sheet.Outstanding debt consists of the following:

 

F-28

----

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **2004**    | ** **  | **2005**    | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| Senior Notes (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | $           | 200,000,000 |        | $          | 200,000,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |        |        |        |       |
| Bank loans and note  payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |        |        |        |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |        |        |        |       |
| Loans denominated in  Dominican pesos equivalent to RD$72,085,630 at December 31, 2004. These loans  are payable in fixed monthly installments and pay rates ranging from 38% to  40% per annum at December 31, 2004. These loans are secured by mortgages on  the transmission and telecommunications equipment with an approximate book  value of $6.4 million. 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. This loan was cancelled during 2005.                                                                                                                            |       | 2,320,104   |        | —      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |        |        |        |       |
| Loans denominated in  Dominican pesos equivalent to RD$162,400,000 at December 31, 2004 and 2005,  equivalent to US$5,226,907 and US$4,659,972 respectively. These loans carried  annual interest rates ranging from 36% to 40% per annum at December 31, 2004  and 2005 respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       | 5,226,907   |        | 4,659,972   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |        |        |        |       |
| Loans with variable  annual interest between 4.90% and 9.00% at December 31, 2004 and 2005,  respectively. These loans are payable in installments up to 2011. A related  party company secures these loans. Some of these loans include clauses with  respect to non-compliance of payments of installments of interest and  principal, maintaining the levels of assets and debts, among others. At  December 31, 2003, the Company had not complied with the debt contracts and,  as a result, these loans may be called on demand with the exception of the  General Electric note. At December 31, 2004 and 2005, these loans were  classified as current liabilities in the consolidated balance sheet.                                         |       | 54,491,878  |        | 59,216,917  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |        |        |        |       |
| Loans which pay  interest at rates ranging between 9.5% and 15.50% per annum and at December  31, 2004 and 2005. These loans have maturities up to 2007. 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 $15.3 million at  December 31, 2005. Some of these loans include clauses related to  non-compliance with the timely payment of interest and principal and maintaining  a minimum of assets and debts. At December 31, 2003, the Company was not in  compliance with debt contracts in an amount of $38,714,515. At December 2004  and 2005 these loans were classified as current liabilities on the  consolidated balance sheet |       | 40,197,991  |        | 40,238,519  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |        |        |        |       |
| Total bank loans and  note payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 102,236,880 |        | 104,115,408 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |        |        |        |       |
| Total debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | 302,236,880 |        | 304,115,408 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |        |        |        |       |
| Less current portion of  long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | 302,236,880 |        | 298,501,504 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |        |        |        |       |
| Long-term debt excluding  current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | $           | —      |        | $          | 5,613,904 |   |

###  

### (a)                                       Senior Notes

###  

OnAugust 15, 1997, the Company issued $200,000,000 aggregate principal amount of11- 3/8% Senior Notes due in 2004 (the “Senior Notes”). Interest on the SeniorNotes is payable in semi-annual installments on March 1 and September 1 of eachyear.

 

OnSeptember 2, 2003 the Company did not pay interest due on the Senior Notes inthe amount of $11.3 million. According to the terms governing the notes, theCompany had a period of 30 additional days to comply with the payment of theinterest. On October 2, 2003 the Company announced that it would not be able tomake the interest payment. The Company commenced a discussion process withcertain holders of the Senior Notes and other creditors.

 

F-29

----

 

The Senior Notes are senior unsecured obligations ofthe Company ranking *pari passu* inright of payment with all other existing and future senior debt, and will ranksenior to any future subordinated indebtedness.

 

The indenture for the Senior Notes contains certaincovenants that, among other things, limit the ability of the Company and itsRestricted Subsidiaries, as defined in the indenture, to incur additionalindebtedness and issue preferred stock, pay dividends or make otherdistributions, repurchase equity interests or subordinated indebtedness, engagein sale and leaseback transactions, create certain liens, enter into certaintransactions with affiliates, sell assets of the Company or its RestrictedSubsidiaries, engage in any business other than the telecommunicationsbusiness, issue or sell equity interests of the Company’s RestrictedSubsidiaries or enter into certain mergers and consolidations.

 

The Senior Notes are guaranteed fully,unconditionally, jointly and severally by each of the Company’s RestrictedSubsidiaries, as defined in the indenture for the Senior Notes, each of whichis wholly owned by the Company. Separate financial statements of each of theguarantor subsidiaries have not been presented herein because management hasdetermined that such separate financial statements would not be material to theholders of the Senior Notes.

 

Summarized condensed consolidated financialinformation of TRICOM, S.A. (Parent Company), the subsidiary guarantors on acombined basis (GFN Comunicaciones, TRICOM Centro America, S.A., Call TelCorporation, TRICOM USA and Subsidiaries, TRICOM Latinoamérica, S.A., TRICOM,S.A. –Panama- and TCN Dominicana, S.A.) and the subsidiary non-guarantor(TRICOM Panama, S.A. - formerly Cellular Communications of Panama, S.A. -) atDecember 31, 2004 and 2005 and for the years ended December 31, 2003, 2004 and2005 is as follows (see Note 1):

 

**Balance****sheet****data atDecember 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** | ** ** |
|                        |       |                                           |            |                             |       |                                 |       |                          |            |

 

F-30

----

 
| **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 - banks           |       | 307,239,908                                    |            | 3,025,652                        |       | —                         |       | 310,265,560                   |            |
| Commercial paper and current  portion of long term-debt - related parties |       | 74,856,338                                     |            | —                           |       | —                         |       | 74,856,338                    |            |
| 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’ deficit                         | ** ** | **$**                                          | **368,608,819** | ** **                       | **$**      | **87,178,722**                 | ** ** | **$**                         | **(68,104,462** | **)** | **$** | **387,683,079** | ** ** |

 

 

**Balance sheet data at December31, 2005:**

** **
| **Assets**                  | ** ** | **TRICOM,   S.A. Parent   Co.** | ** **      | **Subsidiary   Guarantors** | ** ** | **Consolidating   Adjustments** | ** ** | **Total   Consolidated** | ** **      |
|-----------------------------|------------|------------------------------------------------|-----------------|----------------------------------|------------|--------------------------------------|------------|-------------------------------|-----------------|
|                        |       |                                           |            |                             |       |                                 |       |                          |            |
| Current assets:             |       |                                           |            |                             |       |                                 |       |                          |            |
| Cash on hand and in  banks  |       | $                                              | 27,618,902      |                             | $          | 4,494,126                            |       | $                             | —          |   | $ | 32,113,028 |   |
| Accounts receivable,  net   |       | 56,620,492                                     |            | 12,369,745                       |       | (48,613,077                          | )          | 20,377,160                    |            |
| Other current assets        |       | 9,423,049                                      |            | 1,779,803                        |       | —                               |       | 11,202,852                    |            |
| Total current assets        |       | 93,662,443                                     |            | 18,643,674                       |       | (48,613,077                          | )          | 63,693,040                    |            |
|                        |       |                                           |            |                             |       |                                 |       |                          |            |
| Property and equipment  net |       | 251,632,743                                    |            | 46,806,392                       |       | —                               |       | 298,439,135                   |            |
| Restricted Cash             |       | 263,630                                        |            | 106,748                          |       | —                               |       | 370,378                       |            |
| Other non-current  assets   |       | 5,915,733                                      |            | 114,084                          |       | —                               |       | 6,029,817                     |            |
|                        |       |                                           |            |                             |       |                                 |       |                          |            |
| Total assets                | ** ** | **$**                                          | **351,474,549** | ** **                       | **$**      | **65,670,898**                       | ** ** | **$**                         | **(48,613,077** | **)** | **$** | **368,532,370** | ** ** |
|                             |            |                                                |                 |                                  |            |                                      |            |                               |                 |  |  |  |  |  |

 

F-31

----

 
| **Liabilities and   Stockholders’ Equity**            | ** ** | **TRICOM,   S.A. Parent   Co.** | ** **      | **Subsidiary   Guarantors** | ** ** | **Consolidating  Adjustments** | ** ** | **Total  Consolidated** | ** **      |
|---------------------------------------------------------------------------|------------|------------------------------------------------|-----------------|----------------------------------|------------|--------------------------------|------------|-------------------------|-----------------|
|                                                                      |       |                                           |            |                             |       |                           |       |                    |            |
| Current liabilities:                                                      |       |                                           |            |                             |       |                           |       |                    |            |
| Borrowed funds - banks                                                    |       | $                                              | 40,974,312      |                             | $          | 7,891,498                      |       | $                       | —          |   | $ | 48,865,810 |   |
| Commercial paper and current  portion of long term-debt - banks           |       | 302,004,029                                    |            | 2,697,475                        |       | —                         |       | 304,701,504             |            |
| Commercial paper and current  portion of long term-debt - related parties |       | 73,805,794                                     |            | —                           |       | —                         |       | 73,805,794              |            |
| Current portion of capital  leases                                        |       | 14,531,321                                     |            | —                           |       | —                         |       | 14,531,321              |            |
| Accounts payable                                                          |       | 25,857,832                                     |            | 49,203,785                       |       | (48,613,077                    | )          | 26,448,540              |            |
| Other current  liabilities                                                |       | 90,658,192                                     |            | 82,383,576                       |       | —                         |       | 173,041,768             |            |
|                                                                      |       |                                           |            |                             |       |                           |       |                    |            |
| Total current  liabilities                                                |       | 547,831,480                                    |            | 142,176,334                      |       | (48,613,077                    | )          | 641,394,737             |            |
| Non-current liabilities                                                   |       | 82,837,556                                     |            | 6,051,918                        |       | (82,557,354                    | )          | 6,332,120               |            |
|                                                                      |       |                                           |            |                             |       |                           |       |                    |            |
| Total liabilities                                                         |       | 630,669,036                                    |            | 148,228,252                      |       | (131,170,431                   | )          | 647,726,857             |            |
|                                                                      |       |                                           |            |                             |       |                           |       |                    |            |
| Stockholders’ deficit                                                |       | (279,194,487                                   | )               | (82,557,354                      | )          | 82,557,354                     |       | (279,194,487            | )               |
|                                                                      |       |                                           |            |                             |       |                           |       |                    |            |
| Total liabilities and  stockholders’ deficit                         | ** ** | **$**                                          | **351,474,549** | ** **                       | **$**      | **65,670,898**                 | ** ** | **$**                   | **(48,613,077** | **)** | **$** | **368,532,370** | ** ** |
|                                                                           |            |                                                |                 |                                  |            |                                |            |                         |                 |  |  |  |  |  |  |  |

 

 

**Statements of****operations****for theyear ended December 31, 2003:**

** **
| ** **                                                                       | ** ** | **TRICOM,   S.A. Parent   Co.** | ** **       | **Subsidiary   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 and 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-32

----

 

**Statements of****operations****for theyear ended December 31, 2004:**

** **
| ** **                                           | ** ** | **TRICOM,   S.A. Parent   Co.** | ** **       | **Subsidiary   Guarantors** | ** ** | **Subsidiary   Non-  Guarantor** | ** ** | **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** | **)** |

 

 

**Statements of****operations****for theyear ended December 31, 2005:**

** **
| ** **                                           | ** ** | **TRICOM,   S.A. Parent   Co.** | ** **      | **Subsidiary   Guarantors** | ** ** | **Subsidiary   Non-  Guarantor** | ** ** | **Consolidating  Adjustments** | ** ** | **Total   Consolidated** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------|-----------------|----------------------------------|------------|---------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|
|                                                 |       |                                           |            |                             |       |                                  |       |                           |       |                          |       |
| Operating revenues                                   |       | $                                              | 135,310,532     |                             | $          | 82,214,114                            |       | $                              | —     |                          | $          | — |   | $ | 217,524,646 |   |
|                                                 |       |                                           |            |                             |       |                                  |       |                           |       |                          |       |
| Operating costs                                      |       | (146,531,995                                   | )               | (88,662,562                      | )          | —                                |       | —                         |       | (235,194,557                  | )          |
| Operating loss from  continuing operations           |       | (11,221,463                                    | )               | (6,448,448                       | )          | —                                |       | —                         |       | (17,669,911                   | )          |
|                                                 |       |                                           |            |                             |       |                                  |       |                           |       |                          |       |
| Other expenses, net                                  |       | (72,152,615                                    | )               | (42,447,946                      | )          |                                  |       | 48,078,546                     |       | (66,522,015                   | )          |
| Loss from continuing  operations before income taxes |       | (83,374,078                                    | )               | (48,896,394                      | )          | —                                |       | 48,078,546                     |       | (84,191,926                   | )          |
|                                                 |       |                                           |            |                             |       |                                  |       |                           |       |                          |       |
| Income taxes                                         |       | —                                         |            | 817,848                          |       | —                                |       | —                         |       | 817,848                       |       |
|                                                 |       |                                           |            |                             |       |                                  |       |                           |       |                          |       |
| Net loss                                             | ** ** | **$**                                          | **(83,374,078** | **)**                            | **$**      | **(48,078,546**                       | **)**      | **$**                          | **—** | ** **                    | **$**      | **48,078,546** | ** ** | **$** | **(83,374,078** | **)** |

 

F-33

----

 

**Statement of Cash flows for theyear 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 Cash****flows****for theyear ended December 31, 2004:**

** **
| ** **                                           | ** ** | **Tricom,  S.A.Parent   Co.** | ** **    | **Subsidiary   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** | ** ** |

 

F-34

----

 

**Statement of Cash flows for theyear ended December 31, 2005:**

 
| ** **                                            | ** ** | **Tricom, S.A.   Parent Co.** | ** **     | **Subsidiary   Guarantors** | ** ** | **Consolidating  Adjustments** | ** ** | **Total  Consolidated** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------|----------------|----------------------------------|------------|--------------------------------|------------|-------------------------|------------|
|                                                  |       |                                         |           |                             |       |                           |       |                    |       |
| Net cash provided by  (used in) operating activities  |       | $                                            | 59,265,034     |                             | $          | (16,052,864                    | )          | $                       | —     |   | $ | 43,212,170 |   |
| Net cash used in  investing activities                |       | (26,350,788                                  | )              | (1,934,985                       | )          | —                         |       | (28,285,773             | )          |
| Net cash (used in)  provided by financing activities  |       | (6,431,104                                   | )              | 6,027,562                        |       | —                         |       | (403,542                | )          |
| Net increase (decrease)  in cash on hand and in banks |       | 26,483,142                                   |           | (11,960,287                      | )          | —                         |       | 14,522,855              |       |
|                                                  |       |                                         |           |                             |       |                           |       |                    |       |
| Cash on hand and in  banks at beginning of the year   |       | 1,029,011                                    |           | 16,561,162                       |       | —                         |       | 17,590,173              |       |
|                                                  |       |                                         |           |                             |       |                           |       |                    |       |
| Cash on hand and in  banks at the end of the year     | ** ** | **$**                                        | **27,512,153** | ** **                       | **$**      | **4,600,875**                  |       | **$**                   | **—** | ** ** | **$** | **32,113,028** | ** ** |

# ** **

# **14**                      Stockholders’Equity

# ** **

***Introduction.***

 

The authorized capital stock of the Company consistsof 55,000,000 shares of Class A common stock and 25,000,000 shares of Class Bcommon stock.

 

Subject to the matters described in Note 3 to theconsolidated financial statements included in the Company’s Annual Report onForm 20-F for the fiscal year ended December 31, 2004 (the “2004 FinancialStatements”) and under “December 2002 Private Placement” below, all of theCompany’s outstanding shares are duly authorized, validly issued and fullypaid. Both classes of capital stock vote together as a single class, except onany matter that would adversely affect the rights of either class. 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.

 

***December 2002 P******rivate Placement.***

 

In December 2002 the Company completed the Placement(the “Placement”) of 21,212,121 shares of Class A Common Stock, as described inNote 3 to the 2004 Financial Statements. Various related parties were involvedin the Placement as described in Notes 3 and 7 to the 2004 FinancialStatements. In its letter requesting initiation of the Special Committee’s (asdefined in Note 3) investigation, the Company’s former independent auditor, themember firm of KPMG International in the Dominican Republic (“KPMG”) statedthat the investigation should determine whether the Placement qualified to berecorded as equity on the Company’s consolidated balance sheet as at December31, 2002. The resolutions appointing the Special Committee authorized it to,among other matters, conduct a review of the Placement to determine facts reasonablynecessary to allow the Company and its advisors to determine the appropriateaccounting treatment to be given to the Placement. The Special Committee Reportincluded a report by BDO Seidman LLP, a national publicaccounting firm (“BDO”) that, in summary, 

 

F-35

----

 

stated thatvarying conclusions as to whether the Company properly accounted for thePlacement can be reached based on different hypothetical fact scenarios. Undercertain hypothetical fact scenarios, the accounting treatment of the Placementas equity would remain unchanged. Under certain alternative hypothetical factscenarios, BDO stated that the consolidated financial statements of the Companyincluded in its Annual Report on Form 20-F for the fiscal year ended inDecember 31, 2002 “should be restated to reflect the proceeds of the Placementas debt, or “mezzanine financing” (and not as “permanent equity”) if (a) thePlacement and/or the conduct of the relevant parties related to the Placementcould be deemed fraudulent and/or any applicable laws or regulations (includingapplicable SEC laws and regulations) were violated  in connection with the Placement and (b) acourt of competent jurisdiction, as a remedy inlitigation initiated by the SEC or a third party, has power to, and possiblycould,  order and compel a rescission ofthe Placement.”  The Company’s managementis not at this time in a position to definitively determine which, if any, ofBDO’s hypothetical scenarios most closely resembles the circumstancessurrounding the Placement. Determinations as to the conduct of the relevantparties involved in the Placement are inherently fact intensive, and thereforeuncertain, and in certain of the relevant jurisdictions it is unclear whetheror not a rescission remedy would be available based on the facts currentlyknown to the  Company’s management.Furthermore, the Company has received advice from counsel representing itsindependent accounting firm questioning whether certain of the accountingliterature cited by BDO in support of its rescission analysis is applicable tothe 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(as defined in Note 6(b)), the stated purpose of the investor financingprovided by Bancrédito Panama, and those records available to the Company’smanagement documenting the application of the proceeds of the Placement, allindicate that Class A common stock was issued in the Placement, supporting theCompany’s management’s belief that the intent behind, and the effect of, thetransaction was to increase stockholders’ equity. These factors would tend toindicate that the Placement should continue to qualify to be recorded as equityon the Company’s balance sheet as at December 31, 2002. On the other hand, theincomplete nature of the records of the transaction currently available to theCompany’s management, in particular the lack of subscription or similardocumentation establishing a legal relationship between the Company and theinvestors, incomplete and in some cases inconsistent records as to both thereceipt and application by the Company of the proceeds of the Placement, thepossible non-recourse nature of the financing provided to the investors in thePlacement, the involvement of related parties in providing that financing, andsuggestions that negotiation of the transactions surrounding the Placement wasnot in all respects at arm’s length, raise questions as to whether thePlacement should continue to be recorded as equity in accordance with generallyaccepted accounting principles. After weighing these factors, the Company’smanagement has concluded that, on balance, the Placement should continue to qualify to be recorded as equity on its consolidated balance sheetas at December 31, 2002, but acknowledges that this conclusion is not beyonddispute and may change if additional information becomes available that isinconsistent with this treatment.

 

# **15**                      IncomeTaxes

# ** **

TRICOM, S.A. (Parent Company) and its subsidiariesoperate in several jurisdictions and under different tax regimes, of which themost relevant operations are located in the Dominican Republic, the UnitedStates of America and until February 2004, Panama. Accordingly, each subsidiarymust file income and other tax returns for its operations in these and otherjurisdictions. 

 

F-36

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Because of the differences in the tax legislation ineach country, each of the individual subsidiaries must file separate income taxreturns instead of one return on a consolidated basis.

 

Therefore, the information about corporate income taxexpense for the years ended December 31, 2003, 2004 and 2005, respectively,represents the sum of the tax obligations of each of the consolidatedsubsidiaries.

 

The components of the Company’s provision for (benefitfrom) income taxes are summarized as follows:

 

| ** **                    | ** ** | **Current** | ** **    | **Deferred** | ** ** | **Total**    | ** ** |
|-------------------------------|------------|-------------|---------------|--------------|------------|--------------|------------|
|                          |       |        |          |         |       |         |       |
| Year ended December 31,  2003 |       |        |          |         |       |         |       |
| U.S. Federal                  |       | $           | —        |         | $          | (569,073     | )          | $ | (569,073 | ) |
| Dominican Republic            |       | 2,336,999   |          | (409,065     | )          | 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     | )          |
| ** **                    | ** ** | ** **  | ** **    | ** **   | ** ** | ** **   | ** ** |
| ** **                    | ** ** | **$**       | **134,978**   | ** **   | **$**      | **165,204**  | ** ** | **$** | **300,182** | ** ** |
|                          |       |        |          |         |       |         |       |
| Year ended December 31,  2005 |       |        |          |         |       |         |       |
| U.S. Federal                  |       | $           | —        |         | $          | (817,848     | )          | $ | (817,848 | ) |
| Dominican Republic            |       | —      |          | —       |       | —       |       |
| ** **                    |       | **$**       | **—**    |         | **$**      | **(817,848** | )          | **$** | **(817,848** | **)** |

 

The componentsof deferred tax assets and liabilities are as follows:

 
| ** **                                               | ** ** | **2003**    | ** **  | **2004**     | ** ** | **2005**     | ** ** |
|----------------------------------------------------------|------------|-------------|-------------|--------------|------------|--------------|------------|
| Deferred tax assets:                                     |       |        |        |         |       |         |       |
| Deferred revenues                                        |       | $           | 92,559      |         | $          | 763,164      |       | $ | 1,436,260 |   |
| Property, plant and  equipment in the Dominican Republic |       | 14,277,685  |        | 18,212,994   |       | 14,487,443   |       |
| Net operating loss                                       |       | 69,888,827  |        | 113,698,471  |       | 111,711,894  |       |
| Tax credit carryforward                                  |       | 96,369      |        | 96,369       |       | 96,369       |       |
| Other                                                    |       | 45,390      |        |         |       |         |       |
| Gross deferred tax  assets                               |       | 84,400,830  |        | 132,770,998  |       | 127,731,966  |       |
|                                                     |       |        |        |         |       |         |       |
| Valuation allowance                                      |       | (83,032,658 | )           | (132,007,834 | )          | (126,295,706 | )          |
|                                                     |       |        |        |         |       |         |       |
| Deferred tax assets,  net                                |       | 1,368,172   |        | 763,164      |       | 1,436,260    |       |
|                                                     |       |        |        |         |       |         |       |
| Deferred tax  liabilities:                               |       |        |        |         |       |         |       |
| Property and equipment  in USA                           |       | 713,360     |        | 661,795      |       | 433,895      |       |
| US IRC Section 481  adjustment                           |       | 327,936     |        | 386,871      |       | 470,018      |       |
| Other – net                                         |       | 141,712     |        | —       |       | —       |       |
| Gross deferred tax  liabilities                          |       | 1,183,008   |        | 1048,666     |       | 903,913      |       |
|                                                     |       |        |        |         |       |         |       |
| Deferred tax, net                                        | ** ** | **$**       | **185,164** | ** **   | **$**      | **(285,502** | **)**      | **$** | **532,347** | ** ** |

 

F-37

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At December 31, 2003, the applicable taxes of the companies in theDominican Republic were determined based on 1.5% of gross revenues for the year ended December31, 2003.

 

At December 31, 2004 and 2005, the applicable taxes ofthe companies in the Dominican Republic were determined based on 25% of the nettaxable income for the years ended December 31, 2004 and 2005. As a result ofthis new tax regimen, TRICOM S.A. and TCN Dominicana S.A. were not beingrequested to pay taxes.

 

In assessing the reliability of deferred tax assets,management considers whether it is more likely than not that some portion orall of the deferred tax assets will not be realized. The ultimate realizationof deferred tax assets is dependent upon the generation of future taxableincome during the periods in which those temporary differences becomedeductible. Management considers the scheduled reversal of deferred taxliabilities, projected future taxable income, and tax planning strategies inmaking this assessment.

 

At December 31, 2005, Tricom USA, the subsidiary inthe United States has an unused net operating loss carry forward which for USincome tax purpose may be used to offset future taxable income, if any, until2025 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 |            |
| 2025      |       | 41,566,837 |            |
| **Total** | ** ** | **$**      | **105,112,041** | ** ** |

# ** **

F-38

----

 

# **16**                      Commitmentsand Contingencies

# ** **

A summary of commitments and contingencies at December31, 2003, 2004 and 2005 is as follows.

 

### ***(a)***                   ***Commitments.***

###  

#### *(i)*  TRICOMmaintains contracts with foreign entities for the traffic of overseas calls. Suchcontracts require each entity to obtain the necessary facilities to establish,maintain and operate its respective terminals. The cost of each contract isbased upon negotiated rates, which are computed based on the amount of trafficeach month. For the years ended December 31, 2003, 2004 and 2005 this costamounted to $7,371,917, $4,883,018 and $4,379,036 respectively, and is includedin the cost of sales and services in the accompanying consolidated statementsof operations.

####  

#### *(ii)*  OnMay 8, 1997, the Federal Communications Commission (FCC) issued an order toadopt the provisions of the Telecommunications Act of 1996 relating to thepreservation and advancement of universal telephone service (the “UniversalService Order”). The Universal Service Order requires all telecommunicationscarriers providing interstate telecommunications services to contribute touniversal service by contribution to a Order (the “Universal Service Order”). UniversalService Order contributions were assessed based upon intrastate, interstate andinternational end-user gross telecommunications revenue effective January 1through December 31.

####  

At December 31, 2003, 2004 and2005 the Company contributed $62,268, $50,504 and $44,816 respectively, to the “UniversalService Order” on end-user telecommunications revenue of $2,298,904, $594,498and $472,730 for the years then ended respectively. The contribution paid isincluded as part of selling, general and administrative expenses in theaccompanying consolidated statements of operations.

 

*(iii)*  The subsidiary dedicated to cable televisionsystems operations has contracts with television and network companies aroundthe world for the transmission of programming content in the Dominican Republic.Such companies required monthly payments that range between $0.05 and $0.16 persubscriber in 2003, between $0.05 and $12.5 per subscriber in 2004 and 2005. Theterms of these contracts fluctuate between two and three years and arerenewable at the option of the parties. For the years ended December 31, 2003, 2004 and2005 the total amount of these payments was $6,682,249, $5,359,768 and$2,423,657, respectively, which is included as part of the cost of sale andservices in the accompanying consolidated statements of operations. Thesubsidiary had a trade agreement with Omnimedia S.A, a related party to receivepublicity service in exchange of television services (advertisingannouncements). Part of the agreement involves managing the international cableprogrammers. Accordingto management and the market practice, the cost of cable programmers isconsidered as a product not as a service and therefore, is not subject to the25% income tax withholding.

 

F-39

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#### *(iv)*  The Company has employment agreements withcertain of its executive’s officers, the terms of which expire at January 14,2006. Such agreements provide minimum salary levels, as well as incentivebonuses that are payable if specified management goals are reached. The aggregatecommitment for future salaries at December 31, 2005, excluding bonuses, isapproximately $3,153,000.

####  

#### *(v) *The telecommunications law of the Dominican Republic (Law 153-98)requires that companies operating in this sector pay to the Instituto Dominicanode Telecomunicaciones (INDOTEL) a monthly fee equivalent to 2% of theirinternational net income. As of December 31, 2003, 2004 and 2005 this expenseamounted to $668,123, $462,165 and $487,169, respectively, which is included aspart of selling, general and administrative expenses in the accompanyingconsolidated statements of operations.

####  

#### *(vi)*  TheCompany has engaged several financial advisory firms to assist in its financialrestructuring process. Currently, the Company has monthly commitments fromretainer and advisory fees related to its financial restructuring in theaggregate of approximately $700,000. In addition, the Company has contingenciesin the aggregate of approximately $2,000,000 for success-based advisorycompensation fees upon the completion of the Company’s restructuring process.

####  

#### *(vii)*  Thesubsidiary Tricom USA, Inc. has guaranteed loans made to Tricom S.A., itsparent company. Two guarantees are to The International Bank of Miami as lenderand Export-Import Bank of the United States for $36,002,530 on July 2000 and$20,000,000 on November 2000 respectively. The first is a five-year loan withan interest rate equal to the sum of LIBOR for the applicable period plus 2.25percent per annum, the second has the same interest rate and the loan paymentterm could be from two to seven years. The outstanding balance as of year-endis $40,481,013. The third is a corporate guarantee to the Export Development ofCanada for $1,122,000 on May 27, 2002 with the rate of interest of LIBOR plus4% per annum. The loan term is 18 months to be paid in 5 consecutivesemi-annual installments commencing on September 30, 2002. This loan is to bepaid in three installments, the last installment is due in June 30, 2004 andthe interest rate is equal to the sum of Eurodollar rate and the applicablemargin. Since October 2003, TRICOM, S.A has made no interest or principalpayments on any of its debt. TRICOM, S.A., is negotiating with the lenders butat this time there is no assurance that an agreement will occur.

####  

### ***(b)***                   ***Lease Obligations.***

###  

TheCompany maintains operating leases for the use of office space,telecommunications centers, commercial offices, warehouse, automobiles andothers. These operating leases are renewable at the end of the lease period,which is usually one year. Expenses for these leases in 2003, 2004 and 2005amounted to approximately, $922,370, $2,005,726 and $3,640,011 respectively,and are included in selling, general and administrative expenses in theconsolidated statements of operations. The commitment for lease payments forthe next five years is as follows:

 
| **Year**        | ** ** | **Amount** | ** ** |
|-----------------|------------|------------|------------|
| 2006            |       | $          | 2,750,000  |   |
| 2007            |       | 2,970,000  |       |
| 2008            |       | 3,207,600  |       |
| 2009            |       | 3,464,000  |       |
| 2010 and beyond |       | 3,750,000  |       |
|                 |            |            |            |  |

 

F-40

----

 

### ***(c)***          ***Legal Proceedings.***

###  

#### *(i)*  *Grupo Económico Suit*.In April 2004, a suit was brought by certain holders of certificates of depositand other instruments issued by certain affiliates of Bancrédito DominicanRepublic a banking institution formerly controlled by GFN, seeking to have theCompany and several co-defendants (including, among others, the Central Bank ofthe Dominican Republic, the Leon Bank and GFN) held jointly and severallyliable for amounts owed by such affiliates to the plaintiffs. Although the Courtof First Instance of Santo Domingo found in favor of the plaintiffs againstcertain of the defendants, it also found that neither the Company nor any ofits subsidiaries were liable to the plaintiffs. The court upheld the terms ofthe tripartite contract under which the Leon family acquired Bancrédito, andrendered judgment against parties to the tripartite contract in the amount of$156,000,000, which was subsequently reduced (upon a motion filed by the sameplaintiffs) by the same judge to approximately $13,000,000. In an appeal filedby certain of the parties found liable by the Court of First Instance, theoriginal plaintiffs sought to join the Company and the other originalco-defendants to the appeal proceedings. In June 2007 the Appellate Court declinedto join the Company or any of its subsidiaries to the appeal proceedings. Whileit is possible that this decision may be challenged by means of a motion forcassation before the Supreme Court of the Dominican Republic, the Companybelieves it is unlikely that it will be found liable in these proceedings.

####  

*(ii)*  *Bancrédito CriminalLitigation.*In September 2005 a Dominican investigative judge addedthe Company and two of its subsidiaries as co-defendants to criminalproceedings brought by certain creditors of Bancrédito and other financialinstitutions formerly controlled by GFN, the Company’s principal shareholder. Certainformer directors and officers of these entities were also defendants in theproceedings. The allegations against the Company and the other co-defendantsincluded fraud, embezzlement, violations of monetary laws and money laundering.The Company was added to these proceedings without prior notice orparticipation in the existing proceedings.

 

In October 2005 an Appellate Court denied the Company’sappeal of the investigative judge’s action and in December 2005 the SupremeCourt of the Dominican Republic denied the Company’s petition to reconsider thelower court’s decision. Following the Supreme Court’s decision, the Company,together with the other co-defendants, entered into settlements with theprivate parties that originally brought the criminal actions.

 

In March 2006 the Criminal Court to which the matterwas remanded following the Supreme Court’s decision decided that the criminalactions, which had previously been consolidated into one action, bedeconsolidated into six different matters, corresponding to the six criminalcomplaints originally filed. The Company was a party to only one of suchmatters. Subsequently the Criminal Court dismissed the public actions in fourout of the six criminal complaints, including the only one to which the Companyand its subsidiaries were parties. No objection to, or appeal against, thisdecision was filed; accordingly, all civil and criminal liability to which theCompany might have been subject as a result of these allegations wasextinguished. In its rulings, the Criminal Court also dismissed criminalcomplaints pending against Mr. Hector Castro Noboa, the Company’s ChiefExecutive Officer, and Ms. Rosangela Pellerano, one of the Company’s directors.

 

The Criminal Court did not, however, dismiss all ofthe complaints against Mr. Manuel Arturo Pellerano, one of the Company’sdirectors and the beneficial holder of a majority of the voting power of theCompany’s shares. In August 2006, as part of a series of related proceedings,Mr. Pellerano was convicted by the Criminal Court of several violations 

 

F-41

----

 

of the Dominican Criminal Code and Monetary andFinancial Law. The court sentenced each of Mr. Pellerano and aco-defendant  to three years imprisonmentand ordered each of them to pay a fine of RD$1 million (approximately $31,000).The charges on which Mr. Pellerano was convicted, which the Company understandsstem from Mr. Pellerano’s activities at related financial services entities andnot at Tricom itself, include forgery, alteration, manipulation and concealmentof banking books and records and financial statements. Mr. Pellerano’s appealof the decision of the Criminal Court remains pending at the date of thisfiling.

 

*(iii)*  *Claim for Cost ofInterconnection Circuits.*During the period commencing with theenactment of the General Telecommunications Law of 1998 and ending with Indotel’sissuance of interconnection regulations in 2002, the Company purchased fromCodetel, at the Company’s sole expense, several hundred T-1, or Trunk Level 1,switches. These are digital transmission links that are necessary forinterconnection between the Company’s network and Codetel’s network. InDecember 2002, as part of the process for the adjustment of interconnectionagreements before Indotel, the Company claimed that Codetel should reimburse itfor 50% of the cost of the T-1 switches it had purchased. The approximateamount of the Company’s claim is $6.8 million. Indotel rejected the Company’sclaim, and an appeal before the Superior Administration Court is pending.

 

*(iv)*  *False Imprisonment Claim.*InAugust 1999, a Dominican company and two individual plaintiffs brought a claimagainst the Company in the Dominican courts for alleged losses and damages ofup to approximately RD$200,000,000 (approximately $4,800,000) resulting fromthe imprisonment 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 the Companyinstigated following an irregular increase in telephone traffic at certaintelephone numbers. The court rejected the action for lack of evidence. Theplaintiffs appealed, but the Court of Appeals also rejected their claims, andthey subsequently filed a motion for cassation with the Supreme Court ofJustice, which is pending. The Company does not believe that this matter willhave a material adverse effect on its operations or financial position.

 

*(v)*  *Uninsured Motor VehicleCases.*Until 2003, the Company’s principal property and casualtyinsurance carrier was Compania Nacional de Seguros (“SEGNA”), at that time arelated party. In 2003 SEGNA’s business was taken over by the Superintendenceof Insurance, following which SEGNA stopped paying on certain pending motorvehicle accident coverage claims involving the Company’s vehicles. Although theCompany moved its property and casualty coverage to a third party insurancecarrier, it was necessary for the Company to assume direct liability for thepending claims. The Company intends to submit a claim in SEGNA’s liquidation atthe appropriate time. The Company believes that the amount of potentialliability likely to arise out of these claims will not exceed $1,000,000, anddoes not believe that these matters will have a material adverse effect on itsoperations or financial position.

 

*(vi)*  *Ordinary Course Tort andContract Claims.*The Company is involved from time to time invarious other lawsuits and legal proceedings arising in the ordinary course ofits business. These claims generally relate to tort and contract actions fordamages. The Company believes that the final resolution of these matters willnot have a material adverse effect on its operations or financial position.

 

*(vii)*  *Aircraft Lease Termination.*In July 2005, the Company reached a settlement with General ElectricCredit 

 

F-42

----

 

Corporation of Tennessee and General Electric CapitalCorporation of Puerto Rico with respect to claims arising from the Company’salleged breach of an aircraft lease agreement due to early termination inDecember 2003. As part of the settlement, the Company signed a 7-year $6million 9% per annum promissory note payable in monthly installments, with thefirst year comprised of interest-only payments and the principal balanceamortized over the remaining 6 years.

 

*(viii)  WorldAccess Inc. Bankruptcy.*In April 2003, Tricom USA was servedwith asummons and complaint in an adversary proceeding arising out of the WorldAccess, Inc. et al. bankruptcy case in the United States Bankruptcy Court forthe Northern District of Illinois. The complaint alleged that transfers in theaggregate amount of approximately $488,000 were made to Tricom USA by one ofthe debtors, Facilicom International LLC, within the 90 days prior to thefiling of the bankruptcy petition, and that the transfers were avoidable aspreferential payments pursuant to the United States Bankruptcy Code. Anagreement in principle to settle the matter was reached in March 2007 underwhich the Company will undertake to pay $87,500 to Facilicom International LLC.Final documentation of this settlement is pending.

 

No amounts have beenrecorded in the accompanying financial statements related to these legalproceedings.

 

### ***(d)***         ***Dominican Tax Matters.***

###  

In June 2002, the Company received notice from theDominican tax authority claiming that the Company was required to withhold andpay 25% of the amount of its investment in Tricom Latinoamérica, S.A. The 25%withholding tax generally applies for payments made for services rendered bynon-Dominican vendors and for certain dividends. The tax authority soughtRD$168.1 million (approximately $9 million at 2002 exchange rates), pluspenalties and interest. The Company contested the claim, indicating that thereis no requirement to withhold tax on an investment in a wholly owned subsidiary.The Company’s motion before the tax authority failed and an appeal to theMinistry of Finance was rejected. Following a subsequent appeal the Tax Court,in February 2007, ruled in the Company’s favor and rejected the tax authority’sclaim. The tax authority decided not to file a motion for cassation before theSupreme Court of the Dominican Republic.

 

In January 2006 the Company was notified by the taxauthority that it should correct its income tax return for the fiscal yearended December 31, 2004. According to the tax authority, the return sought touse prior period losses to reduce taxable income for the current year inamounts in excess of those the tax authority considered were permissible underits interpretation of the applicable tax law. In January 2006 the Companypresented a petition to the tax authority requesting the elimination of thisnotification. In January 2007 the Company made a written request to the taxauthority seeking its authorization for the Company to use up toRD$9,480,000,000 (approximately $257,216,000) of accumulated losses to offsetpotential income arising from the cancellation of debt within the context ofthe Company’s restructuring. In March 2007 the tax authority notified theCompany that this authorization had been granted on the condition that any losses not used atDecember 31, 2007 will not be carryforward.

###  

### ***(e)    Potential Claims Arising from 2002 Share Placement and BancreditCayman Chapter 15 Proceeding.***

###  

Under SFAS 5 the Company is required to disclosecertain loss contingencies and to determine whether an accrual for the 

 

F-43

----

 

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.

 

The Company’s Annual Report on Form 20-F for the yearended December 31, 2004 and the consolidated financial statements included inthat report address the possibility of claims arising out of the purchase (the “Placement”)in December 2002 of shares of the Company’s Class A Common Stock by a group ofinvestors for an aggregate purchase price of approximately $70 million. 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 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. However, 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 Bancrédito 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 time the Company is not able to determinewith any certainty who might assert claims, the precise nature of any claimsthat may be asserted, the jurisdiction in which such claims may be brought, thetheories on which such claims may be based, the validity of any such claims,whether viable defenses would be available to such claims and whether anyjudgment or award arising out of such claims would be enforceable against theCompany or its subsidiaries’ assets. Accordingly, while it is possible that theCompany will in the future need to establish loss contingencies relating to thePlacement for purposes of its financial statements, it does not believe thatthis is necessary at the present time. If such claims were brought anddetermined in a manner adverse to the Company, its liquidity and financialresources would be adversely affected.

 

***(f)***              ***ConfirmationLetter from Liquidator Bancredit Cayman Limited.***

 

In response to a letter dated October 5, 2006 sent byTricom S.A. to the liquidator of Bancredit CaymanLimited requiringdocumentary support related to the 2002 Private Placement, Tricom S.A. receiveda response letter dated November 24, 2006 from the Bancredit CaymanLimitedLiquidator purporting to have a claim 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** |   |

 

F-44

----

 

The funds received from2002 Private Placement were used by the Company, according to its internalrecords, 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, over drafts and past due interest                               |   | 9,846,384  |           |
|                                                                                                                            |   |       |           |
| Bancrédito 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 mentioned resolution of the liquidator of BancréditoPanama suggests that, $ 20,964,510.71 of the funds loaned to the investors inthe Placement were never turned over to Bancredit Cayman Limited andacknowledges a claim for such amount owed by Bancrédito Panama to BancreditCayman Limited. Nevertheless,****there is notsufficient evidence or documentation to support the $70,000,000 claim per theBancredit Cayman Limited Liquidator or to justify a contingency accrual in

 

F-45

----

 

the 2004 and 2005 financial statements. Under SFAS 5(see Note 16 (e)) it is possible that the Company will in the future need toestablish loss contingencies relating to the Placement, but, at this time theCompany’s management does not believe that is necessary.

 

***(g)***           ***PotentialClaims Arising from Conaresa Leases.***

 

According to SFAS 5, if the conditions for the accrualof a loss contingency are not met but a loss is nevertheless consideredprobable or reasonably possible, financial statement disclosure of the losscontingency is required. The disclosure should contain a description of thenature of the loss contingency and the range of possible loss, or include astatement that an estimate of the loss cannot be made.

 

Between 1999 and 2001, the Company entered into aseries of capital leases with Compañia Nacional de Arrendamientos, S.A. (“Conaresa”),at that time a related party. The entity was sold to Banco Leon during 2003 ina transaction also involving the Central Bank of the Dominican Republic. These leaseagreements provide for the lease to the Company of telecommunicationsequipment, automobiles, and other fixed assets.

 

The installments payable under the above-mentionedlease agreements include lease rental payments and other expenses such as taxesand fees. The lease agreements also provide for the payment of penalty(moratorium) interest on overdue balances, to be calculated at a rateestablished by Conaresa. No fixed or determinable rate is specified; rather,the amount and conditions of penalty interest can be unilaterally set byConaresa.

 

In June 2005, the Company received a paymentopposition from GFN, freezing in the Company’s hands any payments or otheramounts owed by the Company to Conaresa, up to an amount of $38.7 million(RD$1.349 billion) (double the amount of GFN’s claim against Conaresa, as iscustomary in the case of payment oppositions under Dominican law). When anentity receives a payment opposition addressed to one of its creditors, theentity in question must refrain from making any payments in violation of thepayment opposition (as otherwise it may become liable for damages to the partywho served the opposition) until it is lifted by means of a court order or as aresult of a settlement between the conflicting parties. In May 2007, theCompany received two further notices under which (i) Artag Meridian Ltd., anentity related to GFN, advised that it had acquired GFN’s aforesaid claims; and(ii) the above-mentioned opposition against Conaresa was reiterated, this timeby Artag Meridian, as GFN’s assignee. In July 2007 the Company was notifiedthat a court ruling had lifted these payment oppositions. Subsequently, ArtagMeridian appealed the court’s ruling and issued a new payment oppositionseeking to freeze any payments to Conaresa.

 

For the foregoing reasons, at this time the Company isprevented from making any payments to Conaresa. Furthermore, the Company hasnot established any accrual for penalty interest that might arise out of theselease agreements because it believes that any claim based on the leaseprovision described above would be without merit. Nevertheless, there can be noassurance that any legal proceedings on this issue would be resolved in theCompany’s favor. Accordingly, while it is possible that the Company may in thefuture need to establish a loss contingency relating to penalty interestarising out of these lease agreements, it does not believe that this isnecessary at the present time.

 

# **17**                      Businessand Credit Concentration

# ** **

Inthe normal course of business, the Company has accounts receivable fromcarriers. Although the Company’s exposure to credit risk associated withnon-payment by these carriers is affected by conditions or occurrences withinthe industry, most of 

 

F-46

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thesereceivables are due from large, well-established companies. The Company doesnot believe that this concentration of credit risk represents a material riskof loss.

 

# **18**                      LegalReserve

# ** **

Article58 of the Code of Commerce of the Dominican Republic requires all companies tosegregate at least 5% of their net earnings as a legal reserve until suchreserve equals 10% of its paid-in capital as disclosed in the ConsolidatedStatements of Stockholders’ Deficit. This reserve is not available fordistribution as dividend, except in case of the dissolution of the corporation.

 

# **19**                      StockOption Plan

# ** **

OnMay 4, 1998, the Company initiated a Long-term Incentive Plan (the Plan), inwhich certain employees could be granted options to purchase shares of theCompany’s common stock. The Plan is administered by the Board of Directors ofthe Company and has the authority to determine which employees will participatein the Plan.

 

ThePlan authorizes grants of options to purchase up to 750,000 authorized Companyshares. Stock options are granted with an exercise price equal to the stock’sfair market value at the date of grant. All stock options have a term often-years and become exercisable after one and three years from the date ofgrant.

 

AtDecember 31, 2004 and 2005, there were 500,870 and 586,948 additional sharesavailable for grant under the Plan, respectively.

 

Changesin the number of shares subject to option are summarized as follows:

 
| ** **                  | ** ** | **Options** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|-----------------------------|------------|-------------|------------|------------------------------------------------|------------|
|                        |       |        |       |                                           |       |
| 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                                           |       |
| Surrendered                 |       | (86,078     | )          | 7.00                                           |       |
| Balance,  December 31, 2005 |       | 163,052     |       | $                                              | 6.68       |   |

###  

### In2001 the Board of Directors approved a stock option re-pricing pursuant towhich the Company’s employees could elect to cancel granted options in exchangefor new options with an exercise price of $7.00, which was the Company’s commonstock price on the New York Stock Exchange at the moment. Approximately 520,000options were eligible for re-pricing, of which the Company cancelled 453,130options and granted 241,994 options.

###  

Thenumber of re-priced options was also reduced proportionately. All otherconditions were unchanged. Effective July 1, 2000, the FASB issued FinancialInterpretation No. 44 (FIN 44) which amended APB 25 and requires “variable”accounting for all stock option re-pricing granted before six months of thecancelled date. As a result, these options will require variable accountinguntil they are exercised, cancelled, forfeited or expired.

 

F-47

----

 

Undervariable accounting, compensation expense must be measured by the differencebetween the exercise price and the market price of the Company’s stock at eachreporting period amortized over the vesting period. The effect of theapplication of FIN 44 during  2003, 2004and 2005 was not significant.

 

Exerciseprices of options outstanding at December 31, 2004 and 2005 ranged from $3 to$16 per share. Thefollowing table provides certain information with respect to stock optionsoutstanding at December 31, 2004 and 2005:

 

** **
| ** **                                   | **2004**

** ** |
|----------------------------------------------|----------------------|
| ** **                                   | ** **           | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
| **Range of   Exercise Price** | ** **           | **Number  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual  Life** | ** ** | **Weighted  Number  Exercisable** | ** ** | **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** | ** ** |

 

** **
| ** **                                   | ** ** | **2005**

** **         |
|----------------------------------------------|------------|------------------------------|
| ** **                                   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
| **Range of   Exercise Price** | ** ** | **Number  Outstanding**      | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual  Life** | ** ** | **Weighted  Number  Exercisable** | ** ** | **Average  Exercise  Price** | ** ** |
|                                         |       |                         |   |   |   |   |   |   |   |   |   |
| $3.00 - $5.00                                |       | 7,000                        |   | $ | 3.46 |   | 7.26 |   | 2,625 |   | $ | 3.46 |   |
| $5.01 - $7.00                                |       | 154,052                      |   | 6.70 |   | 6.14 |   | 48,629 |   | 6.65 |   |
| $ 7.01 - $9.00                          |       | —                       |   | — |   | — |   | — |   | — |   |
| $9.01 - $16.00                               |       | 2,000                        |   | 16.00 |   | 6.00 |   | 750 |   | 16.00 |   |
| ** **                                   | ** ** | **163,052**                  | ** ** | **$** | **6.68** | ** ** | **6.19** | ** ** | **52,004** | ** ** | **$** | **6.62** | ** ** |

 

Theweighted-average fair value at date of grant for options granted during, 2004and 2005 were $0.60 and $0, respectively and were estimated using theBlack-Scholes option valuation model with the following weighted-averageassumptions.

 
| ** **              | ** ** | **2004** | ** ** | **2005** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
|                    |       |     |       |     |       |
| Expected life in  years |       | 6.25     |       | 6.19     |       |
| Interest rate           |       | 4.27     |       | 4.29     |       |
| Volatility              |       | 100.00   |       | 100.00   |       |
| Expected dividends      |       | —   |       | —   |       |

 

F-48

----

 

# **20**                      FourthQuarter Results

# ** **

Duringthe fourth quarter of 2003, the Company recognized expenses of approximately$191 million as a result of the impairment of long-lived assets, intangibleassets and goodwill based on the requirements of SFAS 142 and 144. Additionally,in the last quarter of 2003, the Company recognized an impairment loss fordiscontinued operations of approximately $38.6 million related to the CentralAmerica operations.

 

Duringthe fourth quarter of 2004, the Company recognized approximately $17.4 indepreciation expenses to reduce the useful life of some Long-Lived Assets (seeNote 2.8). The company did a survey in the telecommunications market anddetermined that the useful lives of some assets were not reasonable.

 

Duringthe fourth quarter of 2005, the company performed its annual impairment reviewand it was determined that no impairment charges were necessary.

 

# **21**                      SegmentInformation

# ** **

TheCompany has adopted Financial Accounting Standards Board Statement No. 131, “Disclosuresabout Segment of an Enterprise and Related Information”, which establishesstandards for reporting information about a company’s operating segments.

 

Beginningin 2003, the Company changed its income statement reporting presentation inorder to more accurately align its core product and service segments with howmanagement evaluates its consolidated results of operations and to simplify thereading and understanding of its financial information, as well as facilitatebenchmark comparisons with other telecommunications companies globally. As aresult, certain amounts in the 2002 consolidated financial statements and notesto the consolidated financial statements have been reclassified to conform to thenew presentation.

 

TheCompany has divided its operations into six reportable segments, which includefive core business reportable segments based upon similarities in revenuegeneration, cost recognition, marketing and management of its businesses. TheCompany’s five core business reportable segments are: Long Distance, DomesticTelephony, Mobile, Cable and Data and Internet. The Company’s six reportablesegment corresponds to other revenues that are not generated from its corebusinesses.

 

Thereporting segments follow the same accounting policies used for the Company’sconsolidated financial statements and described in the summary of significantaccounting policies. Management measures and evaluates reportable segmentsbased on several factors, of which revenues and operating income (loss) are theprimary financial measures.

 

Thesegments and a description of 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 represents localexchange services in the Dominican Republic;

 

F-49

----

 

•        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 of theCompany’s non-core business revenues.

 

**Geographic**

** **
| ** **                                                                | ** ** | **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 |   |
| Others                                                                    |       | 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** | ** ** |

 
| ** **                                       | ** ** | **2004**               | ** **      |
|--------------------------------------------------|------------|------------------------|-----------------|
| ** **                                       | ** ** | **United States** | ** **      | **Dominican  Republic** | ** ** | **Discontinued  Operations –  Central America** | ** ** | **Elimination (a)** | ** ** | **Consolidated** | ** ** |
| ** **                                       | ** ** | ** **             | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Long distance                                    |       | $                      | 61,156,846      |   | $ | 33,503,473 |   | $ | — |   | $ | (22,651,323 | ) | $ | 72,008,996 |   |
| Others                                           |       | 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                      |       | $                      | (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** | ** ** |

 

###  

 

F-50

----

 
| ** **                                       | ** ** | **2005**               | ** **      |
|--------------------------------------------------|------------|------------------------|-----------------|
| ** **                                       | ** ** | **United States** | ** **      | **Dominican  Republic** | ** ** | **Discontinued  Operations –  Central America** | ** ** | **Elimination (a)** | ** ** | **Consolidated** | ** ** |
| Long distance                                    |       | $                      | 61,917,543      |   | $ | 33,744,587 |   | $ | — |   | $ | (25,041,660 | ) | $ | 70,620,470 |   |
| Others                                           |       | 992,148                |            | 146,406,223 |   | — |   | (494,195 | ) | 146,904,176 |   |
| Total revenues  from external customers          | ** ** | **$**                  | **62,909,691**  | ** ** | **$** | **180,150,810** |   | **$** | **—** |   | **$** | **(25,535,855** | **)** | **$** | **217,524,646** | ** ** |
|                                             |       |                   |            |   |   |   |   |   |   |   |   |
| Net loss before  income tax                      |       | $                      | (46,539,433     | ) | $ | (37,652,493 | ) | $ | — |   | $ | — |   | $ | (84,191,926 | ) |
| Income tax                                       |       | 817,848                |            | — |   | — |   | — |   | 817,848 |   |
| Net loss                                         | ** ** | **$**                  | **(45,721,585** | **)** | **$** | **(37,652,493** | ) | **$** | **—** |   | **$** | **—** | ** ** | **$** | **(83,374,078** | **)** |
| Identifiable  assets (include long-lived assets) | ** ** | **$**                  | **29,244,099**  | ** ** | **$** | **411,434,686** |   | **$** | **—** | ** ** | **$** | **(72,146,415** | **)** | **$** | **368,532,370** | ** ** |

###  

(a)              Revenues represent the elimination of therevenues between subsidiaries and the Company. Identifiable assets representeliminations of inter-company accounts and investments in common stock betweenTRICOM, S.A. (Parent Company) in the Dominican Republic and the subsidiaries inUnited States and Central America.

 

F-51

----

 

**Productsand Services**

 
| ** **                                          | ** ** | **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 |   |
| Inter-segment  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 | ) |
| Net (loss)  earnings 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 operation                   |       | —             |            | — |   | (46,651,629 | ) | — |   | — |   | — |   | (46,651,629 | ) |
| Net (loss)  earnings                                | ** ** | **$**              | **(19,522,159** | **)** | **$** | **(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 (loss)  earnings 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 (loss)  earnings                     | ** ** | **$**                  | **(33,010,882** | **)** | **$** | **(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** | ** ** |

 

F-52

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| ** **                               | ** ** | **2005**               | ** **      |
|------------------------------------------|------------|------------------------|-----------------|
| ** **                               | ** ** | **Long Distance** | ** **      | **Domestic  Telephony** | ** ** | **Mobile** | ** ** | **Cable** | ** ** | **Data and  Internet** | ** ** | **Other (b)** | ** ** | **Consolidated** | ** ** |
|                                     |       |                   |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues from  external customers        |       | $                      | 70,620,470      |   | $ | 84,071,137 |   | $ | 35,485,447 |   | $ | 19,304,412 |   | $ | 7,952,623 |   | $ | 90,557 |   | $ | 217,524,646 |   |
| Intersegment  revenues                   |       | —                 |            | 3,849,016 |   | 2,659,182 |   | — |   | — |   | — |   | 6,508,197 |   |
| Total revenues                           |       | 70,620,470             |            | 87,920,153 |   | 38,144,629 |   | 19,304,412 |   | 7,952,623 |   | 90,557 |   | 224,032,843 |   |
| Reconciling items  intersegment revenues |       | —                 |            | (3,849,016 | ) | (2,659,182 | ) | — |   | — |   | — |   | (6,508,197 | ) |
| Total  consolidated revenues             | ** ** | **$**                  | **70,620,470**  | ** ** | **$** | **84,071,137** | ** ** | **$** | **35,485,447** | ** ** | **$** | **19,304,412** | ** ** | **$** | **7,952,623** | ** ** | **$** | **90,557** | ** ** | **$** | **217,524,646** | ** ** |
| Net (loss)  earnings before income tax   |       | $                      | (26,154,009     | ) | $ | (51,303,885 | ) | $ | (5,931,361 | ) | $ | (2,356,962 | ) | $ | 1,463,734 |   | $ | 90,557 |   | $ | (84,191,926 | ) |
| Income tax                               |       | 817,848                |            | — |   | — |   | — |   | — |   | — |   | (817,848 | ) |
| Net (loss) earnings                      | ** ** | **$**                  | **(25,336,161** | **)** | **$** | **(51,303,885** | **)** | **$** | **(5,931,361** | **)** | **$** | **(2,356,962** | **)** | **$** | **1,463,734** | ** ** | **$** | **90,557** | ** ** | **$** | **(83,374,078** | **)** |
| Identifiable  assets                     | ** ** | **$**                  | **45,520,496**  | ** ** | **$** | **181,818,354** | ** ** | **$** | **34,221,999** | ** ** | **$** | **33,781,140** | ** ** | **$** | **2,436,099** | ** ** | **$** | **70,754,282** | ** ** | **$** | **368,532,370** | ** ** |
| Interest revenues                        | ** ** | **$**                  | **104,803**     | ** ** | **$** | **457,523** | ** ** | **$** | **65,522** | ** ** | **$** | **68,719** | ** ** | **$** | **1,479** | ** ** | **$** | **—** | ** ** | **$** | **698,046** | ** ** |
| Interest expenses                        | ** ** | **$**                  | **(18,226,825** | **)** | **$** | **(44,170,647** | **)** | **$** | **(6,708,543** | **)** | **$** | **(295,704** | **)** | **$** | **(159,419** | **)** | **$** | **—** | ** ** | **$** | **(69,561,138** | **)** |
| Depreciation  expense                    | ** ** | **$**                  | **(8,499,413**  | **)** | **$** | **(37,801,565** | **)** | **$** | **(6,892,403** | **)** | **$** | **(8,015,984** | **)** | **$** | **(403,037** | **)** | **$** | **(211,542** | **)** | **$** | **(61,823,944** | **)** |
| Capital  expenditure                     | ** ** | **$**                  | **1,608,404**   | ** ** | **$** | **10,859,830** | ** ** | **$** | **9,160,876** | ** ** | **$** | **1,623,548** | ** ** | **$** | **1,285,049** | ** ** | **$** | **4,086,449** | ** ** | **$** | **28,624,156** | ** ** |

###  

### (b)                                Otheridentifiable assets include administrative/corporate assets which are notrevenue generating. Also includes construction in process and communicationequipment pending installation, which at December 31, had not been placed inservice and were not specifically associated with any business segment. Otherremaining assets do not meet any quantifiable test for determining reportablesegments.

###  

# **22**                      DiscontinuedOperations

# ** **

Duringthe last quarter of 2003, the Company began negotiating with various Panamaniangroups for the sale of its assets located in Panama,****Salvadorand Guatemala, which at December 31, 2003 had a book value of $49,228,323. Thenet sale price of these assets was $10,661,300. The sale was completed inJanuary 2004. As a result of sale, the Company recognized an impairment loss onassets held for sale amounting to $38,567,023, which is presented as part ofdiscontinued operations in the consolidated statements of operations for theyear ended December 31, 2003.

 

Asresult of the sale, in 2003 the Company reclassified its priorperiod-consolidated financial statements to reflect the operations in CentralAmerica as discontinued operations.

 

Summarizedfinancial information for Central America operations (discontinued operations)is set forth below:

 

F-53

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| ** **     | ** ** | **2003** | ** **  | **2004** | ** ** | **2005** | ** ** |
|----------------|------------|----------|-------------|----------|------------|----------|------------|
|           |       |     |        |     |       |     |       |
| Revenues       |       | $        | 6,202,277   |     | —     |     | —     |   |
|           |       |     |        |     |       |     |       |
| Operating loss |       | $        | (47,079,031 | )        | —     |     | —     |   |
|           |       |     |        |     |       |     |       |
| Net loss       |       | $        | (46,651,629 | )        | —     |     | —     |   |

 

Theeffect of discontinued operations does not have any income tax effect forpurpose of the consolidated financial statements.

 

# **23**                      NewAccounting Standards

# ** **

InJanuary 2003, the FASB issued Interpretation No. 46, *Consolidationof Variable Interest Entities (VIE), an interpretation of ARB No. 51*.This Interpretation addresses the consolidation by business enterprises ofvariable interest entities as defined in the Interpretation. The Interpretationapplies immediately to variable interests in variable interest entities createdafter January 31, 2003, and to variable interests in variable interest entitiesobtained after January 31, 2003. The application of this Interpretation is notexpected to have an effect on the Company’s consolidated financial statements. TheInterpretation requires certain disclosures in financial statements issuedafter January 31, 2003 if it is reasonably possible that the Company willconsolidate or disclose information about variable interest entities when theInterpretation becomes effective.

 

InDecember 2003, the FASB issued FASB Interpretation No. 46 (revised December2003), *Consolidation of Variable Interest Entities*,which addresses how a business enterprise should evaluate whether it has acontrolling financial interest in an entity through means other than votingrights and accordingly should consolidate the entity. FIN 46R replaces FASBInterpretation 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 variable interests in VIEs created before January 1,2004, the Interpretation will be applied beginning on January 1, 2005. For anyVIEs that must be consolidated under FIN 46R that were created before January1, 2004, the assets, liabilities and no controlling interests of the VIEinitially would be measured at their carrying amounts with any differencebetween the net amount added to the balance sheet and any previously recognizedinterest 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 thisinterpretation is not expected to have an effect on the Company’s consolidatedfinancial statements of the year 2004.

 

FASBStatement No. 150, *Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity,*wasissued in May 2003*.* This Statement establishesstandards for the classification and measurement of certain financialinstruments with characteristics of both liabilities and equity. The Statementalso includes required disclosures for financial instruments within its scope.For the Company, the Statement was effective for instruments entered into ormodified after May 31, 2003 and otherwise will be effective as of January 1,2004, except for mandatory redeemable financial instruments. For certainmandatory redeemable financial instruments, the Statement will be effective forthe Company on January 1, 2005. The effective date has been deferredindefinitely for certain other types of mandatory redeemable financialinstruments. The Company currently does not have any financial instruments thatare within the scope of this Statement.

 

InMay 2005, the FASB issued SFAS No. 154, *Accounting Changes andErrors Corrections.* This Statement replaces APB Opinion No. 20, *Accounting Changes*, and FASB Statement No.3, *Reporting Accounting Changes in InterimFinancial*

 

F-54

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*Statements*, and changes the requirements for theaccounting for and reporting of a change in accounting principle. Opinion 20previously required that most voluntary changes in accounting principle berecognized by including in net income of the period of the change thecumulative effect of changing to the new accounting principle. This Statementapplies to all voluntary changes in accounting principle. It also applies tochanges required by an accounting pronouncement in the unusual instance thatthe pronouncement does not include specific transition provisions. When apronouncement includes specific transition provisions, those provisions shouldbe followed. This Statement improves financial reporting because itsrequirement to report voluntary changes in accounting principles viaretrospective application, unless impracticable, enhances the consistency offinancial information between periods. That improved consistency enhances theusefulness of the financial information, especially by facilitating analysisand understanding of comparative accounting data. See Note 2.23 for the effectof this Statement on the Company’s consolidated     financial     statements.

 

# **24**                      FairValues of Financial Instruments

# ** **

Thefollowing table presents the carrying amount and estimated fair values of theCompany’s financial instruments at December 31, 2004 and 2005. The fair valueof a financial instrument is the amount at which the instrument could beexchanged in a current transaction between willing parties. Amounts inparentheses represent liabilities.

 
| ** **                                         | ** ** | **2004**             | ** ** | **2005**            | ** ** |
|----------------------------------------------------|------------|----------------------|------------|---------------------|------------|
| ** **                                         | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** |
|                                               |       |                 |       |                |       |   |   |   |   |
| Cash and cash  equivalents                         |       | $                    | 17,590,173 |                | $          | 17,590,173 |   | $ | 32,113,028 |   | $ | 32,113,028 |   |
| Accounts  receivable, net                          |       | 23,699,054           |       | 23,699,054          |       | 20,377,160 |   | 20,377,160 |   |
| Certificates of  deposit and other Investment      |       | 986,076              |       | 986,076             |       | 647,692 |   | 647,692 |   |
| Restricted Cash                                    |       | —               |       | —              |       | 370,378 |   | 370,378 |   |
| Borrowed funds –  banks and related parties   |       | (48,624,394          | )          | (48,624,394         | )          | (48,865,810 | ) | (48,865,810 | ) |
| Accounts payable                                   |       | (21,435,268          | )          | (21,435,268         | )          | (26,448,540 | ) | (26,448,540 | ) |
| Interest payable  to banks and related parties     |       | (90,245,976          | )          | (90,245,976         | )          | (153,626,252 | ) | (153,626,252 | ) |
| Other  liabilities and deferred revenues           |       | (8,265,581           | )          | (8,265,581          | )          | (7,710,376 | ) | (7,710,376 | ) |
| Accrued expenses                                   |       | (14,567,024          | )          | (14,567,024         | )          | (11,705,140 | ) | (11,705,140 | ) |
| Commercial paper  – banks and related parties |       | (57,119,746          | )          | (57,119,746         | )          | (54,648,922 | ) | (54,648,922 | ) |
| Capital leases                                     |       | (14,531,321          | )          | (14,531,321         | )          | (14,531,321 | ) | (14,531,321 | ) |
| Long-term debt –  banks and related parties   |       | (128,002,152         | )          | (128,002,152        | )          | (129,472,280 | ) | (129,472,280 | ) |
| Long-term debt –  senior notes                |       | (200,000,000         | )          | (110,000,000        | )          | (200,000,000 | ) | (110,000,000 | ) |
|                                                    |            |                      |            |                     |            |  |  |  |  |  |  |  |  |

 

F-55

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Thefollowing methods and assumptions were used to estimate the fair value of eachclass of financial instruments.

 

Cashon hand and in banks, investments in certificates of deposit and otherinvestment, notes payable to banks and related parties, accounts payable, otherliabilities in 2004 and 2005, the carrying amounts approximate fair valuebecause of the short maturity of these instruments. Accounts receivable areadjusted by their valuation allowance and, therefore, are presented atrealizable value that approximates fair value.

 

Thefair value of the value of the Company’s publicly traded 11-3/8% Senior Notes,shown above, are based on quoted market prices. The fair values of the Company’snon-traded debt in 2005, also shown above, was estimated by discounting thefuture cash flows of each instrument at rates offered to the Company forsimilar debt instruments by the Company’s bankers at that time.

 

AtDecember 31, 2005, the Company was engaged in discussions with its principallenders in an effort to effect a restructuring of its indebtedness. Thesediscussions and negotiations focused on, among other things, the level of debtto be issued by the Company to its creditors and rates of interest, the amountand structure of any equity-linked instrument to be issued to lenders and theextent, if any, to which any part of the new debt obligations would becollateralized.

 

Becausethe Company’s restructuring plans remain subject to significant uncertaintiesand no funding sources are available until the restructuring process isconcluded, management believes that it is not practicable at December 31, 2005to estimate reasonably the fair values of interest payable, accrued expenses(provision of terminating operating lease) of non-traded debts, includingamounts owed to banks and related parties, commercial paper, capital leases,and long-term debt to banks and relates parties. At December 31, 2005 thedetail of these amounts are as follow:

 
| **Description**                                  | ** ** | **Carrying Amount** | ** **   | **Interest Rate** | ** **     | **Maturity** | ** ** |
|--------------------------------------------------|------------|--------------------------|--------------|------------------------|----------------|--------------|------------|
|                                             |       |                     |         |                   |           |         |       |
| Interest payable                                 |       | $                        | (153,626,252 | )                      | —         |         | Demand     |   |
| Accrued expenses                                 |       | $                        | (11,705,140  | )                      | —         |         | Demand     |   |
| Commercial paper                                 |       | $                        | (54,648,922  | )                      | 8.5% - 26      | %            | Demand     |   |
| Capital leases                                   |       | $                        | (14,531,321  | )                      | 12.0% - 12.875 | %            | Demand     |   |
| Long-term debt –  banks and related parties |       | $                        | (129,472,280 | )                      | 3.8% - 40      | %            | Demand     |   |
| Long-term debt –  senior notes              |       | $                        | (200,000,000 | )                      | 11.375         | %            | Demand     |   |

# ** **

# **25**                      Impairmentof Long-Lived Assets

# ** **

During the year ended December 31, 2003, the Companyrecorded asset impairment charge of $191,284,301 in the consolidated statementsof operations. Included in the impairment charge was $165,087,637 for tangibleassets and $26,196,664 for intangible assets (including goodwill). Refer to Note9 for details of the intangible assets impairment charges.

 

F-56

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The impairment charges for tangible assets in 2003 areattributable to cellular assets (mobile segment) for $151,369,075 and data andInternet (segment) for $13,718,292, based on the deterioration of thetelecommunications business in the Dominican Republic, which has been affectedby a 84% devaluation of the Dominican peso with respect to the United Statesdollar (USD) in 2003. The USD is the functional currency of the Company. Alsothe Company has been impacted by increased competition for mobiletelecommunication services and, in the case of data and Internet assets theDominican Government cancelled a contract for Internet services to the publicschools, which impacted the revenues generated for the related assets. TheCompany assessed the recoverability of certain long-lived assets in conformitywith Statement of Financial Accounting Standard No. 144. The Company wasrequired 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 year ended December31, 2003.

 

The Company’s management reviews the estimated usefullives of its fixed assets. This review during 2003 indicated those actual livesfor certain asset categories generally were longer than the useful lives usedfor depreciation purposes in the Company’s financial statements. As a result,the Company revised the estimated useful lives of certain categories ofproperty, principally building, improvements communication, office, production,transmission equipments, hardware and other. The effect of this change during2004 increased accumulated depreciation by $17.4 million approximately.

 

The change in estimates of the useful lives of fixedassets was based on comparison of the Company’s useful lives with othercompanies’ useful lives of certain machinery and equipment. The Company madethese changes to better reflect the estimated periods during which such assetswill remain in service.

 

# **26**                      De-listingof American Depositary Shares and Termination of Deposit Facility

# ** **

On May 11, 2004, the New YorkStock Exchange, Inc. (“NYSE”) determined to suspend trading and pursuedelisting of our ADSs, ticker symbol “TDR”. On May 19, 2004, our ADSs, begantrading on the OTC (over-the-counter) Bulletin Board (“OTCBB”), under thesymbol “TRICY.OB”. On July 25, 2004, the OTCBB suspended trading of our ADSs. Thereafter,our ADSs were traded on the “Pink Sheets” service under the symbol “TRICY.PK”.

 

# **27**                      SubsequentEvents

# ** **

OnDecember 2005, the Congress of the Dominican Republic modified some articles oftax Law in connection with the entrance of the Free Trade Agreement with theUnited States and Central America (DR-CAFTA). This reform took place at January1st, 2006.

 

Thearticles mainly affected by the Reform, were numbers II, III and IV related tothe Income Tax (ISR). The corporative income tax rate increased from 25%to 30%, to be applied in 2006 at 30%, 2007 at 29%, 2008 at 27% and 2009 at 25%.

 

ValueAddvaloren Tax (ITBIS): The base of the tax was extended, including newproducts and services.

 

Selectivetax to the Consumption (ISC): The tax rate increased from 26% to 32.5%. Thenew tax rate for internal consumptions is 13%.

 

Equally,the article V was added to institute an annual tax rate to the assets,equivalent 1% of the total assets of entities, as well as modification to thetax rate to real estate property, to banking transactions and taxes to fossilfuels.

 

F-57

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Anotherimportant aspect of the Reform was the modification of article 287 (Loss CarryForward). According to this article, the companies will be able to compensatetheir Loss Carry Forward with future taxable income, in a term of 5 years, baseon 20% of the losses during the first three years and 80% and 70% of taxableincome in forth and fifth years respectively.

 

F-58

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