UNITED STATES
 SECURITIES AND EXCHANGE
COMMISSION
 Washington, D.C.
20549
  FORM
10-Q/A
 AMENDMENT
NO.1 TO FORM 10-Q
 x           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the quarterly period ended June
30, 2007
 
  ̈           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the
transition period from __________ to __________
 
 Commission
File Number: 0-24796
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 (Exact
name of registrant as specified in its charter)
 
 BERMUDA
              98-0438382(State
      or other jurisdiction of incorporation and organization)
              (IRS
      Employer Identification No.)Clarendon House, Church Street,
      Hamilton
              HM 11
      Bermuda(Address
      of principal executive offices)
              (Zip
      Code)
 
 Registrant's
telephone number, including area code: 441-296-1431
 
 Indicate
by check mark whether registrant: (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for each shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x    No
 ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
 
 Large
      accelerated filer  x
              
              Accelerated
      filer   ̈
              
              Non-accelerated
      filer   ̈
 
 Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act)  Yes  ̈    No
x
 
 Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
 
 Class
              Outstanding as of July
      30, 2007Class
      A Common Stock, par value $0.08
              34,639,921Class
      B Common Stock, par value $0.08
              6,312,839




THIS PAGE
INTENTIONALLY LEFT BLANK











EXPLANATORY
NOTE
 
 This
is Amendment No. 1 to the Form 10-Q for the period ended June 30, 2007 of
Central European Media Enterprises Ltd., as originally filed on August 2,
2007.
 
 We are
filing this Amendment No. 1 to correct the classification of certain provisions
for legal contingencies, which had previously been reported as non-operating
expenses within our condensed Consolidated Statement of Operations and are now
being reported as operating expenses.
 
 This
modification resulted in changes in Item 1. Financial Statements, where the
condensed consolidated statements of operations for the six months ended June
30, 2007 has been amended, and in Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations, where the analysis of
Corporate Operating Costs, Operating Income and Other Expense for the six months
ended June 30, 2007 has been amended.
 
 We
have not otherwise updated this Quarterly Report on Form 10-Q/A to modify
disclosures in the Quarterly Report on Form 10-Q for the period ended June 30,
2007 for events occurring subsequent to the original August 2, 2007 filing date;
and except for the modifications referred to in the preceding paragraph, it
continues to speak as of August 2, 2007.




CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.


FORM
10-Q/A


AMENDMENT
NO.1 TO FORM 10-Q





For the quarterly period ended June
30, 2007





INDEX




PagePart I. Financial
      informationItem 1.
      Financial StatementsCondensed consolidated Balance Sheets as at June 30, 2007
      and December 31, 2006,
                2Condensed consolidated Statements of Operations for the Three
      and Six Months Ended June 30, 2007, as
      restated,and 2006
                4Condensed consolidated Statements of Shareholders' Equity
      for the Six Months Ended June 30, 2007 and 2006
                6Condensed consolidated Statements of Cash Flows for the Six
      Months Ended June 30, 2007 and 2006
                7Notes to the condensed consolidated Financial
      Statements
                8Item 2.
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations
                41Part II. Other
      InformationItem 6.
      Exhibits
                83Signatures
                84Exhibit
      Index
                85




Page 1
 Index




PartI.  Financial Information





Item 1.  Financial
Statements





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


CONDENSED CONSOLIDATED BALANCE
SHEETS


(US$ 000’s)


(Unaudited)





June 30,
              2007
            
            
            December
31,
              2006ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            116,662
            
            
            $
            145,904Restricted
      cash (Note 6)
            
            
            1,174
            
            
            
            4,954Accounts
      receivable (net of allowance) (Note 7)
            
            
            180,059
            
            
            
            152,505Income
      taxes receivable
            
            
            4,766
            
            
            
            3,053Program
      rights, net
            
            
            62,182
            
            
            
            59,645Other
      current assets (Note 8)
            
            
            61,755
            
            
            
            47,555Total current
      assets
            
            
            426,598
            
            
            
            413,616Non-current
      assetsInvestments
            
            
            16,563
            
            
            
            19,214Property,
      plant and equipment, net (Note 9)
            
            
            130,181
            
            
            
            115,805Program
      rights, net
            
            
            85,715
            
            
            
            76,638Goodwill
      (Note 4)
            
            
            922,739
            
            
            
            905,580Broadcast
      licenses, net (Note 4)
            
            
            210,881
            
            
            
            198,730Other
      intangible assets, net (Note 4)
            
            
            88,464
            
            
            
            71,942Other
      non-current assets (Note 8)
            
            
            19,151
            
            
            
            17,475Total non-current
      assets
            
            
            1,473,694
            
            
            
            1,405,384Total
    assets
            
            $
            1,900,292
            
            
            $
            1,819,000




The accompanying notes are an
integral part of these condensed consolidated financial
statements.





Page 2
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)


(US$ 000’s)


(Unaudited)





June 30,
              2007
            
            
            December
31,
              2006LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities (Note 10)
            
            $
            141,640
            
            
            $
            119,717Duties
      and other taxes payable
            
            
            35,845
            
            
            
            31,707Income
      taxes payable
            
            
            13,483
            
            
            
            12,434Credit
      facilities and obligations under capital leases (Note 11)
            
            
            12,433
            
            
            
            13,057Dividends
      payable to minority shareholders in subsidiaries
            
            
            5,513
            
            
            
            -Deferred
      consideration – Croatia
            
            
            -
            
            
            
            4,010Deferred
      consideration – Ukraine
            
            
            1,060
            
            
            
            200Deferred
      tax
            
            
            4,263
            
            
            
            1,836Total current
      liabilities
            
            
            214,237
            
            
            
            182,961Non-current
      liabilitiesCredit
      facilities and obligations under capital leases (Note 11)
            
            
            5,802
            
            
            
            6,359Senior
      Notes (Note 5)
            
            
            533,424
            
            
            
            487,291Income
      taxes payable
            
            
            5,072
            
            
            
            3,000Deferred
      tax
            
            
            63,292
            
            
            
            58,092Other
      non-current liabilities
            
            
            3,885
            
            
            
            19,342Total non-current
      liabilities
            
            
            611,475
            
            
            
            574,084Commitments
      and contingencies (Note 18)Minority interests in
      consolidated subsidiaries
            
            
            21,556
            
            
            
            26,189SHAREHOLDERS'
      EQUITY:Nil
      shares of Preferred Stock of $0.08 each (December 31, 2006 –
      nil)
            
            
            -
            
            
            
            -34,639,921
      shares of Class A Common Stock of $0.08 each (December 31, 2006 –
      34,412,138)
            
            
            2,771
            
            
            
            2,7536,312,839
      shares of Class B Common Stock of $0.08 each (December 31, 2006 –
      6,312,839)
            
            
            505
            
            
            
            505Additional
      paid-in capital
            
            
            936,730
            
            
            
            931,108Accumulated
      deficit
            
            
            (609
            )
            
            
            (31,730
            )Accumulated
      other comprehensive income / (loss)
            
            
            113,627
            
            
            
            133,130Total shareholders’
      equity
            
            
            1,053,024
            
            
            
            1,035,766Total liabilities and
      shareholders’ equity
            
            $
            1,900,292
            
            
            $
            1,819,000




The accompanying notes are an
integral part of these condensed consolidated financial
statements.





Page 3
 Index





CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME


(US$ 000’s, except share and per
share data)


(Unaudited)





For the Three Months
      Ended
              June 30,
            
            
            For the Six Months
      Ended
              June 30,2007
            
            
            2006
            
            
            2007
              (as
      restated,
              see Note
      2)
            
            
            2006Net
    revenues
            
            $
            216,284
            
            
            $
            156,589
            
            
            $
            364,196
            
            
            $
            276,343Operating
      costs
            
            
            30,944
            
            
            
            26,042
            
            
            
            56,601
            
            
            
            49,014Cost
      of programming
            
            
            82,773
            
            
            
            52,850
            
            
            
            149,126
            
            
            
            101,268Depreciation
      of station property, plant and equipment
            
            
            7,680
            
            
            
            6,059
            
            
            
            14,579
            
            
            
            11,761Amortization
      of broadcast licenses and other intangibles (Note 4)
            
            
            5,165
            
            
            
            4,620
            
            
            
            10,327
            
            
            
            8,952Cost of
      revenues
            
            
            126,562
            
            
            
            89,571
            
            
            
            230,633
            
            
            
            170,995Station
      selling, general and administrative expenses
            
            
            15,699
            
            
            
            14,541
            
            
            
            31,480
            
            
            
            28,707Corporate
      operating costs
            
            
            7,444
            
            
            
            7,696
            
            
            
            22,217
            
            
            
            15,677Impairment
      charge
            
            
            -
            
            
            
            748
            
            
            
            -
            
            
            
            748Operating
      income
            
            
            66,579
            
            
            
            44,033
            
            
            
            79,866
            
            
            
            60,216Interest
      income
            
            
            1,732
            
            
            
            1,741
            
            
            
            3,146
            
            
            
            3,194Interest
      expense
            
            
            (19,438
            )
            
            
            (11,337
            )
            
            
            (30,834
            )
            
            
            (21,855
            )Foreign
      currency exchange loss, net
            
            
            (2,116
            )
            
            
            (20,625
            )
            
            
            (5,252
            )
            
            
            (31,487
            )Change
      in fair value of derivatives (Note 12)
            
            
            7,528
            
            
            
            (1,876
            )
            
            
            12,052
            
            
            
            (1,876
            )Other
      (expense) / income
            
            
            (546
            )
            
            
            167
            
            
            
            (790
            )
            
            
            (381
            )Income before provision for
      income taxes, minority interest, equity in loss of unconsolidated
      affiliates and discontinued operations
            
            
            53,739
            
            
            
            12,103
            
            
            
            58,188
            
            
            
            7,811Provision
      for income taxes
            
            
            (13,419
            )
            
            
            (3,582
            )
            
            
            (18,478
            )
            
            
            (7,576
            )Income before minority
      interest, equity in loss of unconsolidated affiliates and discontinued
      operations
            
            
            40,320
            
            
            
            8,521
            
            
            
            39,710
            
            
            
            235Minority
      interest in income of consolidated subsidiaries
            
            
            (5,730
            )
            
            
            (1,276
            )
            
            
            (5,370
            )
            
            
            (6,717
            )Equity
      in loss of unconsolidated affiliates
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (730
            )Net income / (loss) from
      continuing operations
            
            
            34,590
            
            
            
            7,245
            
            
            
            34,340
            
            
            
            (7,212
            )Discontinued operations (Note
      17):Tax
      on disposal of discontinued operations (Czech Republic)
            
            
            -
            
            
            
            1,277
            
            
            
            -
            
            
            
            (2,530
            )Net income / (loss) from
      discontinued operations
            
            
            -
            
            
            
            1,277
            
            
            
            -
            
            
            
            (2,530
            )Net income /
      (loss)
            
            $
            34,590
            
            
            $
            8,522
            
            
            $
            34,340
            
            
            $
            (9,742
            )Currency
      translation adjustment, net
            
            
            (13,868
            )
            
            
            44,706
            
            
            
            (19,503
            )
            
            
            77,165Total comprehensive
      income
            
            $
            20,722
            
            
            $
            53,228
            
            
            $
            14,837
            
            
            $
            67,423





The accompanying notes are an
integral part of these condensed consolidated financial
statements.





Page 4
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (continued)


(US$ 000’s, except share and per
share data)


(Unaudited)





For the Three Months
      Ended
              June 30,
            
            
            For the Six Months
      Ended
              June 30,2007
            
            
            2006
            
            
            2007
            
            
            2006PER SHARE DATA (Note
      15):Net income / (loss) per
      share:Continuing
      operations – Basic
            
            $
            0.84
            
            
            $
            0.18
            
            
            $
            0.84
            
            
            $
            (0.18
            )Continuing
      operations – Diluted
            
            
            0.83
            
            
            
            0.18
            
            
            
            0.83
            
            
            
            (0.18
            )Discontinued
      operations – Basic
            
            
            0.00
            
            
            
            0.03
            
            
            
            0.00
            
            
            
            (0.07
            )Discontinued
      operations – Diluted
            
            
            0.00
            
            
            
            0.03
            
            
            
            0.00
            
            
            
            (0.07
            )Net
      income / (loss) – Basic
            
            
            0.84
            
            
            
            0.21
            
            
            
            0.84
            
            
            
            (0.25
            )Net
      income / (loss) – Diluted
            
            $
            0.83
            
            
            $
            0.21
            
            
            $
            0.83
            
            
            $
            (0.25
            )Weighted average common shares
      used in computing per share amounts (000’s):Basic
            
            
            40,941
            
            
            
            40,597
            
            
            
            40,867
            
            
            
            39,355Diluted
            
            
            41,407
            
            
            
            41,186
            
            
            
            41,390
            
            
            
            39,355




The accompanying notes are an
integral part of these condensed consolidated financial
statements.





Page 5
 Index





CENTRAL EUROPEAN
MEDIA ENTERPRISES LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY


(US$ 000’s)


(Unaudited)




Class A Common
      Stock
              
              
              Class B Common
      StockNumber of
      shares
              
              
              Par
value
              
              
              Number of
      shares
              
              
              Par
value
              
              
              Additional Paid-In
      Capital
              
              
              Accumulated
      Deficit
              
              
              Accumulated Other Comprehensive
      Income / (Loss)
              
              
              Total Shareholders'
      EquityBALANCE,
                December 31, 2006
              
              
              34,412,138
              
              
              $
              2,753
              
              
              
              6,312,839
              
              
              $
              505
              
              
              $
              931,108
              
              
              $
              (31,730
              )
              
              $
              133,130
              
              
              $
              1,035,766Impact
      of adoption of FIN 48
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,219
              )
              
              
              -
              
              
              
              (3,219
              )BALANCE,
      upon the
                adoption
      of FIN 48
              
              
              34,412,138
              
              
              $
              2,753
              
              
              
              6,312,839
              
              
              $
              505
              
              
              $
              931,108
              
              
              $
              (34,949
              )
              
              $
              133,130
              
              
              $
              1,032,547Stock-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,910
              
              
              
              -
              
              
              
              -
              
              
              
              2,910Stock
      options exercised
              
              
              227,783
              
              
              
              18
              
              
              
              -
              
              
              
              -
              
              
              
              2,712
              
              
              
              -
              
              
              
              -
              
              
              
              2,730Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              34,340
              
              
              
              -
              
              
              
              34,340Currency
      translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (19,503
              )
              
              
              (19,503
              )BALANCE,
                June 30, 2007
              
              
              34,639,921
              
              
              $
              2,771
              
              
              
              6,312,839
              
              
              $
              505
              
              
              $
              936,730
              
              
              $
              (609
              )
              
              $
              113,627
              
              
              $
              1,053,024





Class A Common
      Stock
            
            
            Class B Common
      StockNumber of
      Shares
            
            
            Par
Value
            
            
            Number of
      Shares
            
            
            Par
Value
            
            
            Additional Paid-In
      Capital
            
            
            Accumulated
      Deficit
            
            
            Accumulated Other Comprehensive
      Income / (Loss)
            
            
            Total Shareholders'
      EquityBALANCE,
              December 31, 2005
            
            
            31,032,994
            
            
            $
            2,482
            
            
            
            6,966,533
            
            
            $
            558
            
            
            $
            754,061
            
            
            $
            (52,154
            )
            
            $
            (24,394
            )
            
            $
            680,553Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,418
            
            
            
            -
            
            
            
            -
            
            
            
            1,418Stock
      options exercised
            
            
            77,250
            
            
            
            7
            
            
            
            -
            
            
            
            -
            
            
            
            1,060
            
            
            
            -
            
            
            
            -
            
            
            
            1,067Shares
      issued, net of fees
            
            
            2,530,000
            
            
            
            202
            
            
            
            -
            
            
            
            -
            
            
            
            168,397
            
            
            
            -
            
            
            
            -
            
            
            
            168,599Conversion
      of Class B to Class A Common Shares
            
            
            753,694
            
            
            
            61
            
            
            
            (753,694
            )
            
            
            (61
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (9,742
            )
            
            
            -
            
            
            
            (9,742
            )Currency
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            77,165
            
            
            
            77,165BALANCE,
              June 30, 2006
              as restated (seeNote 2)
            
            
            34,393,938
            
            
            $
            2,752
            
            
            
            6,212,839
            
            
            $
            497
            
            
            $
            924,936
            
            
            $
            (61,896
            )
            
            $
            52,771
            
            
            $
            919,060




The accompanying notes are an
integral part of these condensed consolidated financial
statements.





Page 6
 Index





CENTRAL EUROPEAN
MEDIA ENTERPRISES LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS


(US$ 000’s)


(Unaudited)





For the Six Months Ended June
      30,2007
            
            
            2006CASH FLOWS FROM OPERATING
      ACTIVITIES:Net
      income/(loss)
            
            $
            34,340
            
            
            $
            (9,742
            )Adjustments
      to reconcile net income / (loss) to net cash generated from operating
      activities:Loss
      from discontinued operations (Note 17)
            
            
            -
            
            
            
            2,530Equity
      in loss of unconsolidated affiliates, net of dividends
      received
            
            
            -
            
            
            
            730Depreciation
      and amortization
            
            
            110,945
            
            
            
            74,429Impairment
      charge
            
            
            -
            
            
            
            748Loss
      on disposal of fixed asset
            
            
            -
            
            
            
            1,171Stock-based
      compensation (Note 14)
            
            
            2,605
            
            
            
            1,418Minority
      interest in income of consolidated subsidiaries
            
            
            5,370
            
            
            
            6,717Change
      in fair value of derivative instruments
            
            
            (12,052
            )
            
            
            1,876Foreign
      currency exchange loss, net
            
            
            5,252
            
            
            
            31,487Net
      change in (net of effects of acquisitions and disposals of
      businesses):Accounts
      receivable
            
            
            (25,572
            )
            
            
            (7,970
            )Program
      rights
            
            
            (100,593
            )
            
            
            (69,836
            )Other
      assets
            
            
            (8,018
            )
            
            
            1,963Accounts
      payable and accrued liabilities
            
            
            5,723
            
            
            
            (7,893
            )Income
      taxes payable
            
            
            (274
            )
            
            
            (6,922
            )Deferred
      taxes
            
            
            (458
            )
            
            
            5,352VAT
      and other taxes payable
            
            
            4,333
            
            
            
            11,217Net cash generated from
      continuing operating activities
            
            
            21,601
            
            
            
            37,275CASH FLOWS FROM INVESTING
      ACTIVITIES:Net
      change in restricted cash
            
            
            -
            
            
            
            (4,068
            )Purchase
      of property, plant and equipment
            
            
            (25,469
            )
            
            
            (18,461
            )Proceeds
      from disposal of property, plant and equipment
            
            
            123
            
            
            
            19Investments
      in subsidiaries and unconsolidated affiliates
            
            
            (63,017
            )
            
            
            (59,308
            )Repayment
      of loans and advances to related parties
            
            
            250
            
            
            
            250Net cash used in continuing
      investing activities
            
            
            (88,113
            )
            
            
            (81,568
            )CASH FLOWS FROM FINANCING
      ACTIVITIES:Proceeds
      from credit facilities
            
            
            135,465
            
            
            
            34,765Payment
      of credit facilities and capital leases
            
            
            (137,289
            )
            
            
            (65,519
            )Net
      proceeds from issuance of Senior Notes
            
            
            199,400
            
            
            
            -Redemption
      of Senior Notes
            
            
            (169,010
            )
            
            
            -Proceeds
      from issuance of stock options
            
            
            2,730
            
            
            
            1,067Issuance
      of shares of Class A Common Stock
            
            
            -
            
            
            
            168,599Excess
      tax benefits from share based payment arrangements
            
            
            305
            
            
            
            -Dividends
      paid to minority shareholders
            
            
            (476
            )
            
            
            (679
            )Net cash received from
      continuing financing activities
            
            
            31,125
            
            
            
            138,233NET
      CASH USED IN DISCONTINUED OPERATIONS – OPERATING
ACTIVITIES
            
            
            (1,624
            )
            
            
            (1,690
            )Impact of exchange rate
      fluctuations on cash
            
            
            7,769
            
            
            
            (4,910
            )Net
      (decrease)/increase in cash and cash equivalents
            
            
            (29,242
            )
            
            
            87,340CASH AND CASH EQUIVALENTS,
      beginning of period
            
            
            145,904
            
            
            
            71,658CASH AND CASH EQUIVALENTS, end
      of period
            
            $
            116,662
            
            
            $
            158,998




The accompanying notes are an
integral part of these condensed consolidated financial
statements.





Page 7
 Index





CENTRAL EUROPEAN
MEDIA ENTERPRISES LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)








1.  ORGANIZATION AND
BUSINESS





Central
European Media Enterprises Ltd., a Bermuda corporation, was formed in June
1994.  Our assets are held through a series of Dutch and Netherlands
Antilles holding companies.  We invest in, develop and operate
national and regional commercial television stations and channels in Central and
Eastern Europe.  At June 30, 2007, we had operations in Croatia, the
Czech Republic, Romania, the Slovak Republic, Slovenia and Ukraine.





Our
principal subsidiaries, equity-accounted affiliates and cost investments as at
June 30, 2007 were:





Company
    Name
            Effective
              Voting
              Interest
            Jurisdiction
      of
              Organization
            Type of Affiliate
      (1)Nova
      TV d.d. (“Nova TV (Croatia)”)
            100.0%
            Croatia
            SubsidiaryMedia
      House d.o.o.
            100.0%
            Croatia
            SubsidiaryInternet
      Dnevnik d.o.o.
            76.0%
            Croatia
            SubsidiaryCME
      Media Investments, s.r.o.
            100.0%
            Czech
      Republic
            SubsidiaryVILJA,
      a.s. (“Vilja”)
            100.0%
            Czech
      Republic
            SubsidiaryCET
      21 spol., s r.o. (“CET 21”)
            100.0%
            Czech
      Republic
            SubsidiaryERIKA
      a.s.
            100.0%
            Czech
      Republic
            SubsidiaryMEDIA
      CAPITOL a.s.
            100.0%
            Czech
      Republic
            SubsidiaryNOVA-V.I.P.
      a.s.
            100.0%
            Czech
      Republic
            Subsidiary
      (in liquidation)HARTIC,
      a.s.
            100.0%
            Czech
      Republic
            SubsidiaryGalaxie
      sport s r.o. (“Galaxie Sport”)
            100.0%
            Czech
      Republic
            SubsidiaryMedia
      Pro International S.A.  (“MPI”)
            95.0%
            Romania
            SubsidiaryMedia
      Vision SRL (“Media Vision”)
            95.0%
            Romania
            SubsidiaryMPI
      Romania B.V.
            95.0%
            Netherlands
            SubsidiaryPro
      TV S.A. (“Pro TV”)
            95.0%
            Romania
            SubsidiarySport
      Radio TV Media SRL (“Sport.ro”)
            95.0%
            Romania
            SubsidiaryMedia
      Pro B.V.
            10.0%
            Netherlands
            Cost
      investmentMedia
      Pro Management S.A.
            10.0%
            Romania
            Cost
      investmentA.R.J.
      a.s. (“ARJ”)
            100.0%
            Slovak
      Republic
            SubsidiaryMARKIZA-SLOVAKIA
      spol. s r.o. (“Markiza”)
            80.0%
            Slovak
      Republic
            SubsidiaryGAMATEX
      spol. s r.o.
            80.0%
            Slovak
      Republic
            Subsidiary
      (in liquidation)A.D.A.M.,
      a.s.
            80.0%
            Slovak
      Republic
            Subsidiary
      (in liquidation)MMTV
      1 d.o.o.
            100.0%
            Slovenia
            SubsidiaryProdukcija
      Plus d.o.o. (“Pro Plus”)
            100.0%
            Slovenia
            SubsidiaryPOP
      TV d.o.o. (“Pop TV”)
            100.0%
            Slovenia
            SubsidiaryKanal
      A d.o.o. (“Kanal A”)
            100.0%
            Slovenia
            SubsidiaryEuro
      3 TV d.o.o
            42.0%
            Slovenia
            Equity-Accounted
      AffiliateMTC
      Holding d.o.o.
            24.0%
            Slovenia
            Equity-Accounted
      Affiliate (in liquidation)





Page 8
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)








Company
    Name
            Effective Voting
      Interest
            Jurisdiction of
      Organization
            Type of Affiliate
      (1)International
      Media Services Ltd. (“IMS”)
            60.0%
            Bermuda
            SubsidiaryInnova
      Film GmbH (“Innova”)
            60.0%
            Germany
            SubsidiaryForeign
      Enterprise “Inter-Media”  (“Inter-Media”)
            60.0%
            Ukraine
            SubsidiaryTV
      Media Planet Ltd.
            60.0%
            Cyprus
            SubsidiaryStudio
      1+1 LLC (“Studio 1+1”)
            18.0%
            Ukraine
            Consolidated
      Variable Interest EntityUkrainian
      Media Services LLC
            99.0%
            Ukraine
            SubsidiaryUkrpromtorg
      -2003 LLC (“Ukrpromtorg”)
            65.5%
            Ukraine
            SubsidiaryGravis
      LLC
            60.4%
            Ukraine
            SubsidiaryDelta
      JSC
            60.4%
            Ukraine
            SubsidiaryNart
      LLC
            65.5%
            Ukraine
            SubsidiaryTV
      Stimul LLC
            49.1%
            Ukraine
            Equity-Accounted
      AffiliateTor
      LLC (“Tor”)
            60.4%
            Ukraine
            SubsidiaryZhysa
      LLC (“Zhysa”)
            60.4%
            Ukraine
            SubsidiaryCME
      Media Enterprises B.V.
            100.0%
            Netherlands
            SubsidiaryCME
      Czech Republic II B.V.
            100.0%
            Netherlands
            SubsidiaryCME
      Romania B.V.
            100.0%
            Netherlands
            SubsidiaryCME
      Slovak Holdings B.V.
            100.0%
            Netherlands
            SubsidiaryCentral
      European Media Enterprises N.V.
            100.0%
            Netherlands
      Antilles
            SubsidiaryCentral
      European Media Enterprises II B.V.
            100.0%
            Netherlands
      Antilles
            SubsidiaryCME
      SR d.o.o.
            100.0%
            Serbia
            Subsidiary
      (in liquidation)CME
      Ukraine Holding GmbH
            100.0%
            Austria
            SubsidiaryCME
      Cyprus Holding Ltd.
            100.0%
            Cyprus
            SubsidiaryCME
      Development Corporation
            100.0%
            Delaware
            Subsidiary




(1)
            all
      subsidiaries have been consolidated in our Consolidated Financial
      Statements. All equity-accounted affiliates have been accounted for using
      the equity method. All cost investments have been accounted for using the
      cost method.





Page 9
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)










Page 10
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)





Croatia





We own
100.0% of Nova TV (Croatia), which holds a national terrestrial broadcast
license for Croatia that expires in April 2010.





Czech Republic





We own
100.0% of CET 21, which holds the national terrestrial broadcast license for TV
NOVA (Czech Republic) that expires in 2017.





Romania





On May
16, 2007, we acquired an additional 20.0% of Media Vision (a production, dubbing
and subtitling company) and subsequently on June 1, 2007, we acquired an
additional 5.0% of Pro TV and MPI from companies owned by, or individuals
associated with, Adrian Sarbu, the general director of our Romanian operations
and our Regional Director of Central and Eastern Europe operations, for
aggregate consideration of US$ 51.6 million including acquisition costs.
Following these transactions, we have a 95.0% interest in each of Pro TV, MPI
and Media Vision.  Pro TV holds the licenses for the PRO TV, ACASA,
PRO TV INTERNATIONAL, PRO CINEMA and SPORT.RO channels. These licenses expire on
various dates between August 2007 and February 2016.


As at
June 30, 2007 we held 10.0% in each of Media Pro BV and Media Pro Management
S.A., the parent companies of the Media Pro group of companies (“Media Pro”).
Subsequent to June 30, 2007 our holding now represents 8.7% in these entities
due to a capital increase in which we did not participate. Substantially all of
the remaining shares of Media Pro are owned directly or indirectly by Adrian
Sarbu. Media Pro comprises a number of companies with operations in the fields
of publishing, information, printing, cinema, entertainment and radio in
Romania.





Slovak Republic





As at
June 30, 2007 we owned 80.0% of Markiza, which holds a national terrestrial
broadcast license for the Slovak Republic that expires in September 2019. On
July 13, 2007, we acquired the remaining 20.0% of Markiza for SKK 1.9 billion
(approximately US$ 78.8 million at the date of acquisition). As a result, we own
100.0% of Markiza.





Slovenia





We own
100.0% of Pro Plus, the operating company for our Slovenia
operations.  Pro Plus has a 100.0% voting and economic interest in
each of Pop TV, which holds the licenses for the POP TV network, and Kanal A,
which holds the licenses for the KANAL A network.  All such licenses
expire in August 2012.





Ukraine (Studio
1+1)





The
Studio 1+1 Group is comprised of several entities in which we hold direct or
indirect interests.  We hold a 60.0% ownership and economic interest
in each of Innova, IMS and TV Media Planet.  Innova owns 100% of
Inter-Media, a Ukrainian company, which in turn holds a 30.0% voting and
economic interest in Studio 1+1, holder of the licenses for the STUDIO 1+1
channel.  The license which covers fifteen hours including prime time
expires in December 2016.  The second license for the remaining nine
hours expires in 2014.





Our
indirect ownership interest in Studio 1+1 is only 18.0%.  We entered
into an additional agreement on December 30, 2004 with Boris Fuchsmann,
Alexander Rodnyansky and Studio 1+1 which re-affirms our entitlement to 60.0% of
any distribution from Studio 1+1 to its shareholders until such time as
Ukrainian legislation allows us to increase our ownership interest in Studio 1+1
to 60.0%.  Following amendments to the Ukrainian Media Law in March
2006 that permit majority indirect foreign ownership, our partners entered into
agreements with us to restructure the ownership of Studio 1+1 in order to permit
CME to hold a 60.0% interest in Studio 1+1 (see Note 18).




Page 11
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)




Ukraine (KINO,
CITI)





We hold a
65.5% interest in Ukrpromtorg. Ukrpromtorg owns (i) 92.2% of Gravis, which
operates the local channels KINO and CITI; (ii) 100.0% of Nart LLC, which holds
a satellite broadcasting license; and (iii) 75.0% of TV Stimul LLC, which
operates TV STIMUL.  We also own a 60.4% interest in each of Zhysa and
Tor, two regional broadcasters. Licenses used for the KINO and CITI channels
expire on dates ranging from June 2008 to July 2016.








2.  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES





Basis of
Presentation





The
interim financial statements for the three and six months ended June 30, 2007
should be read in conjunction with the Notes to the Consolidated Financial
Statements contained in our Annual Report on Form 10-K for the period ended
December 31, 2006.  Our significant accounting policies have not
changed since December 31, 2006, except as noted below.





In the
opinion of management, the accompanying interim unaudited financial statements
reflect all adjustments, consisting only of normal recurring items, necessary
for their fair presentation in conformity with accounting principles generally
accepted in the United States of America (“US GAAP”).  The
consolidated results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.





The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting year.  Actual results could differ from
those estimates and assumptions.





The
condensed consolidated financial statements include the accounts of Central
European Media Enterprises Ltd. and our subsidiaries, after the elimination of
intercompany accounts and transactions.  We consolidate the financial
statements of entities in which we hold at least a majority voting interest and
also those entities which are deemed to be a Variable Interest Entity of which
we are the primary beneficiary as defined by FASB Interpretation No. 46 (revised
December 2003), “Consolidation of Variable Interest Entities” ("FIN
46(R)").  Entities in which we hold less than a majority voting
interest but over which we have the ability to exercise significant influence
are accounted for using the equity method.  Other investments are
accounted for using the cost method.





We, like
other television operators, experience seasonality, with advertising sales
tending to be lower during the first and third quarters of each calendar year,
particularly during the summer holiday period (typically July and August) and
higher during the second and fourth quarters of each calendar year, particularly
toward the end of the year.





The terms
“Company”, “we”, “us”, and “our” are used in this Form 10-Q/A to refer
collectively to the parent company and the subsidiaries through which our
various businesses are actually conducted.





Unless
otherwise noted, all statistical and financial information presented in this
report has been converted into US dollars using appropriate exchange
rates.  All references to “US$” or “dollars” are to US dollars, all
references to “HRK” are to Croatian kuna, all references to “CZK” are to Czech
korunas, all references to “RON” are to the New Romanian lei, all references to
“SKK” are to Slovak korunas, all references to “UAH” are to Ukrainian hryvna,
all references to “Euro” or “EUR” are to the European Union Euro and all
references to “GBP” are to British pounds.




Page 12
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)





Income Taxes





We
account for income taxes under the asset and liability method as set out in FAS
No. 109, “Accounting for Income Taxes” (“FAS 109”).  Deferred tax
assets and liabilities are recognized for the expected tax consequences of
temporary differences between the tax bases of assets and liabilities and their
reported amounts.  Valuation allowances are established when necessary
to reduce deferred tax assets to amounts which are more likely than not to be
realized.





On
January 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN
48”), which clarifies the accounting for uncertainty in tax
positions.  The evaluation of a tax position under FIN 48 is a
two-step process.  The first step is recognition: Tax positions taken
or expected to be taken in a tax return should be recognized only if those
positions are more likely than not to be sustained upon examination, based on
the technical merits of the position.  In evaluating whether a tax
position has met the more likely than not recognition threshold, it should be
presumed that the position will be examined by the relevant taxing authority and
that they would have full knowledge of all relevant information.  The
second step is measurement: Tax positions that meet the recognition criteria are
measured at the largest amount of benefit that is greater than 50 percent likely
of being recognized upon ultimate settlement.





As a
result of the implementation of FIN 48, we recognized a liability of
approximately US$ 2.0 million for unrecognized tax benefits, of which US $1.7
million was accounted for as a reduction to retained deficit as at January 1,
2007. The total amount of unrecognized benefits that, if recognized, would
affect the effective tax rate amounts to US$ 2.0 million, all of which would
reduce the effective tax rate accordingly.





We
recognize interest accrued and penalties related to unrecognized tax benefits
within the provision for income taxes. As at January 1, 2007, we accrued US $1.8
million in respect of interest and penalties, of which US$1.5 million was
accounted for as a reduction to retained deficit.





Our
subsidiaries file income tax returns in the Netherlands and various other tax
jurisdictions including the United States. As at January 1, 2007, analyzed by
major tax jurisdictions, the Company’s subsidiaries are no longer subject to
income tax examinations for years before:





Jurisdiction
            YearCroatia
            2003Czech
      Republic
            2003Germany
            2000Netherlands
            2004Romania
            2002Slovak
      Republic
            2001Slovenia
            2001Ukraine
            2003United
      States
            2001





Recent Accounting
Pronouncements





In
September 2006, the FASB issued FASB Statement No. 157, “Fair Value
Measurements” (“FAS 157”).  FAS 157 addresses the need for increased
consistency in fair value measurements, defining fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.  It
also establishes a framework for measuring fair value and expands disclosure
requirements.  FAS 157 is effective for us beginning January 1,
2008.  We are currently evaluating the impact of the adoption of FAS
157 on our financial position and results of operations.





In
February 2007, the FASB issued FASB Statement No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" ("FAS 159"). FAS 159 gives
entities the option to prospectively measure many financial instruments and
certain other items at fair value in the balance sheet with changes in the fair
value recognized in the income statement. FAS 159 is effective for fiscal years
beginning after November 15, 2008, although entities may elect to adopt the
statement early. We are currently evaluating the impact of adoption on our
financial position and results of operations.




Page 13
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)




Restatements
 
 Classification
of legal provisions
 
 Subsequent
to the issuance of our financial statements as of and for the period ended
September 30, 2007, we determined that the current year provisions recorded in
anticipation of the settlement of our Croatia litigation should be classified
within operating expenses.  In our previously issued 2007 quarterly
condensed Consolidated Statement of Operations these provisions had been
classified within non-operating expenses.  As a result, we have
restated Corporate Operating Costs and Other Expense to correct the
classification of these legal contingencies.
 
 The
restatement had the impact on our previously presented financial information as
set out below.  All amounts are in US$ 000’s:
 
 As
      reported previously
              
              
              Adjustment
              
              
              As
      restatedCondensed
      Consolidated Statement of Operations (for the six months ended June 30,
      2007)Net
      revenues
              
              
              364,196
              
              
              
              -
              
              
              
              364,196Corporate
      operating costs
              
              
              16,248
              
              
              
              5,969
              
              
              
              22,217Operating
      income
              
              
              85,835
              
              
              
              (5,969
              )
              
              
              79,866Other
      expense
              
              
              (6,759
              )
              
              
              5,969
              
              
              
              (790
              )Net
      income
              
              
              34,340
              
              
              
              -
              
              
              
              34,340
  Stock-based
compensation




Subsequent
to the issuance of our financial statements as of and for the period ended June
30, 2006 we initiated a voluntary review of our historical stock option granting
practices for the period from 1994 to 2002. Our Audit Committee conducted the
review with the assistance of independent legal counsel and an independent
accounting firm. The Audit Committee found certain instances of administrative
and procedural deficiencies that resulted in incorrect accounting measurement
dates and other incorrect accounting, but found no evidence from which it could
be concluded that the errors were the result of deliberate or intentional
misconduct. These accounting errors resulted from grants made to grantees where
the list of grantees and/or shares allocated to them were not sufficiently
definitive for the grant to be deemed final as of the reported measurement date
as well as from a small number of grants made to employees and non-employees
that had been accounted for incorrectly. Errors were discovered in the
accounting for grants made in the period between 1994 and 1998; we believe the
impact of these instances to be immaterial for each prior year and they neither
relate to nor have an impact on the current period.





However,
we concluded that correcting the error in the financial statements for the year
ended December 31, 2006 would be material; therefore, in accordance with Staff
Accounting Bulletin No. 108 Section N to Topic 1 “Considering the Effects of
Prior Year Misstatements in Current Year Financial Statements”, we restated our
historical financial statements.





The
restatement above had the impact on our previously presented financial
information as set out below. All amounts are in US$ 000’s.




Page 14
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)


As reported
              previously
            
            
            Adjustment
            
            
            As
    restatedBalance Sheet (as of June 30,
      2006)Additional
      paid-in capital at June 30, 2006
            
            $
            917,755
            
            
            $
            7,181
            
            
            $
            924,936Accumulated
      deficit at June 30, 2006
            
            
            (54,715
            )
            
            
            (7,181
            )
            
            
            (61,896
            )








3.  ACQUISITIONS AND
DISPOSALS





Romania





Acquisition of additional interest –
Sport.ro





On
December 14, 2006 we acquired 20.0% of Sport.ro from Silviu Prigoana for cash
consideration of EUR 2.0 million (approximately US$ 2.6
million).  Sport.ro operated a sports-oriented channel focusing on
local and international football, international boxing and a number of local
Romanian sports.





On
February 20, 2007 we acquired control of Sport.ro by acquiring an additional
50.0% interest from Nolsom Limited for cash consideration of EUR 4.2 million
(approximately US$ 5.3 million).  We acquired the remaining 30.0% of
Sport.ro, also from Nolsom Limited, on March 15, 2007 for cash consideration of
EUR 2.5 million (approximately US$ 3.1 million).




We
performed a fair value exercise to allocate the purchase price to the acquired
assets and liabilities and identified separately identifiable
assets.  The following table summarizes the preliminary fair values of
the assets acquired and liabilities assumed at the date of
acquisition:


Fair Value on
      AcquisitionProperty,
      plant and equipment
            
            $
            35Intangible
      assets subject to amortization (1)
            
            
            4,784Intangible
      assets not subject to amortization (2)
            
            
            8,974Other
      assets
            
            
            2,904Goodwill
            
            
            2,311Deferred
      tax liability
            
            
            (1,575
            )Other
      liabilities
            
            
            (6,398
            )Total purchase
      price
            
            $
            11,035(1)
      The intangible assets subject to amortization comprise customer
      relationships, which are being amortized over one to twenty years
      (weighted average: 15.5 years) and trademarks, which are being amortized
      over two years.(2)
      Intangible assets not subject to amortization represent television
      broadcast licenses.





Acquisition of additional interest –
MPI and Pro TV





On May
16, 2007, we acquired an additional 20.0% of Media Vision and subsequently on
June 1, 2007 we acquired an additional 5.0% of Pro TV and MPI from companies
owned by, or individuals associated with, Adrian Sarbu, for aggregate
consideration of US$ 51.6 million including acquisition costs. We now own a
95.0% voting and economic interests in Pro TV, MPI and Media
Vision.  We performed a fair value exercise to allocate the purchase
price to the acquired assets and liabilities, and identified separately
identifiable assets.  The following table summarizes the fair values
of the assets acquired and liabilities assumed at the date of
acquisition:




Page 15
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)




Fair Value on
      AcquisitionIntangible
      assets subject to amortization (1)
            
            $
            4,517Intangible
      assets not subject to amortization (2)
            
            
            23,597Goodwill
            
            
            23,974Deferred
      tax liability
            
            
            (4,498
            )Minority
      interests
            
            
            4,029Total purchase
      price
            
            $
            51,619(1)
      The intangible assets subject to amortization comprise customer
      relationships, which are being amortized over one to ten years (weighted
      average: 8.3 years).(2)
      Intangible assets not subject to amortization comprise approximately US$
      9.2 million in trademarks and US$ 14.4 million relating to television
      broadcast licenses.





Mr. Sarbu
has the right to sell the remaining shareholding in Pro TV and
MPI  that he holds personally to us under a put option agreement
entered into in July 2004 at a price to be determined by an independent
valuation, subject to a floor price of US$ 1.45 million for each 1.0% interest
sold.  Mr. Sarbu’s right to put his remaining shareholding to us is
exercisable from November 12, 2009, provided that we have not enforced a pledge
over this shareholding which Mr. Sarbu granted as security for our right to put
to him our shareholding in Media Pro. As at June 30, 2007, we consider the fair
value of Mr. Sarbu’s put option to be approximately US$ nil.




Croatia





Internet Dnevnik





On June
6, 2007, we purchased 76.0% of Internet Dnevnik d.o.o from Zeljko Anderlon and
Dario Markus for cash consideration of EUR 0.5 million (US$ 0.7 million).
Internet Dnevnik d.o.o operates the largest blogging website in Croatia,
Blog.hr.





Ukraine (KINO,
CITI)





Tor and Zhysa





On June
21, 2007, we completed the acquisition of a 60.4% interest in each of Tor and
Zhysa from Dertus Finance Group Limited for total consideration of US$ 3.2
million including acquisition costs. Zhysa and Tor are regional broadcasters in
Ukraine.





We have
initiated a fair value exercise to allocate the purchase price to the acquired
assets and liabilities. Upon completion of the fair value exercise, we expect
the purchase price allocation to primarily include television broadcasting
licenses and goodwill. The final allocation of the purchase price will be
subject to adjustment following the completion of the fair value
exercise.




Page 16
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)


4.  GOODWILL AND INTANGIBLE
ASSETS





Our
goodwill and intangible asset additions are the result of acquisitions in
Croatia, the Czech Republic, Romania, the Slovak Republic, Slovenia and
Ukraine.  No goodwill is expected to be deductible for tax
purposes.





Goodwill:





Goodwill
by operating segment as at June 30, 2007 and December 31, 2006 is summarized as
follows:





Balance
              December 31,
      2006
            
            
            Additions
            
            
            Foreign currency
      movement
            
            
            Balance
              June 30,
      2007Croatia
            
            $
            -
            
            
            $
            712
            
            
            $
            -
            
            
            $
            712Czech
      Republic
            
            
            823,786
            
            
            
            -
            
            
            
            (14,804
            )
            
            
            808,982Romania
            
            
            31,130
            
            
            
            26,285
            
            
            
            -
            
            
            
            57,415Slovak
      Republic
            
            
            25,483
            
            
            
            -
            
            
            
            1,427
            
            
            
            26,910Slovenia
            
            
            16,458
            
            
            
            -
            
            
            
            415
            
            
            
            16,873Ukraine
      (STUDIO 1+1)
            
            
            4,096
            
            
            
            -
            
            
            
            -
            
            
            
            4,096Ukraine
      (KINO, CITI)
            
            
            4,627
            
            
            
            3,124
            
            
            
            -
            
            
            
            7,751Total
            
            $
            905,580
            
            
            $
            30,121
            
            
            $
            (12,962
            )
            
            $
            922,739







Broadcast
licenses:





The net
book value of our broadcast licenses as at June 30, 2007 and December 31, 2006
is summarized as follows:





Indefinite-Lived Broadcast
      Licenses
            
            
            Amortized Broadcast
      Licenses
            
            
            TotalBalance, December 31,
      2006
            
            $
            26,344
            
            
            $
            172,386
            
            
            $
            198,730Additions
            
            
            23,421
            
            
            
            -
            
            
            
            23,421Amortization
            
            
            -
            
            
            
            (8,446
            )
            
            
            (8,446
            )Foreign
      currency movements
            
            
            132
            
            
            
            (2,956
            )
            
            
            (2,824
            )Balance, June 30,
      2007
            
            $
            49,897
            
            
            $
            160,984
            
            
            $
            210,881





With the
exception of our broadcast licenses in the Czech Republic,
Slovak Republic and Ukraine, our broadcast licenses primarily have
indefinite lives and are subject to annual impairment reviews.  The
licenses in Ukraine have economic useful lives of, and are amortized on a
straight-line basis over, between two and ten years. The license in the
Czech Republic has an economic useful life of, and is amortized on a
straight-line basis over, twelve years.  The license in the
Slovak Republic has an economic useful life of, and is amortized on a
straight-line basis over, thirteen years.





The gross
value and accumulated amortization of amortized broadcast licenses was as
follows at June 30, 2007 and December 31, 2006:




Page 17
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)




June 30,
              2007
            
            
            December 31,
      2006Gross
      value
            
            $
            198,523
            
            
            $
            201,994Accumulated
      amortization
            
            
            (37,539
            )
            
            
            (29,608
            )Total net book
      value
            
            $
            160,984
            
            
            $
            172,386





Other intangible
assets:





The net
book value of our other intangible assets as at June 30, 2007 and December 31,
2006 is summarized as follows:





Trademarks
            
            
            Customer
      Relationships
            
            
            Other
            
            
            TotalBalance, December 31,
      2006
            
            $
            44,026
            
            
            $
            27,213
            
            
            $
            703
            
            
            $
            71,942Additions
            
            
            9,787
            
            
            
            8,664
            
            
            
            14
            
            
            
            18,465Amortization
            
            
            (106
            )
            
            
            (1,727
            )
            
            
            (48
            )
            
            
            (1,881
            )Foreign
      currency movements
            
            
            (241
            )
            
            
            127
            
            
            
            52
            
            
            
            (62
            )Balance, June 30,
      2007
            
            $
            53,466
            
            
            $
            34,277
            
            
            $
            721
            
            
            $
            88,464





Customer
relationships are deemed to have an economic useful life of, and are amortized
on a straight-line basis over, five to fourteen years.  Other than the
trademark acquired with Sport.ro, which has an economic life of, and is being
amortized on a straight line basis over, two years, trademarks have an
indefinite life.





The gross
value and accumulated amortization of other intangible assets was as follows at
June 30, 2007 and December 31, 2006:





June 30,
              2007
            
            
            December
31,
              2006Gross
      value
            
            $
            95,359
            
            
            $
            76,695Accumulated
      amortization
            
            
            (6,895
            )
            
            
            (4,753
            )Total net book
      value
            
            $
            88,464
            
            
            $
            71,942








5.  SENIOR
NOTES





Our
Senior Notes consist of the following:





Carrying
      Value
            
            
            Fair
    ValueJune 30,
              2007
            
            
            December
31,
              2006
            
            
            June 30,
              2007
            
            
            December
31,
              2006EUR
      245.0 million 8.25% Senior Notes
            
            $
            330,858
            
            
            $
            322,666
            
            
            $
            357,326
            
            
            $
            353,722EUR
      125.0 million Floating Rate Senior Notes
            
            
            -
            
            
            
            164,625
            
            
            
            -
            
            
            
            170,181EUR
      150.0 million Floating Rate Senior Notes
            
            
            202,566
            
            
            
            -
            
            
            
            202,313
            
            
            
            -$
            533,424
            
            
            $
            487,291
            
            
            $
            559,639
            
            
            $
            523,903




Page 18
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)


On May 5,
2005, we issued Senior Notes in the aggregate principal amount of EUR 370.0
million consisting of EUR 245.0 million of 8.25% Senior Notes due May 2012 (the
“Fixed Rate Notes”) and EUR 125.0 million of floating rate Senior Notes due May
2012 (the “2012 Floating Rate Notes”), which bore interest at six-month Euro
Inter-Bank Offered Rate (“EURIBOR”) plus 5.50%.





On May
15, 2007 we redeemed the 2012 Floating Rate Notes. Upon redemption we recorded a
loss of US$ 6.9 million within interest expense comprising US$ 3.4 million of
redemption premium and US$ 3.5 million to write off unamortized debt
costs.





On May
16, 2007 we issued floating rate senior notes due November 2014 (the “2014
Floating Rate Notes”) in the aggregate principal amount of EUR 150.0 million,
which bear interest at six-month EURIBOR plus 1.625% (5.80% was applicable at
June 30, 2007).





Fixed Rate Notes





Interest
is payable semi-annually in arrears on each May 15 and November
15.  The fair value of the Fixed Rate Notes as at June 30, 2007 was
calculated by multiplying the outstanding debt by the traded market
price.





The Fixed
Rate Notes are secured senior obligations and rank pari passu with all existing
and future senior indebtedness and are effectively subordinated to all existing
and future indebtedness of our subsidiaries.  The amounts outstanding
are guaranteed by two subsidiary holding companies and are secured by a pledge
of shares of those subsidiaries as well as an assignment of certain contractual
rights.  The terms of our indebtedness restrict the manner in which
our business is conducted, including the incurrence of additional indebtedness,
the making of investments, the payment of dividends or the making of other
distributions, entering into certain affiliate transactions and the sale of
assets.





In the
event that (A) there is a change in control by which (i) any party other than
our present shareholders becomes the beneficial owner of more than 35.0% of our
total voting power; (ii) we agree to sell substantially all of our operating
assets; or (iii) there is a change in the composition of a majority of our Board
of Directors; and (B) on the 60th day following any such change of control the
rating of the Fixed Rate Notes is either withdrawn or downgraded from the rating
in effect prior to the announcement of such change of control, we can be
required to repurchase the Fixed Rate Notes at a purchase price in cash equal to
101.0% of the principal amount of the Fixed Rate Notes plus accrued and unpaid
interest to the date of purchase.





The Fixed
Rate Notes are redeemable at our option, in whole or in part, at the redemption
prices set forth below:





From:
            
            Fixed Rate
      Notes
              Redemption
      PriceMay
      15, 2009 to May 14, 2010
            
            
            104.125
            %May
      15, 2010 to May 14, 2011
            
            
            102.063
            %May
      15, 2011 and thereafter
            
            
            100.000
            %





At any
time prior to May 15, 2008, we may redeem up to 35.0% of the Fixed Rate Notes
with the proceeds of any public equity offering at a price of 108.250% of the
principal amount of such notes, plus accrued and unpaid interest, if any, to the
redemption date.




Page 19
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)




In
addition, prior to May 15, 2009, we may redeem all or a part of the Fixed Rate
Notes at a redemption price equal to 100.0% of the principal amount of such
notes, plus a “make-whole” premium and accrued and unpaid interest to the
redemption date.





Certain
derivative instruments, including redemption call options and change of control
and asset disposition put options, have been identified as being embedded in the
Fixed Rate Notes; but as they are considered clearly and closely related to
those notes, they are not accounted for separately.





2014 Floating Rate
Notes





Interest
is payable semi-annually in arrears on each May 15 and November
15.  The fair value of the 2014 Floating Rate Notes as at June 30,
2007 was calculated by multiplying the outstanding debt by the traded market
price.





The 2014
Floating Rate Notes are secured senior obligations and rank pari passu with all
existing and future senior indebtedness and are effectively subordinated to all
existing and future indebtedness of our subsidiaries.  The amounts
outstanding are guaranteed by two subsidiary holding companies and are secured
by a pledge of shares of those subsidiaries as well as an assignment of certain
contractual rights.  The terms of our indebtedness restrict the manner
in which our business is conducted, including the incurrence of additional
indebtedness, the making of investments, the payment of dividends or the making
of other distributions, entering into certain affiliate transactions and the
sale of assets.





In the
event that (A) there is a change in control by which (i) any party other than
our present shareholders becomes the beneficial owner of more than 35.0% of our
total voting power; (ii) we agree to sell substantially all of our operating
assets; or (iii) there is a change in the composition of a majority of our Board
of Directors; and (B) on the 60thday following
any such change of control the rating of the 2014 Floating Rate Notes is either
withdrawn or downgraded from the rating in effect prior to the announcement of
such change of control, we can be required to repurchase the 2014 Floating Rate
Notes at a purchase price in cash equal to 101.0% of the principal amount of the
2014 Floating Rate Notes plus accrued and unpaid interest to the date of
purchase.





The 2014
Floating Rate Notes are redeemable at our option, in whole or in part, at the
redemption prices set forth below:





From:
            
            2014 Floating
      Rate Notes
              Redemption
      PriceNovember
      15, 2007 to May 14, 2008
            
            
            102.000
            %May
      15, 2008 to May 14, 2009
            
            
            101.000
            %May
      15, 2009 and thereafter
            
            
            100.000
            %





Certain
derivative instruments, including redemption call options and change of control
and asset disposition put options, have been identified as being embedded in the
2014 Floating Rate Notes; but as they are considered clearly and closely related
to those notes, they are not accounted for separately.




Page 20
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)




6.  RESTRICTED
CASH





Restricted
cash consists of the following at June 30, 2007 and December 31,
2006:





June 30,
              2007
            
            
            December
31,
              2006Croatia
            
            $
            383
            
            
            $
            4,183Slovenia
            
            
            743
            
            
            
            724Ukraine
      (STUDIO 1+1)
            
            
            48
            
            
            
            47Total restricted
      cash
            
            $
            1,174
            
            
            $
            4,954





Restricted
cash held in escrow in Croatia was paid out to the former owners of our Croatia
operations on May 11, 2007.





7.  ACCOUNTS
RECEIVABLE





Accounts
receivable consist of the following at June 30, 2007 and December 31,
2006:





June 30,
              2007
            
            
            December
31,
              2006Trading:Third-party
      customers
            
            $
            187,160
            
            
            $
            156,701Less:
      allowance for bad debts and credit notes
            
            
            (12,748
            )
            
            
            (11,472
            )Related
      parties
            
            
            5,114
            
            
            
            7,655Less:
      allowance for bad debts and credit notes
            
            
            (134
            )
            
            
            (798
            )Total
      trading
            
            $
            179,392
            
            
            $
            152,086Other:Third-party
      customers
            
            $
            365
            
            
            $
            359Less:
      allowance for bad debts and credit notes
            
            
            (105
            )
            
            
            (103
            )Related
      parties
            
            
            468
            
            
            
            454Less:
      allowance for bad debts and credit notes
            
            
            (61
            )
            
            
            (291
            )Total
    other
            
            $
            667
            
            
            $
            419Total accounts
      receivable
            
            $
            180,059
            
            
            $
            152,505





At June
30, 2007, CZK 650 million (approximately US$ 30.6 million) (December 31, 2006:
CZK 600.0 million, approximately US$ 28.7 million) of receivables in the Czech
Republic were pledged as collateral subject to a factoring agreement (see Note
11).




Page 21
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)




8.  OTHER
ASSETS





Other
current and non-current assets consist of the following at June 30, 2007 and
December 31, 2006:


June 30,
              2007
            
            
            December 31,
              2006Current:Prepaid
      programming
            
            $
            32,531
            
            
            $
            23,072Other
      prepaid expenses
            
            
            17,182
            
            
            
            13,177Deferred
      tax
            
            
            2,872
            
            
            
            2,124VAT
      recoverable
            
            
            2,328
            
            
            
            2,562Loan
      to related party
            
            
            600
            
            
            
            600Capitalized
      debt issuance costs
            
            
            2,723
            
            
            
            2,908Other
            
            
            3,519
            
            
            
            3,112Total other current
      assets
            
            $
            61,755
            
            
            $
            47,555Non-current:Capitalized
      debt costs
            
            $
            10,765
            
            
            $
            11,264Loan
      to related party
            
            
            1,441
            
            
            
            1,603Deferred
      tax
            
            
            4,636
            
            
            
            3,443Other
            
            
            2,309
            
            
            
            1,165Total other non-current
      assets
            
            $
            19,151
            
            
            $
            17,475





Capitalized
debt costs primarily comprise the costs incurred in connection with the issuance
of our Senior Notes in May 2005 and May 2007 (see Note 5) and are being
amortized over the term of the Senior Notes.




Page 22
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)




9.  PROPERTY, PLANT AND
EQUIPMENT





Property,
plant and equipment consists of the following at June 30, 2007 and December 31,
2006:





June 30,
              2007
            
            
            December 31,
              2006Land
      and buildings
            
            $
            57,958
            
            
            $
            56,212Station
      machinery, fixtures and equipment
            
            
            124,354
            
            
            
            115,238Other
      equipment
            
            
            23,933
            
            
            
            21,980Software
      licenses
            
            
            17,283
            
            
            
            15,495Construction
      in progress
            
            
            18,404
            
            
            
            4,070Total
    cost
            
            
            241,932
            
            
            
            212,995Less:  Accumulated
      depreciation
            
            
            (111,751
            )
            
            
            (97,190
            )Total net book
      value
            
            $
            130,181
            
            
            $
            115,805Assets held under capital
      leases (included above)Land
      and buildings
            
            $
            5,682
            
            
            $
            5,541Station
      machinery, fixtures and equipment
            
            
            1,674
            
            
            
            2,330Total
    cost
            
            
            7,356
            
            
            
            7,871Less:
      Accumulated depreciation
            
            
            (1,533
            )
            
            
            (1,877
            )Net book
      value
            
            $
            5,823
            
            
            $
            5,994






10.  ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES





Accounts
payable and accrued liabilities consist of the following at June 30, 2007 and
December 31, 2006:


June 30,
              2007
            
            
            December 31,
              2006Accounts
      payable
            
            $
            27,080
            
            
            $
            47,447Programming
      liabilities
            
            
            38,647
            
            
            
            32,316Accrued
      interest payable
            
            
            5,149
            
            
            
            5,375Deferred
      income
            
            
            20,505
            
            
            
            3,212Accrued
      staff costs
            
            
            16,854
            
            
            
            12,947Accrued
      production costs
            
            
            7,197
            
            
            
            7,435Accrued
      legal costs
            
            
            8,709
            
            
            
            3,619Accrued
      rent costs
            
            
            1,339
            
            
            
            1,163Authors’
      rights
            
            
            7,215
            
            
            
            943Onerous
      contracts
            
            
            1,804
            
            
            
            -Other
      accrued liabilities
            
            
            7,141
            
            
            
            5,260Total accounts payable and
      accrued liabilities
            
            $
            141,640
            
            
            $
            119,717




Page 23
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)


11.  CREDIT FACILITIES AND
OBLIGATIONS UNDER CAPITAL LEASES





Group
loan obligations and overdraft facilities consist of the following at June 30,
2007 and December 31, 2006:





June 30,
              2007
            
            
            December
31,
              2006Credit
      facilities:Corporate
            (a)
            
            $
            -
            
            
            $
            -Croatia
            (b)
            
            
            -
            
            
            
            847Czech
      Republic
            (c)
      – (e)
            
            
            11,760
            
            
            
            11,975Romania
            (f)
            
            
            40
            
            
            
            -Slovenia
            (g)
            
            
            -
            
            
            
            -Ukraine
      (KINO, CITI)
            (h)
            
            
            1,705
            
            
            
            1,703Total credit
      facilities
            
            
            $
            13,505
            
            
            $
            14,525Capital
      leases:Croatia
      operations, net of interest
            
            
            $
            -
            
            
            $
            19Romania
      operations, net of interest
            
            
            
            430
            
            
            
            495Slovak
      Republic operations, net of interest
            
            
            
            112
            
            
            
            154Slovenia
      operations, net of interest
            
            
            
            4,188
            
            
            
            4,223Total capital
      leases
            
            
            $
            4,730
            
            
            $
            4,891Total credit facilities and
      capital leases
            
            
            $
            18,235
            
            
            $
            19,416Less
      current maturities
            
            
            
            (12,433
            )
            
            
            (13,057
            )Total non-current
      maturities
            
            
            $
            5,802
            
            
            $
            6,359





Corporate





(a) On
July 21, 2006, we entered into a five-year revolving loan agreement for EUR
100.0 million (approximately US$ 135.1 million) arranged by the European Bank
for Reconstruction and Development (the “Loan”).  ING Bank N.V.
(“ING”) and Ceska Sporitelna, a.s. (“CS”) are participating in the facility for
EUR 50.0 million in aggregate.





The Loan
bears interest at a rate of three-month EURIBOR plus 2.75% on the drawn
amount.  The available amount of the Loan amortizes by 7.5% every six
months from May 2008 to November 2009, then by 15% in May 2010 and November
2010, and by 40% in May 2011.





Covenants
contained in the Loan are in line with those contained in our Senior Notes (see
Note 5).  In addition, the Loan’s covenants restrict us from making
principal repayments on other debt of greater than US$ 20.0 million per year for
the life of the Loan.  This restriction is not applicable to our
existing facilities with ING or CS or to any refinancing of our Senior
Notes.





The Loan
is a secured senior obligation and ranks pari passu with all existing and future
senior indebtedness, including the Senior Notes, and is effectively subordinated
to all existing and future indebtedness of our subsidiaries.  The
amount drawn is guaranteed by two subsidiary holding companies and is secured by
a pledge of shares of those subsidiaries as well as an assignment of certain
contractual rights.  The terms of the Loan restrict the manner in
which our business is conducted, including the incurrence of additional
indebtedness, the making of investments, the payment of dividends or the making
of other distributions, entering into certain affiliate transactions and the
sale of assets.




Page 24
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)


There
were no drawings under this facility as at June 30, 2007; however, the full
amount of EUR 100.0 million was drawn on April 18, 2007 and repaid on June 1,
2007.





Croatia





(b) On
March 28, 2007, we repaid EUR 0.6 million (approximately US$ 0.8 million)
which  was the total amount outstanding to our Croatia operations
under two loan agreements with Hypo Alpe-Adria Bank d.d. Following repayment of
this loan, the security held by the bank was released.





Czech Republic




(c) As at
June 30, 2007, there were no drawings by CET 21 under a four-year credit
facility of CZK 1.2 billion (approximately US$ 56.4 million) available until
October 31, 2009 with Ceska Sporitelna, a.s. (“CS”).  This facility
may, at the option of CET 21, be drawn in CZK, US$ or EUR and bears interest at
the three-month, six-month or twelve-month London Inter-Bank Offered Rate
(“LIBOR”), EURIBOR or Prague Inter-Bank Offered Rate (“PRIBOR”) rate plus
1.95%.  This facility is secured by a pledge of receivables, which are
also subject to a factoring arrangement with Factoring Ceska Sporitelna, a.s., a
subsidiary of CS. On July 10, 2007, CZK 860.0 million (approximately US$ 40.4
million) was drawn down under this facility and on July 31, 2007, CZK 260.0
million (approximately US$ 12.7 million) was repaid.




(d) CZK
250.0 million (approximately US$ 11.8 million), the full amount of the facility,
had been drawn by CET 21 under a working capital facility agreement with CS with
a maturity date of April 30, 2008 and bearing interest at the three-month PRIBOR
plus 1.65% (three-month PRIBOR relevant to drawings under this facility at June
30, 2007 was 3.00%). This facility is secured by a pledge of receivables, which
are also subject to a factoring arrangement with Factoring Ceska Sporitelna,
a.s.





(e) As at
June 30, 2007, there were no drawings under a CZK 300.0 million (approximately
US$ 14.1 million) factoring facility with Factoring Ceska Sporitelna, a.s.
available until March 31, 2010.  The facility bears interest at
one-month PRIBOR plus 1.40% for the period that actively assigned accounts
receivable are outstanding.





Romania




(f) As at
June 30, 2007, an amount of RON 97 thousand (approximately US$ 40 thousand) was
outstanding under a loan agreement from one of the founding shareholders of
Sport.ro. The loan is interest free and is repayable in equal monthly
instalments by August 31, 2007.




Slovenia




(g) On
July 29, 2005, Pro Plus entered into a revolving facility agreement for up to
EUR 37.5 million (approximately US$ 50.6 million) in aggregate principal amount
with ING Bank N.V., Nova Ljubljanska Banka d.d., Ljubljana and Bank Austria
Creditanstalt d.d., Ljubljana.  The facility amortizes by 10.0% each
year for four years commencing one year after signing, with 60.0% repayable
after five years.  This facility is secured by a pledge of the bank
accounts of Pro Plus, the assignment of certain receivables, a pledge of our
interest in Pro Plus and a guarantee of our wholly-owned subsidiary CME Media
Enterprises B.V.  Loans drawn under this facility will bear interest
at a rate of EURIBOR for the period of drawing plus a margin of between 2.1% and
3.6% that varies according to the ratio of consolidated net debt to consolidated
broadcasting cash flow for Pro Plus.  As at June 30, 2007, EUR 33.8
million (approximately US$ 45.6 million) was available for drawing under this
revolving facility and there were no drawings
outstanding.




Page 25
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)


Ukraine (KINO,
CITI)





(h) Our
Ukraine (KINO, CITI) operations have entered into a number of three-year
unsecured loans with Glavred-Media, LLC, the minority shareholder in
Ukrpromtorg.  As at June 30, 2007, the total value of loans drawn was
US$ 1.7 million.  The loans are repayable between August 2009 and
December 2009 and bear interest at 9.0%.





Total Group





At June
30, 2007, the maturity of our debt (including our Senior Notes) is as
follows:





2007
            
            $
            11,8052008
            
            
            -2009
            
            
            1,7002010
            
            
            -2011
            
            
            -2012
      and thereafter
            
            
            533,424Total
            
            $
            546,929








Capital Lease
Commitments





We lease
certain of our office and broadcast facilities as well as machinery and
equipment under various leasing arrangements.  The future minimum
lease payments from continuing operations, by year and in the aggregate, under
capital leases with initial or remaining non-cancelable lease terms in excess of
one year, consisted of the following at June 30, 2007:





2007
            
            $
            4642008
            
            
            1,1902009
            
            
            7262010
            
            
            6202011
            
            
            6202012
      and thereafter
            
            
            3,024$
            6,644Less:
      amount representing interest
            
            
            (1,914
            )Present value of net minimum
      lease payments
            
            $
            4,730








12.  FINANCIAL
INSTRUMENTS





On April
27, 2006, we entered into currency swap agreements with two counterparties
whereby we swapped a fixed annual coupon interest rate (of 9.0%) on notional
principal of CZK 10.7 billion (approximately US$ 503.3 million), payable on July
15, October 15, January 15, and April 15, to the termination date of April 15,
2012, for a fixed annual coupon interest rate (of 9.0%) on notional principal of
EUR 375.9 million (approximately US$ 507.6 million) receivable on July 15,
October 15, January 15, and April 15, to the termination date of April 15,
2012.





The fair
value of these financial instruments as at June 30, 2007 was a US$ 0.5 million
liability.




Page 26
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)




These
currency swap agreements reduce our exposure to movements in foreign exchange
rates on a part of the CZK-denominated cash flows generated by our Czech
Republic operations that is approximately equivalent in value to the
Euro-denominated interest payments on our Senior Notes (see Note 5). They are
financial instruments that are used to minimize currency risk and are considered
an economic hedge of foreign exchange rates.  These instruments have
not been designated as hedging instruments as defined under FASB Statement No.
133, “Accounting for Derivative Instruments and Hedging Activities”, and so
changes in their fair value are recorded in the consolidated statement of
operations and in the consolidated balance sheet in other non-current
liabilities.






13.  SHAREHOLDERS’
EQUITY





Preferred Stock





5,000,000
shares of Preferred Stock, with a $0.08 par value, were authorized as at June
30, 2007 and December 31, 2006.  None were issued and outstanding as
at June 30, 2007 and December 31, 2006.





Class A and B Common
Stock





100,000,000
shares of Class A Common Stock and 15,000,000 shares of Class B Common Stock
were authorized as at June 30, 2007 and December 31, 2006.  The rights
of the holders of Class A Common Stock and Class B Common Stock are identical
except for voting rights.  The shares of Class A Common Stock are
entitled to one vote per share and the shares of Class B Common Stock are
entitled to ten votes per share.  Class B Common Stock is convertible
into Class A Common Stock for no additional consideration on a one-for-one
basis.  Holders of each class of shares are entitled to receive
dividends and upon liquidation or dissolution are entitled to receive all assets
available for distribution to shareholders.  The holders of each class
have no preemptive or other subscription rights and there are no redemption or
sinking fund provisions with respect to such shares.








14.  STOCK-BASED
COMPENSATION





The
charge for stock-based compensation in our condensed consolidated statements of
operations is as follows:





For the Three Months
              Ended June
      30,
            
            
            For the Six
      Months
              Ended June
      30,2007
            
            
            2006
            
            
            2007
            
            
            2006Stock-based
      compensation charged under SFAS 123(R)
            
            $
            1,343
            
            
            $
            730
            
            
            $
            2,605
            
            
            $
            1,418





Under the
provisions of SFAS 123(R), the fair value of stock options is estimated on the
grant date using the Black-Scholes option-pricing model and recognized ratably
over the requisite service period.





2007 Option
Grants





Pursuant
to the Amended and Restated 1995 Stock Incentive Plan, the Compensation
Committee of our Board of Directors awarded grant of options to executives to
purchase 12,500 shares of our Class A Common Stock, with a vesting period of
four years and a contractual life of ten years, on April 2, 2007.





Pursuant
to the Amended and Restated 1995 Stock Incentive Plan, the Compensation
Committee of our Board of Directors awarded grant of options to non-executive
directors to purchase 35,000 shares of our Class A Common Stock and 5,000 shares
of our Class B Common Stock with a vesting period of one year and a contractual
life of five years on June 5, 2007.




Page 27
 Index
 
 CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)


The
exercise price of the granted options ranges from US$ 87.91 to US$ 94.28 per
share.  The fair value of the option grants was estimated on the date
of the grant using the Black-Scholes option-pricing model, with the following
assumptions used:





Date of Option
      Grant
            
            Number of Options
      Granted
            
            
            Risk-free interest rate
      (%)
            
            
            Expected term
      (years)
            
            
            Expected
      volatility (%)
            
            
            Dividend
      yield (%)
            
            
            Weighted-average fair
      value ($/share)April
      2, 2007
            
            
            12,500
            
            
            
            4.57
            %
            
            
            6.25
            
            
            
            41.29
            %
            
            
            0
            %
            
            $
            42.25June
      5, 2007 (Class A)
            
            
            35,000
            
            
            
            4.92
            %
            
            
            3.00
            
            
            
            32.38
            %
            
            
            0
            %
            
            $
            25.19June
      5, 2007 (Class B)
            
            
            5,000
            
            
            
            4.92
            %
            
            
            3.00
            
            
            
            32.38
            %
            
            
            0
            %
            
            $
            23.35





The
expected stock price volatility was calculated based on an analysis of the
historical stock price volatility of our shares and its peers for the preceding
6.25 or 3.00-year period.  We consider this basis to represent the
best indicator of expected volatility over the life of the
option.  The expected dividend yield for these grants was assumed to
be 0%.  The weighted average fair value of all the grants made in the
three months and six months ended June 30, 2007 was US$ 29.08 per
option.  In accordance with SFAS 123(R), the fair value of the option
grants made in the six months ended June 30, 2007 less expected forfeitures of
US$ 1.5 million is being recognized as an expense in the consolidated statement
of operations over the requisite service period of the award.





A summary
of option activity for the six months ended June 30, 2007 is presented
below:





Shares
            
            
            Weighted Average Exercise Price
      per Share
            
            
            Weighted Average Remaining
      Contractual Term (years)
            
            
            Aggregate Intrinsic
      ValueOutstanding
      at December 31, 2007
            
            
            1,288,575
            
            
            $
            35.51
            
            
            
            7.45
            
            
            $
            44,443Granted
            
            
            52,500
            
            
            
            89.77Exercised
            
            
            (227,783
            )
            
            
            11.99Forfeited
            
            
            (18,125
            )
            
            
            46.76Outstanding at June 30,
      2007
            
            
            1,095,167
            
            
            $
            42.82
            
            
            
            7.14
            
            
            $
            59,974Vested
      or expected to vest at June 30, 2007
            
            
            1,022,652
            
            
            
            42.09
            
            
            
            7.07
            
            
            
            56,747Exercisable at June 30,
      2007
            
            
            467,792
            
            
            $
            23.71
            
            
            
            6.45
            
            
            $
            34,557





The
exercise of stock options is expected to generate a net operating loss
carryforward in our Delaware subsidiary of US$ 12.2 million. No tax benefit has
been recognized in respect of this loss, which will be recorded as an addition
to additional paid-in capital when it reduces income tax payable.





The
aggregate intrinsic value (the difference between the stock price on the last
day of trading of the second quarter of 2007 and the exercise prices multiplied
by the number of in-the-money options) represents the total intrinsic value that
would have been received by the option holders had all option holders exercised
their options as of June 30, 2007.  This amount changes based on the
fair value of our Common Stock.  The total intrinsic value of options
exercised during the six months ended June 30, 2007 and 2006, respectively, was
US$ 15.6 million and US$ 4.0 million, respectively.  As of June 30,
2007, there was US$ 10.5 million of total unrecognized compensation expense
related to options.  The expense is expected to be recognized over a
weighted average period of 1.9 years.  Proceeds received from the
exercise of stock options was US$ 2.7 million and US$ 1.1 million for the six
months ended June 30, 2007 and 2006, respectively.




Page 28
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)


15.  EARNINGS PER
SHARE





The
components of basic and diluted earnings per share are as follows:


For the Three Months
                Ended June
      30,
              
              
              For the Six
      Months
                Ended June
      30,2007
              
              
              2006
              
              
              2007
              
              
              2006Net income / (loss) available
      for common shareholders
              
              $
              34,590
              
              
              $
              8,522
              
              
              $
              34,340
              
              
              $
              (9,742
              )Weighted average outstanding
      shares of common stock (000’s)
              
              
              40,941
              
              
              
              40,597
              
              
              
              40,867
              
              
              
              39,355Dilutive
      effect of employee stock options (000’s)
              
              
              466
              
              
              
              589
              
              
              
              523
              
              
              
              -Common stock and common stock
      equivalents (000’s)
              
              
              41,407
              
              
              
              41,186
              
              
              
              41,390
              
              
              
              39,355Net income / (loss) per
      share:Basic
              
              $
              0.84
              
              
              $
              0.21
              
              
              $
              0.84
              
              
              $
              (0.25
              )Diluted
              
              $
              0.83
              
              
              $
              0.21
              
              
              $
              0.83
              
              
              $
              (0.25
              )


At June
30, 2007 228,500 (2006: 327,000) stock options were antidilutive to income from
continuing operations and excluded from the calculation of earnings per share.
These may become dilutive in the future.








16.  SEGMENT
DATA





We manage
our business on a geographic basis and review the performance of each business
segment using data that reflects 100% of operating and license company
results.  Our business segments are comprised of Croatia, the Czech
Republic, Romania, the Slovak Republic, Slovenia and our two businesses in
Ukraine.





We
evaluate the performance of our business segments based on Segment Net Revenues
and Segment EBITDA.  Segment Net Revenues and Segment EBITDA include
our operations in the Slovak Republic which were not consolidated prior to
January 23, 2006.





Our key
performance measure of the efficiency of our business segments is EBITDA
margin.  We define Segment EBITDA margin as the ratio of Segment
EBITDA to Segment Net Revenue.





Segment
EBITDA is determined as segment net income / (loss), which includes program
rights amortization costs, before interest, taxes, depreciation and amortization
of intangible assets.  Items that are not allocated to our business
segments for purposes of evaluating their performance and therefore are not
included in Segment EBITDA, include:




·
            expenses
      presented as corporate operating costs in our consolidated statements of
      operations and comprehensive
income;


·
            stock-based
      compensation charges;


·
            foreign
      currency exchange gains and losses;


·
            changes
      in fair value of derivatives; and


·
            certain
      unusual or infrequent items (e.g., extraordinary gains and losses,
      impairments on assets or
investments).




Page 29
 Index
  CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 (Tabular amounts in US$ 000’s, except
share and per share data)
 (Unaudited)




Below are
tables showing our Segment Net Revenues, Segment EBITDA, segment depreciation
and segment asset information by operation, including a reconciliation of these
amounts to our consolidated results for the three and six months ended June 30,
2007 and 2006 for condensed consolidated statement of operations data and as at
June 30, 2007 and December 31, 2006 for condensed consolidated balance sheet
data:




For the Three Months Ended June
      30,Segment Net Revenues
      (1)
            
            
            Segment
      EBITDA2007
            
            
            2006
            
            
            2007
            
            
            2006Country:Croatia
      (NOVA TV)
            
            $
            10,414
            
            
            $
            5,647
            
            
            $
            (2,167
            )
            
            $
            (2,639
            )Czech
      Republic (TV NOVA, GALAXIE SPORT)
            
            
            80,544
            
            
            
            56,312
            
            
            
            47,595
            
            
            
            29,509Romania
      (2)
            
            
            52,224
            
            
            
            37,769
            
            
            
            22,530
            
            
            
            16,424Slovak
      Republic (MARKIZA TV)
            
            
            29,652
            
            
            
            20,046
            
            
            
            11,712
            
            
            
            7,827Slovenia
      (POP TV, KANAL A)
            
            
            20,095
            
            
            
            15,555
            
            
            
            8,388
            
            
            
            6,430Ukraine
      (STUDIO 1+1)
            
            
            22,701
            
            
            
            21,062
            
            
            
            565
            
            
            
            6,037Ukraine
      (KINO, CITI)
            
            
            654
            
            
            
            198
            
            
            
            (1,755
            )
            
            
            (432
            )Total segment
      data
            
            $
            216,284
            
            
            $
            156,589
            
            
            $
            86,868
            
            
            $
            63,156Reconciliation to condensed
      consolidated statement of operations:Consolidated net revenues /
      income before provision for income taxes, minority interest and
      discontinued operations
            
            $
            216,284
            
            
            $
            156,589
            
            
            $
            53,739
            
            
            $
            12,103Corporate
      operating costs
            
            
            -
            
            
            
            -
            
            
            
            7,444
            
            
            
            7,696Depreciation
      of station property, plant and equipment
            
            
            -
            
            
            
            -
            
            
            
            7,680
            
            
            
            6,059Amortization
      of broadcast licenses and other intangibles
            
            
            -
            
            
            
            -
            
            
            
            5,165
            
            
            
            4,620Impairment
      charge
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            748Interest
      income
            
            
            -
            
            
            
            -
            
            
            
            (1,732
            )
            
            
            (1,741
            )Interest
      expense
            
            
            -
            
            
            
            -
            
            
            
            19,438
            
            
            
            11,337Foreign
      currency exchange loss, net
            
            
            -
            
            
            
            -
            
            
            
            2,116
            
            
            
            20,625Change
      in fair value of derivatives
            
            
            -
            
            
            
            -
            
            
            
            (7,528
            )
            
            
            1,876Other
      income
            
            
            -
            
            
            
            -
            
            
            
            546
            
            
            
            (167
            )Total segment
      data
            
            $
            216,284
            
            
            $
            156,589
            
            
            $
            86,868
            
            
            $
            63,156(1)
      All net revenues are derived from external customers. There are no
      inter-segmental revenues.(2)
      Romanian networks are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
      SPORT.RO.




Page 30
 Index




CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)




For the Six Months Ended June
      30,Segment Net Revenues
      (1)
              
              
              Segment
      EBITDA2007
              
              
              2006
              
              
              2007
              
              
              2006Country:Croatia
      (NOVA TV)
              
              $
              17,646
              
              
              $
              9,457
              
              
              $
              (6,819
              )
              
              $
              (7,081
              )Czech
      Republic (TV NOVA, GALAXIE SPORT)
              
              
              132,063
              
              
              
              96,861
              
              
              
              73,262
              
              
              
              42,335Romania
      (2)
              
              
              91,566
              
              
              
              67,640
              
              
              
              37,666
              
              
              
              28,037Slovak
      Republic (MARKIZA TV)
              
              
              48,329
              
              
              
              31,252
              
              
              
              17,468
              
              
              
              6,850Slovenia
      (POP TV, KANAL A)
              
              
              32,764
              
              
              
              25,782
              
              
              
              11,389
              
              
              
              9,463Ukraine
      (STUDIO 1+1)
              
              
              40,776
              
              
              
              46,540
              
              
              
              (1,805
              )
              
              
              17,024Ukraine
      (KINO, CITI) (3)
              
              
              1,052
              
              
              
              572
              
              
              
              (4,172
              )
              
              
              (557
              )Total segment
      data
              
              $
              364,196
              
              
              $
              278,104
              
              
              $
              126,989
              
              
              $
              96,071Reconciliation to condensed
      consolidated statement of operations:Consolidated net revenues /
      income before provision for income taxes, minority interest, equity in
      income of unconsolidated affiliates and discontinued
      operations
              
              $
              364,196
              
              
              $
              276,343
              
              
              $
              58,188
              
              
              $
              7,811Corporate
      operating costs
              
              
              -
              
              
              
              -
              
              
              
              22,217
              
              
              
              15,677Depreciation
      of station property, plant and equipment
              
              
              -
              
              
              
              -
              
              
              
              14,579
              
              
              
              11,761Amortization
      of broadcast licenses and other intangibles
              
              
              -
              
              
              
              -
              
              
              
              10,327
              
              
              
              8,952Impairment
      charge
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              748Unconsolidated
      equity affiliates (4)
              
              
              -
              
              
              
              1,761
              
              
              
              -
              
              
              
              (1,283
              )Interest
      income
              
              
              -
              
              
              
              -
              
              
              
              (3,146
              )
              
              
              (3,194
              )Interest
      expense
              
              
              -
              
              
              
              -
              
              
              
              30,834
              
              
              
              21,855Foreign
      currency exchange loss, net
              
              
              -
              
              
              
              -
              
              
              
              5,252
              
              
              
              31,487Change
      in fair value of derivatives
              
              
              -
              
              
              
              -
              
              
              
              (12,052
              )
              
              
              1,876Other
      expense
              
              
              -
              
              
              
              -
              
              
              
              790
              
              
              
              381Total segment
      data
              
              $
              364,196
              
              
              $
              278,104
              
              
              $
              126,989
              
              
              $
              96,071




(1)
      All net revenues are derived from external customers. There are no
      inter-segmental revenues.(2)
      Romanian networks are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
      SPORT.RO.(3)
      We acquired our Ukraine (KINO, CITI) operations in January
      2006.(4)
      Our Slovak Republic operations were accounted for as an equity affiliate
      until January 23, 2006.




Page 31
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)





For the Three Months
              Ended June
      30,
            
            
            For the Six
      Months
              Ended June
      30,2007
            
            
            2006
            
            
            2007
            
            
            2006Depreciation of station
      property, plant and equipment and amortization of broadcast licenses and
      other intangibles:Croatia
            
            $
            947
            
            
            $
            902
            
            
            $
            1,732
            
            
            $
            1,431Czech
      Republic
            
            
            6,689
            
            
            
            5,883
            
            
            
            13,150
            
            
            
            11,408Romania
            
            
            2,180
            
            
            
            1,137
            
            
            
            3,927
            
            
            
            2,364Slovak
      Republic
            
            
            947
            
            
            
            877
            
            
            
            2,134
            
            
            
            2,348Slovenia
            
            
            1,110
            
            
            
            810
            
            
            
            2,096
            
            
            
            1,540Ukraine
      (STUDIO 1+1)
            
            
            799
            
            
            
            929
            
            
            
            1,544
            
            
            
            1,501Ukraine
      (KINO, CITI)
            
            
            173
            
            
            
            141
            
            
            
            323
            
            
            
            298Total
            
            $
            12,845
            
            
            $
            10,679
            
            
            $
            24,906
            
            
            $
            20,890Reconciliation to condensed
      consolidated statement of operations:Unconsolidated
      equity affiliates
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (177
            )Total consolidated depreciation
      and amortization
            
            $
            12,845
            
            
            $
            10,679
            
            
            $
            24,906
            
            
            $
            20,713Represented
      as follows:Depreciation
      of station property, plant & equipment
            
            
            7,680
            
            
            
            6,059
            
            
            
            14,579
            
            
            
            11,761Amortization
      of broadcast licenses and other intangibles
            
            
            5,165
            
            
            
            4,620
            
            
            
            10,327
            
            
            
            8,952








Total assets
      (1):
            
            June 30,
              2007
            
            
            December
31,
              2006Croatia
            
            $
            34,859
            
            
            $
            30,394Czech
      Republic
            
            
            1,205,154
            
            
            
            1,200,894Romania
            
            
            302,436
            
            
            
            206,850Slovak
      Republic
            
            
            110,576
            
            
            
            86,872Slovenia
            
            
            75,858
            
            
            
            67,919Ukraine
      (STUDIO 1+1)
            
            
            80,287
            
            
            
            75,020Ukraine
      (KINO, CITI)
            
            
            14,756
            
            
            
            13,293Total segment
      assets
            
            $
            1,823,926
            
            
            $
            1,681,242Reconciliation to condensed
      consolidated balance sheets:Corporate
            
            
            76,366
            
            
            
            137,758Total
    assets
            
            $
            1,900,292
            
            
            $
            1,819,000(1)
      Segment assets exclude any inter-company investments, loans, payables and
      receivables.




Page 32
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)





Long-lived assets
      (1):
            
            June 30,
              2007
            
            
            December
31,
              2006Croatia
            
            $
            8,040
            
            
            $
            6,804Czech
      Republic
            
            
            36,687
            
            
            
            28,002Romania
            
            
            34,906
            
            
            
            32,312Slovak
      Republic
            
            
            20,374
            
            
            
            19,498Slovenia
            
            
            16,904
            
            
            
            15,595Ukraine
      (STUDIO 1+1)
            
            
            7,569
            
            
            
            7,965Ukraine
      (KINO, CITI)
            
            
            4,082
            
            
            
            3,674Total long-lived
      assets
            
            $
            128,562
            
            
            $
            113,850Reconciliation to condensed
      consolidated balance sheets:Corporate
            
            
            1,619
            
            
            
            1,955Total long-lived
      assets
            
            $
            130,181
            
            
            $
            115,805(1)
      Reflects property, plant and equipment




We do not
rely on any single major customer or group of major customers.  No
customer accounts for more than 10% of revenue.








17.  DISCONTINUED
OPERATIONS





For the Three
      Months
              Ended June
      30,
            
            
            For the Six
      Months
              Ended June
      30,2007
            
            
            2006
            
            
            2007
            
            
            2006Tax
      on disposal of discontinued operations
            
            
            -
            
            
            
            1,277
            
            
            
            -
            
            
            
            (2,530
            )Net income / (loss) from
      discontinued operations
            
            $
            -
            
            
            $
            1,277
            
            
            $
            -
            
            
            $
            (2,530
            )





On May
19, 2003, we received US$ 358.6 million from the Czech Republic in final
settlement of our UNCITRAL arbitration in respect of our former operations in
the Czech Republic.





On June
19, 2003, our Board of Directors decided to withdraw from operations in the
Czech Republic. The revenues and expenses of our former Czech Republic
operations and the award income and related legal expenses have therefore all
been accounted for as discontinued operations for all periods
presented.





On
February 9, 2004, we entered into an agreement with the Dutch tax authorities to
settle all tax liabilities outstanding for the years up to and including 2003,
including receipts in respect of our 2003 award in the arbitration against the
Czech Republic, for a payment of US$ 9.0 million.  We expected to
continue to pay tax in the Netherlands of between US$ 1.0 and US$ 2.5 million
for the foreseeable future and therefore agreed to a minimum payment of US$ 2.0
million per year for the years 2004 - 2008 and US$ 1.0 million for
2009.





We have
re-evaluated our forecasts of the amount of taxable income we expect to earn in
the Netherlands in the period to 2009.  As the tax payable on this
income is lower than the minimum amounts agreed with the Dutch tax authorities,
we have provided for the shortfall.  In our condensed consolidated
statement of operations, we recognized a charge of US$ nil (credit of US$ 1.3
million for the three months ended June 30, 2006), and a charge of US$ nil
(charge of US$ 2.5 million for the six months ended June 30, 2006) through
discontinued operations for the three months and six months ended June 30, 2007,
respectively.




Page 33
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)




The
settlement with the Dutch tax authorities also provides that if any decision is
issued at any time prior to December 31, 2008 exempting awards under Bilateral
Investment Treaties from taxation in the Netherlands, we will be allowed to
recover losses previously used against the 2003 arbitration award, which could
be up to US$ 195.0 million, to offset other income within the applicable carry
forward rules. This would not reduce the minimum amount of tax agreed payable
under the settlement agreement.  At this time there is no indication
that the Dutch tax authorities will issue such a decision.





The
settlement with the Dutch tax authorities has also resulted in a deductible
temporary difference in the form of a ruling deficit against which a full
valuation allowance has been recorded.








18.  COMMITMENTS AND
CONTINGENCIES





Commitments





a) Station Programming Rights
Agreements





At June
30, 2007 we had the following commitments in respect of future programming,
including contracts signed with license periods starting after the balance sheet
date:





June 30,
              2007Croatia
            
            $
            2,771Czech
      Republic
            
            
            48,033Romania
            
            
            23,244Slovak
      Republic
            
            
            16,717Slovenia
            
            
            6,914Ukraine
      (STUDIO 1+1)
            
            
            18,792Ukraine
      (KINO, CITI)
            
            
            843Total
            
            $
            117,314





Of the
amount shown in the table above, US$ 109.2 million is payable within one
year.





Page 34
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)





b) Operating Lease
Commitments





For the
six months ended June 30, 2007 and 2006 we incurred aggregate rent on all
facilities of US$ 6.0 million and US$ 5.3 million,
respectively.  Future minimum operating lease payments at June 30,
2007 for non-cancelable operating leases with remaining terms in excess of one
year (net of amounts to be recharged to third parties) are payable as
follows:





June 30,
              20072007
            
            $
            1,6732008
            
            
            1,9112009
            
            
            1,1692010
            
            
            8342011
            
            
            4282012
      and thereafter
            
            
            -Total
            
            $
            6,015





c) Acquisition of Minority
Shareholdings in Romania





Mr. Sarbu
has the right to sell the remaining shareholding in Pro TV and
MPI  that he holds personally to us under a put option agreement
entered into in July 2004 at a price to be determined by an independent
valuation, subject to a floor price of US$ 1.45 million for each 1.0% interest
sold.  Mr. Sarbu’s right to put his remaining shareholding to us is
exercisable from November 12, 2009, provided that we have not enforced a pledge
over this shareholding which Mr. Sarbu granted as security for our right to put
to him our shareholding in Media Pro. As at June 30, 2007, we consider the fair
value of Mr. Sarbu’s put option to be approximately US$ nil.





d) Other





Dutch tax





On
February 9, 2004 we entered into an agreement with the Dutch tax authorities to
settle all tax liabilities outstanding for the period through 2003, including
receipts in respect of our 2003 award in the arbitration against the
Czech Republic, for a payment of US$ 9.0 million.  We expected to
continue to pay tax in the Netherlands of between US$ 1.0 and US$ 2.5 million
for the foreseeable future and therefore also agreed to a minimum tax payable of
US$ 2.0 million per year for the years 2004 - 2008 and US$ 1.0 million for
2009.





The
settlement with the Dutch tax authorities also provides that if any decision is
issued at any time prior to December 31, 2008 exempting awards under Bilateral
Investment Treaties from taxation in the Netherlands, we will be allowed to
recover losses previously used against the 2003 arbitration award, which could
be up to US$ 195.0 million, to offset other income within the applicable carry
forward rules. This would not reduce the minimum amount of tax agreed payable
under the settlement agreement.  At this time there is no indication
that the Dutch tax authorities will issue such a decision.





As at
June 30, 2007 we provided US$ 3.9 million (US$ 2.5 million in non-current
liabilities and US$ 1.4 million in current liabilities) and as at December 31,
2006 we provided US$ 5.5 million (US$ 3.0 million in non-current liabilities and
US$ 2.5 million in current liabilities) of tax in the Netherlands as the
difference between our obligation under this agreement and our estimate of tax
in the Netherlands that may fall due over this period from business operations,
based on current business structures and economic conditions.





Page 35
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)





Czech Republic - Factoring of Trade
Receivables





CET 21
has a working capital credit facility of CZK 250 million (approximately US$ 11.7
million) with Ceska Sporitelna, a.s.  This facility is secured by a
pledge of receivables under the factoring agreement with Factoring Ceska
Sporitelna.





The
transfer of the receivables is accounted for as a secured borrowing under FASB
Statement No. 140, ‘Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities’, with the proceeds received recorded in the Condensed
Consolidated Balance Sheet as a liability and included in current credit
facilities and obligations under capital leases.  The corresponding
receivables are a part of accounts receivable, as we retain the risks of
ownership.





Contingencies





a) Litigation





We are,
from time to time, a party to litigation that arises in the normal course of our
business operations.  Other than those claims discussed below, we are
not presently a party to any such litigation, which could reasonably be expected
to have a material adverse effect on our business or
operations.  Unless otherwise disclosed, no provision has been made
against any potential losses that could arise.





We
present below a summary of our more significant proceedings by
country.





Croatia





Global Communications
Disputes





On
October 29, 2004, Operativna Kompanija d.o.o. (“OK”), our former operating
company in Croatia, filed suit against Global Communications d.o.o. claiming
approximately HRK 53.0 million (approximately US$ 9.8 million) in
damages.  Global Communications is a company controlled by Ivan
Caleta, who had previously operated Nova TV (Croatia) through
OK.  Global Communications, together with GRP Media d.o.o., another
company controlled by Mr. Caleta, had provided certain goods and services to OK
and Nova TV (Croatia) in exchange for advertising time pursuant to an agreement
dated April 10, 2001 (the “Global Agreement”).  Global Communications
and GRP Media were functionally managing the advertising inventory of Nova TV
(Croatia).  On December 31, 2003, Global Communications entered into a
reconciliation agreement by which OK acknowledged that Global Communications was
entitled to approximately 375,000 seconds of advertising time for goods and
services previously provided.  Following our acquisition of Nova TV
(Croatia) and OK in July 2004, OK concluded that Global Communications had used
all of its seconds by June 2004 based on a substantial discrepancy discovered
between the utilization of advertising time recorded by Global Communications
and that recorded by AGB Puls, an independent television audience measurement
service operating in Croatia.  In the course of its investigation of
the usage of seconds by Global Communications, OK discovered that computer
records of advertising seconds kept for OK may have been altered.  OK
brought a suit to recover amounts for advertising time used by Global
Communications in excess of the 375,000 seconds agreed.  Global
Communications filed a counterclaim in January 2005 for HRK 68.0 million
(approximately US$ 12.5 million), claiming that the AGB data is unreliable and
that it is entitled to additional seconds under the previous agreement. The
lower commercial court issued a judgment on July 12, 2006 in favor of Global
Communications for the full amount of the counterclaim, and we have appealed
this decision on the basis of false and inadequate disclosure, wrongful
application of substantive law and procedural error.  Global
Communications separately brought a claim against Nova TV (Croatia), on the same
basis as the OK counterclaim.  Both Global Communications and Nova TV
(Croatia) requested the court to join this claim with the OK counterclaim but
this request was denied.  The lower commercial court issued a judgment
on August 1, 2006 in favor of Global Communications for the full amount of the
claim, after having denied submission of evidence supporting our
defense.  We have also appealed this decision. We have accrued for the
amounts we expect to be ultimately payable as a result of having commenced
settlement negotiations with Global Communications. Any such settlement would
also include a settlement of the former shareholder dispute described
below.




Page 36
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)




On
January 25, 2007, Nova TV (Croatia) filed suit against Global Communications.
The facts underlying the claim are substantially the same as those of the
abovementioned claims, but Nova TV (Croatia) is claiming that the Global
Agreement and the two reconciliation agreements dated April 30, 2004 and June
30, 2004 (the “Reconciliation Agreements”), by which OK acknowledged the number
of seconds of advertising time to which Global Communications was purportedly
entitled, should be declared null and void under Article 141 of the Croatian
Obligations Act. This provision is intended to protect a contractual party which
has entered into unfair bargaining terms due to its dependency on the other
contractual party.  Global Communications, OK and Nova TV (Croatia)
were all related parties (controlled by Ivan Caleta) and the contractual terms
provided for the provision of 1,340,280 seconds by OK to Global Communications
in exchange for certain transmitters. These seconds were valued at an aggregate
of DEM 5 million (or DEM 3.73 per second; HRK 3.91 per second at the time)
whereas the rate card price was DEM 97.18 or HRK 380.00 per second (i.e. a price
that was 26 times higher). Other clients (unrelated parties) sampled from this
period were paying between 382.50 HRK to 491.85 HRK per second. Nova TV
(Croatia) is arguing for voidance of this contract because of its unconscionable
terms which were detrimental to OK and Nova TV (Croatia) and beneficial solely
to Global Communications (which, in its capacity as an advertising agency,
on-sold these seconds to its clients at market rates, thereby reaping an
extraordinary profit).  Nova TV (Croatia) is further claiming
restitution for advertising seconds appropriated by Global Communications under
the Global Agreement. The restitution amount is HRK 586.5 million (approximately
US$ 108.2 million). The first hearing has been scheduled for September 24,
2007.





Former Shareholder
Dispute





On July
21, 2005, Narval A.M. d.o.o. (a company wholly-owned by Ivan Caleta), Studio
Millenium d.o.o. and Richard Anthony Sheldon, three of the former shareholders
of OK, filed suit against Nova TV (Croatia) for rescission of the sale and
purchase contract pursuant to which they sold 75% of OK to Nova TV (Croatia) in
July 2004 (the “OK Sale Contract”).  Nova TV (Croatia) acquired OK
immediately prior to our acquiring Nova TV (Croatia).  The provisions
of the OK Sale Contract required Nova TV (Croatia) to make payment to the four
shareholders of OK by September 1, 2004, upon receipt of appropriate invoices
and bank account details.  The fourth shareholder, Pitos d.o.o.,
issued an invoice that was duly received by Nova TV (Croatia) and payment was
made thereunder.  The other three shareholders claim that they
hand-delivered a joint invoice to one of the former directors of Nova TV
(Croatia), but we continue to dispute this.  Under the Croatian
Obligations Act, one party to a contract who has performed may unilaterally
rescind a contract if the other party fails to perform after receipt of a
written warning.  On May 24, 2006, the lower commercial court decided
in favor of the plaintiffs to rescind the OK Sale Contract and ordered the
defendant to pay court costs.  We have appealed the decision on the
basis that evidence supporting our position was not allowed to be presented to
the court and we continue to challenge the validity of the power of attorney
purportedly issued by Richard Anthony Sheldon (a resident of the United Kingdom)
to legal counsel representing the other plaintiffs.





On August
28, 2006, we received a lower court decision of an injunction against us
(decided without a hearing) that, inter alia, prohibits a sale or encumbrance of
75% of the shares of OK.  Although we appealed this decision, the
appellate commercial court upheld the lower court’s judgment on November 21,
2006.  On November 6, 2006, we were notified of a request for a
further injunction that would, inter alia, prohibit us from taking any actions
to decrease the value of OK and require the management of OK to report to a
delegate of the former shareholders. We have unsuccessfully sought the removal
of the presiding judge, Raul Dubravec (who also presided over the Global
Communications lawsuit against Nova TV (Croatia)). Mr. Dubravec ruled against us
on December 18, 2006, requiring imposition of a temporary director for OK, which
is not a remedy available under Croatian law under the facts of this action.
Further, the temporary director who has been appointed is one of the former
directors of OK who countersigned the Reconciliation Agreements and is an
associate of Ivan Caleta. Our appeal against this decision was denied on May 8,
2007. While we continue to vigorously contest all these actions in the face of
serious concerns as to the impartiality of the Croatian judicial system, we have
commenced settlement negotiations with the former shareholders of
OK.




Page 37
 Index








CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)





Czech Republic





There are
no significant outstanding legal actions that relate to our business in the
Czech Republic.





Romania





There are
no significant outstanding legal actions that relate to our business in
Romania.





Slovenia





On
November 20, 2002, we received notice of a claim filed by Mrs. Zdenka Meglic,
the founder and a former shareholder of MMTV 1 d.o.o (MMTV), against MMTV, a
subsidiary of CME Media Enterprises B.V.  In her claim against MMTV,
Mrs. Meglic is seeking an amount equal to EUR 0.8 million (approximately US$ 1.1
million) for repayment of monies advanced to MMTV from 1992 to 1994 (in the
amount of approximately EUR 0.1 million (approximately US$ 0.1 million))
plus accrued interest.  On September 9, 2004, the court of first
instance found against MMTV and issued a judgment requiring MMTV to pay an
amount equal to EUR 0.8 million (approximately US$ 1.1 million) plus
interest as well as costs.  On September 24, 2004, MMTV filed an
appeal against the judgment.  On December 15, 2004, the appellate
court vacated the judgment of the lower court and returned the case for further
proceedings A hearing has been scheduled for September 4, 2007.  We do
not believe that Mrs. Meglic will prevail and will continue to defend the
claim.





Slovak Republic





There are
no significant outstanding legal actions that relate to our business in the
Slovak Republic.





Ukraine





On
October 13, 2005, Igor Kolomoisky filed a lawsuit against Alexander Rodnyansky
and Studio 1+1 in a district court in Kiev.  Our Ukrainian affiliate
Intermedia was joined in the proceedings as a “third party”.  Igor
Kolomoisky was attempting to enforce what he alleges was a binding oral
agreement with Alexander Rodnyansky to purchase the latter’s 70.0% interest in
Studio 1+1 for consideration of US$ 70.0 million and to transfer that interest
to Igor Kolomoisky on receipt of a prepayment of US$ 2.0 million.  The
lawsuit arose from abortive negotiations among Igor Kolomoisky, Alexander
Rodnyansky and Boris Fuchsmann for the acquisition by Igor Kolomoisky of the
totality of interests in the Studio 1+1 Group held by Alexander Rodnyansky and
Boris Fuchsmann, subject to Igor Kolomoisky assuming all of their obligations
under our existing partnership arrangements.  On August 16, 2006, the
district court in Kiev ruled in favor of Igor Kolomoisky and found that he is
entitled to the 70% interest in Studio 1+1 held by Alexander Rodnyansky. Our
Ukrainian affiliate Intermedia and Alexander Rodnyansky filed appeals against
this decision.





At a
hearing on October 31, 2006, the appellate court overturned the decision of the
court of first instance and denied Igor Kolomoisky’s claim that he is entitled
to a 70% interest in Studio 1+1 held by Alexander Rodnyansky.  On
November 3, 2006, Igor Kolomoisky filed an appeal with the Supreme Court of
Ukraine, the highest court in Ukraine.  At a hearing on February 28,
2007, the Supreme Court rejected this appeal.





On April
4, 2007 the Supreme Court of Ukraine agreed to hear an extraordinary appeal from
Igor Kolomoisky against the decision made on February 28, 2007 and the decision
of the Court of Appeals of the city of Kiev made on October 31,
2006.  At a hearing on May 25, 2007, the Supreme Court denied this
extraordinary appeal.  As a result of this decision, Igor Kolomoisky
has no further rights to pursue this claim against Rodnyansky in the Ukrainian
courts on the same grounds.





Page 38
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)





On
December 23, 2005, we initiated proceedings against our partners Alexander
Rodnyansky and Boris Fuchsmann in order to enforce our contractual rights and
compel a restructuring of the ownership of Studio 1+1 in order to permit us to
hold a 60% interest in Studio 1+1 through a subsidiary organized in
Ukraine.  Initiation of this proceeding followed protracted
negotiations with our partners to restructure following confirmation from the
Ukraine Media Council that our proposed ownership structure would not be in
violation of restrictions on foreign ownership contained in the Ukraine Media
Law, which restricts direct (but not indirect) investment by foreign persons in
Ukrainian broadcasters to 30%.  On January 12, 2006, the Ukraine
parliament adopted an amended version of the Ukraine Media Law that clarifies
the absence of any restriction on indirect foreign ownership of television
broadcasters.  This amended Ukraine Media Law came into force in March
2006.  Our partners have acknowledged an obligation to restructure
upon the entry into force of these amendments. Our partners have entered into
certain agreements to implement the restructuring of the Ukrainian operations of
the Studio 1+1 Group.  Following the completion of the transactions
reflected in these agreements and the registration of the charter of Studio 1+1
amended to reflect the new ownership of Studio 1+1, our ownership interest in
Studio 1+1 (direct and indirect) will be 60%. Upon successful completion of the
restructuring, we will terminate the proceedings initiated against our partners
in December 2005.





Ongoing
ancillary litigation to enjoin transactions related to the ownership of Studio
1+1 has been initiated by third parties who are not direct parties in interest
to legal proceedings initiated by Igor Kolomoisky against Alexander
Rodnyansky.  The state registrar in the district administration in
Kiev where charters are registered has declined to register amendments to the
charter of Studio 1+1, including in respect of the restructured ownership agreed
with our partners (see Part 1, Item 1, Note 1, Ukraine (Studio 1+1)) on the
basis of injunctions that have been lodged by such third parties.  We
do not believe that there is any legal basis for permitting such injunctions to
be enforced or for refusing to register the amended charter of Studio 1+1 and
have initiated a lawsuit against the district administration in Kiev to compel
it to register the amendments to the Studio 1+1 charter.  A hearing in
this matter is scheduled for August 2, 2007.





Page 39
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


(Tabular amounts in US$ 000’s, except
share and per share data)


(Unaudited)





b) Licenses





Regulatory
bodies in each country in which we operate control access to available
frequencies through licensing regimes. We believe that the licenses for our
license companies will be renewed prior to expiry. In Romania, the
Slovak Republic, Slovenia and Ukraine local regulations contain a qualified
presumption for extensions of broadcast licenses, according to which a broadcast
license may be renewed if the licensee has operated substantially in compliance
with the relevant licensing regime. To date, all expiring licenses have been
renewed; however, there can be no assurance that any of the licenses will be
renewed upon expiration of their current terms. The failure of any such license
to be renewed could adversely affect the results of our operations.





The
following summarizes the expiry dates of our television broadcasting
licenses:





Croatia
            The
      license of NOVA TV (Croatia) expires in April 2010.Czech Republic
            The
      license of TV NOVA (Czech Republic) expires in January 2017. The
      GALAXIE SPORT license expires in March 2014.Romania
            Licenses
      expire on dates ranging from August 2007 to February
  2016.Slovak Republic
            The
      license of MARKIZA TV in the Slovak Republic expires in September
      2019.Slovenia
            The
      licenses of POP TV and KANAL A expire in August 2012.Ukraine
            The
      15-hour prime time and off prime time license of STUDIO 1+1 expires in
      December 2016. The license to broadcast for the remaining nine hours in
      off prime expires in August 2014.  Licenses used for the KINO
      and CITI channels expire on dates ranging from June 2008 to July
      2016.








c) Restrictions on dividends from
Consolidated Subsidiaries and Unconsolidated Affiliates





Corporate
law in the Central and Eastern European countries in which we have operations
stipulates generally that dividends may be declared by shareholders, out of
yearly profits, subject to the maintenance of registered capital and required
reserves after the recovery of accumulated losses. The reserve requirement
restriction generally provides that before dividends may be distributed, a
portion of annual net profits (typically 5%) be allocated to a reserve, which
reserve is capped at a proportion of the registered capital of a company
(ranging from 5% to 25%).  The restricted net assets of our
consolidated subsidiaries and equity in earnings of investments accounted for
under the equity method together are less than 25% of consolidated net
assets.








19.  SUBSEQUENT
EVENTS





On July
13, 2007, we acquired 100.0% of Media Invest s.r.o. from our Slovak partner Jan
Kovacik for aggregate consideration of SKK 1.9 billion (approximately US$ 78.8
million at the date of acquisition). Media Invest has a 20.0% voting and
economic interest in Markiza. As a result of this transaction, we now own 100.0%
of Markiza.





Page 40
 Index





Item2.
                  Management's Discussion and
      Analysis of Financial Condition and Results of
      Operations
 
 Contents
 
 I.
              Forward-looking
      StatementsII.
              Executive
      SummaryIII.
              Analysis of Segment
      ResultsIV.
              Analysis of the Results of
      Consolidated OperationsV.
              Liquidity and Capital
      ResourcesVI.
              Critical Accounting Policies
      and Estimates
  I. Forward-looking
Statements
 
 This report contains forward-looking
statements, including the impact of the competitive market dynamics and
political environment in Ukraine, the impact of legal proceedings in Croatia and
Ukraine, the results of additional investment in Croatia and Ukraine, the
implementation of an advertising sales strategy in the Czech Republic and cost
reductions in the Czech and Slovak Republics, our ability to develop and
implement multi-channel strategies generally, the growth of television
advertising in our markets, the future economic conditions in our markets,
future investments in television broadcast operations, the growth potential of
advertising spending in our markets, and other business strategies and
commitments.  For these statements and all other forward-looking
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of
1995.  Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy or are otherwise
beyond our control and some of which might not even be
anticipated.  Future events and actual results, affecting our
strategic plan as well as our financial position, results of operations and cash
flows, could differ materially from those described in or contemplated by the
forward-looking statements.  Important factors that contribute to such
risks include, but are not limited to, the general regulatory environments where
we operate and application of relevant laws and regulations, the renewals of
broadcasting licenses, our ability to implement strategies regarding sales and
multi-channel distribution, the rate of development of advertising markets in
countries where we operate, our ability to acquire necessary programming and the
ability to attract audiences, our ability to obtain additional frequencies and
licenses, and general market and political and economic conditions in these
countries as well as in the United States and Western
Europe.
 
 The
following discussion should be read in conjunction with our interim financial
statements and notes included elsewhere in this report.
  II. Executive
Summary
  The
accompanying Management’s Discussion and Analysis of Financial Condition and
Results of Operations reflects the restatement of the unaudited condensed
Consolidated Financial Statements for the six months ended June 30, 2007
described in Item 1, Note 2.
  Page 41
 Index
  Continuing
Operations
  The
following table provides a summary of our consolidated results for the three and
six months ended June 30, 2007 and 2006:
 
 For the Three Months Ended June
      30, (US$ 000's)2007
                    
                    
                    2006
                    
                    
                    MovementNet
      revenues
                    
                    $
                    216,284
                    
                    
                    $
                    156,589
                    
                    
                    $
                    59,695Operating
      income
                    
                    
                    66,579
                    
                    
                    
                    44,033
                    
                    
                    
                    22,546Net
      income from continuing operations
                    
                    
                    34,590
                    
                    
                    
                    7,245
                    
                    
                    
                    27,345Net
    income
                    
                    $
                    34,590
                    
                    
                    $
                    8,522
                    
                    
                    $
                    26,068
 For the Six Months Ended June
      30, (US$ 000's)2007
                
                
                2006
                
                
                MovementNet
      revenues
                
                $
                364,196
                
                
                $
                276,343
                
                
                $
                87,853Operating
      income
                
                
                79,866
                
                
                
                60,216
                
                
                
                19,650Net
      income / (loss) from continuing operations
                
                
                34,340
                
                
                
                (7,212)
                
                
                
                41,552Net income /
      (loss)
                
                $
                34,340
                
                
                $
                (9,742)
                
                
                $
                44,082
  The
principal events for the three months ended June 30, 2007 are as
follows:
 
 ·
              In
      the three months ended June 30, 2007, we reported growth in Segment Net
      Revenues of 38% and Segment EBITDA of 38% compared to the three months
      ended June 30, 2006, delivering a Segment EBITDA margin of 40%, in line
      with that reported in the three months ended June 30, 2006 (Segment EBITDA
      is defined and reconciled to our consolidated results in Item 1, Note
      16).
 
 ·
              Other
      than our operations in Ukraine, each of our stations reported revenue
      growth in excess of 25% compared to the three months ended June 30, 2006,
      with particularly strong growth reported in Croatia and the
      Slovak Republic. Our operations in Ukraine experienced a slight
      increase in Segment Net Revenues but a significant decline in Segment
      EBITDA as we were required to increase our investment in programming in
      the face of increased competition and poor ratings
      performance.
 
 ·
              On
      May 15, 2007 we redeemed our EUR 125.0 million floating rate Senior Notes,
      bearing interest at six-month EURIBOR plus
  5.50%.
 
 ·
              On
      May 16, 2007 we issued EUR 150.0 million of floating rate Senior Notes,
      bearing interest at six-month EURIBOR plus
  1.625%.
 
 ·
              On
      June 1, 2007, we completed the acquisition of an additional 5% interest in
      Pro TV and MPI and now own a 95.0% interest in our Romania
      operations.
 
 ·
              On
      June 25, 2007, our shares of Class A Common Stock were included within the
      broad-market Russell 3000 Index, the large-cap stocks Russell 1000 Index
      and the Russell Global Index.
  Events
that occurred subsequent to June 30, 2007 have been as follows:
 
 ·
              On
      July 13, 2007, we acquired an additional 20.0% interest in Markiza and now
      own 100.0% of our Slovak Republic
  operations.
 
 Future
Developments
 
 As our
markets mature, we anticipate more intense competition for audience share and
advertising spending from other incumbent terrestrial broadcasters and, to a
lesser extent, from local cable and satellite broadcasters.  We
believe we are in a solid position to manage increased
competition.  In the near term we intend to continue to pursue further
improvements in the performance of our existing operations in order to maximize
the potential for organic growth. In Croatia, we believe that our strategy and
investments are beginning to bring consistent positive results, which has
created a solid foundation for Nova TV (Croatia) to reach break even before the
end of 2008.  In Ukraine, we anticipate that political advertising in
advance of parliamentary elections in September and increased television
advertising spending that is expected to follow greater political certainty
after the elections will facilitate an improvement in the results of Studio
1+1.
  Page 42
 Index
  Our
priorities in this regard include:
 
 ·
              Pursuing
      sub-regional efficiencies, especially in the area of local programming
      between Slovenia and Croatia and between the Czech and Slovak
      Republics;
 
 ·
              Supporting
      the growth of television advertising in our markets through increased
      development and through the launch or acquisition of additional channels
      to expand our advertising inventory and target niche
      audiences;
 
 ·
              Leveraging
      our existing brands and assets to develop new revenue opportunities,
      including in the creation and distribution of programming and in the new
      media sectors; and
 
 ·
              Continuing
      to expand our footprint into additional Central and Eastern European
      markets when financially prudent opportunities
  arise.
 
 In
particular, we are planning the following during the remainder of
2007:
 
 ·
              Continuing
      to improve the effectiveness of our operations in the Czech Republic and
      the Slovak Republic.
 
 ·
              Additional
      investment in Russian series and local programming for STUDIO 1+1, which
      have driven ratings historically, and continuing the development of our
      Ukraine channels KINO and CITI which were launched in
  2006.
 
 ·
              Further
      development of our non-broadcast activities, particularly in new media,
      which is being coordinated across our
markets.
 
 ·
              Acquisition
      of additional shares in our operations in Ukraine if the opportunity
      arises; and
 
 ·
              Continuing
      to invest in the development of our Croatia
  operations.
  III. Analysis of Segment
Results
 
 OVERVIEW
 
 We manage
our business on a geographic basis and review the performance of each business
segment using data that reflects 100% of operating and license company
results.  We also consider how much of our total revenues and earnings
are derived from our broadcast and non-broadcast operations. Our business
segments are comprised of Croatia, the Czech Republic, Romania, the Slovak
Republic, Slovenia and our two businesses in Ukraine.
 
 We
evaluate the performance of our business segments based on Segment Net Revenues
and Segment EBITDA.  Segment Net Revenues and Segment EBITDA include
our operations in the Slovak Republic which were not consolidated prior to
January 23, 2006.
 
 Our key
performance measure of the efficiency of our business segments is EBITDA
margin.  We define Segment EBITDA margin as the ratio of Segment
EBITDA to Segment Net Revenues.
  Page 43
 Index
 Segment
EBITDA is determined as segment net income/loss, which includes program rights
amortization costs, before interest, taxes, depreciation and amortization of
intangible assets.  Items that are not allocated to our segments for
purposes of evaluating their performance, and therefore are not included in
Segment EBITDA, include:
 
 ·
                  expenses
      presented as corporate operating costs in our condensed consolidated
      statement of operations and comprehensive
  income;
 
 ·
                  stock-based
      compensation charges;
 ·
                  foreign
      currency exchange gains and losses;
 
 ·
                  change
      in fair value of derivatives; and
 
 ·
                  certain
      unusual or infrequent items (e.g., extraordinary gains and losses,
      impairments of assets or
investments).
 
 EBITDA
may not be comparable to similar measures reported by other
companies.  Non-GAAP measures should be evaluated in conjunction with,
and are not a substitute for, US GAAP financial measures.
  We
believe Segment EBITDA is useful to investors because it provides a more
meaningful representation of our performance as it excludes certain items that
either do not impact our cash flows or the operating results of our
stations.  Segment EBITDA is also used as a component in determining
management bonuses.
 
 For a
full reconciliation of our Segment Net Revenues and Segment EBITDA by operation
to our consolidated results for the three and six months ended June 30, 2007 and
2006 see Part I, Item 1, Note 16.
 A summary
of our total Segment Net Revenues, Segment EBITDA and Segment EBITDA margin
showing the relative contribution of each Segment, is as follows:
 
 Page 44
 Index
 SEGMENT FINANCIAL
      INFORMATIONFor the Three Months Ended June
      30, (US$ 000's)2007
                
                (1)
                
                
                2006
                
                (1)Segment Net
      RevenueCroatia
      (NOVA TV)
                
                $
                10,414
                
                5
                %
                
                $
                5,647
                
                4
                %Czech
      Republic (TV NOVA, GALAXIE SPORT)
                
                
                80,544
                
                37
                %
                
                
                56,312
                
                36
                %Romania
      (2)
                
                
                52,224
                
                24
                %
                
                
                37,769
                
                24
                %Slovak
      Republic (MARKIZA TV)
                
                
                29,652
                
                14
                %
                
                
                20,046
                
                13
                %Slovenia
      (POP TV, KANAL A)
                
                
                20,095
                
                9
                %
                
                
                15,555
                
                10
                %Ukraine
      (STUDIO 1+1)
                
                
                22,701
                
                11
                %
                
                
                21,062
                
                13
                %Ukraine
      (KINO, CITI)
                
                
                654
                
                -
                
                
                
                198
                
                -Total Segment Net
      Revenues
                
                $
                216,284
                
                100
                %
                
                $
                156,589
                
                100
                %Represented
      by:Broadcast
      operations
                
                $
                214,987
                
                99
                %
                
                $
                155,902
                
                100
                %Non-broadcast
      operations
                
                
                1,297
                
                1
                %
                
                
                687
                
                -Total Segment
      Revenues
                
                $
                216,284
                
                100
                %
                
                $
                156,589
                
                100
                %Segment
      EBITDACroatia
      (NOVA TV)
                
                $
                (2,167)
                
                (2)
                %
                
                $
                (2,639)
                
                (4)
                %Czech
      Republic (TV NOVA, GALAXIE SPORT)
                
                
                47,595
                
                55
                %
                
                
                29,509
                
                47
                %Romania
      (2)
                
                
                22,530
                
                26
                %
                
                
                16,424
                
                26
                %Slovak
      Republic (MARKIZA TV)
                
                
                11,712
                
                13
                %
                
                
                7,827
                
                12
                %Slovenia
      (POP TV, KANAL A)
                
                
                8,388
                
                9
                %
                
                
                6,430
                
                10
                %Ukraine
      (STUDIO 1+1)
                
                
                565
                
                1
                %
                
                
                6,037
                
                10
                %Ukraine
      (KINO, CITI)
                
                
                (1,755)
                
                (2)
                %
                
                
                (432)
                
                (1)
                %Total Segment
      EBITDA
                
                $
                86,868
                
                100
                %
                
                $
                63,156
                
                100
                %Represented
      by:Broadcast
      operations
                
                $
                87,175
                
                100
                %
                
                $
                62,970
                
                100
                %Non-broadcast
      operations
                
                
                (307)
                
                -
                
                
                
                186
                
                -Total Segment
      EBITDA
                
                $
                86,868
                
                100
                %
                
                $
                63,156
                
                100
                %Segment EBITDA Margin
      (3)
                
                
                40
                %
                
                
                
                
                40
                %
  (1)
      Percentage of Total Segment Net Revenues and Total Segment
      EBITDA.(2)
      Romania networks are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
      SPORT.RO.(3)
      We define Segment EBITDA margin as the ratio of Segment EBITDA to Segment
      Net Revenue.
 Page 45
 Index
 
 SEGMENT FINANCIAL
      INFORMATIONFor the Six Months Ended June
      30, (US$ 000's)2007
              
              
              (1)
              
              2006
              
              
              (1)Segment Net
      RevenueCroatia
      (NOVA TV)
              
              $
              17,646
              
              
              5
              %
              $
              9,457
              
              
              4
              %Czech
      Republic (TV NOVA)
              
              
              132,063
              
              
              37
              %
              
              96,861
              
              
              35
              %Romania
      (2)
              
              
              91,566
              
              
              25
              %
              
              67,640
              
              
              24
              %Slovak
      Republic (MARKIZA TV) (3)
              
              
              48,329
              
              
              13
              %
              
              31,252
              
              
              11
              %Slovenia
      (POP TV, KANAL A)
              
              
              32,764
              
              
              9
              %
              
              25,782
              
              
              9
              %Ukraine
      (STUDIO 1+1)
              
              
              40,776
              
              
              11
              %
              
              46,540
              
              
              17
              %Ukraine
      (KINO, CITI) (4)
              
              
              1,052
              
              
              -
              
              
              572
              
              
              -Total Segment Net
      Revenues
              
              $
              364,196
              
              
              100
              %
              $
              278,104
              
              
              100
              %Represented
      by:Broadcast
      operations
              
              $
              362,409
              
              
              100
              %
              $
              276,975
              
              
              100
              %Non-broadcast
      operations
              
              
              1,787
              
              
              -
              
              
              1,129
              
              
              -Total Segment
      Revenues
              
              $
              364,196
              
              
              100
              %
              $
              278,104
              
              
              100
              %Segment
      EBITDACroatia
      (NOVA TV)
              
              $
              (6,819)
              
              
              (5)
              %
              $
              (7,081)
              
              
              (7)
              %Czech
      Republic (TV NOVA)
              
              
              73,262
              
              
              58
              %
              
              42,335
              
              
              44
              %Romania
      (2)
              
              
              37,666
              
              
              29
              %
              
              28,037
              
              
              29
              %Slovak
      Republic (MARKIZA TV) (3)
              
              
              17,468
              
              
              13
              %
              
              6,850
              
              
              7
              %Slovenia
      (POP TV, KANAL A)
              
              
              11,389
              
              
              9
              %
              
              9,463
              
              
              10
              %Ukraine
      (STUDIO 1+1)
              
              
              (1,805)
              
              
              (1)
              %
              
              17,024
              
              
              18
              %Ukraine
      (KINO, CITI) (4)
              
              
              (4,172)
              
              
              (3)
              %
              
              (557)
              
              
              (1)
              %Total Segment
      EBITDA
              
              $
              126,989
              
              
              100
              %
              $
              96,071
              
              
              100
              %Represented
      by:Broadcast
      operations
              
              $
              127,889
              
              
              101
              %
              $
              95,916
              
              
              100
              %Non-broadcast
      operations
              
              
              (900)
              
              
              (1)
              %
              
              155
              
              
              -Total Segment
      EBITDA
              
              $
              126,989
              
              
              100
              %
              $
              96,071
              
              
              100
              %Segment EBITDA Margin
      (5)
              
              
              35
              %
              
              
              
              
              35
              %
  (1)
      Percentage of Total Segment Net Revenues and Total Segment
      EBITDA.(2)
      Romania networks are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
      SPORT.RO.(3)
      Our Slovak Republic operations were accounted for as an equity affiliate
      until January 23, 2006.(4)
      We acquired our Ukraine (KINO, CITI) operations on January 11,
      2006.(5)
      We define Segment EBITDA margin as the ratio of Segment EBITDA to Segment
      Net Revenue.
 
 Page 46
 Index
  ANALYSIS BY GEOGRAPHIC
SEGMENT
 
 In the
countries in which we operate, advertisers tend to allocate their television
advertising budgets among channels based on each channel's audience share,
audience demographic profile and pricing policy.  We generally offer
two different bases of pricing to our advertising customers.  The
first basis is cost per gross rating point (which we refer to as
“GRP”).  A GRP represents the percentage of audience (from the
population over the age of four) reached by a television advertisement and the
number of GRPs achieved for a defined time period is the product of the
proportion of that total viewing population watching that television
advertisement and the frequency that it is viewed (as measured by international
measurement agencies using peoplemeters).  The second basis is
rate-card, which reflects the timing and duration of an
advertisement.  Whether advertising is sold on a GRP basis or a
rate-card basis depends on the dynamics of a particular market and our relative
audience share.
 
 Cost per GRP pricing:
Advertising priced on a cost per GRP basis allows an advertiser to specify the
number of gross ratings points that it wants to achieve with an advertisement
within a defined period of time.  We schedule the timing of the airing
of the advertisements during such defined period of time in a manner that
enables us both to meet the advertiser's GRP target and to maximize the use and
profitability of our available advertising programming time.  The
price per GRP package varies depending on the demographic group that the
advertisement is targeting, the flexibility given to us by advertisers in
scheduling their advertisements and the rebates offered by us to advertising
agencies and their clients.  GRP package sales generally allow for
better inventory control than rate-card pricing and optimize the net price per
GRP achieved.
 
 Rate-card pricing:
Advertising priced on a rate-card basis is applied to advertisements scheduled
at a specific time.  Consistent with industry practice, we provide an
incentive rebate on rate-card prices to a number of advertising agencies and
their clients.  We recognize our advertising revenue net of rebates at
the time the relevant advertisement is broadcast.
 
 The
majority of our advertising customers commit to annual minimum spending
levels.  We usually schedule specific advertisements one month in
advance of broadcasting them.  Prices paid by advertisers, whether
they purchase advertising time on a GRP package or rate-card basis, tend to be
higher during peak viewing months, particularly during the fourth quarter, than
during off-peak months such as July and August.
 
 When
describing relative performance against other competitors in attracting audience
we refer to ratings share, which represents the number of people watching a
channel as a proportion of the total population, and audience share, which
represents the share attracted by a channel of the total audience watching
television.
 
 Our goal
is to increase revenues from advertising in local currency year-on-year in every
market through disciplined management of our advertising
inventory.  In any given period, revenue changes can be attributable
to combinations of price fluctuations, different inventory sales, seasonal or
time-of-day incentives, target-audience delivery of specific campaigns,
introductory pricing for new clients or audience movements based on our
competitors’ program schedule.
 
 For the
purposes of our management discussion and analysis, total television advertising
revenue net of rebates is referred to as “spot revenues”.  Non-spot
revenues refers to all other revenues, including those from sponsorship, game
shows, program sales, text messaging, cable subscriptions and barter
transactions.  The total of spot revenues and non-spot revenues is
equal to Segment Net Revenues.
  (A) CROATIA
 Market
Background:  We estimate that the television advertising market
in Croatia experienced local currency growth of approximately 2% - 5% in 2006
and expect it to show low single digit growth during 2007.
 
 In the
six months ended June 30, 2007, national all day audience share for NOVA TV
(Croatia) grew to 18.1% compared to 13.7% in the six months ended June 30,
2006.  The major competitors are the two state-owned channels HRT1 and
HRT2, with national all day audience shares for the six months ended June 30,
2007 of 27.0% and 17.4%, respectively, and privately owned broadcaster RTL with
28.0%.
 Page 47
 Index
 Prime
time audience share for NOVA TV (Croatia), which is our principal focus, grew
from 15.5% in the six months ended June 30, 2006 to 19.2% in the six months
ended June 30, 2007.  Our average prime time ratings increased from
6.9% to 7.3% over comparable periods, while prime time ratings for the whole
market decreased from 45.9% in the six months ended June 30, 2006, when
viewership increased during the Winter Olympics and the Soccer World Cup, to
37.8% in the six months ended June 30, 2007.
  Three
months ended June 30, 2007 compared to the three months ended June 30,
2006
 CROATIA SEGMENT FINANCIAL
      INFORMATIONFor the Three Months Ended June
      30, (US$ 000's)2007
                
                
                2006
                
                
                MovementSpot
      revenues
                
                $
                8,482
                
                
                $
                4,698
                
                
                $
                3,784Non-spot
      revenues
                
                
                1,932
                
                
                
                949
                
                
                
                983Segment Net
      Revenues
                
                $
                10,414
                
                
                $
                5,647
                
                
                $
                4,767Represented
      by:Broadcast
      operations
                
                $
                10,389
                
                
                $
                5,647
                
                
                $
                4,742Non-broadcast
      operations
                
                
                25
                
                
                
                -
                
                
                
                25Segment Net
      Revenues
                
                $
                10,414
                
                
                $
                5,647
                
                
                $
                4,767Segment
      EBITDA
                
                $
                (2,167
                )
                
                $
                (2,639
                )
                
                $
                472Represented
      by:Broadcast
      operations
                
                $
                (2,144
                )
                
                $
                (2,639
                )
                
                $
                495Non-broadcast
      operations
                
                
                (23
                )
                
                
                -
                
                
                
                (23
                )Segment
      EBITDA
                
                $
                (2,167
                )
                
                $
                (2,639
                )
                
                $
                472Segment EBITDA
      Margin
                
                
                (21
                )%
                
                
                (47
                )%
                
                
                26
                %
  ·
              Segment Net Revenues for
      the three months ended June 30, 2007 increased by US$ 4.8 million, or 84%,
      compared to the three months ended June 30, 2006.  In local
      currency, Segment Net Revenues increased by 73%.  Spot revenues
      increased by US$ 3.8 million, or 81%, as a result of a significant
      increase in the volume of GRPs sold.  Non-spot revenues
      increased by US$ 1.0 million, or 104%, as a result of increased levels of
      sponsorship.
 
 ·
              Segment EBITDAfor the
      three months ended June 30, 2007 was a loss of US$ 2.2 million compared to
      a loss of US$ 2.6 million in the three months ended June 30, 2006, an
      improvement of 18%.  In local currency, Segment EBITDA improved
      by 20%.
 
 Costs
charged in arriving at Segment EBITDA for the three months ended June 30, 2007
increased by US$ 4.3 million, or 52%, compared to the three months ended June
30, 2006.  Cost of programming increased by US$ 4.0 million, or 94%,
due to increased investment in local productions and syndicated programming to
continue to grow ratings.  Other operating costs decreased by US$ 0.5
million, or 15%, primarily due to lower salary and wage costs, partially offset
by higher transmission costs as a result of increased transmitter coverage and
also higher music rights costs.  Selling, general and administrative
expenses increased by US$ 0.8 million, or 62%.
 Page 48
 Index
 Six months ended June 30, 2007
compared to the six months ended June 30, 2006
 
 CROATIA SEGMENT FINANCIAL
      INFORMATIONFor the Six Months Ended June
      30, (US$ 000's)2007
                
                
                2006
                
                
                MovementSpot
      revenues
                
                $
                13,503
                
                
                $
                7,751
                
                
                $
                5,752Non-spot
      revenues
                
                
                4,143
                
                
                
                1,706
                
                
                
                2,437Segment Net
      Revenues
                
                $
                17,646
                
                
                $
                9,457
                
                
                $
                8,189Represented
      by:Broadcast
      operations
                
                $
                17,616
                
                
                $
                9,457
                
                
                $
                8,159Non-broadcast
      operations
                
                
                30
                
                
                
                -
                
                
                
                30Segment Net
      Revenues
                
                $
                17,646
                
                
                $
                9,457
                
                
                $
                8,189Segment
      EBITDA
                
                $
                (6,819)
                
                
                $
                (7,081)
                
                
                $
                262Represented
      by:Broadcast
      operations
                
                $
                (6,767)
                
                
                $
                (7,081)
                
                
                $
                314Non-broadcast
      operations
                
                
                (52)
                
                
                
                -
                
                
                
                (52)Segment
      EBITDA
                
                $
                (6,819)
                
                
                $
                (7,081)
                
                
                $
                262Segment EBITDA
      Margin
                
                
                (39)
                %
                
                
                (75)
                %
                
                
                36
                %
  ·
                Segment Net Revenues for
      the six months ended June 30, 2007 increased by US$ 8.2 million, or 87%,
      compared to the six months ended June 30, 2006.  In local
      currency, Segment Net Revenues increased by 73%.  Spot revenues
      increased by US$ 5.8 million, or 74%, as a result of a significant
      increase in the volume of GRPs sold, augmented by increased
      prices.  Non-spot revenues increased by US$ 2.4 million, or
      143%, as a result of increased levels of
  sponsorship.
 
 ·
                Segment EBITDAfor the
      six months ended June 30, 2007 was a loss of US$ 6.8 million compared to a
      loss of US$ 7.1 million in the six months ended June 30, 2006, an
      improvement of 4%.  In local currency, Segment EBITDA improved
      by 10%.
 
 Costs
charged in arriving at Segment EBITDA for the six months ended June 30, 2007
increased by US$ 7.9 million, or 48%, compared to the six months ended June 30,
2006.  Cost of programming increased by US$ 7.8 million, or 93%, due
to increased investment in local productions and syndicated
programming.  Other operating costs decreased by US$ 0.8 million, or
14%, primarily due to lower salary and wage costs, partially offset by higher
transmission costs as a result of increased transmitter coverage and also higher
music rights costs.  Selling, general and administrative expenses
increased by US$ 0.9 million, or 34%.
  (B) CZECH
REPUBLIC
 Market
Background:  We estimate that the television advertising market
in the Czech Republic remained stable in local currency during
2006.  We expect the television advertising market to show high single
digit growth in 2007.  State television has reduced the amount of
airtime that can be devoted to commercial advertising to 0.5% in
2007.
 
 The
national all day audience share of our channel, TV NOVA (Czech Republic), for
the six months ended June 30, 2007 was 40.6% compared to 41.7% for the six
months ended June 30, 2006.  The major competitors are the two
state-owned channels CT1 and CT2, with national all day audience
 Page 49
 Index
 Prime
time audience share grew from 43.2% in the six months ended June 30, 2006 to
44.7% in the six months ended June 30, 2007.  Our average prime time
ratings decreased from 17.8% to 17.0% over comparable periods, while prime time
ratings for the whole market decreased from 41.1% in the six months ended June
30, 2006 to 38.0% in the six months ended June 30, 2007, reflecting the
extremely warm weather enjoyed by much of Europe in 2007.
 
 During
the first quarter of 2006, we announced a new advertising sales strategy based
on our belief that growth in the television advertising market in the Czech
Republic has been impeded over the past several years due to broadcasters
focusing on obtaining an increased share of revenues committed to television
advertising rather than fostering market growth by focusing on maximizing value
received from the sale of GRPs.  The focus of the TV Nova (Czech
Republic) group is now on the development of advertising revenues over the
medium term by supporting and then capturing market growth through a more
sophisticated pricing policy.  In conjunction with this advertising
strategy, the TV Nova (Czech Republic) group initiated a series of measures to
reduce the costs of its operations, including the cancellation of poorly
performing formats and reductions in operational costs.  Our results
in the first half of 2007 reflect the success of these initiatives to
date.
  Three months ended June 30, 2007
compared to the three months ended June 30, 2006
 
 CZECH REPUBLIC SEGMENT
      FINANCIAL INFORMATIONFor the Three Months Ended June
      30, (US$ 000's)2007
              
              
              2006
              
              
              MovementSpot
      revenues
              
              $
              74,048
              
              
              $
              49,390
              
              
              $
              24,658Non-spot
      revenues
              
              
              6,496
              
              
              
              6,922
              
              
              
              (426)Segment Net
      Revenues
              
              $
              80,544
              
              
              $
              56,312
              
              
              $
              24,232Represented
      by:Broadcast
      operations
              
              $
              80,489
              
              
              $
              56,092
              
              
              $
              24,397Non-broadcast
      operations
              
              
              55
              
              
              
              220
              
              
              
              (165)Segment Net
      Revenues
              
              $
              80,544
              
              
              $
              56,312
              
              
              $
              24,232Segment
      EBITDA
              
              $
              47,595
              
              
              $
              29,509
              
              
              $
              18,086Represented
      by:Broadcast
      operations
              
              $
              47,822
              
              
              $
              29,463
              
              
              $
              18,359Non-broadcast
      operations
              
              
              (227)
              
              
              
              46
              
              
              
              (273)Segment
      EBITDA
              
              $
              47,595
              
              
              $
              29,509
              
              
              $
              18,086Segment EBITDA
      Margin
              
              
              59
              %
              
              
              52
              %
              
              
              7
              %
  ·
              Segment Net Revenues for
      the three months ended June 30, 2007 increased by US$ 24.2 million, or
      43%, compared to the three months ended June 30, 2006.  In local
      currency, Segment Net Revenues increased by 33%.  Spot revenues
      increased by US$ 24.7 million, or 50%, primarily due to an increase in the
      volume of GRPs sold as advertisers have shifted expenditure to our channel
      from our competitors, as well as increased average revenue per rating
      point sold. Non-spot revenue decreased by US$ 0.4 million, or 6%,
      primarily due to a reduction in the number of shows generating voting
      revenue in the three months ended June 30, 2007 compared to those programs
      broadcast in the three months ended June 30, 2006 and also a reduction in
      votes in the shows that were
broadcast.
  Page 50
 Index
 ·
                  Segment EBITDAfor the
      three months ended June 30, 2007 increased by US$ 18.1 million, or 61%,
      compared to the three months ended June 30, 2006, resulting in an EBITDA
      margin of 59% compared to 52% in the three months ended June 30,
      2006.  In local currency, Segment EBITDA increased by
      48%.  Costs charged in arriving at Segment EBITDA for the three
      months ended June 30, 2007 increased by US$ 6.1 million, or 23%, compared
      to the three months ended June 30, 2006.  Cost of programming
      increased by US$ 2.3 million, or 15%, primarily due to increased
      investment in local productions.  Other operating costs
      increased by US$ 3.3 million, or 49%, primarily due to increased accruals
      for performance-related bonus payments.  Selling, general and
      administrative expenses increased by US$ 0.5 million, or 12%, primarily
      due to increased marketing and research
costs.
 Six
months ended June 30, 2007 compared to the six months ended June 30,
2006
 CZECH REPUBLIC SEGMENT
      FINANCIAL INFORMATIONFor the Six Months Ended June
      30, (US$ 000's)2007
              
              
              2006
              
              
              MovementSpot
      revenues
              
              $
              120,712
              
              
              $
              82,833
              
              
              $
              37,879Non-spot
      revenues
              
              
              11,351
              
              
              
              14,028
              
              
              
              (2,677)Segment Net
      Revenues
              
              $
              132,063
              
              
              $
              96,861
              
              
              $
              35,202Represented
      by:Broadcast
      operations
              
              $
              131,969
              
              
              $
              96,494
              
              
              $
              35,475Non-broadcast
      operations
              
              
              94
              
              
              
              367
              
              
              
              (273)Segment Net
      Revenues
              
              $
              132,063
              
              
              $
              96,861
              
              
              $
              35,202Segment
      EBITDA
              
              $
              73,262
              
              
              $
              42,335
              
              
              $
              30,927Represented
      by:Broadcast
      operations
              
              $
              73,759
              
              
              $
              42,319
              
              
              $
              31,440Non-broadcast
      operations
              
              
              (497)
              
              
              
              16
              
              
              
              (513)Segment
      EBITDA
              
              $
              73,262
              
              
              $
              42,335
              
              
              $
              30,927Segment EBITDA
      Margin
              
              
              55
              %
              
              
              44
              %
              
              
              11
              %
 
 
 ·
              Segment Net Revenues for
      the six months ended June 30, 2007 increased by US$ 35.2 million, or 36%,
      compared to the six months ended June 30, 2006.  In local
      currency, Segment Net Revenues increased by 25%.  Spot revenues
      increased by US$ 37.9 million, or 46%, primarily due to an increase in the
      volume of GRPs sold, as well as increased average revenue per rating point
      sold. Non-spot revenue decreased by US$ 2.7 million, or 19%, primarily due
      to a reduction in the number of shows generating voting revenue in the six
      months ended June 30, 2007 compared to those programs broadcast in the six
      months ended June 30, 2006 and also a reduction in votes in the shows that
      were broadcast.
 
 ·
              Segment EBITDAfor the
      six months ended June 30, 2007 increased by US$ 30.9 million, or 73%,
      compared to the six months ended June 30, 2006, resulting in an EBITDA
      margin of 55% compared to 44% in the six months ended June 30,
      2006.  In local currency, Segment EBITDA increased by
      58%.  Costs charged in arriving at Segment EBITDA for the six
      months ended June 30, 2007 increased by US$ 4.2 million, or 8%, compared
      to the six months ended June 30, 2006.  Cost of programming was
      in line with the six months ended June 30, 2006 as we focused on improving
      operational efficiency.  Other operating costs increased by US$
      4.2 million, or 33%, primarily due to increased accruals for
      performance-related bonus payments.  Selling, general and
      administrative expenses were in line with the six months ended June 30,
      2006 primarily
      due to increased accruals for performance-related bonus
      payments.  Selling, general and administrative expenses were in
      line with the six months ended June 30,
  2006.
  Page 51
 Index
 (C) ROMANIA
 Market
Background:We estimate that the television advertising market
grew by approximately 32% - 37% in US dollars during 2006.  We expect
the television advertising market to show continued growth in the range of 25%
to 30% in 2007.
  The
combined national all day audience share of PRO TV, ACASA and PRO CINEMA for the
six months ended June 30, 2007 was 22.1% compared to 25.0% for the six months
ended June 30, 2006.  On March 1, 2007 we acquired the license to
broadcast SPORT.RO which had an all day audience share of 1.9% in the six months
ended June 30, 2007. We re-branded the channel SPORT.RO and re-launched it under
its new name during April 2007.  The major competitors are the two
state-owned channels TVR1 and TVR2, with national all day audience shares for
the six months ended June 30, 2007 of 13.5% and 4.8%, respectively, and
privately owned broadcaster Antena 1 with 12.7%.
  Prime
time audience share for PRO TV, ACASA and PRO CINEMA decreased from 27.0% in the
six months ended June 30, 2006 to 23.1% in the six months ended June 30,
2007.  ACASA suffered a decline in share, as the popularity of our
successful telenovellas has diminished following the decision by other competing
stations to produce similar programs, while an increase in share for PRO CINEMA
was offset by an equivalent decrease in PRO TV.  Our average prime
time ratings decreased from 11.3% to 8.7% over comparable periods, while prime
time ratings for the whole market decreased from 41.6% in the six months ended
June 30, 2006 to 37.6% in the six months ended June 30, 2007, reflecting the
unusually warm weather conditions as well as the increased popularity of other
forms of entertainment as consumer electronic products decine in
price.
 Three
months ended June 30, 2007 compared to the three months ended June 30,
2006
 
 ROMANIA SEGMENT FINANCIAL
      INFORMATIONFor the Three Months Ended June
      30, (US$ 000's)2007
              
              
              2006
              
              
              MovementSpot
      revenues
              
              $
              49,069
              
              
              $
              35,735
              
              
              $
              13,334Non-spot
      revenues
              
              
              3,155
              
              
              
              2,034
              
              
              
              1,121Segment Net
      Revenues
              
              $
              52,224
              
              
              $
              37,769
              
              
              $
              14,455Represented
      by:Broadcast
      operations
              
              $
              52,168
              
              
              $
              37,769
              
              
              $
              14,399Non-broadcast
      operations
              
              
              56
              
              
              
              -
              
              
              
              56Segment Net
      Revenues
              
              $
              52,224
              
              
              $
              37,769
              
              
              $
              14,455Segment
      EBITDA
              
              $
              22,530
              
              
              $
              16,424
              
              
              $
              6,106Represented
      by:Broadcast
      operations
              
              $
              22,625
              
              
              $
              16,424
              
              
              $
              6,201Non-broadcast
      operations
              
              
              (95)
              
              
              
              -
              
              
              
              (95)Segment
      EBITDA
              
              $
              22,530
              
              
              $
              16,424
              
              
              $
              6,106Segment EBITDA
      Margin
              
              
              43
              %
              
              
              43
              %
              
              
              -
 
  Page 52
 Index
 ·
                  Segment Net Revenues for
      the three months ended June 30, 2007 increased by US$ 14.5 million, or
      38%, compared to the three months ended June 30, 2006. Spot revenues
      increased by US$ 13.3 million, or 37%, driven primarily by increases in
      the average revenue per rating point sold in each of our three existing
      channels, which more than offset a decline in the volume of GRPs sold.
      Non-spot revenues increased by US$ 1.1 million, or 55%, primarily due to
      increased cable tariff revenue. The acquisition of Sport.ro added
      approximately US$ 2.2 million to our revenues for the three months ended
      June 30, 2007.
 
 ·
                  Segment EBITDAfor the
      three months ended June 30, 2007 increased by US$ 6.1 million, or 37%,
      compared to the three months ended June 30, 2006, resulting in an
      unchanged EBITDA margin of 43%.  Costs charged in arriving at
      Segment EBITDA for the three months ended June 30, 2007 increased by US$
      8.3 million, or 39%, compared to the three months ended June 30,
      2006.  Cost of programming grew by US$ 8.6 million, or 66%, due
      partially to the inclusion of the salary-related costs of production staff
      within cost of programming rather than operating costs; excluding the
      impact of this change in classification, cost of programming increased by
      US$ 6.4 million, or 49%, as a result of increased market competition and
      investment in quality programming.  Other operating costs
      decreased by US$ 0.6 million, or 10%, after the difference in
      classification described above; excluding the impact of this change in
      classification, other operating costs increased by US$ 1.6 million, or
      29%, primarily due to the impact of a weaker dollar on local currency
      denominated staffing costs.  Selling, general and administrative
      expenses increased by US$ 0.3 million, or 10%, primarily due to increased
      marketing and research costs and increased office running
      costs.  The acquisition of Sport.ro added approximately US$ 0.6
      million to our Segment EBITDA for the three months ended June 30,
      2007.
 Six
months ended June 30, 2007 compared to the six months ended June 30,
2006
 
 ROMANIA SEGMENT FINANCIAL
      INFORMATIONFor the Six Months Ended June
      30, (US$ 000's)2007
              
              
              2006
              
              
              MovementSpot
      revenues
              
              $
              85,604
              
              
              $
              63,870
              
              
              $
              21,734Non-spot
      revenues
              
              
              5,962
              
              
              
              3,770
              
              
              
              2,192Segment Net
      Revenues
              
              $
              91,566
              
              
              $
              67,640
              
              
              $
              23,926Represented
      by:Broadcast
      operations
              
              $
              91,510
              
              
              $
              67,640
              
              
              $
              23,870Non-broadcast
      operations
              
              
              56
              
              
              
              -
              
              
              
              56Segment Net
      Revenues
              
              $
              91,566
              
              
              $
              67,640
              
              
              $
              23,926Segment
      EBITDA
              
              $
              37,666
              
              
              $
              28,037
              
              
              $
              9,629Represented
      by:Broadcast
      operations
              
              $
              37,899
              
              
              $
              28,037
              
              
              $
              9,862Non-broadcast
      operations
              
              
              (233)
              
              
              
              -
              
              
              
              (233)Segment
      EBITDA
              
              $
              37,666
              
              
              $
              28,037
              
              
              $
              9,629Segment EBITDA
      Margin
              
              
              41
              %
              
              
              41
              %
              
              
              -
 
 ·
              Segment Net Revenues for
      the six months ended June 30, 2007 increased by US$ 23.9 million, or 35%,
      compared to the six months ended June 30, 2006. Spot revenues increased by
      US$ 21.7 million, or 34%, driven primarily by increases in the average
      revenue per rating point sold in each of our three existing channels,
      which more than offset a decline in the volume of GRPs sold. Non-spot
      revenues increased by US$ 2.2 million, or 58%, primarily due to increased
      cable tariff revenue.
      The acquisition of Sport.ro added approximately US$ 2.9 million to our
      revenues for the six months ended June 30,
  2007.
 
 Page 53
 Index
 ·
                  Segment EBITDA for the
      six months ended June 30, 2007 increased by US$ 9.6 million, or 34%,
      compared to the six months ended June 30, 2006, with an unchanged EBITDA
      margin of 41%.  Costs charged in arriving at Segment EBITDA for
      the six months ended June 30, 2007 increased by US$ 14.3 million, or 36%,
      compared to the six months ended June 30, 2006.  Cost of
      programming grew by US$ 14.5 million, or 58%, due partially to the
      inclusion of the salary-related costs of production staff within cost of
      programming rather than operating costs; excluding the impact of this
      change in classification, cost of programming increased by US$ 10.5
      million, or 42%, as a result of increased market competition and
      investment in quality programming.  Other operating costs
      decreased by US$ 0.7 million, or 6%, after the difference in
      classification described above; excluding the impact of this change in
      classification, other operating costs increased by US$ 3.3 million, or
      34%, primarily due to the impact of a weaker dollar on local currency
      denominated staffing costs.  Selling, general and administrative
      expenses increased by US$ 0.5 million, or 11%, primarily due to increased
      marketing and research costs and increased office running
      costs.  The acquisition of Sport.ro added approximately US$ 0.8
      million to our Segment EBITDA for the six months ended June 30,
      2007.
  (D) SLOVAK
REPUBLIC
 
 Market
Background:We estimate that the television advertising market
in the Slovak Republic experienced local currency growth of approximately 5% -
7% in 2006.  We expect the television advertising market to show
growth in the range of 15% - 25% in 2007.
 
 MARKIZA
TV is the leading channel in the Slovak Republic.  National all day
audience share for the six months ended June 30, 2007 was 34.4% compared to
32.2% for the six months ended June 30, 2006.  The major competitor is
the state-owned channel STV1, with a national all day audience share of 17.6%
for the six months ended June 30, 2007.  The national all day audience
share of TV JOJ, the only other significant privately owned channel, was 16.1%
for the six months ended June 30, 2007.
 
 Our prime
time audience share increased from 33.8% in the six months ended June 30, 2006
to 38.3% in the six months ended June 30, 2007 primarily due to strong local
programs such as Bailando and Neighbors.  Our average prime time
ratings increased from 13.5% to 14.7% over comparable periods, while prime time
ratings for the whole market decreased from 40.1% in the six months ended June
30, 2006 to 38.5% in the six months ended June 30, 2007, reflecting the impact
of the Winter Olympics and the Soccer World Cup on viewing habits in the six
months ended June 30, 2006.
  Page 54
  Three months ended June 30, 2007
compared to the three months ended June 30, 2006
 
 SLOVAK REPUBLIC SEGMENT
      FINANCIAL INFORMATIONFor the Three Months Ended June
      30, (US$ 000's)2007
              
              
              2006
              
              
              MovementSpot
      revenues
              
              $
              28,494
              
              
              $
              19,182
              
              
              $
              9,312Non-spot
      revenues
              
              
              1,158
              
              
              
              864
              
              
              
              294Segment Net
      Revenues
              
              $
              29,652
              
              
              $
              20,046
              
              
              $
              9,606Represented
      by:Broadcast
      operations
              
              $
              29,563
              
              
              $
              20,039
              
              
              $
              9,524Non-broadcast
      operations
              
              
              89
              
              
              
              7
              
              
              
              82Segment Net
      Revenues
              
              $
              29,652
              
              
              $
              20,046
              
              
              $
              9,606Segment
      EBITDA
              
              $
              11,712
              
              
              $
              7,827
              
              
              $
              3,885Represented
      by:Broadcast
      operations
              
              $
              11,894
              
              
              $
              7,821
              
              
              $
              4,073Non-broadcast
      operations
              
              
              (182)
              
              
              
              6
              
              
              
              (188)Segment
      EBITDA
              
              $
              11,712
              
              
              $
              7,827
              
              
              $
              3,885Segment EBITDA
      Margin
              
              
              39
              %
              
              
              39
              %
              
              
              -
  ·
              Segment Net Revenues for
      the three months ended June 30, 2007 increased by US$ 9.6 million, or 48%,
      compared to the three months ended June 30, 2006.  In local
      currency, Segment Net Revenues increased by 23%.  The increase
      in Segment Net Revenues was due to an increase of US$ 9.3 million, or 49%,
      in spot revenues and an increase of US$ 0.3 million, or 34%, in non-spot
      revenues.  The increase in spot revenues is mainly due to
      increases in the average revenue per rating point sold, as well as an
      increase in the volume of advertising spots
  sold.
 
 ·
              Segment EBITDAfor the
      three months ended June 30, 2007 increased by US$ 3.9 million, or 50%,
      compared to the three months ended June 30, 2006, resulting in an
      unchanged EBITDA margin of 39%.  In local currency, Segment
      EBITDA increased by 23%.  Costs charged in arriving at Segment
      EBITDA for the three months ended June 30, 2007 increased by US$ 5.7
      million, or 47%, compared to the three months ended June 30,
      2006.  Cost of programming increased by US$ 3.5 million, or 54%
      primarily due to increased investment in local productions such as
      Bailando.  Other operating costs increased by US$ 1.8 million,
      or 47%, primarily due to increased accruals for performance-related bonus
      payments and increased broadcast and operating
      expenses.  Selling, general and administrative expenses
      increased by US$ 0.4 million, or 23%, primarily due to increased
      consultancy costs.
  Page 55
 Index
 Six months ended June 30, 2007
compared to the six months ended June 30, 2006
 
 SLOVAK REPUBLIC SEGMENT
      FINANCIAL INFORMATIONFor the Six Months Ended June
      30, (US$ 000's)2007
              
              
              2006
              
              
              MovementSpot
      revenues
              
              $
              46,569
              
              
              $
              29,496
              
              
              $
              17,073Non-spot
      revenues
              
              
              1,760
              
              
              
              1,756
              
              
              
              4Segment Net
      Revenues
              
              $
              48,329
              
              
              $
              31,252
              
              
              $
              17,077Represented
      by:Broadcast
      operations
              
              $
              48,225
              
              
              $
              31,245
              
              
              $
              16,980Non-broadcast
      operations
              
              
              104
              
              
              
              7
              
              
              
              97Segment Net
      Revenues
              
              $
              48,329
              
              
              $
              31,252
              
              
              $
              17,077Segment
      EBITDA
              
              $
              17,468
              
              
              $
              6,850
              
              
              $
              10,618Represented
      by:Broadcast
      operations
              
              $
              17,753
              
              
              $
              6,869
              
              
              $
              10,884Non-broadcast
      operations
              
              
              (285)
              
              
              
              (19)
              
              
              
              (266)Segment
      EBITDA
              
              $
              17,468
              
              
              $
              6,850
              
              
              $
              10,618Segment EBITDA
      Margin
              
              
              36
              %
              
              
              22
              %
              
              
              14
              %
  ·
              Segment Net Revenues for
      the six months ended June 30, 2007 increased by US$ 17.1 million, or 55%,
      compared to the six months ended June 30, 2006.  In local
      currency, Segment Net Revenues increased by 36%.  The increase
      in Segment Net Revenues was due to an increase of US$ 17.1 million, or
      58%, in spot revenues, with non-spot revenues in line with the six months
      ended June 30, 2007.  The increase in spot revenues is mainly
      due to increases in the average revenue per rating point sold, as well as
      an increase in the volume of advertising spots sold.  Our
      advertising revenues benefited from the launch of a new mobile phone
      operator during the six months ended June 30, 2007, as well as increased
      spending from existing customers, particularly in the pharmaceutical
      sector.  Segment Net Revenues for the six months ended June 30,
      2006 included approximately US$ 1.8 million in respect of the period prior
      to acquisition on January 23, 2006 when Markiza was accounted for as an
      equity affiliate. 
 ·
                Segment EBITDAfor the
      six months ended June 30, 2007 increased by US$ 10.6 million, or 155%,
      compared to the six months ended June 30, 2006, resulting in an EBITDA
      margin of 36% compared to 22% in the six months ended June 30,
      2006.  In local currency, Segment EBITDA increased by
      77%.  Costs charged in arriving at Segment EBITDA for the six
      months ended June 30, 2007 increased by US$ 6.5 million, or 26%, compared
      to the six months ended June 30, 2006.  Cost of programming
      increased by US$ 3.1 million, or 23%, due to increased investment in local
      productions and syndicated programming; the amount charged in the six
      months ended June 30, 2006 included a charge of US$ 0.7 million to write
      off an unsuccessful show.  Other operating costs increased by
      US$ 2.4 million, or 31%, due to increased accruals for performance-related
      bonus payments, increased broadcast and operating expenses and increased
      music right costs.  Selling, general and administrative expenses
      increased by US$ 0.9 million, or 28%, primarily due to increased
      consultancy and increased marketing and research costs.  Costs
      charged in arriving at Segment EBITDA for the six months ended June 30,
      2006 included US$ 1.7 million of programming costs, US$ 0.9 million of
      other operating costs and US$ 0.4 million of selling, general and
      administrative expenses in respect of the period prior to acquisition on
      January 23, 2006.
  Page 56
 Index
 (E) SLOVENIA
 
 Market
Background:  We estimate that the television advertising market
in Slovenia experienced local currency growth of approximately 6% - 8% in
2006.  We expect the television advertising market to show low single
digit growth in 2007.
 
 The
combined national all day audience share of our two channels increased from
37.3% for the six months ended June 30, 2006 to 37.6% for the six months ended
June 30, 2007.  The major competitors are state-owned channels SLO1
and SLO2, with national all day audience shares for the six months ended June
30, 2007 of 23.2% and 8.9%, respectively.
 
 Our prime
time audience share decreased from 44.5% in the six months ended June 30, 2006
to 43.4% in the six months ended June 30, 2007, with an increased share in KANAL
A, partially offsetting a decreased share in POP TV.  Our average
prime time ratings decreased from 15.0% to 14.8% over comparable periods, while
prime time ratings for the whole market increased from 33.6% in the six months
ended June 30, 2006 to 34.0% in the six months ended June 30, 2007.
 
 On
January 1, 2007 Slovenia adopted the Euro and we adopted the Euro as the
functional currency of our Slovenia operations in place of the Slovenian
Tolar.
  Three
months ended June 30, 2007 compared to the three months ended June 30,
2006
 
 SLOVENIA SEGMENT FINANCIAL
      INFORMATIONFor the Three Months Ended June
      30, (US$ 000's)2007
              
              
              2006
              
              
              MovementSpot
      revenues
              
              $
              17,435
              
              
              $
              14,934
              
              
              $
              2,501Non-spot
      revenues
              
              
              2,660
              
              
              
              621
              
              
              
              2,039Segment Net
      Revenues
              
              $
              20,095
              
              
              $
              15,555
              
              
              $
              4,540Represented
      by:Broadcast
      operations
              
              $
              19,023
              
              
              $
              15,095
              
              
              $
              3,928Non-broadcast
      operations
              
              
              1,072
              
              
              
              460
              
              
              
              612Segment Net
      Revenues
              
              $
              20,095
              
              
              $
              15,555
              
              
              $
              4,540Segment
      EBITDA
              
              $
              8,388
              
              
              $
              6,430
              
              
              $
              1,958Represented
      by:Broadcast
      operations
              
              $
              8,017
              
              
              $
              6,296
              
              
              $
              1,721Non-broadcast
      operations
              
              
              371
              
              
              
              134
              
              
              
              237Segment
      EBITDA
              
              $
              8,388
              
              
              $
              6,430
              
              
              $
              1,958Segment EBITDA
      Margin
              
              
              42
              %
              
              
              41
              %
              
              
              1
              %
  ·
              Segment Net Revenues for
      the three months ended June 30, 2007 increased by US$ 4.5 million, or 29%,
      compared to the three months ended June 30, 2006.  Spot revenues
      increased by US$ 2.5 million, or 17%, as our operations benefited from an
      increase in the average revenue per thirty-second advertising spot,
      particularly from large fast-moving consumer goods clients and local
      retailers, which more than offset a decline in the volume of GRPs
      sold.  Non-spot revenues increased by US$ 2.0 million, or 328%,
      due to an increased level of sponsorship and an increase in non-broadcast
      advertising revenue.
  Page 57
 ·
              Segment EBITDA for the
      three months ended June 30, 2007 increased by US$ 2.0 million, or 30%,
      compared to the three months June 30, 2006, resulting in an EBITDA margin
      of 42% compared to 41% in the three months ended June 30,
      2006.  Costs charged in arriving at Segment EBITDA for the three
      months ended June 30, 2007 increased by US$ 2.6 million, or 28%, compared
      to the three months ended June 30, 2006.  Cost of programming
      grew by US$ 2.5 million, or 59%, due to increased investment in
      programming in a more competitive market environment.  Other
      operating costs decreased by US$ 0.4 million, or 12%, primarily due to
      lower salary and freelance costs, partially offset by higher music rights
      costs and higher transmitter and associated maintenance
      costs.  Selling, general and administrative expenses increased
      by US$ 0.5 million, or 39%, primarily due to higher office running costs
      and increased marketing and research
costs.
  Six months ended June 30, 2007
compared to the six months ended June 30, 2006
 
 SLOVENIA SEGMENT FINANCIAL
      INFORMATIONFor the Six Months Ended June
      30, (US$ 000's)2007
              
              
              2006
              
              
              MovementSpot
      revenues
              
              $
              28,760
              
              
              $
              24,675
              
              
              $
              4,085Non-spot
      revenues
              
              
              4,004
              
              
              
              1,107
              
              
              
              2,897Segment Net
      Revenues
              
              $
              32,764
              
              
              $
              25,782
              
              
              $
              6,982Represented
      by:Broadcast
      operations
              
              $
              31,261
              
              
              $
              25,027
              
              
              $
              6,234Non-broadcast
      operations
              
              
              1,503
              
              
              
              755
              
              
              
              748Segment Net
      Revenues
              
              $
              32,764
              
              
              $
              25,782
              
              
              $
              6,982Segment
      EBITDA
              
              $
              11,389
              
              
              $
              9,463
              
              
              $
              1,926Represented
      by:Broadcast
      operations
              
              $
              11,039
              
              
              $
              9,305
              
              
              $
              1,734Non-broadcast
      operations
              
              
              350
              
              
              
              158
              
              
              
              192Segment
      EBITDA
              
              $
              11,389
              
              
              $
              9,463
              
              
              $
              1,926Segment EBITDA
      Margin
              
              
              35
              %
              
              
              37
              %
              
              
              (2)
              %
  ·
              Segment Net Revenues for
      the six months ended June 30, 2007 increased by US$ 7.0 million, or 27%,
      compared to the six months ended June 30, 2006.  Spot revenues
      increased by US$ 4.1 million, or 17%, as our operations benefited from an
      increase in the average revenue per thirty-second advertising spot, which
      more than offset a decline in the volume of GRPs sold.  Non-spot
      revenues increased by US$ 2.9 million, or 262%, due to an increased level
      of sponsorship and an increase in non-broadcast advertising
      revenue.
 
 Segment EBITDA for the six
months ended June 30, 2007 increased by US$ 1.9 million, or 20%, compared to the
six months ended June 30, 2006, resulting in an EBITDA margin of 35% compared to
37% in the six months ended June 30, 2006.  Costs charged in arriving
at Segment EBITDA for the six months ended June 30, 2007 increased by US$ 5.1
million, or 31%, compared to the six months ended June 30, 2006.  Cost
of programming grew by US$ 4.8 million, or 65%, due to increased investment in
programming in a more competitive market environment.  Other operating
costs decreased by US$ 0.7 million, or 11%, primarily due to lower salary and
freelance costs, partially offset by higher music rights costs and higher
transmitter and associated maintenance costs.  Selling, general and
administrative expenses increased by US$ 1.0 million, or 40%, primarily due to
higher marketing and research costs and higher office running
costs.
 
 Page 58
 Index
  (F) UKRAINE (STUDIO
1+1)
 
 Market
Background:  We estimate that the television advertising market
in Ukraine, where sales are denominated primarily in US dollars, experienced
growth of approximately 28% - 31% in 2006.
 
 STUDIO
1+1 had a national all day audience share of 15.9% for the six months ended June
30, 2007 compared to 18.8% for the six months ended June 30,
2006.  Our competitors include: Inter, with a national all day
audience share of 19.6%, Novy Kanal with 7.7%, ICTV with 7.1% and STB with
7.2%.
  Our prime
time audience share decreased from 24.1% in the six months ended June 30, 2006
to 18.5% in the six months ended June 30, 2007. Many larger major channels have
lost audience share to new niche channels.  Our share in the six
months ended June 30, 2006 reflected the outstanding success of a show called
Ugly Betty.  Our average prime time ratings decreased from 9.1% to
6.6% over comparable periods, while prime time ratings for the whole market
decreased from 37.8% in the six months ended June 30, 2006 to 35.5% in the six
months ended June 30, 2007.
 While the
television advertising market has shown recovery in the second quarter it
continues to lag behind expectations. Advertisers have been cautious in spending
their budgets in the light of continuing political uncertainty arising from the
disagreements between the Ukrainian President and Prime Minister.
 
 In
addition, our independent sales house Video International (Prioritet) has lost
many of its broadcasting clients to its major rival InterReklama, which now has
approximately 70% of available advertising inventory at its disposal for
advertising clients. According to Video International, in order to cover the
cash costs of financial guarantees made in the early part of the year to new and
existing broadcasting clients, InterReklama discounted prices dramatically in
the early part of the year. Subsequently, they have continued to exercise strong
negotiating leverage with their significant broadcaster base. However, we have
recently seen a recovery in pricing during the second quarter from the heavy
discounting in the first quarter.
 
 It is
expected that parliamentary elections will take place on September 30, 2007 and
will lead to strong growth of the television advertising market in the fourth
quarter. Video International remains optimistic that, if the formation of a new
government following the elections is rapid, advertising spending deferred from
the first half of the year will be available in the final quarter and may result
in an annual year-on-year market growth of at least 30%. It is likely that
broadcasters will also benefit from significant additional political advertising
spending during the election season in the third quarter. However, given the
uncertainties surrounding the factors described above, there is a wide range of
possible outcomes for market development in 2007.
  Page 59
 Index
  Three months ended June 30, 2007
compared to the three months ended June 30, 2006
  UKRAINE (STUDIO 1+1) SEGMENT
      FINANCIAL INFORMATIONFor the Three Months Ended June
      30, (US$ 000's)2007
              
              
              2006
              
              
              MovementSpot
      revenues
              
              $
              18,285
              
              
              $
              17,596
              
              
              $
              689Non-spot
      revenues
              
              
              4,416
              
              
              
              3,466
              
              
              
              950Segment Net
      Revenues
              
              $
              22,701
              
              
              $
              21,062
              
              
              $
              1,639Represented
      by:Broadcast
      operations
              
              $
              22,701
              
              
              $
              21,062
              
              
              $
              1,639Non-broadcast
      operations
              
              
              -
              
              
              
              -
              
              
              
              -Segment Net
      Revenues
              
              $
              22,701
              
              
              $
              21,062
              
              
              $
              1,639Segment
      EBITDA
              
              $
              565
              
              
              $
              6,037
              
              
              $
              (5,472)Represented
      by:Broadcast
      operations
              
              $
              716
              
              
              $
              6,037
              
              
              $
              (5,321)Non-broadcast
      operations
              
              
              (151)
              
              
              
              -
              
              
              
              (151)Segment
      EBITDA
              
              $
              565
              
              
              $
              6,037
              
              
              $
              (5,472)Segment EBITDA
      Margin
              
              
              2
              %
              
              
              29
              %
              
              
              (27)
              %
 
 ·
              Segment Net Revenues for
      the three months ended June 30, 2007 increased by US$ 1.6 million, or 8%,
      compared to the three months ended June 30, 2006. Spot revenues increased
      by US$ 0.6 million, or 4%.  There was a decrease in the volume
      of GRPs sold in the three months ended June 30, 2007 compared to the three
      months ended June 30, 2006 as our ratings declined due to the poor
      performance of the Russian series of Mothers and Daughters and of Damned
      Paradise (which aired following the conclusion of the successful current
      run of Cadets), particularly as against the runaway success of a new
      Russian series Day of Tatyana on Inter, which is expected to run until
      early 2008.  We also suffered increased competition from other
      broadcasters. These factors were partially offset by an increase in the
      average revenue per rating point sold.  Non-spot revenues
      increased by US$ 1.0 million, or 27%, primarily due to increased
      sponsorship and the sale of surplus
programming.
 
 ·
              Segment EBITDAfor the
      three months ended June 30, 2007 decreased by US$ 5.5 million, or 87%,
      compared to the three months ended June 30, 2006, resulting in an EBITDA
      margin of 2% compared to 29% in the three months ended June 30,
      2006.  Costs charged in arriving at Segment EBITDA for the three
      months ended June 30, 2007 increased by US$ 7.1 million, or 47%, compared
      to the three months ended June 30, 2006.  Cost of programming
      grew by US$ 7.7 million, or 87%, including a charge of US$ 2.2
      million to write off poorly performing programming, principally second
      runs of American series.  The increase in cost of programming
      reflects continued price inflation for Russian programming, which drives
      strong ratings in the market, as well as increased investment in such
      programming to improve our programming schedule and boost ratings
      following disappointing ratings in the first half of 2007 and against
      unusually strong programming on Inter.  Other operating costs
      increased by US$ 1.0 million, or 31%, due to increased salary costs and
      increased broadcast operating expenses.  Selling, general and
      administrative expenses decreased by US$ 1.6 million, or 53%, primarily
      due to decreased taxes and reduced bad debt
  expense.
 
 Page 60
 Index
  Six months ended June 30, 2007
compared to the six months ended June 30, 2006
 UKRAINE (STUDIO 1+1) SEGMENT
      FINANCIAL INFORMATIONFor the Six Months Ended June
      30, (US$ 000's)2007
                  
                  
                  2006
                  
                  
                  MovementSpot
      revenues
                  
                  $
                  33,106
                  
                  
                  $
                  40,324
                  
                  
                  $
                  (7,218
                  )Non-spot
      revenues
                  
                  
                  7,670
                  
                  
                  
                  6,216
                  
                  
                  
                  1,454Segment Net
      Revenues
                  
                  $
                  40,776
                  
                  
                  $
                  46,540
                  
                  
                  $
                  (5,764
                  )Represented
      by:Broadcast
      operations
                  
                  $
                  40,776
                  
                  
                  $
                  46,540
                  
                  
                  $
                  (5,764
                  )Non-broadcast
      operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Segment Net
      Revenues
                  
                  $
                  40,776
                  
                  
                  $
                  46,540
                  
                  
                  $
                  (5,764
                  )Segment
      EBITDA
                  
                  $
                  (1,805
                  )
                  
                  $
                  17,024
                  
                  
                  $
                  (18,829
                  )Represented
      by:Broadcast
      operations
                  
                  $
                  (1,622
                  )
                  
                  $
                  17,024
                  
                  
                  $
                  (18,646
                  )Non-broadcast
      operations
                  
                  
                  (183
                  )
                  
                  
                  -
                  
                  
                  
                  (183
                  )Segment
      EBITDA
                  
                  $
                  (1,805
                  )
                  
                  $
                  17,024
                  
                  
                  $
                  (18,829
                  )Segment EBITDA
      Margin
                  
                  
                  (4
                  )%
                  
                  
                  37
                  %
                  
                  
                  (41
                  )%
  ·
              Segment Net Revenues for
      the six months ended June 30, 2007 decreased by US$ 5.8 million, or 12%,
      compared to the six months ended June 30, 2006. Spot revenues decreased by
      US$ 7.2 million, or 18%.  There was a decrease in the volume of
      GRPs sold as our ratings declined due to the poor performance of certain
      series on Studio 1+1 and increased competition from other
      broadcasters. There was also a decrease in the average revenue
      per rating point sold in the six months ended June 30, 2007 compared to
      the six months ended June 30, 2006 due to extreme price competition in the
      first quarter.  In the six months ended June 30, 2006, we benefited
      from US$ 8.4 million of political advertising revenue ahead of the
      parliamentary elections in March 2006 as well as the extraordinary ratings
      success of the Russian series Ugly Betty, which ran until July 2006.
      Non-spot revenues increased by US$ 1.5 million, or 23%, primarily due to
      the sale of surplus programming and increased sponsorship.
 
 ·
              Segment EBITDAfor the
      six months ended June 30, 2007 decreased by US$ 18.8 million, or 111%,
      compared to the six months ended June 30, 2006, resulting in an EBITDA
      loss of (4)% compared to an EBITDA margin of 37% in the six months ended
      June 30, 2006.  Costs charged in arriving at Segment EBITDA for
      the six months ended June 30, 2007 increased by US$ 13.1 million, or 44%,
      compared to the six months ended June 30, 2006.  Cost of
      programming grew by US$ 13.0 million, or 75%, including a charge of
      US$ 2.7 million to write off poorly performing programming,
      principally second runs of American series.  The increase in
      cost of programming reflects continued price inflation for Russian
      programming, which drives strong ratings in the market, as well as
      increased investment in such programming to improve our programming
      schedule and boost ratings following disappointing ratings in the first
      half of 2007 and against unusually strong programming on
      Inter.  Other operating costs increased by US$ 1.6 million, or
      22%, due to increased salary costs and increased broadcast operating
      expenses.  Selling, general and administrative expenses
      decreased by US$ 1.5 million, or 27%, primarily due to decreased taxes and
      reduced bad debt expense.
                
                We
      plan continued investment in programming throughout the remainder of 2007
      as we seek to recover audience share and improve
      profitability.  The performance of our Ukraine operations
      remains subject both to political developments, which can have a
      significant impact on market development in the second half of 2007, and
      to the competitive dynamics of the market (See Part II, Item IA – “Risk
      Factors”).
  Page 61
 Index
 (G) UKRAINE (KINO,
CITI)
 
 On
January 11, 2006, we acquired a 65.5% interest in Ukrpromtorg 2003 LLC, owner of
92.2% of Gravis LLC, which operated the local channels, CHANNEL 35 and CHANNEL
7.  In July 2006, we ceased operating CHANNEL 7 and launched a new
entertainment channel, KINO, targeted at a younger demographic.  On
December 1, 2006, we ceased operating CHANNEL 35 and launched a new
youth-oriented channel, CITI, with a Kiev-wide reach.
 
 KINO and
CITI, both of which target a youth market have as their main competitors ICTV,
TONIS and NTN. As at June 30, 2007, KINO had a technical reach of approximately
53.1% and in the six months ended June 30, 2007 achieved a 15-50 prime time
audience share in the Kiev region of 2.2%. CITI had a technical reach of
approximately 88.0% of the population of the city of Kiev and the Kiev region.
In the six months ended June 30, 2007 CITI achieved a 4+ prime time audience
share of 1.5% in Kiev and the Kiev region.
 
 Three months ended June 30, 2007
compared to the three months ended June 30, 2006
 
 UKRAINE (KINO, CITI) SEGMENT
      FINANCIAL INFORMATIONFor the Three Months Ended June
      30, (US$ 000's)2007
              
              
              2006
              
              
              MovementSpot
      revenues
              
              $
              334
              
              
              $
              106
              
              
              $
              228Non-spot
      revenues
              
              
              320
              
              
              
              92
              
              
              
              228Segment Net
      Revenues
              
              $
              654
              
              
              $
              198
              
              
              $
              456Represented
      by:Broadcast
      operations
              
              $
              654
              
              
              $
              198
              
              
              $
              456Non-broadcast
      operations
              
              
              -
              
              
              
              -
              
              
              
              -Segment Net
      Revenues
              
              $
              654
              
              
              $
              198
              
              
              $
              456Segment
      EBITDA
              
              $
              (1,755)
              
              
              $
              (432)
              
              
              $
              (1,323)Represented
      by:Broadcast
      operations
              
              $
              (1,755)
              
              
              $
              (432)
              
              
              $
              (1,323)Non-broadcast
      operations
              
              
              -
              
              
              
              -
              
              
              
              -Segment
      EBITDA
              
              $
              (1,755)
              
              
              $
              (432)
              
              
              $
              (1,323)Segment EBITDA
      Margin
              
              
              (268)
              %
              
              
              (218)
              %
              
              
              (50)
              %
  ·
              Segment Net Revenues for
      the three months ended June 30, 2007 increased by US$ 0.5 million, or
      230%, compared to the three months ended June 30, 2006. Spot revenues
      increased by US$ 0.2 million, or 215%.  Non-spot revenues
      increased by US$ 0.2 million, or 248%, primarily due to increased program
      sponsorship.
 
 ·
              Segment EBITDAfor the
      three months ended June 30, 2007 decreased by US$ 1.3 million, or 306%,
      compared to the three months ended June 30, 2006, resulting in an EBITDA
      margin of (268)%
      compared to (218)% in the three months ended June 30,
      2006.  Costs charged in arriving at Segment EBITDA for the three
      months ended June 30, 2007 increased by US$ 1.8 million, or 282%, compared
      to the three months ended June 30, 2006 as we continued to develop the
      channels.  Cost of programming grew by US$ 1.3 million, or
      854%.  Other operating costs increased by US$ 0.2 million, or
      62%.  Selling, general and administrative expenses increased by
      US$ 0.3 million, or 313%.
 
 Page 62
 Index
 Six
months ended June 30, 2007 compared to the six months ended June 30,
2006
 
 UKRAINE (KINO, CITI) SEGMENT
      FINANCIAL INFORMATIONFor the Six Months Ended June
      30, (US$ 000's)2007
              
              
              2006(1)
              
              
              MovementSpot
      revenues
              
              $
              477
              
              
              $
              321
              
              
              $
              156Non-spot
      revenues
              
              
              575
              
              
              
              251
              
              
              
              324Segment Net
      Revenues
              
              $
              1,052
              
              
              $
              572
              
              
              $
              480Represented
      by:Broadcast
      operations
              
              $
              1,052
              
              
              $
              572
              
              
              $
              480Non-broadcast
      operations
              
              
              -
              
              
              
              -
              
              
              
              -Segment Net
      Revenues
              
              $
              1,052
              
              
              $
              572
              
              
              $
              480Segment
      EBITDA
              
              $
              (4,172)
              
              
              $
              (557)
              
              
              $
              (3,615)Represented
      by:Broadcast
      operations
              
              $
              (4,172)
              
              
              $
              (557)
              
              
              $
              (3,615)Non-broadcast
      operations
              
              
              -
              
              
              
              -
              
              
              
              -Segment
      EBITDA
              
              $
              (4,172)
              
              
              $
              (557)
              
              
              $
              (3,615)Segment EBITDA
      Margin
              
              
              (397)
              %
              
              
              (97)
              %
              
              
              (300)
              %(1)
      From acquisition on January 11, 2006 only
  ·
              Segment Net Revenues for
      the six months ended June 30, 2007 increased by US$ 0.5 million, or 84%,
      compared to the six months ended June 30, 2006. Spot revenues increased by
      US$ 0.2 million, or 49%.  Non-spot revenues increased by US$ 0.3
      million, or 129%, primarily due to increased program
      sponsorship.
 
 ·
              Segment EBITDAfor the
      six months ended June 30, 2007 decreased by US$ 3.6 million, or 649%,
      compared to the six months ended June 30, 2006, resulting in an EBITDA
      margin of (397)% compared to (97)% in the six months ended June 30,
      2006.  Costs charged in arriving at Segment EBITDA for the six
      months ended June 30, 2007 increased by US$ 4.1 million, or 362%, compared
      to the six months ended June 30, 2006 as we continued to develop the
      channels.  Cost of programming grew by US$ 3.0 million, or
      1465%.  Other operating costs increased by US$ 0.6 million, or
      101%.  Selling, general and administrative expenses increased by
      US$ 0.5 million, or 167%.
 
 Page 63
 Index
  PROGRAMMING PAYMENTS AND PROGRAM
AMORTIZATION
 
 Our cost
of programming for the three and six months ended June 30, 2007 and 2006 was as
follows:
 
 COST OF
      PROGRAMMINGFor the Three Months Ended
      June 30,
                (US$ 000’s)
              
              
              For the Six Months Ended
      June 30,
                (US$ 000’s)2007
              
              
              2006
              
              
              2007
              
              
              2006Production
      expenses
              
              $
              40,778
              
              
              $
              26,045
              
              
              $
              68,334
              
              
              $
              49,020Program
      amortization
              
              
              41,995
              
              
              
              26,805
              
              
              
              80,792
              
              
              
              52,248Cost of
      programming
              
              $
              82,773
              
              
              $
              52,850
              
              
              $
              149,126
              
              
              $
              101,268
 
 Production
expenses represent the cost of in-house productions as well as locally
commissioned programming, such as news, current affairs and game
shows.  The cost of broadcasting all other purchased programming is
recorded as program amortization.
 
 Total
consolidated programming costs (including amortization of programming rights and
production costs) increased by US$ 29.9 million, or 57 %, in the three months
ended June 30, 2007 compared to the three months ended June 30, 2006 primarily
due to:
 
 ·
              US$
      4.0 million of additional programming costs from our Croatia
      operations;
 
 ·
              US$
      2.3 million of additional programming costs from our Czech Republic
      operations.
 
 ·
              US$
      8.6 million of additional programming costs from our Romania
      operations;
 
 ·
              US$
      3.5 million of additional programming costs from our Slovak Republic
      operations;
 
 ·
              US$
      2.5 million of additional programming costs from our Slovenia
      operations;
 
 ·
              US$
      7.7 million of additional programming costs from our Ukraine (STUDIO 1+1)
      operations; and
 
 ·
              US$
      1.3 million of additional programming costs from our Ukraine (KINO, CITI)
      operations;
 
 
 Total
consolidated programming costs (including amortization of programming rights and
production costs) increased by US$ 47.9 million, or 47 %, in the six months
ended June 30, 2007 compared to the six months ended June 30, 2006 primarily due
to:
 
 ·
              US$
      7.8 million of additional programming costs from our Croatia
      operations;
 
 ·
              US$
      14.4 million of additional programming costs from our Romania
      operations;
 
 ·
              US$
      4.8 million of additional programming costs from our Slovak Republic
      operations, which have been consolidated for the entire six-month period
      in 2007;
 
 ·
              US$
      4.8 million of additional programming costs from our Slovenia
      operations;
 
 ·
              US$
      13.0 million of additional programming costs from our Ukraine (STUDIO 1+1)
      operations; and
 
 ·
              US$
      3.0 million of additional programming costs from our Ukraine (KINO, CITI)
      operations;
  Page 64
 Index
 The
amortization of acquired programming for each of our consolidated operations for
the three and six months ended June 30, 2007 and 2006, is set out in the table
below.  For comparison, the table also shows the cash paid for
programming by each of our operations in the respective periods.  The
cash paid for programming by our operations in Croatia, the Czech Republic,
Romania, Slovenia, Ukraine and the Slovak Republic (for the period from January
23, 2006) is reflected within net cash provided by continuing operating
activities in our consolidated statement of cash flows.
 PROGRAM AMORTIZATION AND CASH
      PAID FOR PROGRAMMINGFor the Three Months Ended
      June 30,
                (US$ 000’s)
              
              
              For the Six Months Ended
      June 30,
                (US$ 000’s)2007
              
              
              2006
              
              
              2007
              
              
              2006Program
      amortization:Croatia
      (NOVA TV)
              
              $
              5,234
              
              
              $
              3,472
              
              
              $
              10,634
              
              
              $
              6,890Czech
      Republic (TV NOVA)
              
              
              7,295
              
              
              
              6,506
              
              
              
              13,851
              
              
              
              13,889Romania
      (PRO TV, ACASA, PRO CINEMA, PRO TV INTERNATIONAL and
    SPORT.RO)
              
              
              9,906
              
              
              
              7,074
              
              
              
              19,335
              
              
              
              13,790Slovak
      Republic (MARKIZA TV) (post-acquisition)
              
              
              2,969
              
              
              
              (1)3,642
              
              
              
              6,176
              
              
              
              (1)4,078Slovenia
      (POP TV and KANAL A)
              
              
              2,246
              
              
              
              1,788
              
              
              
              4,442
              
              
              
              3,205Ukraine
      (STUDIO 1+1)
              
              
              13,561
              
              
              
              5,964
              
              
              
              24,489
              
              
              
              12,010Ukraine
      (KINO, CITI)
              
              
              784
              
              
              
              94
              
              
              
              1,865
              
              
              
              121$
              41,995
              
              
              $
              28,540
              
              
              
              80,792
              
              
              $
              53,983(1)
      Includes the program amortization of our operations in the Slovak Republic
      (MARKIZA TV) for the period prior to January 23, 2006 when they were
      accounted for as an equity affiliateCash
      paid for programming:Croatia
      (NOVA TV)
              
              $
              10,002
              
              
              $
              3,232
              
              
              $
              10,907
              
              
              $
              7,598Czech
      Republic (TV NOVA)
              
              
              4,269
              
              
              
              4,277
              
              
              
              10,846
              
              
              
              16,213Romania
      (PRO TV, ACASA, PRO CINEMA, PRO TV INTERNATIONAL and
    SPORT.RO)
              
              
              12,931
              
              
              
              10,789
              
              
              
              22,977
              
              
              
              17,395Slovak
      Republic (MARKIZA TV)
              
              
              4,466
              
              
              
              2,263
              
              
              
              8,165
              
              
              
              5,542Slovenia
      (POP TV and KANAL A)
              
              
              2,480
              
              
              
              1,680
              
              
              
              4,652
              
              
              
              3,499Ukraine
      (STUDIO 1+1)
              
              
              16,075
              
              
              
              5,437
              
              
              
              26,559
              
              
              
              13,409Ukraine
      (KINO, CITI)
              
              
              375
              
              
              
              273
              
              
              
              1,117
              
              
              
              388$
              50,598
              
              
              $
              27,951
              
              
              $
              85,223
              
              
              $
              64,044




Page 65
 Index




IV. Analysis of the Results of
Consolidated Operations





IV (a) Net Revenues for the three
months ended June 30, 2007 compared to the three months ended June 30,
2006





CONSOLIDATED NET
      REVENUESFor the Three Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementCroatia
            
            $
            10,414
            
            
            $
            5,647
            
            
            $
            4,767Czech
      Republic
            
            
            80,544
            
            
            
            56,312
            
            
            
            24,232Romania
            
            
            52,224
            
            
            
            37,769
            
            
            
            14,455Slovak
      Republic
            
            
            29,652
            
            
            
            20,046
            
            
            
            9,606Slovenia
            
            
            20,095
            
            
            
            15,555
            
            
            
            4,540Ukraine
      (STUDIO 1+1)
            
            
            22,701
            
            
            
            21,062
            
            
            
            1,639Ukraine
      (KINO, CITI)
            
            
            654
            
            
            
            198
            
            
            
            456Total Consolidated Net
      Revenues
            
            $
            216,284
            
            
            $
            156,589
            
            
            $
            59,695





Our
consolidated net revenues increased by US$ 59.7 million, or 38%, for the three
months ended June 30, 2007 compared to the three months ended June 30,
2006.  See discussion in Item 2, III. “Analysis of Segment
Results”.





IV (b) Net Revenues for the six
months ended June 30, 2007 compared to the six months ended June 30,
2006





CONSOLIDATED NET
      REVENUESFor the Six Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementCroatia
            
            $
            17,646
            
            
            $
            9,457
            
            
            $
            8,189Czech
      Republic
            
            
            132,063
            
            
            
            96,861
            
            
            
            35,202Romania
            
            
            91,566
            
            
            
            67,640
            
            
            
            23,926Slovak
      Republic *
            
            
            48,329
            
            
            
            29,491
            
            
            
            18,838Slovenia
            
            
            32,764
            
            
            
            25,782
            
            
            
            6,982Ukraine
      (STUDIO 1+1)
            
            
            40,776
            
            
            
            46,540
            
            
            
            (5,764
            )Ukraine
      (KINO, CITI)
            
            
            1,052
            
            
            
            572
            
            
            
            480Total Consolidated Net
      Revenues
            
            $
            364,196
            
            
            $
            276,343
            
            
            $
            87,853


* From
January 23, 2006 only.





Our
consolidated net revenues for the six months ended June 30, 2007 increased by
US$ 87.9 million, or 32%, compared to the six months ended June 30,
2006.  See discussion in Item 2, III. “Analysis of Segment
Results”.





Page 66
 Index





IV (c) Cost of Revenues for the three
months ended June 30, 2007 compared to the three months ended June 30,
2006





CONSOLIDATED COST OF
      REVENUESFor the Three Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementOperating
      costs
            
            $
            30,944
            
            
            $
            26,042
            
            
            $
            4,902Cost
      of programming
            
            
            82,773
            
            
            
            52,850
            
            
            
            29,923Depreciation
      of station property, plant and equipment
            
            
            7,680
            
            
            
            6,059
            
            
            
            1,621Amortization
      of broadcast licenses and other intangibles
            
            
            5,165
            
            
            
            4,620
            
            
            
            545Total Consolidated Cost of
      Revenues
            
            $
            126,562
            
            
            $
            89,571
            
            
            $
            36,991





Total
consolidated cost of revenues increased by US$ 36.9 million, or 41%, in the
three months ended June 30, 2007 compared to the three months ended June 30,
2006.





Operating
costs:Total consolidated operating costs (excluding
programming costs, depreciation of station property, plant and equipment,
amortization of broadcast licenses and other intangibles as well as station
selling, general and administrative expenses) for the three months ended June
30, 2007 increased by US$ 4.9 million, or 19%, compared to the three months
ended June 30, 2006.  See discussion in Item 2, III. “Analysis of
Segment Results”.





Cost of
programming:Consolidated programming costs (including
amortization of programming rights and production costs) for the three months
ended June 30, 2007 increased by US$ 29.9 million, or 57%, compared to the three
months ended June 30, 2006.  See discussion in Item 2, III. “Analysis
of Segment Results”.





Depreciation of property, plant and
equipment:  Total consolidated depreciation of property, plant
and equipment for the three months ended June 30, 2007 increased by US$ 1.6
million, or 27%, compared to the three months ended June 30, 2006 primarily due
to depreciation of newly acquired production equipment assets across each of our
operations.





Amortization of broadcast licenses
and other intangibles:  Total consolidated amortization of
broadcast licenses and other intangibles for the three months ended June 30,
2007 increased by US$ 0.5 million, or 12%, compared to the three months ended
June 30, 2006 primarily due to the amortization of the broadcast licenses and
customer relationships of our Romania operations arising on our acquisition of
an increased stake on June 1, 2007.





IV (d) Cost of Revenues for the six
months ended June 30, 2007 compared to the six months ended June 30,
2006





CONSOLIDATED COST OF
      REVENUESFor the Six Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementOperating
      costs
            
            $
            56,601
            
            
            $
            49,014
            
            
            $
            7,587Cost
      of programming
            
            
            149,126
            
            
            
            101,268
            
            
            
            47,858Depreciation
      of station property, plant and equipment
            
            
            14,579
            
            
            
            11,761
            
            
            
            2,818Amortization
      of broadcast licenses and other intangibles
            
            
            10,327
            
            
            
            8,952
            
            
            
            1,375Total Consolidated Cost of
      Revenues
            
            $
            230,633
            
            
            $
            170,995
            
            
            $
            59,638





Total
consolidated cost of revenues increased by US$ 59.6 million, or 35%, in the six
months ended June 30, 2007 compared to the six months ended June 30,
2006.





Page 67
 Index





Operating
costs:Total consolidated operating costs (excluding
programming costs, depreciation of station property, plant and equipment,
amortization of broadcast licenses and other intangibles as well as station
selling, general and administrative expenses) for the six months ended June 30,
2007 increased by US$ 7.6 million, or 15%, compared to the six months ended June
30, 2006.  See discussion in Item 2, III. “Analysis of Segment
Results”.





Cost of
programming:Consolidated programming costs (including
amortization of programming rights and production costs) for the six months
ended June 30, 2007 increased by US$ 47.9 million, or 47%, compared to the six
months ended June 30, 2006.  See discussion in Item 2, III. “Analysis
of Segment Results”.





Depreciation of property, plant and
equipment:  Total consolidated depreciation of property, plant
and equipment for the six months ended June 30, 2007 increased by US$ 2.8
million, or 24%, compared to the six months ended June 30, 2006 primarily due to
depreciation of newly acquired production equipment assets across each of our
operations.





Amortization of broadcast licenses
and other intangibles:  Total consolidated amortization of
broadcast licenses and other intangibles for the six months ended June 30, 2007
increased by US$ 1.4 million, or 15%, compared to the six months ended June 30,
2006 primarily due to the amortization of the broadcast licenses and customer
relationships of our Romania and Slovak Republic operations arising on our
acquisition of increased stakes in 2006 and 2007.





IV (e) Station Selling, General and
Administrative Expenses for the three months ended June 30, 2007 compared to the
three months ended June 30, 2006





CONSOLIDATED STATION SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSESFor the Three Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementCroatia
            
            $
            2,013
            
            
            $
            1,248
            
            
            $
            765Czech
      Republic
            
            
            4,908
            
            
            
            4,388
            
            
            
            520Romania
            
            
            2,918
            
            
            
            2,646
            
            
            
            272Slovak
      Republic
            
            
            2,321
            
            
            
            1,894
            
            
            
            427Slovenia
            
            
            1,770
            
            
            
            1,271
            
            
            
            499Ukraine
      (STUDIO 1+1)
            
            
            1,417
            
            
            
            3,009
            
            
            
            (1,592
            )Ukraine
      (KINO, CITI)
            
            
            352
            
            
            
            85
            
            
            
            267Total Consolidated Station
      Selling, General and Administrative Expenses
            
            $
            15,699
            
            
            $
            14,541
            
            
            $
            1,158





Total
consolidated station selling, general and administrative expenses increased by
US$ 1.2 million, or 8%, in the three months ended June 30, 2007 compared to the
three months ended June 30, 2006.  See discussion in Item 2, III.
“Analysis of Segment Results”.





Page 68
 Index





IV (f) Station Selling, General and
Administrative Expenses for the six months ended June 30, 2007 compared to the
six months ended June 30, 2006





CONSOLIDATED STATION SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSESFor the Six Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementCroatia
            
            $
            3,739
            
            
            $
            2,790
            
            
            $
            949Czech
      Republic
            
            
            10,000
            
            
            
            10,065
            
            
            
            (65
            )Romania
            
            
            5,342
            
            
            
            4,810
            
            
            
            532Slovak
      Republic
            
            
            4,259
            
            
            
            2,913
            
            
            
            1,346Slovenia
            
            
            3,477
            
            
            
            2,484
            
            
            
            993Ukraine
      (STUDIO 1+1)
            
            
            3,883
            
            
            
            5,353
            
            
            
            (1,470
            )Ukraine
      (KINO, CITI)
            
            
            780
            
            
            
            292
            
            
            
            488Total Consolidated Station
      Selling, General and Administrative Expenses
            
            $
            31,480
            
            
            $
            28,707
            
            
            $
            2,773





Total
consolidated station selling, general and administrative expenses increased by
US$ 2.8 million, or 10%, in the six months ended June 30, 2007 compared to the
six months ended June 30, 2006. See discussion in Item 2, III. “Analysis of
Segment Results”.




IV (g) Corporate Operating Costs for
the three months ended June 30, 2007 compared to the three months ended June 30,
2006





CORPORATE OPERATING
      COSTSFor the Three Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementCorporate
      operating costs (excluding stock-based compensation)
            
            $
            6,101
            
            
            $
            6,966
            
            
            $
            (865
            )Stock-based
      compensation
            
            
            1,343
            
            
            
            730
            
            
            
            613Corporate Operating
      Costs
            
            $
            7,444
            
            
            $
            7,696
            
            
            $
            (252
            )





Corporate
operating costs (excluding non-cash stock-based compensation) for the three
months ended June 30, 2007 decreased by US$ 0.9 million, or 12%, compared to the
three months ended June 30, 2006, primarily due to:





·
            Decreased
      legal costs incurred in connection with legal proceedings in respect of
      our Ukraine operations, partly offset
by;


·
            Increased
      staff-related costs; and


·
            Increased
      business development expenses incurred in researching potential
      acquisition targets.





The
increase in the charge for non-cash stock-based compensation for the three
months ended June 30, 2007 compared to the three months ended June 30, 2006
reflects an increase in the number of stock options granted in 2006 compared to
prior years as well as an increase in the fair value of stock options as our
stock price increased in recent years.  For more details, see Part I
Item 1, Note 14.





Page 69
 Index





IV (h) Corporate Operating Costs for
the six months ended June 30, 2007 compared to the six months ended June 30,
2006





CORPORATE OPERATING
      COSTSFor the Six Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementCorporate
      operating costs (excluding stock-based compensation)
            
            $
            19,612
            
            
            $
            14,259
            
            
            $
            5,353Stock-based
      compensation
            
            
            2,605
            
            
            
            1,418
            
            
            
            1,187Corporate Operating
      Costs
            
            $
            22,217
            
            
            $
            15,677
            
            
            $
            6,540





Corporate
operating costs (excluding non-cash stock-based compensation) for the six months
ended June 30, 2007 increased by US$ 5.4 million, or 38%, compared to the six
months ended June 30, 2006, primarily due to:
 
 ·
              A
      charge of EUR 4.5 million (approximately US$ 6.0 million) in respect of
      the estimated cost of settlement of our Croatia litigation (see Item 1,
      Note 18);
 
 ·
              Increased
      staff-related costs; and
 
 ·
              Increased
      business development expenses incurred in researching potential
      acquisition targets, partly offset
by:
 
 ·
              Decreased
      property-related costs, as the expense incurred in the six months ended
      June 30, 2006 included  a lease exit charge of approximately US$
      1.6 million (including additional depreciation of US$ 0.3 million)
      incurred following relocation of our London office during the first
      quarter of 2006; and
 
 ·
              Decreased
      legal costs incurred in connection with legal proceedings in respect of
      our Ukraine operations.


IV (i) Impairment charge for the
three and six months ended June 30, 2007 compared to the three and six months
ended June 30, 2006





When
we updated our medium-term forecast models at June 30, 2006, we
determined that the forecast future cash flows of our Croatia operations
had decreased compared to our previous forecast. We therefore reviewed
the carrying value of the intangible assets with indefinite lives to determine
whether the assets are impaired.  As a result of our analysis, we
recognized an impairment charge of US$ 0.7 million to write down the
carrying value of goodwill to US$ nil as at June 30, 2006.




Page 70
 Index


IV (j) Operating Income for the three
months ended June 30, 2007 compared to the three months ended June 30,
2006





OPERATING
      INCOMEFor the Three Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementOperating
      Income
            
            $
            66,579
            
            
            $
            44,033
            
            
            $
            22,546





Operating
income for the three months ended June 30, 2007 increased by US$ 22.5 million,
or 51%, compared to the three months ended June 30, 2006.  Operating
margin was 31%, compared with 28%  for the three months ended June 30,
2006.




IV (k) Operating Income for the six
months ended June 30, 2007 compared to the six months ended June 30,
2006





OPERATING
      INCOMEFor the Six Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementOperating
      Income
            
            $
            79,866
            
            
            $
            60,216
            
            
            $
            19,650





Operating
income for the six months ended June 30, 2007 increased by US$ 19.7 million, or
32.6%, compared to the six months ended June 30, 2006.  Operating
margin was 24%, compared with 22% for the six months ended June 30,
2006.




IV (l) Other income / (expense) items
for the three months ended June 30, 2007 compared to the three months ended June
30, 2006





OTHER INCOME / (EXPENSE)
      ITEMSFor the Three Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementInterest
      income
            
            $
            1,732
            
            
            $
            1,741
            
            
            $
            (9
            )Interest
      expense
            
            
            (19,438
            )
            
            
            (11,337
            )
            
            
            (8,101
            )Foreign
      currency exchange loss, net
            
            
            (2,116
            )
            
            
            (20,625
            )
            
            
            18,509Change
      in fair value of derivatives
            
            
            7,528
            
            
            
            (1,876
            )
            
            
            9,404Other
      (expense) / income
            
            
            (546
            )
            
            
            167
            
            
            
            (713
            )Provision
      for income taxes
            
            
            (13,419
            )
            
            
            (3,582
            )
            
            
            (9,837
            )Minority
      interest in income of consolidated subsidiaries
            
            
            (5,730
            )
            
            
            (1,276
            )
            
            
            (4,454
            )Discontinued
      operations
            
            $
            -
            
            
            $
            1,277
            
            
            $
            (1,277
            )




Page 71
 Index


Interest income for the three
months ended June 30, 2007 was in line with that recognized in the three months
ended June 30, 2006.





Interest expense for the three
months ended June 30, 2007 increased by US$ 8.1 million compared to the three
months ended June 30, 2006, primarily as a result of US$ 6.9 million of costs
associated the redemption of our 2012 Floating Rate Notes as well as an increase
in interest rates.





Foreign currency exchange loss,
net:  For the three months ended June 30, 2007 we recognized a
US$ 2.1 million loss primarily as a result of the strengthening of the Euro
against the dollar during the three-month period.  Our fixed and
floating rate Senior Notes are denominated in Euros, and we incurred a
transaction loss of approximately US$ 6.1 million due to movements in the spot
rate between March 31, 2007 and June 30, 2007.  For the three months
ended June 30, 2006, we recognized a transaction loss of US$ 20.6
million.





Change in fair value of
derivatives: For the three months ended June 30, 2007 we recognized a US$
7.5 million gain as a result of the change in the fair value of the currency
swaps entered into on April 27, 2006.  For further information, see
Part I Item 1, Note 12.





Other (expense) / income
:  For the three months ended June 30, 2007 we incurred other
expenses of US$ 0.5 million compared to income of US$ 0.2 million for the three
months ended June 30, 2006.





Provision for income
taxes:  The provision for income taxes for the three months
ended June 30, 2007 was US$ 13.4 million compared to US$ 3.6 million for the
three months ended June 30, 2006 as a result of our increased
profitability.  Our effective tax rate for the three months ended June
30, 2007 was 25% compared to 29% for the three months ended June 30,
2006.




Minority interest in income of
consolidated subsidiaries:  For the three months ended June 30,
2007, we recognized a charge of US$ 5.7 million in respect of the minority
interest in the income of consolidated subsidiaries, compared to a charge of US$
1.3 million for the three months ended June 30, 2006. This reflected the strong
increase in profitability of our Slovak Republic operations.





Discontinued
operations:  For the three months ended June 30, 2007 we
recognized a charge of US$ nil in respect of discontinued operations compared to
US$ 1.3 million for the three months ended June 30, 2006.





On June
19, 2003, our Board of Directors decided to withdraw from operations in the
Czech Republic.  On October 23, 2003, we sold our 93.2% interest in
CNTS to our former Czech Republic operating company, for US$ 53.2
million.





The
revenues and expenses of our former Czech Republic operations and the award
income and related legal expenses have therefore all been treated as
discontinued operations.  For the three months ended June 30, 2006,
the amounts credited to discontinued operations largely represented revised
estimates of additional payments we expect to make to the Dutch tax authorities
pursuant to the agreement we entered into on February 9, 2004 (see also Part I,
Item 1, Note 17).




Page 72
 Index


IV (m) Other income / (expense) items
for the six months ended June 30, 2007 compared to the six months ended June 30,
2006





OTHER INCOME / (EXPENSE)
      ITEMSFor the Six Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementInterest
      income
            
            $
            3,146
            
            
            $
            3,194
            
            
            $
            (48
            )Interest
      expense
            
            
            (30,834
            )
            
            
            (21,855
            )
            
            
            (8,979
            )Foreign
      currency exchange gain loss, net
            
            
            (5,252
            )
            
            
            (31,487
            )
            
            
            26,235Change
      in fair value of derivatives
            
            
            12,052
            
            
            
            (1,876
            )
            
            
            13,928Other
      expense
            
            
            (790
            )
            
            
            (381
            )
            
            
            (409
            )Provision
      for income taxes
            
            
            (18,478
            )
            
            
            (7,576
            )
            
            
            (10,902
            )Minority
      interest in income of consolidated subsidiaries
            
            
            (5,370
            )
            
            
            (6,717
            )
            
            
            1,347Equity
      in income / (loss) of unconsolidated affiliates
            
            
            -
            
            
            
            (730
            )
            
            
            730Discontinued
      operations
            
            $
            -
            
            
            $
            (2,530
            )
            
            $
            2,530




Interest income for the six
months ended June 30, 2007 was in line with that recognized in the six months
ended June 30, 2006.
 
 Interest expense for the six
months ended June 30, 2007 increased by US$ 9.0 million compared to the six
months ended June 30, 2006, primarily as a result of US$ 6.9 million of costs
associated the redemption of our 2012 Floating Rate Notes as well as an increase
in interest rates.
 
 Foreign currency exchange loss,
net:  For the six months ended June 30, 2007 we recognized a
US$ 5.3 million loss primarily as a result of the strengthening of the Euro
against the dollar during the six-month period.  Our fixed and
floating rate Senior Notes are denominated in Euros, and we incurred a
transaction loss of approximately US$ 11.5 million due to movements in the spot
rate between December 31, 2006 and June 30, 2007.  For the six months
ended June 30, 2006, we recognized a transaction loss of US$ 31.5
million.


Change in fair value of
derivatives: For the six months ended June 30, 2007 we recognized a US$
12.1 million gain as a result of the change in the fair value of the currency
swaps entered into on April 27, 2006.  For further information, see
Part I Item 1, Note 12.





Other expense:  For
the six months ended June 30, 2007 we incurred other expenses of US$ 0.8 million
compared to US$ 0.4 million for the six months ended June 30,
2006.




Provision for income
taxes:  The provision for income taxes for the six months ended
June 30, 2007 was US$ 18.5 million compared to US$ 7.6 million for the six
months ended June 30, 2006 as a result of our increased
profitability.  Our stations pay income taxes at rates ranging from
16.0% in Romania to 25.0% in Ukraine.
 
 Minority interest in income of
consolidated subsidiaries:  For the six months ended June 30,
2007, we recognized a charge of US$ 5.4 million in respect of the minority
interest in the income of consolidated subsidiaries, compared to a charge of US$
6.7 million for the six months ended June 30, 2006.  This movement
primarily reflects the fact that our Ukraine (STUDIO 1+1) operations reported a
net loss in the six months ended June 30, 2007 compared to a significant net
profit in the six months ended June 30, 2006, partially offset by the increased
profitability of our Slovak Republic and Romania operations.





Equity in income / (loss) of
unconsolidated affiliates:  Some of our broadcasting licenses
were held by unconsolidated affiliates over which we had minority blocking
rights but not majority control.  These affiliates were accounted for
using the equity method.




Page 73
 Index


Equity in
income / (loss) of unconsolidated affiliates for the six months ended June 30,
2007 decreased by US$ 0.7 million compared to the six months ended June 30, 2006
as detailed below:





EQUITY IN INCOME / (LOSS) OF
      UNCONSOLIDATED AFFILIATESFor the Six Months Ended June
      30, (US$ 000's)2007
            
            
            2006
            
            
            MovementRomania
      operations
            
            $
            -
            
            
            $
            7
            
            
            $
            (7
            )Slovak
      Republic operations
            
            
            -
            
            
            
            (737
            )
            
            
            737Equity in Income / (Loss) of
      Unconsolidated Affiliates
            
            $
            -
            
            
            $
            (730
            )
            
            $
            730





Discontinued operations: For
the six months ended June 30, 2007 we recognized a charge of US$ nil in respect
of discontinued operations compared to US$ 2.5 million for the six months ended
June 30. 2006.





On June
19, 2003, our Board of Directors decided to withdraw from operations in the
Czech Republic.  On October 23, 2003, we sold our 93.2% interest in
CNTS to our former Czech Republic operating company, for US$ 53.2
million.





The
revenues and expenses of our former Czech Republic operations and the award
income and related legal expenses have therefore all been treated as
discontinued operations.  For the six months ended June 30, 2006, the
amounts charged to discontinued operations represent additional payments we
expect to make to the Dutch tax authorities pursuant to the agreement we entered
into on February 9, 2004 (see also Item 1, Note 17).




IV (n) Condensed consolidated balance
sheet as at June 30, 2007 compared to December 31, 2006





SUMMARIZED CONDENSED
      CONSOLIDATED BALANCE SHEET (US$ 000’s)June 30,
              2007
            
            
            December
31,
              2006
            
            
            MovementCurrent
      assets
            
            $
            426,598
            
            
            $
            413,616
            
            
            $
            12,982Non-current
      assets
            
            
            1,473,694
            
            
            
            1,405,384
            
            
            
            68,310Current
      liabilities
            
            
            214,237
            
            
            
            182,961
            
            
            
            31,276Non-current
      liabilities
            
            
            611,475
            
            
            
            574,084
            
            
            
            37,391Minority
      interests in consolidated subsidiaries
            
            
            21,556
            
            
            
            26,189
            
            
            
            (4,633
            )Shareholders’
      equity
            
            $
            1,053,024
            
            
            $
            1,035,766
            
            
            
            17,258





Current
assets:  Current assets at June 30, 2007 increased US$ 13.0
million compared to December 31, 2006, primarily as a result of an increase in
accounts receivable.





Non-current
assets:  Non-current assets at June 30, 2007 increased US$ 68.3
million compared to December 31, 2006, primarily as a result of the recognition
of goodwill and other intangible assets following our acquisition of Sport.ro
and an additional 5% stake in our Romania operations.





Current
liabilities:  Current liabilities at June 30, 2007 increased
US$ 31.3 million compared to December 31, 2006, reflecting increases in deferred
income, authors’ rights and payroll taxes partially offset by a decrease in
accounts payable.





Non-current
liabilities:  Non-current liabilities at June 30, 2007
increased US$ 37.4 million compared to December 31, 2006, primarily as a result
of our issuance of EUR 150.0 million of floating rate Senior Notes, partially
offset by the redemption of EUR 125.0 million of floating rate Senior Notes
issued in May 2005.




Page 74
 Index


Minority interests in consolidated
subsidiaries:  Minority interests in consolidated subsidiaries
at June 30, 2007 decreased US$ 4.6 million compared to December 31, 2006,
primarily as a result of our acquisition of an additional 5% stake in our
Romania operations.





Shareholders’
equity:  Total shareholders’ equity at June 30, 2007 increased
US$ 17.3 million compared to December 31, 2006, primarily as a result of the net
income of US$ 34.3 million for the six months ended June 30, 2007, partially
offset by the decrease in Other Comprehensive Income (US$ 19.5 million) and the
impact of the adoption of FIN 48 (US$ 3.2 million). Included in the total
shareholders’ equity were proceeds from the exercise of stock options (US$
0.7million) and a stock-based compensation charge of US$ 2.6
million.




V. Liquidity and Capital
Resources





V (a) Summary of cash
flows





Cash and
cash equivalents decreased by US$ 29.2 million during the six months ended June
30, 2007.  The change in cash and cash equivalents is summarized as
follows:





SUMMARY OF CASH
      FLOWSFor the Six Months Ended June
      30, (US$ 000's)2007
            
            
            2006Net
      cash generated from continuing operating activities
            
            $
            21,601
            
            
            $
            37,275Net
      cash used in continuing investing activities
            
            
            (88,113
            )
            
            
            (81,568
            )Net
      cash received from financing activities
            
            
            31,125
            
            
            
            138,233Net
      cash used in discontinued operations – operating
activities
            
            
            (1,624
            )
            
            
            (1,690
            )Net (decrease)/increase in cash
      and cash equivalents
            
            $
            (29,242
            )
            
            $
            87,340





Operating
Activities





Cash
generated from continuing operations decreased from US$ 37.3 million in the six
months ended June 30, 2006 to US$ 21.6 million in the six months ended June 30,
2007, with strong increases in the amount of cash generated by all our stations
outside Ukraine from improved operational performance, as well as a reduction in
cash paid for taxes following simplification of our corporate structure in the
Czech Republic.  However, these positive factors were more than offset
by increased investment in programming, particularly in Ukraine, which is
experiencing significant price inflation for popular Russian series and making
additional investments in such programming to boost ratings and in Croatia,
where we are improving the quality of our programming to drive ratings
growth.  It is likely that the cost of acquired programming across all
our markets will continue to grow in the future.





Investing
Activities





Cash used
in investing activities increased from US$ 81.6 million in the six months ended
June 30, 2006 to US$ 88.1 million in the six months ended June 30,
2007.  Our investing cash flows in the six months ended June 30, 2007
were primarily comprised of:





·
            Payment
      of US$ 51.6 million in connection with our acquisition of an additional 5%
      stake in our Romania broadcasting operations and a 20% stake in our
      Romanian production company (for further information, see Part I, Item 1,
      Note 3);


·
            Payments
      of EUR 6.7 million (approximately US$ 8.4 million) in connection with our
      acquisition of Sport.ro (for further information, see Part I, Item 1, Note
      3);


·
            Payments
      of US$ 2.1 million in connection with our acquisition of a 60.4% stake in
      each of Tor and Zhysa (for further information, see Part I, Item 1, Note
      3); and


·
            Capital
      expenditure of US$ 25.5 million.




Page 75
 Index


Financing
Activities





Net cash
received from financing activities in the six months ended June 30, 2007 was US$
31.2 million compared to US$ 138.2 million in the six months ended June 30,
2006.  Our financing cash flows in the six months ended June 30, 2007
primarily comprised net proceeds of US$ 199.4 million from the issuance of EUR
150.0 million of floating rate Senior Notes, partially offset by payment of EUR
127.5 million (approximately US$ 172.8 million) to redeem our floating rate
Senior Notes issued in May 2005.





The
amount of cash received in the six months ended June 30, 2006 reflects proceeds
of US$ 168.6 million from the issuance of Class A Common Stock and
a net amount of US$ 28.0 million of cash received from credit
facilities.




Discontinued
Operations
  In the six months ended
June 30, 2007, we paid taxes of US$ 1.6 million to the Dutch tax authorities
pursuant to the agreement we entered into with them on February 9, 2004,
compared to US$ 1.7 million in the six months ended June 30, 2006.




V (b) Sources and Uses of
Cash





We
believe that our current cash resources are sufficient to allow us to continue
operating for at least the next 12 months and we do not anticipate additional
cash requirements in the near future for our existing operations, subject to the
matters disclosed under “Contractual Obligations, Commitments and Off-Balance
Sheet Arrangements” and “Cash Outlook” below.





Our
ongoing source of cash at the operating stations is primarily the receipt of
payments from advertisers and advertising agencies. This may be supplemented
from time to time by local borrowing. Surplus cash generated in this manner,
after funding the ongoing station operations, may be remitted to us, or to other
shareholders where appropriate.  Surplus cash is remitted to us in the
form of debt interest payments and capital repayments, dividends, and other
distributions and loans from our subsidiaries.





Corporate
law in the Central and Eastern European countries in which we operate stipulates
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital, required
reserves and after the recovery of accumulated losses. Except as set forth
below, our voting power is sufficient to compel the making of
distributions.





In the
case of Nova TV (Croatia), distributions may be paid from net profits subject to
a reserve of 5% of annual profits until the aggregate reserves equal 5% of the
registered capital of Nova TV (Croatia). In the case of CET 21, distributions
may be paid from net profits subject to a reserve of 5% of net profits until the
aggregate reserves equal 10% of the registered capital of CET 21. In the case of
Pro TV, distributions may be paid from the profits of Pro TV subject to a
reserve of 5% of annual profits until the aggregate reserves equal 20% of Pro
TV's registered capital. A majority vote is required in order for Pro TV to make
distributions and we have sufficient voting power to compel distributions of
dividends.  In the case of Markiza, distributions may be paid from net
profits subject to an initial reserve requirement of 10% of net profits until
the reserve fund equals 5% of registered capital. Subsequently, the reserve
requirement is equal to 5% of net profits until the reserve fund equals 10% of
registered capital. In the case of Pro Plus, distributions may be paid from the
profits of Pro Plus, subject to a reserve equal to 10% of registered capital
being established from accumulated profits. In the case of Studio 1+1,
distributions may be paid from net profits subject to a reserve of 5% of net
profits until the aggregate reserves equals 25% of the registered capital of
Studio 1+1.  We do not have a sufficient majority in Studio 1+1 to
compel the distribution of dividends. In the case of Intermedia, Innova and IMS,
distributions may be paid from their profits and there is no reserve requirement
for these companies. Our voting power in Innova and IMS is sufficient to compel
the distribution of dividends.


Page 76
 Index


As at
June 30, 2007 and December 31, 2006 the operations had the following unsecured
balances owing to their respective holding companies:





Operating segment (US$
      000’s)
            
            June 30,
      2007
            
            
            December 31,
      2006Croatia
            
            $
            85,140
            
            
            $
            67,623Czech
      Republic
            
            
            411,821
            
            
            
            434,897Romania
            
            
            37,235
            
            
            
            25,620Slovak
      Republic
            
            
            23,518
            
            
            
            23,670Slovenia
            
            
            58
            
            
            
            -Ukraine
      (STUDIO 1+1)
            
            
            556
            
            
            
            -Ukraine
      (KINO, CITI)
            
            
            11,972
            
            
            
            4,621Total
            
            $
            570,300
            
            
            $
            556,431




V (c) Contractual Obligations,
Commitments and Off-Balance Sheet Arrangements





Our
future contractual obligations as of June 30, 2007 are as follows:





Contractual
      Obligations
            
            Payments due by period (US$
      000’s)Total
            
            
            Less than 1
      year
            
            
            1-3
years
            
            
            3-5
years
            
            
            More than 5
      yearsLong-Term
      Debt – principal
            
            $
            546,929
            
            
            $
            11,805
            
            
            $
            1,700
            
            
            $
            -
            
            
            $
            533,424Long-Term
      Debt – interest
            
            
            208,481
            
            
            
            39,510
            
            
            
            78,383
            
            
            
            78,077
            
            
            
            12,511Capital
      Lease Obligations
            
            
            6,644
            
            
            
            540
            
            
            
            1,840
            
            
            
            1,240
            
            
            
            3,024Operating
      Leases
            
            
            6,015
            
            
            
            2,611
            
            
            
            2,419
            
            
            
            985
            
            
            
            -Unconditional
      Purchase Obligations
            
            
            118,498
            
            
            
            110,045
            
            
            
            6,059
            
            
            
            1,580
            
            
            
            814Other
      Long-Term Obligations
            
            
            9,199
            
            
            
            7,199
            
            
            
            2,000
            
            
            
            -
            
            
            
            -Total Contractual
      Obligations
            
            $
            895,766
            
            
            $
            171,710
            
            
            $
            92,401
            
            
            $
            81,882
            
            
            $
            549,773








Long-Term Debt





At June
30, 2007, we had the following debt outstanding:





June 30,
      2007
              (US$
      000’s)Corporate
            
            
            (1)–(2)
            
            
            $
            533,424Croatia
      operations
            
            
            (3)
            
            
            
            -Czech
      Republic operations
            
            
            (4)–(6)
            
            
            
            11,760Romania
      operations
            
            
            (7)
            
            
            
            40Slovenia
      operations
            
            
            (8)
            
            
            
            -Ukraine
      (KINO, CITI) operations
            
            
            (9)
            
            
            
            1,705Total
            
            
            
            
            
            $
            546,929





(1)
            In
      May 2005, we issued Senior Notes in the aggregate principal amount of EUR
      370.0 million (approximately US$ 499.7 million) consisting of EUR
      245.0 million (approximately US$ 330.9 million) of 8.25% Senior Notes
      due May 2012 and EUR 125.0 million (approximately US$ 168.8
      million) of floating rate Senior Notes due May 2012, which bore
      interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”) plus
      5.50%.  On May 15, 2007, we redeemed the floating rate Senior
      Notes.





On May
16, 2007 we issued Senior Notes in the aggregate principal amount of EUR 150.0
million (approximately US$ 202.6 million), which bear interest at EURIBOR plus
1.625% (5.80% was applicable at June 30, 2007).   Interest is
payable on the Senior Notes semi-annually in arrears on each May 15 and November
15.




Page 77
 Index


The
Senior Notes are secured senior obligations and rank pari passu with all
existing and future senior indebtedness and are effectively subordinated to all
existing and future indebtedness of our subsidiaries.  The amounts
outstanding are guaranteed by two subsidiary holding companies and are secured
by a pledge of shares of these subsidiaries as well as an assignment of certain
contractual rights.  The terms of our indebtedness restrict the manner
in which our business is conducted, including the incurrence of additional
indebtedness, the making of investments, the payment of dividends or the making
of other distributions, entering into certain affiliate transactions and the
sale of assets.




In the
event that (A) there is a change in control by which (i) any party other than
our present shareholders becomes the beneficial owner of more than 35.0% of our
total voting power; (ii) we agree to sell substantially all of our operating
assets; or (iii) there is a change in the composition of a majority of our Board
of Directors; and (B) on the 60th day following any such change of control the
rating of the Senior Notes is either withdrawn or downgraded from the rating in
effect prior to the announcement of such change of control, we can be required
to repurchase the Senior Notes at a purchase price in cash equal to 101.0% of
the principal amount of the Senior Notes plus accrued and unpaid interest to the
date of purchase.


At any time prior to May 15, 2008, we may redeem up
to 35.0% of the fixed rate Senior Notes with the proceeds of any public equity
offering at a price of 108.25% of the principal amount of such notes, plus
accrued and unpaid interest, if any, to the redemption date.  In
addition, prior to May 15, 2009, we may redeem all or a part of the fixed rate
Senior Notes at a redemption price equal to 100.0% of the principal amount of
such notes, plus a “make-whole” premium and accrued and unpaid interest, if any,
to the redemption date.





As of
June 30, 2007, Standard & Poor’s senior unsecured debt rating for our Senior
Notes remained unchanged from December 31, 2006 at B+, with a corporate credit
rating of BB- / positive, up from BB- / stable at December 31,
2006.  At June 30, 2007, Moody’s Investors Service’s rating of both
our corporate credit rating and our Senior Notes due 2012 was Ba3
stable.





(2)
            On
      July 21, 2006, we entered into a five-year revolving loan agreement for
      EUR 100.0 million (approximately US$ 135.1 million) arranged by the
      European Bank for Reconstruction and Development (the
      “Loan”).  ING Bank N.V. (“ING”) and Ceska Sporitelna, a.s.
      (“CS”) are participating in the facility for EUR 50.0 million in
      aggregate.





The Loan
bears interest at a rate of three-month EURIBOR plus 2.75% on the drawn
amount.  The available amount of the Loan amortizes by 7.5% every six
months from May 2008 to November 2009, then by 15% in May 2010 and November
2010, and by 40% in May 2011. There were no drawings under this facility as at
June 30, 2007, however the entire EUR 100.0 million was drawn on April 18, 2007
and subsequently repaid on June 1, 2007.





Covenants
contained in the Loan are in line with those contained in our Senior
Notes.  In addition, the Loan’s covenants restrict us from making
principal repayments on other debt of greater than US$ 20.0 million per year for
the life of the Loan.  This restriction is not applicable to our
existing facilities with ING or CS or to any refinancing of our Senior
Notes.





The Loan
is a secured senior obligation and ranks pari passu with all existing and future
senior indebtedness, including the Senior Notes, and is effectively subordinated
to all existing and future indebtedness of our subsidiaries.  The
amount drawn is guaranteed by two subsidiary holding companies and is secured by
a pledge of shares of those subsidiaries as well as an assignment of certain
contractual rights.  The terms of the Loan restrict the manner in
which our business is conducted, including the incurrence of additional
indebtedness, the making of investments, the payment of dividends or the making
of other distributions, entering into certain affiliate transactions and the
sale of assets.




Page 78
 Index


(3)
            On
      March 28, 2007, we repaid EUR 0.6 million (approximately US$ 0.8 million),
      which was the total amount outstanding to our Croatia operations under two
      loan agreements with Hypo Alpe-Adria Bank d.d. Following this repayment,
      the security held by the bank was
released.




(4)
              CET
      21 has a four-year credit facility of CZK 1.2 billion (approximately US$
      56.4 million) with Ceska Sporitelna, a.s. (“CS”).  The final
      repayment date is October 31, 2009.  This facility may, at the
      option of CET 21, be drawn in CZK, US$ or EUR and bears interest at the
      three-month, six-month or twelve-month London Inter-Bank Offered Rate
      (“LIBOR”), EURIBOR or Prague Inter-Bank Offered Rate (“PRIBOR”) rate plus
      1.95%.  This facility is secured by a pledge of receivables,
      which are also subject to a factoring arrangement with Factoring Ceska
      Sporitelna, a.s., a subsidiary of CS.  As at June 30, 2007,
      there were no drawings under this facility, however on July 10, 2007, CZK
      860.0 million (approximately US$ 40.4 million) was drawn down under this
      facility and on July 31, 2007, CZK 260.0 million (approximately US$ 12.7
      million) was repaid.




(5)
            CET
      21 has a working capital credit facility of CZK 250.0 million
      (approximately US$ 11.8 million) with CS.  This working capital
      facility bears interest at the three-month PRIBOR rate plus 1.65% and is
      secured by a pledge of receivables, which are also subject to a factoring
      arrangement with Factoring Ceska Sporitelna, a.s. On June 30, 2007, the
      full CZK 250.0 million (approximately US$ 11.8
      million) was drawn under this facility bearing interest at an aggregate
      4.65% (three-month PRIBOR effective for this loan was
      3.00%).






(6)
            As
      at June 30, 2007, there were no drawings under a CZK 300.0 million
      (approximately US$ 14.1 million) factoring facility with Factoring Ceska
      Sporitelna, a.s., a subsidiary of CS.  This facility is
      available until June 30, 2010 and bears interest at the rate of one-month
      PRIBOR plus 1.40% for the period that actively assigned accounts
      receivable are outstanding.





(7)
            As
      at June 30, 2007, an amount of RON 97 thousand (approximately US$ 40
      thousand) was outstanding under a loan agreement from one of the founding
      shareholders of Sport.ro. The loan is interest free and is repayable in
      equal monthly instalments by August 31,
  2007.





(8)
            A
      revolving five-year facility agreement was entered into by Pro Plus for up
      to EUR 37.5 million (approximately US$ 50.6 million) in aggregate
      principal amount with ING Bank N.V., Nova Ljubljanska Banka d.d.,
      Ljubljana and Bank Austria Creditanstalt d.d., Ljubljana.  The
      facility availability amortizes by 10.0% each year for four years
      commencing one year after signing, with 60.0% repayable after five
      years.  This facility is secured by a pledge of the bank
      accounts of Pro Plus, the assignment of certain receivables, a pledge of
      our interest in Pro Plus and a guarantee of our wholly-owned subsidiary
      CME Media Enterprises B.V.  Loans drawn under this facility will
      bear interest at a rate of EURIBOR for the period of drawing plus a margin
      of between 2.1% and 3.6% that varies according to the ratio of
      consolidated net debt to consolidated broadcasting cash flow for Pro
      Plus.  As at June 30, 2007, EUR 33.8 million (approximately US$
      45.6 million)  was available for drawing under this revolving
      facility; there were no drawings
  outstanding.





(9)
            Our
      Ukraine (KINO, CITI) operations have entered into a number of three-year
      unsecured loans with Glavred-Media, LLC, the minority shareholder in
      Ukrpromtorg.  As at June 30, 2007, the total value of loans
      drawn was US$ 1.7 million.  The loans are repayable between
      August 2009 and December 2009 and bear interest at
  9.0%.





Capital Lease
Obligations





Capital
lease obligations include future interest payments of US$ 1.9
million.  For more information on our capital lease obligations see
Part I, Item 1, Note 11.





Operating Leases





For more
information on our operating lease commitments see Part 1, Item 1, Note
18.





Unconditional Purchase
Obligations




Unconditional
purchase obligations largely comprise future programming
commitments.  At June 30, 2007, we had commitments in respect of
future programming of US$ 117.3 million (December 31, 2006: US$ 98.0
million).  This includes contracts signed with license periods
starting after June 30, 2007.  For more information on our programming
commitments see Part I, Item 1, Note 18.




Page 79
 Index


Other Long-Term
Obligations





Included
in Other Long-Term Obligations are our commitments to the Dutch tax authorities
of US$ 3.9 million (see Part I, Item 1, Note 18).





In
addition to the amounts disclosed above, Mr. Sarbu has the right to sell his
remaining shareholding in Pro TV and MPI to us under a put option agreement
entered into in July 2004 at a price to be determined by an independent
valuation, subject to a floor price of US$ 1.45 million for each 1.0% interest
sold.  Mr. Sarbu’s right to put his remaining shareholding is
exercisable from November 12, 2009, provided that we have not enforced a pledge
over this shareholding which Mr. Sarbu granted as security for our right to put
our interest in Media Pro. As at June 30, 2007, we consider the fair value of
Mr. Sarbu’s put option to be approximately US$ nil (2006: US$ nil).




V (d) Cash
Outlook





We issued
EUR 370.0 million (approximately US$ 480.0 million at the time of issuance)
Senior Notes in May 2005, consisting of EUR 245.0 million of Senior Fixed Rate
Notes and EUR 125.0 million of Senior Floating Rate Notes. Our EUR 125 million
Senior Floating Rate Notes were redeemed on May 15, 2007. On May 16, 2007 we
issued new floating rate Senior Notes due November 2014 in the aggregate
principal amount of EUR 150.0 million. We have significant debt service
obligations in respect of the Senior Notes. The terms of our indebtedness
restrict the manner in which our business is conducted, including the incurrence
of additional indebtedness, the making of investments, the payment of dividends
or the making of other distributions, entering into certain affiliate
transactions and the sale of assets.  Net cash proceeds from the
issuance of new shares of our Class A Common Stock of US$ 168.6 million in March
2006 significantly reduced our net debt at that time and provided a useful
source of funds to allow investment flexibility, including acquisitions better
suited to equity rather than debt financing.  On July 21, 2006, we
entered into a five-year EUR 100.0 million revolving loan facility (the EBRD
Loan Agreement), which, once fully drawn, can be used for general corporate
purposes to further increase our financing flexibility, and will reduce our
average cost of debt.  The full amount of the facility was drawn on
April 18, 2007 and subsequently repaid on June 1, 2007 and remains available for
re-drawing.





Our
future cash needs will depend on our overall financial performance, debt service
requirements under the Senior Notes, the EBRD Loan Agreement as well as under
other indebtedness incurred by us as well as any future acquisition, investment
and development decisions.  Our ability to raise further funds through
external debt facilities depends on our satisfaction of leverage ratios under
the Senior Notes, which are also incorporated into the drawing conditions of the
EBRD Loan Agreement.  In the short-term we are able to fund our
operations from cash generated from operations, our current cash resources (US$
116.7 million, at June 30, 2007) and available undrawn credit facilities (US$
251.2 million, at June 30, 2007).




We expect
to invest US$ 75-80 million on capital expenditure in 2007 and approximately US$
10 million in furthering the development of our non-broadcast operations. Any
further significant acquisitions could be financed through the issues of
additional external debt or equity depending on prevailing market conditions at
the time.





Our
Croatia operations continue to require funding to improve our ratings
performance and increase our market share.  We expect the funding
required to support Nova TV (Croatia) to be in excess of US$ 26.0 million during
2007, and have provided US$ 5.1 million in cash funding to Nova TV
(Croatia) in the three months ended June 30, 2007. Our Ukraine (KINO, CITI)
operations continue to require funding in order to achieve improved ratings and
market share.  We expect the funding required to support KINO and CITI
to be in excess of US$ 7.0 million during 2007, and have provided US$ 3.0
million in cash funding to KINO and CITI in the three months ended June 30,
2007.




Page 80
 Index




We expect
that, taken together, our current cash balances, internally generated cash flow,
committed bank facilities, and local financing of broadcast operations should
result in us having adequate cash resources to meet our debt service and other
existing financial obligations for the next 12 months.  The
acquisition of additional shareholdings in our current operations, further
investment in the expansion of existing operations, acquisitions, or other
investments in the development of new revenue opportunities may require further
financing.  To the extent we will need additional financing, we would
expect to raise such financing through issuing additional debt or
equity.
 
 V (e) Tax
Inspections
 
 Pro Plus
has been the subject of an income tax inspection by the Republic of Slovenia tax
authorities for the years 1995 to 1998.  As a result of these
inspections the Slovenian tax authorities had levied an assessment seeking
unpaid income taxes, customs duties and interest charges of an amount equivalent
to EUR 4.5 million  (approximately US$ 6.1 million). The Slovenian
authorities have asserted that capital contributions and loans made by us to Pro
Plus in 1995 and 1996 should be extraordinary revenue to Pro Plus.  On
this basis, the Slovenian authorities claim that Pro Plus made a profit in 1995
and 1996 for which it owes income taxes and interest.  Additionally,
the Slovenian tax authorities claim that the fixed assets imported as capital
contributions were subject to customs duties, which were not paid.  On
February 9, 2001, the Slovenian tax authorities concluded that the cash capital
contributions for 1995 and 1996 were not extraordinary income. This has reduced
the assessment
to an amount equivalent to EUR 2.7 million (approximately US$ 3.6 million) in
aggregate principal amount.  Pro Plus appealed this decision to the
Administrative Court in Ljubljana and requested the tax authorities to defer the
demand for payment until a final judgment has been issued, and the tax
authorities have so agreed.  On April 18, 2005, the Administrative
Court issued a decision in favor of Pro Plus and dismissed the claims of the tax
authorities.  The tax authorities filed an appeal with the Slovenian
Supreme Court in May 2005. The Slovenian Supreme Court denied the appeal in June
2007 and remanded the case back to the tax authorities. We do not have a
provision in our financial statements in relation to this legal
action.




V (f) Off-Balance Sheet
Arrangements





None.




VI.  Critical Accounting
Policies and Estimates





Our
accounting policies affecting our financial condition and results of operations
are more fully described in Part II, Item 8 of our Annual Report on Form 10-K
for the year ended December 31, 2006.  The preparation of these
financial statements requires us to make judgments in selecting appropriate
assumptions for calculating financial estimates, which inherently contain some
degree of uncertainty.  We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis of making judgments about the
carrying values of assets and liabilities and the reported amounts of revenues
and expenses that are not readily apparent from other sources.  Actual
results may differ from these estimates under different assumptions or
conditions.





We
believe our critical accounting policies relate to program rights, goodwill and
intangible assets, impairment or disposal of long-lived assets, revenue
recognition, income taxes, foreign exchange and contingencies.  These
critical accounting policies affect our more significant judgments and estimates
used in the preparation of our condensed consolidated financial
statements.  There have been no significant changes in our critical
accounting policies since December 31, 2006.





Recently adopted accounting
principles





On
January 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN
48”), which clarifies the accounting for uncertainty in tax
positions.  The evaluation of a tax position under FIN 48 is a
two-step process.  The first step is recognition: Tax positions taken
or expected to be taken in a tax return should be recognized only if those
positions are more likely than not to be sustained upon examination, based on
the technical merits of the position.  In evaluating whether a tax
position has met the more likely than not recognition threshold, it should be
presumed that the position will be examined by the relevant taxing authority and
that they would have full knowledge of all relevant information.  The
second step is measurement: Tax positions that meet the recognition criteria are
measured at the largest amount of benefit that is greater than 50 percent likely
of being recognized upon ultimate settlement.




Page 81
 Index




As a
result of the implementation of FIN 48, we recognized a liability of
approximately US$ 2.0 million for unrecognized tax benefits, of which US$ 1.7
million was accounted for as a reduction to retained deficit as at January 1,
2007.  The total amount of unrecognized benefits that, if recognized,
would affect the effective tax rate amounts to US$ 2.0 million, all of which
would reduce the effective tax rate accordingly.
 
 We
recognize interest accrued and penalties related to unrecognized tax benefits
within the provision for income taxes. As at January 1, 2007, we accrued US$ 1.8
million in respect of interest and penalties, of which US$ 1.5 million was
accounted for as a reduction to retained deficit.




Our
subsidiaries file income tax returns in the Netherlands and various other tax
jurisdictions including the United States.  As at January 1, 2007,
analyzed by major tax jurisdictions, the Company’s subsidiaries are no longer
subject to income tax examinations for years before:





Jurisdiction
            YearCroatia
            2003Czech
      Republic
            2003Germany
            2000Netherlands
            2004Romania
            2002Slovak
      Republic
            2001Slovenia
            2001Ukraine
            2003United
      States
            2001




Page 82
 Index





PART II  OTHER
INFORMATION





Item 6.  Exhibits





a) The
following exhibits are attached:





31.01
            Sarbanes-Oxley
      Certification s. 302 CEO, dated  February 22,
    2008 .31.02
            Sarbanes-Oxley
      Certification s. 302 CFO, dated February 22,
  2008 .32.01
            Sarbanes-Oxley
      Certification – CEO and CFO, dated February 22, 2008 (furnished
      only).





Page 83
 Index





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





Date:
      February 22, 2008
            /s/ Michael
      GarinMichael
      GarinChief
      Executive Officer(Duly
      Authorized Officer)Date:
      February 22, 2008
            /s/ Wallace
      MacmillanWallace
      MacmillanChief
      Financial Officer(Principal
      Financial Officer and Accounting
Officer)





Page 84
 Index





EXHIBIT INDEX





31.01
            s.
      302 Sarbanes-Oxley Certification - CEO, dated February 22,
      200831.02
            s.
      302 Sarbanes-Oxley Certification - CFO, dated February 22,
      200832.01
            s.
      906 Sarbanes-Oxley Certification - CEO and CFO, dated February 22,
      2008 (furnished only)






Page
85