**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**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, 2006**





**o**
            **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
      o





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 o
            Non-accelerated
                filer o





Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 of the Exchange Act) Yes o 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 31, 2006Class
                A Common Stock, par value $0.08
            34,393,938Class
                B Common Stock, par value $0.08
            6,212,839














**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**





**FORM
      10-Q**





**For
      the quarterly period ended June 30, 2006**





**INDEX**





Page**Part
                I. Financial information****Item
                1. Financial Statements**Condensed
                consolidated Balance Sheets as at June 30, 2006 and
                December 31, 2005
            2Condensed
                consolidated Statements of Operations for the Three
                and Six Months Ended June 30, 2006 and 2005
            4Condensed
                consolidated Statements of Shareholders' Equity for
                the Six Months Ended June 30, 2006 and 2005
            6Condensed
                consolidated Statements of Cash Flows for the Six
                Months Ended June 30, 2006 and 2005
            7Notes
                to the condensed consolidated Financial
                Statements
            8**Item
                2. Management's Discussion and Analysis of Financial
                Condition and Results of Operations**
            40**Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk**
            77**Item
                4. Controls and Procedures**
            79**Part
                II. Other Information****Item
                1. Legal Proceedings**
            80**Item
                1A. Risk Factors**
            83**Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds**
            90**Item
                4. Submission of Matters to a Vote of Security
                Holders**
            91**Item
                5. Other Information**
            91**Item
                6. Exhibits**
            92**Signatures**
            93**Exhibit
                Index**
            94


Page
            1
 *Index*




**Part
      I. Financial Information**





**Item1.
      Financial Statements**





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(US$
      000’s)**


**(Unaudited)**





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****ASSETS****Current
                assets**Cash
                and cash equivalents
            
            $
            158,998
            
            $
            71,658Restricted
                cash (Note 6)
            
            
            14,290
            
            
            34,172Accounts
                receivable, net (Note 7)
            
            
            120,183
            
            
            97,396Income
                taxes receivable
            
            
            5,772
            
            
            9,930Program
                rights, net
            
            
            47,960
            
            
            34,914Other
                current assets (Note 8)
            
            
            32,169
            
            
            38,856**Total
                current assets**
            
            
            **379,372**
            
            
            **286,926****Non-current
                assets**Investments
            
            
            65
            
            
            23,936Acquisition
                costs (Note 3)
            
            
            -
            
            
            5,118Property,
                plant and equipment, net (Note 9)
            
            
            84,913
            
            
            58,897Program
                rights, net
            
            
            52,967
            
            
            33,081Goodwill
                (Note 4)
            
            
            846,147
            
            
            746,583Broadcast
                licenses, net (Note 4)
            
            
            193,310
            
            
            171,591Other
                intangible assets, net (Note 4)
            
            
            69,508
            
            
            47,658Other
                non-current assets (Note 8)
            
            
            15,233
            
            
            15,060**Total
                non-current assets**
            
            
            **1,262,143**
            
            
            **1,101,924****Total
                assets**
            
            **$**
            **1,641,515**
            
            **$**
            **1,388,850**





*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,**
              **2006**
            
            **December
                31,**
              **2005****LIABILITIES
                AND SHAREHOLDERS’ EQUITY****Current
                liabilities**Accounts
                payable and accrued liabilities (Note 10)
            
            $
            97,190
            
            $
            84,849Duties
                and other taxes payable
            
            
            32,160
            
            
            27,654Income
                taxes payable
            
            
            9,206
            
            
            21,894Credit
                facilities and obligations under capital leases (Note 11)
            
            
            18,350
            
            
            43,566Deferred
                consideration - Croatia
            
            
            3,893
            
            
            3,591Deferred
                consideration - Czech Republic
            
            
            -
            
            
            24,402Deferred
                consideration - Ukraine
            
            
            200
            
            
            -Deferred
                tax
            
            
            365
            
            
            1,005**Total
                current liabilities**
            
            
            **161,364**
            
            
            **206,961****Non-current
                liabilities**Credit
                facilities and obligations under capital leases (Note 11)
            
            
            4,985
            
            
            4,740Senior
                Notes (Note 5)
            
            
            473,085
            
            
            436,424Income
                taxes payable
            
            
            2,196
            
            
            681Deferred
                tax
            
            
            53,661
            
            
            42,149Other
                non-current liabilities
            
            
            7,075
            
            
            4,105**Total
                non-current liabilities**
            
            
            **541,002**
            
            
            **488,099**Commitments
                and contingencies (Note 18)**Minority
                interests in consolidated subsidiaries**
            
            
            **20,089**
            
            
            **13,237****SHAREHOLDERS'
                EQUITY:**Nil
                shares of Preferred Stock of $0.08 each (December 31, 2005 -
                nil)
            
            
            -
            
            
            -34,393,938
                shares of Class A Common Stock of $0.08 each (December 31, 2005 -
                31,032,994)
            
            
            2,752
            
            
            2,4826,212,839
                shares of Class B Common Stock of $0.08 each (December 31, 2005 -
                6,966,533)
            
            
            497
            
            
            558Additional
                paid-in capital
            
            
            917,755
            
            
            746,880Accumulated
                deficit
            
            
            (54,715
            )
            
            (44,973
            )Accumulated
                other comprehensive income / (loss)
            
            
            52,771
            
            
            (24,394
            )**Total
                shareholders’ equity**
            
            
            **919,060**
            
            
            **680,553****Total
                liabilities and shareholders’ equity**
            
            **$**
            **1,641,515**
            
            **$**
            **1,388,850**





*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,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Net
                revenues**
            
            **$**
            **156,589**
            
            **$**
            **113,109**
            
            **$**
            **276,343**
            
            **$**
            **161,413**Operating
                costs
            
            
            26,042
            
            
            18,117
            
            
            49,014
            
            
            29,402Cost
                of programming
            
            
            52,850
            
            
            32,081
            
            
            101,268
            
            
            54,403Depreciation
                of station property, plant and equipment
            
            
            6,059
            
            
            3,161
            
            
            11,761
            
            
            5,062Amortization
                of broadcast licenses and other intangibles (Note 4)
            
            
            4,620
            
            
            1,544
            
            
            8,952
            
            
            1,933**Cost
                of revenues**
            
            
            **89,571**
            
            
            **54,903**
            
            
            **170,995**
            
            
            **90,800**Station
                selling, general and administrative expenses
            
            
            14,541
            
            
            12,562
            
            
            28,707
            
            
            19,490Corporate
                operating costs
            
            
            7,696
            
            
            3,451
            
            
            15,677
            
            
            11,182Impairment
                charge (Note 4)
            
            
            748
            
            
            35,331
            
            
            748
            
            
            35,331**Operating
                income**
            
            
            **44,033**
            
            
            **6,862**
            
            
            **60,216**
            
            
            **4,610**Interest
                income
            
            
            1,741
            
            
            559
            
            
            3,194
            
            
            1,638Interest
                expense
            
            
            (11,337
            )
            
            (6,424
            )
            
            (21,855
            )
            
            (6,731
            )Foreign
                currency exchange gain / (loss), net
            
            
            (20,625
            )
            
            30,159
            
            
            (31,487
            )
            
            29,430Change
                in fair value of derivatives (Note 12)
            
            
            (1,876
            )
            
            -
            
            
            (1,876
            )
            
            -Other
                income / (expense)
            
            
            167
            
            
            312
            
            
            (381
            )
            
            (3,689
            )**Income
                before provision for income taxes, minority interest, equity in income
                of
                unconsolidated affiliates and discontinued
                operations**
            
            
            **12,103**
            
            
            **31,468**
            
            
            **7,811**
            
            
            **25,258**Provision
                for income taxes
            
            
            (3,582
            )
            
            (3,565
            )
            
            (7,576
            )
            
            (5,906
            )**Income
                before minority interest, equity in income of unconsolidated affiliates
                and discontinued operations**
            
            
            **8,521**
            
            
            **27,903**
            
            
            **235**
            
            
            **19,352**Minority
                interest in income of consolidated subsidiaries
            
            
            (1,276
            )
            
            (4,104
            )
            
            (6,717
            )
            
            (4,681
            )Equity
                in income / (loss) of unconsolidated affiliates
            
            
            -
            
            
            4,049
            
            
            (730
            )
            
            4,883**Net
                income / (loss) from continuing operations**
            
            
            **7,245**
            
            
            **27,848**
            
            
            **(7,212**
            **)**
            
            **19,554****Discontinued
                operations (Note 17):**Pre-tax
                income from discontinued operations (Czech Republic)
            
            
            -
            
            
            46
            
            
            -
            
            
            164Tax
                on disposal of discontinued operations (Czech Republic)
            
            
            1,277
            
            
            (2,435
            )
            
            (2,530
            )
            
            (2,208
            )**Net
                income / (loss) from discontinued operations**
            
            
            **1,277**
            
            
            **(2,389**
            **)**
            
            **(2,530**
            **)**
            
            **(2,044**
            **)****Net
                income / (loss)**
            
            **$**
            **8,522**
            
            **$**
            **25,459**
            
            **$**
            **(9,742**
            **)**
            **$**
            **17,510**Currency
                translation adjustment, net
            
            
            44,706
            
            
            (42,767
            )
            
            77,165
            
            
            (45,018
            )**Total
                comprehensive income / (loss)**
            
            **$**
            **53,228**
            
            **$**
            **(17,308**
            **)**
            **$**
            **67,423**
            
            **$**
            **(27,508**
            **)**





*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,****2006**
            
            **2005**
            
            **2006**
            
            **2005****PER
                SHARE DATA (Note 15):***Net
                income / (loss) per share:*Continuing
                operations - Basic
            
            $
            0.18
            
            $
            0.81
            
            $
            (0.18
            )
            $
            0.62Continuing
                operations - Diluted
            
            
            0.18
            
            
            0.79
            
            
            (0.18
            )
            
            0.61Discontinued
                operations - Basic
            
            
            0.03
            
            
            (0.07
            )
            
            (0.07
            )
            
            (0.06
            )Discontinued
                operations - Diluted
            
            
            0.03
            
            
            (0.07
            )
            
            (0.07
            )
            
            (0.07
            )Net
                income / (loss) - Basic
            
            
            0.21
            
            
            0.74
            
            
            (0.25
            )
            
            0.56Net
                income / (loss) - Diluted
            
            $
            0.21
            
            $
            0.72
            
            $
            (0.25
            )
            $
            0.54*Weighted
                average common shares used in computing per share amounts
                (000’s):*Basic
            
            
            40,597
            
            
            34,274
            
            
            39,355
            
            
            31,345Diluted
            
            
            41,186
            
            
            35,145
            
            
            39,355
            
            
            32,288





*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 Stock****Number
                  of Shares**
              
              **Par
                  Value**
              
              **Number
                  of Shares**
              
              **Par
                  Value**
              
              **Additional
                  Paid-In Capital**
              
              **Accumulated
                  Deficit**
              
              **Accumulated
                  Other Comprehensive Income / (Loss)**
              
              **Total
                  Shareholders' Equity****BALANCE,**
                **December
                  31, 2005**
              
              
              **31,032,994**
              
              **$**
              **2,482**
              
              
              **6,966,533**
              
              **$**
              **558**
              
              **$**
              **746,880**
              ****
              **$**
              **(44,973**
              **)**
              **$**
              **(24,394**
              **)**
              **$**
              **680,553**Stock-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
              
              
              77,165**BALANCE,**
                **June
                  30, 2006**
              
              
              **34,393,938**
              
              **$**
              **2,752**
              
              
              **6,212,839**
              
              **$**
              **497**
              
              **$**
              **917,755**
              
              **$**
              **(54,715**
              **)**
              **$**
              **52,771**
              
              **$**
              **919,060**







**Class
                  A Common Stock**
              
              **Class
                  B Common Stock****Number
                  of Shares**
              
              **Par
                  Value**
              
              **Number
                  of Shares**
              
              **Par
                  Value**
              
              **Additional
                  Paid-In Capital**
              
              **Accumulated
                  Deficit**
              
              **Accumulated
                  Other Comprehensive Income / (Loss)**
              
              **Total
                  Shareholders' Equity****BALANCE,**
                **December
                  31, 2004**
              
              
              **21,049,400**
              
              **$**
              **1,684**
              
              
              **7,334,768**
              
              **$**
              **587**
              
              **$**
              **387,305**
              ****
              **$**
              **(87,468**
              **)**
              **$**
              **8,960**
              ****
              **$**
              **311,068**Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,690
              
              
              -
              
              
              -
              
              
              1,690Stock
                  options exercised
              
              
              552,334
              
              
              45
              
              
              -
              
              
              -
              
              
              2,898
              
              
              -
              
              
              -
              
              
              2,943Shares
                  issued, net of fees
              
              
              5,405,000
              
              
              432
              
              
              -
              
              
              -
              
              
              230,172
              
              
              -
              
              
              -
              
              
              230,604Shares
                  issued to PPF
              
              
              3,500,000
              
              
              280
              
              
              -
              
              
              -
              
              
              120,603
              
              
              -
              
              
              -
              
              
              120,883Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              17,510
              
              
              -
              
              
              17,510Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (45,018
              )
              
              (45,018
              )**BALANCE,**
                **June
                  30, 2005**
              
              
              **30,506,734**
              
              **$**
              **2,441**
              
              
              **7,334,768**
              
              **$**
              **587**
              
              **$**
              **742,668**
              
              **$**
              **(69,958**
              **)**
              **$**
              **(36,058**
              **)**
              **$**
              **639,680**




*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****,****2006**
            
            **2005****CASH
                FLOWS FROM OPERATING ACTIVITIES:****Net
                (loss) / income**
            
            **$**
            **(9,742**
            **)**
            **$**
            **17,510**Adjustments
                to reconcile net (loss) / income to net cash generated from operating
                activities:Loss
                from discontinued operations (Note 17)
            
            
            2,530
            
            
            2,044Equity
                in loss / (income) of unconsolidated affiliates, net of dividends
                received
            
            
            730
            
            
            (720
            )Depreciation
                and amortization
            
            
            74,429
            
            
            38,363Impairment
                charge
            
            
            748
            
            
            35,331Loss
                on disposal of fixed asset
            
            
            1,171
            
            
            389Interest
                receivable, net
            
            
            (95
            )
            
            (84
            )Stock-based
                compensation (Note 14)
            
            
            1,418
            
            
            1,690Minority
                interest in income of consolidated subsidiaries
            
            
            6,717
            
            
            4,681Foreign
                currency exchange loss / (gain), net
            
            
            31,487
            
            
            (29,430
            )Net
                change in (net of effects of acquisitions and disposals of
                businesses):Accounts
                receivable
            
            
            (7,875
            )
            
            (6,432
            )Program
                rights
            
            
            (69,836
            )
            
            (37,056
            )Other
                assets
            
            
            1,963
            
            
            (4,082
            )Settlement
                liability (Note 10)
            
            
            (10,007
            )
            
            -Other
                accounts payable and accrued liabilities
            
            
            2,114
            
            
            (2,679
            )Change
                in fair value of derivative instruments
            
            
            1,876
            
            
            (643
            )Income
                taxes payable
            
            
            (6,922
            )
            
            4,523Deferred
                taxes
            
            
            5,352
            
            
            (1,818
            )VAT
                and other taxes payable
            
            
            11,217
            
            
            1,816**Net
                cash generated from continuing operating
                activities**
            
            
            **37,275**
            
            
            **23,403****CASH
                FLOWS FROM INVESTING ACTIVITIES:**Net
                change in restricted cash
            
            
            (4,068
            )
            
            (18,677
            )Purchase
                of property, plant and equipment
            
            
            (18,461
            )
            
            (8,539
            )Proceeds
                from disposal of property, plant and equipment
            
            
            19
            
            
            124Investments
                in subsidiaries and unconsolidated affiliates
            
            
            (59,308
            )
            
            (12,884
            )Partial
                consideration for acquisition of TV Nova (Czech Republic)
                group
            
            
            -
            
            
            (218,381
            )Repayment
                of loans and advances to related parties
            
            
            250
            
            
            -**Net
                cash used in continuing investing activities**
            
            
            **(81,568**
            **)**
            
            **(258,357**
            **)****CASH
                FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                from credit facilities
            
            
            34,765
            
            
            -Payment
                of credit facilities and capital leases
            
            
            (65,519
            )
            
            (9,942
            )Net
                proceeds from issuance of Senior Notes
            
            
            -
            
            
            476,188Repayment
                of notes for acquisition of TV Nova (Czech Republic) group
            
            
            -
            
            
            (491,703
            )Issuance
                of shares of Class A Common Stock
            
            
            169,666
            
            
            233,547Dividends
                paid to minority shareholders
            
            
            (679
            )
            
            (77
            )**Net
                cash received from continuing financing
                activities**
            
            
            **138,233**
            
            
            **208,013**NET
                CASH USED IN DISCONTINUED OPERATIONS - OPERATING
                ACTIVITIES
            
            
            (1,690
            )
            
            (2,000
            )**Impact
                of exchange rate fluctuations on cash**
            
            
            **(4,910**
            **)**
            
            **(9,830**
            **)**Net
                increase / (decrease) in cash and cash equivalents
            
            
            87,340
            
            
            (38,771
            )**CASH
                AND CASH EQUIVALENTS, beginning of period**
            
            
            **71,658**
            
            
            **152,568****CASH
                AND CASH EQUIVALENTS, end of period**
            
            **$**
            **158,998**
            
            **$**
            **113,797**





*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 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,
      2006, we had operations in Croatia, the Czech Republic, Romania, the Slovak
      Republic, Slovenia and Ukraine.





Our
      principal subsidiaries and equity-accounted affiliates as at June 30, 2006
      were:




**Company
                  Name**
              **Voting
                  Interest**
              **Jurisdiction
                  of Organization**
              **Subsidiary
                  / Equity-Accounted Affiliate (1)**Nova
                  TV d.d. (“Nova TV (Croatia)”)
              100.0%
              Croatia
              SubsidiaryOperativna
                  Kompanija d.o.o. (“OK”)
              100.0%
              Croatia
              SubsidiaryMedia
                  House d.o.o.
              100.0%
              Croatia
              SubsidiaryCME
                  Media Investments s.r.o.
              100.0%
              Czech
                  Republic
              SubsidiaryVilja
                  a.s. (“Vilja”)
              100.0%
              Czech
                  Republic
              SubsidiaryCET
                  21 s.r.o. (“CET 21”)
              100.0%
              Czech
                  Republic
              SubsidiaryCME
                  Media Services s.r.o. (“CME Media Services”)
              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”)
              90.0%
              Romania
              SubsidiaryMedia
                  Vision S.R.L. (“Media Vision”)
              75.0%
              Romania
              SubsidiaryMPI
                  Romania B.V.
              90.0%
              Netherlands
              SubsidiaryPro
                  TV S.A. (“Pro TV”)
              90.0%
              Romania
              SubsidiaryRadio
                  Pro S.R.L
              20.0%
              Romania
              Equity
                  Accounted AffiliateA.R.J.
                  a.s. (“ARJ”)
              100.0%
              Slovak
                  Republic
              SubsidiarySlovenska
                  Televizna Spolocnost s.r.o. (“STS”)
              89.8%
              Slovak
                  Republic
              SubsidiaryMarkiza-Slovakia
                  s.r.o. (“Markiza”)
              80.0%
              Slovak
                  Republic
              SubsidiaryGamatex
                  s.r.o.
              89.8%
              Slovak
                  Republic
              SubsidiaryADAM
                  a.s.
              89.8%
              Slovak
                  Republic
              SubsidiaryMM
                  TV 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.
              33.0%
              Slovenia
              Equity
                  Accounted Affiliate
  Page
            8
 *Index*
 **CENTRAL
          EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
          amounts in US$ 000’s, except per share data)**
 **(Unaudited)**
  **Company
                  Name**
              **Voting
                  Interest**
              **Jurisdiction
                  of Organization**
              **Subsidiary
                  / Equity-Accounted Affiliate (1)**Super
                  Plus Holding d.d.
              100.0%
              Slovenia
              Subsidiary
                  (in liquidation)MTC
                  Holding d.o.o.
              24.0%
              Slovenia
              Equity-Accounted
                  Affiliate (in liquidation)International
                  Media Services Ltd. (“IMS”)
              60.0%
              Bermuda
              SubsidiaryInnova
                  Film GmbH (“Innova”)
              60.0%
              Germany
              SubsidiaryEnterprise
                  “Inter-Media” (“Inter-Media”)
              60.0%
              Ukraine
              SubsidiaryTV
                  Media Planet Ltd.
              60.0%
              Cyprus
              SubsidiaryBroadcasting
                  Company “Studio 1+1” LLC (“Studio 1+1”)
              18.0%
              Ukraine
              Consolidated
                  Variable Interest EntityUkraine
                  Media Services LLC
              99.0%
              Ukraine
              SubsidiaryUkrpromtorg
                  2003 LLC
              65.5%
              Ukraine
              SubsidiaryGravis
                  LLC
              60.4%
              Ukraine
              SubsidiaryDelta
                  ZAO
              60.4%
              Ukraine
              SubsidiaryNart
                  LLC
              65.5%
              Ukraine
              SubsidiaryTV
                  Stimul LLC
              49.1%
              Ukraine
              Equity
                  Accounted AffiliateCME
                  Media Enterprises B.V.
              100.0%
              Netherlands
              SubsidiaryCME
                  Czech Republic B.V.
              100.0%
              Netherlands
              SubsidiaryCME
                  Czech Republic II B.V.
              100.0%
              Netherlands
              SubsidiaryCME
                  Germany B.V.
              100.0%
              Netherlands
              SubsidiaryCME
                  Hungary B.V.
              100.0%
              Netherlands
              SubsidiaryCME
                  Poland B.V.
              100.0%
              Netherlands
              SubsidiaryCME
                  Romania 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
                  Ukraine Holding GmbH
              100.0%
              Austria
              SubsidiaryCME
                  Cyprus Holding Ltd.
              100.0%
              Cyprus
              SubsidiaryCME
                  Germany GmbH
              100.0%
              Germany
              Subsidiary
                  (in liquidation)CME
                  Development Corporation
              100.0%
              USA
              Subsidiary
 (1)
              All
                  subsidiaries have been consolidated in our Condensed Consolidated
                  Financial Statements. All equity-accounted affiliates have been
                  accounted
                  for using the equity method.


Page
            9
 *Index*


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


*Croatia*





We
      own
      100% of Nova TV (Croatia), which holds a national terrestrial broadcast license
      for Croatia which expires in April 2010. Nova TV (Croatia) owns 100% of
      OK.





*Czech
      Republic*





We
      own 71.245% of CET 21, which holds the national terrestrial broadcast license
      for TV NOVA (Czech Republic) which
      expires in 2017 .
      Our voting and economic interest in CET 21 is effectively 100% because CET
      21
      itself holds an undistributed 28.755% interest that is not entitled to voting
      rights or dividends. We own 100% of CME Media Services which provides services
      related to programming, production and advertising to CET 21.





*Romania*





We
      have a
      voting and economic interest of 90% in Pro TV and MPI and a 75% voting and
      economic interest in Media Vision, a production, dubbing and subtitling company.
      In addition, Pro TV holds the licenses for ACASA, PRO TV INTERNATIONAL and
      PRO
      CINEMA. These licenses expire on various dates from October 2006 until July
      2015.





We
      have a
      20% voting and economic interest in Radio Pro, which holds the licenses for
      the
      PRO FM and INFOPRO radio networks.





*Slovak
      Republic*





We
      have
      an 89.9% voting interest and are entitled to 80% of the profits in STS, the
      operating company for the MARKIZA TV network, and an 80%
      voting interest and a 0.1% economic interest in Markiza, the license holding
      company for the MARKIZA TV
      network, which holds a 51% voting interest in STS. T he
      Markiza license expires in September 2019.





*Slovenia*





We
      own
      100% of Pro Plus, the operating company for our Slovenian operations. Pro Plus
      has a 100% voting and economic interest in Pop TV, which holds the licenses
      for
      the POP TV network, and Kanal A, which holds the licenses for the KANAL A
      network, which expire in August 2012.





*Ukraine*





The
      Studio 1+1 Group consists of several entities in which we hold direct or
      indirect interests. We hold a 60% ownership and economic interest in each of
      Innova and IMS. Innova owns 100% of Inter-Media, a Ukrainian company, which
      in
      turn holds a 30% voting and economic interest in Studio 1+1, which holds the
      licenses for the STUDIO 1+1 network. The first of these licenses which covers
      fifteen hours including prime time expires in December 2006. On
      July
      19, 2006, the Ukrainian Media Council issued a decision to extend the 15-hour
      broadcasting license of Studio 1+1 for a 10-year period from January 1, 2007.
      Issuance of the license itself is subject to the payment of a fee of
      approximately UAH 5.9 million (approximately US$ 1.2 million), which has been
      paid, and the registration by October 1, 2006 of amendments to the charter
      of
      Studio 1+1 to conform with the recent amendments to the Ukrainian Media Law
      (see
      Part II, Item 1A Risk Factors). The second license for the remaining nine hours
      expires in 2014.





Our
      indirect ownership interest in Studio 1+1 is only 18%. 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% of any
      distribution from Studio 1+1 to its shareholders.





Page
            11
 *Index*


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


We
      have a 65.5% interest in Ukrpromtorg 2003 LLC, which owns 92.2% of Gravis LLC,
      the operator of the GRAVIS television channel in Kiev as well as two other
      local
      channels in Ukraine, collectively referred to as the GRAVIS channels. The GRAVIS
      licenses expire between 2008 and 2012.








**2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Basis
      of Presentation**





The
      interim financial statements for the three and six months ended June 30, 2006
      should be read in conjunction with the Notes to the Consolidated Financial
      Statements contained in our Annual Report of Form 10-K for the period ended
      December 31, 2005, as amended by our Form 10-K/A filed with the SEC on March
      15,
      2006. Our significant accounting policies have not changed since December 31,
      2005, 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 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 'SIT' are to Slovenian
      tolars, 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.




**Stock-based
      Compensation**





On
      January 1, 2006, we adopted SFAS 123(R), “Share-Based Payment” (“SFAS 123(R)”),
      which requires the recognition of stock-based compensation at fair value, using
      the modified prospective transition method. Under that method, we recognized
      compensation cost for the requisite service rendered in the six months ended
      June 30, 2006, for (a) awards granted prior to, but not vested as of, January
      1,
      2006, based on the grant-date fair value of those awards as calculated for
      either recognition or pro forma disclosures under SFAS 123, “Accounting for
      Stock-Based Compensation (“SFAS 123”) and (b) awards granted after January 1,
      2006, based on the grant-date fair value estimated in accordance with the
      provisions of SFAS 123(R). We did not restate prior periods. Our adoption of
      SFAS 123(R) did not have a material impact on our condensed consolidated
      statements of operations or cash flows because we had previously adopted the
      fair value recognition provisions of SFAS 123 prospectively for employee stock
      option awards granted, modified, or settled beginning January 1, 2003, as
      contemplated by SFAS 148, “Accounting for Stock-Based Compensation - Transition
& Disclosure”. Prior to January 1, 2003, we used the intrinsic method of
      accounting as defined in APB 25, “Accounting for Stock Issued to
      Employees”.





Page
            12
 *Index*


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


***Pro
      Forma Disclosures***





Had
      compensation costs for employee stock option awards granted, modified or settled
      prior to January 1, 2003 been determined consistent with the fair value approach
      required by SFAS 123(R) for the three months and six months ended June 30,
      2005,
      using the Black-Scholes option pricing model with the assumptions as estimated
      on the date of each grant, our net loss and net loss per common share would
      decrease on a pro forma basis as follows:





**For
                the Three**
              **Months
                Ended**
              **June
                30,**
            
            **For
                the Six**
              **Months
                Ended**
              **June
                30,****2005**
            
            **2005****Net
                income**
            
            
            **As
                Reported**
            
            **$**
            **25,459**
            
            **$**
            **17,510**Add
                / (deduct): Stock-based compensation expense / (income) included
                in
                reported net income, net of related tax effects
            
            
            As
                Reported
            
            
            (1,411
            )
            
            1,690Deduct:
                Total stock-based compensation expense determined under fair value
                based
                method for all awards, net of related tax effects
            
            
            Pro
                Forma Expense
            
            
            1,384
            
            
            (1,727
            )**Net
                income**
            
            
            **Pro
                Forma**
            
            **$**
            **25,432**
            
            **$**
            **17,473**Net
                income per share - Basic:
            
            
            As
                Reported
            
            $
            0.74
            
            $
            0.56Pro
                Forma
            
            $
            0.74
            
            $
            0.56Net
                income per share - Diluted:
            
            
            As
                Reported
            
            $
            0.72
            
            $
            0.54Pro Forma
            
            $
            0.72
            
            $
            0.54




**Reclassifications**





Certain
      reclassifications were made to prior period amounts to conform to current period
      presentation.





**Recent
      Accounting Pronouncements**





In
      May
      2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154,
      “Accounting for Changes and Error Corrections” (“FAS 154”), which replaces APB
      Opinion No. 20 “Accounting Changes” (“APB 20”), and SFAS No. 3, “Reporting
      Accounting Changes in Interim Financial Statements”, and changes the
      requirements for the accounting for and reporting of a change in accounting
      principle. APB 20 previously required that most voluntary changes in accounting
      principle be recognized by including in net income of the period of the change
      the cumulative effect of changing to the new accounting principle. FAS 154
      requires that the new accounting principle be applied to the balances of assets
      and liabilities as of the beginning of the earliest period for which
      retrospective application is practicable and that a corresponding adjustment
      be
      made to the opening balance of retained earnings for that period rather than
      being reported in the income statement. We adopted the provisions of FAS 154
      on
      January 1, 2006 and it did not have a material impact on our financial position
      or results of operations.





Page
            13
 *Index*


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


In
      July
      2006, the Financial Accounting Standards Board (‘FASB’) issued 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
      of being 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 that 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.





FIN
      48
      also provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. FIN 48 is effective
      for fiscal years beginning after December 15, 2006 and we will adopt it in
      the
      first quarter of the year beginning January 1, 2007. We are currently assessing
      FIN 48 and have not yet determined the impact that the adoption of this
      interpretation will have on our financial position or results of
      operations.








**3.
      ACQUISITIONS AND DISPOSALS**





**Czech
      Republic**





On
      April
      3, 2006, the Czech Republic Media Council approved the transfer of the 1.25%
      interest in CET 21 held by Ceska Sporitelna, a.s. to Vilja and the transfer
      of
      the 1.25% interest in CET 21 held by CEDC to PPF (Cyprus) Ltd. (“PPF”). On May
      5, 2006 the Czech Republic Media Council approved the transfer of the PPF
      interest to Vilja and on May 16, 2006, Vilja acquired such interest after
      fulfillment of all conditions precedent set forth in the relevant transfer
      agreement. We now have a voting and economic interest in CET 21 of 100%. Both
      of
      these transactions took place for nominal consideration.





On
      May
      26, 2006, following the registration of our subsidiary CME Media Enterprises
      B.V. as the owner of 16.67% of CET 21, we paid the final CZK 600.0 million
      (approximately US$ 27.3 million at the payment date) installment of the
      consideration due to Peter Krsak for his 16.67% interest in CET 21. This amount
      had been held in escrow, and disclosed in restricted cash (see Note 6) since
      May
      27, 2005, with a corresponding amount reported as deferred
      consideration.





**Romania**





*Acquisition
      of additional interest - MPI and Pro TV*





On
      February 17, 2006, we purchased an additional 5.0% of Pro TV, MPI and Media
      Vision from Adrian Sarbu, the General Director of our Romania operations, for
      consideration of US$ 27.2 million. We now own a 90.0% voting and economic
      interest in Pro TV and MPI and a 75.0% voting and economic interest in Media
      Vision. We completed 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
            14
 *Index*


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


**Fair
                Value on Acquisition**Intangible
                assets subject to amortization (1)
            
            $
            4,655Intangible
                assets not subject to amortization (2)
            
            
            12,947Goodwill
            
            
            11,376Deferred
                tax liability
            
            
            (2,816
            )Minority
                interest
            
            
            1,038**Total
                purchase price**
            
            **$**
            **27,200**





(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$ 6.5
      million in trademarks and US$ 6.5 million relating to television broadcast
      licenses.





Mr.
      Sarbu
      has the right to sell his remaining 10.0% 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. This put is exercisable from March 1,
      2009
      for a twenty-year period thereafter. As at June 30, 2006, we consider the fair
      value of the put option to be approximately US$ nil.





**Slovak
      Republic**





*Acquisition
      - A.R.J. a.s.*





On
      January 23, 2006, we completed the acquisition of a controlling interest in
      Markiza, the license-holding company for MARKIZA TV, by purchasing 100.0% of
      the
      share capital of ARJ. ARJ owns 46.0% of the voting rights in
      Markiza.





This
      acquisition consisted of our acquiring a 34.0% interest in ARJ from Pavol Rusko
      for total consideration of SKK 575.0 million (approximately US$ 18.5 million
      at
      the date of acquisition) of which SKK 494.0 million (US$ 15.9 million at the
      date of acquisition) was paid on closing and SKK 81.0 million (US$ 2.6 million
      at the date of acquisition) was paid on April 25, 2006. In addition, we acquired
      the remaining 66.0% in ARJ from Media Partners s.r.o. and Salis s.r.o. for
      consideration of approximately US$ 11.0 million, of which EUR 7.0 million
      (approximately US$ 8.5 million at the date of acquisition) was paid on closing
      and SKK 78.0 million (approximately US$ 2.5 million at the date of acquisition)
      was paid on May 2, 2006.





As
      of
      January 23, 2006, we hold an 80.0% voting interest in Markiza and an 89.8%
      voting interest in STS, and have increased our economic interest in the Slovak
      operations from 70.0% to 80.0%. The remaining minority interests in Markiza
      are
      held by our partners Jan Kovacik and Milan Fil’o through Media Invest s.r.o.
      Markiza and STS have been consolidated from the date of acquisition of
      ARJ.





We
      completed 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 per share data)**
 **(Unaudited)**


**Fair
                Value on Acquisition**Property,
                plant and equipment
            
            $
            870Program
                library
            
            
            185Intangible
                assets subject to amortization (1)
            
            
            8,128Intangible
                assets not subject to amortization (2)
            
            
            530Goodwill
            
            
            22,021Deferred
                tax liability
            
            
            (1,893
            )**Total
                purchase price (3)**
            
            **$**
            **29,841**





(1)
      The
      intangible assets subject to amortization comprise approximately US$ 7.2 million
      in customer relationships, which are being amortized over three to fourteen
      years (weighted average: 13.8 years), and US$ 0.9 million relating to television
      broadcast licenses, which are being amortized over fourteen
      years.


(2)
      Intangible assets not subject to amortization comprise
      trademarks.


(3)
      Total
      purchase price includes US$ 0.3 million of capitalized acquisition
      costs.





**Ukraine**





*Acquisition
      - Ukrpromtorg 2003 LLC*





On
      January 11, 2006, we completed the acquisition of a 65.5% interest in
      Ukrpromtorg 2003 LLC (“Ukrpromtorg”), which owns 92.2% of Gravis LLC, the
      operator of the GRAVIS television channel in Kiev as well as two other local
      channels in Ukraine, for consideration of approximately US$ 7.4 million
      including acquisition costs. US$ 5.1 million of the consideration was paid
      in
      2005 and reported as acquisition costs on the consolidated balance sheet as
      at
      December 31, 2005, US$ 1.5 million was paid in January 2006, and US$ 0.3 million
      was paid in May 2006. The remainder of the purchase price was outstanding at
      June 30, 2006.





We
      completed 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:





**Fair
                Value on Acquisition**Property,
                plant and equipment
            
            $
            2,615Intangible
                assets subject to amortization (1)
            
            
            968Other
                assets
            
            
            239Goodwill
            
            
            4,627Deferred
                tax liability
            
            
            (724
            )Other
                liabilities
            
            
            (373
            )**Total
                purchase price (2)**
            
            **$**
            **7,352**





(1)
      The
      intangible assets subject to amortization comprise approximately US$ 0.6 million
      relating to television broadcast licenses, which are being amortized over 9
      years, approximately US$ 0.3 million relating to a favorable lease contract,
      which is being amortized over 19 years, and approximately US$ 0.1 million
      relating to order backlog, which was amortized during the year.


(2)
      Total
      purchase price includes US$ 0.4 million of capitalized acquisition
      costs.





Page
            16
 *Index*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except 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, 2006, and December 31, 2005 is summarized
      as
      follows:





**Croatia**
            
            **Czech**
              **Republic**
            
            **Romania**
            
            **Slovak
                Republic**
            
            **Slovenia******
            
            **Ukraine**
            
            **Total****Balance,
                December 31, 2005**
            
            **$**
            **695**
            
            **$**
            **706,950**
            
            **$**
            **19,754**
            
            **$**
            **-**
            
            **$**
            **15,088**
            
            **$**
            **4,096**
            
            **$**
            **746,583**Additions
            
            
            -
            
            
            -
            
            
            11,376
            
            
            22,021
            
            
            -
            
            
            4,627
            
            
            38,024Other
                adjustments
            
            
            -
            
            
            (7,580
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,580
            )Impairment
                charge
            
            
            (748
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (748
            )Foreign
                currency movements
            
            
            53
            
            
            68,605
            
            
            -
            
            
            349
            
            
            861
            
            
            -
            
            
            69,868**Balance,
                June 30, 2006**
            
            **$**
            **-**
            
            **$**
            **767,975**
            
            **$**
            **31,130**
            
            **$**
            **22,370**
            
            **$**
            **15,949**
            
            **$**
            **8,723**
            
            **$**
            **846,147**





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. In such circumstances, SFAS 142 “Goodwill and Other
      Intangible Assets” requires that the carrying value of the intangible assets
      with indefinite lives are compared to their fair value to determine whether
      an
      impairment exists. If an asset is determined to be impaired, the loss is
      measured as the excess of the carrying value over the fair value. As a result
      of
      our analysis, we have recognized an impairment charge of US$ 0.7 million
      relating to goodwill. A further impairment charge relating to other Long-Lived
      assets was not deemed necessary under the requirements of SFAS 144 “Accounting
      for the Impairment or Disposal of Long-Lived Assets”.





*Broadcast
      licenses:*





The
      net
      book value of our broadcast licenses as at June 30, 2006, and December 31,
      2005
      is summarized as follows:





**Indefinite-Lived**
              **Broadcast**
              **Licenses**
            
            **Amortized**
              **Broadcast**
              **Licenses**
            
            **Total****Balance,
                December 31, 2005**
            
            **$**
            **18,936**
            
            **$**
            **152,655**
            
            **$**
            **171,591**Additions
            
            
            7,390
            
            
            6,960
            
            
            14,350Amortization
            
            
            -
            
            
            (7,605
            )
            
            (7,605
            )Foreign
                currency movements
            
            
            468
            
            
            14,506
            
            
            14,974**Balance,
                June 30, 2006**
            
            **$**
            **26,794**
            
            **$**
            **166,516**
            
            **$**
            **193,310**


Page
            17
 *Index*


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


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 seven
      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, fourteen years.





The
      gross value and accumulated amortization of amortized broadcast licenses was
      as
      follows at June 30, 2006 and December 31, 2005:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005**Gross
                value
            
            $
            186,199
            
            $
            163,628Accumulated
                amortization
            
            
            (19,683
            )
            
            (10,973
            )**Total
                net book value**
            
            **$**
            **166,516**
            
            **$**
            **152,655**





*Other
      intangible assets:*





The
      net
      book value of our other intangible assets as at June 30, 2006 and December
      31,
      2005 is summarized as follows:





**Trademarks**
            
            **Customer**
              **Relationships**
            
            **Other**
            
            **Total****Balance,
                December 31, 2005**
            
            **$**
            **32,560**
            
            **$**
            **15,098**
            
            **$**
            **-**
            
            **$**
            **47,658**Additions
            
            
            7,698
            
            
            11,868
            
            
            321
            
            
            19,887Amortization
            
            
            -
            
            
            (1,341
            )
            
            (6
            )
            
            (1,347
            )Foreign
                currency movements
            
            
            1,972
            
            
            1,338
            
            
            -
            
            
            3,310**Balance,
                June 30, 2006**
            
            **$**
            **42,230**
            
            **$**
            **26,963**
            
            **$**
            **315**
            
            **$**
            **69,508**





Customer
      relationships are deemed to have an economic useful life of, and are amortized
      on a straight-line basis over, five to fourteen years. Trademarks have an
      indefinite life.





The
      gross value and accumulated amortization of customer relationships and other
      intangible assets was as follows at June 30, 2006 and December 31,
      2005:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005**Gross
                value
            
            $
            30,027
            
            $
            17,038Accumulated
                amortization
            
            
            (2,749
            )
            
            (1,940
            )**Total
                net book value**
            
            **$**
            **27,278**
            
            **$**
            **15,098**





**5.
      SENIOR NOTES**





Our
      Senior Notes consist of the following:





**Carrying
                Value**
            
            **Fair
                Value****June
                30,**
              **2006**
            
            **December
                31,**
              **2005**
            
            **June
                30,**
              **2006**
            
            **December
                31,**
              **2005**EUR
                245.0 million 8.25% Senior Notes
            
            $
            313,259
            
            $
            288,984
            
            $
            343,351
            
            $
            323,737EUR
                125.0 million floating rate Senior Notes
            
            
            159,826
            
            
            147,440
            
            
            169,416
            
            
            156,324**$**
            **473,085**
            
            **$**
            **436,424**
            
            **$**
            **512,767**
            
            **$**
            **480,061**


Page
            18
 *Index*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except 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
      and EUR 125.0 million of floating rate Senior Notes due May 2012, which bear
      interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”) plus 5.50% (8.57%
      was applicable at June 30, 2006). Interest is payable semi-annually in arrears
      on each May 15 and November 15. The fair value of the Senior Notes as at June
      30, 2006 and December 31, 2005 was calculated by multiplying the outstanding
      debt by the traded market price at the relevant date.





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 certain of our subsidiaries and are secured by a pledge of
      shares of those subsidiaries and 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.





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





**From:**
            **EUR
                245.0 Million 8.25%**
              **Senior
                Notes**
              **Redemption
                Price**
            
            **From:**
            **EUR
                125.0 Million Floating**
              **Rate
                Senior Notes**
              **Redemption
                Price**May
                15, 2009 to May 14, 2010
            104.125%
            
            May
                15, 2007 to May 14, 2008
            102.000%May
                15, 2010 to May 14, 2011
            102.063%
            
            May
                15, 2008 to May 14, 2009
            101.000%May
                15, 2011 and thereafter
            100.000%
            
            May
                15, 2009 and thereafter
            100.000%





In
      addition, 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.





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
      Senior Notes; but as they are considered clearly and closely related to the
      Senior Notes, they are not accounted for separately.





Page
            19
 *Index*


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


**6.
      RESTRICTED CASH**





Restricted
      cash consists of the following at June 30, 2006 and December 31,
      2005:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005**Czech
                Republic
            
            $
            -
            
            $
            24,554Croatia
            
            
            3,988
            
            
            3,640Romania
            
            
            4,164
            
            
            -Directors’
                and officers’ insurance
            
            
            5,404
            
            
            5,285Other
            
            
            734
            
            
            693**Total
                restricted cash**
            
            **$**
            **14,290**
            
            **$**
            **34,172**





The
      restricted cash balances in Czech Republic and Croatia at December 31, 2005
      represented amounts held in escrow that are payable to certain former owners
      of
      our businesses in those countries. The amount due to one of the former owners
      of
      our Czech Republic operations was paid on May 26, 2006. Directors’ and officers’
insurance relates to a balance being held in a captive insurance company to
      underwrite a part of our directors’ and officers’ insurance program. The
      restricted cash balance in Romania represents cash collateral for an overdraft
      facility (see note 11).








**7.
      ACCOUNTS RECEIVABLE**





Accounts
      receivable consist of the following at
      June 30, 2006 and December 31, 2005:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****Trading:**Third-party
                customers
            
            $
            128,161
            
            $
            103,921Less:
                allowance for bad debts and credit notes
            
            
            (10,569
            )
            
            (8,612
            )Related
                parties
            
            
            2,432
            
            
            2,034Less:
                allowance for bad debts and credit notes
            
            
            (245
            )
            
            (265
            )**Total
                trading**
            
            **$**
            **119,779**
            
            **$**
            **97,078****Other:**Third-party
                customers
            
            $
            349
            
            $
            257Less:
                allowance for bad debts and credit notes
            
            
            (96
            )
            
            (83
            )Related
                parties
            
            
            441
            
            
            434Less:
                allowance for bad debts and credit notes
            
            
            (290
            )
            
            (290
            )**Total
                other**
            
            **$**
            **404**
            
            **$**
            **318****Total
                accounts receivable**
            
            **$**
            **120,183**
            
            **$**
            **97,396**





Page
            20
 *Index*


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


**8.
      OTHER ASSETS**





Other
      current and non-current assets consist of the following at June
      30, 2006 and December 31, 2005:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****Current:**Prepaid
                programming
            
            $
            15,719
            
            $
            17,534Other
                prepaid expenses
            
            
            6,762
            
            
            6,009Deferred
                tax
            
            
            2,578
            
            
            3,025VAT
                recoverable
            
            
            877
            
            
            7,888Loan
                to related party
            
            
            600
            
            
            600Capitalized
                debt costs
            
            
            2,250
            
            
            2,250Assets
                held-for-sale
            
            
            367
            
            
            341Other
            
            
            3,016
            
            
            1,209**Total
                other current assets**
            
            **$**
            **32,169**
            
            **$**
            **38,856****Non-current:**Capitalized
                debt costs
            
            $
            10,745
            
            $
            11,618Loan
                to related party
            
            
            1,754
            
            
            1,910Deferred
                tax
            
            
            1,552
            
            
            779Other
            
            
            1,182
            
            
            753**Total
                other non-current assets**
            
            **$**
            **15,233**
            
            **$**
            **15,060**





Capitalized
      debt costs primarily comprise the costs incurred in connection with the issuance
      of our Senior Notes in May 2005 (see Note 5), and are being amortized over
      the
      term of the Senior Notes using the effective interest method. The assets
      held-for-sale relate to land and buildings in our Croatia
      operations.


Page
            21
 *Index*


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


**9.
      PROPERTY, PLANT AND EQUIPMENT**





Property,
      plant and equipment consists of the following:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005**Land
                and buildings
            
            $
            36,430
            
            $
            17,548Station
                machinery, fixtures and equipment
            
            
            89,279
            
            
            72,017Other
                equipment
            
            
            19,985
            
            
            20,447Software
                licenses
            
            
            12,976
            
            
            8,360Construction
                in progress
            
            
            6,194
            
            
            5,180**Total
                cost**
            
            
            **164,864**
            
            
            **123,552**Less:
                Accumulated depreciation
            
            
            (79,951
            )
            
            (64,655
            )**Total
                net book value**
            
            **$**
            **84,913**
            
            **$**
            **58,897****Assets
                held under capital leases (included in the above)**Land
                and buildings
            
            $
            5,270
            
            $
            4,980Station
                machinery, fixtures and equipment
            
            
            1,791
            
            
            1,434**Total
                cost**
            
            
            **7,061**
            
            
            **6,414**Less:
                Accumulated depreciation
            
            
            (1,438
            )
            
            (1,167
            )**Net
                book value**
            
            **$**
            **5,623**
            
            **$**
            **5,247**








**10.
      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**





Accounts
      payable and accrued liabilities consist of the following:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005**Accounts
                payable
            
            $
            22,573
            
            $
            21,533Programming
                liabilities
            
            
            24,800
            
            
            18,891Deferred
                income
            
            
            15,577
            
            
            7,202Settlement
                liability
            
            
            -
            
            
            10,007Accrued
                staff costs
            
            
            9,501
            
            
            9,402Accrued
                production costs
            
            
            6,504
            
            
            5,882Accrued
                interest payable
            
            
            4,988
            
            
            4,483Accrued
                legal costs
            
            
            3,863
            
            
            3,620Accrued
                rent costs
            
            
            1,435
            
            
            82Other
                accrued liabilities
            
            
            7,949
            
            
            3,747**Total
                accounts payable and accrued liabilities**
            
            **$**
            **97,190**
            
            **$**
            **84,849**




Page
            22
 *Index*


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


The
      settlement liability represented an amount owed by CET 21 under a settlement
      agreement among CET 21, Ceska nezavisla televizni spolecnost ("CNTS") and the
      PPF Group dated December 19, 2003 following a mediation. This
      liability was assumed as part of the TV Nova (Czech Republic) group acquisition
      and was fully repaid in January 2006.





The
      accrued interest payable balance relates primarily to interest calculated on
      our
      Senior Notes.








**11.
      CREDIT FACILITIES AND OBLIGATIONS UNDER CAPITAL LEASES**





Group
      loan obligations and overdraft facilities consist of the following:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****Credit
                facilities:**Croatia
                operations
            
            
            (a)
                - (c)
            
            $
            1,021
            
            $
            1,135Czech
                Republic operations
            
            
            (d)
                - (f)
            
            
            17,642
            
            
            42,703Romania
                operations
            
            
            (g)
            
            
            -
            
            
            -Slovenia
                operations
            
            
            (h)
            
            
            -
            
            
            -**Total
                credit facilities**
            
            
            
            
            **$**
            **18,663**
            
            **$**
            **43,838****Capital
                leases**Croatia
                operations, net of interest
            
            
            
            
            $
            39
            
            $
            132Czech
                Republic operations, net of interest
            
            
            
            
            
            3
            
            
            6Romania
                operations, net of interest
            
            
            
            
            
            326
            
            
            290Slovenia
                operations, net of interest
            
            
            
            
            
            4,145
            
            
            4,040Slovak
                Republic operations, net of interest
            
            
            
            
            
            159
            
            
            -**Total
                capital leases**
            
            
            
            
            **$**
            **4,672**
            
            **$**
            **4,468****Total
                credit facilities and capital leases**
            
            
            
            
            **$**
            **23,335**
            
            **$**
            **48,306****Less
                current maturities**
            
            
            
            
            
            **(18,350**
            **)**
            
            **(43,566**
            **)****Total
                non-current maturities**
            
            
            
            
            **$**
            **4,985**
            
            **$**
            **4,740**





**Croatia**





(a)
      A
      total of EUR 0.7 million (approximately
      US$ 0.9 million) was drawn down on three agreements our Croatia operations
      have
      with Hypo Alpe-Adria-Bank d.d. These
      loans bear a variable interest rate of the European Inter Bank Official Rate
      (“EURIBOR”) three-month rate plus 2.50% and are repayable in quarterly
      installments until April 1, 2011. As at June 30, 2006, a rate of 5.50% applied
      to these loans.
      These loans are secured by certain fixed assets of OK, which as at June
      30,
      2006 have
      a carrying value of approximately US$ 0.1 million.





(b) An
      amount of EUR 0.004 million (approximately US$ 0.005 million) was drawn down
      on
      an agreement our Croatia operations had with Hypo Alpe-Adria-Bank d.d. that
      bore interest
      at a rate of 7.25% with the final installment due July 31, 2006.





(c) EUR
      0.1 million (approximately US$ 0.1 million) was drawn down by our Croatia
      operations under a loan agreement with BKS Bank fur Karnten and Steiermark
      AG. This
      loan bears a variable interest rate of EURIBOR three-month rate plus 3.00%
      and
      is repayable on October 1, 2006. As at June 30, 2006 a rate of 5.75% applied
      to
      this loan.





Page
            23
 *Index*


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


**Czech
      Republic**





(d)
      As at
      June 30, 2006, there were no drawings by CET 21 under a four-year credit
      facility of CZK 1.2 billion (approximately US$ 53.5 million) with Ceska
      Sporitelna, a.s. (“CS”). This facility is secured by a guarantee of CME Media
      Services and a pledge of receivables, which are also subject to a factoring
      arrangement between CME Media Services and Factoring Ceska Sporitelna, a.s.,
      a
      subsidiary of CS.





(e)
      CZK
      250.0 million (approximately US$ 11.2 million), the full amount of the facility,
      has been drawn by CET 21 and CME Media Services under a working capital facility
      agreement with CS which matures on October 31, 2006 and bears interest at the
      three-month PRIBOR rate plus 1.65% (three-month PRIBOR relevant to drawings
      under this facility at June 30, 2006 was 2.09%). This working capital facility
      is secured by a pledge of receivables, which are also subject to a factoring
      arrangement between CME Media Services and Factoring Ceska
      Sporitelna.





(f)
      CZK
      145.4 million (approximately US$ 6.5 million) was drawn under a CZK 600.0
      million (approximately US$ 26.8 million) factoring facility between CME Media
      Services and Factoring Ceska Sporitelna. The facility bears interest at
      one-month PRIBOR plus 1.40% for the period that actively assigned accounts
      receivable are outstanding.





**Romania**





(g)
      As at
      June 30, 2006 and December 31, 2005, there were no drawings under a EUR 6.0
      million (approximately US$ 7.7 million) overdraft facility with ING Bank N.V.
      Amsterdam. This facility is secured by cash collateral of New Romania Lei 11.7
      million (approximately US$ 4.2 million) and the assignment of certain accounts
      receivable and allows drawings to be made in US dollars (bearing interest at
      one-month LIBOR plus 2.00%), Euro (bearing interest at one-month EURIBOR plus
      2.00%) or New Romanian Lei (bearing interest at 'best market
      rate').





**Slovenia**





(h)
      On
      July 29, 2005, Pro Plus entered into a revolving facility agreement for up
      to
      EUR 37.5 million (approximately US$ 47.9 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 2.10% and 3.60% that varies according
      to the ratio of consolidated net debt to consolidated broadcasting cash flow
      for
      Pro Plus. As at June 30, 2006 and December 31, 2005, there were no drawings
      under this revolving facility.





Page
            24
 *Index*


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


*Total
      Group*





At
      June
      30, 2006, the maturity of our debt (including our Senior Notes) is as
      follows:





2006
            
            $
            17,8522007
            
            
            1642008
            
            
            1722009
            
            
            1822010
            
            
            1932011
                and thereafter
            
            
            473,185**Total**
            
            **$**
            **491,748**





*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, 2006:





2006
            
            $
            6192007
            
            
            6472008
            
            
            6472009
            
            
            4962010
            
            
            4962011
                and thereafter
            
            
            3,450**6,355**Less:
                amount representing interest
            
            
            (1,683
            )**Present
                value of net minimum lease payments**
            
            **$**
            **4,672**








**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$ 477.4 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$ 480.6 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, 2006 is a US$ 1.9 million
      liability.





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 SFAS 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.





Page
            25
 *Index*


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


**13.
      SHAREHOLDERS’ EQUITY**





*Preferred
      Stock*





5,000,000
      shares of Preferred Stock, with a $0.08 par value, were authorized as at June
      30, 2006 and December 31, 2005. None were issued and outstanding as at June
      30,
      2006, and December 31, 2005.





*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, 2006 and December 31, 2005. 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.





On
      May 3,
      2006, EL/RSLG Media Inc. converted 336,000 shares of Class B Common Stock,
      on
      May 9, 2006, Leonard A. Lauder converted 140,000 and LWG Family Partners L.P.
      converted 215,000 shares of Class B Common Stock, on May 11, 2006, EL/RSLG
      Media
      Inc. converted 4,895 shares of Class B Common Stock, and on June 23, 2006,
      Ronald Lauder converted 57,799 shares of Class B Common Stock into a total
      of
      753,694 shares of Class A Common Stock (par value of US$ 0.1 million), which
      decreased Class B Common Stock to US$ 0.5 million.





On
      March
      29, 2006, we sold 2,530,000 shares of our Class A Common Stock (including
      330,000 sold pursuant to an underwriters’ option) and received net proceeds of
      approximately US$ 168.6 million.








**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,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Stock-based
                compensation charged under FIN 44
            
            $
            -
            
            $
            (1,910
            )
            $
            -
            
            $
            746Stock-based
                compensation charged under SFAS 123(R) (2005: SFAS 123)
            
            
            730
            
            
            499
            
            
            1,418
            
            
            944**Total
                stock-based compensation**
            
            **$**
            **730**
            
            **$**
            **(1,411**
            **)**
            **$**
            **1,418**
            
            **$**
            **1,690**





**Stock-based
      compensation under FIN 44**





For
      certain options issued in 2000, our stock-based compensation charge was
      calculated according to FASB Interpretation 44, “Accounting for Certain
      Transactions involving Stock Compensation" ("FIN 44"). This requires that
      compensation costs for modified awards are adjusted for increases and decreases
      in the intrinsic value in subsequent periods until that award is exercised,
      forfeited or expires unexercised, subject to a minimum of the original intrinsic
      value at the original measurement date. The last of these options were exercised
      on May 11, 2005.





Page
            26
 *Index*


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


**Stock-based
      compensation under SFAS 123(R)**





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.





**2006
      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 employees to
      purchase 22,000 shares of our Class A Common Stock, with a vesting period of
      four years, on February 1, 2006, 12,500 such options, with a vesting period
      of
      four years, on May 1, 2006, and 50,000 such options, with a vesting period
      of
      four years, on June 8, 2006. 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 48,000 shares of our
      Common Stock with a vesting period of four years. The exercise price of the
      granted options ranges from US$ 56.42 to US$ 64.81 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)**February
                1, 2006
            
            
            22,000
            
            
            4.52
            %
            
            6.25
            
            
            45.87
            %
            
            0
            %
            $
            30.74May
                1, 2006
            
            
            12,500
            
            
            5.04
            %
            
            6.25
            
            
            44.55
            %
            
            0
            %
            $
            33.21June
                7, 2006
            
            
            48,000
            
            
            4.98
            %
            
            6.25
            
            
            44.46
            %
            
            0
            %
            $
            29.96June
                8, 2006
            
            
            50,000
            
            
            4.96
            %
            
            6.25
            
            
            44.53
            %
            
            0
            %
            $
            28.83





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-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 ended June 30, 2006 was US$ 29.82 per option.
      The weighted average fair value of all the grants made in the six months ended
      June 30, 2006 was US$ 29.97 per option. In accordance with SFAS 123(R), the
      total fair value of the option grants made in the six months ended June 30,
      2006
      of US$ 4.0 million is being recognized as an expense in the consolidated
      statement of operations over the requisite service period of the
      award.





**2005
      Option Grants**





Pursuant
      to the Amended and Restated 1995 Stock Incentive Plan, the Compensation
      Committee of our Board of Directors awarded a grant of options to non-executive
      directors and employees to purchase 122,000 shares of our Common Stock on June
      2, 2005. These options vest in equal installments over 4 years. The exercise
      price of the granted options ranges from US$ 44.50 to US$ 46.73 per share,
      with
      a weighted average exercise price of US$ 44.61. The total 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)**June
                2, 2005
            
            
            122,000
            
            
            3.74
            %
            
            6.25
            
            
            53.24
            %
            
            0
            %
            $
            24.56





The
      expected stock price volatility was calculated as 53.24% based on an analysis
      of
      the historical stock price volatility of the Company and its peers for the
      preceding 6.25-year period. The total fair value of these options of US$ 3.0
      million is being recognized in the consolidated Statement of Operations over
      the
      requisite service period of the award.





Page
            27
 *Index*


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


A
      summary
      of option activity for the six months ended June 30, 2006 is presented
      below:





**Shares**
            
            **Weighted
                Average Exercise Price per Share**
            
            **Weighted
                Average Remaining Contractual Term (years)**
            
            **Aggregate**
              **Intrinsic
                Value**Outstanding
                at January 1, 2006
            
            
            1,118,275
            
            $
            22.23
            
            
            7.11
            
            $
            39,763Granted
            
            
            132,500
            
            
            58.82Exercised
            
            
            (77,250
            )
            
            13.85Forfeited
            
            
            (17,750
            )
            
            35.70**Outstanding
                at June 30, 2006**
            
            
            **1,155,775**
            
            **$**
            **26.90**
            
            
            **7.18**
            
            **$**
            **41,958**Vested
                or expected to vest at June 30, 2006
            
            
            1,062,902
            
            
            25.83
            
            
            7.11
            
            
            39,715**Exercisable
                at June 30, 2006**
            
            
            **605,850**
            
            **$**
            **16.06**
            
            
            **5.82**
            
            **$**
            **28,573**





The
      aggregate intrinsic value (the difference between the stock price on the last
      day of trading of the second quarter of 2006 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, 2006. 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, 2006 and 2005, respectively, was US$ 4.0 million
      and
      US$ 21.4 million, respectively. As of June 30, 2006, there was US$ 9.1 million
      of total unrecognized compensation expense related to options. The expense
      is
      expected to be recognized over a weighted average period of 3.0 years. Proceeds
      received from the exercise of stock options was US$ 1.1 million and US$ 2.9
      million for the six months ended June 30, 2006 and 2005,
      respectively.








**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,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Net
                income / (loss) available for common shareholders**
            
            $
            8,522
            
            $
            25,459
            
            $
            (9,742
            )
            $
            17,510**Weighted
                average outstanding shares of common stock
                (000’s)**
            
            
            40,597
            
            
            34,274
            
            
            39,355
            
            
            31,345Dilutive
                effect of employee stock options (000’s)
            
            
            589
            
            
            871
            
            
            -
            
            
            943**Common
                stock and common stock equivalents (000’s)**
            
            
            41,186
            
            
            35,145
            
            
            39,355
            
            
            32,288**Net
                income / (loss) per share:**Basic
            
            $
            0.21
            
            $
            0.74
            
            $
            (0.25
            )
            $
            0.56Diluted
            
            $
            0.21
            
            $
            0.72
            
            $
            (0.25
            )
            $
            0.54


At
        June
        30, 2006 and 2005, we did not include stock options to purchase 327,000 shares
        and 122,000 shares of Common Stock, respectively, in the calculations of
        diluted
        income / (loss) per share because their inclusion would be anti-dilutive.


Page
            28
 *Index*


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


**16.
      SEGMENT DATA**





We
      manage our business on a country-by-country 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 Ukraine.





We
      evaluate the performance of our business segments based on Segment Net Revenues
      and Segment EBITDA. Segment Net Revenues and Segment EBITDA include STS and
      Markiza (our operating and license companies in the Slovak Republic) which
      were
      not consolidated prior to January 23, 2006.





We
      acquired our Czech Republic operations on May 2, 2005; therefore we include
      only
      limited qualified quarter-on-quarter comparisons of financial results for our
      Czech Republic operations.





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;





·
            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 on assets or
                investments).





EBITDA
      is not a term defined under US GAAP and Segment 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.





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 US GAAP results for the three and six months ended
      June 30, 2006 and 2005 for condensed consolidated statement of operations data
      and as at June 30, 2006 and December 31, 2005 for condensed consolidated balance
      sheet data:





Page
            29
 *Index*


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


**For
                the Three Months Ended June 30,****Segment
                Net Revenues (1)**
            
            **Segment
                EBITDA****2006**
            
            **2005**
            
            **2006**
            
            **2005****Country:**Croatia
                (NOVA TV)
            
            $
            5,647
            
            $
            7,652
            
            $
            (2,639
            )
            $
            (1,337
            )Czech
                Republic (TV NOVA, GALAXIE SPORT) (2)
            
            
            56,312
            
            
            47,767
            
            
            29,509
            
            
            28,287Romania
                (3)
            
            
            37,769
            
            
            26,592
            
            
            16,424
            
            
            11,974Slovak
                Republic (MARKIZA TV)
            
            
            20,046
            
            
            19,627
            
            
            7,827
            
            
            7,956Slovenia
                (POP TV, KANAL A)
            
            
            15,555
            
            
            13,920
            
            
            6,430
            
            
            6,490Ukraine
                (STUDIO 1+1, GRAVIS)
            
            
            21,260
            
            
            17,178
            
            
            5,605
            
            
            4,935**Total
                segment data**
            
            **$**
            **156,589**
            
            **$**
            **132,736**
            
            **$**
            **63,156**
            
            **$**
            **58,305****Reconciliation
                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**
            
            **$**
            **156,589**
            
            **$**
            **113,109**
            
            **$**
            **12,103**
            
            **$**
            **31,468**Corporate
                operating costs
            
            
            -
            
            
            -
            
            
            7,696
            
            
            3,451Depreciation
                of station property, plant and equipment
            
            
            -
            
            
            -
            
            
            6,059
            
            
            3,161Amortization
                of broadcast licenses and other intangibles
            
            
            -
            
            
            -
            
            
            4,620
            
            
            1,544Impairment
                charge
            
            
            -
            
            
            -
            
            
            748
            
            
            35,331Unconsolidated
                equity affiliates (4)
            
            
            -
            
            
            19,627
            
            
            -
            
            
            7,956Interest
                income
            
            
            -
            
            
            -
            
            
            (1,741
            )
            
            (559
            )Interest
                expense
            
            
            -
            
            
            -
            
            
            11,337
            
            
            6,424Foreign
                currency exchange (gain) / loss, net
            
            
            -
            
            
            -
            
            
            20,625
            
            
            (30,159
            )Change
                in fair value of derivatives
            
            
            -
            
            
            -
            
            
            1,876
            
            
            -Other
                income
            
            
            -
            
            
            -
            
            
            (167
            )
            
            (312
            )**Total
                segment data**
            
            **$**
            **156,589**
            
            **$**
            **132,736**
            
            **$**
            **63,156**
            
            **$**
            **58,305**




(1)
      All
      net revenues are derived from external customers. There are no inter-segmental
      revenues.


(2)
      We
      acquired our Czech Republic operations in May 2005.


(3)
      Romanian networks are PRO TV, PRO CINEMA, ACASA and PRO TV
      INTERNATIONAL.


(4)
      Our
      Slovak Republic operations were accounted for as an equity affiliate until
      January 23, 2006.




Page
            30
 *Index*


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


**For
                the Six Months Ended June 30,****Segment
                Net Revenues (1)**
            
            **Segment
                EBITDA****2006**
            
            **2005**
            
            **2006**
            
            **2005****Country:**Croatia
                (NOVA TV)
            
            $
            9,457
            
            $
            12,607
            
            $
            (7,081
            )
            $
            (4,759
            )Czech
                Republic (TV NOVA, GALAXIE SPORT) (2)
            
            
            96,861
            
            
            47,767
            
            
            42,335
            
            
            28,287Romania
                (3)
            
            
            67,640
            
            
            45,648
            
            
            28,037
            
            
            18,136Slovak
                Republic (MARKIZA TV)
            
            
            31,252
            
            
            32,270
            
            
            6,850
            
            
            10,126Slovenia
                (POP TV, KANAL A)
            
            
            25,782
            
            
            23,853
            
            
            9,463
            
            
            9,170Ukraine
                (STUDIO 1+1, GRAVIS)
            
            
            47,112
            
            
            31,538
            
            
            16,467
            
            
            7,284**Total
                segment data**
            
            **$**
            **278,104**
            
            **$**
            **193,683**
            
            **$**
            **96,071**
            
            **$**
            **68,244****Reconciliation
                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**
            
            **$**
            **276,343**
            
            **$**
            **161,413**
            
            **$**
            **7,811**
            
            **$**
            **25,258**Corporate
                operating costs
            
            
            -
            
            
            -
            
            
            15,677
            
            
            11,182Depreciation
                of station property, plant and equipment
            
            
            -
            
            
            -
            
            
            11,761
            
            
            5,062Amortization
                of broadcast licenses and other intangibles
            
            
            -
            
            
            -
            
            
            8,952
            
            
            1,933Impairment
                charge
            
            
            -
            
            
            -
            
            
            748
            
            
            35,331Unconsolidated
                equity affiliates (4)
            
            
            1,761
            
            
            32,270
            
            
            (1,283
            )
            
            10,126Interest
                income
            
            
            -
            
            
            -
            
            
            (3,194
            )
            
            (1,638
            )Interest
                expense
            
            
            -
            
            
            -
            
            
            21,855
            
            
            6,731Foreign
                currency exchange (gain) / loss, net
            
            
            -
            
            
            -
            
            
            31,487
            
            
            (29,430
            )Change
                in fair value of derivatives
            
            
            -
            
            
            -
            
            
            1,876
            
            
            -Other
                expense
            
            
            -
            
            
            -
            
            
            381
            
            
            3,689**Total
                segment data**
            
            **$**
            **278,104**
            
            **$**
            **193,683**
            
            **$**
            **96,071**
            
            **$**
            **68,244**




(1)
      All
      net revenues are derived from external customers. There are no inter-segmental
      revenues.


(2)
      We
      acquired our Czech Republic operations in May 2005.


(3)
      Romanian networks are PRO TV, PRO CINEMA, ACASA and PRO TV
      INTERNATIONAL.


(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 per share data)**
 **(Unaudited)**


**For
                the Three**
              **Months
                Ended June 30,**
            
            **For
                the Six**
              **Months
                Ended June 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Depreciation
                of station property, plant and equipment and amortization of broadcast
                licenses and other intangibles:**Croatia
            
            $
            902
            
            $
            598
            
            $
            1,431
            
            $
            1,216Czech
                Republic (1)
            
            
            5,883
            
            
            2,382
            
            
            11,408
            
            
            2,382Romania
            
            
            1,137
            
            
            773
            
            
            2,364
            
            
            1,614Slovak
                Republic
            
            
            877
            
            
            469
            
            
            2,348
            
            
            934Slovenia
            
            
            810
            
            
            524
            
            
            1,540
            
            
            983Ukraine
            
            
            1,070
            
            
            428
            
            
            1,799
            
            
            800**Total**
            
            **$**
            **10,679**
            
            **$**
            **5,174**
            
            **$**
            **20,890**
            
            **$**
            **7,929****Reconciliation
                to condensed consolidated statement of
                operations:**Unconsolidated
                equity affiliates
            
            
            -
            
            
            (469
            )
            
            (177
            )
            
            (934
            )**Total
                consolidated depreciation and amortization**
            
            **$**
            **10,679**
            
            **$**
            **4,705**
            
            **$**
            **20,713**
            
            **$**
            **6,995**Represented
                as follows:Depreciation
                of station property, plant & equipment
            
            
            6,059
            
            
            3,161
            
            
            11,761
            
            
            5,062Amortization
                of broadcast licenses and other intangibles
            
            
            4,620
            
            
            1,544
            
            
            8,952
            
            
            1,933




(1)
      We
      acquired our Czech Republic operations in May 2005.




**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****Total
                assets (1):**Croatia
            
            $
            23,205
            
            $
            25,017Czech
                Republic
            
            
            1,097,927
            
            
            1,018,253Romania
            
            
            169,371
            
            
            123,699Slovak
                Republic
            
            
            71,805
            
            
            41,873Slovenia
            
            
            67,683
            
            
            62,926Ukraine
            
            
            75,601
            
            
            49,438**Total
                segment assets**
            
            **$**
            **1,505,592**
            
            **$**
            **1,321,206****Reconciliation
                to condensed consolidated balance sheets:**Unconsolidated
                equity affiliates
            
            
            -
            
            
            (41,873
            )Corporate
            
            
            135,923
            
            
            109,517**Total
                assets**
            
            **$**
            **1,641,515**
            
            **$**
            **1,388,850**




(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 per share data)**
 **(Unaudited)**


**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****Long-lived
                assets (1):**Croatia
            
            $
            5,966
            
            $
            6,264Czech
                Republic
            
            
            19,915
            
            
            16,027Romania
            
            
            15,175
            
            
            13,154Slovak
                Republic
            
            
            15,828
            
            
            14,245Slovenia
            
            
            15,517
            
            
            15,523Ukraine
            
            
            10,468
            
            
            7,127**Total
                long-lived assets**
            
            **$**
            **82,869**
            
            **$**
            **72,340****Reconciliation
                to condensed consolidated balance sheets:**Unconsolidated
                equity affiliates
            
            
            -
            
            
            (14,245
            )Corporate
            
            
            2,044
            
            
            802**Total
                long-lived assets**
            
            **$**
            **84,913**
            
            **$**
            **58,897**




(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,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Income
                on disposal of discontinued operations
            
            $
            -
            
            $
            46
            
            $
            -
            
            $
            164Tax
                on disposal of discontinued operations
            
            
            1,277
            
            
            (2,435
            )
            
            (2,530
            )
            
            (2,208
            )**Net
                income / (loss) from discontinued operations**
            
            **$**
            **1,277**
            
            **$**
            **(2,389**
            **)**
            **$**
            **(2,530**
            **)**
            **$**
            **(2,044**
            **)**





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 credit of US$ 1.3
      million for
      the
      three months ended June 30, 2006 (charge of US$ 2.4  million
      for the three months ended June 30, 2005), and a charge of US$ 2.5 million
      for
      the six months ended June 30, 2006 (charge of US$ 2.2 million for the six months
      ended June 30, 2005).





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
      use
      any resulting losses, 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.





Page
            33
 *Index*


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


**18.
      COMMITMENTS AND CONTINGENCIES**





**Commitments**





*a)
      Station Programming Rights Agreements*





At
      June 30, 2006 and December 31, 2005, we had the following commitments in respect
      of future programming, including contracts signed with license periods starting
      after the balance sheet date:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005**Croatia
            
            $
            2,322
            
            $
            3,014Czech
                Republic
            
            
            21,056
            
            
            22,812Romania
            
            
            16,581
            
            
            14,073Slovak
                Republic
            
            
            4,095
            
            
            -Slovenia
            
            
            2,687
            
            
            3,080Ukraine
            
            
            8,605
            
            
            8,864**Total**
            
            **$**
            **55,346**
            
            **$**
            **51,843**




*b)
      Operating Lease Commitments*





For
      the
      six months ended June 30, 2006 and 2005 we incurred aggregate rent on all
      facilities of US$ 5.3 million
      and US$ 2.5 million, respectively. Future minimum operating lease payments
      at
      June 30, 2006 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:





2006
            
            $
            3,9632007
            
            
            1,8872008
            
            
            1,8322009
            
            
            8982010
            
            
            7732011
                and thereafter
            
            
            394**Total**
            
            **$**
            **9,747**




Page
            34
 *Index*


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


*c)
      Acquisition of minority shareholdings in Romania*





Mr.
      Sarbu
      has the right to sell his 10.0% shareholding in Pro TV and MPI to us under
      a put
      option agreement entered into in July 2004 at a put price that will be
      determined by an independent valuation and is subject to a floor price of US$
      1.45 million for each 1.0% interest sold. This put is exercisable from March
      1,
      2009 for a twenty-year period thereafter. As
      at June 30, 2006, we consider the fair value of the 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 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. Should the Dutch
      Ministry of Finance later rule that arbitration awards such as the one we
      received are not taxable, we will be entitled to claim a tax loss, which can
      be
      offset against other taxable income but will not reduce our minimum payment
      commitments.





As
      at June 30, 2006 we provided US$ 3.2 million (US$ 2.2 million in non-current
      liabilities and US$ 1.0 million in current liabilities) (as at December 31,
      2005: US$ 2.1 million (US$ 0.7 million in non-current liabilities and US$ 1.4
      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 is likely to fall due over this period from business
      operations, based on current business structures and economic conditions, and
      credited US$ 1.3 million for the three months ended June 30, 2006 and charged
      US$ 2.5 million for the six months ended June 30, 2006 through discontinued
      operations in our condensed consolidated statement of operations.





*Czech
      Republic - Guarantee and Factoring of Trade Receivables*





CET
      21
      and CME Media Services have a working capital credit facility of CZK 250.0
      million (approximately US$ 11.2 million)
      with Ceska Sporitelna, a.s. that matures on October 31, 2006, which was fully
      drawn at June 30, 2006. This facility is secured by a pledge of receivables,
      which are also subject to a factoring arrangement between CME Media Services
      and
      Factoring Ceska Sporitelna, a.s.





CME
      Media
      Services has a factoring arrangement of CZK 600.0 million (approximately US$ 26.8 million)
      with Factoring Ceska Sporitelna, a.s., that bears interest for the period that
      actively assigned accounts receivable are outstanding. As
      at June 30, 2006, CZK 145.4 million (approximately US$ 6.5 million) was drawn
      under this arrangement.





A
      sale of the receivables under this factoring arrangement is accounted for as
      a
      secured borrowing in accordance with FASB Statement No. 140, *‘Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities’,* and proceeds received are recorded in the condensed consolidated balance sheet
      within current credit facilities and obligations under capital leases. The
      corresponding receivables are a part of accounts receivable, as the risks of
      ownership remain with CME Media Services.





**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.





Page
            35
 *Index*


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


*Croatia*





*Global
      Communications Dispute*





On
      October 29, 2004, OK filed suit against Global Communications d.o.o. claiming
      approximately HRK 53.0 million (approximately US$ 8.6 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.
      Global Communications and GRP Media were functionally managing the advertising
      inventory of Nova TV (Croatia). On December 31, 2003, Global Communications
      entered into an 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$ 11.0 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. We
      intend to appeal this judgment upon receipt of the court’s written decision and
      will continue to contest this case vigorously. 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 intend to appeal this judgment
      upon receipt of this court's written decision and will continue to seek joinder
      of this claim with the OK counterclaim.





*Former
      Shareholder Dispute*





On
      July
      21, 2005, Narval A.M. d.o.o., 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. We do not expect the Croatia operations
      to
      suffer any significant loss or disruption as a consequence of this
      action.





Page
            36
 *Index*


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


*Czech
      Republic*





*Antimonopoly
      Office*





At
      the
      end of 2005, the Office for the Protection of Economic Competition of the Czech
      Republic (the “Antimonopoly Office”) commenced an investigation into potential
      infringements of Czech antimonopoly legislation in respect of the sale of
      advertising on the TV NOVA channel from 2004. Without acknowledging any
      infringements alleged by the Antimonopoly Office, CET 21 agreed to make certain
      undertakings in respect of the sale of advertising on TV NOVA. In March 2006,
      the Antimonopoly Office accepted a commitment from CET 21 to cure all the
      alleged legal defects in the relevant TV NOVA advertising agreements. In
      compliance with this commitment, CET 21 adopted a new form of advertising
      agreement which was approved by the Antimonopoly Office in April 2006. CET
      21
      anticipates that the Antimonopoly Office will terminate the investigation during
      the third quarter of 2006, once all of CET 21’s advertising agreements have been
      replaced by the new, approved, form of advertising agreement.





*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 SIT 190.0 million (approximately US$ 1.0 million)
      for repayment of monies advanced to MMTV from 1992 to 1994 (in the amount of
      approximately SIT 29.0 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 SIT 190.0 million (approximately
      US$
      1.0 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. We do not believe that Mrs. Meglic will prevail and will continue
      to defend the claim. Accordingly, we have made no provision for this claim
      in
      our condensed consolidated balance sheet as at June 30, 2006.





*Slovak
      Republic*





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





*Ukraine*





On
      October 11, 2005, Igor Kolomoisky filed a lawsuit against Alexander Rodnyansky
      and Studio 1+1 in a district court in Kiev. Our Ukrainian affiliate Intermedia
      has been joined in the proceedings as a “third party”. Mr. Kolomoisky is
      attempting to enforce what he alleges was a binding oral agreement with Mr.
      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 Mr.
      Kolomoisky on receipt of a prepayment of US$ 2.0 million. The lawsuit arises
      from abortive negotiations among Mr. Kolomoisky, Mr. Rodnyansky and Boris
      Fuchsmann for the acquisition by Mr. Kolomoisky of the totality of interests
      in
      the Studio 1+1 Group held by Mr. Rodnyansky and Mr. Fuchsmann, subject to Mr.
      Kolomoisky assuming all of their obligations under our existing partnership
      arrangements. Following a series of initial hearings, a procedural matter was
      appealed to the Supreme Court of Ukraine. This appeal, which was filed in
      February 2006, is currently pending.  An
      acceptance of this appeal would automatically suspend proceedings in the
      district court in Kiev during the pendency of the appeal; however, the filing
      of
      such an appeal with the Supreme Court does not suspend proceedings. As a result,
      the hearings on the case in the district court have continued. These hearings
      are now at the final procedural stage of the closing speeches of the advocates
      of the three parties.





Page
            37
 *Index*


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


We
      believe the lawsuit is without merit primarily because there was no agreement
      with Mr. Kolomoisky and because any agreement in respect of the subject matter
      at issue, had it been concluded on an oral basis, would be invalid and
      unenforceable as a matter of Ukrainian law. Furthermore, any transfer would
      also
      breach Intermedia’s statutory and contractual consent and pre-emptive rights. In
      the
      event of an adverse outcome which results in the ownership of 70% of Studio
      1+1
      being transferred from Mr. Rodnyansky to Mr. Kolomoisky pursuant to a court
      decision, we may not be able to secure and enforce our contractual rights to
      a
      60% beneficial interest in Studio 1+1 or rights related to the governance of
      Studio 1+1 against Mr. Kolomoisky. A reduction in our right to future
      distributable cash from Studio 1+1 would have an adverse impact on our financial
      position and results of operations.





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. Upon successful
      completion of the restructuring, we will terminate the proceedings initiated
      against our partners in December 2005.





*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, 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.**Romania**
            Licenses
                expire on dates ranging from October 2006 to July 2015.**Slovak
                Republic**
            The
                license of MARKIZA TV expires in September 2019.**Slovenia**
            The
                licenses of POP TV and KANAL A expire in August 2012.**Ukraine**
            The
                15-hour license of STUDIO 1+1 expires in December 2006. In July 2006,
                the
                Ukrainian Media Council issued a decision to extend this license
                with the
                issuance of a new license subject to fulfilling two conditions (see
                Note 1
                and Part II, Item 1A. Risk Factors) The license to broadcast for
                the
                remaining nine hours in off prime expires in August 2014. The three
                licenses held by Ukrpromtorg expire in November 2008, March 2010
                and
                October 2012.




Page
            38
 *Index*


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





**Revolving
      loan agreement**





On
      July
      21, 2006, we entered into a five-year revolving loan agreement for EUR 100.0
      million (approximately US$ 127.9 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 up to EUR 50.0
      million. Initial drawings up to EUR 100.0 million will be used for certain
      specified projects in Central and Eastern Europe.





Interest
      is 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 of greater than US$ 20.0 million per year for the life of this 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 certain of our subsidiaries and is secured by a pledge of shares
      of those subsidiaries and 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.





**Ukraine
      license**





On
      July
      19, 2006, the Ukrainian Media Council issued a decision to extend the 15-hour
      broadcasting license of Studio 1+1 for a ten-year period from January 1, 2007.
      Issuance of the license itself is subject to the payment of a fee of
      approximately UAH 5.9 million (approximately US$ 1.2 million), which has been
      paid, and the registration by October 1, 2006 of an amendment to the charter
      of
      Studio 1+1 to conform with recent amendments to the Ukrainian Media Law (see
      Part II, Item 1A Risk Factors).





Page
          39
 *Index*





**Item
      2. Management's Discussion and Analysis of Financial Condition
      and Results of Operations**





***Contents***





***I.***
            ***Forward-looking
                Statements******II.***
            ***Executive
                Summary******III.***
            ***Analysis
                of Segment Results******IV.***
            ***Analysis
                of the Results of Consolidated Operations******V.***
            ***Liquidity
                and Capital Resources******VI.***
            ***Critical
                Accounting Policies and
                Estimates***








***I.
      Forward-looking Statements***





*This
      report contains forward-looking statements, including statements regarding
      the
      impact of legal proceedings in Ukraine, the renewal of our broadcasting license
      in Ukraine, the effect of additional investment in Croatia, the impact of the
      rationalization of our operations in the Czech Republic and the Slovak Republic,
      our ability to attract advertisers in the Czech Republic, 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, 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, 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 economic
      conditions in these countries as well as in the United States and Western
      Europe.*





The
      following discussion should be read in conjunction with the section entitled
      "Risk Factors" in Part II, Item 1A, in addition to our interim financial
      statements and notes included elsewhere in this report.








***II.
      Executive Summary***





*Continuing
      Operations*





The
      following table provides a summary of our consolidated results for the three
      and
      six months ended June 30, 2006 and 2005:





**For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Net
                revenues
            
            $
            156,589
            
            $
            113,109
            
            *$*
            *43,480*Operating
                income
            
            
            44,033
            
            
            6,862
            
            
            *37,171*Net
                income from continuing operations
            
            
            7,245
            
            
            27,848
            
            
            *(20,603*
            *)***Net
                income**
            
            **$**
            **8,522**
            
            **$**
            **25,459**
            
            ***$***
            ***(16,937***
            ***)***




Page
            40
 *Index*




**For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Net
                revenues
            
            $
            276,343
            
            $
            161,413
            
            *$*
            *114,930*Operating
                income
            
            
            60,216
            
            
            4,610
            
            
            *55,606*Net
                income / (loss) from continuing operations
            
            
            (7,212
            )
            
            19,554
            
            
            *(26,766*
            *)***Net
                (loss) / income**
            
            **$**
            **(9,742**
            **)**
            **$**
            **17,510**
            
            ***$***
            ***(27,252***
            ***)***





The
      principal events for the three months ended June 30, 2006 are as
      follows:





·
            In
                the three months ended June 30, 2006, we achieved a Segment EBITDA
                margin
                of 40% compared to 44% for the three months ended June 30, 2005 (Segment
                EBITDA is defined and reconciled to
                our consolidated US GAAP results in Part 1, Item 1, Note 16, "Segment
                Data").





·
            On
                May 16, 2006, we completed the acquisition of the remaining 3.5%
                minority
                interests in CET 21, and so now own a 100.0% interest in our Czech
                Republic operations. On July 24, 2006, the corporate ownership structure
                of CET 21 was properly registered by the city court in Prague showing
                CME
                Media Enterprises B.V. and Vilja a.s. as the owners of 16.67% and
                54.575%,
                respectively, of CET 21, with the vacant ownership interest of 28.755%
                reflected as being held by CET 21
                itself.





·
            In
                June 2006, Pro TV was granted nine additional broadcasting licenses,
                which
                will expand its technical reach to more than 80%, once roll out has
                been
                completed and it is the sole broadcaster that has been granted an
                HDTV
                license for Bucharest, Romania to test digital
                broadcasting.





·
            The
                international version of Studio 1+1, "Studio 1+1 International" began
                broadcasting in the USA and Canada. Studio 1+1 International is a
                Ukrainian-language TV channel for people from Ukraine in the USA and
                Canada.





·
            Moody’s
                Investor Service’s rating of both our corporate credit rating and the
                rating of our Senior Notes improved to Ba3 stable from B1 positive
                outlook, previously.





·
            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. As a result of our analysis,
                we have recognized an impairment charge of US$ 0.7 million relating
                to
                goodwill.





Events
      that occurred subsequent to June 30, 2006 have been as follows:





·
            On
                July 19, 2006, the Ukrainian Media Council issued a decision to extend
                the
                15-hour broadcasting license of Studio 1+1 for a ten-year period
                from
                January 1, 2007. Issuance of the license itself is subject to the
                payment
                of a fee of approximately UAH 5.9 million (approximately US$ 1.2
                million),
                which has been paid, and the registration by October 1, 2006 of an
                amendment to the charter of Studio 1+1 to conform with recent amendments
                to the Ukrainian Media Law (see Part II, Item 1A. Risk
                Factors).





·
            On
                July 21, 2006, we entered into a five-year EUR 100.0 million revolving
                project loan facility, which, once fully drawn, can be repaid and
                then
                used as a revolving credit facility to further increase our financing
                flexibility and reduce our average cost of
                debt.





Page
            41
 *Index*





*Management
      Changes*





·
            On
                July 28, 2006, Michael Garin extended the term of his agreement to
                serve
                as Chief Executive Officer from 2008 to
                2010.





·
            On
                August 3, 2006, Robert E. Burke announced his intention to step down
                as
                the Company’s President and Chief Operating Officer effective October 1,
                2006.





*Future
      Developments*





We
      will
      continue to pursue organic growth driven through the expansion of commercial
      advertising in our markets as consumer purchasing power grows. We will seek
      sub-regional efficiencies between our markets, to develop additional channels
      to
      expand our advertising inventory and target niche audiences and to seek new
      revenue opportunities in the creation and distribution of programming and in
      the
      new media sector. We will avail ourselves of opportunities that may arise to
      increase our interest in existing operations where we do not yet own 100%.
      We
      will also continue to expand our footprint into additional Central and Eastern
      European markets when financially prudent opportunities arise.








***III.
      Analysis of Segment Results***





**OVERVIEW**





We
      manage
      our business on a country-by-country 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, Czech Republic,
      Romania, Slovak Republic, Slovenia and Ukraine.





For
      a
      full reconciliation of our Segment Net Revenues and Segment EBITDA by operation
      to our consolidated US GAAP results for the three and six months ended June
      30,
      2006 and 2005 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
            42
 *Index*




**SEGMENT
                FINANCIAL INFORMATION****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **(1)**
            
            **2005**
            
            **(1)****Segment
                Net Revenue**Croatia
                (NOVA TV)
            
            $
            5,647
            
            
            4
            %
            $
            7,652
            
            
            6
            %Czech
                Republic (TV NOVA, GALAXIE SPORT) (2)
            
            
            56,312
            
            
            35
            %
            
            47,767
            
            
            36
            %Romania
                (3)
            
            
            37,769
            
            
            24
            %
            
            26,592
            
            
            20
            %Slovak
                Republic (MARKIZA TV) (4)
            
            
            20,046
            
            
            13
            %
            
            19,627
            
            
            15
            %Slovenia
                (POP TV, KANAL A)
            
            
            15,555
            
            
            10
            %
            
            13,920
            
            
            10
            %Ukraine
                (STUDIO 1+1, GRAVIS)
            
            
            21,260
            
            
            14
            %
            
            17,178
            
            
            13
            %**Total
                Segment Net Revenue**
            
            **$**
            **156,589**
            
            
            **100**
            **%**
            **$**
            **132,736**
            
            
            **100**
            **%****Segment
                EBITDA**Croatia
                (NOVA TV)
            
            $
            (2,639
            )
            
            (4
            )%
            $
            (1,337
            )
            
            (2
            )%Czech
                Republic (TV NOVA, GALAXIE SPORT) (2)
            
            
            29,509
            
            
            47
            %
            
            28,287
            
            
            49
            %Romania
                (3)
            
            
            16,424
            
            
            26
            %
            
            11,974
            
            
            20
            %Slovak
                Republic (MARKIZA TV) (4)
            
            
            7,827
            
            
            12
            %
            
            7,956
            
            
            14
            %Slovenia
                (POP TV, KANAL A)
            
            
            6,430
            
            
            10
            %
            
            6,490
            
            
            11
            %Ukraine
                (STUDIO 1+1, GRAVIS)
            
            
            5,605
            
            
            9
            %
            
            4,935
            
            
            8
            %**Total
                Segment EBITDA**
            
            **$**
            **63,156**
            
            
            **100**
            **%**
            **$**
            **58,305**
            
            
            **100**
            **%****Segment
                EBITDA Margin (5)**
            
            
            **40**
            **%**
            
            
            
            
            **44**
            **%**




(1)
      Percentage of Total Segment Net Revenue and Total Segment EBITDA.


(2)
      We
      acquired our Czech Republic operations in May 2005.


(3)
      Romania networks are PRO TV, PRO CINEMA, ACASA and PRO TV
      INTERNATIONAL.


(4)
      Our
      Slovak Republic operations were accounted for as an equity affiliate until
      January 23, 2006.


(5)
      We
      define Segment EBITDA margin as the ratio of Segment EBITDA to Segment Net
      Revenue.




Page
            43
 *Index*




**SEGMENT
                FINANCIAL INFORMATION****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **(1)**
            
            **2005**
            
            **(1)****Segment
                Net Revenue**Croatia
                (NOVA TV)
            
            $
            9,457
            
            
            4
            %
            $
            12,607
            
            
            6
            %Czech
                Republic (TV NOVA, GALAXIE SPORT) (2)
            
            
            96,861
            
            
            35
            %
            
            47,767
            
            
            25
            %Romania
                (3)
            
            
            67,640
            
            
            24
            %
            
            45,648
            
            
            24
            %Slovak
                Republic (MARKIZA TV) (4)
            
            
            31,252
            
            
            11
            %
            
            32,270
            
            
            17
            %Slovenia
                (POP TV, KANAL A)
            
            
            25,782
            
            
            9
            %
            
            23,853
            
            
            12
            %Ukraine
                (STUDIO 1+1, GRAVIS)
            
            
            47,112
            
            
            17
            %
            
            31,538
            
            
            16
            %**Total
                Segment Net Revenue**
            
            **$**
            **278,104**
            
            
            **100**
            **%**
            **$**
            **193,683**
            
            
            **100**
            **%****Segment
                EBITDA**Croatia
                (NOVA TV)
            
            $
            (7,081
            )
            
            (7
            )%
            $
            (4,759
            )
            
            (7
            )%Czech
                Republic (TV NOVA, GALAXIE SPORT) (2)
            
            
            42,335
            
            
            44
            %
            
            28,287
            
            
            41
            %Romania
                (3)
            
            
            28,037
            
            
            29
            %
            
            18,136
            
            
            27
            %Slovak
                Republic (MARKIZA TV) (4)
            
            
            6,850
            
            
            7
            %
            
            10,126
            
            
            15
            %Slovenia
                (POP TV, KANAL A)
            
            
            9,463
            
            
            10
            %
            
            9,170
            
            
            13
            %Ukraine
                (STUDIO 1+1, GRAVIS)
            
            
            16,467
            
            
            17
            %
            
            7,284
            
            
            11
            %**Total
                Segment EBITDA**
            
            **$**
            **96,071**
            
            
            **100**
            **%**
            **$**
            **68,244**
            
            
            **100**
            **%****Segment
                EBITDA Margin (5)**
            
            
            **35**
            **%**
            
            
            
            
            **35**
            **%**




(1)
      Percentage of Total Segment Net Revenue and Total Segment EBITDA.


(2)
      We
      acquired our Czech Republic operations in May 2005.


(3)
      Romania networks are PRO TV, PRO CINEMA, ACASA and PRO TV
      INTERNATIONAL.


(4)
      Our
      Slovak Republic operations were accounted for as an equity affiliate until
      January 23, 2006.


(5)
      We
      define Segment EBITDA margin as the ratio of Segment EBITDA to Segment Net
      Revenue.




Page
            44
 *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 (in all our markets) 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.





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. We recognize our advertising revenue at the time the relevant
      advertisement is broadcast. As is common in the television broadcasting
      industry, we provide some advertising agencies and advertisers with incentive
      rebates. We recognize advertising revenue net of these rebates.





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.





For
      the
      purposes of our management discussion and analysis, total television advertising
      revenue net of rebates is referred to as ‘spot revenue’. Non-spot revenue refers
      to all other revenues, including those from sponsorship, game shows, program
      sales, text messaging, cable subscriptions and barter transactions. The total
      of
      spot revenue and non-spot revenue is equal to Segment Net Revenues.





**(A)
      CROATIA**





**Market
      Background:** We
      estimate that the television advertising market in Croatia grew by approximately
      4% in local currency in 2005 and is expected to show single digit growth during
      2006.





In
      the
      six months ended June 30, 2006, national all day audience share for NOVA TV
      (Croatia) remained in line with the six months ended June 30, 2005 at 14%.
      Our
      major competitors are the two state-owned channels HRT1 and HRT2, with national
      all day audience shares for the six months ended June 30, 2006 of 36% and 19%,
      respectively, and privately owned broadcaster RTL with 24%.





The
      average prime time ratings for NOVA TV (Croatia) increased from 6.1% in the
      six
      months ended June 30, 2005 to 6.9% in the six months ended June 30,
      2006.





Page
            45
 *Index*





In
      July
      2005, we initiated a multi-year investment plan to develop our transmission
      infrastructure and improve the quality of our programming, particularly locally
      produced content, in order to secure a larger audience share and increased
      revenues. Under this plan, we anticipated that NOVA TV (Croatia) would approach
      Segment EBITDA breakeven in 2007. While the performance of NOVA TV (Croatia)
      in
      terms of audience share and ratings has recently shown improvement, this has
      not
      yet translated into increased revenues in the timescales and amounts we
      anticipated in July 2005. As a result, we presently expect that Segment EBITDA
      breakeven will be delayed at least one year against the plan.





**Three
      months ended June 30, 2006 compared to the three months ended June 30,
      2005**





**CROATIA
                SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            4,698
            
            $
            5,292
            
            *$*
            *(594*
            *)*Non-spot
                revenues
            
            
            949
            
            
            2,360
            
            
            *(1,411*
            *)*Segment
                Net Revenues
            
            $
            5,647
            
            $
            7,652
            
            *$*
            *(2,005*
            *)*Segment
                EBITDA
            
            $
            (2,639
            )
            $
            (1,337
            )
            *$*
            *(1,302*
            *)*Segment
                EBITDA Margin
            
            
            (47
            )%
            
            (17
            )%
            
            *(30*
            *)%*





·
            **Segment
                Net Revenues**for the three months ended June 30, 2006 decreased by US$ 2.0 million,
                or
                26% compared to the three months ended June 30, 2005. In local currency,
                Segment Net Revenues decreased by 27%. Spot revenues decreased by
                US$ 0.6
                million, or 11%, due to lower volumes of GRPs sold as a result of
                competitor price reductions and the expiration of legacy
                deals.





Non-spot
      revenues decreased by US$ 1.4 million, or 60%, due to decreased levels of
      sponsorship and lower levels of barter revenues as some contracts were forgone
      in accordance with our policy to minimize barter transactions.





·
            **Segment
                EBITDA**for
                the three months ended June 30, 2006 was a loss of US$ 2.6 million
                compared to a loss of US$ 1.3 million in the three months ended June
                30,
                2005. In local currency, Segment EBITDA decreased by
                86%.





Costs
      charged in arriving at Segment EBITDA for the three months ended June 30, 2006
      decreased by US$ 0.7 million, or 8%, compared to the three months ended June
      30,
      2005. Cost of programming decreased by US$ 0.3 million, or 6%. Other operating
      costs increased by US$ 0.6 million, or 26%, due to increased transmission costs
      as a result of increased transmitter coverage, and increased salaries due to
      higher headcount. Selling, general and administrative expenses decreased by
      US$
      1.0 million, or 45%, in the period ended June 30, 2006 primarily on account
      of
      one-time consultancy fees and commissions in 2005 relating to program
      acquisitions for previous periods which amounted to US$ 0.7
      million.





Page
            46
 *Index*





**Six
      months ended June 30, 2006 compared to the six months ended June 30,
      2005**





**CROATIA
                SEGMENT FINANCIAL INFORMATION****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            7,751
            
            $
            8,558
            
            *$*
            *(807*
            *)*Non-spot
                revenues
            
            
            1,706
            
            
            4,049
            
            
            *(2,343*
            *)*Segment
                Net Revenues
            
            $
            9,457
            
            $
            12,607
            
            *$*
            *(3,150*
            *)*Segment
                EBITDA
            
            $
            (7,081
            )
            $
            (4,759
            )
            *$*
            *(2,322*
            *)*Segment
                EBITDA Margin
            
            
            (75
            )%
            
            (38
            )%
            
            *(37*
            *)%*





·
            **Segment
                Net Revenues**for the six months ended June 30, 2006 decreased by US$ 3.2 million,
                or
                25%, compared to the six months ended June 30, 2005. In local currency,
                Segment Net Revenues decreased by 23%. Spot revenues decreased by
                US$ 0.8
                million, or 9%, due to a lower volume of GRPs sold due to competitor
                price
                reductions and the expiration of legacy deals. The volume loss to
                revenue
                was in part offset by price
                increases.





Non-spot
      revenues decreased by US$ 2.3 million, or 58%, mainly due to decreased levels
      of
      sponsorship. Lower levels of barter revenues also contributed to this fall
      as
      some contracts were forgone in accordance with our policy to minimize barter
      transactions.





·
            **Segment
                EBITDA**for
                the six months ended June 30, 2006 was a loss of US$ 7.1 million
                compared
                to a loss of US$ 4.8 million in the six months ended June 30, 2005.
                In
                local currency, Segment EBITDA decreased by
                53%.





Costs
      charged in arriving at Segment EBITDA for the six months ended June 30, 2006
      decreased by US$ 0.8 million, or 5%, compared to the six months ended June
      30,
      2005. Cost of programming decreased by US$ 0.8 million, or 9%, due to a delay
      in
      airing certain productions. Other operating costs increased by US$ 1.0 million,
      or 21%, due to increased transmission costs as a result of increased transmitter
      coverage, increased salaries as a result of higher headcount, and increased
      marketing and selling costs due to increased promotional efforts. Selling,
      general and administrative expenses decreased by US$ 1.0 million, or 26%, in
      the
      period ended June 30, 2006, primarily on account of one-time consultancy fees
      and commissions in 2005 relating to program acquisitions for previous periods
      which amounted to US$ 0.7 million.





**(B)
      CZECH REPUBLIC**





**Market
      Background:** We
      acquired our Czech Republic operations on May 2, 2005. We have reassessed the
      net television advertising market in Czech Republic and now believe this was
      approximately US$ 290.0 million in 2005. During 2005 the television advertising
      market in the Czech Republic grew by approximately 4% in local currency. We
      expect the television advertising market to show low single digit growth in
      2006.





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 is initiating a series of measures to reduce the costs of its
      operations, including the cancellation of poorly performing formats and
      reductions in operational costs. Under this multi-year cost reduction program,
      we anticipate that our cost savings will be partially offset by one-time charges
      during its implementation.





Page
            47
 *Index*





We
      expect
      the TV Nova (Czech Republic) group’s advertising revenues to decline in 2006 on
      a full year-on-year basis as the new pricing policy is not expected to
      compensate initially for the expected loss in volume share. However, we believe
      that the successful implementation of this advertising sales strategy will
      lead
      to accelerated growth both in the revenues of the Czech Republic operations
      and
      in the television advertising market generally over the next several years.
      The
      cost reduction measures are expected to partially mitigate the impact of a
      2006
      decline in revenues on Segment EBITDA and to augment Segment EBITDA growth
      in
      future periods.





A
      fundamental component of this strategy is continued strong audience share and
      ratings for TV NOVA (Czech Republic), which have been maintained since the
      new
      pricing policy was implemented on April 1, 2006. During the six months ended
      June 30, 2006, the national all day audience share of TV NOVA (Czech Republic)
      remained constant at approximately 42% as compared with the six months ended
      June 30, 2005 and that of TV Prima, fell from 22% to 20%, CT1 remained constant
      at 21% while the national all day audience share of CT2 grew from 9% to 11%.
      The
      increase in audience share of CT2 in the six months ended June 30, 2006 was
      due
      to the periods of broadcast of the Winter Olympics in February, World Ice Hockey
      Championship in May and the Soccer World Cup in June.





The
      average prime time ratings for TV NOVA (Czech Republic) decreased from 18.5%
      in
      the six months ended June 30, 2005 to 17.8% in the six months ended June 30,
      2006. Again, CT2 was the primary beneficiary due to the broadcasts of the sports
      events described above.





**Three
      months ended June 30, 2006 compared to the three months ended June 30,
      2005**





**CZECH
                REPUBLIC SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005***
            
            ***Movement***Spot
                revenues
            
            $
            49,390
            
            $
            42,542
            
            *$*
            *6,848*Non-spot
                revenues
            
            
            6,922
            
            
            5,225
            
            
            *1,697*Segment
                Net Revenues
            
            $
            56,312
            
            $
            47,767
            
            *$*
            *8,545*Segment
                EBITDA
            
            $
            29,509
            
            $
            28,287
            
            *$*
            *1,222*Segment
                EBITDA Margin
            
            
            52
            %
            
            59
            %
            
            *(7*
            *)%*


*
      From
      May 2, 2005 only





·
            **Segment
                Net Revenues**for the three months ended June 30, 2006 were US$ 56.3 million. We
                acquired the TV Nova (Czech Republic) group on May 2, 2005 and accordingly
                our results of operations for the three months ended June 30, 2005
                reflect
                our ownership from that date. Based on management estimates, we believe
                that net revenues for the full three months ended June 30, 2005,
                including
                the period prior to our ownership from April 1, 2005 through May
                1, 2005,
                were approximately US$ 73.1 million. The decrease in the segment
                net
                revenues in the three months ended June 30, 2006 can be primarily
                attributed to the initial effects of our new advertising sales strategy
                which led to a decrease in the number of GRPs
                sold.





·
            **Segment
                EBITDA**for
                the three months ended June 30, 2006 was US$ 29.5 million. Costs
                charged
                in arriving at Segment EBITDA for the three months ended June 30,
                2006
                included US$ 15.7 million of costs of programming, US$ 6.7 million
                of
                other operating costs and US$ 4.4 million of selling, general and
                administrative expenses. Based on management estimates, we believe
                that
                Segment EBITDA for the full three months ended June 30, 2005, including
                the period prior to our ownership from April 1, 2005 through May
                1, 2005,
                was approximately US$ 40.4 million.





Page
            48
 *Index*





**Six
      months ended June 30, 2006**





**CZECH
                REPUBLIC SEGMENT FINANCIAL INFORMATION****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005***
            
            ***Movement***Spot
                revenues
            
            $
            82,833
            
            $
            42,542
            
            *$*
            *40,291*Non-spot
                revenues
            
            
            14,028
            
            
            5,225
            
            
            *8,803*Segment
                Net Revenues
            
            $
            96,861
            
            $
            47,767
            
            *$*
            *49,094*Segment
                EBITDA
            
            $
            42,335
            
            $
            28,287
            
            *$*
            *14,048*Segment
                EBITDA Margin
            
            
            44
            %
            
            59
            %
            
            *(15*
            *)%*


*
      From
      May 2, 2005 only





·
            **Segment
                Net Revenues**for the six months ended June 30, 2006 were US$ 96.9 million. We
                acquired
                the TV Nova (Czech Republic) group on May 2, 2005 and accordingly
                our
                results of operations for the six months ended June 30, 2005 reflect
                our
                ownership from that date. Based on management estimates, we believe
                that
                net revenues for the full six months ended June 30, 2005, including
                the
                period prior to our ownership from April 1, 2005 through May 1, 2005
                were
                approximately US$ 128.8 million. This decrease can be primarily attributed
                to the initial reaction of advertisers to the implementation of our
                new
                sales policy which, led to a decrease in the number of GRPs
                sold.





·
            **Segment
                EBITDA**for
                the six months ended June 30, 2006 was US$ 42.3 million. Costs charged
                in
                arriving at Segment EBITDA for the six months ended June 30, 2006
                included
                US$ 31.7 million of costs of programming, US$ 12.7 million of other
                operating costs and US$ 10.1 million of selling, general and
                administrative expenses. Based on management estimates, we believe
                that
                Segment EBITDA for the full six months ended June 30, 2005, including
                the
                period prior to our ownership from April 1, 2005 through May 1, 2005,
                was
                approximately US$ 67.6 million.





**(C)
      ROMANIA**





**Market
      Background:** Romania
      continues to be one of the fastest growing economies in Central and Eastern
      Europe. We estimate the television advertising market in Romania grew
      approximately 36% during 2005. We expect the television advertising market
      to
      show continued growth in the range of 30% to 40% in 2006.





The
      combined national all day audience share of our three channels for the six
      months ended June 30, 2006 remained in line with the six months ended June
      30,
      2005 at 25%. 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,
      2006 of 17% and 5%, respectively, and privately owned broadcaster Antena 1
      with
      15%.





The
      combined average prime time ratings for our channels for the six months ended
      June 30, 2006 were 11.3% compared to 11.0% for the six months ended June 30,
      2005.





Page
            49
 *Index*





**Three
      months ended June 30, 2006 compared to the three months ended June 30,
      2005**





**ROMANIA
                SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            35,735
            
            $
            25,269
            
            *$*
            *10,466*Non-spot
                revenues
            
            
            2,034
            
            
            1,323
            
            
            *711*Segment
                Net Revenues
            
            $
            37,769
            
            $
            26,592
            
            *$*
            *11,177*Segment
                EBITDA
            
            $
            16,424
            
            $
            11,974
            
            *$*
            *4,450*Segment
                EBITDA Margin
            
            
            43
            %
            
            45
            %
            
            *(2*
            *)%*





·
            **Segment
                Net Revenues**for
                the three months ended June 30, 2006****increased
                by US$ 11.2 million, or 42%, compared to the three months ended June
                30,
                2005. Spot revenues increased by US$ 10.5 million, or 41%, driven
                by an
                increase in the number GRPs sold across our three-channel operation
                compared to the three months ended June 30, 2005 and double-digit
                rate
                growth in revenues in each of our
                channels.





Non-spot
      revenue increased by US$ 0.7 million, or 54%, principally due to increased
      cable
      tariff revenue.





·
            **Segment
                EBITDA**for
                the three months ended June 30, 2006 increased by US$ 4.5 million,
                or 37%,
                compared to the three months ended June 30, 2005, resulting in an
                EBITDA
                margin of 43%, compared to the 45% EBITDA margin delivered in the
                prior
                year.





Costs
      charged in arriving at Segment EBITDA for the three months ended June 30, 2006
      increased by US$ 6.7 million, or 46%, compared to the three months ended June
      30, 2005. Cost of programming grew by US$ 4.2 million, or 47%, due to an
      increase in programming syndication of US$ 1.8 million and an increase in
      production expenses of US$ 2.4 million. Other operating costs increased by
      US$
      1.4 million, or 34%, mainly due to an increase in salary costs. Selling, general
      and administrative expenses increased by US$ 1.1 million, or 76%, primarily
      due
      to an increase in consultancy fees of US$ 0.3 million and an increase in bad
      debt expenses of US$ 0.3 million.





**Six
      months ended June 30, 2006 compared to the six months ended June 30,
      2005**





**ROMANIA
                SEGMENT FINANCIAL INFORMATION****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            63,870
            
            $
            43,162
            
            *$*
            *20,708*Non-spot
                revenues
            
            
            3,770
            
            
            2,486
            
            
            *1,284*Segment
                Net Revenues
            
            $
            67,640
            
            $
            45,648
            
            *$*
            *21,992*Segment
                EBITDA
            
            $
            28,037
            
            $
            18,136
            
            *$*
            *9,901*Segment
                EBITDA Margin
            
            
            41
            %
            
            40
            %
            
            *1*
            *%*




Page
            50
 *Index*





·
            **Segment
                Net Revenues**for
                the six months ended June 30, 2006****increased
                by US$ 22.0 million, or 48%, compared to the six months ended June
                30,
                2005. Spot revenues increased by US$ 20.7 million, or 48%, driven
                by an
                increase in the number GRPs sold across our three-channel operation
                compared to the six months ended June 30, 2005 and double-digit rate
                growth in revenues in each of our
                channels.





Non-spot
      revenue increased by US$ 1.3 million, or 52%, principally due to increased
      cable
      tariff revenue.





·
            **Segment
                EBITDA**for
                the six months ended June 30, 2006 increased by US$ 9.9 million,
                or 55%,
                compared to the six months ended June 30, 2005, resulting in an EBITDA
                margin of 41%, compared to 40% in the six months ended June 30,
                2005.





Costs
      charged in arriving at Segment EBITDA for the six months ended June 30, 2006
      increased by US$ 12.1 million, or 44%, compared to the six months ended June
      30,
      2005. Cost of programming grew by US$ 8.8 million, or 55%, due to increased
      programming syndication of US$ 4.7 million and an increase in production
      expenses of US$ 4.1 million. Other operating costs increased by US$ 2.3 million,
      or 30%, mainly due to an increase in salary costs. Selling, general and
      administrative expenses increased by US$ 1.0 million, or 26%, primarily due
      to
      an increase in consulting fees of US$ 0.3 million.





**(D)
      SLOVAK REPUBLIC**





**Market
      Background:** We
      estimate that the television advertising market in the Slovak Republic grew
      by
      approximately 4% in local currency in 2005. We anticipate that the television
      advertising market will show single digit growth in 2006.





On
      January 23, 2006, we acquired control of our Slovak operations and increased
      our
      economic interest from 70% to 80%. We have made a number of senior management
      changes and are pursuing improvements in the effectiveness of our operations in the Slovak Republic and have begun
      implementing measures to improve programming quality and reduce operating
      expenses.





MARKIZA
      TV is the leading channel in the Slovak Republic. National all day audience
      share for the six months ended June 30, 2006 was 32%, compared to 34% for the
      six months ended June 30, 2005. The major competitor is the state-owned channel
      STV1, with a national all day audience share of 19% for the six months ended
      June 30, 2006. The national all day audience share of TV JOJ, the only other
      significant privately owned channel, was 16% for the six months ended June
      30,
      2006.





The
      average prime time ratings for MARKIZA TV for the six months ended June 30,
      2006
      were 13.5% compared to 15.5% in the six months ended June 30, 2005. Prime time
      ratings for the whole market fell from 42.4% in the six months ended June 30,
      2005 to 40.1% in the six months ended June 30, 2006.





**Three
      months ended June 30, 2006 compared to the three months ended June 30,
      2005**





**SLOVAK
                REPUBLIC SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            19,182
            
            $
            18,126
            
            *$*
            *1,056*Non-spot
                revenues
            
            
            864
            
            
            1,501
            
            
            *(637*
            *)*Segment
                Net Revenues
            
            $
            20,046
            
            $
            19,627
            
            *$*
            *419*Segment
                EBITDA
            
            $
            7,827
            
            $
            7,956
            
            *$*
            *(129*
            *)*Segment
                EBITDA Margin
            
            
            39
            %
            
            41
            %
            
            *(2*
            *)%*




Page
            51
 *Index*





·
            **Segment
                Net Revenues**for
                the three months ended June 30, 2006 increased by US$ 0.4 million,
                or 2%,
                compared to the three months ended June 30, 2005. This was primarily
                due
                to an increase of US$ 1.0 million in spot revenue, partially offset
                by a
                reduction in non-spot revenue of US$ 0.6 million. The increase in
                spot
                revenue was due to increased prices. In local currency, Segment Net
                Revenues decreased by 1%.





Non-spot
      revenues for the three months ended June 30, 2006 fell by 42% compared to the
      three months ended June 30, 2005, due to higher revenues in 2005 from telephone
      voting sales related to the success of the reality show “Mojsejovci” in
      2005.





·
            **Segment
                EBITDA**for
                the three months ended June 30, 2006 fell by US$ 0.1 million, or
                2%, from
                US$ 8.0 million in the three months ended June 30, 2005. In local
                currency, Segment EBITDA increased by
                1%.





Costs
      charged in arriving at Segment EBITDA for the three months ended June 30, 2006
      increased by US$ 0.5 million, or 5%, compared to the three months ended June
      30,
      2005. Cost of programming increased by US$ 0.5 million, or 7%, due to an
      increase in the volume of higher cost local productions. Other operating costs
      increased by US$ 0.3 million, or 7%, due primarily to redundancy payments and
      increases in salaries for new management. Selling, general and administrative
      expenses were lower by US$ 0.3 million, or 14%, due to savings in overheads
      compared to the same period last year.





**Six
      months ended June 30, 2006 compared to the six months ended June 30,
      2005**





**SLOVAK
                REPUBLIC SEGMENT FINANCIAL INFORMATION****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            29,496
            
            $
            29,960
            
            *$*
            *(464*
            *)*Non-spot
                revenues
            
            
            1,756
            
            
            2,310
            
            
            *(554*
            *)*Segment
                Net Revenues
            
            $
            31,252
            
            $
            32,270
            
            *$*
            *(1,018*
            *)*Segment
                EBITDA
            
            $
            6,850
            
            $
            10,126
            
            *$*
            *(3,276*
            *)*Segment
                EBITDA Margin
            
            
            22
            %
            
            31
            %
            
            *(9*
            *)%*





·
            **Segment
                Net Revenues**for
                the six months ended June 30, 2006 decreased by US$ 1.0 million,
                or 3%,
                compared to the six months ended June 30, 2005. This was due to a
                decline
                of US$ 0.5 million, or 2%, in the spot revenue and a decline of US$
                0.5
                million, or 24%, in non-spot revenue. The fall in spot revenue was
                due to
                a relatively slow start to 2006, following a weak fourth quarter
                in 2005.
                In local currency, Segment Net Revenues decreased by
                2%.





Non-spot
      revenues for the six months ended June 30, 2006 fell by 24% compared to the
      six
      months ended June 30, 2005, due to higher revenues in 2005 from telephone voting
      sales related to the success of the reality show “Mojsejovci” in
      2005.





·
            **Segment
                EBITDA**for
                the six months ended June 30, 2006 decreased by US$ 3.3 million,
                or 32%,
                compared to the sixmonths
                ended June 30, 2005. In local currency, Segment EBITDA decreased
                by
                31%.





Costs
      charged in arriving at Segment EBITDA for the six months ended June 30, 2006
      increased by US$ 2.3 million, or 10%, compared to the six months ended June
      30,
      2005. Cost of programming increased by US$ 2.9 million, or 25%, due to an
      increase in the volume of higher cost local productions and write-off costs
      for
      an unsuccessful show of US$ 0.4 million. Other operating costs increased by
      US$
      0.4 million, or 5%. Selling, general and administrative expenses were lower
      by
      US$ 1.0 million, or 23%, due to savings in facilities and overheads compared
      to
      the six months ended June 30, 2005.





Page
            52
 *Index*





**(E)
      SLOVENIA**





**Market
      Background** :
      We
      estimate the television advertising market in Slovenia grew by approximately
      2%
      in local currency during 2005. We expect the television advertising market
      to
      show low single digit growth in 2006.





The
      combined national all day audience share of our two channels has increased
      from
      36% in the six months ended June 30, 2005 to 37% in the six months ended June
      30, 2006. The major competitors are state-owned channels SLO1 and SLO2, with
      national all day audience shares for the six months ended June 30, 2006 of
      23%
      and 11%, respectively.





The
      combined average prime time ratings for our channels for the six months ended
      June 30, 2006 were 15.0% compared to 14.1% for the six months ended June 30,
      2005.





**Three
      months ended June 30, 2006 compared to the three months ended June 30,
      2005**





**SLOVENIA
                SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            14,934
            
            $
            13,288
            
            *$*
            *1,646*Non-spot
                revenues
            
            
            621
            
            
            632
            
            
            *(11*
            *)*Segment
                Net Revenues
            
            $
            15,555
            
            $
            13,920
            
            *$*
            *1,635*Segment
                EBITDA
            
            $
            6,430
            
            $
            6,490
            
            *$*
            *(60*
            *)*Segment
                EBITDA Margin
            
            
            41
            %
            
            47
            %
            
            *(6*
            *)%*





·
            **Segment
                Net Revenues**for
                the three months ended June 30, 2006 increased by US$ 1.6 million,
                or 12%,
                compared to the three months ended June 30, 2005. Spot revenue increased
                by US$ 1.6 million, or 12%, in the three months ended June 30, 2006,
                and
                non-spot revenue remained in line with the three months ended June
                30,
                2005. In local currency, Segment Net Revenues increased by
                13%.





Spot
      revenue increased by 12% as our operations continued to benefit from a strong
      ratings performance which led to an increase in the volume of spots sold across
      our two channels.





·
            **Segment
                EBITDA**for
                the three months ended June 30, 2006 remained in line with the three
                months ended June 30, 2005. EBITDA margin decreased from 47% for
                the three
                months ended June 30, 2005 to 41% for the three months ended June
                30,
                2006. In local currency, Segment EBITDA increased by
                1%.





Costs
      charged in arriving at Segment EBITDA for the three months ended June 30, 2006
      increased by US$ 1.7 million, or 23%, compared to the three months ended June
      30, 2005. Cost of programming increased by US$ 1.1 million, or 34%, primarily
      due to costs associated with showing the Soccer World Cup. Other operating
      costs
      increased by US$ 0.3 million, and selling and general and administrative
      expenses increased by US$ 0.3 million, compared with the same period in the
      previous year.





Page
            53
 *Index*





**Six
      months ended June 30, 2006 compared to the six months ended June 30,
      2005**





**SLOVENIA
                SEGMENT FINANCIAL INFORMATION****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            24,675
            
            $
            22,698
            
            *$*
            *1,977*Non-spot
                revenues
            
            
            1,107
            
            
            1,155
            
            
            *(48*
            *)*Segment
                Net Revenues
            
            $
            25,782
            
            $
            23,853
            
            *$*
            *1,929*Segment
                EBITDA
            
            $
            9,463
            
            $
            9,170
            
            *$*
            *293*Segment
                EBITDA Margin
            
            
            37
            %
            
            38
            %
            
            *(1*
            *)%*





·
            **Segment
                Net Revenues**for
                the six months ended June 30, 2006 increased by US$ 1.9 million,
                or 8%,
                compared to the six months ended June 30, 2005. Spot revenue increased
                by
                US$ 2.0 million, or 9%, in the six months ended June 30, 2006, and
                non-spot revenue remained in line with the comparable period last
                year. In
                local currency, Segment Net Revenues increased by
                13%.





Spot
      revenue increased by 9% as our operations continued to benefit from ratings
      performance which led to an increase in GRPs sold across our two
      channels.





·
            **Segment
                EBITDA**for
                the six months ended June 30, 2006 increased by US$ 0.3 million,
                or 3%,
                compared to the six months ended June 30, 2005. EBITDA margin decreased
                from 38% for the period ended June 30, 2005 to 37% in the same period
                in
                2006. In local currency, Segment EBITDA increased by
                8%.





Costs
      charged in arriving at Segment EBITDA for the six months ended June 30, 2006
      increased by US$ 1.6 million, or 11%, compared to the six months ended June
      30,
      2005. Cost of programming increased by US$ 1.0 million, or 16%, primarily due
      to
      costs associated with showing the Soccer World Cup. Other operating costs
      increased by US$ 0.3 million,, and selling, general and administrative expenses
      increased by US$ 0.3 million, compared with the same period in the previous
      year.





**(F)
      UKRAINE**





**Market
      Background:** We
      estimate that the television advertising market in Ukraine, where sales are
      denominated primarily in US dollars, showed growth of approximately 38% in
      2005.
      We have reassessed the net television advertising market in Ukraine and estimate
      that this was approximately US$ 280.0 million in 2005. It is expected that
      the
      television advertising market will continue to grow between 25% and 35% during
      2006.





STUDIO
      1+1 had a national all day audience share of 19% for the six months ended June
      30, 2006 compared to 20% in the six months ended June 30, 2005. Our competitors
      include: Inter, with a national all day audience share of 21%, Novi Kanal,
      with
      9%, ICTV with 7%, and STB with 6%.





Page
            54
 *Index*





The
      average prime time ratings for our STUDIO 1+1 for the six months ended June
      30,
      2006 were 9.1% compared to 8.2% for the six months ended June 30,
      2005 .





On
      January 11, 2006, we acquired a 65.5% interest in Ukrpromtorg 2003 LLC
      (“Ukrpromtorg”), owner of 92.2% of Gravis LLC, which operates the GRAVIS channel
      and CHANNEL 7 in Kiev. The results of Ukrpromtorg for the period since
      acquisition were not significant to the results of our Ukraine operations for
      the six months ended June 30, 2006.




**Three
      months ended June 30, 2006 compared to the three months ended June 30,
      2005**





**UKRAINE
                SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            17,794
            
            $
            15,426
            
            *$*
            *2,368*Non-spot
                revenues
            
            
            3,466
            
            
            1,752
            
            
            *1,714*Segment
                Net Revenues
            
            $
            21,260
            
            $
            17,178
            
            *$*
            *4,082*Segment
                EBITDA
            
            $
            5,605
            
            $
            4,935
            
            *$*
            *670*Segment
                EBITDA Margin
            
            
            26
            %
            
            29
            %
            
            *(3*
            *)%*





·
            **Segment
                Net Revenues**for
                the three months ended June 30, 2006****increased
                by US$ 4.1 million, or 24%, compared to the three months ended June
                30,
                2005.





Spot
      revenues for the three months ended June 30, 2006 grew US$ 2.4 million, or
      15%,
      compared to the three months ended June 30, 2005. This reflects a cautious
      market environment arising after the March 2006 elections and aggressive pricing
      by competitors.





Significant
      growth of US$ 1.7 million, or 98%, in non-spot revenues in the three months
      ended June 30, 2006 is due to increases in program sponsorship.





·
            **Segment
                EBITDA**for
                the three months ended June 30, 2006****increased
                by US$ 0.7 million, or 13%, compared to the three months ended June
                30,
                2005. EBITDA margin decreased from 29% in the three months ended
                June 30,
                2005, to 26% in the three months ended June 30,
                2006.





Costs
      charged in arriving at Segment EBITDA for the three months ended June 30, 2006
      increased by US$ 3.4 million, or 28%, compared to the three months ended June
      30, 2005. Cost of programming grew by US$ 2.2 million, or 33%, principally
      due
      to price inflation for Russian series, which are essential to maintaining strong
      ratings. Other operating costs increased by US$ 0.6 million, or 20%, due to
      increases in staff costs as a result of the restructuring of independent
      contractor arrangements. Selling, general and administrative expenses increased
      by US$ 0.6 million, or 23%, compared with the same period in the previous
      year.





**Six
      months ended June 30, 2006 compared to the six months ended June 30,
      2005**





**UKRAINE
                SEGMENT FINANCIAL INFORMATION****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            40,896
            
            $
            27,433
            
            *$*
            *13,463*Non-spot
                revenues
            
            
            6,216
            
            
            4,105
            
            
            *2,111*Segment
                Net Revenues
            
            $
            47,112
            
            $
            31,538
            
            *$*
            *15,574*Segment
                EBITDA
            
            $
            16,467
            
            $
            7,284
            
            *$*
            *9,183*Segment
                EBITDA Margin
            
            
            35
            %
            
            23
            %
            
            *12*
            *%*




Page
            55
 *Index*





·
            **Segment
                Net Revenues**for
                the six months ended June 30, 2006****increased
                by US$ 15.6 million, or 49%, compared to the six months ended June
                30,
                2005. Spot revenue increased by US$ 13.5 million, or 49%, and non-spot
                revenue increased by US$ 2.1 million, or
                51%.





In
      the
      six months ended June 30, 2006, spot revenue increased by 49%, due to political
      advertising in advance of the March 26, 2006 parliamentary elections which
      added
      approximately US$ 8.6 million to spot revenues over and above ordinary
      commercial activity. Underlying spot revenue grew by US$ 4.9 million, or 18%.
      There has been a cautious market environment since the March 2006 elections
      and
      aggressive pricing by competitors.





Non-spot
      revenue has grown US$ 2.1 million, or 51%, compared to the six months ended
      June
      30, 2005 primarily due to program sponsorship. Included within non-spot revenues
      for 2005 is a one-time sale of programming of US$ 1.1 million.





·
            **Segment
                EBITDA**for
                the six months ended June 30, 2006****increased
                by US$ 9.2 million, or 126%, compared to the six months ended June
                30,
                2005. EBITDA margin increased from 23% for the period ended June
                30, 2005
                to 35% in the same period of 2006.





Costs
      charged in arriving at Segment EBITDA for the six months ended June 30, 2006
      increased by US$ 6.4 million, or 26%, compared to the six months ended June
      30,
      2005. Cost of programming grew by US$ 3.1 million, or 21%, due to price
      inflation for Russian series. Other operating costs increased by US$ 2.1
      million, or 39%, primarily due to increases in staff costs as a result of the
      restructuring of independent contractor arrangements. Selling, general and
      administrative expenses have increased by US$ 1.2 million, or 28%, including
      US$
      0.3 million of additional costs of increased rental space, and US$ 0.2 million
      of higher consultancy costs, compared with the same period in the previous
      year.




**PROGRAMMING
      PAYMENTS AND PROGRAM AMORTIZATION**





Our
      cost
      of programming for the three and six months ended June 30, 2006 and 2005 are
      as
      follows:





**COST
                OF PROGRAMMING****For
                the Three Months**
              **Ended
                June 30,**
              **(US$
                000’s)**
            
            **For
                the Six Months**
              **Ended
                June 30,**
              **(US$
                000’s)****2006**
            
            **2005**
            
            **2006**
            
            **2005**Production
                expenses
            
            $
            26,045
            
            $
            14,644
            
            $
            49,020
            
            $
            23,467Program
                amortization
            
            
            26,805
            
            
            17,437
            
            
            52,248
            
            
            30,936**Cost
                of programming**
            
            **$**
            **52,850**
            
            **$**
            **32,081**
            
            **$**
            **101,268**
            
            **$**
            **54,403**





The
      amortization of acquired programming for each of our consolidated operations
      for
      the three and six months ended June 30, 2006 and 2005 and for the Slovak
      Republic (MARKIZA TV), which has been consolidated from January 23, 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 is reflected within net cash generated from continuing operating
      activities in our condensed consolidated statement of cash flows.




Page
            56
 *Index*




**PROGRAM
                AMORTIZATION AND CASH PAID FOR PROGRAMMING****For
                the Three Months**
              **Ended
                June 30,**
              **(US$
                000’s)**
            
            **For
                the Six Months**
              **Ended
                June 30,**
              **(US$
                000’s)****2006**
            
            **2005**
            
            **2006**
            
            **2005**Program
                amortization:Croatia
                (NOVA TV)
            
            $
            3,472
            
            $
            3,849
            
            $
            6,890
            
            $
            7,700Czech
                Republic (TV NOVA)
            
            
            6,506
            
            
            2,949
            
            
            13,889
            
            
            2,949Romania
                (PRO TV, ACASA, PRO CINEMA and PRO TV INTERNATIONAL)
            
            
            7,074
            
            
            5,273
            
            
            13,790
            
            
            9,145Slovenia
                (POP TV and KANAL A)
            
            
            1,788
            
            
            1,059
            
            
            3,205
            
            
            2,227Ukraine
                (STUDIO 1+1)
            
            
            6,058
            
            
            4,307
            
            
            12,131
            
            
            8,915**$**
            **24,898**
            
            **$**
            **17,437**
            
            **$**
            **49,905**
            
            **$**
            **30,936**Slovak
                Republic (MARKIZA TV)
            
            
            1,907
            
            
            1,851
            
            
            2,343
            
            
            3,232**$**
            **26,805**
            
            **$**
            **19,288**
            
            **$**
            **52,248**
            
            **$**
            **34,168**Cash
                paid for programming:Croatia
                (NOVA TV)
            
            $
            3,232
            
            $
            2,522
            
            $
            7,598
            
            $
            5,479Czech
                Republic (TV NOVA)
            
            
            4,277
            
            
            6,808
            
            
            16,213
            
            
            6,808Romania
                (PRO TV, ACASA, PRO CINEMA and PRO TV INTERNATIONAL)
            
            
            10,789
            
            
            11,041
            
            
            17,395
            
            
            19,610Slovak
                Republic (MARKIZA TV)
            
            
            2,263
            
            
            2,247
            
            
            5,542
            
            
            5,249Slovenia
                (POP TV and KANAL A)
            
            
            1,680
            
            
            1,609
            
            
            3,499
            
            
            2,880Ukraine
                (STUDIO 1+1)
            
            
            5,710
            
            
            7,550
            
            
            13,797
            
            
            10,776**$**
            **27,951**
            
            **$**
            **31,777**
            
            **$**
            **64,044**
            
            **$**
            **50,802**





Total
      consolidated **** programming
      costs (including amortization of programming rights and production costs)
      increased by US$ 20.8 million, or 65%, in the three months ended June 30, 2006
      compared to the three months ended June 30, 2005 primarily due to:





·
            An
                additional US$ 7.0 million of programming costs from our Czech Republic
                operations, which are being included for the entire three-month period
                rather than for the period from acquisition on May 2, 2005 in the
                prior
                year;





·
            US$
                6.5 million of programming costs from our Slovak Republic operations,
                which were consolidated from January 23, 2006, having previously
                been
                accounted for as an equity
                affiliate;





·
            US$
                4.2 million of additional programming costs from our Romania
                operations;





·
            US$
                1.1 million of additional programming costs from our Slovenia operations;
                and





·
            US$
                2.2 million of additional programming costs from our Ukraine
                operations.





Page
            57
 *Index*





Total
      consolidated **** programming
      costs (including amortization of programming rights and production costs)
      increased by US$ 46.9 million, or 86%, in the six months ended June 30, 2006
      compared to the six months ended June 30, 2005 primarily due to:





·
            An
                additional US$ 23.1 million of programming costs from our Czech Republic
                operations, which are included for the entire six-month period rather
                than
                for the period from acquisition on May 2, 2005 in the prior
                year;





·
            US$
                11.7 million of programming costs from our Slovak Republic operations,
                which were consolidated from January 23, 2006, having previously
                been
                accounted for as an equity
                affiliate;





·
            US$
                8.8 million of additional programming costs from our Romania operations;
                and





·
            US$
                3.1 million of additional programming costs from our Ukraine
                operations.






***IV.
      Analysis of the Results of Consolidated Operations***





**IV
      (a) Net Revenues for the three months ended June 30, 2006 compared to the three
      months ended June 30, 2005**





**CONSOLIDATED
                NET REVENUES****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Croatia
            
            $
            5,647
            
            $
            7,652
            
            *$*
            *(2,005*
            *)*Czech
                Republic
            
            
            56,312
            
            
            47,767
            
            
            *8,545*Romania
            
            
            37,769
            
            
            26,592
            
            
            *11,177*Slovak
                Republic
            
            
            20,046
            
            
            -
            
            
            *20,046*Slovenia
            
            
            15,555
            
            
            13,920
            
            
            *1,635*Ukraine
            
            
            21,260
            
            
            17,178
            
            
            *4,082***Total
                Consolidated Net Revenues**
            
            **$**
            **156,589**
            
            **$**
            **113,109**
            
            ***$***
            ***43,480***





Our
      consolidated net revenues increased by US$ 43.5 million, or 38%, for the three
      months ended June 30, 2006 compared to the three months ended June 30, 2005
      due
      to:





·
            An
                additional US$ 8.6 million of net revenues from our Czech Republic
                operations which are being included for the entire three-month period
                rather than for the period from acquisition on May 2,
                2005;





·
            US$
                20.0 million of net revenues from our Slovak Republic operations,
                which
                had previously been accounted for as an equity
                affiliate;





·
            US$
                2.0 million decrease in net revenues from our Croatia operations,
                as
                described in "Item 2, III. Analysis of Segment
                Results";





·
            US$
                11.2 million increase in net revenues from our Romania operations
                as
                described in "Item 2, III. Analysis of Segment
                Results";





·
            US$
                1.6 million increase in net revenues from our Slovenia operations
                as
                described in “Item 2, III. Analysis of Segment Results";
                and





·
            US$
                4.1 million increase in net revenues from our Ukraine operations
                as
                described in "Item 2, III. Analysis of Segment
                Results".





Page
            58
 *Index*





**IV
      (b) Net Revenues for the six months ended June 30, 2006 compared to the six
      months ended June 30, 2005**





**CONSOLIDATED
                NET REVENUES****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Croatia
            
            $
            9,457
            
            $
            12,607
            
            *$*
            *(3,150*
            *)*Czech
                Republic
            
            
            96,861
            
            
            47,767
            
            
            *49,094*Romania
            
            
            67,640
            
            
            45,648
            
            
            *21,992*Slovak
                Republic *
            
            
            29,491
            
            
            -
            
            
            *29,491*Slovenia
            
            
            25,782
            
            
            23,853
            
            
            *1,929*Ukraine
            
            
            47,112
            
            
            31,538
            
            
            *15,574***Total
                Consolidated Net Revenues**
            
            **$**
            **276,343**
            
            **$**
            **161,413**
            
            ***$***
            ***114,930***


*
      From
      January 24, 2006 only.





Our
      consolidated net revenues for the six months ended June 30, 2006 increased
      by
      US$ 114.9 million, or 71%, compared to the six months ended June 30, 2005 due
      to:





·
            An
                additional US$ 49.1 million of net revenues from our Czech Republic
                operations which are included for the entire six-month period rather
                than
                for the period from acquisition on May 2, 2005 in the prior
                year;





·
            US$
                29.5 million of net revenues from our Slovak Republic operations
                for the
                period from acquisition on January 23, 2006, which had previously
                been
                accounted for as an equity
                affiliate;





·
            US$
                3.2 million decrease in net revenues from our Croatia operations,
                as
                described in "Item 2, III. Analysis of Segment
                Results";





·
            US$
                22.0 million increase in net revenues from our Romania operations
                as
                described in "Item 2, III. Analysis of Segment
                Results";





·
            US$
                1.9 million increase in net revenues from our Slovenia operations
                as
                described in “Item 2, III. Analysis of Segment Results";
                and





·
            US$
                15.6 million increase in net revenues from our Ukraine operations
                as
                described in "Item 2, III. Analysis of Segment
                Results".





**IV
      (c) Cost of Revenues for the three months ended June 30, 2006 compared to the
      three months ended June 30, 2005**





**CONSOLIDATED
                COST OF REVENUES****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Operating
                costs
            
            $
            26,042
            
            $
            18,117
            
            *$*
            *7,925*Cost
                of programming
            
            
            52,850
            
            
            32,081
            
            
            *20,769*Depreciation
                of station property, plant and equipment
            
            
            6,059
            
            
            3,161
            
            
            *2,898*Amortization
                of broadcast licenses and other intangibles
            
            
            4,620
            
            
            1,544
            
            
            *3,076***Total
                Consolidated Cost of Revenues**
            
            **$**
            **89,571**
            
            **$**
            **54,903**
            
            ***$***
            ***34,668***




Page
            59
 *Index*





Total
      consolidated cost of revenues increased by US$ 34.7 million, or 63%, in the
      three months ended June 30, 2006 compared to the three months ended June 30,
      2005 and is analyzed by component below:





**Operating
      costs:** Total
      consolidated operating costs increased by US$ 7.9 million, or 44% in the three
      months ended June 30, 2006 compared to the three months ended June 30, 2005
      primarily due to:





·
            An
                additional US$ 1.2 million of operating costs from our Czech Republic
                operations, which are included for the entire three-month period
                rather
                than for the period from acquisition on May 2, 2005 in the prior
                year;





·
            US$
                3.8 million of operating costs from our Slovak Republic operations,
                which
                were consolidated from January 23, 2006, having previously been accounted
                for as an equity affiliate;





·
            US$
                1.4 million of additional operating costs from our Romania
                operations;





·
            US$
                0.6 million of additional operating costs from our Ukraine
                operations;





·
            US$
                0.6 million of additional operating costs from our Croatia operations;
                and





·
            US$
                0.3 million of additional operating costs from our Slovenia
                operations.





**Cost
      of programming:** See
      discussion in Item 2, III. “Analysis of Segment Results”.





**Depreciation
      of property, plant and equipment:** Total
      consolidated depreciation of property, plant and equipment increased by US$
      2.9
      million, or 92%, in the three months ended June 30, 2006 compared to the three
      months ended June 30, 2005 primarily due primarily to:





·
            An
                additional US$ 0.9 million of depreciation from our Czech Republic
                operations, which are included for the entire three-month period
                rather
                than for the period from acquisition on May 2, 2005 in the prior
                year;





·
            US$
                0.7 million of depreciation from our Slovak Republic operations,
                which
                were consolidated from January 23, 2006, having previously been accounted
                for as an equity affiliate; and





·
            Increased
                capital investment in our other
                segments.





**Amortization
      of broadcast licenses and other intangibles** :
      Total
      consolidated amortization of broadcast licenses and other intangibles increased
      by US$ 3.1 million, or 199%, in the three months ended June 30, 2006 compared
      to
      the three months ended June 30, 2005 due primarily to:





·
            An
                additional US$ 2.6 million of amortization from our Czech Republic
                operations, which are included for the entire three-month period
                rather
                than for the period from acquisition on May 2, 2005 in the prior
                year;





·
            An
                additional US$ 0.1 million from our increased investment in our Romania
                operations; and





·
            US$
                0.2 million of amortization from our Slovak Republic operations,
                which
                were consolidated from January 23, 2006, having previously been accounted
                for as an equity affiliate.





Page
            60
 *Index*





**IV
      (d) Cost of Revenues for the six months ended June 30, 2006 compared to the
      six
      months ended June 30, 2005**





**CONSOLIDATED
                COST OF REVENUES****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Operating
                costs
            
            $
            49,014
            
            $
            29,402
            
            *$*
            *19,612*Cost
                of programming
            
            
            101,268
            
            
            54,403
            
            
            *46,865*Depreciation
                of station property, plant and equipment
            
            
            11,761
            
            
            5,062
            
            
            *6,699*Amortization
                of broadcast licenses and other intangibles
            
            
            8,952
            
            
            1,933
            
            
            *7,019***Total
                Consolidated Cost of Revenues**
            
            **$**
            **170,995**
            
            **$**
            **90,800**
            
            ***$***
            ***80,195***





Total
      consolidated cost of revenues increased by US$ 80.2 million, or 88%, in the
      six
      months ended June 30, 2006 compared to the six months ended June 30, 2005 and
      is
      analyzed by component below:





**Operating
      costs:** Total
      consolidated operating costs increased by US$ 19.6 million, or 67%, in the
      six
      months ended June 30, 2006 compared to the six months ended June 30, 2005
      primarily due to:





·
            An
                additional US$ 7.2 million of operating costs from our Czech Republic
                operations, which are included for the entire six-month period rather
                than
                for the period from acquisition on May 2, 2005 in the prior
                year;





·
            US$
                6.7 million of operating costs from our Slovak Republic operations,
                which
                were consolidated from January 23, 2006, having previously been accounted
                for as an equity affiliate;





·
            US$
                2.3 million of additional operating costs from our Romania
                operations;





·
            US$
                2.1 million of additional operating costs from our Ukraine operations;
                and





·
            US$
                1.0 million of additional operating costs from our Croatia
                operations.





**Cost
      of programming:** See
      discussion in Item 2, III. “Analysis of Segment Results”.





**Depreciation
      of property, plant and equipment:** Total
      consolidated depreciation of property, plant and equipment increased by US$
      6.7
      million, or 132%, in the six months ended June 30, 2006 compared to the six
      months ended June 30, 2005 primarily due to:





·
            US$
                1.8 million of depreciation from our Slovak Republic operations,
                which
                were consolidated from January 23, 2006, having previously been accounted
                for as an equity affiliate;





Page
            61
 *Index*





·
            An
                additional US$ 2.6 million of depreciation from our Czech Republic
                operations, which are included for the entire six-month period rather
                than
                for the period from acquisition on May 2, 2005 in the prior
                year;





·
            US$
                0.6 million additional depreciation of property plant and equipment
                from
                our Romania operations due to increased capital
                investment;





·
            US$
                0.9 million additional depreciation of property plant and equipment
                from
                our Ukraine operations due to increased capital investment; and





·
            US$
                0.7 million additional depreciation of property plant and equipment
                from
                our Slovenia operations due to increased capital
                investment.





**Amortization
      of broadcast licenses and other intangibles** :
      Total
      consolidated amortization of broadcast licenses and other intangibles increased
      by US$ 7.0 million in the six months ended June 30, 2006 compared to the six
      months ended June 30, 2005 primarily due to:





·
            An
                additional US$ 6.4 million of amortization from our Czech Republic
                operations, which are included for the entire six-month period rather
                than
                for the period from acquisition on May 2, 2005 in the prior
                year;





·
            US$
                0.4 million of amortization from our Slovak Republic operations,
                which
                were consolidated from January 23, 2006, having previously been accounted
                for as an equity affiliate;





·
            US$
                0.1 million of amortization from our Romania operations following
                our
                acquisitions of increased stakes in 2005 and 2006;
                and





·
            US$
                0.1 million of amortization from our Ukraine operations following
                our
                acquisitions of increased stakes in
                2006.





**IV
      (e) Station Selling, General and Administrative Expenses for the three months
      ended June 30, 2006 compared to the three months ended June 30,
      2005**





**CONSOLIDATED
                STATION SELLING, GENERAL AND ADMINISTRATIVE
                EXPENSES****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Croatia
            
            $
            1,248
            
            $
            2,257
            
            *$*
            *(1,009*
            *)*Czech
                Republic
            
            
            4,388
            
            
            5,306
            
            
            *(918*
            *)*Romania
            
            
            2,646
            
            
            1,502
            
            
            *1,144*Slovak
                Republic
            
            
            1,894
            
            
            -
            
            
            *1,894*Slovenia
            
            
            1,271
            
            
            975
            
            
            *296*Ukraine
            
            
            3,094
            
            
            2,522
            
            
            *572***Total
                Consolidated Station Selling, General and Administrative
                Expenses**
            
            **$**
            **14,541**
            
            **$**
            **12,562**
            
            ***$***
            ***1,979***





Total
      consolidated station selling, general and administrative expenses increased
      by
      US$ 2.0 million, or 16%, in the three months ended June 30, 2006 compared to
      the
      three months ended June 30, 2005 primarily due to:





·
            A
                US$ 1.1 million increase in station selling, general and administrative
                expenses of our Romanian
                operations;





Page
            62
 *Index*





·
            US$
                1.9 million of station selling, general and administrative expenses
                from
                our Slovak Republic operations, which were consolidated from January
                23,
                2006, having previously been accounted for as an equity affiliate;
                and





·
            A
                US$ 0.6 million increase in the station selling, general and
                administrative expenses of our Ukraine
                operations.





Partially
      offset by:





·
            A
                US$ 1.0 million decrease in the station selling, general and
                administrative expenses of our Croatia operations;
                and





·
            A
                US$ 0.9 million decrease in the station selling, general and
                administrative expenses of our Czech Republic
                operations.








**IV
      (f) Station Selling, General and Administrative Expenses for the six months
      ended June 30, 2006 compared to the six months ended June 30,
      2005**





**CONSOLIDATED
                STATION SELLING, GENERAL AND ADMINISTRATIVE
                EXPENSES****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Croatia
            
            $
            2,790
            
            $
            3,778
            
            *$*
            *(988*
            *)*Czech
                Republic
            
            
            10,065
            
            
            5,306
            
            
            *4,759*Romania
            
            
            4,810
            
            
            3,809
            
            
            *1,001*Slovak
                Republic
            
            
            2,913
            
            
            -
            
            
            *2,913*Slovenia
            
            
            2,484
            
            
            2,179
            
            
            *305*Ukraine
            
            
            5,645
            
            
            4,418
            
            
            *1,227***Total
                Consolidated Station Selling, General and Administrative
                Expenses**
            
            **$**
            **28,707**
            
            **$**
            **19,490**
            
            ***$***
            ***9,217***





Total
      consolidated station selling, general and administrative expenses increased
      by
      US$ 9.2 million, or 47%, in the six months ended June 30, 2006 compared to
      the
      six months ended June 30, 2005 primarily due to:





·
            An
                additional US$ 4.8 million of station selling, general and administrative
                expenses from our Czech Republic operations, which are included for
                the
                entire six-month period rather than for the period from acquisition
                on May
                2, 2005 in the prior year;





·
            US$
                2.9 million of station selling, general and administrative expenses
                from
                our Slovak Republic operations, which were consolidated from January
                23,
                2006, having previously been accounted for as an equity
                affiliate;





·
            A
                US$ 1.0 million increase in the station selling, general and
                administrative expenses of our Romania operations;
                and





·
            A
                US$ 1.2 million increase in the station selling, general and
                administrative expenses of our Ukraine
                operations.





Partially
      offset by:





·
            A
                US$ 1.0 million decrease in station selling, general and administrative
                expenses of our Croatia operations.





Page
            63
 *Index*





**IV
      (g) Corporate Operating Costs for the three months ended June 30, 2006 compared
      to the three months ended June 30, 2005**





**CORPORATE
                OPERATING COSTS****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Corporate
                operating costs (excluding stock-based compensation)
            
            $
            6,966
            
            $
            4,862
            
            *$*
            *2,104*Stock-based
                compensation
            
            
            730
            
            
            (1,411
            )
            
            *2,141***Corporate
                Operating Costs**
            
            **$**
            **7,696**
            
            **$**
            **3,451**
            
            ***$***
            ***4,245***





Corporate
      operating costs (excluding stock-based compensation) increased by US$ 2.1
      million, or 43%, for the three months ended June 30, 2006 compared to the three
      months ended June 30, 2005 primarily due to:





·
            An
                increase in professional fees of US$ 0.6 million in the three months
                ended
                June 30, 2006 compared to the three months ended June 30, 2005;
                and





·
            An
                increase in staff-related costs of US$ 0.4 million in the three months
                ended June 30, 2006 compared to the three months ended June 30,
                2005.





Stock-based
      compensation for the three months ended June 30, 2006 was a charge of US$ 0.7
      million compared to a credit of US$ 1.4 million for the three months ended
      June
      30, 2005 primarily due to the final remaining stock options accounted for under
      FIN 44 having been exercised during May 2005 (for further information ,
      see
      Item 1, Note 14).





**IV
      (h) Corporate Operating Costs for the six months ended June 30, 2006 compared
      to
      the six months ended June 30, 2005**





**CORPORATE
                OPERATING COSTS****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Corporate
                operating costs (excluding stock-based compensation)
            
            $
            14,259
            
            $
            9,492
            
            *$*
            *4,767*Stock-based
                compensation
            
            
            1,418
            
            
            1,690
            
            
            *(272*
            *)***Corporate
                Operating Costs**
            
            **$**
            **15,677**
            
            **$**
            **11,182**
            
            ***$***
            ***4,495***








Page
            64
 *Index*





Corporate
      operating costs (excluding stock-based compensation) increased by US$ 4.8
      million, or 50%, for the six months ended June 30, 2006 compared to the six
      months ended June 30, 2005 primarily due to:





·
            A
                lease-exit charge of approximately US$ 1.6 million including additional
                depreciation of US$ 0.3 million incurred in relation to the cost
                of
                relocating our London office;





·
            An
                increase in professional fees of US$ 1.5 million in the six months
                ended
                June 30, 2006 compared to the six months ended June 30, 2005;
                and





·
            An
                increase in staff-related costs of US$ 0.6 million in the six months
                ended
                June 30, 2006 compared to the six months ended June 30,
                2005.





Stock-based
      compensation for the six months ended June 30, 2006 was a charge of US$ 1.4
      million compared to a charge of US$ 1.7 million for the three months ended
      June
      30, 2005 primarily due to the final remaining stock options accounted for under
      FIN 44 having been exercised during May 2005 (for further information ,
      see
      Item 1, Note 14).





**IV
      (i) Impairment charge for the three and six months ended June 30, 2006 compared
      to the three and six months ended June 30, 2005**





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 have 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.





We
      performed a similar review of our Croatia operations when we modified our
      strategy in late June 2005 and recorded an impairment loss of US$ 35.3 million
      at that time.





**IV
      (j) Operating Income for the three months ended June 30, 2006 compared to the
      three months ended June 30, 2005**





**OPERATING
                INCOME****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement*****Operating
                Income**
            
            **$**
            **44,033**
            
            **$**
            **6,862**
            
            ***$***
            ***37,171***





Total
      consolidated operating income increased by US$ 37.2 million for the three months
      ended June 30, 2006 compared to the three months ended June 30, 2005. Operating
      margin was 28% compared to 6% in the three months ended June 30,
      2005.





**IV
      (k) Operating Income for the six months ended June 30, 2006 compared to the
      six
      months ended June 30, 2005**





**OPERATING
                INCOME****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement*****Operating
                Income**
            
            **$**
            **60,216**
            
            **$**
            **4,610**
            
            ***$***
            ***55,606***





Total
      consolidated operating income increased by US$ 55.6 million for the six months
      ended June 30, 2006 compared to the six months ended June 30, 2005. Operating
      margin was 22% compared to 3% in the six months ended June 30,
      2005.





Page
            65
 *Index*





**IV
      (l) Other income / (expense) items for the three months ended June 30, 2006
      compared to the three months ended June 30, 2005**





**OTHER
                INCOME / (EXPENSE) ITEMS****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Interest
                income
            
            $
            1,741
            
            $
            559
            
            *$*
            *1,182*Interest
                expense
            
            
            (11,337
            )
            
            (6,424
            )
            
            *(4,913*
            *)*Foreign
                currency exchange gain / (loss), net
            
            
            (20,625
            )
            
            30,159
            
            
            *(50,784*
            *)*Change
                in fair value of derivatives
            
            
            (1,876
            )
            
            -
            
            
            *(1,876*
            *)*Other
                income
            
            
            167
            
            
            312
            
            
            *(145*
            *)*Provision
                for income taxes
            
            
            (3,582
            )
            
            (3,565
            )
            
            *(17*
            *)*Minority
                interest in income of consolidated subsidiaries
            
            
            (1,276
            )
            
            (4,104
            )
            
            *2,828*Equity
                in income of unconsolidated affiliates
            
            
            -
            
            
            4,049
            
            
            *(4,049*
            *)*Discontinued
                operations
            
            $
            1,277
            
            $
            (2,389
            )
            *$*
            *3,666*





**Interest
      income** increased by US$ 1.2 million for the three months ended June 30, 2006 compared
      to the three months ended June 30, 2005 primarily as a result of interest earned
      on our increased level of cash deposits following our equity offering in March
      2006.





**Interest
      expense** increased by US$ 4.9 million for the three months ended June 30, 2006 compared
      to the three months ended June 30, 2005 primarily as a result of the issuance
      of
      our EUR 245.0 million (approximately US$ 313.3 million) 8.25% Senior Notes
      and
      EUR 125.0 million (approximately US$ 159.8 million) floating rate Senior Notes
      on May 5, 2005.





**Foreign
      currency exchange loss, net:** For the
      three months ended June 30, 2006 we recognized a US$ 20.6 million loss primarily
      as a result of the strengthening of the Euro against the US 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$ 25.3 million
      on
      the Senior Notes due to movements in the spot rate between March 31, 2006 and
      June 30, 2006. In the three months ended June 30, 2005, we recognized a
      transaction gain of US$ 30.2 million as a result of the strengthening of the
      US
      dollar against the Euro.





**Change
      in fair value of derivative:** For the
      three months ended June 30, 2006, we incurred a US$ 1.9 million loss in the
      fair
      value of the currency swaps entered into on April 27, 2006.





Page
            66
 *Index*





**Other
      income:** For the
      three months ended June 30, 2006 we recognized other income of US$ 0.1 million
      compared to US$ 0.3 million for the three months ended June 30,
      2005.





**Provision
      for income taxes:** The
      provision for income taxes was US$ 3.6 million for the three months ended June
      30, 2006, in line with the provision for the three months ended June 30, 2005.
      Our effective tax rate for the three months ended June 30, 2006 was 30% compared
      to 11% in the three months ended June 30, 2005, principally because the
      significant transaction gain we recorded on the Senior Notes in the three months
      ended June 30, 2005 was not taxable, whereas the transaction loss recorded
      in
      the three months ended June 30, 2006 attracts no tax relief.





**Minority
      interest in income of consolidated subsidiaries:** For the
      three months ended June 30, 2006, minority interest in the income of
      consolidated subsidiaries was US$ 1.3 million, compared to US$ 4.1 million
      for
      the three months ended June 30, 2005. This movement primarily reflects our
      acquisition of the minority share of our operations in the Czech Republic in
      May
      2006, which we did not own in the three months ended June 30, 2005, partially
      offset by the higher profitability of our Romania and Ukraine
      operations.





**Equity
      in income of unconsolidated affiliates** :
      Some of
      our broadcasting licenses are held by unconsolidated affiliates over which
      we
      have minority blocking rights but not majority control. These affiliates are
      accounted for using the equity method.





**EQUITY
                IN INCOME OF UNCONSOLIDATED AFFILIATES****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Romania
                operations
            
            $
            -
            
            $
            (1
            )
            *$*
            *1*Slovak
                Republic operations
            
            
            -
            
            $
            4,050
            
            *$*
            *(4,050*
            *)***Equity
                in Income of Unconsolidated Affiliates**
            
            **$**
            **-**
            
            **$**
            **4,049**
            
            ***$***
            ***(4,049***
            ***)***





Our
      Slovak Republic operations ceased to be accounted for as an equity affiliate
      on
      January 23, 2006 when we acquired majority control of the license company via
      our acquisition of ARJ (for further information see Item 1, Note
      3).





**Discontinued
      operations:** The
      amounts charged to the condensed consolidated statement of operations in respect
      of discontinued operations for the three months ended June 30, 2006 compared
      to
      the three months ended June 30, 2005 are as follows:





**DISCONTINUED
                OPERATIONS****For
                the Three Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Gain
                on disposal of discontinued operations
            
            $
            -
            
            $
            46
            
            *$*
            *(46*
            *)*Tax
                on disposal of discontinued operations
            
            
            1,277
            
            
            (2,435
            )
            
            *3,712***Discontinued
                operations**
            
            **$**
            **1,277**
            
            **$**
            **(2,389**
            **)**
            ***$***
            ***3,666***





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, our
      former Czech operating company, for US$ 53.2 million.





The
      revenues and expenses of our former Czech 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 represent the release of accruals for 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).





Page
            67
 *Index*





**IV
      (m) Other income / (expense) items for the six months ended June 30, 2006
      compared to the six months ended June 30, 2005**





**OTHER
                INCOME / (EXPENSE) ITEMS****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Interest
                income
            
            $
            3,194
            
            $
            1,638
            
            *$*
            *1,556*Interest
                expense
            
            
            (21,855
            )
            
            (6,731
            )
            
            *(15,124*
            *)*Foreign
                currency exchange gain / (loss), net
            
            
            (31,487
            )
            
            29,430
            
            
            *(60,917*
            *)*Change
                in fair value of derivatives
            
            
            (1,876
            )
            
            -
            
            
            *(1,876*
            *)*Other
                expense
            
            
            (381
            )
            
            (3,689
            )
            
            *3,308*Provision
                for income taxes
            
            
            (7,576
            )
            
            (5,906
            )
            
            *(1,670*
            *)*Minority
                interest in income of consolidated subsidiaries
            
            
            (6,717
            )
            
            (4,681
            )
            
            *(2,036*
            *)*Equity
                in income / (loss) of unconsolidated affiliates
            
            
            (730
            )
            
            4,883
            
            
            *(5,613*
            *)*Discontinued
                operations
            
            $
            (2,530
            )
            $
            (2,044
            )
            *$*
            *(486*
            *)*





**Interest
      income** increased by US$ 1.6 million for the six months ended June 30, 2006 compared
      to
      the six months ended June 30, 2005 primarily as a result of interest earned
      on
      our increased level of cash deposits following our equity offering in March
      2006.





**Interest
      expense** increased by US$ 15.1 million for the six months ended June 30, 2006 compared
      to
      the six months ended June 30, 2005 primarily as a result of the issuance of
      our
      EUR 245.0 million (approximately US$ 313.3 million) 8.25% Senior Notes and
      EUR
      125.0 million (approximately US$ 159.8 million) floating rate Senior Notes
      on
      May 5, 2005.





**Foreign
      currency exchange loss, net:** For the
      six months ended June 30, 2006 we recognized a US$ 31.5 million loss primarily
      as a result of the strengthening of the Euro against the US 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$ 36.7 million
      on
      the Senior Notes due to movements in the spot rate between December 31, 2005
      and
      June 30, 2006. For the six months ended June 30, 2005, we recognized a US$
      29.4
      million gain as a result of the strengthening of the US dollar against the
      Euro
      during that period.





**Other
      expense:** For the
      six months ended June 30, 2006 we incurred other expenses of US$ 0.4 million
      compared to US$ 3.7 million for the six months ended June 30, 2005. The amount
      recognized in the six months ended June 30, 2005 was primarily a result of
      a US$
      3.4 million fee incurred to secure bridge financing in relation to our
      acquisition of the TV Nova (Czech Republic) group.





**Provision
      for income taxes:** The
      provision for income taxes was US$ 7.6 million for the six months ended June
      30,
      2006 compared to US$ 5.9 million for the six months ended June 30, 2005. We
      incur a tax charge despite reporting a taxable loss primarily due to the fact
      that the there is no tax benefit attributable to the transaction loss arising
      on
      the Senior Notes. The increase in the provision also reflects approximately
      US$
      2.5 million in respect of the write-off of deferred tax assets.





**Minority
      interest in income of consolidated subsidiaries:** For the
      six months ended June 30, 2006, minority interest in the income of consolidated
      subsidiaries was US$ 6.7 million, compared to US$ 4.7 million for the six months
      ended June 30, 2005. This movement primarily reflects the recognition of the
      minority share of the net income in our operations in the Czech Republic, which
      we acquired on May 2, 2005, as well as the higher profitability of our Romania
      and Ukraine operations.





Page
            68
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**Equity
      in income / (loss) of unconsolidated affiliates** :
      Some of
      our broadcasting licenses are held by unconsolidated affiliates over which
      we
      have minority blocking rights but not majority control. These affiliates are
      accounted for using the equity method.





Equity
      in
      income / (loss) of unconsolidated affiliates for the six months ended June
      30,
      2006 decreased by US$ 5.6 million compared to the six months ended June 30,
      2005
      as detailed below:





**EQUITY
                IN INCOME / (LOSS) OF UNCONSOLIDATED AFFILIATES****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Romania
                operations
            
            $
            7
            
            $
            (75
            )
            *$*
            *82*Slovak
                Republic operations
            
            
            (737
            )
            
            4,958
            
            
            *(5,695*
            *)***Equity
                in Income / (Loss) of Unconsolidated Affiliates**
            
            **$**
            **(730**
            **)**
            **$**
            **4,883**
            
            ***$***
            ***(5,613***
            ***)***





Our
      Slovak Republic operations ceased to be accounted for as an equity affiliate
      on
      January 23, 2006 when we acquired majority control of the license company via
      our acquisition of ARJ (for further information see Item 1, Note
      3).





**Discontinued
      operations:** The
      amounts charged to the condensed consolidated statement of operations in respect
      of discontinued operations for the six months ended June 30, 2006 compared
      to
      the six months ended June 30, 2005 are as follows:





**DISCONTINUED
                OPERATIONS****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***Gain
                on disposal of discontinued operations
            
            $
            -
            
            $
            164
            
            *$*
            *(164*
            *)*Tax
                on disposal of discontinued operations
            
            
            (2,530
            )
            
            (2,208
            )
            
            *(322*
            *)***Discontinued
                operations**
            
            **$**
            **(2,530**
            **)**
            **$**
            **(2,044**
            **)**
            ***$***
            ***(486***
            ***)***





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, our
      former Czech operating company, for US$ 53.2 million.





The
      revenues and expenses of our former Czech 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).





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            69
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**IV
      (n) Condensed consolidated balance sheet as at June 30, 2006 compared to
      December 31, 2005**





**SUMMARIZED
                CONDENSED CONSOLIDATED BALANCE SHEET****(US$ 000’s)****June
                30,**
              **2006**
            
            **December
                31,**
              **2005**
            
            ***Movement***Current
                assets
            
            $
            379,372
            
            $
            286,926
            
            *$*
            *92,446*Non-current
                assets
            
            
            1,262,143
            
            
            1,101,924
            
            
            *160,219*Current
                liabilities
            
            
            161,364
            
            
            206,961
            
            
            *(45,597*
            *)*Non-current
                liabilities
            
            
            541,002
            
            
            488,099
            
            
            *52,903*Minority
                interests in consolidated subsidiaries
            
            
            20,089
            
            
            13,237
            
            
            *6,852*Shareholders’
                equity
            
            $
            919,060
            
            $
            680,553
            
            *$*
            *238,507*





**Current
      assets:** Current
      assets have increased US$ 92.4 million at June 30, 2006 compared to December
      31,
      2005, primarily as a result of the receipt of the cash proceeds from the
      offering of 2,530,000 shares of Class A Common Stock completed on March 29,
      2006, partially offset by the use of cash to fund acquisitions and reduce
      amounts drawn under credit facilities.





**Non-current
      assets:** Non-current assets have increased US$ 160.2 million at June 30, 2006 compared
      to
      December 31, 2005, primarily as a result of the consolidation of the assets
      of
      our Slovak Republic operations following the acquisition of ARJ on January
      23,
      2006, as well as the recognition of additional goodwill and other intangible
      assets following the acquisition of an additional 5% stake in our Romania
      operations.





**Current
      liabilities:** Current
      liabilities have decreased US$ 45.6 million at June 30, 2006 compared to
      December 31, 2005, primarily as a result of the repayment of US$ 25.1 million
      of
      amounts due under credit facilities in the Czech Republic, and the payment
      of
      deferred consideration relating to the acquisition of our Czech Republic
      operations, partially offset by the consolidation of the liabilities of our
      Slovak Republic operations following the acquisition of ARJ.





**Non-current
      liabilities:** Non-current liabilities have increased US$ 52.9 million at June 30, 2006
      compared to December 31, 2005, reflecting a US$ 36.7 million increase in the
      value of our Senior Notes as a result of the movement in the spot rate between
      December 31, 2005 and June 30, 2006, as well as recognition of an additional
      US$
      11.5 million of deferred tax liabilities.





**Minority
      interests in consolidated subsidiaries:** Minority
      interests in consolidated subsidiaries have increased US$ 6.9 million at June
      30, 2006 compared to December 31, 2005, primarily as a result of the recognition
      of a minority interest in our newly consolidated Slovak Republic Operations,
      which had previously been reported as an equity accounted affiliate, as well
      as
      improved profitability of our Romania and Ukraine operations.





**Shareholders’
      equity:** Total
      shareholders’ equity has increased US$ 238.5 million at June 30, 2006 compared
      to December 31, 2005, primarily as a result of the sale in a public offering
      of
      2,530,000 shares of Class A Common Stock on March 29, 2006 for net proceeds
      of
      approximately US$ 168.6 million.





The
      remaining movement in shareholders’ equity relates to an increase in Other
      Comprehensive Income (US$ 77.2 million), proceeds from the exercise of stock
      options (US$ 1.1 million), and the net loss of US$ 9.7 million for the six
      months ended June 30, 2006.





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            70
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***V.
      Liquidity and Capital Resources***





**V
      (a) Summary of cash flows**





Cash
      and
      cash equivalents increased by US$ 87.3 million during the six months ended
      June
      30, 2006. The change in cash and cash equivalents is summarized as
      follows:





**SUMMARY
                OF CASH FLOWS****For
                the Six Months Ended June 30, (US$ 000's)****2006**
            
            **2005**Net
                cash generated from continuing operating activities
            
            $
            37,275
            
            $
            23,403Net
                cash used in continuing investing activities
            
            
            (81,568
            )
            
            (258,357
            )Net
                cash received from financing activities
            
            
            138,233
            
            
            208,013Net
                cash used in discontinued operations - operating
                activities
            
            
            (1,690
            )
            
            (2,000
            )**Net
                increase / (decrease) in cash and cash
                equivalents**
            
            **$**
            **87,340**
            
            **$**
            **(38,771**
            **)**





*Operating
      Activities*





Cash
      generated from continuing operations increased US$ 13.9 million to US$ 37.3
      million in the six months ended June 30, 2006 after having made the final US$
      10.0 million repayment of the settlement liability of the TV Nova (Czech
      Republic) group. The settlement liability represented an amount owed by CET 21
      under a settlement agreement among CET 21, Ceska nezavisla spolecnost, spol.
      s.r.o. (“CNTS”) and the PPF Group dated December 19, 2003. This liability was
      assumed as part of the TV Nova (Czech Republic) group acquisition and was
      refinanced at lower interest rates using our credit facilities from Ceska
      Sporitelna, a.s.. Excluding this payment, cash generated from operating
      activities was US$ 47.3 million. This reflects the level of cash generated
      by
      our Czech Republic operations, as well as improved station performance in
      Romania and Ukraine.





*Investing
      Activities*





Cash
      used
      in investing activities decreased US$ 176.8 million to US$ 81.6 million in
      the
      six months ended June 30, 2006. Our investing cash flows in 2006 primarily
      comprised of:





·
            A
                payment of US$ 27.2 million in connection with the 5% increase in
                our
                holding of our Romanian operations (for further information, see
                Item 1,
                Note 3);


·
            A
                payment of US$ 30.1 million in connection with our acquisition of
                ARJ (for
                further information, see Item 1, Note
                3);


·
            Payment
                of a further US$ 2.0 million following completion of our acquisition
                of a
                65.5% stake in Ukrpromtorg 2003 LLC (for further information, see
                Item 1,
                Note 3);


·
            Capital
                expenditure of US$ 18.5 million;
                and


·
            Investment
                of US$ 4.2 million in restricted cash to secure an overdraft facility
                of
                our Romania operations (for further information, see Item 1, Note
                6).





Page
            71
 *Index*





*Financing
      Activities*





Net
      cash
      received from financing was US$ 138.2 million during the six months ended June
      30, 2006 compared to US$ 208.2 million during the six months ended June 30,
      2005. Net proceeds from financing activities in 2006 consisted primarily of
      the
      following:





·
            Receipt
                of approximately US$ 168.6 million (net of fees) from a public offering
                of
                2,530,000 shares of our Class A Common Stock;


·
            Receipts
                of US$ 34.8 million from drawing on credit facilities in Czech Republic
                and Slovenia to finance the acquisition of ARJ and the increased
                investment in our Romania operations;
                and


·
            Repayment
                of US$ 65.5 million of amounts drawn under the same credit
                facilities.





*Discontinued
      Operations*





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





**V
      (b) Sources and Uses of Ca** **sh**





Our
      ongoing source of cash in 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, on a pro rata basis, 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 and equity accounted
      investments.





Corporate
      law in the Central and Eastern European countries in which we operate stipulates
      generally that dividends may be declared by the partners or the 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 is capped at a proportion of the registered capital of a company
      (ranging from 5% to 25%).





As
      at
      June 30, 2006 and December 31, 2005 the operations had the following unsecured
      balances owing to their respective holding companies:





**Operating
                segment (US$ 000’s)**
            
            **June
                30, 2006**
            
            **December
                31, 2005**Croatia
            
            $
            50,633
            
            $
            40,166Czech
                Republic
            
            
            487,764
            
            
            441,569Romania
            
            
            27,195
            
            
            28,873Slovak
                Republic
            
            
            88
            
            
            88Slovenia
            
            
            -
            
            
            39Ukraine
            
            
            2,392
            
            
            10,617**Total**
            
            **$**
            **568,072**
            
            **$**
            **521,352**




Page
            72
 *Index*





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





Our
      future contractual obligations as of June 30, 2006 are as follows:





**Payments
                due by period (US$ 000’s)****Total**
            
            **Less
                than**
              **1****year**
            
            **1-3
                years**
            
            **3-5
                years**
            
            **More
                than**
              **5
                years****Contractual
                Obligations:**Long-Term
                Debt - principal
            
            $
            491,748
            
            $
            17,852
            
            $
            336
            
            $
            375
            
            $
            473,185Long-Term
                Debt - interest
            
            
            232,403
            
            
            19,794
            
            
            79,142
            
            
            79,104
            
            
            54,363Capital
                Lease Obligations
            
            
            6,355
            
            
            619
            
            
            1,294
            
            
            992
            
            
            3,450Operating
                Leases
            
            
            9,747
            
            
            3,963
            
            
            3,719
            
            
            1,671
            
            
            394Unconditional
                Purchase Obligations
            
            
            63,805
            
            
            58,989
            
            
            4,516
            
            
            300
            
            
            -Other
                Long-Term Obligations
            
            
            9,216
            
            
            5,034
            
            
            4,182
            
            
            -
            
            
            -**Total
                Contractual Obligations**
            
            **$**
            **813,274**
            
            **$**
            **106,251**
            
            **$**
            **93,189**
            
            **$**
            **82,442**
            
            **$**
            **531,392**




*Long-Term
      Debt*





At
      June
      30, 2006, we had the following debt outstanding:





**June
                30, 2006**
              **(US$
                000’s)**CME
                Ltd.
            
            
            (1)
            
            $
            473,085Czech
                Republic operations
            
            
            (2)
                - (4)
            
            
            17,642Slovenia
                operations
            
            
            (5)
            
            
            -Croatia
                operations
            
            
            (6)
                - (8)
            
            
            1,021Romania
                operations
            
            
            (9)
            
            
            -**Total**
            
            
            
            
            **$**
            **491,748**





(1)
            In
                May 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 and EUR 125.0 million of floating rate Senior Notes due
                May 2012,
                which bear interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”)
                plus 5.50% (8.57% was applicable at June 30, 2006). Interest is payable
                semi-annually in arrears on each May 15 and November
                15.





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 certain of our subsidiaries. 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.





Page
            73
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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
      108.250% of the principal amount of the Senior 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 the Senior Notes, plus a “make-whole”
premium and accrued and unpaid interest to the redemption date.





As
      of
      June 30, 2006, Standard & Poor’s senior unsecured debt rating for our Senior
      unsecured debt remained unchanged from December 31, 2005 at B+, with a corporate
      credit rating of BB- / stable. At June 30, 2006, Moody’s Investors Service’s
      rating of both our corporate credit rating and our Senior unsecured notes due
      2012 improved from December 31, 2005 to Ba3 stable, from B1 positive outlook,
      previously.





(2)
            CET
                21 has a four-year credit facility of CZK 1.2 billion (approximately
                US$
                53.5 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 LIBOR, EURIBOR or Prague Inter-Bank Offered Rate (“PRIBOR”)
                rate plus 1.95%. This facility is secured by a guarantee of CME Media
                Services and a pledge of receivables, which are also subject to a
                factoring arrangement between CME Media Services and Factoring Ceska
                Sporitelna, a.s., a subsidiary of CS. As at June 30, 2006, CZK nil
                (US$
                nil) had been drawn under this facility. Following the merger of
                CET 21
                with CME Media Services, scheduled for late 2006, this credit facility
                will be renegotiated.





(3)
            CET
                21 and CME Media Services have a working capital credit facility
                of CZK
                250.0 million (approximately US$ 11.2 million) with CS, expiring
                October
                31, 2006. This working capital facility bears interest at the three-month
                PRIBOR rate plus 1.65%. This facility is secured by a pledge of
                receivables, which are also subject to a factoring arrangement between
                CME
                Media Services and Factoring Ceska Sporitelna, a.s. As at June 30,
                2006,
                CZK 250.0 million (approximately US$ 11.2 million) was drawn under
                this
                facility bearing interest at 3.74% (the applicable three-month PRIBOR
                rate
                at June 30, 2006 was 2.09%).





(4)
            As
                at June 30, 2006, CZK 145.4 million (approximately US$ 6.5 million)
                was
                drawn under a CZK 600.0 million (approximately US$ 26.8 million)
                factoring
                facility with Factoring Ceska Sporitelna, a.s., a subsidiary of CS.
                This
                facility bears interest at the rate of one-month PRIBOR plus 1.40%
                for the
                period that actively assigned accounts receivable are
                outstanding.





(5)
            A
                revolving five-year facility agreement (the “revolving facility”) was
                entered into for up to EUR 37.5 million (approximately US$ 47.9 million)
                in aggregate principal amount among Pro Plus, ING Bank N.V., Nova
                Ljubljanska Banka d.d., Ljubljana and Bank Austria Creditanstalt
                d.d.,
                Ljubljana. The facility availability amortizes by 10% each year for
                four
                years commencing one year after signing, with 60% 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
                2.10%
                and 3.60% that varies according to the ratio of consolidated net
                debt to
                consolidated broadcasting cash flow for Pro Plus. As at June 30,
                2006,
                there were no drawings under this revolving
                facility.





(6)
            A
                total of EUR 0.7 million(approximately
                US$ 0.9 million) was drawn down on three loan agreements our Croatia
                operations have with Hypo Alpe-Adria-Bank d.d.These
                loans bear a variable interest rate of the three-month EURIBOR plus
                2.50%
                and are repayable in quarterly installments until April 1, 2011.
                As at
                June 30, 2006, a rate of 5.50% applied to these loans.These loan facilities are secured by certain fixed assets of OK,
                which as
                at June 30, 2006 have a carrying amount of approximately US$ 0.1
                million.





Page
            74
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(7)
            EUR
                0.004 million (approximately US$ 0.005 million) was drawn down on
                a loan
                agreement our Croatia operations have with Hypo Alpe-Adria-Bank d.d.This
                loan bears a fixed interest rate of 7.25% and is repayable on July
                31,
                2006.





(8)
            EUR
                0.1 million (approximately US$ 0.1 million) was drawn down by our
                Croatia
                operations under a loan agreement with BKS Bank fur Karnten and Steiermark
                AG.This loan bears a variable interest rate of the three-month EURIBOR
                plus
                3.00% and is repayable on October 1, 2006. As at June 30, 2006 a
                rate of
                5.75% applied to this loan.





(9)
            As
                at June 30, 2006, there were no drawings under a EUR 6.0 million
                (approximately US$ 7.7 million) overdraft facility with ING Bank
                N.V.
                Amsterdam. This facility is secured by cash collateral of New Romanian
                Lei
                11.7 million (approximately US$ 4.2 million) and the assignment of
                certain
                accounts receivable of our Romania operations and allows drawings
                to be
                made in US dollars (bearing interest at one-month LIBOR plus 2.00%),
                Euro
                (bearing interest at one-month EURIBOR plus 2.00%) or New Romanian
                Lei
                (bearing interest at 'best market
                rate').





*Capital
      Lease Obligations*





Capital
      lease obligations include future interest payments of US$ 1.7 million. For
      more
      information on our capital lease obligations see Item 1, Note 11.





*Operating
      Leases*





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





*Unconditional
      Purchase Obligations*





Unconditional
      purchase obligations largely comprise future programming commitments. At June
      30, 2006, we had commitments in respect of future programming US$ 55.3 million
      (December 31, 2005: US$ 51.8 million). This includes contracts signed with
      license periods starting after June 30, 2006. For more information on our
      programming commitments see Item 1, Note 18.





*Other
      Long-Term Obligations*





Included
      in Other Long-Term Obligations are our commitments to the Dutch tax authorities
      of US$ 5.3 million (see Part I, Item 1, Note 18) .





In
      addition to the amounts disclosed above, we have entered into an agreement
      with
      Adrian Sarbu that would require us to purchase his remaining 10% shareholding
      in
      Pro TV and MPI at a price that will be determined by an independent valuation
      and is subject to a floor price of US$ 1.45 million for each 1% interest sold.
      Mr. Sarbu can exercise this put from March 1, 2009 for a twenty-year period
      thereafter.




**V
      (d) Cash Outlook**





The
      issuance of the EUR 370.0 million (approximately US$ 480.0 million at the time
      of issuance) Senior Notes for the acquisition of the TV Nova (Czech Republic)
      Group in May 2005 increased our leverage and we have significant debt service
      obligations in respect of the Senior Notes. In addition, 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 Class A Common Stock of US$ 168.6 million in March
      2006 significantly reduced our net debt and provides 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, 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.





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            75
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Our
      future cash needs will depend on our overall financial performance, our ability
      to service the indebtedness incurred under the Senior Notes as well as other
      indebtedness incurred by us and any future investment and development decisions.
      Our ability to raise further funds through external debt facilities depends
      on
      our satisfaction of a leverage ratio under the Senior Notes. In the short-term
      we are able to fund our operations from our current cash resources.





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$ 20.0 million during 2006,
      and
      provided US$ 4.7 million in cash funding to Nova TV (Croatia) in the three
      months ended June 30, 2006.





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 or investment 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 debt or additional 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 SIT 1,073,000,000 (approximately US$
      5.4
      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 SIT 636,800,000 (approximately US$ 3.2 million) in aggregate
      principal amount. Pro Plus appealed this decision to the Administrative Court
      in
      Ljubljana and requested the tax authorities defer the demand for payment until
      a
      final judgment has been issued. The tax authorities agreed to defer its demand
      for payment until a final decision on the matter had been reached. 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. 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, 2005, as amended by our Form 10-K/A filed with
      the SEC on March 15, 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.





Page
            76
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We
      believe our critical accounting policies are as follows: program rights,
      goodwill and intangible assets, impairment or disposal of long-lived assets,
      revenue recognition, income taxes, reporting exchange differences on
      intercompany foreign currency transactions that are long-term in nature, 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, 2005.






**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk**





We
      engage
      in activities that expose us to various market risks, including the effects
      of
      changes in foreign currency exchange rates and interest rates. We do not
      regularly engage in speculative transactions, nor do we regularly hold or issue
      financial instruments for trading purposes.





**Foreign
      Currency Exchange Risk Management**





We
      conduct business in a number of foreign currencies and our Senior Notes are
      denominated in Euro. As a result, we are subject to foreign currency exchange
      rate risk due to the effects that foreign exchange rate movements of these
      currencies have on our costs and on the cash flows we receive from certain
      subsidiaries. In limited instances, we enter into forward foreign exchange
      contracts to minimize foreign currency exchange rate risk.





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 CZK 10.7 billion (approximately US$ 477.4 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 EUR 375.9 million
      (approximately US$ 480.6 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, 2006 is a US$ 1.9 million
      liability.





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
      EUR-denominated interest payments on our Senior Notes (see Item 1, 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 SFAS 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.





We
      have
      not attempted to hedge the Senior Notes, and therefore may continue to
      experience significant gains and losses on the translation of the Senior Notes
      into US dollars due to movements in exchange rates between the Euro and the
      US
      dollar.





**Interest
      Rate Risk Management**





As
      at
      June 30, 2006, we have 7 tranches of debt that provide for interest at a spread
      above a base rate EURIBOR or PRIBOR, and 2 tranches of debt, which were
      maintained with a fixed interest rate. A significant rise in the EURIBOR or
      PRIBOR base rate would have an adverse effect on our business and results of
      operations.





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            77
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*Interest
      Rate Table as at June 30, 2006*





**Expected
                Maturity Dates**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **Thereafter****Total
                debt in EUR (000's)**Fixed
                rate
            
            
            4
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            245,000Average
                interest rate (%)
            
            
            7.25
            %
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8.25
            %Variable
                rate
            
            
            160
            
            
            127
            
            
            134
            
            
            142
            
            
            150
            
            
            125,077Average
                interest rate (%)
            
            
            5.63
            %
            
            5.50
            %
            
            5.50
            %
            
            5.50
            %
            
            5.50
            %
            
            8.57
            %**Total
                debt in CZK (000's)**Fixed
                rate
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Average
                interest rate (%)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Variable
                rate
            
            
            395,402
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Average
                interest rate (%)
            
            
            3.19
            %
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -




Page
            78
 *Index*





*Variable
      Interest Rate Sensitivity as at June 30, 2006*





**Yearly
                interest charge if interest rates increase by (US$
                000s):****Value
                of Debt as at**
              **June
                30, 2006**
              **(US$
                000's)**
            
            **Interest
                Rate**
              **as
                at June 30,**
              **2006**
            
            **Yearly
                Interest**
              **Charge**
              **(US$
                000’s)**
            
            **1%**
            
            **2%**
            
            **3%**
            
            **4%**
            
            **5%**160,835
              (EUR
                125.8 million)
            
            4.73%
                - 8.57%
            
            $
            13,753
            
            $
            15,361
            
            $
            16,970
            
            $
            18,578
            
            $
            20,186
            
            $
            21,79517,642
              (CZK
                395.4 million)
            
            2.24
                % - 3.74%
            
            
            562
            
            
            739
            
            
            915
            
            
            1,092
            
            
            1,268
            
            
            1,445**Total**
            
            
            
            
            **$**
            **14,315**
            
            **$**
            **16,100**
            
            **$**
            **17,885**
            
            **$**
            **19,670**
            
            **$**
            **21,454**
            
            **$**
            **23,240**








**Item
      4. Controls and Procedures**





As
      of the
      end of the period covered by this report, our Chief Executive Officer and Chief
      Financial Officer evaluated the effectiveness of the design and operation of
      our
      disclosure controls and procedures pursuant to Rule 13a-15 under the Securities
      Exchange Act of 1934, as amended. Based upon this evaluation, the Chief
      Executive Officer and Chief Financial Officer concluded that the disclosure
      controls and procedures are effective. There has been no change in our internal
      control over financial reporting during the quarter ended June 30, 2006 that
      has
      materially affected, or is reasonably likely to materially affect, our internal
      control over financial reporting.




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            79
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**PART
      II OTHER INFORMATION**





**Item
      1. Legal Proceedings**





*General*





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.





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





*Croatia*





*Global
      Communications Dispute*





On
      October 29, 2004, OK filed suit against Global Communications d.o.o. claiming
      approximately HRK 53.0 million (approximately US$ 8.6 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.
      Global Communications and GRP Media were functionally managing the advertising
      inventory of Nova TV (Croatia). On December 31, 2003, Global Communications
      entered into an 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$ 11.0 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. We
      intend to appeal this judgment upon receipt of the court’s written decision and
      will continue to contest this case vigorously. 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 intend to appeal this judgment upon receipt of this court's written
      decision and will continue to seek joinder of this claim with the OK
      counterclaim.





*Former
      Shareholder Dispute*





On
      July
      21, 2005, Narval A.M. d.o.o., 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. We do not expect the Croatia operations
      to
      suffer any significant loss or disruption as a consequence of this
      action.





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            80
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*Czech
      Republic*





*Antimonopoly
      Office*





At
      the
      end of 2005, the Office for the Protection of Economic Competition of the Czech
      Republic (the “Antimonopoly Office”) commenced an investigation into potential
      infringements of Czech antimonopoly legislation in respect of the sale of
      advertising on the TV NOVA channel from 2004. Without acknowledging any
      infringements alleged by the Antimonopoly Office, CET 21 agreed to make certain
      undertakings in respect of the sale of advertising on TV NOVA. In March 2006,
      the Antimonopoly Office accepted a commitment from CET 21 to cure all the
      alleged legal defects in the relevant TV NOVA advertising agreements. In
      compliance with this commitment, CET 21 adopted a new form of advertising
      agreement which was approved by the Antimonopoly Office in April 2006. CET
      21
      anticipates that the Antimonopoly Office will terminate the investigation during
      the third quarter of 2006, once all of CET 21’s advertising agreements have been
      replaced by the new, approved form of advertising agreement.





*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 SIT 190 million (approximately US$ 1.0 million)
      for repayment of monies advanced to MMTV from 1992 to 1994 (in the amount of
      approximately SIT 29 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 SIT 190 million (approximately
      US$
      1.0 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. We do not believe that Mrs. Meglic will prevail and will continue
      to defend the claim. Accordingly, we have made no provision for this claim
      in
      our condensed consolidated balance sheet as at June 30, 2006.





*Slovak
      Republic*





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





*Ukraine*





On
      October 11, 2005, Igor Kolomoisky filed a lawsuit against Alexander Rodnyansky
      and Studio 1+1 in a district court in Kiev. Our Ukrainian affiliate Intermedia
      has been joined in the proceedings as a “third party”. Mr. Kolomoisky is
      attempting to enforce what he alleges was a binding oral agreement with Mr.
      Rodnyansky to purchase the latter’s 70% interest in Studio 1+1 for consideration
      of US$ 70.0 million and to transfer that interest to Mr. Kolomoisky on receipt
      of a prepayment of US$ 2.0 million. The lawsuit arises from abortive
      negotiations among Mr. Kolomoisky, Mr. Rodnyansky and Boris Fuchsmann for the
      acquisition by Mr. Kolomoisky of the totality of interests in the Studio 1+1
      Group held by Mr. Rodnyansky and Mr. Fuchsmann, subject to Mr. Kolomoisky
      assuming all of their obligations under our existing partnership arrangements. Following
      a series of initial hearings, a procedural matter was
      appealed to the Supreme Court of Ukraine. This appeal, which was filed in
      February 2006, is currently pending.  An
      acceptance of this appeal would automatically suspend proceedings in the
      district court in Kiev during the pendency of the appeal; however, the filing
      of
      such an appeal with the Supreme Court does not suspend proceedings. As a result,
      the hearings on the case in the district court have continued. These hearings
      are at the final procedural stage of the closing speeches of the advocates
      of
      the three parties.





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            81
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We
      believe the lawsuit is without merit primarily because there was no agreement
      with Mr. Kolomoisky and because any agreement in respect of the subject matter
      at issue, had it been concluded on an oral basis, would be invalid and
      unenforceable as a matter of Ukrainian law. Furthermore, any transfer would
      also
      breach Intermedia’s statutory and contractual consent and pre-emptive rights. In
      the event of an adverse outcome which results in the ownership of 70% of Studio
      1+1 being transferred from Mr. Rodnyansky to Mr. Kolomoisky pursuant to a court
      decision, we may not be able to secure and enforce our contractual rights to
      a
      60% beneficial interest in Studio 1+1 or rights related to the governance of
      Studio 1+1 against Mr. Kolomoisky. A reduction in our right to future
      distributable cash from Studio 1+1 would have an adverse impact on our financial
      position and results of operations.





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. Upon successful
      completion of the restructuring, we will terminate the proceedings initiated
      against our partners in December 2005.




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            82
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**Item
      1A. Risk Factors**





This
      Report on Form 10-Q for the period ended June 30, 2006, contains forward-looking
      statements that involve risks and uncertainties See “Forward-looking Statements”
in Part I, Item 2. Our actual results in the future could differ materially
      from
      those anticipated in these forward-looking statements as a result of certain
      factors, including the risks described below and elsewhere in this Report on
      Form 10-Q.





**Risks
      Relating to our Business and Operations**





*Our
      broadcasting licenses may not be renewed and may be subject to revocation*





We
      require broadcasting and, in some cases, distribution licenses as well as other
      authorizations from national regulatory authorities in our markets in order
      to
      conduct our broadcasting business. We cannot guarantee that our current licenses
      or other authorizations will be renewed or that they will not be subject to
      revocation, particularly in Ukraine, where there is relatively greater political
      risk as a result of less developed political and legal institutions. The failure
      to comply in all material respects with the terms of broadcasting licenses
      or
      other authorizations or with applications in respect thereof may result in
      such
      licenses or other authorizations not being renewed or otherwise terminated.
      Furthermore, no assurances can be given that new licenses will be issued, that
      extensions of licenses will be issued on the same terms as existing licenses
      or
      that further restrictions or conditions will not be imposed in the
      future.





Our
      current broadcasting licenses expire at various times between 2006 and 2017
      including the broadcasting license covering fifteen hours (primarily prime
      and
      off prime time) in Ukraine which expires in December 2006. On July 19, 2006,
      the
      Ukrainian Media Council issued a decision to extend the 15-hour broadcasting
      license of Studio 1+1 for a ten-year period from January 1, 2007. Issuance
      of
      the license itself is subject to the payment of a fee of approximately UAH
      5.9
      million (approximately US$ 1.2 million), which has been paid, and the
      registration by October 1, 2006 of an amendment to the charter of Studio 1+1
      to
      conform with recent amendments to the Ukrainian Media Law. Because of ongoing
      ancillary litigation to enjoin transactions related to the ownership of Studio
      1+1 that have been initiated by third parties who are not direct parties in
      interest to the proceedings initiated by Mr. Kolomoisky or otherwise
      participating in any negotiations, the district administration where such
      amendments are registered is presently enjoined from registering any amendments
      to the charter of Studio 1+1. If we are not able to lift any such injunction
      or
      otherwise register the necessary amendments to the charter of Studio 1+1, we
      may
      not receive a license certificate following the expiration of the current
      license on December 31, 2006. In the event that we do not receive a license
      certificate, Studio 1+1 may not be able to broadcast for 15 hours per day.
      The
      failure to receive this license certificate, any non-renewal or termination
      of
      broadcasting licenses or other authorizations or material modification of the
      terms of any renewed licenses may have a material adverse effect on our
      financial position and results of operations and cash flows.





*We
      do
      not have management control of our affiliate in Ukraine and could lose our
      contractual rights*





We
      own
      certain of our operations jointly with strategic partners through subsidiaries
      and affiliates. We have management control over the subsidiaries in which we
      have a majority interest. However, in the license company for the Studio 1+1
      Group in Ukraine, in which we hold only an indirect 18% ownership interest,
      we
      do not have an ownership interest that is sufficient to allow us to assert
      management control and affirmatively direct the operations, strategies and
      financial decisions of this company and rely principally on contractual rights
      to protect and maintain our 60% beneficial interest in Studio 1+1. Therefore,
      without the consent of our partners, we may be unable to cause this company
      to
      distribute funds, to implement strategies or to make programming decisions
      that
      we might favor.





In
      addition, the 70% ownership interest in Studio 1+1 that is held by our partner
      Alexander Rodnyansky is the subject of litigation in Ukraine (See Part II,
      Item
      1 “Legal Proceedings, Ukraine”). In the event of an adverse outcome which
      results in the ownership of 70% of Studio 1+1 being transferred from Mr.
      Rodnyansky to the claimant Igor Kolomoisky pursuant to a court decision, we
      may
      not be able to secure and enforce our contractual rights to a 60% economic
      interest in Studio 1+1 or rights related to the governance of Studio 1+1 against
      Mr. Kolomoisky. A reduction in our right to future distributable cash from
      Studio 1+1 would have an adverse impact on our financial position and results
      of
      operations.





Page
            83
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*Our
      operations are in developing markets where there is a risk of economic
      uncertainty, biased treatment and loss of business*





Our
      revenue generating operations are located in Central and Eastern Europe.
      Countries in this region have economic, legal and tax systems, standards of
      corporate governance, business practices and political systems that continue
      to
      develop. Government policies could be altered significantly, especially in
      the
      event of a change in leadership, and the risk of the occurrence of social or
      political disruption or unforeseen circumstances affecting economic, political
      or social life is greater than in Western economies. Legal and regulatory
      systems could be subject to political pressures. These markets present different
      risks from those posed by investments in developed markets, including potential
      instability, legal and economic risks, potential political influence on media,
      inconsistent application of tax and legal regulations, and other general
      business risks. In addition, we operate in most of our markets with local
      shareholders, which presents a potential for biased treatment of us by local
      regulators or before the local courts in the event of disputes involving our
      local shareholders or our investments. If such a dispute occurs, those
      regulators or those courts might favor local interests over our interests.
      Ultimately this could lead to loss of our business operations, as occurred
      in
      the Czech Republic in 1999.





We
      are
      involved in certain disputes with some of the former shareholders of our
      Croatian operations and some of these shareholders may also challenge a
      restructuring that we have undertaken following a request from the Croatian
      Media Council. The ability of certain of these shareholders to exert influence
      on local institutions may create a potential for biased treatment of us. An
      adverse outcome in the Global Communications lawsuit (See Part II, Item 1 “Legal
      Proceedings, Croatia”) or a successful challenge to the restructuring could have
      an adverse impact on our financial position, results of operations and cash
      flows.





*Our
      operating results depend on our ability to implement a new advertising strategy
      in the Czech Republic and to generate advertising sales
      generally*





In
      the
      Czech Republic, we are implementing a new advertising sales strategy to capture
      market growth through a more sophisticated pricing policy (See Part I, Item
      2,
“Czech Republic”). Our advertising revenues in general depend on the pricing of
      our advertising time as well as other factors, including our stations’ technical
      reach, television viewing levels, changes in audience preferences, shifts in
      population and other demographics, technological developments relating to media
      and broadcasting, competition from other broadcasters and other media operators,
      and seasonal trends in the advertising market in the countries in which we
      operate. There can be no assurance that we will be able to implement
      successfully the new advertising sales strategy in Czech Republic or to respond
      successfully to changes in such other factors in order to maintain and increase
      our advertising sales. Any decline in advertising sales due to a failure to
      respond to such changes or to successfully implement new sales strategies,
      particularly in the Czech Republic, could have a material adverse effect on
      our
      financial position, results of operations and cash flows.





*Our
      operating results are dependent on the importance of television as an
      advertising medium*





We
      generate almost all of our revenues from the sale of advertising airtime on
      television channels in our markets. In the advertising market, television
      competes with various other advertising media, such as print, radio, the
      internet and outdoor advertising. In all of the countries in which we operate,
      television constitutes the single largest component of all advertising spending.
      There can be no assurances that the television advertising market will maintain
      its current position among advertising media or that changes in the regulatory
      environment will not favor other advertising media or other television
      broadcasters. Increases in competition among advertising media arising from
      the
      development of new forms of advertising media and distribution could result
      in a
      decline in the appeal of television as an advertising medium generally or of
      our
      channels specifically, which would have an adverse effect on our maintaining
      and
      developing our advertising revenues and, as a result, on our results of
      operations and cash flows.





Page
            84
 *Index*





*Our
      operating results are dependent on general economic conditions*





The
      results of our operations rely heavily on advertising revenue, and demand for
      advertising is affected by prevailing general economic conditions. Adverse
      economic conditions generally and downturns in the economies of our operating
      countries specifically are likely to negatively impact the advertising
      industries in those countries and, consequently, the results of our operations.
      Declines in the level of business activity of our advertising customers may
      have
      a material adverse effect in the future on our revenues and results of
      operations. Although recently there has been growth in the economies of our
      operating countries, there can be no assurance that this trend will continue
      or
      that any such improvement in general economic conditions will generate increased
      advertising revenue for our group. Global and local downturns in the general
      economic environment may cause our customers to reduce the amounts they spend
      on
      advertising, which could result in a decrease in demand for our advertising
      airtime. This would adversely affect our business, financial condition, results
      of operations and cash flow.





*We
      may seek to make acquisitions of other stations, networks, content providers
      or
      other companies in the future, and may fail to identify suitable targets,
      acquire them on acceptable terms or successfully integrate
      them.*





The
      acquisition and integration of new companies pose significant risks to our
      existing operations, including:




·
                Additional
                    demands placed on our senior management, who are also responsible
                    for
                    managing our existing operations;
 ·
                Increased
                    overall operating complexity of our business, requiring greater
                    personnel
                    and other resources;
 ·
                Difficulties
                    of expanding beyond our core expertise, in the event that we
                    acquire
                    content providers or other ancillary
                    businesses;
 ·
                Significant
                    initial cash expenditures to acquire and integrate new businesses;
                    and
 ·
                In
                    the event that debt is incurred to finance acquisitions, additional
                    debt
                    service costs related thereto as well as limitations that may
                    arise under
                    Senior Notes.


Moreover,
      the integration of new businesses may also be difficult for a variety of
      reasons, including differing cultures or management styles, poor internal
      controls, failure to achieve pre-acquisition performance objectives and an
      inability to establish control over cash flows. Furthermore, even if we are
      successful in integrating new businesses, expected synergies and cost savings
      may not materialize, resulting in lower than expected profit
      margins.





*Our
      increased debt service obligations following the issuance of the Senior Notes
      may adversely affect our business*





Our
      leverage has been significantly increased with the issuance of EUR 370.0 million
      (US$ 473.1 million at June 30, 2006) fixed and floating Senior Notes (see Part
      I, Item 1, Note 5, “Senior Notes”) in connection with the acquisition of the TV
      Nova (Czech Republic) group. As a result, we have significant debt service
      obligations and we are restricted in the manner in which our business is
      conducted. We anticipate that our high leverage will continue for the
      foreseeable future. Our high leverage could have important consequences to
      our
      business and results of operations, including but not limited to the following:
      our vulnerability to a downturn in our business or economic and industry
      conditions has increased; our ability to obtain additional financing to fund
      future working capital, capital expenditures, business opportunities and other
      corporate requirements has been limited. We may have a higher level of debt
      than
      certain of our competitors, which may put us at a competitive disadvantage;
      a
      substantial portion of our cash flow from operations is required to be dedicated
      to the payment of principal of, and interest on, our indebtedness, which means
      that this cash flow is not available to fund our operations, capital
      expenditures or other corporate purposes; and our flexibility in planning for,
      or reacting to, changes in our business, the competitive environment and the
      industry in which we operate has been limited. Any of these or other
      consequences or events could have a material adverse effect on our ability
      to
      satisfy our debt obligations and would therefore have potentially harmful
      consequences for the development of our business and strategic
      plan.





Page
            85
 *Index*





*Our
      programming content may become more expensive to produce or acquire or we may
      not be able to develop or acquire programming content that is attractive to
      our
      audience*





The
      commercial success of our channels depends substantially on our ability to
      develop, produce or acquire television programming content that matches audience
      tastes, attracts high audience shares and generates advertising revenues. Our
      programming costs may increase in response to increased competition from
      existing and new television channels. The costs of acquiring programming content
      attractive to our viewers, such as feature films and popular television series,
      may increase as a result of such competition. In addition, our expenditure
      in
      relation to local programming content may increase due to the implementation
      of
      new laws and regulations mandating the broadcast of a greater number of locally
      produced programs and changes in audience tastes in our markets, with a growing
      demand for locally produced content. In the event any such programming does
      not
      attract adequate audience share, it may be necessary to write down the value
      of
      such programming. Any such increase in programming costs or write-downs could
      have a material adverse effect on our business, financial condition, results
      of
      operations and cash flow.





*Our
      success depends on attracting and retaining key personnel*





Our
      success depends partly upon the efforts and abilities of our key personnel
      and
      our ability to attract and retain key personnel. Our management teams have
      significant experience in the media industry and have made an important
      contribution to our growth and success. The loss of the services of any of
      these
      individuals could have a material adverse effect on our business, results of
      operations and cash flow. Although we have been successful in attracting and
      retaining such people in the past, competition for highly skilled individuals
      is
      intense. There can be no assurance that we will continue to be successful in
      attracting and retaining such individuals in the future.





*Our
      cash flow and capital resources may not be sufficient for future debt service
      obligations*





Our
      ability to make debt service payments under our Senior Notes and other
      indebtedness depends on our future operating performance and our ability to
      generate sufficient cash, which in turn depends in part on factors that are
      not
      within our control, including general economic, financial, competitive, market,
      legislative, regulatory and other factors. If our cash flow and capital
      resources are insufficient to fund our debt service obligations, we would face
      substantial liquidity problems and we may be obliged to reduce or delay capital
      or other material expenditures at our stations, restructure our debt, obtain
      additional debt or equity capital (if available on acceptable terms), or dispose
      of material assets or businesses to meet our debt service and other obligations.
      It may not be possible to accomplish any of these alternatives on a timely
      basis
      or on satisfactory terms, if at all.





*We
      are subject to risks relating to fluctuations in exchange
      rates*





Our
      reporting currency is the US dollar but a significant portion of our
      consolidated revenues and costs are in other currencies, including programming
      rights expenses and interest on debt. Furthermore, our functional currency
      in
      Romania and Ukraine is the US dollar. This is subject to annual review in
      accordance with FAS 52 “Foreign Currency Translation” and new circumstances that
      may be identified during these annual reviews may result in use of functional
      currencies in these markets that differ from our reporting currency. In
      addition, our Senior Notes are denominated in Euros, and as we have not
      attempted to hedge the Senior Notes, we may therefore continue to experience
      significant gains and losses on the translation of the Senior Notes into US
      dollars due to movements in exchange rates between the Euro and the US
      dollar.





*Our
      holding company structure may limit our access to cash*





We
      are a
      holding company and we conduct our operations through subsidiaries and
      affiliates. The primary internal source of our cash to fund our operating
      expenses as well as service our existing and future debt depends on debt
      repayments from our subsidiaries, the earnings of our operating subsidiaries
      and
      earnings generated from our equity interest in certain of our affiliates and
      distributions of such earnings to us. Substantially all of our assets consist
      of
      shares in and loans to our subsidiaries. We currently rely on the repayment
      of
      inter-company indebtedness and the declaration of dividends to receive
      distributions of cash from our operating subsidiaries and affiliates. The
      distribution of dividends is generally subject to conformity with requirements
      of local law, including the funding of a reserve account, and, in certain
      instances, the affirmative vote of our partners. If our operating subsidiaries
      or affiliates are unable to distribute to us funds to which we are entitled,
      we
      may be unable to cover our operating expenses. Such inability would have a
      material adverse effect on our results of operations.





Page
            86
 *Index*





*We
      may require additional external sources of capital, which may not be available
      on acceptable terms*





The
      acquisition, ownership and operation of television broadcasting operations
      requires substantial capital investment. Our total capital requirements are
      based on our estimates of future operating results, which are based on a variety
      of assumptions that may prove to be inaccurate. If our assumptions prove to
      be
      inaccurate, if our assumptions or plans change, or if our costs increase due
      to
      unanticipated competitive pressures or other unanticipated developments, we
      may
      need to obtain additional financing. Sources of financing may include public
      or
      private debt or equity financings, proceeds from the sale of assets or other
      financing arrangements. Any additional equity or equity-linked financings may
      dilute the economic interest of the holders of our Common Stock. In addition,
      it
      is not possible to ensure that such financings will be available within the
      limitations on the incurrence of additional indebtedness contained in the
      Indenture pursuant to which our Senior Notes were issued or pursuant to the
      terms of the EBRD Loan Agreement (see Part I, Item 1, Note 19, “ Subsequent
      Events”). Furthermore, such financings may not be available on acceptable terms,
      or may be subject to limits on the incurrence of indebtedness under the
      Indenture.





*Our
      related party transactions may involve risks of conflicts of interest and
      delayed payments resulting in the conclusion of transactions on less favorable
      terms than could be obtained in arms length transactions and the risk of a
      negative impact on cash flow*





In
      Romania, the Slovak Republic and Ukraine, the local shareholders of our
      television operating companies are individuals with other business interests
      in
      those countries, including interests in television and other media related
      companies. In Romania our general director is also a shareholder in our company.
      Our local operating companies enter into transactions with parties related
      to
      our local shareholders and general directors, including barter transactions.
      We
      also have one loan outstanding to one of our local shareholders which was
      negotiated on arms length terms. Some or all of these transactions may present
      conflicts of interest that may in turn result in the conclusion of transactions
      on terms that are not arms length.





In
      addition, some related party receivables have been collected more slowly than
      unrelated third party receivables which has resulted in slower cash flow to
      our
      operating companies to the detriment of our shareholders.





It
      is likely that our subsidiaries will continue to enter into related party
      transactions in the future. As a result, there is a continuing risk that related
      party transactions will have a negative impact on cash flows.





*We
      may not be able to prevent our general directors from entering into transactions
      that are outside their authority and not in the best interests of
      shareholders*





The
      general directors of our operating companies have significant management
      authority on a local level, subject to the overall supervision by the
      corresponding company board of directors. In the past, our internal controls
      have detected transactions that have been concluded by a general director acting
      outside his authority. Internal controls are not able to prevent a general
      director from acting outside his authority, particularly if a related party
      relationship remains undisclosed to us. There is therefore a risk that a general
      director may act outside his authority and that our operating companies will
      enter into transactions that are not duly authorized. Unauthorized transactions
      may not be in the best interests of our shareholders and may have an adverse
      impact on our results of operations.





Page
            87
 *Index*





*Our
      business is subject to significant changes in technology that could adversely
      affect our business*





The
      television broadcasting industry may be affected by rapid changes in technology.
      The implementation of new technologies and the introduction of broadcasting
      distribution systems other than analogue terrestrial broadcasting, such as
      digital broadcasting, cable and satellite distribution systems, could adversely
      affect our businesses. Television broadcasting markets may face further
      competition from, and could be required to expend substantial financial and
      managerial resources on, the implementation of new broadcasting technologies.
      Countries in which we have operations have plans to migrate from analogue
      terrestrial broadcasting to digital terrestrial broadcasting. Each country
      has
      independent plans with differing time frames and regulatory regimes. The
      specific timing in any country is not fully known and we cannot predict the
      effect of such migration on our existing operations or predict our ability
      to
      receive any additional rights or licenses to broadcast if such additional rights
      or licenses should be required under any relevant regulatory regime. We may
      be
      required to commit substantial financial and other resources to the
      implementation of new technologies. We may be required to make substantial
      additional capital investment in order to implement digital terrestrial
      broadcasting and the use of alternative distribution systems may require us
      to
      acquire additional distribution and content rights. In light of our increased
      leverage position following the issuance of the Senior Notes, we may not have
      access to resources sufficient to make such investments.





*We
      have a history of net operating losses and our operations may not be profitable
      in the future*





The
      year
      ended December 31, 2004 was the first year in which we recorded net income
      from
      continuing operations. In preceding years since our incorporation, we recorded
      net operating losses from continuing operations. As of June 30, 2006, we had
      an
      accumulated deficit of US$ 54.7 million.





Our
      ability to generate operating profits and net income in the future will depend
      on a number of factors, including our ability to generate sufficient advertising
      revenues, which is affected by our ability to attract and maintain audiences,
      to
      develop additional revenue streams and to control costs in all areas of our
      operations. Although we intend to continue to invest in the acquisition of
      new
      channels and the development of further thematic channels, such investments
      may
      not be successful and we may incur significant losses in the
      future.





Our
      ability to generate operating profits and net income from our operations is
      also
      affected by a number of external factors over which we have no control, such
      as
      the level of economic growth, general economic conditions and consumer and
      advertising spending in our markets.





*We
      may not be able to enforce our indemnification rights in a timely
      manner*





Under
      the
      purchase agreement for the TV Nova (Czech Republic) group, PPF and certain
      of
      its affiliates have agreed to indemnify us for a limited period of time up
      to
      the full amount of the purchase price paid by us for the TV Nova (Czech
      Republic) group for a series of events and circumstances, including claims
      relating to taxes and claims brought by certain former shareholders of the
      TV
      Nova (Czech Republic) group. If we make an indemnification claim and we do
      not
      receive an indemnification payment or if such payment is delayed or contested,
      it may have a material adverse effect on our ability to make any required
      repayments under the terms of the Senior Notes or other indebtedness or may
      adversely affect our results of operations.





*Enforcement
      of civil liabilities and judgments may be difficult*





Central
      European Media Enterprises Ltd. is a Bermuda company, and substantially all
      of
      our assets and all of our operations are located, and all of our revenues are
      derived, outside the United States of America. In addition, several of our
      directors and officers are non-residents of the United States of America, and
      all or a substantial portion of the assets of such persons are or may be located
      outside the United States of America. As a result, investors may be unable
      to
      effect service of process within the United States of America upon such persons,
      or to enforce against them judgments obtained in the United States of America
      courts, including judgments predicated upon the civil liability provisions
      of
      the United States of America federal and state securities laws. There is
      uncertainty as to whether the courts of Bermuda and the countries in which
      we
      operate would enforce (i) judgments of United States of America courts obtained
      against us or such persons predicated upon the civil liability provisions of
      the
      United States of America federal and state securities laws or (ii) in original
      actions brought in such countries, as applicable, liabilities against us or
      such
      persons predicated upon the United States of America federal and state
      securities laws.





Page
            88
 *Index*





**Risks
      Relating to Our Common Stock**





*The
      price of our Common Stock is likely to remain volatile*





The
      market price of our Common Stock may be influenced by many factors, some of
      which are beyond our control, including those described above under “Risks
      Relating to our Business and Operations” and including the following: general
      economic and business trends, variations in quarterly operating results,
      regulatory developments in our operating countries and the EU, the condition
      of
      the media industry in our operating countries, future sales of shares of our
      Common Stock, investor and securities analyst perception of us and other
      companies that investors or securities analysts deem comparable in the
      television broadcasting industry. In addition, the stock market in general
      has
      experienced extreme price and volume fluctuations that have often been unrelated
      to and disproportionate to the operating performance of broadcasting companies.
      These broad market and industry factors may materially reduce the market price
      of our Common Stock, regardless of our operating performance.





*Our
      share price may be adversely affected by potential future issuances and sales
      of
      our shares*





As
      at
      June 30, 2006, we have a total of 1.0 million options to purchase Class A Common
      Stock outstanding and 0.2 million options to purchase Class B Common Stock
      outstanding. An affiliate of PPF holds 3,500,000 unregistered shares of Class
      A
      Common Stock and has the right to demand a registration of up to 100% of such
      shares in May 2007. We cannot predict what effect, if any, the issuance of
      shares underlying options, the registration of such unregistered shares or
      any
      future sales of our shares will have on the market price of our shares. However,
      if more shares are issued, the economic interest of current shareholders may
      be
      diluted and the price of our shares may be adversely affected.





*There
      is a risk that we may become subject to the passive foreign investment company
      rules under United States tax laws*





We
      believe, but cannot assure, that we will not be classified as a passive foreign
      investment company (PFIC) under U.S. tax laws for the current or future years.
      If we were a PFIC, then each U.S. holder of our Class A Common Stock (other
      than
      a U.S. holder whose Class A Common Stock is otherwise marked-to-market for
      U.S.
      federal income tax purposes) generally would, upon certain distributions by
      us
      or upon disposition of the Class A Common Stock at a gain, be liable to pay
      tax
      at the then prevailing rates on ordinary income plus an interest charge, as
      if
      the distribution or gain had been recognized ratably over the U.S. holder’s
      holding period for the Class A Common Stock, beginning with the year in which
      we
      become a PFIC. A U.S. holder could avoid the application of these rules by
      making a special tax election for the first year in which we become a PFIC,
      the
      effect of which generally would be to accelerate the electing U.S. holder’s
      recognition of income with respect to our Class A Common Stock. We intend to
      notify U.S. holders of our Class A Common Stock if we determine at any time
      that
      we have become or are about to become a PFIC.





The
      risks
      described here are not the only risks facing the Company. Additional risks
      and
      uncertainties not currently known to us or that we currently deem to be
      immaterial also may materially adversely affect our business, financial
      condition and/or operating results.





Page
            89
 *Index*





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





On
      June
      23, 2006, Ronald Lauder converted 57,799 shares of Class B Common Stock of
      Central European Media Enterprises Ltd. (“CME”) into 57,799 shares of Class A
      Common Stock of CME.





Shares
      of
      Class B Common Stock of CME are convertible on a one-for-one basis into shares
      of Class A Common Stock at the option of the holder for no additional
      consideration. There is no expiration date for this conversion
      right.





The
      shares of Class A Common Stock issued as a result of these conversions are
      exempt from registration pursuant to Section 3(a)(9) of the Securities Act
      of
      1933, as amended.





Page
            90
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**Item4.
      Submission of Matters to a Vote of Security
      Holders**





The
      following are the results of voting by shareholders present or represented
      at
      the Annual General Meeting of Shareholders on June 7, 2006.





a.
      Each
      of the nominees considered at the Annual General Meeting of Shareholders was
      elected to serve as a Director of the Company until the next Annual General
      Meeting of Shareholders or until their respective successors have been elected
      and qualified. The persons named below were elected to serve as Directors and
      received the number of votes set forth opposite their respective
      names:





**For**
            **Withheld**Ronald
                S. Lauder
            20,829,759
            10,733Michael
                Garin
            20,806,421
            34,031Charles
                R. Frank, Jr
            20,832,881
            7,611Herbert
                A. Granath
            20,832,861
            7,631Herbert
                Kloiber
            20,831,976
            8,516Alfred
                W. Langer
            20,806,461
            34,031Bruce
                Maggin
            20,832,961
            7,531Ann
                Mather
            20,807,161
            33,331Eric
                Zinterhofer
            20,832,811
            7,681





b.
      The
      financial statements of the Company for the fiscal year ended December 31,
      2005
      together with the auditor’s report thereon, were approved, with 20,824,198 votes
      cast for approval, 4,742 votes cast against approval and 11,551 votes
      abstaining.





c.
      The
      proposal to appoint Deloitte & Touche LLP as independent auditors to audit
      the books of the Company for the fiscal year ended December 31, 2006 and to
      authorize the directors, acting by the Audit Committee, to approve their fees
      was approved, with 20,800,652 votes cast for approval, 31,061 votes cast against
      approval and 8,778 votes abstaining.








**Item
      5. Other Information**





*Adrian
      Sarbu*





Adrian
      Sarbu was appointed general director of Pro TV in Romania pursuant to a contract
      signed on March 1, 2003, as amended. In connection with the appointment of
      Adrian Sarbu as regional director of  the Czech Republic, the Slovak
      Republic and Romania, he has been appointed an executive of CET 21, our Czech
      Republic license-holding entity.





On
      August
      1, 2006, Mr. Sarbu entered into an amended and restated contract for the
      performance of the office with CET 21 (“CET 21 Contract”) and into a letter
      agreement with us (the “Letter Agreement”). Pursuant to the CET 21 Contract, Mr.
      Sarbu’s term as an executive of CET 21 will be through December 31, 2007. During
      this period, he will be entitled to receive an annual base salary of US$ 500,000
      from CET 21.





In
      addition, pursuant to the Letter Agreement, he will be entitled to receive
      a
      bonus based on achieving an aggregate EBITDA target for the Czech and Slovak
      operations for 2006 and 2007. In the event the aggregate combined EBITDA for
      those operations for this two-year period (as reported in our Annual Report
      on
      Form 10-K for the period ended December 31, 2006 and for the period ended
      December 31, 2007, respectively) is at least US$ 273.3 million, he is entitled
      to receive a bonus of US$ 1.0 million. In the event the aggregate combined
      EBITDA exceeds US$ 273.3 million, he will be entitled to receive a bonus equal
      to 10% of the amount of such excess, provided, that the total bonus does not
      exceed US$ 5.0 million.





Page
            91
 *Index*





In
      the
      event we terminate Mr. Sarbu (other than for cause, as defined in the CET 21
      Contract), he will be entitled to his salary for the entire period and any
      bonus
      that may be payable.





Mr.
      Sarbu
      owns a 10.0% shareholding in Pro TV and MPI in Romania. Under the terms of
      a put
      option agreement between Mr. Sarbu and us entered into in July 2004, Mr. Sarbu
      has the right to sell his remaining 10.0% shareholding in Pro TV and MPI at
      a
      price to be determined by independent valuation, subject to a floor price of
      US$
      1.45 million for each 1.0% interest sold. This put is exercisable from March
      1,
      2009 for a twenty-year period thereafter.








**Item
      6. Exhibits**





a)
      The
      following exhibits are attached:





31.01
            Sarbanes-Oxley
                Certification s. 302 CEO, dated August 3, 200631.02
            Sarbanes-Oxley
                Certification s. 302 CFO, dated August 3, 200632.01
            Sarbanes-Oxley
                Certification - CEO and CFO, dated August 3, 2006 (furnished
                only)10.51
            Loan
                Agreement between Central European Media Enterprises Ltd. and European
                Bank for Reconstruction and Development, dated July 21,
                200610.52
            Pledge
                Agreement on Shares in Central European Media Enterprises N.V. among
                Central European Media Enterprises Ltd., European Bank for Reconstruction
                and Development and Central European Media Enterprises N.V., dated
                July
                21, 200610.53
            Pledge
                of Shares in CME Media Enterprises B.V. among Central European Media
                Enterprises N.V., European Bank for Reconstruction and Development
                and CME
                Media Enterprises B.V., dated July 21, 200610.54
            Deed
                of Guarantee and Indemnity between Central European Media Enterprises
                N.V.
                and European Bank for Reconstruction and Development, dated July
                21,
                200610.55
            Deed
                of Guarantee and Indemnity between CME Media Enterprises B.V. and
                European
                Bank for Reconstruction and Development, dated July 21,
                200610.56
            Contract
                Assignment between CME Media Enterprises B.V., Central European Media
                Enterprises Ltd. and European Bank for Reconstruction and Development,
                dated July 21, 200610.57
            Amendment
                of Employment Agreement (dated March 30, 2004) between Michael Garin
                and
                CME Development Corporation, dated July 28, 200610.58
            Contract
                for the Performance of the Office between CET 21 s.r.o. and Adrian
                Sarbu,
                dated August 1, 200610.59
            Letter
                Agreement between Central European Media Enterprises Ltd. and Adrian
                Sarbu, dated August 1, 2006





Page
            92
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**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:
                  August 3, 2006
              /s/
                  Michael GarinMichael
                  Garin
                Chief
                  Executive Officer
                (Duly
                  Authorized Officer)Date:
                  August 3, 2006
              /s/
                  Wallace MacmillanWallace
                  Macmillan
                Vice
                  President - Finance
                (Principal
                  Financial Officer and Accounting Officer)


Page
            93
 *Index*





**EXHIBIT
      INDEX**





31.01
            s.
                302 Sarbanes-Oxley Certification - CEO, dated August 3,
                200631.02
            s.
                302 Sarbanes-Oxley Certification - CFO, dated August 3,
                200632.01
            s.
                906 Sarbanes-Oxley Certification - CEO and CFO, dated August 3, 2006
                (furnished only)10.51
            Loan
                Agreement between Central European Media Enterprises Ltd. and European
                Bank for Reconstruction and Development, dated July 21,
                200610.52
            Pledge
                Agreement on Shares in Central European Media Enterprises N.V. among
                Central European Media Enterprises Ltd., European Bank for Reconstruction
                and Development and Central European Media Enterprises N.V., dated
                July
                21, 200610.53
            Pledge
                of Shares in CME Media Enterprises B.V. among Central European Media
                Enterprises N.V., European Bank for Reconstruction and Development
                and CME
                Media Enterprises B.V., dated July 21, 200610.54
            Deed
                of Guarantee and Indemnity between Central European Media Enterprises
                N.V.
                and European Bank for Reconstruction and Development, dated July
                21,
                200610.55
            Deed
                of Guarantee and Indemnity between CME Media Enterprises B.V. and
                European
                Bank for Reconstruction and Development, dated July 21,
                200610.56
            Contract
                Assignment between CME Media Enterprises B.V., Central European Media
                Enterprises Ltd. and European Bank for Reconstruction and Development,
                dated July 21, 200610.57
            Amendment
                of Employment Agreement (dated March 30, 2004) between Michael Garin
                and
                CME Development Corporation, dated July 28, 200610.58
            Contract
                for the Performance of the Office between CET 21 s.r.o. and Adrian
                Sarbu,
                dated August 1, 200610.59
            Letter
                Agreement between Central European Media Enterprises Ltd. and Adrian
                Sarbu, dated August 1, 2006




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