**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 March 31, 2005**





**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
      CX 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 an accelerated filer (as defined by Rule
12b-2 of the Exchange Act)


Yes x No o





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 May 3, 2005Class
      A Common Stock, par value $0.08
    24,551,400Class
      B Common Stock, par value $0.08
    7,334,768




*Table of Contents*




**CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.**





**FORM
10-Q**





**For
the quarterly period ended March 31, 2005**





**INDEX**





Page**Part
      I. Financial information****Item
      1. Financial Statements**Consolidated Balance Sheets as at March 31, 2005 and
      December 31, 2004
    3Consolidated Statements of Operations for the Three
      Months Ended March 31, 2005 and 2004
    5Consolidated Statement of Shareholders' Equity for the
      Period from December 31, 2004 to March 31, 2005
    7Consolidated Statements of Cash Flows for the Three
      Months Ended March 31, 2005 and 2004
    8Notes to the Consolidated Financial
      Statements
    9**Item
      2. Management's Discussion and Analysis of Financial
      Condition and Results of Operations**
    29**Item
      3. Quantitative and Qualitative Disclosures About
      Market Risk**
    44**Item
      4. Controls and Procedures**
    45**Part
      II. Other Information****Item
      1. Legal Proceedings**
    45**Item
      6. Exhibits**
    49**Signatures**
    49**Exhibit Index**
    50




*Page
2*
 *Table of Contents*




**Part I. Financial Information**





**Item
1. Financial Statements**





**CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.**





**CONSOLIDATED
BALANCE SHEETS**





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





**(Unaudited)**





**March
      31, 2005**
    
    **December
      31, 2004****ASSETS****Current
      Assets**Cash
      and cash equivalents
    
    $
    144,138
    
    $
    152,568Restricted
      cash
    
    
    9,208
    
    
    15,574Accounts
      receivable (net of allowances of $6,727, $6,140,
    respectively)
    
    
    45,041
    
    
    45,170Other
      receivable
    
    
    18,493
    
    
    18,368Program
      rights
    
    
    24,571
    
    
    22,055Loans
      to related parties
    
    
    300
    
    
    300Other
      short-term assets
    
    
    14,129
    
    
    11,014**Total
      Current Assets**
    
    
    **255,880**
    
    
    **265,049**Loans
      to related parties
    
    
    2,564
    
    
    2,525Investments
      in associated companies
    
    
    25,254
    
    
    28,558Acquisition
      costs (Note 12)
    
    
    11,562
    
    
    10,770Property,
      plant and equipment (net of depreciation of $66,840, $63,882,
      respectively)
    
    
    36,594
    
    
    31,548Program
      rights
    
    
    18,446
    
    
    18,299Goodwill
      (Note 5)
    
    
    60,771
    
    
    59,092Other
      intangibles (Note 5)
    
    
    28,769
    
    
    27,331Other
      assets
    
    
    1,582
    
    
    1,467**Total
      Assets**
    
    **$**
    **441,422**
    
    **$**
    **444,639**





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




*Page
3*
 *Table of Contents*




**CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.**


**CONSOLIDATED
BALANCE SHEETS (continued)**


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


**(Unaudited)**





**March
      31, 2005**
    
    **December
      31, 2004****LIABILITIES
      AND SHAREHOLDERS’ EQUITY****Current
      Liabilities:**Accounts
      payable and accrued liabilities
    
    $
    68,786
    
    $
    67,042Duties
      and other taxes payable
    
    
    21,682
    
    
    20,243Income
      taxes payable
    
    
    5,106
    
    
    4,658Credit
      facilities and obligations under capital leases
    
    
    10,195
    
    
    10,472Deferred
      consideration (Note 4)
    
    
    3,957
    
    
    6,384Deferred
      tax
    
    
    968
    
    
    946**Total
      Current Liabilities**
    
    
    **110,694**
    
    
    **109,745****Non-Current
      Liabilities**Accounts
      payable and accrued liabilities
    
    
    822
    
    
    734Credit
      facilities and obligations under capital leases
    
    
    11,279
    
    
    8,898Income
      taxes payable
    
    
    3,137
    
    
    3,120Provision
      for losses in investments in associated companies
    
    
    25
    
    
    -Deferred
      tax
    
    
    6,137
    
    
    6,213**Total
      Non-Current Liabilities**
    
    
    **21,400**
    
    
    **18,965**Minority
      interests in consolidated subsidiaries
    
    
    5,315
    
    
    4,861**SHAREHOLDERS'
      EQUITY:**Class
      A Common Stock, $0.08 par value:Authorized:
      100,000,000 shares at March 31, 2005 and December 31, 2004; issued and
      outstanding : 21,051,400 at March 31, 2005 and 21,049,400 at December 31,
      2004
    
    
    1,684
    
    
    1,684Class
      B Common Stock, $0.08 par value:Authorized:
      15,000,000 shares at March 31, 2005 and December 31, 2004; issued and
      outstanding :7,334,768 at March 31, 2005 and December 31,
    2004
    
    
    587
    
    
    587Preferred
      Stock, $0.08 par value:Authorized
      5,000,000 shares at March 31, 2005 and December 31, 2004; issued and
      outstanding : none at March 31, 2005 and December 31, 2004Additional
      paid-in capital
    
    
    390,450
    
    
    387,305Retained
      earnings/(accumulated deficit)
    
    
    (95,417
    )
    
    (87,468
    )Accumulated
      other comprehensive income
    
    
    6,709
    
    
    8,960**Total
      shareholders' equity**
    
    
    **304,013**
    
    
    **311,068****Total
      liabilities and shareholders' equity**
    
    **$**
    **441,422**
    
    **$**
    **444,639**


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




*Page
4*
 *Table of Contents*




**CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.**


**CONSOLIDATED
STATEMENTS OF OPERATIONS**


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


**(Unaudited)**





**For
      the Three Months**
      **Ended
      March 31,****2005**
    
    **2004****Net
      revenues**
    
    **$**
    **48,304**
    
    **$**
    **35,848**Operating
      costs
    
    
    11,285
    
    
    6,071Cost
      of programming
    
    
    22,322
    
    
    13,613Depreciation
      of station fixed assets and other intangibles
    
    
    2,213
    
    
    1,462**Total
      station operating costs and expenses**
    
    
    **35,820**
    
    
    **21,146**Station
      selling, general and administrative expenses
    
    
    6,928
    
    
    3,562Corporate
      operating costs (including non-cash stock based compensation (see note 9)
      of $ 3.1 million and $ 1.9 million in the three months ended March, 31
      2005 and 2004, respectively)
    
    
    7,731
    
    
    5,118Amortization
      of intangibles
    
    
    77
    
    
    -**Operating
      income/(loss)**
    
    
    **(2,252**
    **)**
    
    **6,022**Interest
      income
    
    
    1,079
    
    
    1,454Interest
      expense
    
    
    (307
    )
    
    (218
    )Foreign
      currency exchange loss, net
    
    
    (729
    )
    
    (633
    )Other
      expense
    
    
    (4,001
    )
    
    (771
    )**Income/(loss)
      before provision for income taxes, minority interest, equity in income of
      unconsolidated affiliates and discontinued
    operations**
    
    
    **(6,210**
    **)**
    
    **5,854**Provision
      for income taxes
    
    
    (2,341
    )
    
    (1,170
    )**Income/(loss)
      before minority interest, equity in income of unconsolidated affiliates
      and discontinued operations**
    
    
    **(8,551**
    **)**
    
    **4,684**Minority
      interest in income of consolidated subsidiaries
    
    
    (577
    )
    
    (78
    )Equity
      in income of unconsolidated affiliates
    
    
    834
    
    
    895**Net
      income/(loss) from continuing operations**
    
    
    **(8,294**
    **)**
    
    **5,501**Discontinued
      operations - Czech Republic:Pre-tax
      income/(loss) from discontinued operations
    
    
    118
    
    
    (330
    )Tax
      on disposal of discontinued operations
    
    
    227
    
    
    -**Income/(loss)
      on discontinued operations**
    
    
    **345**
    
    
    **(330**
    **)****Net
      income/(loss)**
    
    **$**
    **(7,949**
    **)**
    **$**
    **5,171**





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




*Page
5*
 *Table of Contents*




**CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.**


**CONSOLIDATED
STATEMENTS OF OPERATIONS (continued)**


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


**(Unaudited)**





**For
      the Three Months**
      **Ended
      March 31****2005**
    
    **2004**PER
      SHARE DATA:Net
      income per share (Note 8)Continuing
      operations - Basic
    
    $
    (0.29
    )
    $
    0.20Continuing
      operations - Diluted (as restated) (1)
    
    $
    (0.
      29
    )
    $
    0.19Discontinued
      operations - Basic
    
    $
    0.01
    
    $
    (0.01
    )Discontinued
      operations - Diluted
    
    $
    0.01
    
    $
    (0.01
    )Net
      income/(loss) - Basic
    
    $
    (0.28
    )
    $
    0.19Net
      income/(loss) - Diluted (as restated) (1)
    
    $
    (0.28
    )
    $
    0.18Weighted
      average common shares used in computing per share amounts
      (000s):Continuing
      operations - Basic (as restated) (1)
    
    
    28,385
    
    
    27,088Continuing
      operations - Diluted (as restated) (1)
    
    
    28,385
    
    
    28,879Discontinued
      operations - Basic (as restated) (1)
    
    
    28,385
    
    
    27,088Discontinued
      operations - Diluted (as restated) (1)
    
    
    28,385
    
    
    28,879Net
      income - Basic (as restated) (1)
    
    
    28,385
    
    
    27,088Net
      income - Diluted (as restated) (1)
    
    
    28,385
    
    
    28,879(1)
      See Note 8, “Earnings Per Share”





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




*Page
6*
 *Table of Contents*




**CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.**





**CONSOLIDATED
STATEMENT OF SHAREHOLDERS' EQUITY**





**(US$
000’s)**





**(Unaudited)**





**Comprehensive
      Income/(loss)**
    
    **Class
      A Common Stock**
    
    **Class
      B Common Stock**
    
    **Additional
      Paid-In Capital**
    
    **Accumulated
      Deficit**
    
    **Accumulated
      Other Comprehensive Income/(Loss)**
    
    **Total
      Shareholders' Equity****BALANCE,
      December 31, 2004**
    
    
    
    
    **$**
    **1,684**
    
    **$**
    **587**
    
    **$**
    **387,305**
    
    **$**
    **(87,468**
    **)**
    **$**
    **8,960**
    
    **$**
    **311,068**Stock-based
      compensation
    
    
    
    
    
    
    
    
    
    
    
    3,101
    
    
    
    
    
    
    
    
    3,101Stock
      options exercised
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    44Comprehensive
      income/(loss):Net
      income/(loss)
    
    $
    (7,949
    )
    
    
    
    
    
    
    
    
    
    
    (7,949
    )
    
    
    
    
    (7,949
    )Other
      comprehensive income:Unrealized
      translation adjustments
    
    
    (2,251
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,251
    )
    
    (2,251
    )Comprehensive
      income/(loss)
    
    $
    (10,200
    )**BALANCE,
      March 31, 2005**
    
    
    
    
    **$**
    **1,684**
    
    **$**
    **587**
    
    **$**
    **390,450**
    
    **$**
    **(95,417**
    **)**
    **$**
    **6,709**
    
    **$**
    **304,013**





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





*Page
7*
 *Table of Contents*







**CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.**


**CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(US$
000’s) - (Unaudited)**





**For
      the Three Months**
      **Ended
      March 31,****2005**
    
    **2004****CASH
      FLOWS FROM OPERATING ACTIVITIES:****Net
      income/(loss)**
    
    **$**
    **(7,949**
    **)**
    **$**
    **5,171**Adjustments
      to reconcile net income/(loss) to net cash used in operating
      activities:(Income)/loss
      from discontinued operations
    
    
    (345
    )
    
    330Equity
      in income, net of dividends received
    
    
    3,326
    
    
    (895
    )Depreciation
      and amortization
    
    
    15,911
    
    
    9,323Interest
      accrued on loans
    
    
    (39
    )
    
    (767
    )Stock
      based compensation
    
    
    3,101
    
    
    1,885Minority
      interest in income of consolidated subsidiaries
    
    
    577
    
    
    78Foreign
      currency exchange loss, net
    
    
    729
    
    
    633Net
      change in (net of effects of acquisitions and disposals of
      businesses):Restricted
      cash
    
    
    6,366
    
    
    (12
    )Accounts
      receivable
    
    
    (464
    )
    
    (148
    )Program
      rights costs
    
    
    (17,871
    )
    
    (10,385
    )Other
      assets
    
    
    (25
    )
    
    (723
    )Accounts
      payable and accrued liabilities
    
    
    2,119
    
    
    (2,902
    )Short
      term payables to bank
    
    
    620
    
    
    -Income
      and other taxes payable
    
    
    1,674
    
    
    (206
    )**Net
      cash generated from continuing operating
    activities**
    
    
    **7,730**
    
    
    **1,382****CASH
      FLOWS FROM INVESTING ACTIVITIES:**Acquisition
      of fixed assets
    
    
    (3,719
    )
    
    (2,281
    )Proceeds
      from disposal of fixed assets
    
    
    43
    
    
    -Investments
      in subsidiaries and affiliates (1)
    
    
    (7,149
    )
    
    (16,894
    )Acquisition
      costs
    
    
    (2,348
    )
    
    -Loans
      and advances to related parties
    
    
    -
    
    
    163License
      costs, other assets and intangibles
    
    
    -
    
    
    67**Net
      cash used in investing activities**
    
    
    **(13,173**
    **)**
    
    **(18,945**
    **)****CASH
      FLOWS FROM FINANCING ACTIVITIES:**Cash
      facilities and payments under capital leases
    
    
    (1,786
    )
    
    (685
    )Loans
      and advances with equity investments
    
    
    44
    
    
    3,238**Net
      cash received from/(used in) financing activities**
    
    
    **(1,742**
    **)**
    
    **2,553****NET
      CASH USED IN DISCONTINUED OPERATIONS (OPERATING)**
    
    
    **(293**
    **)**
    
    **(9,334**
    **)****IMPACT
      OF EXCHANGE RATE FLUCTUATIONS ON CASH**
    
    
    **(952**
    **)**
    
    **(769**
    **)**Net
      decrease in cash and cash equivalents
    
    
    (8,430
    )
    
    (25,113
    )**CASH
      AND CASH EQUIVALENTS, beginning of period**
    
    
    **152,568**
    
    
    **192,246****CASH
      AND CASH EQUIVALENTS, end of period**
    
    **$**
    **144,138**
    
    **$**
    **167,133**





(1) For
the three months ended March 31, 2004 Investments in subsidiaries and affiliates
excluded non-cash investing activities of US$ 3.4 million relating to our
increased investment in our Romanian operations. For further information, see
Note 4, "Acquisitions and Disposals".





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




*Page
8*
 *Table of Contents*









**CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.**





**Notes
to the Consolidated Financial Statements**





**March
31, 2005**





**1.**
    **Basis
      of Presentation**





Central
European Media Enterprises Ltd. is a Bermuda company that, together with its
subsidiaries and affiliates, invests in, develops and operates national and
regional commercial television stations and networks in Central and Eastern
Europe. As at March 31, 2005, we have operations in Croatia, Romania, the Slovak
Republic, Slovenia and Ukraine.





The
interim statements for the three months ended March 31, 2005 should be read in
conjunction with the Notes to the Consolidated Financial Statements contained in
our December 31, 2004 Form 10-K filed with the Securities and Exchange
Commission ("SEC") on March 15, 2005 as amended by our Form 10-K/A filed with
the SEC on April 1, 2005. In the opinion of management, the interim unaudited
financial statements included herein reflect all adjustments necessary,
consisting of normal recurring adjustments, for a presentation in conformity
with United States Generally Accepted Accounting Principles ("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. Our significant accounting policies have not materially changed since
our disclosure in Part II, Item 8, “Financial Statements and Supplementary Data”
of our December 31, 2004 Form 10-K filed with the SEC on March 15, 2005, as
amended by our Form 10-K/A filed on April 1, 2005.





The
consolidated financial statements include the accounts of Central European Media
Enterprises Ltd. and investments in entities over which we have control. We
consolidate the financial statements of entities in which we hold more than 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.





Following
the adoption of FIN 46 (R), we now consolidate Studio 1+1, a license holding and
broadcasting company in Ukraine. Studio 1+1 is within the Ukraine operations and
trades with the other companies within the group. Studio 1+1 has been
consolidated retrospectively within the presented financial statements. The
effect of restatement on the balance sheet for the comparable period is to
remove from the balance sheet the net liabilities of Studio 1+1, previously
classified under “Provision for losses in investments in associated companies”
and this is replaced by the separable assets and liabilities of the entity. The
effect of restatement on the Income Statement for the comparable period is to
remove from the income statement the one line adjustment of our share of Studio
1+1’s results for the period previously classified under “Equity in
income/(loss) of unconsolidated affiliates” and this is replaced by amounts
within the separable income and expense lines. Our maximum exposure to loss as a
result of our involvement with Studio 1+1 as at March 31, 2005 and as at
December 31, 2004 is nil.




*Page
9*
 *Table of Contents*





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.





**Stock-based
Compensation**





Stock-based
compensation costs are determined when options are issued and are measured under
the fair value method as defined in SFAS 123, "Accounting for Stock-based
Compensation" ("SFAS 123"). We adopted 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" ("SFAS 148"). In prior periods, we used the intrinsic method
of accounting as defined in APB 25, "Accounting for Stock Issued to Employees"
("APB 25"). (See Note 9, “Stock Based Compensation”).





***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 for all periods presented, using the Black-Scholes option
pricing model with the assumptions as estimated on the date of each grant, our
net income/(loss) and net income/(loss) per common share would
decrease/(increase) to the following pro forma amounts:





**For
      the Three Months Ended March 31,**
      **(US$
      000’s, except per share data)****2005**
    
    **2004**Net
      Income
    
    
    As
      Reported
    
    $
    (7,949
    )
    $
    5,171Add:
      Stock-based employee compensation expense included in reported net income,
      net of related tax effects
    
    
    As
      Reported
    
    
    3,101
    
    
    1,885Deduct:
      Total stock-based employee compensation expense determined under fair
      value based method for all awards, net of related tax
    effects
    
    
    Pro
      Forma Expense
    
    
    (3,112
    )
    
    (1,939
    )Net
      Income
    
    
    Pro
      Forma
    
    **$**
    **(7,960**
    **)**
    **$**
    **5,117**Net
      Income Per Common Share - Basic:
    
    
    As
      Reported
    
    $
    (0.28
    )
    $
    0.19Pro
      Forma
    
    
    
    
    $
    (0.28
    )
    $
    0.18Net
      Income Per Common Share -Diluted:
    
    
    As
      Reported
    
    $
    (0.28
    )
    $
    0.19
      (1
    )Pro
      Forma
    
    
    
    
    $
    (0.28
    )
    $
    0.18
      (1
    )





(1) As
restated, for further information, see Note 8, “Earnings Per Share”




*Page
10*
 *Table of Contents*




**2.**
    **Group
      Operations**





Central
European Media Enterprises Ltd. was incorporated on June 15, 1994 under the laws
of Bermuda. Our assets are held through a series of Dutch and Netherlands
Antilles holding companies. In each market in which we operate, we have
ownership interests both in license companies and in operating companies.
License companies have been authorized by the relevant local regulatory
authority to engage in television broadcasting in accordance with the terms of a
particular license. We generate revenues primarily through our operating
companies which acquire programming for broadcast by the corresponding license
holding company and enter into agreements with advertisers and advertising
agencies on behalf of the respective license company. In Romania and Ukraine,
the license company also acts as an operating company. Our share of profits in
the operating companies corresponds with our voting interest other than in the
Slovak Republic and Ukraine, where we are entitled by contract to a share of
profits that is in excess of our voting interest. Below is an overview of our
operating structure, the accounting treatment for each entity and a chart
entitled “Simplified Corporate Ownership Structure - Continuing
Operations”.





**Key
      Subsidiaries and Affiliates as at March 31,
    2005**
    **Voting
      Interest**
    **Share
      of Profits**
    **Accounting
      Treatment**
    **TV
      Network****Continuing
      Operations*****Croatia***Operating
      Company:Operativna
      Kompanija d.o.o. (OK)
    100%
    100%
    Consolidated
      SubsidiaryLicense
      Company:Nova TV d.d.
      (Nova TV Croatia)
    100%
    100%
    Consolidated
      Subsidiary
    NOVA
      TV (Croatia)***Romania***Operating
      Companies:Media
      Pro International S.A. (MPI)
    82%
    82%
    Consolidated
      SubsidiaryMedia
      Vision S.R.L. (Media Vision)
    70%
    70%
    Consolidated
      SubsidiaryLicense
      Companies:Pro
      TV S.A. - formerly Pro TV S.R.L. (Pro TV)
    82%
    82%
    Consolidated
      Subsidiary
    PRO
      TV, ACASA, PRO CINEMA and PRO TV INTERNATIONALRadio
      Pro S.R.L. - Formerly Media Pro S.R.L (Radio Pro)
    20%
    20%
    Equity
      Accounted Affiliate
    PRO
      FM (radio), INFROPRO***Slovenia***Operating
      Company:Produkcija
      Plus d.o.o. (Pro Plus)
    96.85%
    96.85%
    Consolidated
      SubsidiaryLicense
      Companies:Pop
      TV d.o.o. (Pop TV)
    96.85%
    96.85%
    Consolidated
      Subsidiary
    POP
      TVKanal
      A d.o.o. (Kanal A)
    96.85%
    96.85%
    Consolidated
      Subsidiary
    KANAL
      A***Slovak
      Republic***Operating
      Company:Slovenska
      Televizna Spolocnost s.r.o. (STS)
    49%
    70%
    Equity
      Accounted AffiliateLicense
      Company:Markiza-Slovakia
      s.r.o. (Markiza)
    34%
    0.1%
    Equity
      Accounted Affiliate
    MARKIZA
      TV
  *Page
11*
 *Table of Contents*
  ***Ukraine***Operating
      Companies:Innova
      Film GmbH (Innova)
    60%
    60%
    Consolidated
      SubsidiaryInternational
      Media Services Ltd. (IMS)
    60%
    60%
    Consolidated
      SubsidiaryEnterprise
      "Inter-Media" (Inter-Media)
    60%
    60%
    Consolidated
      SubsidiaryLicense
      Company:Broadcasting
      Company "Studio 1+1" (Studio 1+1)
    18%
    60%
    Consolidated
      Variable Interest Entity
    STUDIO
      1+1




*Page
12*
 *Table of Contents*










*Page
13*
 *Table of Contents*





*Croatia*





We own
100% of Nova TV (Croatia), which holds a national terrestrial broadcast license
for Croatia.  Nova TV (Croatia) owns 100% of OK, which provides programming
and advertising services for the NOVA TV (Croatia) channel.





*Romania*





We have
a voting and economic interest of 82% in Pro TV and MPI. Our voting and economic
interest in both companies increased from 66% to 80% on March 29, 2004 when we
acquired an additional 14% of MPI and Pro TV from Rootland Trading Limited,
which is controlled by our local partner and General Director Adrian Sarbu. We
acquired an additional 2% of MPI and Pro TV from Mr. Sarbu on February 28, 2005.
Pro TV holds all 27 PRO TV licenses, including a recently awarded license for
Constanta, Romania’s third biggest population center and main port. In addition,
Pro TV holds the licenses for ACASA, PRO TV INTERNATIONAL and PRO CINEMA.





We have
a 70% voting and economic interest in Media Vision, a production and subtitling
company.





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





*Slovenia*





We have
a 96.85% voting and economic interest in 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.





*Slovak
Republic*





We have
a 49% voting interest and are entitled to a 70% share of profits in STS,
the operating company for the MARKIZA TV network. We have a 34%
voting interest in Markiza, the license holding company for the MARKIZA TV
network, and are entitled to a 0.1% share of its profits.





*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 license for the
STUDIO 1+1 network.





Because of
regulatory restrictions on direct foreign ownership of broadcasters, our
indirect ownership interest in Studio 1+1 is 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 until such time as Ukrainian legislation allows
us to increase our direct interest in Studio 1+1 to 60%.








**3.**
    **Recent
      Accounting Pronouncements**





*Stock
Based Compensation*





On
December 16, 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based
Payment", which is a revision of SFAS 123, "Accounting for Stock-Based
Compensation". SFAS 123(R) supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees", and amends SFAS 95, "Statement of Cash Flows". Generally,
the approach in SFAS 123(R) is similar to the approach described in Statement
123. However, SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative. We will adopt SFAS 123(R) on January 1, 2006. We do not expect the
adoption of SFAS 123(R) to have a material impact on our financial statements.




*Page
14*
 *Table of Contents*





*Exchanges
of Nonmonetary Assets*





In
December 2004, the FASB issued SFAS 153 " Exchanges
of Nonmonetary Assets - An Amendment of APB Opinion No. 29" *.* SFAS
153 eliminates the exception to fair value accounting for exchanges of similar
productive assets contained in APB 29 and replaces it with a general exception
for exchange transactions that do not have commercial substance. The exception
in APB 29 required certain nonmonetary asset exchanges to be recorded on a
carryover basis with no gain/loss recognition. Under SFAS 153, exchange
transactions with commercial substance are required to be accounted for at fair
value with gain/loss recognition on assets surrendered in exchange transactions.
We will be required to adopt SFAS 153 on July 1, 2005, and believe the adoption
of this standard will not have a material impact on our financial statements.





*Accounting
for Pre-existing Relationships between the Parties to a Business
Combination*





FASB’s
Emerging Issues Task Force reached a consensus on EITF Issue No. 04-01
“Accounting for Pre-existing Relationships between the Parties to a Business
Combination” which must be applied prospectively to business combinations and
goodwill impairment tests completed in reporting periods beginning after October
13, 2004. When two parties that have a pre-existing contractual relationship
enter into a business combination, the pre-existing contractual relationship
should be evaluated to determine if a settlement of a pre-existing contractual
relationship exists. We are currently assessing the impact that this
pronouncement will have on our accounting for our acquisition of the TV Nova
(Czech Republic) Group.








**4.**
    **Acquisitions
      and Disposals**





*Romania*





*Acquisition
- MPI and Pro TV*





On
March 29, 2004, we acquired a 14% voting and economic interest in each of our
consolidated subsidiaries MPI and Pro TV from Rootland Trading Limited for
purchase consideration of US$ 20.3 million. Rootland Trading Limited is
controlled by Mr. Sarbu. This acquisition brought our total voting and economic
interest in both companies to 80%.





The
consideration for the acquisition consisted of US$ 16.9 million cash and the
settlement of loans receivable due from companies controlled by Mr. Sarbu that
he had personally guaranteed (Inter-Media srl: US$ 1.8 million and Media Pro
Pictures: US$ 1.6 million).





The
purchase price was agreed by reference to an independent valuation report which
was based on a multiple of MPI and Pro TV's future earnings. In accordance with
the SFAS No. 141, "Business Combinations" ("FAS 141"), we have allocated US$ 3.7
million to broadcast licenses, US$ 5.5 million to trademarks and US$ 2.0 million
to customer relationships, all of which were preliminarily allocated to
goodwill. We have recognized a corresponding deferred tax liability on the tax
basis difference arising from these assets. Both trademarks and broadcast
licenses have been assigned an indefinite life, while customer relationships are
deemed to have an economic useful life of, and are amortized on a straight-line
basis over, eight years. An amount of US$ 8.8 million was recognized as
goodwill.





On
February 28, 2005, we acquired from Mr. Sarbu an additional 2% voting and
economic interest in MPI and Pro TV for an aggregate consideration of US$ 5
million. Following this transaction we own a voting and economic interest in MPI
and Pro TV of 82%. The basis of the valuation of the purchase of these 2%
interests corresponded with the valuation methodology used when we purchased the
14% interest in MPI and Pro TV on March 29, 2004. In accordance with the SFAS
No. 141, "Business Combinations" ("FAS 141"), we have allocated US$ 1.2 million
to broadcast licenses, US$ 0.9 million to trademarks and US$ 0.2 million to
customer relationships. We have recognized a corresponding deferred tax
liability on the tax basis difference arising from these assets. Both trademarks
and broadcast licenses have been assigned an indefinite life, while customer
relationships are deemed to have a remaining economic useful life of, and are
amortized on a straight-line basis over, seven years. An amount of US$ 2.9
million was recognized as goodwill.




*Page
15*
 *Table of Contents*




Croatia





We
acquired 100% of Nova TV (Croatia) and OK
in Croatia for Euro 20.3 million (approximately US$ 24.7 million at the time of
acquisition) on July 16, 2004. The purchase price is payable in three
installments. Euro 15.6 million (approximately US$ 19.0 million at the time of
payment) was paid at closing on the basis of an estimated purchase price. Euro
1.7 million (approximately US$ 2.1 million at the time of payment) was paid on
February 9, 2005 following the determination of the final purchase price.
Approximately Euro 3.0 million (approximately US$ 4.0 million) of the total
purchase price will be held in escrow until July 16, 2005 pending resolution of
representation and warranty provisions contained in the acquisition agreement.
Accordingly, Euro 3.0 million (approximately US$ 4.0 million) is classified in
our consolidated balance sheet as deferred consideration as at March 31, 2005.





We have
initiated a fair value exercise to allocate the purchase price to the acquired
assets and liabilities. Upon completion of the fair value exercise, the purchase
price allocation will include the broadcast license intangible asset and other
intangible assets to be identified. We have therefore provisionally recognized
goodwill of US$ 30.9 million arising from these acquisitions which may be
subject to adjustment following the completion of the fair value exercise.








**5.**
    **Goodwill
      and Intangible Assets**





The
carrying amount of goodwill and other intangibles as at March 31, 2005 and
December 31, 2004 is as follows:





*Goodwill:*





Slovenian
      operations
    
    Ukrainian
      operations
    
    Romanian
      operations
    
    Croatian
      operations
    
    Total(US$
      000’s)**Carrying
      amount as at December 31, 2004**
    
    **$**
    **14,724**
    
    **$**
    **4,096**
    
    **$**
    **8,826**
    
    **$**
    **31,446**
    
    **$**
    **59,092**Additions
      in the period
    
    
    -
    
    
    -
    
    
    2,945
    
    
    23
    
    
    2,968Foreign
      exchange movements
    
    
    (700
    )
    
    -
    
    
    -
    
    
    (589
    )
    
    (1,289
    )**Carrying
      amount as at March 31, 2005**
    
    **$**
    **14,024**
    
    **$**
    **4,096**
    
    **$**
    **11,771**
    
    **$**
    **30,880**
    
    **$**
    **60,771**





*Other
intangibles:*





License
      acquisition cost
    
    Broadcast
      license
    
    Trademarks
    
    Customer
      relationships
    
    Total(US$
      000’s)**Carrying
      amount as at December 31, 2004**
    
    **$**
    **1,506**
    
    **$**
    **13,069**
    
    **$**
    **10,519**
    
    **$**
    **2,237**
    
    **$**
    **27,331**Additions
      in the period
    
    
    -
    
    
    1,211
    
    
    932
    
    
    158
    
    
    2,301Amortization
      in the period
    
    
    -
    
    
    (72
    )
    
    -
    
    
    (77
    )
    
    (149
    )Foreign
      exchange movements
    
    
    -
    
    
    (579
    )
    
    (135
    )
    
    -
    
    
    (714
    )**Carrying
      amount as at March 31, 2005**
    
    **$**
    **1,506**
    
    **$**
    **13,629**
    
    **$**
    **11,316**
    
    **$**
    **2,318**
    
    **$**
    **28,769**





All
license costs and trademarks are assets with indefinite useful lives and are
subject to annual impairment reviews. Our broadcast licenses primarily have
indefinite lives and are subject to annual impairment reviews, except for our
broadcast licenses in Ukraine. The licenses in Ukraine have an economic useful
life of, and are amortized on a straight-line basis over, seven to ten years.
Customer relationships are deemed to have an economic useful life of, and are
amortized on a straight-line basis over, eight years. The estimated amortization
expense is US$ 0.6 million for 2005 and US$ 0.6 million for each of the years
2006-2010.




*Page
16*
 *Table of Contents*




**6.**
    **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, Romania, the
Slovak Republic, Slovenia and Ukraine.





We
evaluate the performance of our business segments based on Segment EBITDA.
Segment EBITDA includes STS and Markiza (our operating and license companies in
the Slovak Republic) and Radio Pro in Romania, which are not consolidated under
US GAAP.





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.





Our
assets and liabilities are managed centrally and are reported internally in the
same manner as the consolidated financial statements, consequently no additional
segment information is provided in respect of assets and liabilities.





Segment
EBITDA is determined as segment net income/loss, which includes costs for
program rights amortization, 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 expenses in our consolidated statements of
      operations (i.e., corporate operating costs, stock-based compensation and
      amortization of intangibles);





·
    changes
      in the fair value of derivatives;





·
    foreign
      currency exchange gains and losses;





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





Segment
EBITDA is also used as a component in determining management bonuses.





Below
is a table showing our Segment EBITDA by operation and reconciling these figures
to our consolidated US GAAP results for the three months ended March 31, 2005
and 2004:




*Page
17*
 *Table of Contents*




**SEGMENT
      FINANCIAL INFORMATION****For
      the Three Months Ended March 31,****(US
      $000's)****Segment
      Net Revenues (1)**
    
    **Segment
      EBITDA****2005**
    
    **2004**
    
    **2005**
    
    **2004****Country**Croatia
      (NOVA TV)
    
    $
    4,955
    
    $
    -
    
    $
    (3,422
    )
    $
    -Romania
      (2)
    
    
    19,649
    
    
    14,085
    
    
    5,901
    
    
    4,318Slovak
      Republic (MARKIZA TV)
    
    
    12,644
    
    
    11,895
    
    
    2,170
    
    
    1,331Slovenia
      (POP TV and KANAL A)
    
    
    9,933
    
    
    9,657
    
    
    2,680
    
    
    3,927Ukraine
      (STUDIO 1+1)
    
    
    14,360
    
    
    12,106
    
    
    2,348
    
    
    4,357**Total
      Segment Data**
    
    **$**
    **61,541**
    
    **$**
    **47,743**
    
    **$**
    **9,677**
    
    **$**
    **13,933****Reconciliation
      to Consolidated Statement of Operations:****Consolidated
      Net Revenues / Income/(loss) before provision for income taxes, minority
      interest, equity in income of unconsolidated affiliates and discontinued
      operations**
    
    **$**
    **48,304**
    
    **$**
    **35,848**
    
    **$**
    **(6,210**
    **)**
    **$**
    **5,854**Corporate
      operating costs (including non-cash stock based compensation (see note 9)
      of $ 3.1 million and $1.9 million for the three months ended March 31,
      2005 and 2004, respectively))
    
    
    -
    
    
    -
    
    
    7,731
    
    
    5,118Amortization
      of intangibles
    
    
    -
    
    
    -
    
    
    77
    
    
    -Unconsolidated
      equity affiliates (3)
    
    
    13,237
    
    
    11,895
    
    
    1,908
    
    
    1,331Station
      Depreciation
    
    
    -
    
    
    -
    
    
    2,213
    
    
    1,462Interest
      income
    
    
    -
    
    
    -
    
    
    (1,079
    )
    
    (1,454
    )Interest
      expense
    
    
    -
    
    
    -
    
    
    307
    
    
    218Foreign
      currency exchange loss, net
    
    
    -
    
    
    -
    
    
    729
    
    
    633Other
      expense
    
    
    -
    
    
    -
    
    
    4,001
    
    
    771**Total
      Segment Data**
    
    **$**
    **61,541**
    
    **$**
    **47,743**
    
    **$**
    **9,677**
    
    **$**
    **13,933**





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





(2)
Romanian channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, PRO FM
and INFOPRO.





(3)
Unconsolidated equity affiliates are STS in the Slovak Republic and Radio Pro in
Romania




*Page
18*
 *Table of Contents*




**7.**
    **Summary
      Financial Information for Significant Unconsolidated
      Affiliates**





**STS
      (MARKIZA TV)****As
      at March 31, 2005**
    
    **As
      at December 31, 2004****(US$
      000's)**
    
    **(US$
      000's)**Current
      assets
    
    $
    23,817
    
    $
    25,548Non-current
      assets
    
    
    17,498
    
    
    16,919Current
      liabilities
    
    
    (26,844
    )
    
    (15,445
    )Non-current
      liabilities
    
    
    (124
    )
    
    (149
    )Net
      Assets
    
    **$**
    **14,347**
    
    **$**
    **26,873**








**STS
      (MARKIZA TV)****For
      the Three Months Ended March 31,****2005**
    
    **2004****(US$
      000's)**
    
    **(US$
      000's)**Net
      revenues
    
    $
    12,644
    
    $
    11,895Operating
      costs
    
    
    11,040
    
    
    11,171Operating
      income
    
    
    1,604
    
    
    724Net
      income
    
    
    1,297
    
    
    803Movement
      in accumulated other comprehensive income
    
    
    1,848
    
    
    61





Our
share of income in Unconsolidated Affiliates for STS was US$ 0.9 million and US$
0.7 million for the first three months of 2005 and 2004, respectively.





**8.**
    **Earnings
      Per Share**





We
account for earnings per share pursuant to FAS No. 128, “Earnings Per Share.”
Basic net income per common share (“Basic EPS”) is computed by dividing net
income by the weighted average number of common shares outstanding. Diluted net
income per common share (“Diluted EPS”) is computed by dividing net income by
the weighted average number of common shares and dilutive common share
equivalents then outstanding. FAS No. 128 requires the presentation of both
Basic EPS and Diluted EPS on the face of the consolidated statement of
operations. A reconciliation between the numerator and denominator of Basic EPS
and Diluted EPS is as follows:





**For
      the Three Months Ended March 31,****Net
      Income (US$ 000's)**
    
    **Common
      Shares (000's)**
    
    **Net
      Income per Common Share****2005**
    
    **2004**
    
    **2005**
    
    **2004
      (as restated)**
    
    **2005**
    
    **2004
      (as restated)**Basic
      EPSNet
      income attributable to common stock
    
    $
    (7,949
    )
    $
    5,171
    
    
    28,385
    
    
    27,088
    
    $
    (0.28
    )
    $
    0.19Effect
      of dilutive securities : stock options
    
    
    -
    
    
    -
    
    
    -
    
    
    1,791
    
    
    -
    
    $
    (0.01
    )Diluted
      EPSNet
      income attributable to common stock
    
    **$**
    **(7,949**
    **)**
    **$**
    **5,171**
    
    
    **28,385**
    
    
    **28,879**
    
    **$**
    **(0.28**
    **)**
    **$**
    **0.18**




*Page
19*
 *Table of Contents*





*Restatement
of 2004 Earnings Per Share*





FAS 128
requires the same number of potential common shares used in computing the
diluted per share amount for income from continuing operations be used in
computing the diluted per share amounts for discontinued operations and net
income where there is a loss from continuing operations. Also, in determining
the weighted average number of common shares used in the earnings per share
computations, it is required to calculate a weighted average number of shares
issued and outstanding during the period. In the three months ended March 31,
2004 we incorrectly computed the fully diluted earnings per share for
discontinued operations and fully diluted earnings per share. We also
incorrectly calculated basic and diluted weighted average number of shares
outstanding in the three months ended March 31, 2004. The following table
summarizes the restated weighted average common shares and earnings per share
for the three months ended March 31, 2004.





**As
      previously reported**
    
    **As
      restated**Continuing
      operations - BasicWeighted
      average common shares used in computing per share amounts
      (000s)
    
    
    27,686
    
    
    27,088Continuing
      operations - DilutedIncome
      from continuing operations per share
    
    $
    0.18
    
    $
    0.19Weighted
      average common shares used in computing per share amounts
      (000s)
    
    
    30,008
    
    
    28,879Discontinued
      operations - BasicWeighted
      average common shares used in computing per share amounts
      (000s)
    
    
    27,686
    
    
    27,088Discontinued
      operations - DilutedWeighted
      average common shares used in computing per share amounts
      (000s)
    
    
    27,686
    
    
    28,879Net
      Income -BasicWeighted
      average common shares used in computing per share amounts
      (000s)
    
    
    27,686
    
    
    27,088Net
      Income - DilutedNet
      Income per share
    
    $
    0.17
    
    $
    0.18Weighted
      average common shares used in computing per share amounts
      (000s)
    
    
    30,008
    
    
    28,879








**9.**
    **Stock-based
      Compensation**





Stock-based
compensation costs are determined when options are issued and are measured under
the fair value method as defined in SFAS 123. We adopted SFAS 123 prospectively
for employee stock option awards granted, modified, or settled beginning January
1, 2003, as required by SFAS 148. In prior periods, we used the intrinsic method
of accounting as defined in APB 25.





**2004
Option Grants**





Pursuant
to the 1995 Stock Option Plan, the Compensation Committee of our Board of
Directors administers the award of stock options to employees and non-employee
directors. No stock options were awarded in the three months ended March 31,
2005. The weighted average fair value of all grants made in the three months
ended March 31, 2004 was US$10.17 per option.




*Page
20*
 *Table of Contents*





In
accordance with SFAS 123, the total grant-date fair value of awarded options is
recognized in the Statement of Operations using straight-line amortization over
the vesting period of the award. In the three months ended March 31, 2005 a
total charge of US$ 0.4 million was recognized, consisting solely of charges
made for awards granted in previous periods. In the three months ended March 31,
2004, a total charge of US$ 0.2 million was recognized.





For
certain options issued in 2000, our stock-based compensation charge is
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 charge as a result of variable plan
accounting increased by US$ 0.9 million for the three months ended March 31,
2005 compared to the three months ended March 31, 2004. This is primarily
attributable to a greater increase in the price of our Class A Common Stock
during the three months ended March 31, 2005 compared to the three months ended
March 31, 2004.





The
charge for stock-based compensation in our consolidated income statement can be
summarized as follows:





**For
      the Three Months Ended March 31,**
      **(US$
      000’s)****2005**
    
    **2004**Stock-based
      compensation charged under FIN 44 (Variable Plan
    Accounting)
    
    $
    2,656
    
    $
    1,726Stock-based
      compensation charged under SFAS 123
    
    
    445
    
    
    159Total
      stock-based compensation
    
    $
    3,101
    
    $
    1,885








**10.**
    **Warrants**





As a
result of our 2002 transaction with GoldenTree Asset Management LLC, 696,000,
shares of Class A Common Stock issuable on exercise of warrants with an exercise
price of US$ 2.504 were registered for resale with the SEC on February 4, 2004
and exercised on February 19, 2004. We received US$ 1.7 million on exercise and
the stock issued is included in our 24,551,400 of Class A Common Stock
outstanding as at May 3, 2005.








**11.**
    **Commitments
      and Contingencies**





*Litigation*





*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,
including operations in the Czech Republic, which we acquired on May 2,
2005.




*Page
21*
 *Table of Contents*




*Croatia*





On
October 29, 2004, OK filed suit against Global Communications d.o.o. claiming
approximately HRK 53 million (approximately US$ 9.2 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 a 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 suit in order 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 million (approximately US$ 11.8 million), claiming that AGB data
is unreliable and that it is entitled to additional seconds under the previous
agreement. We do not believe that these counterclaims will prevail.





*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 Slovenia BV. 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$ 0.2 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 believe Mrs.
Meglic’s claim is without merit and will continue to defend the claim.
Accordingly, we have made no provision for this claim in our consolidated
balance sheets as at March 31, 2005.





*Slovak
Republic*





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





*Ukraine*





In July
2004, AITI launched proceedings against the Ukraine Media Council and Studio 1+1
to challenge the award of the additional nine-hour license to Studio 1+1. In
September 2004, the Economic Court of Kiev dismissed this claim. AITI appealed
to the Court of Appeal, which also found in favor of the Ukraine Media Council
and Studio 1+1. AITI appealed
to the more senior Court of Cassation, which also rejected the claim at a
hearing dated January 11, 2005. AITI lodged a request to appeal to the Supreme
Court of Ukraine on February 18, 2005. The Supreme Court rejected the appeal on
March 17, 2005 and no further appeals in this matter are possible.




*Page
22*
 *Table of Contents*




*Czech
Republic*





Following
our completion of the TV Nova acquisition on May 2, 2005, we own an 85% interest
in Ceska Produkcni 2000 a.s. (“CP 2000”), which provides certain services in
respect of programming, production and the sale of advertising on behalf of the
TV NOVA (Czech Republic) channel, and an 85% interest in Vilja a.s. Vilja holds
52.075% of CET 21, which holds the TV NOVA (Czech Republic) license. On February
24, 2005 we entered into the Krsak Agreement to settle outstanding claims of Mr.
Krsak against the TV Nova (Czech Republic) Group and to acquire his entire
interest in CET 21. At the completion of the transaction contemplated by the
Krsak Agreement, we will own a direct 16.67% interest in CET 21.





Companies
within the TV Nova (Czech Republic) Group are party to litigation from time to
time. Certain material proceedings in respect of the TV Nova (Czech Republic)
Group are described below. We have not been party to any of these proceedings
prior to the completion of our acquisition of the TV Nova (Czech Republic)
Group.





*Claims
Relating to the Vilja Shareholding in CET 21*





On May
20, 2002, Vilja acquired its ownership interest in CET 21 from Messrs. Alan,
Huncik and Venclik. On July 19, 2002, Peter Krsak, a shareholder of CET 21,
filed a claim with the City Court in Prague challenging a number of CET 21
shareholder resolutions adopted by written consent (the “Krsak 2002 Petition”).
In relevant part, his complaint included challenges to (1) a decision of the CET
21 shareholders of April 22, 2002 to approve the transfer by Messrs. Alan and
Venclik of their ownership interests in CET 21 to Vilja and (2) a written
resolution of the CET 21 shareholders on the redistribution of a 60% interest in
CET 21 then held by the company itself. (This 60% interest had previously been
held by Vladimir Zelezny, who had been forced to relinquish it in an enforcement
proceeding against him following his default on a judgment adverse to him in
another proceeding). These claims, in effect, constitute a challenge to the
ownership by Vilja of a 52.075% ownership interest in CET 21.





Among
the grounds put forward by Mr. Krsak was that he was given insufficient time to
respond to the proposed resolutions. In addition, with regard to the claim
regarding the transfer of the interests held by Messrs Alan and Venclik, Mr.
Krsak is contending that the transfer agreements do not describe the interests
being transferred by them to Vilja with complete accuracy. In response to this
petition, CET 21 argued, among other things, that the resolution had been duly
delivered to Mr. Krsak in a timely manner, that the interest to be transferred
to Vilja had been defined in good faith and that even a negative vote by Mr.
Krsak on the shareholder resolutions would not have affected the outcome of the
voting, which required a simple majority vote under the corporate documents of
CET 21.





On June
18, 2003, before the City Court had issued a decision in the Krsak 2002
Petition, CET 21 petitioned the City Court to approve, among other things, the
registration of Vilja in the commercial register maintained by the City Court
(the “Commercial Register”) as the owner of 52.075% of CET 21 (the “CET 21
Petition”).





On
November 20, 2003, the City Court found in favor of Mr. Krsak in respect of the
Krsak 2002 Petition on the basis that he had had insufficient time to respond to
the resolutions. In a hearing in respect of the CET 21 Petition on December 10,
2003, the City Court refused to register Vilja as requested in the CET 21
Petition and ordered the registration of a group of shareholders that had
previously owned CET 21.





CET 21
filed an appeal on January 24, 2004 in respect of the CET 21 Petition to the
High Court of Prague and a separate appeal on February 5, 2004 in respect of the
Krsak 2002 Petition.





The
High Court of Prague in a decision dated May 27, 2004 vacated the decision of
the City Court in the CET 21 Petition. Furthermore, the decision of the High
Court stated the legal position of the High Court on the following salient
points: (1) the transfer agreements by which Vilja acquired a 52.075% interest
in CET 21 are valid, (2) Zelezny held a 60% ownership interest in CET 21
pursuant to a shareholder resolution validly adopted in 1997, and (3) Zelezny
ceased to hold a 60% interest in CET 21 following the successful completion of
the enforcement proceeding. According to legal advice we have received from
local counsel, the legal opinion expressed by the High Court in respect of the
CET 21 Petition is binding on the City Court.




*Page
23*
 *Table of Contents*




On
October 18, 2004, the High Court of Prague, after concluding that the time
limits to respond to the shareholder resolution were sufficient, vacated the
decision of the City Court in the Krsak 2002 Petition and returned the case for
further proceedings. The High Court instructed the City Court to give due regard
in any further proceedings to other decisions taken in related matters, which,
according to legal advice we have received from local counsel, includes the
decision of the High Court dated May 27, 2004 in respect of the CET 21
Petition.





No
further hearings have been scheduled in respect of the CET 21 Petition. In
connection with the Krsak Agreement, a hearing in respect of the Krsak 2002
petition at the City Court of Prague scheduled for March 8, 2005 has been
suspended by the parties.





The
ability of the City Court to conduct further proceedings on the registration of
Vilja as the owner of 52.075% of CET 21 requires the Supreme Court of the Czech
Republic to release the share register of CET 21. The share register was lodged
with the Supreme Court in connection with an extraordinary appeal by Mr. Krsak
in an action originally initiated by CET 21 in 2000. In that action, CET 21
sought to register a replacement for Mr. Krsak as an executive of CET 21
following his removal. The City Court of Prague dismissed the petition. After
the High Court of Prague amended the decision of the City Court and approved the
registration of the change in directors, Mr. Krsak filed his extraordinary
appeal on August 8, 2003. The Supreme Court has not scheduled a hearing in this
matter. Prior to a hearing before the Supreme Court in this matter and a
resolution thereof, there will not be a formal resolution of the CET 21 Petition
and Vilja cannot be formally registered as a shareholder of CET 21.





Subject
to the satisfaction of a certain conditions, the Krsak Agreement provides that
Mr. Krsak will file petitions to withdraw all of his claims in respect of the TV
Nova (Czech Republic) Group. The conditions relating to the consents of the
Czech Media Council and of the general meeting of shareholders of CET 21 to the
transfer of his interest in CET 21 to us were satisfied in April 2005. Mr. Krsak
will now be required to deliver petitions to withdraw all claims then existing
in front of any relevant court. Such petitions will have to have been registered
by any such court in advance of his receiving any payment for his ownership
interest in CET 21 from us.





*Claims
brought by Alan, Huncik, Venclik and Gal*





On May
7, 2003, Alan, Huncik, Venclik and Gal, former shareholders of CET 21, filed a
claim against Krsak, Zelezny, CET 21, CEDC and CS with the City Court in Prague.
The substance of this challenge concerns the basis on which Zelezny purported to
increase his ownership interest in CET 21 to 60% in 1997. On July 4, 2003, CET
21 filed a response refuting the challenges.





Until
Alan, Huncik and Venclik entered into transfer agreements with Vilja on May 20,
2002, they each held an interest in CET 21 (with 8.42% held by Alan, 4.34% by
Huncik and 8.71% by Venclik). Following the decision of the City Court in Prague
in respect of the Krsak 2002 Petition (which challenged the transfers by Alan
and Venclik on the grounds that the interests being transferred to Vilja were
inaccurately described), each of Alan, Huncik and Venclik entered into a second
set of transfer agreements with Vilja intended to remedy any defects in the
earlier transfer agreements. In addition, they and Gal entered into another set
of agreements regulating, among other things, consideration for the interests
transferred by Alan, Huncik and Venclik as well as their conduct in respect of
the claim filed on May 7, 2003. Specifically, they undertook to withdraw this
claim prior to any hearing. No hearing on this claim has been scheduled and this
claim has not been withdrawn to date.





*Claims
Relating to the Interests of CS and CEDC in CET 21*





On
April 2, 2003, CS entered into an agreement with Vilja to transfer its 1.25%
interest in CET 21 to Vilja. This transfer was approved by a resolution of the
CET 21 shareholders adopted by written consent on May 16, 2003. Mr. Krsak filed
a petition against CET 21 in the City Court in Prague on August 8, 2003 to
declare the shareholders resolution invalid. No hearing has been scheduled on
this matter.





CET 21
adopted a shareholder resolution by written consent on January 5, 2004 to
approve the transfer of the 1.25% interest of CEDC in CET 21 to PPF. Mr. Krsak
filed a petition against CET 21 in the City Court in Prague on February 3, 2004
to declare this shareholders resolution invalid. No hearing has been scheduled
on this matter.




*Page
24*
 *Table of Contents*




The
consent of the Czech Media Council to the transfer of each of these 1.25%
interests has been requested but has not yet been issued.





The
Krsak Agreement provides for the withdrawal by Mr. Krsak of these
claims.





*Disposition
of the CET 21 Interest Held by CET 21*





Following
an enforcement proceeding against Vladimir Zelezny in another matter, his 60%
interest passed to CET 21 and is held by it. The CET 21 shareholder resolution
of July 4, 2002 provided for the redistribution of this 60% interest among
Vilja, Krsak, CEDC and CS, the four remaining shareholders of CET 21. Only Vilja
elected to participate in the redistribution of that interest; it acquired its
pro rata portion of the 60% interest and thereby increased its ownership in CET
21 to 52.075% (from a 20.83% interest of an aggregate 40% interest then held by
the four remaining shareholders). None of Krsak, who holds a 16.67% interest in
CET 21, or CS or CEDC, which each holds a 1.25% interest, participated in the
redistribution. As a result, their pro rated portions of the 60% interest (equal
to an aggregate 28.755% interest in CET 21) continue to be held by CET 21
itself. CET 21 cannot dispose of this 28.755% interest prior to the resolution
of claims relating to the Vilja ownership interest described above.





*Other
Claims*





On
January 25, 2005, Mr. Krsak filed an action on his own behalf and on behalf of
CET 21 against twenty-five parties, including PPF and its affiliates, CP 2000,
Vilja, and certain former and current members of management. In his filing, Mr.
Krsak is claiming damages to himself in the amount of approximately CZK 1.25
billion (approximately US$ 56.0 million) and on behalf of CET 21 in the amount
of approximately CZK 7.5 billion (approximately US$ 335.9 million). The
substance of this claim is that various entities and persons controlling CET 21
caused CET 21 damage by entering into agreements on disadvantageous terms with
service companies related to such controlling person (such as CP 2000 and Mag
Media ).





The
Krsak Agreement provides for the withdrawal by Mr. Krsak of these claims.
Following the execution of the Krsak Agreement, Mr. Krsak and the relevant
counterparty of the TV Nova (Czech Republic) Group have agreed to suspend any
hearings that have arisen in respect of such claims.


****





*Financial
Commitments — Existing Entities*





Our
existing operations, with the exception of Croatia, are expected to be
self-supporting in terms of funding during 2005, with cash being available
through local credit facilities and/or generated from operations.





*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 holding companies will be renewed prior to expiry. In Romania, the
Slovak Republic, Slovenia and Ukraine local regulations do 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 in the ordinary course of business; 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.





*Station
Programming Rights Agreements*





As at
March 31, 2005, we had program rights commitments of US$ 18.3 million compared
with US$ 18.1 million at December 31, 2004, in respect of future programming,
which includes contracts signed with license periods starting after the balance
sheet date.




*Page
25*
 *Table of Contents*





*Operating
Lease Commitments*





For the
periods ended March 31, 2005 and 2004 we incurred aggregate rent on all
facilities of US$ 0.7 million and US$ 0.4 million, respectively. Future minimum
operating lease payments at March 31, 2005 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:




**As
      at March 31, 2005**
      **(US$
      000’s)**2005
    
    $
    2,1442006
    
    
    1,7652007
    
    
    1,2742008
    
    
    1,0412009
    
    
    3872010
      and thereafter
    
    
    387**Total**
    
    **$**
    **6,998**





*Dutch
Tax*





On
February 9, 2004 we entered into an agreement with the Dutch tax authorities to
settle all tax liabilities outstanding for the period through 2003, including
receipts in respect of our 2003 award in the arbitration against the Czech
Republic, for a payment of US$ 9.0 million. We expected to continue to pay tax
in the Netherlands of between US$ 1.0 and US$ 2.5 million for the foreseeable
future and therefore also agreed to a minimum tax payable of US$ 2.0 million per
year for the years 2005-2008 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
March 31, 2005 we provided US$ 2.9 million (US$ 2.7 million in non-current
liabilities and US$ 0.2 million in current liabilities) (as at December 31,
2004: US$ 3.5 million (US$ 3.1 million in non-current liabilities and US$ 0.4
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 may fall due over this period from business operations, based
on current business structures and economic conditions and released US$ 0.2
million through discontinued operations in our consolidated statement of
operations for the three months ended March 31, 2005.





*Slovenia
- Put Options*





On
January 31, 2003 we entered into a put option with Marijan Jurenec, the general
director of Pro Plus, our Slovenian operation for his 3.15% interest in Pro
Plus. Under the terms of the agreement, Mr. Jurenec has the right to put his
interest to us through January 30, 2006. The put is fixed at a price of Euro 4.3
million (approximately US$ 5.6 million) which is calculated with a formula using
Slovenian Segment EBITDA as at December 31, 2004. We have the right to call the
same interest at any time until December 31, 2006. If exercised, this call will
be at a price that is the same as the put price until January 30, 2006, and
approximately Euro 5.4 million (approximately US$ 7.0 million) thereafter until
December 31, 2006. We have determined a fair value of the option in an amount of
US$ 0.6 million at March 31, 2005 (December 31, 2004: US$ 0.6 million) and this
has been recorded as a liability.








*Romania
- Put Options*





We
signed a put option agreement with Mr. Sarbu in July 2004 that grants him the
right to sell us 5% of his interest in MPI and Pro TV between March 1, 2006 and
February 28, 2009 and his remaining interest from March 1, 2009 and for a
twenty-year period thereafter. The put price will be determined in each instance
by an independent valuation and is subject to a floor price. Following our
purchase of a 2% interest in MPI and Pro TV from Mr. Sarbu (for further
information, see Note 4, “Acquisitions and Disposals”), he will be allowed under
the put option agreement to put to us 3% of his interest between March 1, 2006
and February 28, 2009 and his remaining interest from March 1, 2009 and for a
twenty-year period thereafter.




*Page
26*
 *Table of Contents*





The
minimum price to be paid by us is US$ 1.45 million per each one percent
interest. As at
March 31, 2005, w e
consider the likelihood of the put option being valued below US$ 1.45 million
per each one percent interest to be remote. Therefore it is not
valued and is not recorded in our consolidated balance sheet.





**12.**
    **Acquisition
      Costs**





**As
      at March 31, 2005**
    
    **As
      at December 31, 2004******
    
    
    **(US$
      000's**
    **)**
    
    **(US$
      000's**
    **)**Acquisition
      costs
    
    **$**
    **11,562**
    
    **$**
    **10,770**





As at
March 31, 2005 we have recorded US$ 11.6 million of acquisition costs
(principally fees relating to legal and accounting diligence and mergers and
acquisitions advisory services) in relation to the TV Nova (Czech Republic)
Acquisition compared with US$ 10.8 million as at December 31, 2004 (see Note 13,
“Subsequent Events”).








**13.**
    **Subsequent
      Events**





On
April 28, 2005, we entered into an underwriting agreement with J.P. Morgan
Securities Ltd., Lehman Brothers Inc. and ING Bank N.V. London Branch
(collectively, the “underwriters”) providing for the issue and sale to the
underwriters of 4,700,000 shares of Class A common stock of CME at a price per
share of US$ 42.889 (after underwriters’ discounts). Pursuant to the terms of
the underwriting agreement, the underwriters have exercised their option to
purchase up to 705,000 additional shares of Class A common stock. The sale of
5,405,000 shares closed on May 5, 2005. We received net proceeds of
approximately US$ 232 million from sale.





On
April 29, 2005, we entered into a purchase agreement providing for the issuance
and sale by CME of Euro 370 million (US$ 479 million) senior notes, consisting
of Euro 245 million (US$ 317 million) 8.25% senior notes due 2012 and Euro 125
million (US$ 162 million) senior floating rate notes due 2012, which have been
issued at a rate equal to six-month EURIBOR plus 5.5%.The purchase was completed
on May 5, 2005. We received net proceeds of approximately Euro 361 million (US$
468 million) from sale.





In
connection with the issuance of the senior notes, we have entered into an
indenture with J.P. Morgan Chase Bank N.A. London branch as trustee, which
indenture governs the terms of the senior notes, including covenants that
restrict our ability to incur additional indebtedness, to pay dividends, to make
investments and other payments, to merge or sell substantially all of our
assets. Two wholly-owned subsidiaries are providing guarantees of this
indebtedness and their shares have been pledged as security for this
indebtedness. Certain of our contractual rights related to the TV Nova (Czech
Republic) acquisition have been assigned to the trustee in connection with the
issuance of the senior notes.





The
proceeds of the offering of the senior notes have been applied towards our
acquisition of a controlling interest in the TV Nova (Czech Republic) Group,
which we acquired from PPF on May 2, 2005 for approximately US$ 631 million.
Consideration includes cash of approximately US$ 492 million and 3,500,000
unregistered shares of CME’s Class A common stock. The final purchase price is
subject to adjustment based on a post-completion audit for changes in the level
of working capital and indebtedness.




*Page
27*
 *Table of Contents*





As a
result of this transaction, we have acquired an 85% interest in Ceska produkcni
2000 a.s., which provides services related to programming, production and
advertising to TV Nova, and an 85% interest in Vilja a.s. Vilja owns a 52.075%
interest in CET 21 s.r.o., which holds the national terrestrial broadcast
license for TV NOVA in the Czech Republic. Minority interests in CET 21 are
currently held by Peter Krsak (16.67%), Ceska Sporitelna a.s. (1.25%) and CEDC
GmbH (1.25%). The remaining 28.755% interest in CET 21 is currently held by CET
21 itself. On February 24, 2005, we entered into an agreement on the settlement
of disputes and transfer of ownership interest with Mr. Krsak, providing for the
transfer of his entire ownership interest in CET 21 to us following the
withdrawal of all of his outstanding claims regarding the TV Nova business. The
Czech Media Council consented to this transfer on April 20, 2005 and the
shareholders of CET 21 consented to this transfer of April 22, 2005. We expect
to complete the purchase of the interest of Mr Krsak by the third quarter of
2005.





Subject
to the consent of the Czech Media Council, the interests of Ceska Sporitelna and
CEDC will also be transferred to the TV Nova (Czech Republic)
Group.





*In
connection with the issuance to PPF of 3,500,000 unregistered shares of our
Class A common stock as partial consideration for the acquisition of an interest
in the TV Nova (Czech Republic) Group, we have also entered into a registration
rights agreement with PPF dated May 2, 2005, pursuant to which PPF shall be
granted up to three demand registrations as well as certain piggyback
registration rights. The first registration demand will be exercisable from May
2, 2006 and all such registration rights expire on May 1,
2009.*





In
connection with the completion of the acquisition of a controlling interest in
the TV Nova (Czech Republic) Group, CME and CME BV have also entered into a deed
of guarantee with PPF a.s. dated May 2, 2005 (the “PPF Guarantee”) and a deed of
guarantee with PPF N.V. dated May 2, 2005 (the “Parent Guarantee”). The PPF
Guarantee and the Parent Guarantee have been issued in support of any
indemnification claims that may be made against PPF pursuant to the Framework
Agreement dated December 13, 2004 (as described in our Report on Form 8-K filed
on December 15, 2004, the “Framework Agreement”). PPF and PPF a.s. are liable
for indemnification claims arising under the Framework Agreement. In the event
indemnification claims exceed CZK 2 billion (approximately US$ 90 million), PPF
N.V. will guarantee for all indemnification claims from such moment in respect
of any amounts then subject to a claim for indemnification.





We have
also entered into an agreement with PPF dated May 2, 2005 (the “TV Nova Group
Agreement”) that provides for certain rights in respect of the governance of the
TV Nova (Czech Republic) Group and in respect of transfers of interests in the
TV Nova (Czech Republic) Group held by the CME parties or PPF. Under the TV Nova
Group Agreement, we will have the right to appoint a majority of the members of
the boards of management and the supervisory boards of all companies of the TV
Nova (Czech Republic) Group. In addition, pursuant to the TV Nova Group
Agreement, we are acquiring a call on the remaining 15% interest in the TV Nova
(Czech Republic) Group held by PPF that is exercisable at any time after May 2,
2005. The call price is capped at 25% of the value of the TV Nova group at
completion and is subject to certain adjustments and other terms. Following the
transfer of Mr Krsak’s interest to us, we expect to exercise the call. We
anticipate our total investment to acquire 100% of the TV Nova (Czech Republic)
group to be approximately US$ 930 million including all fees.




*Page
28*
 *Table of Contents*





**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
expected impact of the acquisition of the TV Nova (Czech Republic) Group on our
financial results, the expected date of completion of the acquisition of the
minority interest of Peter Krsak in CET 21 s.r.o., the exercise price and
expected exercise date of our call option in connection with the acquisition of
the remaining interest of PPF in the TV Nova (Czech Republic) Group, our ability
to complete the acquisition of the minority interest of Mr. Krsak and the
remaining interest of PPF in the TV Nova (Czech Republic) Group, our anticipated
total investment to acquire 100% of the TV Nova (Czech republic) group, our
ability to integrate the TV Nova (Czech Republic) Group into our operations, the
effect of additional investment in Croatia, the growth of television advertising
in our markets, the future economic conditions in our markets, future
investments in television broadcast operations and the financing thereof, the
growth potential of advertising spending in our markets, and 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* ***,*** *compliance by Mr Krsak with the terms of sale of his minority interest, the rate
of development of advertising markets in countries where we operate, general
market and economic conditions in these countries as well as in the United
States and Western Europe, the renewals of broadcasting licenses, the ability to
acquire programming and the ability to attract audiences, the general regulatory
environments where we operate and application of relevant laws and
regulations.*





The
following discussion should be read in conjunction with the section entitled
"Risk Factors" on pages 10 through 17 in our December 31, 2004 Form 10-K filed
with the Securities and Exchange Commission ("SEC") on March 15, 2005 as amended
by our Form 10-K/A filed with the SEC on April 1, 2005 in addition to our
interim financial statements and notes included elsewhere in this report.








***II.***
    ***Executive
      Summary***





*TV
NOVA (Czech Republic) Acquisition*





·
    On
      May 2, 2005, we completed the acquisition of a controlling interest in the
      TV Nova (Czech Republic) Group. With the completion of this acquisition,
      we have acquired one of the most watched television stations in Europe (in
      terms of national all day audience share).




*Page
29*
 *Table of Contents*




·
    With
      the addition of the TV Nova(Czech Republic)Group
      to our operations, we will be operating a business with estimated Segment
      net revenues of approximately two times our pre-acquisition levels and we
      expect to generate significant positive net income and cash-flow from our
      operations. The
      TV Nova (Czech Republic) Group reported total net revenues of US$ 207.8
      million, operating profit of US$ 92.7 million and net income of US$ 55.0
      million for the twelve months ended December 31, 2004. (All figures in
      respect of the TV Nova (Czech Republic) Group are determined in accordance
      with US GAAP. The accounting policies used in compiling the combined
      accounts for the TV Nova (Czech Republic) Group, which occurred prior to
      our acquisition, may differfrom
      those used by us; and the basis of combination of the entities included in
      the TV Nova(Czech
      Republic)Group
      may differ from the basis of consolidation that we apply to the inclusion
      of those entities in our accounts following
completion).





·
    As
      a result of this acquisition, we own 85% of each of Vilja a.s. and Ceska
      Produkcni 2000 a.s. (“CP 2000”). Vilja owns approximately 52% of CET 21
      s.r.o., which holds the TV NOVA broadcast license. CP 2000 provides
      programming, production and advertising related services to CET 21
      directly, through its wholly owned subsidiary Mag Media a.s. and through
      certain other wholly-owned subsidiaries.





·
    We
      have also entered into an agreement with Peter Krsak, a minority
      shareholder in CET 21, to acquire his entire minority ownership interest
      in CET 21 (the “Krsak Agreement”). This agreement is subject to the
      satisfaction of certain conditions, including the withdrawal by Mr. Krsak
      of all outstanding claims against the TV Nova (Czech Republic) Group (See
      Part II, Item 1 - Legal Proceedings). The Czech Republic Media Council
      consented to this transfer on April 20, 2005 and the shareholders of CET
      21 consented on April 22, 2005. We expect the transfer of Mr. Krsak’s
      interest will be completed by the third quarter of
2005.





·
    We
      also have a call option on the remaining 15% ownership interest of PPF in
      the TV Nova (Czech Republic) Group that is exercisable at any time. We
      expect to acquire the remaining ownership interest of PPF in the TV Nova
      (Czech Republic) Group by the fourth quarter of
2005.





·
    To
      finance the acquisition of the TV Nova(Czech
      Republic)Group,
      the interest of Mr Krsak and the PPF call option, we have raised debt
      financing through the issuance of Euro 370 million (US$ 479 million)
      senior notes, consisting of Euro 245 million (US$ 317 million) 8.25%
      senior notes and Euro 125 million (US$ 162 million) of senior floating
      rate notes, which bear interest at six-month EURIBOR plus 5.5%. We have
      also issued 5.4 million shares of our Class A Common Stock in a publicly
      registered offering.





*Continuing
Operations*





The
following table provides a summary of our consolidated results for the three
months ended March 31, 2005 and 2004:





**For
      the three months ended March 31, (US$000's)****2005**
    
    **2004**
    
    ***Movement***Net
      Revenues
    
    $
    48,304
    
    $
    35,848
    
    *$*
    *12,456*Operating
      income/(loss)
    
    
    (2,252
    )
    
    6,022
    
    
    *(8,274*
    *)*Net
      income/(loss) from continuing operations
    
    
    (8,294
    )
    
    5,501
    
    
    *(13,795*
    *)***Net
      income/(loss)**
    
    
    **(7,949**
    **)**
    
    **5,171**
    
    
    ***(13,120***
    ***)*****Net
      cash provided by continuing operating activities**
    
    
    **7,730**
    
    
    **1,382**
    
    
    ***6,348***





The
principal events for the three months ended March 31, 2005 are as
follows:





·
    In
      the three months ended March 31, 2005, our total Operating Segments
      achieved a Segment EBITDA margin of 16% compared to 29% for the three
      months ended March 31, 2004 (Segment EBITDA is defined and reconciled
      to
      our consolidated US GAAP results in Part I, Note 6, "Segment
      Data").





·
    We
      increased our economic and voting interest in our Romanian operations to
      82.0%.




*Page
30*
 *Table of Contents*





*Future
Developments*





·
    In
      2005, we will be focused on the integration of the TV Nova (Czech
      Republic) Group into our operations, the completion of the Krsak Agreement
      and the acquisition of the remaining interest of PPF in the TV Nova (Czech
      Republic) Group as described above.





·
    A
      successful implementation of the agreement with Mr. Krsak will allow us to
      terminate most of the litigation surrounding the TV Nova (Czech Republic)
      Group and simplify the ownership and operating structure of the TV Nova
      (Czech Republic) Group. This will facilitate the integration of the TV
      Nova (Czech Republic) Group into our operations.





·
    We
      are planning on further investment in our Croatian operations to enhance
      its performance. We expect to increase our audience share by acquiring
      higher quality programming and making additional strategic investments in
      local productions as well as by making limited capital investment in order
      to extend our technical reach. We expect total investment to be in excess
      of US$ 15 million during 2005.








***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, 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 months ended March 31, 2005
and 2004 see Part I, Note 6, "Segment Data".





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
31*
 *Table of Contents*




**SEGMENT
FINANCIAL INFORMATION**


**For
the Three Months Ended March 31, (US $000's)**





2005
    
    (1)
    
    2004
    
    (1)**Segment
      Net Revenue**Croatia
      (NOVA TV)
    
    $
    4,955
    
    
    8
    %
    $
    -
    
    
    -
    %Romania
      (2)
    
    
    19,649
    
    
    32
    %
    
    14,085
    
    
    30
    %Slovak
      Republic (MARKIZA TV)
    
    
    12,644
    
    
    21
    %
    
    11,895
    
    
    25
    %Slovenia
      (POP TV and KANAL A)
    
    
    9,933
    
    
    16
    %
    
    9,657
    
    
    20
    %Ukraine
      (STUDIO 1+1)
    
    
    14,360
    
    
    23
    %
    
    12,106
    
    
    25
    %**Total
      Segment Net Revenue**
    
    **$**
    **61,541**
    
    
    **100**
    **%**
    **$**
    **47,743**
    
    
    **100**
    **%****Segment
      EBITDA**Croatia
      (NOVA TV)
    
    $
    (3,422
    )
    
    (35
    )%
    $
    -
    
    
    -
    %Romania
      (2)
    
    
    5,901
    
    
    61
    %
    
    4,318
    
    
    31
    %Slovak
      Republic (MARKIZA TV)
    
    
    2,170
    
    
    22
    %
    
    1,331
    
    
    10
    %Slovenia
      (POP TV and KANAL A)
    
    
    2,680
    
    
    28
    %
    
    3,927
    
    
    28
    %Ukraine
      (STUDIO 1+1)
    
    
    2,348
    
    
    24
    %
    
    4,357
    
    
    31
    %**Total
      Segment EBITDA**
    
    **$**
    **9,677**
    
    
    **100**
    **%**
    **$**
    **13,933**
    
    
    **100**
    **%****Segment
      EBITDA Margin (3)**
    
    
    **16**
    **%**
    
    
    
    
    **29**
    **%**





(1)
Percentage of Total Segment Net Revenue / Total Segment EBITDA


(2)
Romanian channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, PRO FM
and INFOPRO.


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








**ANALYSIS
BY GEOGRAPHIC SEGMENT**





**(A)**
    **CROATIA**





**SEGMENT
      FINANCIAL INFORMATION****For
      the Three Months Ended March 31, (US $000's)****2005**Croatian
      Net Revenues
    
    $4,955Croatian
      Segment EBITDA
    
    (3,422*)*Croatian
      Segment EBITDA Margin
    
    (69)%





**Market
Background:** We
acquired our Croatian operations on July 16, 2004. During 2004 the television
advertising market in Croatia grew by approximately 4%, it is expected to show
single digit growth in 2005.





NOVA TV
(Croatia) is ranked fourth (of four channels ranked) in the market based on its
national all-day audience share of 13% for the first quarter of 2005. The major
competitors are the two state-owned channels HRT1 and HRT2, with national
all-day audience shares for the first quarter of 2005 of 40% and 14%,
respectively, and RTL with 25%.




*Page
32*
 *Table of Contents*




·
    **Net
      Revenues**for the first three months of 2005 were US$ 5.0 million as a result of
      significant full year contracts having been secured with
      domestic and international advertisers. No comparative data is available
      as we acquired Nova TV (Croatia) in July of last
year.





·
    **Croatian
      Segment EBITDA**for
      the first three months of 2005 was a loss of US$ 3.4 million due to
      investment in higher quality programming required to generate increased
      audience share and increase Nova TV's (Croatia) share of the advertising
      market. Costs charged in arriving at Segment EBITDA for the three months
      ended March 31, 2005 included US$ 4.6 million of programming costs and US$
      1.0 million of salaries and related costs.





**(B)**
    **ROMANIA**





**SEGMENT
      FINANCIAL INFORMATION****For
      the Three Months Ended March 31, (US $000's)****2005**
    
    **2004**
    
    ***Movement***Romanian
      Net Revenues
    
    $
    19,649
    
    $
    14,085
    
    *$*
    *5,564*Romanian
      Segment EBITDA
    
    
    5,901
    
    
    4,318
    
    
    *1,583*Romanian
      Segment EBITDA Margin
    
    
    30
    %
    
    31
    %
    
    *(1*
    *)%*





**Market
Background:** Romania
is one of the fastest growing economies in Central and Eastern Europe. During
2004, the television advertising market, in which sales are denominated
primarily in US dollars, grew by approximately 28%, it is expected to grow
between 20% and 30% in 2005. We believe that Romania’s preparations to accede to
the EU in 2007 will continue to support strong growth rates in television
advertising spending in the period running up to accession, as has been the
experience with earlier entrants.





PRO TV,
our main channel, and ACASA, one of our cable channels, are ranked second and
fourth in the market based on their national all day audience shares of 17% and
8%, respectively, for the first three months of 2005. The major competitors are
the state owned channel TVR1 with a national all-day audience share of 19% and
Antena 1, a privately owned channel, with 14%. TVR1’s higher all-day audience
share is primarily due to it being the only significant broadcaster with
coverage across almost the entire country. Advertisers, however, evaluate
audience share within a channel's coverage area and by this measure PRO TV ranks
first and ACASA fourth (of seven stations ranked) in all-day audience share.
Both of our stations have almost 100% coverage of urban markets, which
represents a key demographic area targeted by advertisers.





In
April 2004 our Romanian operation launched a second cable channel PRO CINEMA. It
had a national all day audience share of 1% during the first three months of
2005.





·
    **Net
      Revenues**for
      the first three months of 2005****increased
      by 40% compared to the first three months of 2004. This is due to an
      increase in prices for advertising on Pro TV and also an increase in the
      amount of advertising sold by Acasa TV and Pro
Cinema.





·
    **Romanian
      Segment EBITDA**for
      the first three months of 2005****increased
      by 37% compared to the first three months of 2004 due to the increase in
      revenue by US$ 5.6 million, partially offset by an increase in the costs
      charged in arriving at a Segment EBITDA of US$ 5.9 million.





The
cost of programming increased by US$ 1.4 million or 26% compared to the first
three months of 2004 due to a US$ 0.7 million increase in the charge for
amortization of acquired programming rights and a US$ 0.7 million increase for
local production costs. The increase in amortization of programming rights was
driven by increasing costs per hour and additional Pro Cinema volume. Salaries
and related costs increased by US$ 0.5 million or 21% compared to the three
months ended March 2004 due to appreciation of local currency against the US
dollar. Broadcasting costs have also increased by $0.5 million due to costs
associated with broadcasting our second cable channel Pro Cinema. Additionally,
bad debt provisions were $US 0.5 million higher in the three months to March
2005 than the same period last year. This is partially due to a reversal of bad
debt provisions in the first three months of 2004 which resulted in a credit for
that period.




*Page
33*
 *Table of Contents*




**(C)**
    **SLOVAK
      REPUBLIC**





**SEGMENT
      FINANCIAL INFORMATION****For
      the Three Months Ended March 31, (US $000's)****2005**
    
    **2004**
    
    ***Movement***Slovak
      Republic Net Revenues
    
    
    12,644
    
    
    11,895
    
    
    *749*Slovak
      Republic Segment EBITDA
    
    
    2,170
    
    
    1,331
    
    
    *839*Slovak
      Republic Segment EBITDA Margin
    
    
    17
    %
    
    11
    %
    
    *6*
    *%*





**Market
Background:** During
2004, the television advertising market grew approximately 11% in local
currency. Measured in US dollars, the 2004 advertising market grew approximately
20% with the difference to local currency growth being due to the weakening of
the US dollar in the period. The market is expected to show local currency
growth of between 3% and 7% in 2005.





MARKIZA
TV is the leading channel in the Slovak Republic with a national all-day
audience share for the first quarter of 2005 of 34%. The major competitor is the
state-owned channel STV1, with a national all-day audience share of 21%. The
national all-day audience share of TV JOJ, the only other significant privately
owned channel was 12%.





·
    **Net
      Revenues**for
      the first three months of 2005 increased by 6% compared to the first three
      months of 2004. This is due to the weakening of the US dollar compared to
      the Slovak koruna. In local currency terms, net revenues were 5% lower
      than the first three months of last year due to advertisers spending less
      of their annual budget in the first
quarter.





·
    **Slovak
      Republic Segment EBITDA**for
      the first three months of 2005****increased
      by 63% compared to the first three months of 2004. This is partially due
      to the weakening of the US dollar compared to the Slovak koruna and also
      due to lower syndication costs as a result of the launch of a new locally
      produced reality show in March. In local currency, EBITDA increased by 45%
      compared to the first three months in 2004.








**(D)**
    **SLOVENIA**





**SEGMENT
      FINANCIAL INFORMATION****For
      the Three Months Ended March 31, (US $000's)****2005**
    
    **2004**
    
    ***Movement***Slovenian
      Net Revenues
    
    
    9,933
    
    
    9,657
    
    
    *276*Slovenian
      Segment EBITDA
    
    
    2,680
    
    
    3,927
    
    
    *(1,247*
    *)*Slovenian
      Segment EBITDA Margin
    
    
    27
    %
    
    41
    %
    
    *(14*
    *)%*





**Market
Background** :
During 2004 the television advertising market grew by approximately 9% in local
currency and 21% in Euros. Slovenia acceded to the EU in May 2004 and the
majority of sales are Euro-denominated. Measured in US dollars, the television
advertising market grew by an estimated 10% in 2004, with the difference in
growth due to the weakening of the US dollar in the period. The TV advertising
market is expected to show single digit growth in 2005.





Our
channels POP TV and KANAL A were ranked first and fourth (of four stations
ranked) in the market based on national all-day audience shares of 27% and 9%,
respectively, during the first quarter of 2005. The main competitors are state
broadcasters SLO1 and SLO2, with national all-day audience shares of 26% and
12%, respectively, during the same period.





·
    **Net
      Revenues**for
      the first three months of 2005****increased
      by 3% compared to the first three months of 2004. This is due to a
      weakening of the US dollar compared to the Euro (the majority of Slovenian
      revenues are denominated in Euros). In Euros, net revenues decreased by 3%
      in the first three months of 2005 compared with the same period in 2004
      due to advertisers spending less of their annual budget in the first
      quarter.




*Page
34*
 *Table of Contents*




·
    **Slovenian
      Segment EBITDA**for
      the first three months of 2005****decreased
      by 32% compared to the first three months of 2004. The primary reasons
      were the introduction of new employment law that has resulted in
      significantly higher social insurance costs for employers and higher
      transmission costs. Salary costs are US$ 0.5 million higher for the first
      three months of 2005. In addition, transmission costs in the period were
      US$ 0.6 million higher than the same period in 2004 and a US$ 0.4
      million provision write back in 2004 resulted in broadcasting costs of
      less than US$ 0.1 million for the first three months of
    2004.








**(E)**
    **UKRAINE**





**SEGMENT
      FINANCIAL INFORMATION****For
      the Three Months Ended March 31, (US $000's)****2005**
    
    **2004**
    
    ***Movement***Ukrainian
      Net Revenues
    
    
    14,360
    
    
    12,106
    
    
    *2,254*Ukrainian
      Segment EBITDA
    
    
    2,348
    
    
    4,357
    
    
    *(2,009*
    *)*Ukrainian
      Segment EBITDA Margin
    
    
    16
    %
    
    36
    %
    
    *(20*
    *)%*





**Market
Background:** During
2004 the television advertising market, where sales are denominated primarily in
US dollars, showed growth of approximately 24% and it is expected that the
television advertising market will continue to grow between 15% and 25% during
2005.





Following
the award of a license for nine additional broadcasting hours in July 2004,
Studio 1+1 increased its broadcasting time from 15 to 24 hours per day in
September 2004. STUDIO 1+1 was ranked second based on a national all-day
audience share of 21% for the first quarter of 2005. The main competitors of
Studio 1+1 are two privately owned channels: Inter, with a national all-day
audience share of 25%, and Novi Kanal, with 9%. STUDIO 1+1's prime time audience
share during the first quarter of 2005 was 24% compared to Inter's 31%.





·
    **Net
      Revenues**for
      the first three months of 2005****increased
      by 19% compared to the first three months of 2004 as a result of increased
      advertising sales resulting from broadcasting a 24-hour schedule following
      the award of a nine-hour license in July
2004.


****


·
    **Ukrainian
      Segment EBITDA**for
      the first three months of 2005****decreased
      by 46% compared to the first three months of 2004 due to increased
      programming and transmission costs resulting from acquiring additional
      programming for the 24-hour schedule and a renewal of transmission
      distribution contracts. Programming costs were US$ 2.5 million higher than
      last year and transmission costs were US$ 1.0 higher than budget.
      Additionally overhead costs were US$ 0.4 million higher than the first
      three months of 2004 mainly due to a reversal of previously provided
      debtors provisions in the first three months of 2004. No such reversal
      occurred in the three months to March 2005, consequently the charge for
      bad debts was US$ 0.2 million higher.





The
first three months of 2004 were particularly successful for Studio 1+1 in terms
of revenues due to advertisers spending a greater portion of their advertising
budget in the first quarter of 2004 and to the station introducing prime time
Russian series to the market which generated significant ratings. This advantage
has since dissipated with other channels introducing similar
formats.




*Page
35*
 *Table of Contents*





**PROGRAMMING
PAYMENTS AND PROGRAM AMORTIZATION**





Our
cost of programming for the first three months of 2005 and 2004 are as
follows:





**For
      the Three Months Ended March 31,****(US$
      000's)****2005**
    
    **2004**Production
      expenses
    
    $
    8,823
    
    $
    5,778Program
      amortization
    
    
    13,499
    
    
    7,835**Cost
      of programming**
    
    **$**
    **22,322**
    
    **$**
    **13,613**





The
amortization of acquired programming for each of our consolidated operations and
for the Slovak Republic (MARKIZA TV) for the first three months of 2005 and 2004
is set out in the table below. For comparison the table also shows the cash paid
for programming by each of our operations in the respective periods. The cash
paid for programming by our operations in Croatia, Romania, Slovenia and Ukraine
is reflected within net cash provided by/(used in) continuing operating
activities in our consolidated statement of cash flows.








**For
      the Three Months Ended March 31,****(US$
      000's)****2005**
    
    **2004**Program
      amortization:Croatia
      (NOVA TV)
    
    $
    3,851
    
    $
    -Romania
      (PRO TV, ACASA and PRO TV INTERNATIONAL)
    
    
    3,872
    
    
    3,156Slovenia
      (POP TV and KANAL A)
    
    
    1,168
    
    
    1,458Ukraine
      (STUDIO 1+1)
    
    
    4,608
    
    
    3,221**13,499**
    
    
    **7,835**Slovak
      Republic (MARKIZA TV)
    
    
    1,381
    
    
    2,393**$**
    **14,880**
    
    **$**
    **10,228**Cash
      paid for programming:Croatia
      (NOVA TV)
    
    $
    2,957
    
    $
    -Romania
      (PRO TV, ACASA and PRO TV INTERNATIONAL)
    
    
    8,569
    
    
    6,196Slovenia
      (POP TV and KANAL A)
    
    
    1,271
    
    
    1,225Ukraine
      (STUDIO 1+1)
    
    
    3,226
    
    
    4,821**16,023**
    
    
    **12,242**Slovak
      Republic (MARKIZA TV)
    
    
    3,002
    
    
    2,068**$**
    **19,025**
    
    **$**
    **14,310**




*Page
36*
 *Table of Contents*




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





**IV
(a) Net Revenues for the first three months of 2005 compared to the first three
months of 2004**





**Consolidated
      Net Revenues****For
      the Three Months Ended March 31, (US $000's)****2005**
    
    **2004**
    
    ***Movement***Croatia
    
    $
    4,955
    
    $
    -
    
    $
    *4,955*Romania
    
    
    19,056
    
    
    14,085
    
    
    *4,971*Slovenia
    
    
    9,933
    
    
    9,657
    
    
    *276*Ukraine
    
    
    14,360
    
    
    12,106
    
    
    *2,254***Total
      Consolidated Net Revenues**
    
    **$**
    **48,304**
    
    **$**
    **35,848**
    
    ***$***
    ***12,456***





In
local currency terms, and excluding Croatia, net revenues increased 8% for the
first three months of 2005 compared to the same period in 2004. Measured in US
dollars, our consolidated net revenues increased by 35% for the first three
months of 2005 compared to the first three months of 2004 due to:





·
    US$
      5.0 million of net revenues from our Croatian operations following the
      acquisition in July 2004 as described in "II. Analysis of Segment
      Results";





·
    A
      35% increase in the net revenues of our Romanian operations as described
      in "III. Analysis of Segment Results";





·
    A
      3% increase in the net revenues of our Slovenian operations as described
      in “III. Analysis of Segment Results"; and





·
    A
      19% increase in the net revenues of our Ukrainian operations as described
      in "III. Analysis of Segment Results".








**IV
(b) Station Operating Costs and Expenses for the first three months of 2005
compared to the first three months of 2004**





**Consolidated
      Station Operating Costs and Expenses****For
      the Three Months Ended March 31, (US $000's)****2005**
    
    **2004**
    
    ***Movement***Croatia
    
    $
    7,476
    
    $
    -
    
    *$*
    *7,476*Romania
    
    
    11,348
    
    
    9,100
    
    
    *2,248*Slovenia
    
    
    6,509
    
    
    5,270
    
    
    *1,239*Ukraine
    
    
    10,487
    
    
    6,776
    
    
    *3,711***Total
      Consolidated Station Operating Costs and Expenses**
    
    **$**
    **35,820**
    
    **$**
    **21,146**
    
    ***$***
    ***14,674***





Total
station operating costs and expenses (including amortization of program rights
and depreciation of fixed assets and other intangibles) increased by 69% in the
first three months of 2005 compared to the first three months of 2004 primarily
due to:





·
    US$
      7.5 million of station operating costs from our Croatian operations, which
      were acquired in July 2004;





·
    A
      25% increase in the station operating costs and expenses of our Romanian
      operations due to an increased investment in local production and
      increasing costs of acquired programming rights resulting in higher
      programming amortization. Staff costs also increased by 21% due to the
      appreciation of local currency against the US
dollar;




*Page
37*
 *Table of Contents*




·
    A
      24% increase in operating costs and expenses in our Slovenian operation
      primarily due to the introduction of new employment law that has resulted
      in significantly higher social insurance costs for employers and to higher
      transmission costs. Salary costs are therefore US$ 0.5 million higher for
      the first three months of 2005. Transmission costs in the period were US$
      0.6 million higher than the same period in 2004 and a US$ 0.4 million
      provision write back in 2004 resulted in broadcasting costs of less than
      US$ 0.1 million in the first three months of
2004;





·
    A
      55% increase in the station operating costs and expenses of our Ukrainian
      operations. This is primarily due to increased programming acquisition
      costs associated with broadcasting a 24-hour schedule following the award
      of a nine-hour license in July 2004.








**IV
(c) Station Selling, General and Administrative Expenses for the first three
months of 2005 compared to the first three months of 2004**





**Consolidated
      Station Selling, General and Administrative
    Expenses****For
      the Three Months Ended March 31, (US $000's)****2005**
    
    **2004**
    
    ***Movement***Croatia
    
    $
    1,521
    
    $
    -
    
    *$*
    *1,521*Romania
    
    
    2,307
    
    
    1,420
    
    
    *887*Slovenia
    
    
    1,204
    
    
    885
    
    
    *319*Ukraine
    
    
    1,896
    
    
    1,257
    
    
    *639***Total
      Consolidated Station Selling, General and Administrative
      Expenses**
    
    **$**
    **6,928**
    
    **$**
    **3,562**
    
    ***$***
    ***3,366***





Station
selling, general and administrative expenses increased by 94% in the first three
months of 2005 compared to the first three months of 2004 primarily due
to:





·
    US$
      1.5 million of selling, general and administrative expenses from the
      inclusion of our Croatian operations which were acquired in July
      2004;





·
    A
      62% increase in the station selling, general and administrative expenses
      of our Romanian operations due to increases across all cost categories
      particularly bad debts. Bad debt provisions were US$ 0.5 million higher in
      the three months to March 2005 than the same period last year. This is
      partially due to a reversal of bad debt provisions in the first three
      months of 2004 which resulted in a credit for that
  period;





·
    A
      36% increase in the station selling, general and administrative expenses
      of our Slovenian operations due to increases across all cost categories,
      most notably marketing and repairs and maintenance;
and





·
    A
      51% increase in the station selling, general and administrative expenses
      of our Ukrainian operations due to increases across all cost categories,
      most notably office overheads and bad debt provisions. The increase in bad
      debt provisions is due to a reversal of previously provided debtors
      provisions in the first three months of 2004. No such reversal occurred in
      the first three months of 2005.




*Page
38*
 *Table of Contents*





**IV
(d) Consolidated results excluding net revenues, station operating costs and
expenses and station selling, general and administrative expenses for the first
three months of 2005 compared to the first three months of
2004**





**For
      the Three Months Ended March 31, (US $000's)****2005**
    
    **2004**
    
    ***Movement***Corporate
      operating costs (including non-cash stock based
    compensation)
    
    
    7,731
    
    
    5,118
    
    
    *2,613*Amortization
      of intangibles
    
    
    77
    
    
    -
    
    
    *77*Interest
      income
    
    
    1,079
    
    
    1,454
    
    
    *(375*
    *)*Interest
      expense
    
    
    (307
    )
    
    (218
    )
    
    *(89*
    *)*Foreign
      currency exchange loss, net
    
    
    (729
    )
    
    (633
    )
    
    *(96*
    *)*Other
      expense
    
    
    (4,001
    )
    
    (771
    )
    
    *(3,230*
    *)*Provision
      for income taxes
    
    
    (2,341
    )
    
    (1,170
    )
    
    *(1,171*
    *)*Minority
      interest in income of consolidated subsidiaries
    
    
    (577
    )
    
    (78
    )
    
    *(499*
    *)*Equity
      in income of unconsolidated affiliates
    
    
    834
    
    
    895
    
    
    *(61*
    *)*Discontinued
      operations
    
    
    345
    
    
    (330
    )
    
    *675*








**Corporate
operating costs** for
the first three months of 2005 increased by US$ 2.6 million compared to the
first three months of 2004 as detailed below;





**For
      the Three Months Ended March 31, (US $000's)****2005**
    
    **2004**
    
    ***Movement***Corporate
      operating costs
    
    $
    4,630
    
    $
    3,233
    
    *$*
    *1,397*Non-cash
      stock based compensation
    
    
    3,101
    
    
    1,885
    
    
    *1,216***Corporate
      operating costs (including non-cash stock based
      compensation)**
    
    **$**
    **7,731**
    
    **$**
    **5,118**
    
    ***$***
    ***2,613***





For the
first three months of 2005, corporate operating costs **** (excluding
stock-based compensation) increased by US$ 1.4 million compared to the first
three months of 2004 (including US$ 0.5 million relating to the impending
financing of our Czech acquisition) primarily due to increases in salary and
related costs as a result of a higher number of corporate staff; Sarbanes-Oxley
and other professional fees; Directors’ and Officers’ insurance premiums and the
adverse effect of the US dollar weakening by 4% against the British Pound, the
currency in which approximately 60% of corporate expenses are
denominated.





Stock-based
compensation for the first three months of 2005 increased by US$ 1.2 million
compared to the first three months of 2004 principally as a result of the effect
of the increase in the price of our stock as it relates to our stock-based
compensation variable and fixed plans. (For further discussion, see Part I, Note
9, “Stock-based Compensation”).





**Interest
expense** increased by US$ 0.1 million for the first three months of 2005 compared to the
first three months of 2004 primarily as a result of interest expense of our
Croatian operations which we acquired on July 16, 2004 and therefore are not
included in the comparatives.





**Interest
income** decreased by US$ 0.4 million for the first three months of 2005 compared to the
first three months of 2004 primarily as a result of a reduction in our year on
year cash balance.





**Foreign
currency loss** increased
by US$ 0.1 million for the first three months of 2005 compared to the first
three months of 2004 primarily as a result of the Euro strengthening by 4%
against the US dollar in the period.




*Page
39*
 *Table of Contents*





**Other
expense** for
the first three months of 2005 increased by US$ 3.2 million compared to the
first three months of 2004 primarily as a result of the commitment fees of US$
3.4 million relating to alternative financing for the TV Nova (Czech Republic)
acquisition.





**Provision
for income taxes:** Provision
for income taxes was US$ 2.3 million for the first three months of 2005 compared
to US$ 1.2 million for the first three months of 2004. The increase is primarily
as a result of a lower effective tax rate in the three months ended March 31,
2004 compared to the three months ended March 31, 2005, in part due to the
utilization of previously incurred losses.





**Minority
interest in income of consolidated subsidiaries:** Minority
interest in the income of consolidated subsidiaries was US$ 0.6 million for the
first three months of both 2005 compared to US$ 0.1 million for the first three
months of 2004.





**Equity
in income of unconsolidated affiliates:** As
explained in Part I, Item 1, “Business” of our December 31, 2004 Form 10-K filed
with the SEC on March 15, 2005, as amended by our Form 10/K-A filed on April 1,
2005, 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 first three months of 2005
decreased by US$ 0.1 million compared to the first three months of 2004 as
detailed below:








**For
      the Three Months Ended March 31, (US $000's)****2005**
    
    **2004**
    
    ***Movement***Slovak
      Republic operations
    
    $
    908
    
    $
    731
    
    *$*
    *177*Romanian
      operations
    
    
    (74
    )
    
    164
    
    
    *(238*
    *)***Equity
      in income of unconsolidated affiliates**
    
    **$**
    **834**
    
    **$**
    **895**
    
    ***$***
    ***(61***
    ***)***





**Discontinued
operations:** The
amounts charged to the consolidated income statement in respect of our
withdrawal from our Czech operations in 2003. (For further information, see the
Dutch tax paragraph in Note 11, “Commitments and Contingencies”).








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





*Summary*





As at
March 31, 2005, we had US$ 144.1 million of unrestricted cash and cash
equivalents compared to US$ 152.6 million as at December 31, 2004. The principal
reasons for the decrease of US$ 8.5 million are as follows:





·
    A
      US$ 5.0 million payment in connection with the 2% increase in our holding
      of our Romanian operations (for further information, see Item 1, Note 4,
      "Acquisitions and Disposals"); and





·
    Payments
      of US$ 2.3 million in connection with acquisition
costs.




*Page
40*
 *Table of Contents*





*Contractual
Cash Obligations*





Our
future contractual obligations as of March 31, 2005 are as follows:





Contractual
      Obligations
    
    Payments
      due by period (US$ 000’s)Total
    
    Less
      than 1 year
    
    1-3
      years
    
    3-5
      years
    
    More
      than 5 yearsLong-Term
      Debt
    
    $
    19,078
    
    $
    10,346
    
    $
    4,947
    
    $
    3,477
    
    $
    308Capital
      Lease Obligations
    
    
    7,941
    
    
    1,988
    
    
    1,096
    
    
    1,008
    
    
    3,849Operating
      Leases
    
    
    6,998
    
    
    2,144
    
    
    3,039
    
    
    1,428
    
    
    387Unconditional
      Purchase Obligations
    
    
    19,082
    
    
    18,608
    
    
    370
    
    
    104
    
    
    -Other
      Long-Term Obligations
    
    
    7,902
    
    
    2,705
    
    
    4,169
    
    
    1,028
    
    
    -Total
      Contractual Obligations
    
    **$**
    **61,001**
    
    **$**
    **35,791**
    
    **$**
    **13,621**
    
    **$**
    **7,045**
    
    **$**
    **4,544**





At
March 31, 2005, we had the following debt:





(1)
    A
      facility of up to Euro 8.0 million (approximately US$ 10.4 million)
      pursuant to a loan agreement among Pro Plus, Bank Austria Creditanstalt
      d.d. (“BACA”) and Nova Ljubljanska banka d.d. which matures in February
      2009. As at March 31, 2005 Euro 5.8 million (approximately US$ 7.6
      million) (December 31, 2004: Euro 6.5 million, approximately US$ 8.8
      million) was drawn by our Slovenian operating company under these
      agreements. This loan bears a variable interest rate of the European
      Inter-Banking Official Rate (“EURIBOR”) 6 month rate plus 3.0% (EURIBOR -
      6 month as at March 31, 2005 was 1.9%). As at March 31, 2005 a rate of
      4.9% applied to this loan. This loan facility is secured by the real
      property, fixed assets and receivables of Pro Plus, which as at March 31,
      2005 have a carrying amount of approximately US$ 26 million.Principal
      payments of Euro 0.7 million (approximately US$ 0.9 million)were made on these loans in 2005.


(2)
    A
      loan of Sk187 million (approximately US$ 6.2 million)(December
      31, 2004: Sk187 million, approximately US$ 6.6 million)from
      our non-consolidated affiliate, STS.This
      loan bears a variable interest rate of the Bratislava Inter Bank Official
      Rate (“BRIBOR”) 3 month rate plus 2.2% (BRIBOR - 3 month as at March 31,
      2005 was 3.7%). The loan is due to be repaid in full on December 1, 2005.
      No principal payments were made on this loan in
2005.


(3)
    A
      total of Euro 0.9 million(approximately
      US$ 1.2 million) was drawn down on three loan agreements our Croatian
      operations have with Hypo Alpe-Adria-Bank d.d.These
      loans bear a variable interest rate of the EURIBOR 3 month rate plus 2.5%.
      As at March 31, 2005 a rate of 4.65% applied to these loans.These loan facilities are secured by the real property and fixed assets of
      OK, which as at March 31, 2005 have a carrying amount of approximately US$
      1.6 million. Principal payments of Euro 0.04 million (approximately US$
      0.1 million)were made on these loans in 2005.


(4)
    An
      amount of Euro 0.02 million (approximately US$ 0.02 million) was drawn
      down on a fourth loan agreement our Croatian operations have with Hypo
      Alpe-Adria-Bank d.d.This
      loan bears a fixed interest rate of 7.25%.


(5)
    Euro
      0.2 million (approximately US$ 0.3 million) was drawn down by our Croatian
      operations under a loan agreement with BKS Bank fur Karnten and Steiermark
      AG.This loan bears a variable interest rate of the EURIBOR 3 month rate plus
      3.0%. As at March 31, 2005 a rate of 5.15% applied to this
      loan.Principal payments of Euro 0.03 million (approximately US$ 0.04
      million)were made on these loans in 2005.





In
addition to the above, one of our non-consolidated entities had the following
loan:





(1)
    On
      July 24, 2002 STS, a 49% owned affiliate, obtained from Vseobecna uverova
      banka, a.s. ("VUB") a mid-term facility of SKK 100 million (US$ 3.3
      million). This facility matures in December 2005, and bears a variable
      interest rate of the BRIBOR 3 month rate plus 1.7% (BRIBOR - 3 month as at
      March 31, 2005 was 3.7%) and is secured by a pledge of certain fixed and
      current assets. The nominal value of receivables under pledge according to
      the contract is US$ 2.5 million.




*Page
41*
 *Table of Contents*





As at
March 31, 2005, we had programming rights commitments (included within
"Unconditional Purchase Obligations" in the chart above) of US$ 18.3 million in
respect of future programming which includes contracts signed with license
periods starting after March 31, 2005 (December 31, 2004: US$ 18.1 million).





Included
in Other Long-Term Obligations are our commitments to the Dutch tax authorities
(see Part I, Item 1, “Notes to the Consolidated Financial
Statements”).





*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 augmented from
time to time by local borrowing. Surplus cash generated in this manner, after
funding the ongoing station operations, may be remitted to corporate, or to
other shareholders where appropriate. Surplus cash is remitted to corporate in
the form of debt interest payments and capital repayments, dividends, and other
distributions and loans from our subsidiaries and equity accounted investments.





As at
March 31, 2005 and December 31, 2004 the operations had the following unsecured
balances owing to their respective holding companies:





**As
      at March 31, 2005**
    
    **As
      at December 31, 2004****Country**
    
    **(US
      $ 000’s)**Croatia
    
    $
    19,906
    
    $
    11,087Romania
    
    
    35,874
    
    
    37,109Slovak
      Republic
    
    
    88
    
    
    -Slovenia
    
    
    132
    
    
    1,590Ukraine
    
    
    11,241
    
    
    13,459Total
    
    $
    67,241
    
    $
    63,245








Prior
to making investments in associated companies, borrowing or repayment of third
party overdraft or debt, or payments to corporate in excess of current year
recharges, our continuing consolidated operating stations utilized cash of US$
0.04 million during the first three months of 2005 compared to generating cash
of US$ 6.4 million in the first three months of 2004. STS,
our equity accounted affiliate, generated cash of US$ 6.3 million the first
three months of 2005 compared to US$ 3.7 million for the first three months of
2004.








*Cash
Outlook*





Our
future cash needs will depend on our overall financial performance, our ability
to service the indebtedness incurred under the offering of Euro 370
million (US$
479 million) in
senior notes as well as any future investment and development decisions. We
believe that, taken together, our current cash balances, internally generated
cash flow, including from the TV Nova (Czech Republic) operations, and local
financing of broadcast operations should result in us hav ing
adequate cash resources to meet our debt service and other financial obligations
for the next 12 months.





Following
the registration of petitions by Mr. Krsak with the relevant courts of the Czech
Republic to withdraw his claims against the TV Nova (Czech Republic) Group, we
will be in a position to complete the Krsak Agreement. We will use our cash
balances to fund this purchase, which we expect to occur by the third quarter of
2005.




*Page
42*
 *Table of Contents*





We have
a call right on the remaining 15% interest in the TV Nova (Czech Republic) Group
held by PPF that is exercisable at any time. The call price is capped and will
not exceed 25% of the purchase price for the TV Nova (Czech Republic) Group,
subject to certain adjustments and other terms. It is estimated that the call
price will be approximately US$ 205 million. Assuming a successful completion of
the Krsak Agreement, we expect to exercise this call option by the fourth
quarter of 2005. For the exercise of our call option on the remaining interest
of PPF in the TV Nova (Czech Republic) Group we will utilize corporate cash
resources obtained from the issuance of 5.4 million shares of our Class A Common
Stock in a publicly registered offering.





We are
also planning on further investment in our Croatian operations, which were
acquired in July 2004. We anticipate that we can increase our audience share by
acquiring higher quality programming and making additional strategic investments
in local productions as well as by limited capital investment in order to extend
our technical reach. We expect the financing requirement to be in excess of US$
15 million during 2005.





The
issuance of the Euro 370 million (US$ 479 million) of senior notes for the
acquisition of the TV Nova (Czech Republic) Group has increased our leverage and
we have significant debt service obligations in respect of the senior notes (for
further information, see Note 13 "Subsequent Events"). In addition, the terms of
our indebtedness will 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. We
expect that cash
balances, internally generated cash flow, the proceeds of our public equity
offering and local financing of broadcast operations should result in us
hav ing
adequate cash resources to meet our debt service and other financial obligations
for the next 12 months.





*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$ 5.8 million). The Slovenian authorities have asserted that
capital contributions and loans made by us in the years 1995 and 1996 to Pro
Plus 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
approved the cash capital contributions for 1995 and 1996. This has reduced the
assessment to SIT 636,800,000 (approximately US$ 3.4 million). The
Administrative Court of Ljubljana has issued an injunction to prevent the tax
authorities from demanding payment until a hearing on the matter has been
concluded. There is currently no date set for this hearing. We do not hold a
provision in our financial statements in relation to this legal action.





*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 10-K filed with the SEC on
March 15, 2005 as amended by our Form 10-K/A filed with the SEC on April 1,
2005. The preparation of these financial statements requires us to make
judgments in selecting appropriate assumptions for calculating financial
estimates, which inherently contain some degree of uncertainty. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis of making judgments about the carrying values of assets and liabilities
and the reported amounts of revenues and expenses that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.





We
believe our critical accounting policies are as follows: Program Rights Costs,
Valuation of Intangible Assets, Bad Debt Provision and Deferred Tax. These
critical accounting policies affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements. There have
been no significant changes in our critical accounting policies since December
31, 2004.




*Page
43*
 *Table of Contents*




**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. 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 hedge foreign currency exchange rate risk. At
March 31, 2005 we held no foreign exchange contracts.





**Interest
Rate Risk Management**





As at
March 31, 2005 we have six tranches of debt that provide for interest at a
spread above a base rate EURIBOR and BRIBOR. A significant rise in either the
EURIBOR or BRIBOR base rate of either would not have an adverse effect on our
business and results of operations. As at March 31, 2004 we had two tranches of
debt which were maintained with a variable interest rate.





*Interest
Rate Table as at March 31, 2005*





**Expected
      Maturity Dates**
    
    **2005**
    
    **2006**
    
    **2007**
    
    **2008**
    
    **Thereafter***Total
      Debt in Euros 000's*Fixed
      Rate
    
    
    -
    
    
    -
    
    
    17
    
    
    -
    
    
    -Average
      Interest Rate
    
    
    -
    
    
    -
    
    
    7.25
    %
    
    -
    
    
    -Variable
      Rate
    
    
    -
    
    
    302
    
    
    -
    
    
    -
    
    
    6,674Average
      Interest Rate
    
    
    -
    
    
    5.02
    %
    
    -
    
    
    -
    
    
    4.88
    %*Total
      Debt in Sk 000's*Fixed
      Rate
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Average
      Interest Rate
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Variable
      Rate
    
    
    187,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -Average
      Interest Rate
    
    
    5.86
    %
    
    -
    
    
    -
    
    
    -
    
    
    -





*Variable
Interest Rate Sensitivity as at March 31, 2005*





**Yearly
      interest charge if interest rates increase by
      (US$000s):****Value
      of Debt as at March 31, 2005 (US$ 000's)**
    
    **Interest
      Rate as at March 31, 2005**
    
    **Yearly
      Interest Charge**
      **(US$
      000’s)**
    
    **1%**
    
    **2%**
    
    **3%**
    
    **4%**
    
    **5%**9,032
      (Euro
      7.0 million)
    
    
    4.88
    %
    
    441
    
    
    531
    
    
    622
    
    
    712
    
    
    802
    
    
    8936,245
      (Sk
      187 million)
    
    
    5.86
    %
    
    366
    
    
    428
    
    
    491
    
    
    553
    
    
    616
    
    
    678**Total**
    
    
    
    
    **$**
    **807**
    
    **$**
    **959**
    
    **$**
    **1,113**
    
    **$**
    **1,265**
    
    **$**
    **1,418**
    
    **$**
    **1,571**




*Page
44*
 *Table of Contents*




**Item 4.**
    **Controls
      and Procedures**





Our
Chief Executive Officer and Chief Financial Officer evaluated the effectiveness
of the design and operation of our disclosure controls and procedures as of the
end of the period covered by this report. Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures are effective.





In the
first quarter of 2005 we have implemented a structured review process, which is
ongoing, of the application of generally accepted accounting principles referred
to in Item 9A, “Controls and Procedures” of our December 31, 2004 Form 10-K
filed with the Securities and Exchange Commission ("SEC") on March 15, 2005 as
amended by our Form 10-K/A filed with the SEC on April 1, 2005. In conjunction
with this we have also engaged a Registered Public Accounting firm to provide
technical assistance in regard to the application of generally accepted
accounting principles. There were no other changes in our internal controls over
financial reporting that occurred in the first quarter of 2005 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.





**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,
including operations in the Czech Republic, which we acquired on May 2,
2005.





**CROATIA**





On
October 29, 2004, OK filed suit against Global Communications d.o.o. claiming
approximately HRK 53 million (approximately US$ 9.4 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 a 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 suit in order 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 million (approximately US$ 12.1 million), claiming that AGB data
is unreliable and that it is entitled to additional seconds under the previous
agreement. We do not believe that these counterclaims will prevail.





**ROMANIA**





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




*Page
45*
 *Table of Contents*





**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 Slovenia BV. In her claim against MMTV, Mrs. Meglic is seeking
an amount equal to SIT 190 million (approximately US$ 1.1 million) for repayment
of monies advanced to MMTV from 1992 to 1994 (in the amount of approximately SIT
29 million (approximately US$ 0.2 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$ 1.1 million) plus
interest as well as costs. On September 24, 2004, MMTV filed an appeal against
the judgment. On December 15, 2004, the appellate court vacated the judgment of
the lower court and returned the case for further proceedings. We believe Mrs.
Meglic’s claim is without merit and will continue to defend the claim.
Accordingly, we have made no provision for this claim in our consolidated
balance sheets as at March 31, 2005.





**SLOVAK
REPUBLIC**





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





**UKRAINE**





In July
2004, AITI launched proceedings against the Ukraine Media Council and Studio 1+1
to challenge the award of the additional nine-hour license to Studio 1+1. In
September 2004, the Economic Court of Kiev dismissed this claim. AITI appealed
to the Court of Appeal, which also found in favor of the Ukraine Media Council
and Studio 1+1. AITI appealed
to the more senior Court of Cassation, which also rejected the claim at a
hearing dated January 11, 2005. AITI lodged a request to appeal to the Supreme
Court of Ukraine on February 18, 2005. The Supreme Court rejected the appeal on
March 17, 2005 and no further appeals in this matter are possible.





**CZECH
REPUBLIC**





Following
our completion of the TV Nova (Czech Republic) acquisition, we own an 85%
interest in CP 2000, which provides certain services in respect of programming,
production and the sale of advertising on behalf of the TV NOVA channel, and an
85% interest in Vilja. Vilja holds 52.075% of CET 21, which holds the TV NOVA
license. On February 24, 2005 we entered into the Krsak Agreement to settle
outstanding claims of Mr. Krsak against the TV Nova (Czech Republic) Group and
to acquire his entire interest in CET 21. At the completion of the transaction
contemplated by the Krsak Agreement, we will own a direct 16.67% interest in CET
21.





Companies
within the TV Nova (Czech Republic) Group are party to litigation from time to
time. Certain material proceedings in respect of the TV Nova (Czech Republic)
Group are described below. We have not been party to any of these proceedings
prior to the completion of our acquisition of the TV Nova (Czech Republic)
Group.





*Claims
Relating to the Vilja Shareholding in CET 21*





On May
20, 2002, Vilja acquired its ownership interest in CET 21 from Messrs. Alan,
Huncik and Venclik. On July 19, 2002, Peter Krsak, a shareholder of CET 21,
filed a claim with the City Court in Prague challenging a number of CET 21
shareholder resolutions adopted by written consent (the “Krsak 2002 Petition”).
In relevant, part, his complaint included challenges to (1) a decision of the
CET 21 shareholders of April 22, 2002 to approve the transfer by Messrs. Alan
and Venclik of their ownership interests in CET 21 to Vilja and (2) a written
resolution of the CET 21 shareholders on the redistribution of a 60% interest in
CET 21 then held by the company itself. (This 60% interest had previously been
held by Vladimir Zelezny, who had been forced to relinquish it in an enforcement
proceeding against him following his default on a judgment adverse to him in
another proceeding). These claims, in effect, constitute a challenge to the
ownership by Vilja of a 52.075% ownership interest in CET 21.




*Page
46*
 *Table of Contents*





Among
the grounds put forward by Mr. Krsak was that he was given insufficient time to
respond to the proposed resolutions. In addition, with regard to the claim
regarding the transfer of the interests held by Messrs Alan and Venclik, Mr.
Krsak is contending that the transfer agreements do not describe the interests
being transferred by them to Vilja with complete accuracy. In response to this
petition, CET 21 argued, among other things, that the resolution had been duly
delivered to Mr. Krsak in a timely manner, that the interest to be transferred
to Vilja had been defined in good faith and that even a negative vote by Mr.
Krsak on the shareholder resolutions would not have affected the outcome of the
voting, which required a simple majority vote under the corporate documents of
CET 21.





On June
18, 2003, before the City Court had issued a decision in the Krsak 2002
Petition, CET 21 petitioned the City Court to approve, among other things, the
registration of Vilja in the commercial register maintained by the City Court
(the “Commercial Register”) as the owner of 52.075% of CET 21 (the “CET 21
Petition”).





On
November 20, 2003, the City Court found in favor of Mr. Krsak in respect of the
Krsak 2002 Petition on the basis that he had had insufficient time to respond to
the resolutions. In a hearing in respect of the CET 21 Petition on December 10,
2003, the City Court refused to register Vilja as requested in the CET 21
Petition and ordered the registration of a group of shareholders that had
previously owned CET 21.





CET 21
filed an appeal on January 24, 2004 in respect of the CET 21 Petition to the
High Court of Prague and a separate appeal on February 5, 2004 in respect of the
Krsak 2002 Petition.





The
High Court of Prague in a decision dated May 27, 2004 vacated the decision of
the City Court in the CET 21 Petition. Furthermore, the decision of the High
Court stated the legal position of the High Court on the following salient
points: (1) the transfer agreements by which Vilja acquired a 52.075% interest
in CET 21 are valid, (2) Zelezny held a 60% ownership interest in CET 21
pursuant to a shareholder resolution validly adopted in 1997, and (3) Zelezny
ceased to hold a 60% interest in CET 21 following the successful completion of
the enforcement proceeding. According to legal advice we have received from
local counsel, the legal opinion expressed by the High Court in respect of the
CET 21 Petition is binding on the City Court.





On
October 18, 2004, the High Court of Prague, after concluding that the time
limits to respond to the shareholder resolution were sufficient, vacated the
decision of the City Court in the Krsak 2002 Petition and returned the case for
further proceedings. The High Court instructed the City Court to give due regard
in any further proceedings to other decisions taken in related matters, which,
according to legal advice we have received from local counsel, includes the
decision of the High Court dated May 27, 2004 in respect of the CET 21
Petition.





No
further hearings have been scheduled in respect of the CET 21 Petition. In
connection with the Krsak Agreement, a hearing in respect of the Krsak 2002
petition at the City Court of Prague scheduled for March 8, 2005 has been
suspended by the parties.





The
ability of the City Court to conduct further proceedings on the registration of
Vilja as the owner of 52.075% of CET 21 requires the Supreme Court of the Czech
Republic to release the share register of CET 21. The share register was lodged
with the Supreme Court in connection with an extraordinary appeal by Mr. Krsak
in an action originally initiated by CET 21 in 2000. In that action, CET 21
sought to register a replacement for Mr. Krsak as an executive of CET 21
following his removal. The City Court of Prague dismissed the petition. After
the High Court of Prague amended the decision of the City Court and approved the
registration of the change in directors, Mr. Krsak filed his extraordinary
appeal on August 8, 2003. The Supreme Court has not scheduled a hearing in this
matter. Prior to a hearing before the Supreme Court in this matter and a
resolution thereof, there will not be a formal resolution of the CET 21 Petition
and Vilja cannot be formally registered as a shareholder of CET 21.





Subject
to the satisfaction of a certain conditions, the Krsak Agreement provides that
Mr. Krsak will file petitions to withdraw all of his claims in respect of the TV
Nova (Czech Republic) Group. The conditions relating to the consents of the
Czech Media Council and of the general meeting of shareholders of CET 21 to the
transfer of his interest in CET 21 to us were satisfied in April 2005. Mr. Krsak
will now be required to deliver petitions to withdraw all claims then existing
in front of any relevant court. Such petitions will have to have been registered
by any such court in advance of his receiving any payment for his ownership
interest in CET 21 from us.




*Page
47*
 *Table of Contents*





*Claims
brought by Alan, Huncik, Venclik and Gal*





On May
7, 2003, Alan, Huncik, Venclik and Gal, former shareholders of CET 21, filed a
claim against Krsak, Zelezny, CET 21, CEDC and CS with the City Court in Prague.
The substance of this challenge concerns the basis on which Zelezny purported to
increase his ownership interest in CET 21 to 60% in 1997. On July 4, 2003, CET
21 filed a response refuting the challenges.





Until
Alan, Huncik and Venclik entered into transfer agreements with Vilja on May 20,
2002, they each held an interest in CET 21 (with 8.42% held by Alan, 4.34% by
Huncik and 8.71% by Venclik). Following the decision of the City Court in Prague
in respect of the Krsak 2002 Petition (which challenged the transfers by Alan
and Venclik on the grounds that the interests being transferred to Vilja were
inaccurately described), each of Alan, Huncik and Venclik entered into a second
set of transfer agreements with Vilja intended to remedy any defects in the
earlier transfer agreements. In addition, they and Gal entered into another set
of agreements regulating, among other things, consideration for the interests
transferred by Alan, Huncik and Venclik as well as their conduct in respect of
the claim filed on May 7, 2003. Specifically, they undertook to withdraw this
claim prior to any hearing. No hearing on this claim has been scheduled and this
claim has not been withdrawn to date.





*Claims
Relating to the Interests of CS and CEDC in CET 21*





On
April 2, 2003, CS entered into an agreement with Vilja to transfer its 1.25%
interest in CET 21 to Vilja. This transfer was approved by a resolution of the
CET 21 shareholders adopted by written consent on May 16, 2003. Mr. Krsak filed
a petition against CET 21 in the City Court in Prague on August 8, 2003 to
declare the shareholders resolution invalid. No hearing has been scheduled on
this matter.





CET 21
adopted a shareholder resolution by written consent on January 5, 2004 to
approve the transfer of the 1.25% interest of CEDC in CET 21 to PPF. Mr. Krsak
filed a petition against CET 21 in the City Court in Prague on February 3, 2004
to declare this shareholders resolution invalid. No hearing has been scheduled
on this matter.





The
consent of the Czech Media Council to the transfer of each of these 1.25%
interests has been requested but has not yet been issued.





The
Krsak Agreement provides for the withdrawal by Mr. Krsak of these
claims.





*Disposition
of the CET 21 Interest Held by CET 21*





Following
an enforcement proceeding against Vladimir Zelezny in another matter, his 60%
interest passed to CET 21 and is held by it. The CET 21 shareholder resolution
of July 4, 2002 provided for the redistribution of this 60% interest among
Vilja, Krsak, CEDC and CS, the four remaining shareholders of CET 21. Only Vilja
elected to participate in the redistribution of that interest; it acquired its
pro rata portion of the 60% interest and thereby increased its ownership in CET
21 to 52.075% (from a 20.83% interest of an aggregate 40% interest then held by
the four remaining shareholders). None of Krsak, who holds a 16.67% interest in
CET 21, or CS or CEDC, which each holds a 1.25% interest, participated in the
redistribution. As a result, their pro rated portions of the 60% interest (equal
to an aggregate 28.755% interest in CET 21) continue to be held by CET 21
itself. CET 21 cannot dispose of this 28.755% interest prior to the resolution
of claims relating to the Vilja ownership interest described above.





*Other
Claims*





On
January 25, 2005, Mr. Krsak filed an action on his own behalf and on behalf of
CET 21 against twenty-five parties, including PPF and its affiliates, CP 2000,
Vilja, and certain former and current members of management. In his filing, Mr.
Krsak is claiming damages to himself in the amount of approximately CZK 1.25
billion (approximately US$ 56.0 million) and on behalf of CET 21 in the amount
of approximately CZK 7.5 billion (approximately US$ 335.9 million). The
substance of this claim is that various entities and persons controlling CET 21
caused CET 21 damage by entering into agreements on disadvantageous terms with
service companies related to such controlling person, (such as CP 2000 and Mag
Media ).




*Page
48*
 *Table of Contents*





The
Krsak Agreement provides for the withdrawal by Mr. Krsak of these claims.
Following the execution of the Krsak Agreement, Mr. Krsak and the relevant
counterparty of the TV Nova (Czech Republic) Group have agreed to suspend any
hearings that have arisen in respect of such claims.








**Item 6.**  **Exhibits.**





a)
    The
      following exhibits are attached:





10.38
    TV
      Nova  Group Agreement, dated May 2, 200510.39
    Subscription
      Agreement, dated May 2, 200510.40
    Registration
      Rights Agreement, dated May 2, 200510.41
    Deed
      of Guarantee PPF a.s., dated May 2, 200510.42
    Deed
      of Guarantee PPF N.V., dated May 2, 200510.43
    Indenture,
      dated May 5, 200510.44
    Purchase
      Agreement, dated April 29, 200510.45
    Underwriting
      Agreement, dated April 28, 200531.01
    Sarbanes-Oxley
      Certification s.302 CEO, dated May 10, 200531.02
    Sarbanes-Oxley
      Certification s.302 CFO, dated May 10, 200532.01
    Sarbanes-Oxley
      Certification - CEO and CFO, dated May 10, 2005 (furnished
      only)








**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:
      May 10, 2005
    
    /s/
      Michael GarinMichael
      Garin
      Chief
      Executive Officer
      (Duly
      Authorized Officer)Date:
      May 10, 2005
    
    /s/
      Wallace MacmillanWallace
      Macmillan
      Vice
      President - Finance
      (Principal
      Financial Officer and Accounting Officer)




*Page
49*
 *Table of Contents*





**EXHIBIT INDEX**








10.38
    TV
      Nova Group Agreement, dated May 2, 200510.39
    Subscription
      Agreement, dated May 2, 200510.40
    Registration
      Rights Agreement, dated May 2, 200510.41
    Deed
      of Guarantee PPF a.s., dated May 2, 200510.42
    Deed
      of Guarantee PPF N.V., dated May 2, 200510.43
    Indenture,
      dated May 5, 200510.44
    Purchase
      Agreement, dated April 29, 200510.45
    Underwriting
      Agreement, dated April 28, 200531.01
    Sarbanes-Oxley
      Certification s.302 CEO, dated May 10, 200531.02
    Sarbanes-Oxley
      Certification s.302 CFO, dated May 10, 200532.01
    Sarbanes-Oxley
      Certification - CEO and CFO, dated May 10, 2005 (furnished
      only)




Page
50