UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549





FORM
10-Q/A
 AMENDMENT
NO.1 TO FORM 10-Q


SQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended March
31, 2007





£TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the
transition period from __________ to __________





Commission
File Number: 0-24796





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


(Exact
name of registrant as specified in its charter)





BERMUDA
                    98-0438382(State
      or other jurisdiction of incorporation and organization)
                    (IRS
      Employer Identification No.)Clarendon House, Church Street,
      Hamilton
                    HM 11
      Bermuda(Address
      of principal executive offices)
                    (Zip
      Code)





Registrant's
telephone number, including area code: 441-296-1431





Indicate
by check mark whether registrant: (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for each shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes  S  No  £





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





Large
      accelerated filer  S
                    Accelerated
      filer  £
                    Non-accelerated
      filer  £





Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act)  Yes  £  No  S





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
      April 27, 2007Class
      A Common Stock, par value $0.08
                        34,622,338Class
      B Common Stock, par value $0.08
                        6,312,839












THIS PAGE
INTENTIONALLY LEFT BLANK










EXPLANATORY
NOTE
 This
is Amendment No. 1 to the Form 10-Q for the period ended March 31, 2007 of
Central European Media Enterprises Ltd., as originally filed on May 3,
2007.
 
 We are
filing this Amendment No. 1 to correct the classification of certain provisions
for legal contingencies, which had previously been reported as non-operating
expenses within our condensed Consolidated Statement of Operations and are now
being reported as operating expenses.
 
 This
modification resulted in changes in Item 1. Financial Statements, where the
condensed Consolidated Statement of Operations for the three months ended March
31, 2007 has been amended, and in Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations, where the analysis of
Corporate Operating Costs, Operating Income and Other Expense for the three
months ended March 31, 2007 has been amended.
 
 We
have not otherwise updated this Quarterly Report on Form 10-Q/A to modify
disclosures in the Quarterly Report on Form 10-Q for the period ended March 31,
2007 for events occurring subsequent to the original May 3, 2007 filing date;
and except for the modifications referred to in the preceding paragraph, it
continues to speak as of May 3, 2007.




CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.





FORM
10-Q/A
 AMENDMENT
NO.1 TO FORM 10-Q


For the quarterly period ended March
31, 2007





INDEX





PagePart I. Financial
      informationItem 1.
      Financial StatementsCondensed consolidated Balance Sheets as at March 31, 2007
      and December 31, 2006
                        2Condensed consolidated Statements of Operations for the
      Three Months Ended March 31, 2007 , as restated, and 2006,
                        4Condensed consolidated Statements of Shareholders'
      Equity for the Three Months Ended March 31, 2007
                        6Condensed consolidated Statements of Cash Flows for the
      Three Months Ended March 31, 2007 and 2006
                        7Notes to the condensed consolidated Financial
      Statements
                        8Item 2.
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations
                        38Part II. Other
      InformationItem 6.
      Exhibits
                        66Signatures
                        67Exhibit
      Index
                        68


Page
1
 Index




Part I. Financial
Information





Item 1.  Financial
Statements





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


CONDENSED CONSOLIDATED BALANCE
SHEETS


(US$ 000’s)


(Unaudited)





March 31,
                                          2007
                                        
                                        
                                        December
31,
                                          2006ASSETSCurrent
      assetsCash
      and cash equivalents
                                        
                                        $
                                        157,340
                                        
                                        
                                        $
                                        145,904Restricted
      cash (Note 6)
                                        
                                        
                                        5,485
                                        
                                        
                                        
                                        4,954Accounts
      receivable (net of allowance) (Note 7)
                                        
                                        
                                        144,412
                                        
                                        
                                        
                                        152,505Income
      taxes receivable
                                        
                                        
                                        3,831
                                        
                                        
                                        
                                        3,053Program
      rights
                                        
                                        
                                        63,943
                                        
                                        
                                        
                                        59,645Other
      current assets (Note 8)
                                        
                                        
                                        49,704
                                        
                                        
                                        
                                        47,555Total current
      assets
                                        
                                        
                                        424,715
                                        
                                        
                                        
                                        413,616Non-current
      assetsInvestments
                                        
                                        
                                        16,563
                                        
                                        
                                        
                                        19,214Property,
      plant and equipment (Note 9)
                                        
                                        
                                        122,004
                                        
                                        
                                        
                                        115,805Program
      rights
                                        
                                        
                                        84,198
                                        
                                        
                                        
                                        76,638Goodwill
      (Note 4)
                                        
                                        
                                        903,597
                                        
                                        
                                        
                                        905,580Broadcast
      licenses (Note 4)
                                        
                                        
                                        202,409
                                        
                                        
                                        
                                        198,730Other
      intangible assets (Note 4)
                                        
                                        
                                        76,038
                                        
                                        
                                        
                                        71,942Other
      non-current assets (Note 8)
                                        
                                        
                                        18,767
                                        
                                        
                                        
                                        17,475Total non-current
      assets
                                        
                                        
                                        1,423,576
                                        
                                        
                                        
                                        1,405,384Total
    assets
                                        
                                        $
                                        1,848,291
                                        
                                        
                                        $
                                        1,819,000




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





Page
2
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)


(US$ 000’s)


(Unaudited)





March 31,
                        2007
                      
                      
                      December
31,
                        2006LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities (Note 10)
                      
                      $
                      141,232
                      
                      
                      $
                      119,717Duties
      and other taxes payable
                      
                      
                      41,480
                      
                      
                      
                      31,707Income
      taxes payable
                      
                      
                      10,043
                      
                      
                      
                      12,434Credit
      facilities and obligations under capital leases (Note 11)
                      
                      
                      12,650
                      
                      
                      
                      13,057Deferred
      consideration – Croatia (Note 6)
                      
                      
                      4,055
                      
                      
                      
                      4,010Deferred
      consideration – Ukraine
                      
                      
                      -
                      
                      
                      
                      200Deferred
      tax
                      
                      
                      4,268
                      
                      
                      
                      1,836Total current
      liabilities
                      
                      
                      213,728
                      
                      
                      
                      182,961Non-current
      liabilitiesCredit
      facilities and obligations under capital leases (Note 11)
                      
                      
                      5,795
                      
                      
                      
                      6,359Senior
      Notes (Note 5)
                      
                      
                      492,742
                      
                      
                      
                      487,291Income
      taxes payable
                      
                      
                      5,515
                      
                      
                      
                      3,000Deferred
      tax
                      
                      
                      59,310
                      
                      
                      
                      58,092Other
      non-current liabilities
                      
                      
                      14,777
                      
                      
                      
                      19,342Total non-current
      liabilities
                      
                      
                      578,139
                      
                      
                      
                      574,084Commitments
      and contingencies (Note 18)Minority interests in
      consolidated subsidiaries
                      
                      
                      25,949
                      
                      
                      
                      26,189SHAREHOLDERS'
      EQUITY:Nil
      shares of Preferred Stock of $0.08 each (December 31, 2006 –
      nil)
                      
                      
                      -
                      
                      
                      
                      -34,622,338
      shares of Class A Common Stock of $0.08 each (December 31, 2006 –
      34,412,138)
                      
                      
                      2,770
                      
                      
                      
                      2,7536,312,839
      shares of Class B Common Stock of $0.08 each (December 31, 2006 –
      6,312,839)
                      
                      
                      505
                      
                      
                      
                      505Additional
      paid-in capital
                      
                      
                      934,904
                      
                      
                      
                      931,108Accumulated
      deficit
                      
                      
                      (35,199
                      )
                      
                      
                      (31,730
                      )Accumulated
      other comprehensive income
                      
                      
                      127,495
                      
                      
                      
                      133,130Total shareholders’
      equity
                      
                      
                      1,030,475
                      
                      
                      
                      1,035,766Total liabilities and
      shareholders’ equity
                      
                      $
                      1,848,291
                      
                      
                      $
                      1,819,000




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





Page
3
 Index





CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME


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


(Unaudited)





For the Three Months Ended
      March 31,2007
                                (as
      restated,
                                see
      Note 2)
                            
                            
                            2006Net
    revenues
                            
                            $
                            147,912
                            
                            
                            $
                            119,754Operating
      expenses:Operating
      costs
                            
                            
                            25,657
                            
                            
                            
                            22,972Cost
      of programming
                            
                            
                            66,353
                            
                            
                            
                            48,418Depreciation
      of station property, plant and equipment
                            
                            
                            6,899
                            
                            
                            
                            5,702Amortization
      of broadcast licenses and other intangibles (Note 4)
                            
                            
                            5,162
                            
                            
                            
                            4,332Cost of
      revenues
                            
                            
                            104,071
                            
                            
                            
                            81,424Station
      selling, general and administrative expenses
                            
                            
                            15,781
                            
                            
                            
                            14,166Corporate
      operating costs
                            
                            
                            14,773
                            
                            
                            
                            7,981Operating
      income
                            
                            
                            13,827
                            
                            
                            
                            16,183Interest
      income
                            
                            
                            1,414
                            
                            
                            
                            1,453Interest
      expense
                            
                            
                            (11,396
                            )
                            
                            
                            (10,518
                            )Foreign
      currency exchange loss, net
                            
                            
                            (3,136
                            )
                            
                            
                            (10,862
                            )Change
      in fair value of derivatives (Note 12)
                            
                            
                            4,524
                            
                            
                            
                            -Other
      expense
                            
                            
                            (244
                            )
                            
                            
                            (548
                            )Income / (loss) before
      provision for income taxes, minority interest, equity in income of
      unconsolidated affiliates and discontinued
    operations
                            
                            
                            4,449
                            
                            
                            
                            (4,292
                            )Provision
      for income taxes
                            
                            
                            (5,059
                            )
                            
                            
                            (3,994
                            )Loss before minority interest,
      equity in income of unconsolidated affiliates and discontinued
      operations
                            
                            
                            (610
                            )
                            
                            
                            (8,286
                            )Minority
      interest in (loss) / income of consolidated subsidiaries
                            
                            
                            360
                            
                            
                            
                            (5,441
                            )Equity
      in income / (loss) of unconsolidated affiliates
                            
                            
                            -
                            
                            
                            
                            (730
                            )Net loss from continuing
      operations
                            
                            
                            (250
                            )
                            
                            
                            (14,457
                            )Discontinued operations (Note
      17):Tax
      on disposal of discontinued operations (Czech Republic)
                            
                            
                            -
                            
                            
                            
                            (3,807
                            )Net loss from discontinued
      operations
                            
                            
                            -
                            
                            
                            
                            (3,807
                            )Net loss
                            
                            $
                            (250
                            )
                            
                            $
                            (18,264
                            )Currency
      translation adjustment, net
                            
                            
                            (5,635
                            )
                            
                            
                            32,459Total comprehensive (loss) /
      income
                            
                            $
                            (5,885
                            )
                            
                            $
                            14,195




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





Page
4
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (continued)


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


(Unaudited)





For the Three Months Ended
      March 31,2007
                      
                      
                      2006PER SHARE DATA (Note
      15):Net loss per
      share:Continuing
      operations – Basic
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.38
                      )Continuing
      operations – Diluted
                      
                      
                      (0.01
                      )
                      
                      
                      (0.38
                      )Discontinued
      operations – Basic
                      
                      
                      -
                      
                      
                      
                      (0.10
                      )Discontinued
      operations – Diluted
                      
                      
                      -
                      
                      
                      
                      (0.10
                      )Net
      loss – Basic
                      
                      
                      (0.01
                      )
                      
                      
                      (0.48
                      )Net
      loss – Diluted
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.48
                      )Weighted average common shares
      used in computing per share amounts (000’s):Basic
                      
                      
                      40,793
                      
                      
                      
                      38,100Diluted
                      
                      
                      40,793
                      
                      
                      
                      38,100




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





Page
5
 Index





CENTRAL EUROPEAN
MEDIA ENTERPRISES LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY


(US$ 000’s)


(Unaudited)





Class A Common
      Stock
                            
                            
                            Class B Common
      StockNumber of
      shares
                            
                            
                            Par
value
                            
                            
                            Number of
      shares
                            
                            
                            Par
value
                            
                            
                            Additional Paid-In
      Capital
                            
                            
                            Accumulated
      Deficit
                            
                            
                            Accumulated Other Comprehensive
      Income / (Loss)
                            
                            
                            Total Shareholders'
      EquityBALANCE,
      December 31, 2006
                            
                            
                            34,412,138
                            
                            
                            $
                            2,753
                            
                            
                            
                            6,312,839
                            
                            
                            $
                            505
                            
                            
                            $
                            931,108
                            
                            
                            $
                            (31,730
                            )
                            
                            $
                            133,130
                            
                            
                            $
                            1,035,766Impact
      of adoption of FIN 48
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (3,219
                            )
                            
                            
                            -
                            
                            
                            
                            (3,219
                            )BALANCE,
      upon the adoption of FIN 48
                            
                            
                            34,412,138
                            
                            
                            $
                            2,753
                            
                            
                            
                            6,312,839
                            
                            
                            $
                            505
                            
                            
                            $
                            931,108
                            
                            
                            $
                            (34,949
                            )
                            
                            $
                            133,130
                            
                            
                            $
                            1,032,547Stock-based
      compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,797
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,797Stock
      options exercised
                            
                            
                            210,200
                            
                            
                            
                            17
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,999
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,016Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (250
                            )
                            
                            
                            -
                            
                            
                            
                            (250
                            )Currency
      translation adjustment
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (5,635
                            )
                            
                            
                            (5,635
                            )BALANCE,
      March 31, 2007
                            
                            
                            34,622,338
                            
                            
                            $
                            2,770
                            
                            
                            
                            6,312,839
                            
                            
                            $
                            505
                            
                            
                            $
                            934,904
                            
                            
                            $
                            (35,199
                            )
                            
                            $
                            127,495
                            
                            
                            $
                            1,030,475











Class A Common
      Stock
                                      
                                      
                                      Class B Common
      StockNumber of
      shares
                                      
                                      
                                      Par
value
                                      
                                      
                                      Number of
      shares
                                      
                                      
                                      Par
value
                                      
                                      
                                      Additional Paid-In
      Capital
                                      
                                      
                                      Accumulated
      Deficit
                                      
                                      
                                      Accumulated Other Comprehensive
      Income / (Loss)
                                      
                                      
                                      Total Shareholders'
      EquityBALANCE,
      December 31, 2005
                                      
                                      
                                      31,032,994
                                      
                                      
                                      $
                                      2,482
                                      
                                      
                                      
                                      6,966,533
                                      
                                      
                                      $
                                      558
                                      
                                      
                                      $
                                      754,061
                                      
                                      
                                      $
                                      (52,154
                                      )
                                      
                                      $
                                      (24,394
                                      )
                                      
                                      $
                                      680,553Stock-based
      compensation
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      688
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      688Stock
      options exercised
                                      
                                      
                                      63,000
                                      
                                      
                                      
                                      5
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      911
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      916Shares
      issued, net of fees
                                      
                                      
                                      2,530,000
                                      
                                      
                                      
                                      202
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      168,397
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      168,599Net
      loss
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (18,264
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (18,264
                                      )Currency
      translation adjustment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      32,459
                                      
                                      
                                      
                                      32,459BALANCE,
      March 31, 2006 as restated (see note 2)
                                      
                                      
                                      33,625,994
                                      
                                      
                                      $
                                      2,689
                                      
                                      
                                      
                                      6,966,533
                                      
                                      
                                      $
                                      558
                                      
                                      
                                      $
                                      924,057
                                      
                                      
                                      $
                                      (70,418
                                      )
                                      
                                      $
                                      8,065
                                      
                                      
                                      $
                                      864,951


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





Page
6
 Index





CENTRAL EUROPEAN
MEDIA ENTERPRISES LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS


(US$ 000’s)


(Unaudited)





For the Three Months Ended
      March 31,2007
                          
                          
                          2006CASH FLOWS FROM OPERATING
      ACTIVITIES:Net loss
                          
                          $
                          (250
                          )
                          
                          $
                          (18,264
                          )Adjustments
      to reconcile net loss to net cash generated from operating
      activities:Loss
      from discontinued operations (Note 17)
                          
                          
                          -
                          
                          
                          
                          3,807Equity
      in (income) / loss of unconsolidated affiliates, net of dividends
      received
                          
                          
                          -
                          
                          
                          
                          730Depreciation
      and amortization
                          
                          
                          51,762
                          
                          
                          
                          36,764Loss
      on disposal of fixed asset
                          
                          
                          7
                          
                          
                          
                          821Interest
      receivable, net
                          
                          
                          -
                          
                          
                          
                          (47
                          )Stock-based
      compensation (Note 14)
                          
                          
                          1,262
                          
                          
                          
                          688Minority
      interest in (loss) / income of consolidated subsidiaries
                          
                          
                          (360
                          )
                          
                          
                          5,441Change
      in fair value of derivatives (Note 12)
                          
                          
                          (4,524
                          )
                          
                          
                          -Foreign
      currency exchange loss, net
                          
                          
                          3,136
                          
                          
                          
                          10,861Net
      change in (net of effects of acquisitions and disposals of
      businesses):Accounts
      receivable
                          
                          
                          10,226
                          
                          
                          
                          7,567Program
      rights
                          
                          
                          (48,123
                          )
                          
                          
                          (40,104
                          )Other
      assets
                          
                          
                          (3,973
                          )
                          
                          
                          2,901Settlement
      liability
                          
                          
                          -
                          
                          
                          
                          (10,007
                          )Other
      accounts payable and accrued liabilities
                          
                          
                          14,540
                          
                          
                          
                          12,373Income
      taxes payable
                          
                          
                          (2,299
                          )
                          
                          
                          2,300Deferred
      taxes
                          
                          
                          766
                          
                          
                          
                          3,574VAT
      and other taxes payable
                          
                          
                          9,743
                          
                          
                          
                          12,288Net cash generated from
      continuing operating activities
                          
                          
                          31,913
                          
                          
                          
                          31,693CASH FLOWS FROM INVESTING
      ACTIVITIES:Net
      change in restricted cash
                          
                          
                          (440
                          )
                          
                          
                          (4,068
                          )Purchase
      of property, plant and equipment
                          
                          
                          (11,995
                          )
                          
                          
                          (10,397
                          )Disposal
      of property, plant and equipment
                          
                          
                          19
                          
                          
                          
                          -Investments
      in subsidiaries and unconsolidated affiliates
                          
                          
                          (8,585
                          )
                          
                          
                          (53,153
                          )Repayment
      of loans and advances to related parties
                          
                          
                          100
                          
                          
                          
                          100Net cash used in continuing
      investing activities
                          
                          
                          (20,901
                          )
                          
                          
                          (67,518
                          )CASH FLOWS FROM FINANCING
      ACTIVITIES:Proceeds
      from credit facilities
                          
                          
                          200
                          
                          
                          
                          28,491Payment
      of credit facilities and capital leases
                          
                          
                          (1,255
                          )
                          
                          
                          (508
                          )Proceeds
      from issuance of stock options
                          
                          
                          -
                          
                          
                          
                          916Issuance
      of shares of Class A Common Stock
                          
                          
                          2,016
                          
                          
                          
                          168,599Dividends
      paid to minority shareholders
                          
                          
                          (152
                          )
                          
                          
                          (517
                          )Net cash received from
      continuing financing activities
                          
                          
                          809
                          
                          
                          
                          196,981NET
      CASH USED IN DISCONTINUED OPERATING ACTIVITIES
                          
                          
                          (1,624
                          )
                          
                          
                          (1,690
                          )Impact of exchange rate
      fluctuations on cash
                          
                          
                          1,239
                          
                          
                          
                          1,817Net
      increase in cash and cash equivalents
                          
                          
                          11,436
                          
                          
                          
                          161,283CASH AND CASH EQUIVALENTS,
      beginning of period
                          
                          
                          145,904
                          
                          
                          
                          71,658CASH AND CASH EQUIVALENTS, end
      of period
                          
                          $
                          157,340
                          
                          
                          $
                          232,941




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





Page
7
 Index





CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





1.  ORGANIZATION AND
BUSINESS





Central
European Media Enterprises Ltd., a Bermuda corporation, was formed in June
1994.  Our assets are held through a series of Dutch and Netherlands
Antilles holding companies.  We invest in, develop and operate
national and regional commercial television stations and channels in Central and
Eastern Europe.  At March 31, 2007, we have operations in Croatia, the
Czech Republic, Romania, the Slovak Republic, Slovenia and Ukraine.





Our
principal subsidiaries, equity-accounted affiliates and cost investments as at
March 31, 2007 were:





Company
    Name
                      Effective
                        Voting
      Interest
                      Jurisdiction
      of
                        Organization
                      Type of Affiliate
      (1)Nova
      TV d.d. (“Nova TV (Croatia)”)
                      100.0%
                      Croatia
                      SubsidiaryMedia
      House d.o.o.
                      100.0%
                      Croatia
                      SubsidiaryCME
      Media Investments s r.o.
                      100.0%
                      Czech
      Republic
                      SubsidiaryVILJA
      a.s. (“Vilja”)
                      100.0%
                      Czech
      Republic
                      SubsidiaryCET
      21 spol. S r.o. (“CET 21”)
                      100.0%
                      Czech
      Republic
                      SubsidiaryERIKA,  a.s.
                      100.0%
                      Czech
      Republic
                      SubsidiaryMEDIA
      CAPITOL, a.s.
                      100.0%
                      Czech
      Republic
                      SubsidiaryNOVA-V.I.P.,
      a.s.
                      100.0%
                      Czech
      Republic
                      Subsidiary
      (in liquidation)HARTIC
      a.s.
                      100.0%
                      Czech
      Republic
                      SubsidiaryGalaxie
      sport, s r.o. (“Galaxie Sport”)
                      100.0%
                      Czech
      Republic
                      SubsidiaryMedia
      Pro International S.A.  (“MPI”)
                      90.0%
                      Romania
                      SubsidiaryMedia
      Vision SRL. (“Media Vision”)
                      75.0%
                      Romania
                      SubsidiaryMPI
      Romania B.V.
                      90.0%
                      Netherlands
                      SubsidiaryPro
      TV S.A. (“Pro TV”)
                      90.0%
                      Romania
                      SubsidiarySport
      Radio TV Media SRL (“TV Sport”)
                      90.0%
                      Romania
                      SubsidiaryMediapro
      B.V.
                      10.0%
                      Netherlands
                      Cost
      investmentMedia
      Pro Management S.A.
                      10.0%
                      Romania
                      Cost
      investmentA.R.J.,
      a.s. (“ARJ”)
                      100.0%
                      Slovak
      Republic
                      SubsidiaryMARKIZA-SLOVAKIA,
      spol. S r.o. (“Markiza”)
                      80.0%
                      Slovak
      Republic
                      SubsidiaryGAMATEX,
      spol. S r.o.
                      80.0%
                      Slovak
      Republic
                      Subsidiary
      (in liquidation)A.D.A.M.
      a.s.
                      80.0%
                      Slovak
      Republic
                      Subsidiary
      (in liquidation)MMTV
      1 d.o.o.
                      100.0%
                      Slovenia
                      SubsidiaryProdukcija
      Plus d.o.o. (“Pro Plus”)
                      100.0%
                      Slovenia
                      SubsidiaryPOP
      TV d.o.o. (“Pop TV”)
                      100.0%
                      Slovenia
                      SubsidiaryKanal
      A d.o.o. (“Kanal A”)
                      100.0%
                      Slovenia
                      SubsidiaryEuro
      3 TV d.o.o
                      42.0%
                      Slovenia
                      Equity-Accounted
      AffiliateMTC
      Holding d.o.o.
                      24.0%
                      Slovenia
                      Equity-Accounted
      Affiliate (in
liquidation)




Page
8
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





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








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





Page
9
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)












Page
10
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Croatia





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





Czech Republic





We own
100% of CET 21, which holds the national terrestrial broadcast license for TV
NOVA (Czech Republic) that expires in 2017.





Romania





We have a
90% interest in Pro TV, TV Sport and MPI and a 75% interest in Media Vision, a
production, dubbing and subtitling company.  In addition, Pro TV holds
the licenses for the ACASA, PRO TV INTERNATIONAL, PRO CINEMA and TV SPORT (now
Sport.ro) channels.  These licenses expire on various dates from
August 2007 until February 2016.





We have a
10% interest in each of Media Pro BV and Media Pro Management S.A., the parent
companies of the Media Pro group of companies (“Media Pro”). Substantially all
of the remaining shares of Media Pro are owned directly or indirectly by Adrian
Sarbu, the General Director of our Central and Eastern Europe region. Media Pro
comprises a number of Romanian companies with operations in the fields of
publishing, information, printing, cinema, entertainment and radio.





Slovak Republic





We own
80% of Markiza, which holds a national terrestrial broadcast license for the
Slovak Republic that expires in September 2019.





Slovenia





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





Ukraine (Studio
1+1)





The
Studio 1+1 Group is comprised of several entities in which we hold direct or
indirect interests.  We hold a 60% ownership and economic interest in
each of Innova, IMS and TV Media Planet.  Innova owns 100% of
Inter-Media, a Ukrainian company, which in turn holds a 30% voting and economic
interest in Studio 1+1, holder of the licenses for the STUDIO 1+1
network.  The license which covers fifteen hours including prime time
expires in December 2016.  The second license for the remaining nine
hours expires in 2014.





Our
indirect ownership interest in Studio 1+1 is only 18%.  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 ownership interest in Studio 1+1
to 60%.  Following amendments to the Ukrainian Media Law in March 2006
that permit majority indirect foreign ownership, our partners entered into
agreements with us to restructure the ownership of Studio 1+1 in order to permit
CME to hold a 60% indirect interest in Studio 1+1 (see Note 18).





Ukraine (KINO,
CITI)





We hold a
65.5% interest in Ukrpromtorg 2003 LLC (“Ukrpromtorg”), which owns (i) 92.2% of
Gravis LLC, which operates the local channels, KINO and CITI; (ii) 100% of Nart
LLC, which holds a satellite broadcasting license; and (iii) 75% of Stimul LLC,
which operates TV STIMUL.  The licenses held by Ukrpromtorg expire on
dates ranging from November 2008 to July 2016.





Page
11
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





2.  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES





Basis of
Presentation





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





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





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





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





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





The
terms “Company”, “we”, “us”, and “our” are used in this Form 10-Q/A to refer
collectively to the parent company and the subsidiaries through which our
various businesses are actually conducted.  Unless otherwise noted,
all statistical and financial information presented in this report has been
converted into US dollars using appropriate exchange rates.  All
references to “US$” or “dollars” are to US dollars, all references to “HRK” are
to Croatian kuna, all references to “CZK” are to Czech korunas, all references
to “RON” are to the New Romanian lei, all references to “SKK” are to Slovak
korunas, all references to “UAH” are to Ukrainian hryvna, all references to
“Euro” or “EUR” are to the European Union Euro and all references to “GBP” are
to British pounds.


Income Taxes





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





Page
12
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





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





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





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





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





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








Recent Accounting
Pronouncements





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





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





Page
13
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Restatements
 
 Classification
of legal provisions
 
 Subsequent
to the issuance of our financial statements as of and for the period ended
September 30, 2007, we determined that the current year provisions recorded in
anticipation of the settlement of our Croatia litigation should be classified
within operating expenses.  In our previously issued 2007 quarterly
condensed Consolidated Statement of Operations these provisions had been
classified within non-operating expenses.  As a result, we have
restated Corporate Operating Costs and Other Expense to correct the
classification of these legal contingencies.
  The
restatement had the impact on our previously presented financial information as
set out below.  All amounts are in US$ 000’s:
 
 As
      reported
                previously
              
              
              Adjustment
              
              
              As
      restatedCondensed
      Consolidated Statement of Operations (for the three months ended March 31,
      2007)Net
      revenues
              
              
              147,912
              
              
              
              -
              
              
              
              147,912Corporate
      operating costs
              
              
              8,804
              
              
              
              5,969
              
              
              
              14,773Operating
      income
              
              
              19,256
              
              
              
              (5,969
              )
              
              
              13,287Other
      expense
              
              
              (6,213
              )
              
              
              5,969
              
              
              
              (244
              )Net
      loss
              
              
              (250
              )
              
              
              -
              
              
              
              (250
              )
 
 
 Stock-based
compensation


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





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





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





As reported
                        previously
                      
                      
                      Adjustment
                      
                      
                      As
    restatedBalance Sheet (as of March 31,
      2006)Additional
      paid-in capital at March 31, 2006
                      
                      
                      916,876
                      
                      
                      
                      7,181
                      
                      
                      
                      924,057Accumulated
      deficit at March 31, 2006
                      
                      
                      (63,237
                      )
                      
                      
                      (7,181
                      )
                      
                      
                      (70,418
                      )





Page
14
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





3.  ACQUISITIONS AND
DISPOSALS





Romania





Acquisition of additional interest –
TV Sport





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





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





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





Fair Value
      on
                          AcquisitionProperty,
      plant and equipment
                        
                        $
                        35Intangible
      assets subject to amortization (1)
                        
                        
                        4,784Intangible
      assets not subject to amortization (2)
                        
                        
                        8,974Other
      assets
                        
                        
                        2,904Goodwill
                        
                        
                        2,311Deferred
      tax liability
                        
                        
                        (1,575
                        )Other
      liabilities
                        
                        
                        (6,398
                        )Total purchase
      price
                        
                        $
                        11,035





(1) The
intangible assets subject to amortization comprise customer relationships, which
are being amortized over one to twenty years (weighted average: 15.5 years) and
trademarks, which are being amortized over two years.





(2)
Intangible assets not subject to amortization represent television broadcast
licenses.





Page
15
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





4.  GOODWILL AND INTANGIBLE
ASSETS





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





Goodwill:





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





Balance
                            December31,
                            2006
                          
                          
                          Additions
                          
                          
                          Foreign
                            Currency
                            movement
                          
                          
                          Balance
                            March 31,
                            2007Croatia
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Czech
      Republic
                          
                          
                          823,786
                          
                          
                          
                          -
                          
                          
                          
                          (5,760
                          )
                          
                          
                          818,026Romania
                          
                          
                          31,130
                          
                          
                          
                          2,311
                          
                          
                          
                          -
                          
                          
                          
                          33,441Slovak
      Republic
                          
                          
                          25,483
                          
                          
                          
                          -
                          
                          
                          
                          1,284
                          
                          
                          
                          26,767Slovenia
                          
                          
                          16,458
                          
                          
                          
                          -
                          
                          
                          
                          182
                          
                          
                          
                          16,640Ukraine
      (STUDIO 1+1)
                          
                          
                          4,096
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          4,096Ukraine
      (KINO, CITI)
                          
                          
                          4,627
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          4,627Total
                          
                          $
                          905,580
                          
                          
                          $
                          2,311
                          
                          
                          $
                          (4,294
                          )
                          
                          $
                          903,597





Broadcast
licenses:





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





Indefinite-Lived
                        Broadcast
                        Licenses
                      
                      
                      Amortized
                        Broadcast
                        Licenses
                      
                      
                      TotalBalance, December 31,
      2006
                      
                      $
                      26,344
                      
                      
                      $
                      172,386
                      
                      
                      $
                      198,730Additions
                      
                      
                      8,974
                      
                      
                      
                      -
                      
                      
                      
                      8,974Amortization
                      
                      
                      -
                      
                      
                      
                      (4,198
                      )
                      
                      
                      (4,198
                      )Foreign
      currency movements
                      
                      
                      99
                      
                      
                      
                      (1,196
                      )
                      
                      
                      (1,097
                      )Balance, March 31,
      2007
                      
                      $
                      35,417
                      
                      
                      $
                      166,992
                      
                      
                      $
                      202,409





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





Page
16
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





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





March 31,
                        2007
                      
                      
                      December 31,
                        2006Gross
      value
                      
                      $
                      200,655
                      
                      
                      $
                      201,994Accumulated
      amortization
                      
                      
                      (33,663
                      )
                      
                      
                      (29,608
                      )Total net book
      value
                      
                      $
                      166,992
                      
                      
                      $
                      172,386





Other intangible
assets:





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





Trademarks
                      
                      
                      Customer
                        Relationships
                      
                      
                      Other
                      
                      
                      TotalBalance, December 31,
      2006
                      
                      $
                      44,026
                      
                      
                      $
                      27,213
                      
                      
                      $
                      703
                      
                      
                      $
                      71,942Additions
                      
                      
                      637
                      
                      
                      
                      4,147
                      
                      
                      
                      -
                      
                      
                      
                      4,784Amortization
                      
                      
                      (26
                      )
                      
                      
                      (925
                      )
                      
                      
                      (13
                      )
                      
                      
                      (964
                      )Foreign
      currency movements
                      
                      
                      (75
                      )
                      
                      
                      329
                      
                      
                      
                      22
                      
                      
                      
                      276Balance, March 31,
      2007
                      
                      $
                      44,562
                      
                      
                      $
                      30,764
                      
                      
                      $
                      712
                      
                      
                      $
                      76,038





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




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





March 31,
                        2007
                      
                      
                      December 31,
                        2006Gross
      value
                      
                      $
                      81,780
                      
                      
                      $
                      76,695Accumulated
      amortization
                      
                      
                      (5,742
                      )
                      
                      
                      (4,753
                      )Total net book
      value
                      
                      $
                      76,038
                      
                      
                      $
                      71,942






5.  SENIOR
NOTES





Our
Senior Notes consist of the following:





Carrying
      Value
                      
                      
                      Fair
    ValueMarch 31,
                        2007
                      
                      
                      December 31,
                        2006
                      
                      
                      March 31,
                        2007
                      
                      
                      December 31,
                        2006EUR
      245.0 million 8.25% Senior Notes
                      
                      $
                      326,275
                      
                      
                      $
                      322,666
                      
                      
                      $
                      355,640
                      
                      
                      $
                      353,722EUR
      125.0 million floating rate Senior Notes
                      
                      
                      166,467
                      
                      
                      
                      164,625
                      
                      
                      
                      171,253
                      
                      
                      
                      170,181$
                      492,742
                      
                      
                      $
                      487,291
                      
                      
                      $
                      526,893
                      
                      
                      $
                      523,903




Page
17
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





On May 5,
2005, we issued Senior Notes in the aggregate principal amount of EUR 370.0
million consisting of EUR 245.0 million of 8.25% Senior Notes due May 2012 and
EUR 125.0 million of floating rate Senior Notes due May 2012, which bear
interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”) plus 5.50% (9.23%
was applicable at March 31, 2007).  Interest is payable semi-annually
in arrears on each May 15 and November 15.  The fair value of the
Senior Notes as at March 31, 2007 was calculated by multiplying the outstanding
debt by the traded market price.





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





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





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





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





On April
11, 2007 we issued a notice to redeem the floating rate Senior Notes on May 15,
2007.





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





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





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





Page
18
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





6.  RESTRICTED
CASH





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





March 31,
                        2007
                      
                      
                      December 31,
                        2006Croatia
      – held in escrow
                      
                      $
                      4,265
                      
                      
                      $
                      4,183Other
                      
                      
                      1,220
                      
                      
                      
                      771Total restricted
      cash
                      
                      $
                      5,485
                      
                      
                      $
                      4,954





The
amount held in escrow is payable to certain former owners of our Croatia
operations.








7.  ACCOUNTS
RECEIVABLE





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





March 31,
                        2007
                      
                      
                      December 31,
                        2006Trading:Third-party
      customers
                      
                      $
                      149,105
                      
                      
                      $
                      156,701Less:
      allowance for bad debts and credit notes
                      
                      
                      (12,093
                      )
                      
                      
                      (11,472
                      )Related
      parties
                      
                      
                      7,246
                      
                      
                      
                      7,655Less:
      allowance for bad debts and credit notes
                      
                      
                      (345
                      )
                      
                      
                      (798
                      )Total
      trading
                      
                      $
                      143,913
                      
                      
                      $
                      152,086Other:Third-party
      customers
                      
                      $
                      437
                      
                      
                      $
                      359Less:
      allowance for bad debts and credit notes
                      
                      
                      (104
                      )
                      
                      
                      (103
                      )Related
      parties
                      
                      
                      456
                      
                      
                      
                      454Less:
      allowance for bad debts and credit notes
                      
                      
                      (290
                      )
                      
                      
                      (291
                      )Total
    other
                      
                      $
                      499
                      
                      
                      $
                      419Total accounts
      receivable
                      
                      $
                      144,412
                      
                      
                      $
                      152,505





At March
31, 2007, CZK 360.2 million (approximately US$ 17.1 million) (December 31, 2006:
CZK 600.0 million, approximately US$ 28.7 million) of receivables in the Czech
Republic were pledged as collateral subject to a factoring agreement (see Note
11).





Page
19
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





8.  OTHER
ASSETS





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





March 31,
                        2007
                      
                      
                      December 31,
                        2006Current:Prepaid
      programming
                      
                      $
                      22,210
                      
                      
                      $
                      23,072Other
      prepaid expenses
                      
                      
                      15,793
                      
                      
                      
                      13,177Deferred
      tax
                      
                      
                      2,094
                      
                      
                      
                      2,124VAT
      recoverable
                      
                      
                      2,516
                      
                      
                      
                      2,562Loan
      to related party
                      
                      
                      600
                      
                      
                      
                      600Capitalized
      debt costs
                      
                      
                      2,809
                      
                      
                      
                      2,908Other
                      
                      
                      3,682
                      
                      
                      
                      3,112Total other current
      assets
                      
                      $
                      49,704
                      
                      
                      $
                      47,555Non-current:Capitalized
      debt costs
                      
                      $
                      10,567
                      
                      
                      $
                      11,264Loan
      to related party
                      
                      
                      1,548
                      
                      
                      
                      1,603Deferred
      tax
                      
                      
                      4,738
                      
                      
                      
                      3,443Advances
                      
                      
                      109
                      
                      
                      
                      102Capitalized
      development costs
                      
                      
                      703
                      
                      
                      
                      294Other
                      
                      
                      1,102
                      
                      
                      
                      769Total other non-current
      assets
                      
                      $
                      18,767
                      
                      
                      $
                      17,475





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





Page
20
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





9.  PROPERTY, PLANT AND
EQUIPMENT





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





March 31,
                        2007
                      
                      
                      December 31,
                        2006Land
      and buildings
                      
                      $
                      53,093
                      
                      
                      $
                      56,212Station
      machinery, fixtures and equipment
                      
                      
                      108,988
                      
                      
                      
                      115,238Other
      equipment
                      
                      
                      17,586
                      
                      
                      
                      21,980Software
      licenses
                      
                      
                      16,880
                      
                      
                      
                      15,495Construction
      in progress
                      
                      
                      10,431
                      
                      
                      
                      4,070Total
    cost
                      
                      
                      206,978
                      
                      
                      
                      212,995Less:  Accumulated
      depreciation
                      
                      
                      (84,974
                      )
                      
                      
                      (97,190
                      )Total net book
      value
                      
                      $
                      122,004
                      
                      
                      $
                      115,805Assets held under capital
      leases (included above)Land
      and buildings
                      
                      $
                      5,078
                      
                      
                      $
                      5,541Station
      machinery, fixtures and equipment
                      
                      
                      2,019
                      
                      
                      
                      2,330Total
    cost
                      
                      
                      7,097
                      
                      
                      
                      7,871Less:
      Accumulated depreciation
                      
                      
                      (1,458
                      )
                      
                      
                      (1,877
                      )Net book
      value
                      
                      $
                      5,639
                      
                      
                      $
                      5,994








10.  ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES





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





March 31,
                        2007
                      
                      
                      December 31,
                        2006Accounts
      payable
                      
                      $
                      28,439
                      
                      
                      $
                      47,447Programming
      liabilities
                      
                      
                      36,265
                      
                      
                      
                      32,316Accrued
      interest payable
                      
                      
                      16,102
                      
                      
                      
                      5,375Deferred
      income
                      
                      
                      19,030
                      
                      
                      
                      3,212Accrued
      staff costs
                      
                      
                      10,402
                      
                      
                      
                      12,947Accrued
      production costs
                      
                      
                      11,067
                      
                      
                      
                      7,435Accrued
      legal costs
                      
                      
                      8,947
                      
                      
                      
                      3,619Accrued
      rent costs
                      
                      
                      1,124
                      
                      
                      
                      1,163Authors’
      rights
                      
                      
                      1,663
                      
                      
                      
                      943Onerous
      contracts
                      
                      
                      1,620
                      
                      
                      
                      -Other
      accrued liabilities
                      
                      
                      6,573
                      
                      
                      
                      5,260Total accounts payable and
      accrued liabilities
                      
                      $
                      141,232
                      
                      
                      $
                      119,717





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





Page
21
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





11.  CREDIT FACILITIES AND
OBLIGATIONS UNDER CAPITAL LEASES





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





March 31,
                                                            2007
                                                          
                                                          
                                                          December 31,
                                                            2006Credit
      facilities:Corporate
                                                          (a)
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          $
                                                          -Croatia
                                                          (b)
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          847Czech
      Republic
                                                          (c)
      – (e)
                                                          
                                                          
                                                          11,892
                                                          
                                                          
                                                          
                                                          11,975Romania
                                                          (f)
                                                          
                                                          
                                                          94
                                                          
                                                          
                                                          
                                                          -Slovenia
                                                          (g)
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Ukraine
      (KINO, CITI)
                                                          (h)
                                                          
                                                          
                                                          1,705
                                                          
                                                          
                                                          
                                                          1,703Total credit
      facilities
                                                          
                                                          
                                                          $
                                                          13,691
                                                          
                                                          
                                                          $
                                                          14,525Capital
      leases:Croatia
      operations, net of interest
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          $
                                                          19Romania
      operations, net of interest
                                                          
                                                          
                                                          
                                                          408
                                                          
                                                          
                                                          
                                                          495Slovak
      Republic operations, net of interest
                                                          
                                                          
                                                          
                                                          146
                                                          
                                                          
                                                          
                                                          154Slovenia
      operations, net of interest
                                                          
                                                          
                                                          
                                                          4,200
                                                          
                                                          
                                                          
                                                          4,223Total capital
      leases
                                                          
                                                          
                                                          $
                                                          4,754
                                                          
                                                          
                                                          $
                                                          4,891Total credit facilities and
      capital leases
                                                          
                                                          
                                                          $
                                                          18,445
                                                          
                                                          
                                                          $
                                                          19,416Less
      current maturities
                                                          
                                                          
                                                          
                                                          (12,650
                                                          )
                                                          
                                                          
                                                          (13,057
                                                          )Total non-current
      maturities
                                                          
                                                          
                                                          $
                                                          5,795
                                                          
                                                          
                                                          $
                                                          6,359





Corporate




(a) On
July 21, 2006, we entered into a five-year revolving loan agreement for EUR
100.0 million (approximately US$ 133.2 million) arranged by the European Bank
for Reconstruction and Development (the “Loan”).  ING Bank N.V.
(“ING”) and Ceska Sporitelna, a.s. (“CS”) are participating in the facility for
up to EUR 50.0 million in aggregate.




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





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





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





Page
22
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





There
were no drawings under this facility as at March 31, 2007, however the full
amount of EUR 100.0 million was drawn on April 18, 2007 (see Note
19).





Croatia





(b) On
March 28, 2007, we repaid EUR 0.6 million (approximately US$ 0.8 million) which
had been drawn by our Croatia operations under two loan agreements with Hypo
Alpe-Adria Bank d.d. The security held by the Bank was also
released.





Czech Republic




(c) As at
March 31, 2007, there were no drawings by CET 21 under a four-year credit
facility of CZK 1.2 billion (approximately US$ 57.1 million) available until
October 31, 2009 with Ceska Sporitelna, a.s. (“CS”).  This facility
may, at the option of CET 21, be drawn in CZK, US$ or EUR and bears interest at
the three-month, six-month or twelve-month London Inter-Bank Offered Rate
(“LIBOR”), EURIBOR or Prague Inter-Bank Offered Rate (“PRIBOR”) rate plus
1.95%.  This facility is secured by a pledge of receivables, which are
also subject to a factoring arrangement with Factoring Ceska Sporitelna, a.s., a
subsidiary of CS.




(d) CZK
250.0 million (approximately US$ 11.9 million), the full amount of the facility,
had been drawn by CET 21 under a working capital facility agreement with CS with
a maturity date of April 30, 2007 and bearing interest at the three-month PRIBOR
plus 1.65% (three-month PRIBOR relevant to drawings under this facility at March
31, 2007 was 2.57%). On April 7, 2007 the term of  this facility was
extended to April 30, 2008. This facility is secured by a pledge of receivables,
which are also subject to a factoring arrangement with Factoring Ceska
Sporitelna, a.s.





(e) As at
March 31, 2007, there were no drawings under a CZK 600.0 million (approximately
US$ 28.5 million) factoring facility with Factoring Ceska Sporitelna, a.s.
available until March 31, 2010.  The facility bears interest at
one-month PRIBOR plus 1.40% for the period that actively assigned accounts
receivable are outstanding. On April 11, 2007 the size of the facility was
reduced from CZK 600.0 million to CZK 300.0 million.





Romania





(f) As at
March 31, 2007, an amount of RON 242,739 (approximately US$ 0.1 million) was
outstanding under a loan agreement from one of the founding shareholders of TV
Sport. The loan is interest free and is repayable in equal monthly instalments
by August 31, 2007.





Slovenia





(g) On
July 29, 2005, Pro Plus entered into a revolving facility agreement for up to
EUR 37.5 million (approximately US$ 49.9 million) in aggregate principal amount
with ING Bank N.V., Nova Ljubljanska Banka d.d., Ljubljana and Bank Austria
Creditanstalt d.d., Ljubljana.  The facility amortizes by 10.0% each
year for four years commencing one year after signing, with 60.0% repayable
after five years.  This facility is secured by a pledge of the bank
accounts of Pro Plus, the assignment of certain receivables, a pledge of our
interest in Pro Plus and a guarantee of our wholly-owned subsidiary CME Media
Enterprises B.V.  Loans drawn under this facility will bear interest
at a rate of EURIBOR for the period of drawing plus a margin of between 2.10%
and 3.60% that varies according to the ratio of consolidated net debt to
consolidated broadcasting cash flow for Pro Plus.  As at March 31,
2007, EUR 33.8 million (approximately US$ 45.0 million) was available for
drawing under this revolving facility and there were no drawings
outstanding.





Ukraine (KINO,
CITI)





(h) Our
Ukraine (KINO, CITI) operations have entered into a number of three-year
unsecured loans with Glavred-Media, LLC, the minority shareholder in
Ukrpromtorg.  As at March 31, 2007, the total value of loans drawn was
US$ 1.7 million.  The loans are repayable between August 2009 and
December 2009 and bear interest at 9.0%.





Page
23
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Total Group





At March
31, 2007, the maturity of our debt (including our Senior Notes) is as
follows:





2007
                      
                      $
                      11,9912008
                      
                      
                      -2009
                      
                      
                      1,7002010
                      
                      
                      -2011
                      
                      
                      -2012
      and thereafter
                      
                      
                      492,742Total
                      
                      $
                      506,433





In
accordance with the terms of the floating rate Senior Notes, we have notified
holders of these Senior Notes that we will redeem them on May 15, 2007 (see Note
5).





Capital Lease
Commitments





We lease
certain of our office and broadcast facilities as well as machinery and
equipment under various leasing arrangements.  The future minimum
lease payments from continuing operations, by year and in the aggregate, under
capital leases with initial or remaining non-cancelable lease terms in excess of
one year, consisted of the following at March 31, 2007:





2007
                      
                      $
                      8672008
                      
                      
                      8602009
                      
                      
                      5932010
                      
                      
                      5942011
                      
                      
                      5932012
      and thereafter
                      
                      
                      3,0356,542Less:
      amount representing interest
                      
                      
                      (1,788
                      )Present value of net minimum
      lease payments
                      
                      $
                      4,754








12.  FINANCIAL
INSTRUMENTS





On April
27, 2006, we entered into currency swap agreements with two counterparties
whereby we swapped a fixed annual coupon interest rate (of 9.0%) on notional
principal of CZK 10.7 billion (approximately US$ 509.0 million), payable on July
15, October 15, January 15, and April 15, to the termination date of April 15,
2012, for a fixed annual coupon interest rate (of 9.0%) on notional principal of
EUR 375.9 million (approximately US$ 500.6 million) receivable on July 15,
October 15, January 15, and April 15, to the termination date of April 15,
2012.





The fair
value of these financial instruments as at March 31, 2007 was a US$ 8.0 million
liability.





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





Page
24
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





The
redemption of the floating rate Senior Notes will be financed mainly by other
Euro-denominated loans and therefore the integrity of the economic hedge will be
largely preserved.








13.  SHAREHOLDERS’
EQUITY





Preferred Stock





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





Class A and B Common
Stock





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








14.  STOCK-BASED
COMPENSATION





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





For the Three
      Months
                                Ended March
      31,2007
                              
                              
                              2006Stock-based
      compensation charged under SFAS 123(R)
                              
                              $
                              1,262
                              
                              
                              $
                              688




Under the
provisions of SFAS 123(R), the fair value of stock options is estimated on the
grant date using the Black-Scholes option-pricing model and recognized ratably
over the requisite service period. No options were granted in the three months
ended March 31, 2007.





Page
25
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





A summary
of option activity for the three months ended March 31, 2007 is presented
below:





Shares
                      
                      
                      Weighted
                        Average
      Exercise
                        Price per
      Share
                      
                      
                      Weighted
                        Average
                        Remaining
                        Contractual
      Term
                        (years)
                      
                      
                      Aggregate
                        Intrinsic
      ValueOutstanding
      at January 1, 2007
                      
                      
                      1,288,575
                      
                      
                      $
                      35.51
                      
                      
                      
                      7.45
                      
                      
                      $
                      44,443Granted
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      (210,200
                      )
                      
                      
                      9.59Forfeited
                      
                      
                      (5,000
                      )
                      
                      
                      47.36Outstanding at March 31,
      2007
                      
                      
                      1,073,375
                      
                      
                      $
                      40.53
                      
                      
                      
                      7.46
                      
                      
                      $
                      51,435Vested
      or expected to vest at March 31, 2007
                      
                      
                      1,015,647
                      
                      
                      
                      39.52
                      
                      
                      
                      7.39
                      
                      
                      
                      49,697Exercisable at March 31,
      2007
                      
                      
                      364,200
                      
                      
                      $
                      21.92
                      
                      
                      
                      6.50
                      
                      
                      $
                      24,230





The
exercise of stock options is expected to generate a net operating loss
carryforward in our Delaware corporation of US$ 11.8 million.  No tax
benefit has been recognized in respect of this loss, which will be recorded as
an addition to additional paid-in capital when it reduces income taxes
payable.




The
aggregate intrinsic value (the difference between the stock price on the last
day of trading of the first quarter of 2007 and the exercise prices multiplied
by the number of in-the-money options) represents the total intrinsic value that
would have been received by the option holders had all option holders exercised
their options as of March 31, 2007.  This amount changes based on the
fair value of our Common Stock.  The total intrinsic value of options
exercised during the three months ended March 31, 2007 and 2006, respectively,
was US$ 14.7 million and US$ 3.3 million, respectively.  As of March
31, 2007, there was US$ 13.5 million of total unrecognized compensation expense
related to options.  The expense is expected to be recognized over a
weighted average period of 3.90 years.  Proceeds received from the
exercise of stock options were US$ 2.0 million and US$ 0.9 million for the three
months ended March 31, 2007 and 2006, respectively.




15.  EARNINGS PER
SHARE





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





For the Three Months Ended
      March 31,2007
                                
                                
                                2006Net loss available for common
      shareholders
                                
                                $
                                (250
                                )
                                
                                $
                                (18,264
                                )Weighted average outstanding
      shares of common stock (000’s)
                                
                                
                                40,793
                                
                                
                                
                                38,100Dilutive
      effect of employee stock options (000’s)
                                
                                
                                -
                                
                                
                                
                                -Common stock and common stock
      equivalents (000’s)
                                
                                
                                40,793
                                
                                
                                
                                38,100Loss per
      share:Basic
                                
                                $
                                (0.01
                                )
                                
                                $
                                (0.48
                                )Diluted
                                
                                $
                                (0.01
                                )
                                
                                $
                                (0.48
                                )




Page
26
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





At March
31, 2007, 258,500 (2006: 319,453) stock options were antidilutive to income from
continuing operations and excluded from the calculation of earnings per share.
These may become dilutive in the future.






16.  SEGMENT
DATA





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





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





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





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





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





·
            stock-based
      compensation charges;





·
            foreign
      currency exchange gains and losses;





·
            changes
      in fair value of derivatives; and





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





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





Page
27
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





For the Three Months Ended
      March 31,Segment Net Revenues
      (1)
                                                                  
                                                                  
                                                                  Segment
      EBITDA2007
                                                                  
                                                                  
                                                                  2006
                                                                  
                                                                  
                                                                  2007
                                                                  
                                                                  
                                                                  2006Country:Croatia
      (NOVA TV)
                                                                  
                                                                  $
                                                                  7,232
                                                                  
                                                                  
                                                                  $
                                                                  3,810
                                                                  
                                                                  
                                                                  $
                                                                  (4,652
                                                                  )
                                                                  
                                                                  $
                                                                  (4,442
                                                                  )Czech
      Republic (TV NOVA, GALAXIE SPORT)
                                                                  
                                                                  
                                                                  51,519
                                                                  
                                                                  
                                                                  
                                                                  40,549
                                                                  
                                                                  
                                                                  
                                                                  25,667
                                                                  
                                                                  
                                                                  
                                                                  12,826Romania
      (2)
                                                                  
                                                                  
                                                                  39,342
                                                                  
                                                                  
                                                                  
                                                                  29,871
                                                                  
                                                                  
                                                                  
                                                                  15,136
                                                                  
                                                                  
                                                                  
                                                                  11,613Slovak
      Republic (MARKIZA TV)
                                                                  
                                                                  
                                                                  18,677
                                                                  
                                                                  
                                                                  
                                                                  11,206
                                                                  
                                                                  
                                                                  
                                                                  5,756
                                                                  
                                                                  
                                                                  
                                                                  (977
                                                                  )Slovenia
      (POP TV and KANAL A)
                                                                  
                                                                  
                                                                  12,669
                                                                  
                                                                  
                                                                  
                                                                  10,227
                                                                  
                                                                  
                                                                  
                                                                  3,001
                                                                  
                                                                  
                                                                  
                                                                  3,033Ukraine
      (STUDIO 1+1)
                                                                  
                                                                  
                                                                  18,075
                                                                  
                                                                  
                                                                  
                                                                  25,478
                                                                  
                                                                  
                                                                  
                                                                  (2,370
                                                                  )
                                                                  
                                                                  
                                                                  10,988Ukraine
      (KINO, CITI) (3)
                                                                  
                                                                  
                                                                  398
                                                                  
                                                                  
                                                                  
                                                                  374
                                                                  
                                                                  
                                                                  
                                                                  (2,417
                                                                  )
                                                                  
                                                                  
                                                                  (126
                                                                  )Total segment
      data
                                                                  
                                                                  $
                                                                  147,912
                                                                  
                                                                  
                                                                  $
                                                                  121,515
                                                                  
                                                                  
                                                                  $
                                                                  40,121
                                                                  
                                                                  
                                                                  $
                                                                  32,915Reconciliation to condensed
      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
                                                                  
                                                                  $
                                                                  147,912
                                                                  
                                                                  
                                                                  $
                                                                  119,754
                                                                  
                                                                  
                                                                  $
                                                                  4,449
                                                                  
                                                                  
                                                                  $
                                                                  (4,292
                                                                  )Corporate
      operating costs
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  14,773
                                                                  
                                                                  
                                                                  
                                                                  7,981Unconsolidated
      equity affiliates (4)
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  1,761
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (1,283
                                                                  )Depreciation
      of station property, plant and equipment
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  6,899
                                                                  
                                                                  
                                                                  
                                                                  5,702Amortization
      of broadcast licenses and other intangibles
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  5,162
                                                                  
                                                                  
                                                                  
                                                                  4,332Interest
      income
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (1,414
                                                                  )
                                                                  
                                                                  
                                                                  (1,453
                                                                  )Interest
      expense
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  11,396
                                                                  
                                                                  
                                                                  
                                                                  10,518Change
      in fair value of derivatives
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (4,524
                                                                  )
                                                                  
                                                                  
                                                                  -Foreign
      currency exchange loss, net
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  3,136
                                                                  
                                                                  
                                                                  
                                                                  10,862Other
      expense
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  244
                                                                  
                                                                  
                                                                  
                                                                  548Total segment
      data
                                                                  
                                                                  $
                                                                  147,912
                                                                  
                                                                  
                                                                  $
                                                                  121,515
                                                                  
                                                                  
                                                                  $
                                                                  40,121
                                                                  
                                                                  
                                                                  $
                                                                  32,915





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


(2)
Romanian networks are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
Sport.ro..


(3) We
acquired our Ukraine (KINO, CITI) operations in January 2006.


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





Page
28
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





For the Three Months Ended
      March 31,Depreciation of station
      property, plant and equipment and amortization of broadcast licenses and
      other intangibles:
                        
                        2007
                        
                        
                        2006Croatia
                        
                        $
                        785
                        
                        
                        $
                        529Czech
      Republic
                        
                        
                        6,461
                        
                        
                        
                        5,525Romania
                        
                        
                        1,747
                        
                        
                        
                        1,227Slovak
      Republic
                        
                        
                        1,187
                        
                        
                        
                        1,471Slovenia
                        
                        
                        986
                        
                        
                        
                        730Ukraine
      (STUDIO 1+1)
                        
                        
                        745
                        
                        
                        
                        572Ukraine
      (KINO, CITI)
                        
                        
                        150
                        
                        
                        
                        157Total
                        
                        $
                        12,061
                        
                        
                        $
                        10,211Reconciliation to condensed
      consolidated statement of operations:Unconsolidated
      equity affiliates
                        
                        
                        -
                        
                        
                        
                        (177
                        )Total consolidated depreciation
      and amortization
                        
                        $
                        12,061
                        
                        
                        $
                        10,034Represented
      as follows:Depreciation
      of station property, plant & equipment
                        
                        
                        6,899
                        
                        
                        
                        5,702Amortization
      of broadcast licenses and other intangibles
                        
                        
                        5,162
                        
                        
                        
                        4,332





Total assets
      (1):
                      
                      March 31,
                        2007
                      
                      
                      December 31,
                        2006Croatia
                      
                      $
                      35,179
                      
                      
                      $
                      30,394Czech
      Republic
                      
                      
                      1,182,875
                      
                      
                      
                      1,200,894Romania
                      
                      
                      235,736
                      
                      
                      
                      206,850Slovak
      Republic
                      
                      
                      100,943
                      
                      
                      
                      86,872Slovenia
                      
                      
                      73,941
                      
                      
                      
                      67,919Ukraine
      (STUDIO 1+1)
                      
                      
                      71,297
                      
                      
                      
                      75,020Ukraine
      (KINO, CITI)
                      
                      
                      17,844
                      
                      
                      
                      13,293Total segment
      assets
                      
                      $
                      1,717,815
                      
                      
                      $
                      1,681,242Reconciliation to condensed
      consolidated balance sheets:Corporate
                      
                      
                      130,476
                      
                      
                      
                      137,758Total
    assets
                      
                      $
                      1,848,291
                      
                      
                      $
                      1,819,000





(1)
Segment assets exclude any inter-company investments, loans, payables and
receivables.





Page
29
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Long-lived assets
      (1):
                      
                      March 31,
                        2007
                      
                      
                      December 31,
                        2006Croatia
                      
                      $
                      8,484
                      
                      
                      $
                      6,804Czech
      Republic
                      
                      
                      29,943
                      
                      
                      
                      28,002Romania
                      
                      
                      34,057
                      
                      
                      
                      32,312Slovak
      Republic
                      
                      
                      20,140
                      
                      
                      
                      19,498Slovenia
                      
                      
                      16,379
                      
                      
                      
                      15,595Ukraine
      (STUDIO 1+1)
                      
                      
                      7,551
                      
                      
                      
                      7,965Ukraine
      (KINO, CITI)
                      
                      
                      3,657
                      
                      
                      
                      3,674Total long-lived
      assets
                      
                      $
                      120,211
                      
                      
                      $
                      113,850Reconciliation to condensed
      consolidated balance sheets:Corporate
                      
                      
                      1,793
                      
                      
                      
                      1,955Total long-lived
      assets
                      
                      $
                      122,004
                      
                      
                      $
                      115,805





(1)
Reflects property, plant and equipment





We do not
rely on any single major customer or group of major customers








17.  DISCONTINUED
OPERATIONS





For the Three Months Ended
      March 31,2007
                      
                      
                      2006Tax
      on disposal of discontinued operations
                      
                      
                      -
                      
                      
                      
                      (3,807
                      )Net loss from discontinued
      operations
                      
                      $
                      -
                      
                      
                      $
                      (3,807
                      )





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





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





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





We have
re-evaluated our forecasts of the amount of taxable income we expect to earn in
the Netherlands in the period to 2009.  As the tax payable on this
income is lower than the minimum amounts agreed with the Dutch tax authorities,
we have provided for the shortfall.  In our condensed consolidated
statement of operations, we recognized a charge of US$ nil through discontinued
operations for the three months ended March 31, 2007 (2006: US$ 3.8
million).





Page
30
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





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





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








18.  COMMITMENTS AND
CONTINGENCIES





Commitments





a) Station Programming Rights
Agreements





At March
31, 2007, we had the following commitments in respect of future programming,
including contracts signed with license periods starting after the balance sheet
date:





March 31,
                              2007Croatia
                            
                            $
                            6,492Czech
      Republic
                            
                            
                            30,923Romania
                            
                            
                            19,704Slovak
      Republic
                            
                            
                            19,709Slovenia
                            
                            
                            4,695Ukraine
      (STUDIO 1+1)
                            
                            
                            18,895Ukraine
      (KINO, CITI)
                            
                            
                            777Total
                            
                            $
                            101,195





Of the
amount shown in the table above, US$ 93.9 million is payable within one
year.





Page
31
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





b) Operating Lease
Commitments





For the
three months ended March 31, 2007 and 2006 we incurred aggregate rent on all
facilities of US$ 2.9 million and US$ 3.6 million,
respectively.  Future minimum operating lease payments at March 31,
2007 for non-cancellable operating leases with remaining terms in excess of one
year (net of amounts to be recharged to third parties) are payable as
follows:





March 31,
                        20072007
                      
                      $
                      2,8492008
                      
                      
                      1,4212009
                      
                      
                      1,1552010
                      
                      
                      8242011
                      
                      
                      3942012
      and thereafter
                      
                      
                      -Total
                      
                      $
                      6,643





c) Acquisition of Minority
Shareholdings in Romania





Adrian
Sarbu, the general director of our Romania operations, has the right to sell his
10.0% shareholding in Pro TV and MPI to us under a put option agreement entered
into in July 2004 at a price to be determined by an independent valuation,
subject to a floor price of US$ 1.45 million for each 1.0% interest
sold.  A put option of 5.21% of this 10.0% shareholding is exercisable
from November 12, 2009 for a twenty-year period thereafter.  Mr.
Sarbu’s right to put the remaining 4.79% is also exercisable from November 12,
2009, provided that we have not enforced a pledge over this 4.79% shareholding
which Mr. Sarbu granted as security for our right to put to him our 10.0%
shareholding in Media Pro. As at March 31, 2007, we consider the fair value of
this put option to be approximately US$ nil.





d) Other





Dutch Tax





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





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





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





Page
32
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Czech Republic - Factoring of Trade
Receivables





CET 21
has a working capital credit facility of CZK 250 million (approximately US$ 11.9
million) with Ceska Sporitelna, a.s.  This facility is secured by a
pledge of receivables under the factoring agreement with Factoring Ceska
Sporitelna.





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





Contingencies





a) Litigation





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





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





Croatia





Global Communications
Disputes





On
October 29, 2004, Operativna Kompanija d.o.o. (“OK”), our former operating
company in Croatia, filed suit against Global Communications d.o.o. claiming
approximately HRK 53.0 million (approximately US$ 9.6 million) in
damages.  Global Communications is a company controlled by Ivan
Caleta, who had previously operated Nova TV (Croatia) through
OK.  Global Communications, together with GRP Media d.o.o., another
company controlled by Mr. Caleta, had provided certain goods and services to OK
and Nova TV (Croatia) in exchange for advertising time pursuant to an agreement
dated April 10, 2001 (the “Global Agreement”).  Global Communications
and GRP Media were functionally managing the advertising inventory of Nova TV
(Croatia).  On December 31, 2003, Global Communications entered into a
reconciliation agreement by which OK acknowledged that Global Communications was
entitled to approximately 375,000 seconds of advertising time for goods and
services previously provided.  Following our acquisition of Nova TV
(Croatia) and OK in July 2004, OK concluded that Global Communications had used
all of its seconds by June 2004 based on a substantial discrepancy discovered
between the utilization of advertising time recorded by Global Communications
and that recorded by AGB Puls, an independent television audience measurement
service operating in Croatia.  In the course of its investigation of
the usage of seconds by Global Communications, OK discovered that computer
records of advertising seconds kept for OK may have been altered.  OK
brought a suit to recover amounts for advertising time used by Global
Communications in excess of the 375,000 seconds agreed.  Global
Communications filed a counterclaim in January 2005 for HRK 68.0 million
(approximately US$ 12.3 million), claiming that the AGB data is unreliable and
that it is entitled to additional seconds under the previous agreement. The
lower commercial court issued a judgment on July 12, 2006 in favor of Global
Communications for the full amount of the counterclaim, and we have appealed
this decision on the basis of false and inadequate disclosure, wrongful
application of substantive law and procedural error.  Global
Communications separately brought a claim against Nova TV (Croatia), on the same
basis as the OK counterclaim.  Both Global Communications and Nova TV
(Croatia) requested the court to join this claim with the OK counterclaim but
this request was denied.  The lower commercial court issued a judgment
on August 1, 2006 in favor of Global Communications for the full amount of the
claim, after having denied submission of evidence supporting our
defense.  We have also appealed this decision. We have accrued for the
amounts we expect to be ultimately payable as a result of having commenced
settlement negotiations with Global Communications. Any such settlement would
also include a settlement of the former shareholder dispute described
below.





Page
33
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





On
January 25, 2007, Nova TV (Croatia) filed suit against Global Communications.
The facts underlying the claim are substantially the same as those of the
abovementioned claims, but Nova TV (Croatia) is claiming that the Global
Agreement and the two reconciliation agreements dated April 30, 2004 and June
30, 2004 (the “Reconciliation Agreements”), by which OK acknowledged the number
of seconds of advertising time to which Global Communications was purportedly
entitled, should be declared null and void under Article 141 of the Croatian
Obligations Act. This provision is intended to protect a contractual party which
has entered into unfair bargaining terms due to its dependency on the other
contractual party.  Global Communications, OK and Nova TV (Croatia)
were all related parties (controlled by Ivan Caleta) and the contractual terms
provided for the provision of 1,340,280 seconds by OK to Global Communications
in exchange for certain transmitters. These seconds were valued at an aggregate
of DEM 5 million (or DEM 3.73 per second; HRK 3.91 per second at the time)
whereas the rate card price was DEM 97.18 or HRK 380.00 per second (i.e. a price
that was 26 times higher). Other clients (unrelated parties) sampled from this
period were paying between 382.50 HRK to 491.85 HRK per second. Nova TV
(Croatia) is arguing for voidance of this contract because of its unconscionable
terms which were detrimental to OK and Nova TV (Croatia) and beneficial solely
to Global Communications (which, in its capacity as an advertising agency,
on-sold these seconds to its clients at market rates, thereby reaping an
extraordinary profit).  Nova TV (Croatia) is further claiming
restitution for advertising seconds appropriated by Global Communications under
the Global Agreement. The restitution amount is HRK 586.5 million (approximately
US$ 105.8 million). Given that the resolution of the issues posed by this
lawsuit constitutes a preliminary question on which appellate review of the two
lawsuits previously mentioned above should depend, we have requested suspension
of those two reviews until this question has been finally
adjudicated.





Former Shareholder
Dispute





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





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





Page
34
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Czech Republic





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





Romania





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





Slovenia





On
November 20, 2002, we received notice of a claim filed by Mrs. Zdenka Meglic,
the founder and a former shareholder of MMTV 1 d.o.o (MMTV), against MMTV, a
subsidiary of CME Media Enterprises B.V.  In her claim against MMTV,
Mrs. Meglic is seeking an amount equal to EUR 0.8 million (approximately US$ 1.1
million) for repayment of monies advanced to MMTV from 1992 to 1994 (in the
amount of approximately EUR 0.1 million (approximately US$ 0.2 million))
plus accrued interest.  On September 9, 2004, the court of first
instance found against MMTV and issued a judgment requiring MMTV to pay an
amount equal to EUR 0.8 million (approximately US$ 1.1 million) plus
interest as well as costs.  On September 24, 2004, MMTV filed an
appeal against the judgment.  On December 15, 2004, the appellate
court vacated the judgment of the lower court and returned the case for further
proceedings.  We do not believe that Mrs. Meglic will prevail and will
continue to defend the claim.





Slovak Republic





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





Ukraine





On
October 11, 2005, Igor Kolomoisky filed a lawsuit against Alexander Rodnyansky
and Studio 1+1 in a district court in Kiev.  Our Ukrainian affiliate
Intermedia has been joined in the proceedings as a “third
party”.  Igor Kolomoisky is attempting to enforce what he alleges was
a binding oral agreement with Alexander Rodnyansky to purchase the latter’s
70.0% interest in Studio 1+1 for consideration of US$ 70.0 million and to
transfer that interest to Igor Kolomoisky on receipt of a prepayment of US$ 2.0
million.  The lawsuit arises from abortive negotiations among Igor
Kolomoisky, Alexander Rodnyansky and Boris Fuchsmann for the acquisition by Igor
Kolomoisky of the totality of interests in the Studio 1+1 Group held by
Alexander Rodnyansky and Boris Fuchsmann, subject to Igor Kolomoisky assuming
all of their obligations under our existing partnership
arrangements.  On August 16, 2006, the district court in Kiev ruled in
favor of Igor Kolomoisky and found that he is entitled to the 70% interest in
Studio 1+1 held by Alexander Rodnyansky. Our Ukrainian affiliate Intermedia and
Alexander Rodnyansky filed appeals against this decision.





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





On April
4, 2007 the Supreme Court of Ukraine accepted an extraordinary appeal from Igor
Kolomoisky against the decision made on February 28, 2007 and the decision of
the Court of Appeals of the city of Kiev made on October 31,
2006.  Under Ukrainian law, such extraordinary appeals to the Supreme
Court can be made on the basis (1) that an international judicial institution
(whose jurisdiction has been recognized by Ukraine) determines that an appellate
decision violates the international obligations of Ukraine or (2) that the
decision is not consistent with prior practice of the Supreme
Court.  Igor Kolomoisky has based his appeal on the latter grounds. No
hearing on this appeal has been scheduled to date.  The Supreme Court
may in its discretion either reject the appeal or vacate the earlier decisions
of the Supreme Court and the appellate court and return the case to the
appellate court for new consideration.  However, in the absence of a
decision on this extraordinary appeal, the decision of the Supreme Court of
February 28, 2007 and the decision of the Court of Appeals of the city of Kiev
of October 31, 2006 remain in force.





Page
35
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





On
December 23, 2005, we initiated proceedings against our partners Alexander
Rodnyansky and Boris Fuchsmann in order to enforce our contractual rights and
compel a restructuring of the ownership of Studio 1+1 in order to permit us to
hold a 60% interest in Studio 1+1 through a subsidiary organized in
Ukraine.  Initiation of this proceeding followed protracted
negotiations with our partners to restructure following confirmation from the
Ukraine Media Council that our proposed ownership structure would not be in
violation of restrictions on foreign ownership contained in the Ukraine Media
Law, which restricts direct (but not indirect) investment by foreign persons in
Ukrainian broadcasters to 30%.  On January 12, 2006, the Ukraine
parliament adopted an amended version of the Ukraine Media Law that clarifies
the absence of any restriction on indirect foreign ownership of television
broadcasters.  This amended Ukraine Media Law came into force in March
2006.  Our partners have acknowledged an obligation to restructure
upon the entry into force of these amendments. On September 5, 2006, our
partners entered into certain agreements to implement the
restructuring.  Following the completion of the transactions reflected
in these agreements and the registration of the charter of Studio 1+1 amended to
reflect the new ownership of Studio 1+1, we will own 60% of Studio 1+1. Upon
successful completion of the restructuring, we will terminate the proceedings
initiated against our partners in December 2005.





Because
of ongoing ancillary litigation to enjoin transactions related to the ownership
of Studio 1+1 that have been initiated by Igor Kolomoisky, by our partners and
by third parties who are not direct parties in interest to legal proceedings
initiated by Igor Kolomoisky against Alexander Rodnyansky, the state registrar
in the district administration in Kiev where such charter amendments are
registered is presently enjoined from registering any amendments to the charter
of Studio 1+1, including in respect of the restructured ownership agreed with
our partners (see Note 1 “Organisation and Business”, Ukraine (Studio 1+1)). Our
partners are no longer seeking to enforce the injunction filed at their
initiative; however, because of an intervention in this case by Igor Kolomoisky,
it has not been possible for our partners to remove this
injunction.





b) Licenses





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





Page
36
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





The
following summarizes the expiry dates of our licenses:





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





c) Restrictions on dividends from
Consolidated Subsidiaries and Unconsolidated Affiliates





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








19.  SUBSEQUENT
EVENTS





Redemption of floating rate
notes





On April
11, 2007 we issued a notice to redeem our floating rate Senior Notes on May 15,
2007.  Redemption will involve payment of a premium of 2% of the
amount outstanding, or EUR 2.5 million (approximately US$ 3.3
million).





We will
also record a non-cash charge of approximately US$ 3.5 million at the time of
redemption to write off unamortized debt issuance costs on the floating rate
Senior Notes.





Drawing of EBRD
facility




On April
18, 2007, we drew down the entire EUR 100.0 million available under our facility
with the European Bank of Reconstruction and Development.




Page
37
 Index





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





Contents





I.
            Forward-looking
      Statements


II.
            Executive
      Summary


III.
            Analysis of Segment
      Results


IV.
            Analysis of the Results of
      Consolidated
Operations


V.
            Liquidity and Capital
      Resources


VI.
            Critical Accounting Policies
      and Estimates








I. Forward-looking
Statements





This report contains forward-looking
statements, including the impact of legal proceedings in Croatia and Ukraine,
the results of additional investment in Croatia and Ukraine, the implementation
of an advertising sales strategy in the Czech Republic and cost reductions in
the Czech and Slovak Republics, our ability to develop and implement
multi-channel strategies generally, the growth of television advertising in our
markets, the future economic conditions in our markets, future investments in
television broadcast operations, the growth potential of advertising spending in
our markets, and other business strategies and commitments.  For these
statements and all other forward-looking statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.  Forward-looking statements
are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy or are otherwise beyond our control and some of which
might not even be anticipated.  Future events and actual results,
affecting our strategic plan as well as our financial position, results of
operations and cash flows, could differ materially from those described in or
contemplated by the forward-looking statements.  Important factors
that contribute to such risks include, but are not limited to, the general
regulatory environments where we operate and application of relevant laws and
regulations, the renewals of broadcasting licenses, our ability to implement
strategies regarding sales and multi-channel distribution, the rate of
development of advertising markets in countries where we operate, our ability to
acquire necessary programming and the ability to attract audiences, our ability
to obtain additional frequencies and licenses, and general market and economic
conditions in these countries as well as in the United States and Western
Europe.





The
following discussion should be read in conjunction with our interim financial
statements and notes included elsewhere in this
report.





II. Executive
Summary


The
accompanying Management’s Discussion and Analysis of Financial Condition and
Results of Operations reflects the restatement of the unaudited condensed
Consolidated Financial Statements for the three months ended March 31, 2007
described in Item 1, Note 2.


Continuing
Operations





The
following table provides a summary of our consolidated results for the three
months ended March 31, 2007 and 2006:





For the Three Months Ended
      March 31,
                                    (US$
    000's)2007
                                  
                                  
                                  2006
                                  
                                  
                                  MovementNet
      revenues
                                  
                                  $
                                  147,912
                                  
                                  
                                  $
                                  119,754
                                  
                                  
                                  $
                                  28,158Operating
      income
                                  
                                  
                                  13,287
                                  
                                  
                                  
                                  16,183
                                  
                                  
                                  
                                  (2,896
                                  )Net
      loss from continuing operations
                                  
                                  
                                  (250
                                  )
                                  
                                  
                                  (14,457
                                  )
                                  
                                  
                                  14,207Net loss
                                  
                                  $
                                  (250
                                  )
                                  
                                  $
                                  (18,264
                                  )
                                  
                                  $
                                  18,014





Page
38
 Index




The
principal events for the three months ended March 31, 2007 are as
follows:




·
              In
      the three months ended March 31, 2007, we reported growth in both Segment
      Net Revenues and Segment EBITDA of 22% compared to the three months ended
      March 31, 2006, delivering a Segment EBITDA margin of 27%, in line with
      that reported in the three months ended March 31, 2006 (Segment EBITDA is
      defined and reconciled to our consolidated results in Item 1, Note
      16).
 
 ·
              Other
      than our operations in Ukraine each of our stations reported revenue
      growth in excess of 20% compared to the three months ended March 31, 2006,
      with particularly strong growth reported in Croatia and the Slovak
      Republic. Our operations in Ukraine experienced a decline in Segment Net
      Revenues and Segment EBITDA because the results for the three months ended
      March 31, 2006 reflected a windfall from the level of political
      advertising ahead of the Ukrainian parliamentary elections in March
      2006.
 
 ·
              On
      February 20,  2007, we acquired control of TV Sport, an
      operator of a sports-oriented channel focusing on local and international
      football, international boxing and a number of local Romanian sports (see
      Item 1, Note 3). In April 2007 we rebranded TV SPORT as
      Sport.ro.




Subsequent
to the quarter-end:





·
            On
      April 11, 2007 we issued a notice to redeem our floating rate Senior Notes
      on May 15, 2007 at a cost of EUR 127.5 million (see Item 1, Note
      19).





·
            On
      April 18, 2007 we drew down the entire EUR 100.0 million available under
      our facility with the European Bank of Reconstruction and Development (see
      Item 1, Note 19).




Future
Developments





As our
markets mature, we anticipate more intense competition for audience share and
advertising spending from other incumbent terrestrial broadcasters and, to a
lesser extent, from local cable and satellite broadcasters.  We
believe we are in a solid position to manage increased
competition.  In the near term we intend to continue to pursue further
improvements in the performance of our existing operations in order to maximize
the potential for organic growth.





Our
priorities in this regard include:





·
            Pursuing
      sub-regional efficiencies, especially in the area of local programming
      between Slovenia and Croatia and between the Czech and Slovak
      Republics;





·
            Supporting
      the growth of television advertising in our markets through increased
      development and through the launch or acquisition of additional channels
      to expand our advertising inventory and target niche
      audiences;





·
            Leveraging
      our existing brands and assets to develop new revenue opportunities,
      including in the creation and distribution of programming and in the new
      media sectors; and





·
            Continuing
      to expand our footprint into additional Central and Eastern European
      markets when financially prudent opportunities
  arise.




Page
39
 Index




In
particular, we are planning the following during 2007:


·
              Continuing
      to improve the effectiveness of our operations in the Czech Republic and
      the Slovak Republic.
 
 ·
              Continuing
      the development of our new Ukraine channels KINO and CITI which were
      launched in 2006.


·
            Further
      development of our non-broadcast activities, particularly in new media,
      which is being coordinated across our
markets.




·
              Acquisition
      of additional shares in our operations in Romania, the Slovak Republic and
      Ukraine if the opportunity arises;
and


·
            Continuing
      to invest in the development of our Croatia
  operations.








III. Analysis of Segment
Results





OVERVIEW





We manage
our business on a geographic basis and review the performance of each business
segment using data that reflects 100% of operating and license company
results.  We also consider how much of our total revenues and earnings
are derived from our broadcast and non-broadcast operations. Our business
segments are comprised of Croatia, the Czech Republic, Romania, the Slovak
Republic, Slovenia and our two businesses in Ukraine.





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





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





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





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





·
            stock-based
      compensation charges;





·
            foreign
      currency exchange gains and losses;





·
            change
      in fair value of derivatives; and





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





EBITDA
may not be comparable to similar measures reported by other
companies.  Non-GAAP measures should be evaluated in conjunction with,
and are not a substitute for, US GAAP financial measures.





We
believe Segment EBITDA is useful to investors because it provides a more
meaningful representation of our performance as it excludes certain items that
either do not impact our cash flows or the operating results of our
stations.  Segment EBITDA is also used as a component in determining
management bonuses.





For a
full reconciliation of our Segment Net Revenues and Segment EBITDA by operation
to our consolidated results for the three months ended March 31, 2007 and 2006
see Part I, Item 1, Note 16.





A summary
of our total Segment Net Revenues, Segment EBITDA and Segment EBITDA margin
showing the relative contribution of each Segment, is as follows:





Page
40
 Index




SEGMENT FINANCIAL
      INFORMATION
                        For the Three Months Ended
      March 31, (US$ 000's)2007
                      
                      
                      
                      (1
                      )
                      
                      2006
                      
                      
                      
                      (1
                      )Segment Net
      RevenuesCroatia
      (NOVA TV)
                      
                      $
                      7,232
                      
                      
                      
                      5
                      %
                      
                      $
                      3,810
                      
                      
                      
                      3
                      %Czech
      Republic (TV NOVA, GALAXIE SPORT)
                      
                      
                      51,519
                      
                      
                      
                      34
                      %
                      
                      
                      40,549
                      
                      
                      
                      34
                      %Romania
      (2)
                      
                      
                      39,342
                      
                      
                      
                      27
                      %
                      
                      
                      29,871
                      
                      
                      
                      25
                      %Slovak
      Republic (MARKIZA TV) (3)
                      
                      
                      18,677
                      
                      
                      
                      13
                      %
                      
                      
                      11,206
                      
                      
                      
                      9
                      %Slovenia
      (POP TV and KANAL A)
                      
                      
                      12,669
                      
                      
                      
                      9
                      %
                      
                      
                      10,227
                      
                      
                      
                      8
                      %Ukraine
      (STUDIO 1+1)
                      
                      
                      18,075
                      
                      
                      
                      12
                      %
                      
                      
                      25,478
                      
                      
                      
                      21
                      %Ukraine
      (KINO, CITI) (4)
                      
                      
                      398
                      
                      
                      
                      -
                      %
                      
                      
                      374
                      
                      
                      
                      -
                      %Total Segment Net
      Revenues
                      
                      $
                      147,912
                      
                      
                      
                      100
                      %
                      
                      $
                      121,515
                      
                      
                      
                      100
                      %Represented
      by:Broadcast
      operations
                      
                      $
                      147,422
                      
                      
                      
                      100
                      %
                      
                      $
                      121,073
                      
                      
                      
                      100
                      %Non-broadcast
      operations
                      
                      
                      490
                      
                      
                      
                      -
                      %
                      
                      
                      442
                      
                      
                      
                      -
                      %Total Segment Net
      Revenues
                      
                      $
                      147,912
                      
                      
                      
                      100
                      %
                      
                      $
                      121,515
                      
                      
                      
                      100
                      %Segment
      EBITDACroatia
      (NOVA TV)
                      
                      $
                      (4,652
                      )
                      
                      
                      (12
                      )%
                      
                      $
                      (4,442
                      )
                      
                      
                      (13
                      )%Czech
      Republic (TV NOVA)
                      
                      
                      25,667
                      
                      
                      
                      65
                      %
                      
                      
                      12,826
                      
                      
                      
                      39
                      %Romania
      (2)
                      
                      
                      15,136
                      
                      
                      
                      38
                      %
                      
                      
                      11,613
                      
                      
                      
                      35
                      %Slovak
      Republic (MARKIZA TV) (3)
                      
                      
                      5,756
                      
                      
                      
                      14
                      %
                      
                      
                      (977
                      )
                      
                      
                      (3
                      )%Slovenia
      (POP TV and KANAL A)
                      
                      
                      3,001
                      
                      
                      
                      7
                      %
                      
                      
                      3,033
                      
                      
                      
                      9
                      %Ukraine
      (STUDIO 1+1)
                      
                      
                      (2,370
                      )
                      
                      
                      (6
                      )%
                      
                      
                      10,988
                      
                      
                      
                      33
                      %Ukraine
      (KINO, CITI) (4)
                      
                      
                      (2,417
                      )
                      
                      
                      (6
                      )%
                      
                      
                      (126
                      )
                      
                      
                      -
                      %Total Segment
      EBITDA
                      
                      $
                      40,121
                      
                      
                      
                      100
                      %
                      
                      $
                      32,915
                      
                      
                      
                      100
                      %Represented
      by:Broadcast
      operations
                      
                      $
                      40,714
                      
                      
                      
                      101
                      %
                      
                      $
                      32,947
                      
                      
                      
                      100
                      %Non-broadcast
      operations
                      
                      
                      (593
                      )
                      
                      
                      (1
                      )%
                      
                      
                      (32
                      )
                      
                      
                      -
                      %Total Segment
      EBITDA
                      
                      $
                      40,121
                      
                      
                      
                      100
                      %
                      
                      $
                      32,915
                      
                      
                      
                      100
                      %Segment EBITDA Margin
      (5)
                      
                      
                      27
                      %
                      
                      
                      
                      
                      
                      
                      27
                      %





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


(2)
Romania networks are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
Sport.ro.


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


(4) We
acquired our Ukraine (KINO, CITI) operations on January 11, 2006.


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





Page
41
 Index





ANALYSIS BY GEOGRAPHIC
SEGMENT





In the
countries in which we operate, advertisers tend to allocate their television
advertising budgets among channels based on each channel's audience share,
audience demographic profile and pricing policy.  We generally offer
two different bases of pricing to our advertising customers.  The
first basis is cost per gross rating point (which we refer to as
“GRP”).  A GRP represents the percentage of audience (from the
population over the age of four) reached by a television advertisement and the
number of GRPs achieved for a defined time period is the product of the
proportion of that total viewing population watching that television
advertisement and the frequency that it is viewed (as measured by international
measurement agencies using peoplemeters).  The second basis is
rate-card, which reflects the timing and duration of an
advertisement.  Whether advertising is sold on a GRP basis or a
rate-card basis depends on the dynamics of a particular market and our relative
audience share.





Cost per GRP pricing:
Advertising priced on a cost per GRP basis allows an advertiser to specify the
number of gross ratings points that it wants to achieve with an advertisement
within a defined period of time.  We schedule the timing of the airing
of the advertisements during such defined period of time in a manner that
enables us both to meet the advertiser's GRP target and to maximize the use and
profitability of our available advertising programming time.  The
price per GRP package varies depending on the demographic group that the
advertisement is targeting, the flexibility given to us by advertisers in
scheduling their advertisements and the rebates offered by us to advertising
agencies and their clients.  GRP package sales generally allow for
better inventory control than rate-card pricing and optimize the net price per
GRP achieved.





Rate-card pricing:
Advertising priced on a rate-card basis is applied to advertisements scheduled
at a specific time.  Consistent with industry practice, we provide an
incentive rebate on rate-card prices to a number of advertising agencies and
their clients.  We recognize our advertising revenue at the time the
relevant advertisement is broadcast net of rebates.





The
majority of our advertising customers commit to annual minimum spending
levels.  We usually schedule specific advertisements one month in
advance of broadcasting them.  Prices paid by advertisers, whether
they purchase advertising time on a GRP package or rate-card basis, tend to be
higher during peak viewing months, particularly during the fourth quarter, than
during off-peak months such as July and August.





When
describing relative performance against other competitors in attracting audience
we refer to ratings share, which represents the number of people watching a
channel as a proportion of the total population, and audience share, which
represents the share attracted by a channel of the total audience watching
television.





Our goal
is to increase revenues from advertising in local currency year-on-year in every
market through disciplined management of our advertising
inventory.  In any given period, revenue increases can be attributable
to combinations of price increases, higher inventory sales, seasonal or
time-of-day incentives, target-audience delivery of specific campaigns,
introductory pricing for new clients or audience movements based on our
competitors’ program schedule.





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




(A) CROATIA





Market
Background:We estimate that the television advertising market
in Croatia experienced local currency growth of approximately 2% - 5% in 2006
and expect it to show single digit growth during 2007.





In the
three months ended March 31, 2007, national all day audience share for NOVA TV
(Croatia) grew to 17.7% compared to 13.7% in the three months ended March 31,
2006.  The major competitors are the two state-owned channels HRT1 and
HRT2, with national all day audience shares for the three months ended March 31,
2007 of 28.7% and 18.2%, respectively, and privately owned broadcaster RTL with
26.1%.





Page
42
 Index





Prime
time audience share for NOVA TV (Croatia), which is our principal focus, grew
from 16.0% in the three months ended March 31, 2006 to 19.5% in the three months
ended March 31, 2007.  Our average prime time ratings increased from
7.6% to 8.4% over comparable periods, while prime time ratings for the whole
market decreased from 50.0% in the three months ended March 31, 2006, when
viewership increased during the Winter Olympics, to 42.7% in the three months
ended March 31, 2007.





Three months ended March 31, 2007
compared to three months ended March 31, 2006





CROATIA SEGMENT FINANCIAL
      INFORMATION
                            For the Three Months Ended
      March 31, (US$ 000's)2007
                          
                          
                          2006
                          
                          
                          MovementSpot
      revenues
                          
                          $
                          5,020
                          
                          
                          $
                          3,053
                          
                          
                          $
                          1,967Non-spot
      revenues
                          
                          
                          2,212
                          
                          
                          
                          757
                          
                          
                          
                          1,455Segment Net
      Revenues
                          
                          $
                          7,232
                          
                          
                          $
                          3,810
                          
                          
                          $
                          3,422Represented
      by:Broadcast
      operations
                          
                          $
                          7,227
                          
                          
                          $
                          3,810
                          
                          
                          $
                          3,417Non-broadcast
      operations
                          
                          
                          5
                          
                          
                          
                          -
                          
                          
                          
                          5Segment Net
      Revenues
                          
                          $
                          7,232
                          
                          
                          $
                          3,810
                          
                          
                          $
                          3,422Segment
      EBITDA
                          
                          $
                          (4,652
                          )
                          
                          $
                          (4,442
                          )
                          
                          $
                          (210
                          )Represented
      by:Broadcast
      operations
                          
                          $
                          (4,623
                          )
                          
                          $
                          (4,442
                          )
                          
                          $
                          (181
                          )Non-broadcast
      operations
                          
                          
                          (29
                          )
                          
                          
                          -
                          
                          
                          
                          (29
                          )Segment
      EBITDA
                          
                          $
                          (4,652
                          )
                          
                          $
                          (4,442
                          )
                          
                          $
                          (210
                          )Segment EBITDA
      Margin
                          
                          
                          (64
                          )%
                          
                          
                          (117
                          )%
                          
                          
                          53
                          %





·
            Segment Net Revenues for
      the three months ended March 31, 2007 increased by US$ 3.4 million, or
      90%, compared to the three months ended March 31, 2006.  In
      local currency, Segment Net Revenues increased by 73%.  Spot
      revenues increased by US$ 2.0 million, or 64%, as a result of a
      significant increase in the volume of GRPs sold, particularly in prime
      time, augmented by increased prices.  Non-spot revenues
      increased by US$ 1.5 million, or 192%, as a result of increased levels of
      sponsorship.





·
            Segment EBITDAfor the
      three months ended March 31, 2007 was a loss of US$ 4.7 million compared
      to a loss of US$ 4.4 million in the three months ended March 31,
      2006.





Costs
charged in arriving at Segment EBITDA for the three months ended March 31, 2007
increased by US$ 3.6 million, or 44%, compared to the three months ended March
31, 2006.  Cost of programming increased by US$ 3.8 million, or 92%,
due to increased investment in local productions.  Other operating
costs decreased by US$ 0.4 million, or 14%, primarily due to lower salary and
wage costs, partially offset by higher transmission costs as a result of
increased transmitter coverage.  Selling, general and administrative
expenses increased by US$ 0.2 million, or 12%.





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43
 Index





(B) CZECH
REPUBLIC





Market
Background:We estimate that the television advertising market
in the Czech Republic remained stable in local currency during
2006.  We expect the television advertising market to show high single
digit growth in 2007.





The
national all day audience share of our channel, TV NOVA (Czech Republic), for
the three months ended March 31, 2007 was 40.8% compared to 42.0% for the three
months ended March 31, 2006.  The major competitors are the two
state-owned channels CT1 and CT2, with national all day audience shares for the
three months ended March 31, 2007 of 22.6% and 8.2% respectively, and privately
owned broadcaster TV Prima with a national all day audience share of
20.0%.





Prime
time audience share grew from 43.0% in the three months ended March 31, 2006 to
45.2% in the three months ended March 31, 2007.  Our average prime
time ratings decreased from 18.7% to 18.3% over comparable periods, while prime
time ratings for the whole market decreased from 43.5% in the three months ended
March 31, 2006 to 40.5% in the three months ended March 31, 2007, reflecting the
relatively mild weather enjoyed by much of Europe in 2007.





During
the first quarter of 2006, we announced a new advertising sales strategy based
on our belief that growth in the television advertising market in the Czech
Republic has been impeded over the past several years due to broadcasters
focusing on obtaining an increased share of revenues committed to television
advertising rather than fostering market growth by focusing on maximizing value
received from the sale of GRPs.  The focus of the TV Nova (Czech
Republic) group is now on the development of advertising revenues over the
medium term by supporting and then capturing market growth through a more
sophisticated pricing policy.  In conjunction with this advertising
strategy, the TV Nova (Czech Republic) group initiated a series of measures to
reduce the costs of its operations, including the cancellation of poorly
performing formats and reductions in operational costs.  Our results
in the first quarter of 2007 reflect the success of these initiatives to
date.





Three months ended March 31, 2007
compared to three months ended March 31, 2006





CZECH REPUBLIC SEGMENT
      FINANCIAL INFORMATION
                        For the Three Months Ended
      March 31, (US$ 000's)2007
                      
                      
                      2006
                      
                      
                      MovementSpot
      revenues
                      
                      $
                      46,664
                      
                      
                      $
                      33,443
                      
                      
                      $
                      13,221Non-spot
      revenues
                      
                      
                      4,855
                      
                      
                      
                      7,106
                      
                      
                      
                      (2,251
                      )Segment Net
      Revenues
                      
                      $
                      51,519
                      
                      
                      $
                      40,549
                      
                      
                      $
                      10,970Represented
      by:Broadcast
      operations
                      
                      $
                      51,480
                      
                      
                      $
                      40,402
                      
                      
                      $
                      11,078Non-broadcast
      operations
                      
                      
                      39
                      
                      
                      
                      147
                      
                      
                      
                      (108
                      )Segment Net
      Revenues
                      
                      $
                      51,519
                      
                      
                      $
                      40,549
                      
                      
                      $
                      10,970Segment
      EBITDA
                      
                      $
                      25,667
                      
                      
                      $
                      12,826
                      
                      
                      $
                      12,841Represented
      by:Broadcast
      operations
                      
                      $
                      25,937
                      
                      
                      $
                      12,856
                      
                      
                      $
                      13,081Non-broadcast
      operations
                      
                      
                      (270
                      )
                      
                      
                      (30
                      )
                      
                      
                      (240
                      )Segment
      EBITDA
                      
                      $
                      25,667
                      
                      
                      $
                      12,826
                      
                      
                      $
                      12,841Segment EBITDA
      Margin
                      
                      
                      50
                      %
                      
                      
                      32
                      %
                      
                      
                      18
                      %





Page
44
 Index





·
            Segment Net Revenues for
      the three months ended March 31, 2007 increased by US$ 11.0 million, or
      27%, compared to the three months ended March 31, 2006.  In
      local currency, Segment Net Revenues increased by 14%.  Spot
      revenues increased by $13.2 million, or 40%, primarily due to an increase
      in the volume of GRPs sold, particularly in off-prime time, as well as
      increased average revenue per rating point sold. Non-spot revenue
      decreased by US$ 2.3 million, or 32%, primarily due to a reduction in the
      number of shows generating voting revenue in the three months ended March
      31, 2007 compared to those programs broadcast in the three months ended
      March 31, 2006.





·
            Segment EBITDAfor the
      three months ended March 31, 2007 increased by US$ 12.8 million, or 100%,
      compared to the three months ended March 31, 2006, resulting in an EBITDA
      margin of 50% compared to 32% in the three months ended March 31,
      2006.  Costs charged in arriving at Segment EBITDA for the three
      months ended March 31, 2007 decreased by US$ 1.9 million, or 7%, compared
      to the three months ended March 31, 2006.  Cost of programming
      decreased by US$ 2.2 million, or 14%, due to better cost control in
      production and the cancellation of several expensive one-off programs
      broadcast during the three months ended March 31, 2006 as part of TV
      Nova’s operational restructuring.  Other operating costs
      increased by US$ 1.0 million, or 16%, primarily due to exchange rate
      movements.  Selling, general and administrative expenses
      decreased by US$ 0.7 million, or 10%, primarily due to reductions in
      marketing and research costs.





(C) ROMANIA





Market
Background:We estimate that the television advertising market
grew by approximately 32% - 37% in US dollars during 2006.  We expect
the television advertising market to show continued growth in the range of 20%
to 25% in 2007.





The
combined national all day audience share of our three existing channels (PRO TV,
ACASA and PRO CINEMA) for the three months ended March 31, 2007 was 22.7%
compared to 25.6% for the three months ended March 31, 2006.  On March
1, 2007 we were granted the license to broadcast TV SPORT, which had an all day
audience share of 1.5% in the three months ended March 31, 2007.  In
April we rebranded TV SPORT as Sport.ro, while retaining the same focus and
target demographic. The major competitors are the two state-owned channels TVR1
and TVR2, with national all day audience shares for the three months ended March
31, 2007 of 14.5% and 4.8%, respectively, and privately owned broadcaster Antena
1 with 13.5%.





Prime
time audience share for our three existing channels decreased from 28.6% in the
three months ended March 31, 2006 to 24.1% in the three months ended March 31,
2007.  ACASA suffered a decline in share, as the popularity of our
successful telenovellas has diminished following the decision by other competing
stations to produce similar programs, while our other channels both enjoyed
increases in share.  Our average prime time ratings decreased from
13.6% to 10.6% over comparable periods, while prime time ratings for the whole
market decreased from 47.3% in the three months ended March 31, 2006 to 43.8% in
the three months ended March 31, 2007.





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45
 Index





Three months ended March 31, 2007
compared to three months ended March 31, 2006





ROMANIA SEGMENT FINANCIAL
      INFORMATION
                        For the Three Months Ended
      March 31, (US$ 000's)2007
                      
                      
                      2006
                      
                      
                      MovementSpot
      revenues
                      
                      $
                      36,535
                      
                      
                      $
                      28,135
                      
                      
                      $
                      8,400Non-spot
      revenues
                      
                      
                      2,807
                      
                      
                      
                      1,736
                      
                      
                      
                      1,071Segment Net
      Revenues
                      
                      $
                      39,342
                      
                      
                      $
                      29,871
                      
                      
                      $
                      9,471Represented
      by:Broadcast
      operations
                      
                      $
                      39,342
                      
                      
                      $
                      29,871
                      
                      
                      $
                      9,471Non-broadcast
      operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Segment Net
      Revenues
                      
                      $
                      39,342
                      
                      
                      $
                      29,871
                      
                      
                      $
                      9,471Segment
      EBITDA
                      
                      $
                      15,136
                      
                      
                      $
                      11,613
                      
                      
                      $
                      3,523Represented
      by:Broadcast
      operations
                      
                      $
                      15,274
                      
                      
                      $
                      11,613
                      
                      
                      $
                      3,661Non-broadcast
      operations
                      
                      
                      (138
                      )
                      
                      
                      -
                      
                      
                      
                      (138
                      )Segment
      EBITDA
                      
                      $
                      15,136
                      
                      
                      $
                      11,613
                      
                      
                      $
                      3,523Segment EBITDA
      Margin
                      
                      
                      38
                      %
                      
                      
                      39
                      %
                      
                      
                      (1
                      )%





·
            Segment Net Revenues for
      the three months ended March 31, 2007 increased by US$ 9.5 million, or
      32%, compared to the three months ended March 31, 2006. Spot revenues
      increased by US$ 8.4 million, or 30%, driven primarily by increases in the
      average revenue per rating point sold in each of our three existing
      channels, which more than offset a slight decline in the volume of GRPs
      sold. Non-spot revenues increased by US$ 1.1 million, or 62%, primarily
      due to increased cable tariff revenue. The acquisition of TV Sport added
      approximately US$ 0.4 million to our revenues for the three months ended
      March 31, 2007.





·
            Segment EBITDAfor the
      three months ended March 31, 2007 increased by US$ 3.5 million, or 30%,
      compared to the three months ended March 31, 2006, with an EBITDA margin
      of 38% compared to 39% in the three months ended March 31,
      2006.  Costs charged in arriving at Segment EBITDA for the three
      months ended March 31, 2007 increased by US$ 5.9 million, or 33%, compared
      to the three months ended March 31, 2006.  Cost of programming
      grew by US$ 5.8 million, or 50%, due partially to the inclusion of the
      salary-related costs of production staff within cost of programming rather
      than operating costs; excluding the impact of this change in
      classification, cost of programming increased by US$ 4.0 million, or 34%,
      as a result of increased market competition and investment in quality
      programming.  Other operating costs decreased by US$ 0.1
      million, or 2%, after the difference in classification described above;
      excluding the impact of this change in classification, other operating
      costs increased by US$ 1.7 million, or 38%, primarily due to increased
      staffing costs.  Selling, general and administrative expenses
      increased by US$ 0.2 million, or 13%, primarily due to increased office
      running costs.  The acquisition of TV Sport did not have a
      significant impact on our Segment EBITDA for the three months ended March
      31, 2007.





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 Index





D) SLOVAK
REPUBLIC





Market
Background:  We estimate that the television advertising market
in the Slovak Republic experienced local currency growth of approximately 5% -
7% in 2006.  We expect the television advertising market will show
high single digit growth in 2007.





MARKIZA
TV is the leading channel in the Slovak Republic.  National all day
audience share for the three months ended March 31, 2007 was 34.1% compared to
31.0% for the three months ended March 31, 2006.  The major competitor
is the state-owned channel STV1, with a national all day audience share of 17.6%
for the three months ended March 31, 2007.  The national all day
audience share of TV JOJ, the only other significant privately owned channel,
was 16.7% for the three months ended March 31, 2007.





Our prime
time audience share increased from 33.3% in the three months ended March 31,
2006 to 38.1% in the three months ended March 31, 2007 primarily due
to  a series of strong programs.  Our average prime time
ratings increased from 14.6% to 15.9% over comparable periods, while prime time
ratings for the whole market decreased from 43.8% in the three months ended
March 31, 2006 to 41.6% in the three months ended March 31, 2007, reflecting the
impact of the Winter Olympics on viewing habits in the three months ended March
31, 2006.




Three months ended March 31, 2007
compared to three months ended March 31, 2006





SLOVAK REPUBLIC SEGMENT
      FINANCIAL INFORMATION
                        For the Three Months Ended
      March 31, (US$ 000's)2007
                      
                      
                      2006
                      
                      
                      MovementSpot
      revenues
                      
                      $
                      18,075
                      
                      
                      $
                      10,314
                      
                      
                      $
                      7,761Non-spot
      revenues
                      
                      
                      602
                      
                      
                      
                      892
                      
                      
                      
                      (290
                      )Segment Net
      Revenues
                      
                      $
                      18,677
                      
                      
                      $
                      11,206
                      
                      
                      $
                      7,471Represented
      by:Broadcast
      operations
                      
                      $
                      18,662
                      
                      
                      $
                      11,206
                      
                      
                      $
                      7,456Non-broadcast
      operations
                      
                      
                      15
                      
                      
                      
                      -
                      
                      
                      
                      15Segment Net
      Revenues
                      
                      $
                      18,677
                      
                      
                      $
                      11,206
                      
                      
                      $
                      7,471Segment
      EBITDA
                      
                      $
                      5,756
                      
                      
                      $
                      (977
                      )
                      
                      $
                      6,733Represented
      by:Broadcast
      operations
                      
                      $
                      5,859
                      
                      
                      $
                      (951
                      )
                      
                      $
                      6,810Non-broadcast
      operations
                      
                      
                      (103
                      )
                      
                      
                      (26
                      )
                      
                      
                      (77
                      )Segment
      EBITDA
                      
                      $
                      5,756
                      
                      
                      $
                      (977
                      )
                      
                      $
                      6,733Segment EBITDA
      Margin
                      
                      
                      31
                      %
                      
                      
                      (9
                      )%
                      
                      
                      40
                      %





·
            Segment Net Revenues for
      the three months ended March 31, 2007 increased by US$ 7.5 million, or
      67%, compared to the three months ended March 31, 2006.  In
      local currency, Segment Net Revenues increased by 61%.  The
      increase in Segment Net Revenues was due to an increase of US$ 7.8
      million, or 75%, in spot revenues partially offset by a decline of US$ 0.3
      million, or 33%, in non-spot revenues.  The increase in spot
      revenues is mainly due to increases in the average revenue per rating
      point sold, particularly in prime time, as well as an increase in the
      volume of advertising spots sold .  Our advertising revenues
      benefited from the launch of a new mobile phone operator during the three
      months ended March 31, 2007, as well as increased spending from existing
      customers, particularly in the pharmaceutical sector.  Segment
      Net Revenues for the three months ended March 31, 2006 included
      approximately US$ 1.8 million in respect of the period prior to
      acquisition on January 23, 2006 when Markiza was accounted for as an
      equity affiliate.





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47
 Index





·
            Segment EBITDAfor the three
      months ended March 31, 2007 increased by US$ 6.7 million, or 689%,
      compared to the three months ended March 31, 2006, resulting in an EBITDA
      margin of 31% compared to (9)% in the three months ended March 31,
      2006.  Costs charged in arriving at Segment EBITDA for the three
      months ended March 31, 2007 increased by US$ 0.7 million, or 6%, compared
      to the three months ended March 31, 2006.  Cost of programming
      decreased by US$ 0.4 million, or 6%; the amount charged in the three
      months ended March 31, 2006 included a charge of US$ 0.7 million to write
      off an unsuccessful show.  Other operating costs increased by
      US$ 0.6 million, or 16%, primarily due to increased staff costs of US$ 0.4
      million and increased broadcast and operating expenses of US$ 0.2
      million.  Selling, general and administrative expenses increased
      by US$ 0.5 million, or 36%, primarily due to increased office running
      costs and increased marketing and research costs.  Costs charged
      in arriving at Segment EBITDA for the three months ended March 31, 2006
      included US$ 1.7 million of programming costs, US$ 0.9 million of other
      operating costs and US$ 0.4 million of selling, general and administrative
      expenses in respect of the period prior to acquisition on January 23,
      2006.





(E) SLOVENIA





Market
Background:  We estimate that the television advertising market
in Slovenia experienced local currency growth of approximately 6% - 8% in
2006.  We expect the television advertising market to show low single
digit growth in 2007.





The
combined national all day audience share of our two channels increased from
36.3% for the three months ended March 31, 2006 to 37.1% for the three months
ended March 31, 2007.  The major competitors are state-owned channels
SLO1 and SLO2, with national all day audience shares for the three months ended
March 31, 2007 of 22.7% and 10.6%, respectively.





Our prime
time audience share decreased from 44.7% in the three months ended March 31,
2006 to 43.3% in the three months ended March 31, 2007, with an increased share
in KANAL A, partially offsetting a decreased share in POP TV.  Our
average prime time ratings decreased from 16.4% to 15.7% over comparable
periods, while prime time ratings for the whole market decreased from 36.5% in
the three months ended March 31, 2006 to 36.3% in the three months ended March
31, 2007.





On
January 1, 2007 Slovenia adopted the Euro and we adopted the Euro as the
functional currency of our Slovenia operations in place of the Slovenian
Tolar.





Page
48
 Index





Three months ended March 31, 2007
compared to three months ended March 31, 2006





SLOVENIA SEGMENT FINANCIAL
      INFORMATION
                        For the Three Months Ended
      March 31, (US$ 000's)2007
                      
                      
                      2006
                      
                      
                      MovementSpot
      revenues
                      
                      $
                      11,325
                      
                      
                      $
                      9,741
                      
                      
                      $
                      1,584Non-spot
      revenues
                      
                      
                      1,344
                      
                      
                      
                      486
                      
                      
                      
                      858Segment Net
      Revenues
                      
                      $
                      12,669
                      
                      
                      $
                      10,227
                      
                      
                      $
                      2,442Represented
      by:Broadcast
      operations
                      
                      $
                      12,238
                      
                      
                      $
                      9,932
                      
                      
                      $
                      2,306Non-broadcast
      operations
                      
                      
                      431
                      
                      
                      
                      295
                      
                      
                      
                      136Segment Net
      Revenues
                      
                      $
                      12,669
                      
                      
                      $
                      10,227
                      
                      
                      $
                      2,442Segment
      EBITDA
                      
                      $
                      3,001
                      
                      
                      $
                      3,033
                      
                      
                      $
                      (32
                      )Represented
      by:Broadcast
      operations
                      
                      $
                      3,022
                      
                      
                      $
                      3,009
                      
                      
                      $
                      13Non-broadcast
      operations
                      
                      
                      (21
                      )
                      
                      
                      24
                      
                      
                      
                      (45
                      )Segment
      EBITDA
                      
                      $
                      3,001
                      
                      
                      $
                      3,033
                      
                      
                      $
                      (32
                      )Segment EBITDA
      Margin
                      
                      
                      24
                      %
                      
                      
                      30
                      %
                      
                      
                      (6
                      )%








·
            Segment Net Revenues for
      the three months ended March 31, 2007 increased by US$ 2.4 million, or
      24%, compared to the three months ended March 31, 2006.  Spot
      revenues increased by US$ 1.6 million, or 16%, as our operations benefited
      from an increase in the average revenue per thirty-second advertising
      spot, particularly in prime time, which more than offset a decline in the
      volume of GRPs sold.  Non-spot revenues increased by US$ 0.9
      million, or 177%, due to an increased level of sponsorship and an increase
      in non-broadcast advertising
revenue.





·
            Segment EBITDAfor the
      three months ended March 31, 2007 was in line with the three months ended
      March 31, 2006, resulting in an EBITDA margin of 24% compared to 30% in
      the three months ended March 31, 2006.  Costs charged in
      arriving at Segment EBITDA for the three months ended March 31, 2007
      increased by US$ 2.5 million, or 34%, compared to the three months ended
      March 31, 2006.  Cost of programming grew by US$ 2.3 million, or
      75%, due to increased investment in programming in a more competitive
      market environment.  Other operating costs decreased by US$ 0.3
      million, or 10%, primarily due to lower salary and freelance costs,
      partially offset by higher transmitter and associated maintenance
      costs.  Selling, general and administrative expenses increased
      by US$ 0.5 million, or 41%, primarily due to higher marketing and
      promotion costs.





(F) UKRAINE (STUDIO
1+1)





Market
Background:  We estimate that the television advertising market
in Ukraine, where sales are denominated primarily in US dollars, experienced
growth of approximately 28% - 31% in 2006.  It is expected that the
television advertising market will grow between 30% and 35% during
2007.





STUDIO
1+1 had a national all day audience share of 16.1% for the three months ended
March 31, 2007 compared to 18.5% for the three months ended March 31,
2006.  Our competitors include: Inter, with a national all day
audience share of 18.8%, Novy Kanal with 8.0%, ICTV with 7.0% and STB with
7.8%.





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49
 Index





Our prime
time audience share decreased from 23.1% in the three months ended March 31,
2006 to 18.8% in the three months ended March 31, 2007, at a time when most
major channels experienced a similar decline in share to new niche
channels.  Our share in the three months ended March 31, 2006
reflected the outstanding success of a show called Ugly Betty.  Our
average prime time ratings decreased from 9.5% to 7.2% over comparable periods,
while prime time ratings for the whole market decreased from 41.1% in the three
months ended March 31, 2006 to 38.6% in the three months ended March 31,
2007.




Three months ended March 31, 2007
compared to three months ended March 31, 2006





UKRAINE (STUDIO 1+1) SEGMENT
      FINANCIAL INFORMATION
                          For the Three Months Ended
      March 31, (US$ 000's)2007
                      
                      
                      2006
                      
                      
                      MovementSpot
      revenues
                      
                      $
                      14,821
                      
                      
                      $
                      22,887
                      
                      
                      $
                      (8,066
                      )Non-spot
      revenues
                      
                      
                      3,254
                      
                      
                      
                      2,591
                      
                      
                      
                      663Segment Net
      Revenues
                      
                      $
                      18,075
                      
                      
                      $
                      25,478
                      
                      
                      $
                      (7,403
                      )Represented
      by:Broadcast
      operations
                      
                      $
                      18,075
                      
                      
                      $
                      25,478
                      
                      
                      $
                      (7,403
                      )Non-broadcast
      operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Segment Net
      Revenues
                      
                      $
                      18,075
                      
                      
                      $
                      25,478
                      
                      
                      $
                      (7,403
                      )Segment
      EBITDA
                      
                      $
                      (2,370
                      )
                      
                      $
                      10,988
                      
                      
                      $
                      (13,358
                      )Represented
      by:Broadcast
      operations
                      
                      $
                      (2,338
                      )
                      
                      $
                      10,988
                      
                      
                      $
                      (13,326
                      )Non-broadcast
      operations
                      
                      
                      (32
                      )
                      
                      
                      -
                      
                      
                      
                      (32
                      )Segment
      EBITDA
                      
                      $
                      (2,370
                      )
                      
                      $
                      10,988
                      
                      
                      $
                      (13,358
                      )Segment EBITDA
      Margin
                      
                      
                      (13
                      )%
                      
                      
                      43
                      %
                      
                      
                      (56
                      )%





·
            Segment Net Revenues for
      the three months ended March 31, 2007 decreased by US$ 7.4 million, or
      29%, compared to the three months ended March 31, 2006. Spot revenues
      decreased by US$ 8.1 million, or 35%.  There was an increase in
      the volume of GRPs sold in the three months ended March 31, 2007 compared
      to the three months ended March 31, 2006. This was offset by a decrease in
      the average revenue per thirty-second advertising.  Non-spot
      revenues increased by US$ 0.7 million, or 26%, primarily due to the sale
      of surplus programming and increased gameshow and short message service
      (“SMS”) revenues.





Sales
phasing was unusual in 2006. In the three months ended March 31, 2006 we
benefited from US$ 8.4 million of political advertising revenue ahead of the
parliamentary elections in March 2006 as well as the extraordinary ratings
success of the Russian series Ugly Betty. The advertising market in the three
months ended March 31, 2007 has been slow due to the ongoing disagreements
between the Ukrainian President and Prime Minister that resulted in the
dissolution of parliament. Advertisers have been cautious in applying their
budgets, leading all broadcasters to reduce prices in an attempt to maintain
revenues. Despite our relatively weak financial results for the quarter, we have
maintained our position as the highest rated channel among our target
demographic group of 18 – 49; and our prime time series Kadets was the highest
rated prime time series in that group.  While our major clients have
purchased less advertising in the three months ended March 31, 2007 than we had
anticipated, our sales house Video International has reported that they have not
reduced their annual budgets.  Our present view is that although the
Ukrainian television advertising market may remain uncertain for a period, we
believe that it will grow this year in line with our expectations, subject to
stabilization of the political situation.





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 Index





·
            Segment EBITDAfor the three
      months ended March 31, 2007 decreased by US$ 13.4 million, or 122%,
      compared to the three months ended March 31, 2006, resulting in an EBITDA
      margin of (13)% compared to 43% in the three months ended March 31,
      2006.  Costs charged in arriving at Segment EBITDA for the three
      months ended March 31, 2007 increased by US$ 6.0 million, or 41%, compared
      to the three months ended March 31, 2006.  Cost of programming
      grew by US$ 5.3 million, or 63%, due to price inflation for Russian
      programming, which is essential to maintaining strong ratings, as well as
      improvements to our programming schedule.  Other operating costs
      increased by US$ 0.5 million, or 14%, due to increased broadcast operating
      expenses and increased salary costs.  Selling, general and
      administrative expenses increased by US$ 0.1 million, or
      6%.





(G) UKRAINE (KINO,
CITI)





On
January 11, 2006, we acquired a 65.5% interest in Ukrpromtorg 2003 LLC, owner of
92.2% of Gravis LLC, which operated the local channels, CHANNEL 35 and CHANNEL
7.  In July 2006, we ceased operating CHANNEL 7 and launched a new
entertainment channel, KINO, targeted at a younger demographic.  On
December 1, 2006, we ceased operating CHANNEL 35 and launched a new
youth-oriented channel, CITI, with a Kiev-wide reach.





KINO and
CITI, both of which target a youthful market have as their main competitors
ICTV, TONIS and NTN. As at March 31, 2007, KINO had a technical reach of
approximately 46.7% of the Ukraine population and in the three months ended
March 31, 2007 achieved an average share in the Kiev region of 2.4%. CITI had a
technical reach of approximately 87.5% of the population of the city of Kiev and
the Kiev region. CITI began broadcasting in December 2006 and in the three
months ended March 31, 2007 achieved a 4+ prime time audience share of 2.1% in
the Kiev region.





Three months ended March 31, 2007
compared to three months ended March 31, 2006





UKRAINE (KINO, CITI) SEGMENT
      FINANCIAL INFORMATION
                        For the Three Months Ended
      March 31, (US$ 000's)2007
                      
                      
                      2006(1)
                      
                      
                      MovementSpot
      revenues
                      
                      $
                      143
                      
                      
                      $
                      215
                      
                      
                      $
                      (72
                      )Non-spot
      revenues
                      
                      
                      255
                      
                      
                      
                      159
                      
                      
                      
                      96Segment Net
      Revenues
                      
                      $
                      398
                      
                      
                      $
                      374
                      
                      
                      $
                      24Represented
      by:Broadcast
      operations
                      
                      $
                      398
                      
                      
                      $
                      374
                      
                      
                      $
                      24Non-broadcast
      operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Segment Net
      Revenues
                      
                      $
                      398
                      
                      
                      $
                      374
                      
                      
                      $
                      24Segment
      EBITDA
                      
                      $
                      (2,417
                      )
                      
                      $
                      (126
                      )
                      
                      $
                      (2,291
                      )Represented
      by:Broadcast
      operations
                      
                      $
                      (2,417
                      )
                      
                      $
                      (126
                      )
                      
                      $
                      (2,291
                      )Non-broadcast
      operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Segment
      EBITDA
                      
                      $
                      (2,417
                      )
                      
                      $
                      (126
                      )
                      
                      $
                      (2,291
                      )Segment EBITDA
      Margin
                      
                      
                      (607
                      )%
                      
                      
                      (34
                      )%
                      
                      
                      (573
                      )%





(1) From
acquisition on January 11, 2006 only





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51
 Index





·
            Segment Net Revenues for
      the three months ended March 31, 2007 were in line with the three months
      ended March 31, 2006. Spot revenues decreased by US$ 0.1 million, or 33%,
      primarily due to the level of political advertising aired in 2006 ahead of
      the parliamentary elections on March 26, 2006.  Non-spot
      revenues increased by US$ 0.1 million, or 60%, primarily due to increased
      program sponsorship.





·
            Segment EBITDAfor the
      three months ended March 31, 2007 decreased by US$ 2.3 million, or 1,818%,
      compared to the three months ended March 31, 2006, resulting in an EBITDA
      margin of (607)% compared to (34)% in the three months ended March 31,
      2006.  Costs charged in arriving at Segment EBITDA for the three
      months ended March 31, 2007 increased by US$ 2.3 million, or 462%,
      compared to the three months ended March 31, 2006.  Cost of
      programming grew by US$ 1.7 million, or 3162%.  Other operating
      costs increased by US$ 0.4 million, or 165%.  Selling, general
      and administrative expenses increased by US$ 0.2 million, or
      107%.





PROGRAMMING PAYMENTS AND PROGRAM
AMORTIZATION





Our
consolidated cost of programming for the three months ended March 31, 2007 and
2006 was as follows:





For the Three Months
      Ended
                        March 31, (US$
      000's)2007
                      
                      
                      2006Production
      expenses
                      
                      $
                      27,558
                      
                      
                      $
                      22,975Program
      amortization
                      
                      
                      38,795
                      
                      
                      
                      25,443Cost of
      programming
                      
                      $
                      66,353
                      
                      
                      $
                      48,418





Production
expenses represent the cost of in-house productions as well as locally
commissioned programming, such as news, current affairs and game
shows.  The cost of broadcasting all other purchased programming is
recorded as program amortization.





Total
consolidated programming costs (including amortization of programming rights and
production costs) increased by US$ 17.9 million, or 37%, in the three months
ended March 31, 2007 compared to the three months ended March 31, 2006 primarily
due to:





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





·
            US$
      5.3 million of additional programming costs from our Ukraine (STUDIO 1+1)
      operations;





·
            US$
      3.8 million of additional programming costs from our Croatia
      operations;





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





·
            US$
      1.7 million of additional programming costs from our Ukraine (KINO, CITI)
      operations;




·
              US$
      1.2 million of additional programming costs from our Slovak Republic
      operations, which have been consolidated for the entire three-month period
      in 2007.  Programming costs incurred in  the three
      months ended March 31, 2006, including the pre-acquisition period prior to
      January 23, 2006, were US$ 1.7 million;
and,


·
            US$
      2.2 million of reduced programming costs from our Czech Republic
      operations.





The
amortization of acquired programming for each of our consolidated operations for
the three months ended March 31, 2007 and 2006, including our operations in the
Slovak Republic (MARKIZA TV) for the period prior to January 23, 2006 when they
were accounted for as an equity affiliate is set out in the table
below.  For comparison, the table also shows the cash paid for
programming by each of our operations in the respective periods.  The
cash paid for programming by our operations in Croatia, the Czech Republic,
Romania, Slovenia, Ukraine and the Slovak Republic (for the period from January
23, 2006) is reflected within net cash provided by continuing operating
activities in our consolidated statement of cash flows.





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 Index




For the Three Months Ended
      March 31,
                            (US$
    000's)2007
                          
                          
                          2006Program
      amortization:Croatia
      (NOVA TV)
                          
                          $
                          5,399
                          
                          
                          $
                          3,418Czech
      Republic (TV NOVA)
                          
                          
                          6,556
                          
                          
                          
                          7,383Romania
      (PRO TV, ACASA, PRO CINEMA, PRO TV INTERNATIONAL and
    Sport.ro)
                          
                          
                          9,429
                          
                          
                          
                          6,716Slovak
      Republic (MARKIZA TV) (post-acquisition)
                          
                          
                          3,207
                          
                          
                          
                          436Slovenia
      (POP TV and KANAL A)
                          
                          
                          2,196
                          
                          
                          
                          1,417Ukraine
      (STUDIO 1+1)
                          
                          
                          10,927
                          
                          
                          
                          6,046Ukraine
      (KINO, CITI)
                          
                          
                          1,081
                          
                          
                          
                          27$
                          38,795
                          
                          
                          $
                          25,443Cash
      paid for programming:Croatia
      (NOVA TV)
                          
                          $
                          905
                          
                          
                          $
                          4,366Czech
      Republic (TV NOVA)
                          
                          
                          6,579
                          
                          
                          
                          11,936Romania
      (PRO TV, ACASA, PRO CINEMA, PRO TV INTERNATIONAL)
                          
                          
                          10,046
                          
                          
                          
                          6,606Slovenia
      (POP TV and KANAL A)
                          
                          
                          2,172
                          
                          
                          
                          1,819Ukraine
      (STUDIO 1+1)
                          
                          
                          10,484
                          
                          
                          
                          7,972Ukraine
      (KINO, CITI)
                          
                          
                          742
                          
                          
                          
                          115$
                          30,928
                          
                          
                          $
                          32,814Slovak
      Republic (MARKIZA TV)
                          
                          
                          3,699
                          
                          
                          
                          3,279$
                          34,627
                          
                          
                          $
                          36,093








IV. Analysis of the Results of
Consolidated Operations





IV (a) Net Revenues for the three
months ended March 31, 2007 compared to the three months ended March 31,
2006





Consolidated Net
      RevenuesFor the Three Months Ended
      March 31, (US$ 000's)2007
                      
                      
                      2006
                      
                      
                      MovementCroatia
                      
                      $
                      7,232
                      
                      
                      $
                      3,810
                      
                      
                      $
                      3,422Czech
      Republic
                      
                      
                      51,519
                      
                      
                      
                      40,549
                      
                      
                      
                      10,970Romania
                      
                      
                      39,342
                      
                      
                      
                      29,871
                      
                      
                      
                      9,471Slovak
      Republic
                      
                      
                      18,677
                      
                      
                      
                      9,445
                      
                      
                      
                      9,232Slovenia
                      
                      
                      12,669
                      
                      
                      
                      10,227
                      
                      
                      
                      2,442Ukraine
      (Studio 1+1)
                      
                      
                      18,075
                      
                      
                      
                      25,478
                      
                      
                      
                      (7,403
                      )Ukraine
      (KINO, CITI)
                      
                      
                      398
                      
                      
                      
                      374
                      
                      
                      
                      24Total Consolidated Net
      Revenues
                      
                      $
                      147,912
                      
                      
                      $
                      119,754
                      
                      
                      $
                      28,158





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 Index





Our
consolidated net revenues for the three months ended March 31, 2007 increased by
US$ 28.2 million, or 24%, compared to the three months ended March 31,
2006.  See discussion in Item 2, III. “Analysis of Segment
Results”.





IV (b) Cost of Revenues for the three
months ended March 31, 2007 compared to the three months ended March 31,
2006





Consolidated Cost of
      RevenuesFor the Three Months Ended
      March 31, (US$ 000's)2007
                      
                      
                      2006
                      
                      
                      MovementOperating
      costs
                      
                      $
                      25,657
                      
                      
                      $
                      22,972
                      
                      
                      $
                      2,685Cost
      of programming
                      
                      
                      66,353
                      
                      
                      
                      48,418
                      
                      
                      
                      17,935Depreciation
      of station property, plant and equipment
                      
                      
                      6,899
                      
                      
                      
                      5,702
                      
                      
                      
                      1,197Amortization
      of broadcast licenses and other intangibles
                      
                      
                      5,162
                      
                      
                      
                      4,332
                      
                      
                      
                      830Total Consolidated Cost of
      Revenues
                      
                      $
                      104,071
                      
                      
                      $
                      81,424
                      
                      
                      $
                      22,647





Total
cost of revenues for the three months ended March 31, 2007 increased by US$ 22.6
million, or 28%, compared to the three months ended March 31, 2006.





Operating
costs:Total consolidated operating costs (excluding
programming costs, depreciation of station property, plant and equipment,
amortization of broadcast licenses and other intangibles as well as station
selling, general and administrative expenses) for the three months ended March
31, 2007 increased by US$ 2.7 million, or 12%, compared to the three months
ended March 31, 2006.  See discussion in Item 2, III. “Analysis of
Segment Results”.





Cost of
programming:Consolidated programming costs (including
amortization of programming rights and production costs) for the three months
ended March 31, 2007 increased by US$ 17.9 million, or 37%, compared to the
three months ended March 31, 2006.  See discussion in Item 2, III.
“Analysis of Segment Results”.





Depreciation of property, plant and
equipment:  Total consolidated depreciation of property, plant
and equipment for the three months ended March 31, 2007 increased by US$ 1.2
million, or 21%, compared to the three months ended March 31, 2006 primarily due
to depreciation of newly acquired production equipment assets across each of our
operations.





Amortization of broadcast licenses
and other intangibles:  Total consolidated amortization of
broadcast licenses and other intangibles for the three months ended March 31,
2007 increased by US$ 0.8 million, or 19%, compared to the three months ended
March 31, 2006 primarily due to the amortization of the broadcast licenses and
customer relationships of our Slovak Republic operations that were acquired on
January 23, 2006 for a full three-month period rather than for the period from
acquisition in the prior year.





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 Index





IV (c) Station Selling, General and
Administrative Expenses for the three months ended March 31, 2007 compared to
the three months ended March 31, 2006





Consolidated Station Selling,
      General and Administrative ExpensesFor the Three Months Ended
      March 31, (US$ 000's)2007
                      
                      
                      2006
                      
                      
                      MovementCroatia
                      
                      $
                      1,726
                      
                      
                      $
                      1,542
                      
                      
                      $
                      184Czech
      Republic
                      
                      
                      5,093
                      
                      
                      
                      5,682
                      
                      
                      
                      (589
                      )Romania
                      
                      
                      2,425
                      
                      
                      
                      2,164
                      
                      
                      
                      261Slovak
      Republic
                      
                      
                      1,939
                      
                      
                      
                      1,020
                      
                      
                      
                      919Slovenia
                      
                      
                      1,704
                      
                      
                      
                      1,213
                      
                      
                      
                      491Ukraine
      (Studio 1+1)
                      
                      
                      2,467
                      
                      
                      
                      2,324
                      
                      
                      
                      143Ukraine
      (KINO, CITI)
                      
                      
                      427
                      
                      
                      
                      221
                      
                      
                      
                      206Total Consolidated Station
      Selling, General and Administrative Expenses
                      
                      $
                      15,781
                      
                      
                      $
                      14,166
                      
                      
                      $
                      1,615





Consolidated
station selling, general and administrative expenses for the three months ended
March 31, 2007 increased by US$ 1.6 million, or 11%, compared to the three
months ended March 31, 2006.  See discussion in Item 2, III. “Analysis
of Segment Results”.








IV (d) Corporate Operating Costs for
the three months ended March 31, 2007 compared to the three months ended March
31, 2006





For the Three Months Ended
      March 31, (US$ 000's)2007
                        
                        
                        2006
                        
                        
                        MovementCorporate
      operating costs (excluding non-cash stock-based
    compensation)
                        
                        $
                        13,511
                        
                        
                        $
                        7,293
                        
                        
                        $
                        6,218Non-cash
      stock-based compensation
                        
                        
                        1,262
                        
                        
                        
                        688
                        
                        
                        
                        574Corporate Operating Costs
      (including non-cash stock-based compensation)
                        
                        $
                        14,773
                        
                        
                        $
                        7,981
                        
                        
                        $
                        6,792





Corporate
operating costs (excluding non-cash stock-based compensation) for the three
months ended March 31, 2007 increased by US$ 6.2 million, or 85%, compared to
the three months ended March 31, 2006, primarily due to:




·
              A
      charge of EUR 4.5 million (approximately US$ 6.0 million) in respect of
      the estimated cost of settlement of our Croatia litigation  (see
      Item 1, Note 18);


·
            Increased
      staff related costs; and





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





·
            Included
      within corporate operating costs is a lease-exit charge of approximately
      US$ 1.6 million (including additional depreciation of US$ 0.3 million)
      incurred following relocation of our London office during the first
      quarter of 2006.




The
increase in the charge for non-cash stock-based compensation for the three
months ended March 31, 2007 compared to the three months ended March 31, 2006
reflects an increase in the number of stock options granted in 2006 compared to
prior years as well as an increase in the fair value of stock options as our
stock price increased in recent years.  For more details, see Item 1,
Note 14.





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IV (e) Operating Income for the three
months ended March 31, 2007 compared to the three months ended March 31,
2006





For the Three Months Ended
      March 31, (US$ 000's)2007
                        
                        
                        2006
                        
                        
                        MovementOperating
      Income
                        
                        $
                        13,287
                        
                        
                        $
                        16,183
                        
                        
                        $
                        2,896





Operating
income for the three months ended March 31, 2007 decreased by US$ 2.9 million,
or 18%, compared to the three months ended March 31, 2006. Operating margin was
9% compared to 13% for the three months ended March 31,
2006.








IV (f) Other income / (expense) items
for the three months ended March 31, 2007 compared to the three months ended
March 31, 2006





For the Three Months Ended
      March 31, (US$ 000's)2007
                        
                        
                        2006
                        
                        
                        MovementInterest
      income
                        
                        $
                        1,414
                        
                        
                        $
                        1,453
                        
                        
                        $
                        (39
                        )Interest
      expense
                        
                        
                        (11,396
                        )
                        
                        
                        (10,518
                        )
                        
                        
                        (878
                        )Foreign
      currency exchange loss, net
                        
                        
                        (3,136
                        )
                        
                        
                        (10,862
                        )
                        
                        
                        7,726Change
      in fair value of derivatives
                        
                        
                        4,524
                        
                        
                        
                        -
                        
                        
                        
                        4,524Other
      expense
                        
                        
                        (244
                        )
                        
                        
                        (548
                        )
                        
                        
                        304Provision
      for income taxes
                        
                        
                        (5,059
                        )
                        
                        
                        (3,994
                        )
                        
                        
                        (1,065
                        )Minority
      interest in loss / (income) of consolidated subsidiaries
                        
                        
                        360
                        
                        
                        
                        (5,441
                        )
                        
                        
                        5,801Equity
      in income / (loss) of unconsolidated affiliates
                        
                        
                        -
                        
                        
                        
                        (730
                        )
                        
                        
                        730Discontinued
      operations
                        
                        
                        -
                        
                        
                        
                        (3,807
                        )
                        
                        
                        3,807





Interest income for the three
months ended March 31, 2007 was in line with that recognized in the three months
ended March 31, 2006.





Interest expense for the three
months ended March 31, 2007 increased by US$ 0.9 million compared to the three
months ended March 31, 2006, primarily as a result of an increase in interest
rates.





Foreign currency exchange loss,
net:  For the three months ended March 31, 2007 we recognized a
US$ 3.1 million loss primarily as a result of the strengthening of the Euro
against the dollar during the three-month period.  Our fixed and
floating rate Senior Notes are denominated in Euros, and we incurred a
transaction loss of approximately US$ 5.5 million due to movements in the spot
rate between December 31, 2006 and March 31, 2007.  For the three
months ended March 31, 2006, we recognized a transaction loss of US$ 10.9
million.





Change in fair value of
derivatives: For the three months ended March 31, 2007 we recognized a
US$ 4.5 million gain as a result of the change in the fair value of the currency
swaps entered into on April 27, 2006.  For further information, see
Item 1, Note 12.




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Other
expense:  For the three
months ended March 31, 2007 we incurred other expenses of US$ 0.2 million
compared to US$ 0.5 million for the three months ended March 31,
2006.
  Provision for income
taxes:  The provision for income taxes was US$ 5.1 million for
the three months ended March 31, 2007 compared to US$ 4.0 million for the three
months ended March 31, 2006.  Our stations pay income taxes at rates
ranging from 16.0% in Romania to 25.0% in Ukraine.





Minority interest in income of
consolidated subsidiaries:  For the three months ended March
31, 2007, we recognized a gain of US$ 0.4 million in respect of the minority
interest in the income of consolidated subsidiaries, compared to a charge of US$
5.4 million for the three months ended March 31, 2006.  This movement
primarily reflects the fact that our Ukraine (STUDIO 1+1) operations reported a
net loss in the three months ended March 31, 2007 compared to a significant net
profit in the three months ended March 31, 2006 as a result of the level of
political advertising ahead of the March 2006 Parliamentary
elections.





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





Equity in
income / (loss) of unconsolidated affiliates for the three months ended March
31, 2007 decreased by US$ 0.7 million compared to the three months ended March
31, 2006 as detailed below:





For the Three Months Ended
      March 31, (US$ 000's)2007
                        
                        
                        2006
                        
                        
                        MovementMarkiza
      (Slovak Republic)
                        
                        $
                        -
                        
                        
                        $
                        (737
                        )
                        
                        $
                        737Radio
      Pro (Romania)
                        
                        
                        -
                        
                        
                        
                        7
                        
                        
                        
                        (7
                        )Equity in Income / (Loss) of
      Unconsolidated Affiliates
                        
                        $
                        -
                        
                        
                        $
                        (730
                        )
                        
                        $
                        (730
                        )








Discontinued
operations:  The amounts charged to the condensed consolidated
statement of operations in respect of discontinued operations for the three
months ended March 31, 2007 compared to the three months ended March 31, 2006
are as follows:





For the Three Months Ended
      March 31, (US$ 000's)2007
                        
                        
                        2006
                        
                        
                        MovementTax
      on disposal of discontinued operations
                        
                        $
                        -
                        
                        
                        $
                        (3,807
                        )
                        
                        $
                        3,807Discontinued
      operations
                        
                        $
                        -
                        
                        
                        $
                        (3,807
                        )
                        
                        $
                        3,807





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





The
revenues and expenses of our former Czech Republic operations and the award
income and related legal expenses have therefore all been treated as
discontinued operations.  For the three months ended March 31, 2006,
the amounts charged to discontinued operations largely represented revised
estimates of additional payments we expect to make to the Dutch tax authorities
pursuant to the agreement we entered into on February 9, 2004 (see also Part I,
Item 1, Note 17).





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IV (e) Condensed consolidated balance
sheet as at March 31, 2007 compared to December 31, 2006





Summarized Condensed
      Consolidated Balance Sheet (US$ 000’s)March 31,
      2007
                        
                        
                        December 31,
      2006
                        
                        
                        MovementCurrent
      assets
                        
                        $
                        424,715
                        
                        
                        $
                        413,616
                        
                        
                        $
                        11,099Non-current
      assets
                        
                        
                        1,423,576
                        
                        
                        
                        1,405,384
                        
                        
                        
                        18,192Current
      liabilities
                        
                        
                        213,728
                        
                        
                        
                        182,961
                        
                        
                        
                        30,767Non-current
      liabilities
                        
                        
                        578,139
                        
                        
                        
                        574,084
                        
                        
                        
                        4,055Minority
      interests in consolidated subsidiaries
                        
                        
                        25,949
                        
                        
                        
                        26,189
                        
                        
                        
                        (240
                        )Shareholders’
      equity
                        
                        $
                        1,030,475
                        
                        
                        $
                        1,035,766
                        
                        
                        $
                        (5,291
                        )




Current
assets:  Current assets at March 31, 2007 increased US$ 11.1
million compared to December 31, 2006, primarily as a result of an increase in
cash and cash equivalents and an increase in program rights.





Non-current
assets:  Non-current assets at March 31, 2007 increased US$
18.2 million compared to December 31, 2006, primarily as a result of increased
investments in programming and the recognition of goodwill and other intangible
assets following our acquisition of TV Sport.





Current
liabilities:  Current liabilities at March 31, 2007 increased
US$ 30.8 million compared to December 31, 2006, reflecting increases in deferred
income, accrued interest and payroll taxes.





Non-current
liabilities:  Non-current liabilities at March 31, 2007
increased US$ 4.1 million compared to December 31, 2006, after recognition of a
liability of approximately US$ 3.0 million following adoption of FIN
48.  The remaining movement reflects a US$ 5.5 million increase in the
value of our Senior Notes as a result of the movement in the spot rate between
December 31, 2006 and March 31, 2007, partially offset by a USS 4.5 million
reduction in our liability on the revaluation of the currency swaps entered into
in April 2006.  .





Minority interests in consolidated
subsidiaries:  Minority interests in consolidated subsidiaries
at March 31, 2007 decreased US$ 0.2 million compared to December 31, 2006,
primarily as a result of reduced profitability of our Ukraine (STUDIO 1+1)
operations.





Shareholders’
equity:  Total shareholders’ equity at March 31, 2007 decreased
US$ 5.3 million compared to December 31, 2006, primarily as a result of the
decrease in Other Comprehensive Income (US$ 5.6 million), impact of the adoption
of FIN 48 (US$ 3.2 million), and the net loss of US$ 0.3 million for the three
months ended March 31, 2007. Included in the total shareholders’ equity were
proceeds from the exercise of stock options (US$ 2.0 million) and a stock-based
compensation charge of US$ 1.8 million.





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V. Liquidity and Capital
Resources





V (a) Summary of cash
flows





Cash and
cash equivalents increased by US$ 11.4 million during the three months ended
March 31, 2007.  The change in cash and cash equivalents is summarized
as follows:





For the Three Months Ended
      March 31, (US$ 000's)2007
                        
                        
                        2006Net
      cash generated from continuing operating activities
                        
                        $
                        31,913
                        
                        
                        $
                        31,693Net
      cash used in continuing investing activities
                        
                        
                        (20,901
                        )
                        
                        
                        (67,518
                        )Net
      cash received from financing activities
                        
                        
                        809
                        
                        
                        
                        196,981Net
      cash used in discontinued operations – operating
activities
                        
                        
                        (1,624
                        )
                        
                        
                        (1,690
                        )Net increase in cash and cash
      equivalents
                        
                        $
                        11,436
                        
                        
                        $
                        161,283





Operating
Activities





Cash
generated from continuing operations in the three months ended March 31, 2007
increased from US$ 31.7 million to US$ 31.9 million, reflecting the level of
cash generated by our Czech Republic, Romania, Slovak Republic and Slovenia
operations, partially offset by negative cash flows of our Croatia and Ukraine
operations.





Investing
Activities





Cash used
in investing activities in the three months ended March 31, 2007 decreased from
US$ 67.5 million to US$ 20.9 million.  Our investing cash flows in the
three months ended March 31, 2007 were primarily comprised of:





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


·
            Payment
      of the final US$ 0.2 million of deferred consideration due on our
      acquisition of a 65.5% stake in Ukrpromtorg;
and


·
            Capital
      expenditure of US$ 12.0 million.





Financing
Activities





Net cash
received from financing activities in the three months ended March 31, 2007 was
US$ 0.8 million compared to US$ 197.0 million in the three months ended March
31, 2006.  The amount of cash received in the three months ended March
31, 2006 reflects proceeds of US$ 168.6 million from the issuance of Class
A Common Stock and a net amount of US$ 28.0 million of cash received
from credit facilities.





Discontinued
Operations





In the
three months ended March 31, 2007, we paid taxes of US$ 1.6 million to the Dutch
tax authorities pursuant to the agreement we entered into with them on February
9, 2004, compared to US$ 1.7 million in the three months ended March 31,
2006.








V (b) Sources and Uses of
Cash





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





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





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





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





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





Operating segment (US$
      000’s)
                        
                        March 31,
      2007
                        
                        
                        December 31,
      2006Croatia
                        
                        $
                        77,998
                        
                        
                        $
                        67,623Czech
      Republic
                        
                        
                        418,446
                        
                        
                        
                        434,897Romania
                        
                        
                        39,053
                        
                        
                        
                        25,620Slovak
      Republic
                        
                        
                        24,069
                        
                        
                        
                        23,670Slovenia
                        
                        
                        -
                        
                        
                        
                        -Ukraine
      (STUDIO 1+1)
                        
                        
                        87
                        
                        
                        
                        -Ukraine
      (KINO, CITI)
                        
                        
                        9,368
                        
                        
                        
                        4,621Total
                        
                        $
                        569,021
                        
                        
                        $
                        556,431





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





Our
future contractual obligations as of March 31, 2007 are as follows:





Contractual
      Obligations
                        
                        Payments due by period (US$
      000’s)Total
                        
                        
                        Less than 1
                          year
                        
                        
                        1-3
years
                        
                        
                        3-5
years
                        
                        
                        More than 5
                          yearsLong-Term
      Debt – principal
                        
                        $
                        506,433
                        
                        
                        $
                        11,991
                        
                        
                        $
                        1,700
                        
                        
                        $
                        -
                        
                        
                        $
                        492,742Long-Term
      Debt – interest
                        
                        
                        231,268
                        
                        
                        
                        42,473
                        
                        
                        
                        84,862
                        
                        
                        
                        84,556
                        
                        
                        
                        19,377Capital
      Lease Obligations
                        
                        
                        6,542
                        
                        
                        
                        943
                        
                        
                        
                        1,377
                        
                        
                        
                        1,187
                        
                        
                        
                        3,035Operating
      Leases
                        
                        
                        6,643
                        
                        
                        
                        3,218
                        
                        
                        
                        2,473
                        
                        
                        
                        952
                        
                        
                        
                        -Unconditional
      Purchase Obligations
                        
                        
                        103,170
                        
                        
                        
                        95,240
                        
                        
                        
                        7,784
                        
                        
                        
                        -
                        
                        
                        
                        146Other
      Long-Term Obligations
                        
                        
                        18,023
                        
                        
                        
                        15,459
                        
                        
                        
                        2,564
                        
                        
                        
                        -
                        
                        
                        
                        -Total
      Contractual Obligations
                        
                        $
                        872,079
                        
                        
                        $
                        169,324
                        
                        
                        $
                        100,760
                        
                        
                        $
                        86,695
                        
                        
                        $
                        515,300





On April
11, 2007, the holders of the floating rate Senior Notes received notice of our
intention to redeem all of these Senior Notes on May 15, 2007 (See Part I, Item
1, Note 5).





Long-Term Debt





As at
March 31, 2007 we had the following debt outstanding:





March 31,
      2007
                              (US$
    000’s)Corporate
                            
                            
                            (1
                            )–(2)
                            
                            $
                            492,742Croatia
      operations
                            
                            
                            
                            (3)
                            
                            
                            -Czech
      Republic operations
                            
                            
                            (4
                            )–(6)
                            
                            
                            11,892Romania
      operations
                            
                            
                            
                            (7)
                            
                            
                            94Slovenia
      operations
                            
                            
                            
                            (8)
                            
                            
                            -Ukraine
      (KINO, CITI) operations
                            
                            
                            
                            (9)
                            
                            
                            1,705Total
                            
                            
                            
                            
                            
                            $
                            506,433





(1)
            In
      May 2005, we issued Senior Notes in the aggregate principal amount of EUR
      370.0 million consisting of EUR 245.0 million of 8.25% Senior Notes due
      May 2012 and EUR 125.0 million of floating rate Senior Notes due May 2012,
      which bear interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”)
      plus 5.50% (9.23% was applicable at March 31, 2007).  Interest
      is payable semi-annually in arrears on each May 15 and November
      15.





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





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





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61
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At any
time prior to May 15, 2008, we may redeem up to 35.0% of the fixed rate Senior
Notes with the proceeds of any public equity offering at a price of 108.250% of
the principal amount of such notes, plus accrued and unpaid interest, if any, to
the redemption date.  In addition, prior to May 15, 2009, we may
redeem all or a part of the fixed rate Senior Notes at a redemption price equal
to 100.0% of the principal amount of such notes, plus a “make-whole” premium and
accrued and unpaid interest, if any, to the redemption date.





On April
11, 2007 we issued a notice to redeem the floating rate Senior Notes on May 15,
2007.





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





(2)
            On
      July 21, 2006, we entered into a five-year revolving loan agreement for
      EUR 100.0 million (approximately US$ 133.2 million) arranged by the
      European Bank for Reconstruction and Development (the
      “Loan”).  ING Bank N.V. (“ING”) and Ceska Sporitelna, a.s.
      (“CS”) are participating in the facility for up to EUR 50.0 million in
      aggregate.





The Loan
bears interest at a rate of three-month EURIBOR plus 2.75% on the drawn
amount.  The available amount of the Loan amortizes by 7.5% every six
months from May 2008 to November 2009, then by 15% in May 2010 and November
2010, and by 40% in May 2011. There were no drawings under this facility as at
March 31, 2007, however the entire EUR 100.0 million was drawn on April 18,
2007.





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





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





(3)
            On
      March 28, 2007, we repaid EUR 0.6 million (approximately US$ 0.8 million)
      which had been drawn by our Croatia operations under two loan agreements
      with Hypo Alpe-Adria Bank d.d. The security held by the bank was also
      released.





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





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62
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(5)
            CET
      21 has a working capital credit facility of CZK 250.0 million
      (approximately US$ 11.9 million) with CS, which matures on April 30,
      2007.  This working capital facility bears interest at the
      three-month PRIBOR rate plus 1.65%. On April 7, 2007 this facility was
      extended to April 30, 2008. This facility is secured by a pledge of
      receivables, which are also subject to a factoring arrangement with
      Factoring Ceska Sporitelna, a.s.  As at March 31, 2007, the full
      CZK 250.0 million (approximately US$ 11.9 million) was drawn under this
      facility bearing interest at an aggregate 4.22% (the applicable
      three-month PRIBOR rate at March 31, 2007 was
  2.57%).





(6)
            As
      at March 31, 2007, there were no drawings under a CZK 600.0 million
      (approximately US$ 28.5 million) factoring facility with Factoring Ceska
      Sporitelna, a.s., a subsidiary of CS.  This facility is
      available until March 31, 2010 and bears interest at the rate of one-month
      PRIBOR plus 1.40% for the period that actively assigned accounts
      receivable are outstanding. On April 11, 2007 the size of this facility
      was reduced from CZK 600.0 million to CZK 300.0
  million.





(7)
            As
      at March 31, 2007, an amount of RON 242,739 (approximately US$ 0.1
      million) was outstanding under a loan agreement from one of the founding
      shareholders of TV Sport. The loan is interest free and is repayable in
      equal monthly instalments by August 31,
2007.





(8)
            A
      revolving five-year facility agreement was entered into by Pro Plus for up
      to EUR 37.5 million (approximately US$ 49.9 million) in aggregate
      principal amount with ING Bank N.V., Nova Ljubljanska Banka d.d.,
      Ljubljana and Bank Austria Creditanstalt d.d., Ljubljana.  The
      facility availability amortizes by 10.0% each year for four years
      commencing one year after signing, with 60.0% repayable after five
      years.  This facility is secured by a pledge of the bank
      accounts of Pro Plus, the assignment of certain receivables, a pledge of
      our interest in Pro Plus and a guarantee of our wholly-owned subsidiary
      CME Media Enterprises B.V.  Loans drawn under this facility will
      bear interest at a rate of EURIBOR for the period of drawing plus a margin
      of between 2.10% and 3.60% that varies according to the ratio of
      consolidated net debt to consolidated broadcasting cash flow for Pro
      Plus.  As at March 31, 2007, EUR 33.8 million (approximately US$
      45.0 million)  was available for drawing under this revolving
      facility; there were no drawings
outstanding.





(9)
            Our
      Ukraine (KINO, CITI) operations have entered into a number of three-year
      unsecured loans with Glavred-Media, LLC, the minority shareholder in
      Ukrpromtorg.  As at March 31, 2007, the total value of loans
      drawn was US$ 1.7 million.  The loans are repayable between
      August 2009 and December 2009 and bear interest at
  9.0%.





Capital Lease
Obligations





Capital
lease obligations include future interest payments of US$ 1.8
million.  For more information on our capital lease obligations see
Part I, Item 1, Note 11.





Operating Leases





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





Unconditional Purchase
Obligations





Unconditional
purchase obligations largely comprise future programming
commitments.  At March 31, 2007, we had commitments in respect of
future programming US$ 90.8 million (December 31, 2006: US$ 98.0
million).  This includes contracts signed with license periods
starting after March 31, 2007.  For more information on our
programming commitments see Part I, Item 1, Note 18.





Other Long-Term
Obligations





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





In
addition to the amounts disclosed above, Mr. Sarbu has the right to sell his
remaining 10.0% shareholding in Pro TV and MPI to us under a put option
agreement entered into in July 2004 at a price to be determined by an
independent valuation, subject to a floor price of US$ 1.45 million for each
1.0% interest sold.  A put option of 5.21% of this 10.0% shareholding
is exercisable from November 12, 2009 for a twenty-year period thereafter. Mr.
Sarbu’s right to put the remaining 4.79% shareholding is also exercisable from
November 12, 2009, provided that we have not enforced a pledge over this 4.79%
shareholding which Mr. Sarbu granted as security for our right to put our 10.0%
in Media Pro. As at March 31 2007, we consider the fair value of this put option
to be approximately US$ nil (2006: US$ nil).





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V (d) Cash
Outlook





The
issuance of the EUR 370.0 million (approximately US$ 480.0 million at the time
of issuance) Senior Notes for the acquisition of the TV Nova (Czech Republic)
group in May 2005 increased our leverage and we have significant debt service
obligations in respect of the Senior Notes.  In addition, the terms of
our indebtedness restrict the manner in which our business is conducted,
including the incurrence of additional indebtedness, the making of investments,
the payment of dividends or the making of other distributions, entering into
certain affiliate transactions and the sale of assets.  Net cash
proceeds from the issuance of new shares of our Class A Common Stock of US$
168.6 million in March 2006 significantly reduced our net debt and provides a
useful source of funds to allow investment flexibility, including acquisitions
better suited to equity rather than debt financing.  On July 21, 2006,
we entered into a five-year EUR 100.0 million revolving loan facility (the EBRD
Loan Agreement), which, once fully drawn, can be used for general corporate
purposes to further increase our financing flexibility, and will reduce our
average cost of debt.  This amount was drawn on April 18,
2007.





Our
future cash needs will depend on our overall financial performance, debt service
requirements under the Senior Notes, the EBRD Loan Agreement as well as under
other indebtedness incurred by us as well as any future acquisition, investment
and development decisions.  Our ability to raise further funds through
external debt facilities depends on our satisfaction of a leverage ratio under
the Senior Notes, which is also incorporated into the drawing conditions of the
EBRD Loan Agreement.  In the short-term we are able to fund our
operations from cash generated from operations, our current cash resources (US$
157.3 million, at March 31, 2007) and available undrawn credit facilities (US$
235.3 million, at March 31, 2007).




We expect
to invest US$ 70-75 million on capital expenditure in 2007, and approximately
US$ 10 million furthering the development of our non-broadcast operations. Any
further significant acquisitions could be financed through the issues of
additional external debt or equity depending on prevailing market conditions at
the time.


Our
Croatia operations continue to require funding to improve our ratings
performance and increase our market share.  We expect the funding
required to support Nova TV (Croatia) to be in excess of US$ 26.0 million during
2007, and have provided US$ 7.9 million in cash funding to Nova TV (Croatia) in
the three months ended March 31, 2007. Our Ukraine (KINO, CITI) operations
continue to require funding in order to achieve improved ratings and market
share.  We expect the funding required to support KINO and CITI to be
in excess of US$ 7.0 million during 2007, and have provided US$ 3.0 million in
cash funding to KINO and CITI in the three months ended March 31,
2007.  Our partners will provide a pro rata amount of financing to
KINO and CITI on the same terms.


We expect
that, taken together, our current cash balances, internally generated cash flow,
committed bank facilities, and local financing of broadcast operations should
result in us having adequate cash resources to meet our debt service and other
existing financial obligations for the next 12 months.  The
acquisition of additional shareholdings in our current operations, further
investment in the expansion of existing operations, acquisitions, or other
investments in the development of new revenue opportunities may require further
financing.  To the extent we will need additional financing, we would
expect to raise such financing through issuing additional debt or
equity.





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V (e) Tax
Inspections





Pro Plus
has been the subject of an income tax inspection by the Republic of Slovenia tax
authorities for the years 1995 to 1998.  As a result of these
inspections the Slovenian tax authorities had levied an assessment seeking
unpaid income taxes, customs duties and interest charges of an amount equivalent
to EUR 4.5 million  (approximately US$ 6.0 million). The Slovenian
authorities have asserted that capital contributions and loans made by us to Pro
Plus in 1995 and 1996 should be extraordinary revenue to Pro Plus.  On
this basis, the Slovenian authorities claim that Pro Plus made a profit in 1995
and 1996 for which it owes income taxes and interest.  Additionally,
the Slovenian tax authorities claim that the fixed assets imported as capital
contributions were subject to customs duties, which were not paid.  On
February 9, 2001, the Slovenian tax authorities concluded that the cash capital
contributions for 1995 and 1996 were not extraordinary income. This has reduced
the assessment to an amount equivalent to EUR 2.7 million (approximately US$ 3.5
million) in aggregate principal amount.  Pro Plus appealed this
decision to the Administrative Court in Ljubljana and requested the tax
authorities to defer the demand for payment until a final judgment has been
issued, and the tax authorities have so agreed.  On April 18, 2005,
the Administrative Court issued a decision in favor of Pro Plus and dismissed
the claims of the tax authorities.  The tax authorities filed an
appeal with the Slovenian Supreme Court in May 2005.  We do not have a
provision in our financial statements in relation to this legal
action.








V (f) Off-Balance Sheet
Arrangements





None.








VI.  Critical Accounting
Policies and Estimates





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





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





Recently adopted accounting
principles





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





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





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


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


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





PART II OTHER
INFORMATION





Item
6.  Exhibits





a) The
following exhibits are attached:





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




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SIGNATURES





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





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





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EXHIBIT
INDEX





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






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