**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





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





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





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


For
      the
      transition period from __________ to __________





Commission
      File Number: 0-24796





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


(Exact
      name of registrant as specified in its charter)





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





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





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





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





Large
                accelerated filer x
            Accelerated
                filer o
            Non-accelerated
                filer o





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





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.





Class
            Outstanding
                as of November 6, 2006Class
                A Common Stock, par value $0.08
            34,412,138Class
                B Common Stock, par value $0.08
            6,312,839















**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**





**FORM
      10-Q**





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





**INDEX**




Page**Part
                    I. Financial information****Item
                    1. Financial Statements**Condensed
                    consolidated Balance Sheets as at September 30, 2006
                    and December 31, 2005,as restated
                2Condensed
                    consolidated Statements of Operations for the
                    Three and Nine Months Ended September 30, 2006 and 2005, as
                    restated
                4Condensed
                    consolidated Statements of Shareholders' Equity
                    for the Nine Months Ended September 30, 2006 and 2005, as
                    restated
                6Condensed
                    consolidated Statements of Cash Flows for the Nine
                    Months Ended September 30, 2006 and 2005, as restated
                7Notes
                    to the condensed consolidated Financial
                    Statements
                8**Item
                    2. Management's Discussion and Analysis of Financial
                    Condition and Results of Operations**
                43**Item
                    3. Quantitative and Qualitative Disclosures about Market
                    Risk**
                82**Item
                    4. Controls and Procedures**
                84**Part
                    II. Other Information****Item
                    1. Legal Proceedings**
                84**Item
                    1A. Risk Factors**
                87**Item
                    6. Exhibits**
                95**SIGNATURES**
                95**EXHIBIT
                    INDEX**
                96




*Page
          1*
 *Index*




**Part
      I. Financial Information**





**Item
      1. Financial Statements**





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(US$
      000’s)**


**(Unaudited)**




**September
                30,**
              **2006**
            
            **December
                31,**
              **2005**
              **(as
                restated, see Note 2)****ASSETS****Current
                assets**Cash
                and cash equivalents
            
            $
            164,502
            
            $
            71,658Restricted
                cash (Note 7)
            
            
            10,140
            
            
            34,172Accounts
                receivable, net (Note 8)
            
            
            97,498
            
            
            97,396Income
                taxes receivable
            
            
            1,717
            
            
            9,930Program
                rights, net
            
            
            61,567
            
            
            34,914Other
                current assets (Note 9)
            
            
            41,701
            
            
            38,856**Total
                current assets**
            
            
            **377,125**
            
            
            **286,926****Non-current
                assets**Investments
                (Note 5)
            
            
            16,569
            
            
            23,936Acquisition
                costs (Note 3)
            
            
            -
            
            
            5,118Property,
                plant and equipment, net (Note 10)
            
            
            93,449
            
            
            58,897Program
                rights, net
            
            
            59,595
            
            
            33,081Goodwill
                (Note 4)
            
            
            847,886
            
            
            746,583Broadcast
                licenses, net (Note 4)
            
            
            189,820
            
            
            171,591Other
                intangible assets, net (Note 4)
            
            
            68,885
            
            
            47,658Other
                non-current assets (Note 9)
            
            
            17,221
            
            
            15,060**Total
                non-current assets**
            
            
            **1,293,425**
            
            
            **1,101,924****Total
                assets**
            
            **$**
            **1,670,550**
            
            **$**
            **1,388,850**




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




*Page
          2*
 *Index*


**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS (continued)**


**(US$
      000’s)**


**(Unaudited)**




**September
                30,**
              **2006**
            
            **December
                31,**
              **2005**
              **(as
                restated, see Note 2)****LIABILITIES
                AND SHAREHOLDERS’ EQUITY****Current
                liabilities**Accounts
                payable and accrued liabilities (Note 11)
            
            $
            122,431
            
            $
            84,849Duties
                and other taxes payable
            
            
            33,402
            
            
            27,654Income
                taxes payable
            
            
            7,393
            
            
            21,894Credit
                facilities and obligations under capital leases (Note 12)
            
            
            12,063
            
            
            43,566Deferred
                consideration - Croatia
            
            
            3,857
            
            
            3,591Deferred
                consideration - Czech Republic
            
            
            -
            
            
            24,402Deferred
                consideration - Ukraine
            
            
            200
            
            
            -Deferred
                tax
            
            
            628
            
            
            1,005**Total
                current liabilities**
            
            
            **179,974**
            
            
            **206,961****Non-current
                liabilities**Credit
                facilities and obligations under capital leases (Note 12)
            
            
            5,526
            
            
            4,740Senior
                Notes (Note 6)
            
            
            468,420
            
            
            436,424Income
                taxes payable
            
            
            3,500
            
            
            681Deferred
                tax
            
            
            51,331
            
            
            42,149Other
                non-current liabilities
            
            
            11,474
            
            
            4,105**Total
                non-current liabilities**
            
            
            **540,251**
            
            
            **488,099**Commitments
                and contingencies (Note 19)**Minority
                interests in consolidated subsidiaries**
            
            
            **20,300**
            
            
            **13,237****SHAREHOLDERS'
                EQUITY:**Nil
                shares of Preferred Stock of $0.08 each (December 31, 2005 -
                nil)
            
            
            -
            
            
            -34,412,138
                shares of Class A Common Stock of $0.08 each (December 31, 2005 -
                31,032,994)
            
            
            2,753
            
            
            2,4826,312,839
                shares of Class B Common Stock of $0.08 each (December 31, 2005 -
                6,966,533)
            
            
            505
            
            
            558Additional
                paid-in capital
            
            
            928,451
            
            
            754,061Accumulated
                deficit
            
            
            (57,962
            )
            
            (52,154
            )Accumulated
                other comprehensive income / (loss)
            
            
            56,278
            
            
            (24,394
            )**Total
                shareholders’ equity**
            
            
            **930,025**
            
            
            **680,553****Total
                liabilities and shareholders’ equity**
            
            **$**
            **1,670,550**
            
            **$**
            **1,388,850**




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




*Page
          3*
 *Index*


**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
      INCOME**


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


**(Unaudited)**




**For
                the Three Months Ended**
              **September
                30,**
            
            **For
                the Nine Months Ended**
              **September
                30,****2006**
            
            **2005**
              **(as
                restated, see Note 2)**
            
            **2006**
            
            **2005**
              **(as
                restated, see Note 2)****Net
                revenues**
            
            **$**
            **112,482**
            
            **$**
            **87,067**
            
            **$**
            **388,825**
            
            **$**
            **248,480**Operating
                costs
            
            
            22,073
            
            
            15,331
            
            
            71,087
            
            
            44,733Cost
                of programming
            
            
            47,920
            
            
            40,470
            
            
            149,188
            
            
            94,873Depreciation
                of station property, plant and equipment
            
            
            6,080
            
            
            4,230
            
            
            17,841
            
            
            9,292Amortization
                of broadcast licenses and other intangibles (Note 4)
            
            
            5,015
            
            
            4,678
            
            
            13,967
            
            
            6,611**Cost
                of revenues**
            
            
            **81,088**
            
            
            **64,709**
            
            
            **252,083**
            
            
            **155,509**Station
                selling, general and administrative expenses
            
            
            16,481
            
            
            12,766
            
            
            45,188
            
            
            32,256Corporate
                operating costs
            
            
            8,342
            
            
            4,840
            
            
            24,019
            
            
            16,108Impairment
                charge (Note 4)
            
            
            -
            
            
            -
            
            
            748
            
            
            35,331**Operating
                income**
            
            
            **6,571**
            
            
            **4,752**
            
            
            **66,787**
            
            
            **9,276**Interest
                income
            
            
            1,554
            
            
            1,716
            
            
            4,748
            
            
            3,354Interest
                expense
            
            
            (11,066
            )
            
            (11,574
            )
            
            (32,921
            )
            
            (18,305
            )Foreign
                currency exchange gain / (loss), net
            
            
            6,018
            
            
            856
            
            
            (25,469
            )
            
            30,286Change
                in fair value of derivatives (Note 13)
            
            
            (881
            )
            
            -
            
            
            (2,757
            )
            
            -Other
                expense
            
            
            (412
            )
            
            (840
            )
            
            (793
            )
            
            (4,529
            )**Income
                / (loss) before provision for income taxes, minority interest, equity
                in
                income / (loss) of unconsolidated affiliates and discontinued
                operations**
            
            
            **1,784**
            
            
            **(5,090**
            **)**
            
            **9,595**
            
            
            **20,082**Provision
                for income taxes
            
            
            (1,235
            )
            
            (2,206
            )
            
            (8,811
            )
            
            (8,112
            )**Income
                / (loss) before minority interest, equity in income / (loss) of
                unconsolidated affiliates and discontinued
                operations**
            
            
            **549**
            
            
            **(7,296**
            **)**
            
            **784**
            
            
            **11,970**Minority
                interest in (income) / loss of consolidated subsidiaries
            
            
            (461
            )
            
            1,037
            
            
            (7,178
            )
            
            (3,644
            )Equity
                in income / (loss) of unconsolidated affiliates
            
            
            -
            
            
            (63
            )
            
            (730
            )
            
            4,820Gain
                on sale of unconsolidated affiliate (Note 5)
            
            
            6,179
            
            
            -
            
            
            6,179
            
            
            -**Net
                income / (loss) from continuing operations**
            
            
            **6,267**
            
            
            **(6,322**
            **)**
            
            **(945**
            **)**
            
            **13,146****Discontinued
                operations (Note 18):**Pre-tax
                income from discontinued operations (Czech Republic)
            
            
            -
            
            
            -
            
            
            -
            
            
            164Tax
                on disposal of discontinued operations (Czech Republic)
            
            
            (2,333
            )
            
            (3,332
            )
            
            (4,863
            )
            
            (5,540
            )**Net
                loss from discontinued operations**
            
            
            **(2,333**
            **)**
            
            **(3,332**
            **)**
            
            **(4,863**
            **)**
            
            **(5,376**
            **)****Net
                income / (loss)**
            
            **$**
            **3,934**
            
            **$**
            **(9,654**
            **)**
            **$**
            **(5,808**
            **)**
            **$**
            **7,770**Currency
                translation adjustment, net
            
            
            3,507
            
            
            11,264
            
            
            80,672
            
            
            (33,754
            )**Total
                comprehensive income / (loss)**
            
            **$**
            **7,441**
            
            **$**
            **1,610**
            
            **$**
            **74,864**
            
            **$**
            **(25,984**
            **)**




*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**
              **September
                30,**
            
            **For
                the Nine Months Ended**
              **September
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**
              **(as
                restated, see Note 2)****PER
                SHARE DATA (Note 16):***Net
                income / (loss) per share:*Continuing
                operations - Basic
            
            $
            0.15
            
            $
            (0.16
            )
            $
            (0.02
            )
            $
            0.39Continuing
                operations - Diluted
            
            
            0.15
            
            
            (0.16
            )
            
            (0.02
            )
            
            0.39Discontinued
                operations - Basic
            
            
            (0.06
            )
            
            (0.09
            )
            
            (0.12
            )
            
            (0.16
            )Discontinued
                operations - Diluted
            
            
            (0.06
            )
            
            (0.09
            )
            
            (0.12
            )
            
            (0.16
            )Net
                income / (loss) - Basic
            
            
            0.09
            
            
            (0.25
            )
            
            (0.14
            )
            
            0.23Net
                income / (loss) - Diluted
            
            $
            0.09
            
            $
            (0.25
            )
            $
            (0.14
            )
            $
            0.23*Weighted
                average common shares used in computing per share amounts
                (000’s):*Basic
            
            
            40,651
            
            
            37,883
            
            
            39,792
            
            
            33,549Diluted
            
            
            41,188
            
            
            37,883
            
            
            39,792
            
            
            34,378




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




*Page
          5*
 *Index*


**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY**


**(US$
      000’s)**


**(Unaudited)**


**Class
                      A Common Stock**
                  
                  **Class
                      B Common Stock****Number
                      of**
                    **Shares**
                  
                  **Par**
                    **Value**
                  
                  **Number
                      of**
                    **Shares**
                  
                  **Par**
                    **Value**
                  
                  **Additional
                      Paid-In Capital**
                  
                  **Accumulated
                      Deficit**
                  
                  **Accumulated**
                    **Other**
                    **Comprehensive**
                    **Income
                      / (Loss)**
                  
                  **Total**
                    **Shareholders'**
                    **Equity****BALANCE,
                      December 31, 2005**
                    **(as
                      restated, see Note 2)**
                  
                  
                  **31,032,994**
                  
                  **$**
                  **2,482**
                  
                  
                  **6,966,533**
                  
                  **$**
                  **558**
                  
                  **$**
                  **754,061**
                  
                  **$**
                  **(52,154**
                  **)**
                  **$**
                  **(24,394**
                  **)**
                  **$**
                  **680,553**Stock-based
                      compensation
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  2,385
                  
                  
                  -
                  
                  
                  -
                  
                  
                  2,385Stock
                      options exercised
                  
                  
                  95,450
                  
                  
                  8
                  
                  
                  100,000
                  
                  
                  8
                  
                  
                  3,608
                  
                  
                  -
                  
                  
                  -
                  
                  
                  3,624Shares
                      issued, net of fees
                  
                  
                  2,530,000
                  
                  
                  202
                  
                  
                  -
                  
                  
                  -
                  
                  
                  168,397
                  
                  
                  -
                  
                  
                  -
                  
                  
                  168,599Conversion
                      of Class B to Class A Common Shares
                  
                  
                  753,694
                  
                  
                  61
                  
                  
                  (753,694
                  )
                  
                  (61
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Net
                      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (5,808
                  )
                  
                  -
                  
                  
                  (5,808
                  )Currency
                      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  80,672
                  
                  
                  80,672**BALANCE,
                      September 30, 2006**
                  
                  
                  **34,412,138**
                  
                  **$**
                  **2,753**
                  
                  
                  **6,312,839**
                  
                  **$**
                  **505**
                  
                  **$**
                  **928,451**
                  
                  **$**
                  **(57,962**
                  **)**
                  **$**
                  **56,278**
                  
                  **$**
                  **930,025**




**Class
                  A Common Stock**
              
              **Class
                  B Common Stock****Number
                  of**
                **Shares**
              
              **Par**
                **Value**
              
              **Number
                  of**
                **Shares**
              
              **Par**
                **Value**
              
              **Additional**
                **Paid-In**
                **Capital**
              
              **Accumulated**
                **Deficit**
              
              **Accumulated**
                **Other**
                **Comprehensive**
                **Income
                  / (Loss)**
              
              **Total**
                **Shareholders'**
                **Equity****BALANCE,
                  December 31, 2004**
                **(as
                  restated, see Note 2)**
              
              
              **21,049,400**
              
              **$**
              **1,684**
              
              
              **7,334,768**
              
              **$**
              **587**
              
              **$**
              **394,313**
              
              **$**
              **(94,476**
              **)**
              **$**
              **8,960**
              ****
              **$**
              **311,068**Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,424
              
              
              -
              
              
              -
              
              
              2,424Stock
                  options exercised
              
              
              674,734
              
              
              54
              
              
              -
              
              
              -
              
              
              4,971
              
              
              -
              
              
              -
              
              
              5,025Shares
                  issued, net of fees
              
              
              5,405,000
              
              
              432
              
              
              -
              
              
              -
              
              
              230,172
              
              
              -
              
              
              -
              
              
              230,604Shares
                  issued to PPF
              
              
              3,500,000
              
              
              280
              
              
              -
              
              
              -
              
              
              120,603
              
              
              -
              
              
              -
              
              
              120,883Net
                  income (as restated, see Note 2)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7,770
              
              
              -
              
              
              7,770Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (33,754
              )
              
              (33,754
              )**BALANCE,
                  September 30, 2005**
              
              
              **30,629,134**
              
              **$**
              **2,450**
              
              
              **7,334,768**
              
              **$**
              **587**
              
              **$**
              **752,483**
              
              **$**
              **(86,706**
              **)**
              **$**
              **(24,794**
              **)**
              **$**
              **644,020**




*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 Nine Months Ended**
              **September
                30,****2006**
            
            **2005**
              **(as
                restated, see Note 2)****CASH
                FLOWS FROM OPERATING ACTIVITIES:****Net
                (loss) / income**
            
            **$**
            **(5,808**
            **)**
            **$**
            **7,770**Adjustments
                to reconcile net (loss) / income to net cash generated from operating
                activities:Loss
                from discontinued operations (Note 18)
            
            
            4,863
            
            
            5,376Equity
                in loss / (income) of unconsolidated affiliates, net of dividends
                received
            
            
            730
            
            
            (655
            )Gain
                on sale of unconsolidated affiliate (Note 5)
            
            
            (6,179
            )
            
            -Depreciation
                and amortization
            
            
            111,443
            
            
            64,538Impairment
                charge (Note 4)
            
            
            748
            
            
            35,331Loss
                on disposal of fixed asset
            
            
            1,503
            
            
            564Interest
                receivable, net
            
            
            (145
            )
            
            (132
            )Stock-based
                compensation (Note 15)
            
            
            2,385
            
            
            2,424Minority
                interest in income of consolidated subsidiaries
            
            
            7,178
            
            
            3,644Foreign
                currency exchange loss / (gain), net
            
            
            25,469
            
            
            (30,286
            )Net
                change in (net of effects of acquisitions and disposals of
                businesses):Accounts
                receivable
            
            
            15,393
            
            
            23,329Program
                rights
            
            
            (110,315
            )
            
            (69,603
            )Other
                assets
            
            
            (987
            )
            
            2,759Settlement
                liability (Note 11)
            
            
            (10,007
            )
            
            -Other
                accounts payable and accrued liabilities
            
            
            18,378
            
            
            7,315Change
                in fair value of derivative instruments (Note 13)
            
            
            2,757
            
            
            -Income
                taxes payable
            
            
            (5,663
            )
            
            9,352Deferred
                taxes
            
            
            4,600
            
            
            (14,804
            )VAT
                and other taxes payable
            
            
            11,564
            
            
            (2,379
            )**Net
                cash generated from continuing operating
                activities**
            
            
            **67,907**
            
            
            **44,543****CASH
                FLOWS FROM INVESTING ACTIVITIES:**Net
                change in restricted cash
            
            
            -
            
            
            (19,336
            )Purchase
                of property, plant and equipment
            
            
            (31,767
            )
            
            (17,547
            )Proceeds
                from disposal of property, plant and equipment
            
            
            19
            
            
            124Investments
                in subsidiaries and unconsolidated affiliates
            
            
            (69,470
            )
            
            (30,293
            )Partial
                consideration for acquisition of TV Nova (Czech Republic)
                group
            
            
            -
            
            
            (218,053
            )Repayment
                of loans and advances to related parties
            
            
            400
            
            
            -**Net
                cash used in continuing investing activities**
            
            
            **(100,818**
            **)**
            
            **(285,105**
            **)****CASH
                FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                from credit facilities
            
            
            35,878
            
            
            -Payment
                of credit facilities and capital leases
            
            
            (74,773
            )
            
            (17,172
            )Net
                proceeds from issuance of Senior Notes
            
            
            -
            
            
            474,292Repayment
                of notes for acquisition of TV Nova (Czech Republic) group
            
            
            -
            
            
            (491,703
            )Repayment
                of liabilities on acquisition of Galaxie Sport
            
            
            -
            
            
            (3,000
            )Issuance
                of shares of Class A Common Stock
            
            
            172,223
            
            
            235,629Dividends
                paid to minority shareholders
            
            
            (1,101
            )
            
            (217
            )**Net
                cash received from continuing financing
                activities**
            
            
            **132,227**
            
            
            **197,829**NET
                CASH USED IN DISCONTINUED OPERATIONS - OPERATING
                ACTIVITIES
            
            
            (1,690
            )
            
            (2,000
            )**Impact
                of exchange rate fluctuations on cash**
            
            
            **(4,782**
            **)**
            
            **(7,460**
            **)**Net
                increase / (decrease) in cash and cash equivalents
            
            
            92,844
            
            
            (52,193
            )**CASH
                AND CASH EQUIVALENTS, beginning of period**
            
            
            **71,658**
            
            
            **152,568****CASH
                AND CASH EQUIVALENTS, end of period**
            
            **$**
            **164,502**
            
            **$**
            **100,375**




*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 September
      30,
      2006, we had operations in Croatia, the Czech Republic, Romania, the Slovak
      Republic, Slovenia and Ukraine.





Our
      principal subsidiaries and affiliates as at September 30, 2006
      were:





**Company
                Name**
            **Voting**
              **Interest**
            **Jurisdiction
                of**
              **Organization**
            **Type
                of**
              **Affiliate
                (1)**Nova
                TV d.d. (“Nova TV (Croatia)”)
            100.0%
            Croatia
            SubsidiaryOperativna
                Kompanija d.o.o. (“OK”)
            100.0%
            Croatia
            SubsidiaryMedia
                House d.o.o.
            100.0%
            Croatia
            SubsidiaryCME
                Media Investments s.r.o.
            100.0%
            Czech
                Republic
            SubsidiaryVILJA
                a.s. (“Vilja”)
            100.0%
            Czech
                Republic
            SubsidiaryCET
                21 spol s.r.o. (“CET 21”)
            100.0%
            Czech
                Republic
            SubsidiaryCME
                Media Services s.r.o. (“CME Media Services”)
            100.0%
            Czech
                Republic
            SubsidiaryERIKA,
                a.s.
            100.0%
            Czech
                Republic
            SubsidiaryMedia
                Capitol, a.s.
            100.0%
            Czech
                Republic
            SubsidiaryNOVA-V.I.P.,
                a.s.
            100.0%
            Czech
                Republic
            Subsidiary
                (in liquidation)HARTIC,
                a.s.
            100.0%
            Czech
                Republic
            SubsidiaryGalaxie
                Sport s.r.o. (“Galaxie Sport”)
            100.0%
            Czech
                Republic
            SubsidiaryMedia
                Pro International S.A. (“MPI”)
            90.0%
            Romania
            SubsidiaryMedia
                Vision S.R.L. (“Media Vision”)
            75.0%
            Romania
            SubsidiaryMPI
                Romania B.V.
            90.0%
            Netherlands
            SubsidiaryPro
                TV S.A. (“Pro TV”)
            90.0%
            Romania
            SubsidiaryMedia
                Pro B.V.
            10.0%
            Netherlands
            Cost
                investmentMedia
                Pro Management S.A.
            10.0%
            Romania
            Cost
                investmentA.R.J.,
                a.s. (“ARJ”)
            100.0%
            Slovak
                Republic
            SubsidiarySlovenska
                televizna spolocnost s.r.o. (“STS”)
            89.8%
            Slovak
                Republic
            SubsidiaryMarkiza-Slovakia
                s.r.o. (“Markiza”)
            80.0%
            Slovak
                Republic
            SubsidiaryGamatex
                s.r.o.
            89.8%
            Slovak
                Republic
            Subsidiary
                (in liquidation)A.D.A.M.
                a.s.
            89.8%
            Slovak
                Republic
            Subsidiary
                (in liquidation)




*Page
          8*
 *Index*




**Company
                    Name**
                **Voting**
                  **Interest**
                **Jurisdiction
                    of**
                  **Organization**
                **Type
                    of**
                  **Affiliate
                    (1)**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
                    AffiliateSuper
                    Plus holding d.d.
                100.0%
                Slovenia
                Subsidiary
                    (in liquidation)MTC
                    Holding d.o.o.
                24.0%
                Slovenia
                Equity-Accounted
                    Affiliate (in liquidation)International
                    Media Services Ltd. (“IMS”)
                60.0%
                Bermuda
                SubsidiaryInnova
                    Film GmbH (“Innova”)
                60.0%
                Germany
                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
                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 B.V.
                100.0%
                Netherlands
                SubsidiaryCME
                    Czech Republic II B.V.
                100.0%
                Netherlands
                SubsidiaryCME
                    Germany B.V.
                100.0%
                Netherlands
                SubsidiaryCME
                    Hungary B.V.
                100.0%
                Netherlands
                SubsidiaryCME
                    Poland B.V.
                100.0%
                Netherlands
                SubsidiaryCME
                    Romania B.V.
                100.0%
                Netherlands
                SubsidiaryCentral
                    European Media Enterprises N.V.
                100.0%
                Netherlands
                    Antilles
                SubsidiaryCentral
                    European Media Enterprises II B.V.
                100.0%
                Netherlands
                    Antilles
                SubsidiaryCME
                    Ukraine Holding GmbH
                100.0%
                Austria
                SubsidiaryCME
                    Cyprus Holding Ltd.
                100.0%
                Cyprus
                SubsidiaryCME
                    Germany GmbH
                100.0%
                Germany
                Subsidiary
                    (in liquidation)CME
                    Development Corporation
                100.0%
                USA
                Subsidiary


(1)
              All
                    subsidiaries have been consolidated in our Condensed Consolidated
                    Financial Statements. All equity-accounted affiliates have been
                    accounted
                    for using the equity method. 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. Nova TV (Croatia) owns 100% of
      OK.





*Czech
      Republic*





We
      own
      100% of CET 21, which holds the national terrestrial broadcast license for
      TV
      NOVA (Czech Republic) which expires in 2017. As a result of the capital decrease
      of the registered capital of CET 21, effective September 22, 2006, by an amount
      equal to the previously undistributed 28.755% interest (which, as a result
      of
      such decrease, was disposed of), our shareholding in CET 21 held through Vilja
      and CME Media Enterprises B.V. has adjusted upwards to an aggregate of 100%.
      We
      also own 100% of CME Media Services which provides services related to
      programming, production and advertising to CET 21.





*Romania*





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





On
      August
      11, 2006 we acquired a 10.0% 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 Romania
      operations. Media Pro comprises a number of Romanian companies with operations
      in the fields of publishing, information, printing, cinema, entertainment and
      radio.





*Slovak
      Republic*





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





*Slovenia*





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





*Ukraine*





The
      Studio 1+1 Group consists of several entities in which we hold direct or
      indirect interests. We hold a 60% ownership and economic interest in each of
      Innova and IMS. Innova owns 100% of Inter-Media, a Ukrainian company, which
      in
      turn holds a 30% voting and economic interest in Studio 1+1, which holds the
      licenses for the STUDIO 1+1 network. The first of these licenses which covers
      fifteen hours including prime time expires on December 31, 2006.


*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)**





On
        July
        19, 2006, the Ukrainian Media Council issued a decision to extend the 15-hour
        broadcasting license of Studio 1+1 for a ten-year period from January 1,
        2007.
        Issuance of the license itself is subject to the payment of a fee of
        approximately UAH 5.9 million (approximately US$ 1.2 million), which has
        been
        paid, and to the requirement that Studio 1+1 bring its corporate documents
        into
        conformity with recent amendments to the Ukrainian Media Law. Because of
        ongoing
        ancillary litigation to enjoin transactions related to the ownership of Studio
        1+1 that have been initiated by Igor Kolomoisky, by our partners and by third
        parties who are not direct parties in interest to legal proceedings initiated
        by
        Mr. Kolomoisky against our partner Alexander Rodnyansky (who holds 70% of
        Studio
        1+1), the district administration in Kiev where such amendments are registered
        is presently enjoined from registering any amendments to the charter of Studio
        1+1 (see Part II, Item 1, “Legal Proceedings, Ukraine”). If we are not able to
        lift any such injunction or otherwise register the necessary amendments to
        the
        charter of Studio 1+1, we may not receive a license certificate following
        the
        expiration of the current license on December 31, 2006. In the event that
        we do
        not receive a license certificate, Studio 1+1 may not be able to broadcast
        for
        15 hours per day (primarily during prime and off-prime time) (see Part II,
        Item
        1, “Legal Proceedings, Ukraine” and Part II, Item 1A Risk Factors). The second
        license for the remaining nine hours expires in 2014.
 
 Our
        indirect ownership interest in Studio 1+1 is only 18%. We entered into an
        additional agreement on December 30, 2004 with Boris Fuchsmann, Mr. Rodnyansky
        and Studio 1+1 which re-affirms our entitlement to 60% of any distribution
        from
        Studio 1+1 to its shareholders. (see Part II, Item 1, “Legal Proceedings,
        Ukraine”)
 
 We
        have a
        65.5% interest in Ukrpromtorg-2003 LLC, which owns 92.2% of Gravis LLC, the
        operator of the KINO television channel in Kiev as well as two other local
        channels. The licenses for these channels expire between 2008 and
        2012.




**2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Basis
      of Presentation**





The
      interim financial statements for the three and nine months ended September
      30,
      2006 should be read in conjunction with the Notes to the Consolidated Financial
      Statements contained in our Annual Report of Form 10-K for the period ended
      December 31, 2005, as amended by our Form 10-K/A filed with the United States
      Securities and Exchange Commission (the “SEC”) on March 15, 2006. Our
      significant accounting policies have not changed since December 31, 2005, except
      as noted below.





In
      the
      opinion of management, the accompanying interim unaudited financial statements
      reflect all adjustments, consisting only of normal recurring items, necessary
      for their fair presentation in conformity with accounting principles generally
      accepted in the United States of America (“US GAAP”) and the SEC rules and
      regulations. 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 the Financial Accounting Standards Board
      (“FASB”) Interpretation No. 46 (revised December 2003), “Consolidation of
      Variable Interest Entities” (“FIN 46(R)”). Entities in which we hold less than a
      majority voting interest but over which we have the ability to exercise
      significant influence are accounted for using the equity method. Other
      investments are accounted for using the cost method.




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





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





*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)**


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




**Restatement**
 
 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 has conducted
        the review with the assistance of independent legal counsel and an independent
        accounting firm. Based on information gathered by independent counsel and
        the
        independent accounting firm, the Audit Committee has found certain instances
        of
        administrative and procedural deficiencies that resulted in incorrect accounting
        measurement dates and other incorrect accounting, but has not found 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
        have been 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.
 
 In
        September 2006, the SEC issued Staff Accounting Bulletin No. 108 Section
        N to
        Topic 1. “Considering the Effects of Prior Year misstatements in Current Year
        Financial Statements” (“SAB 108”). SAB 108 requires the evaluation of prior-year
        misstatements using both the balance sheet approach and the income statement
        approach. In the initial year of adoption, should either approach result
        in
        quantifying an error that is material in light of quantitative and qualitative
        factors, SAB 108 guidance allows for a one-time cumulative-effect adjustment
        to opening retained earnings. In years subsequent to adoption, previously
        undetected misstatements deemed material shall result in the restatement
        of
        previously issued financial statements in accordance with Statement
        of Financial Accounting Standards No. 154 “Accounting Changes and Error
        Corrections”. We have early adopted SAB 108 in the current quarter and
        concluded that there is no impact of adoption, as all errors identified through
        December 31, 2005, were previously recorded as adjustments prior to the filing
        of our 2005 Form 10-K.
 
 We
        have
        concluded that correcting the error in the financial statements for the nine
        months ended September 30, 2006 would be material; therefore the financial
        statements as of and for the periods ended September 30, 2005, have been
        restated. The restatement previously was and continues to be immaterial to
        the
        prior year financial statements. Therefore, our future filings with the SEC
        will
        reflect the restated information for the corresponding prior
        periods.




The
        restatement above had the impact on our previously presented financial
        information as set out below. All amounts are in US$ 000’s except per share
        data:
 
 **As
                  reported previously**
              
              **Adjusted**
              
              **As
                  restated****Balance
                  Sheet (as of December 31, 2004)**Additional
                  paid-in capital at December 31, 2004
              
              $
              387,305
              
              $
              7,008
              
              $
              394,313Retained
                  deficit at December 31, 2004
              
              
              (87,468
              )
              
              (7,008
              )
              
              (94,476
              )**Balance
                  Sheet (as of December 31, 2005)**Additional
                  paid-in capital at December 31, 2005
              
              
              746,880
              
              
              7,181
              
              
              754,061Retained
                  deficit at December 31, 2005
              
              
              (44,973
              )
              
              (7,181
              )
              
              (52,154
              )**Statement
                  of Operations (for the Three Months Ended September 30,
                  2005)**Corporate
                  operating costs
              
              
              (4,800
              )
              
              (40
              )
              
              (4,840
              )Operating
                  income
              
              
              4,792
              
              
              (40
              )
              
              4,752Loss
                  from continuing operations
              
              
              (6,282
              )
              
              (40
              )
              
              (6,322
              )Net
                  loss
              
              
              (9,614
              )
              
              (40
              )
              
              (9,654
              )**Statement
                  of Operations (for the Nine Months Ended September 30,
                  2005)**Corporate
                  operating costs
              
              
              (15,982
              )
              
              (126
              )
              
              (16,108
              )Operating
                  income
              
              
              9,402
              
              
              (126
              )
              
              9,276Income
                  from continuing operations
              
              
              13,272
              
              
              (126
              )
              
              13,146Net
                  income
              
              
              7,896
              
              
              (126
              )
              
              7,770Net
                  income from continuing operations per share - Basic
              
              
              0.40
              
              
              (0.01
              )
              
              0.39Net
                  income per share - Basic
              
              
              0.24
              
              
              (0.01
              )
              
              0.23




*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)**


**Stock-based
      Compensation**





On
      January 1, 2006, we adopted Statement of Financial Accounting Standards No.
      123(R), “Share-Based Payment” (“FAS 123(R)”), which requires the recognition of
      stock-based compensation at fair value, using the modified prospective
      transition method. Under that method, we recognized compensation cost for the
      requisite service rendered in the nine months ended September 30, 2006, for
      (a)
      awards granted prior to, but not vested as of, January 1, 2006, based on the
      grant-date fair value of those awards as calculated for either recognition
      or
      pro forma disclosures under FAS 123, Accounting for Stock-Based Compensation
      (“FAS 123”) and (b) awards granted after January 1, 2006, based on the
      grant-date fair value estimated in accordance with the provisions of FAS 123(R).
      We did not restate prior periods. Our adoption of FAS 123(R) did not have a
      material impact on our condensed consolidated statements of operations or cash
      flows because we had previously adopted the fair value recognition provisions
      of
      FAS 123 prospectively for employee stock option awards granted, modified, or
      settled beginning January 1, 2003, as contemplated by FAS 148, “Accounting for
      Stock-Based Compensation - Transition & Disclosure”. Prior to January 1,
      2003, we used the intrinsic method of accounting as defined in APB 25,
“Accounting for Stock Issued to Employees”.





**Pro
      Forma Disclosures**





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





**For
                the Three**
              **Months
                Ended**
              **September
                30,**
            
            **For
                the Nine**
              **Months
                Ended**
              **September
                30,****2005**
            
            **2005****Net
                income / (loss)**
            
            
            **As
                Reported**
            
            **$**
            **(9,654**
            **)**
            **$**
            **7,770**Add:
                Stock-based compensation expense included in reported net income,
                net of
                related tax effects
            
            
            As
                Reported
            
            
            656
            
            
            2,424Deduct:
                Total stock-based compensation expense determined under fair value
                based
                method for all awards, net of related tax effects
            
            
            Pro
                Forma Expense
            
            
            (625
            )
            
            (2,352
            )**Net
                income / (loss)**
            
            
            **Pro
                Forma**
            
            **$**
            **(9,623**
            **)**
            **$**
            **7,842**Net
                income / (loss) per share - Basic:
            
            
            As
                Reported
            
            $
            (0.25
            )
            $
            0.23Pro
                Forma
            
            $
            (0.25
            )
            $
            0.23Net
                income / (loss) per share - Diluted:
            
            
            As
                Reported
            
            $
            (0.25
            )
            $
            0.23Pro
                Forma
            
            $
            (0.25
            )
            $
            0.23




*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)**





**Reclassifications**





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





**Recent
      Accounting Pronouncements**





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





In
      July
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which
      clarifies the accounting for uncertainty in tax positions. The evaluation of
      a
      tax position under FIN 48 is a two-step process. The first step is recognition:
      Tax positions taken or expected to be taken in a tax return should be recognized
      only if those positions are more likely than not 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 that would have full knowledge of all relevant information. The second
      step is measurement: Tax positions that meet the recognition criteria are
      measured at the largest amount of benefit that is greater than 50 percent likely
      of being recognized upon ultimate settlement.





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




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      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.


*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)**


**3.
      ACQUISITIONS AND DISPOSALS**





**Czech
      Republic**





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





On
      May
      26, 2006, following the registration of our subsidiary CME Media Enterprises
      B.V. as the owner of 16.67% of CET 21, formerly owned by Peter Krsak, we paid
      the final CZK 600.0 million (approximately US$ 27.3 million at the payment
      date)
      instalment of the consideration due to Mr. Krsak. This amount had been held
      in
      escrow, and disclosed in restricted cash (see Note 7) since May 27, 2005, with
      a
      corresponding amount reported as deferred consideration.





**Romania**





*Acquisition
      of additional interest -* *Pro
      TV, MPI and Media Vision*





On
      February 17, 2006, we purchased an additional 5.0% of Pro TV, MPI and Media
      Vision from Adrian Sarbu, the general director of our Romania operations, for
      consideration of US$ 27.2 million. We now own a 90.0% voting and economic
      interest in Pro TV and MPI and a 75.0% voting and economic interest in Media
      Vision. We completed a fair value exercise to allocate the purchase price to
      the
      acquired assets and liabilities and identified separately identifiable assets.
      The following table summarizes the fair values of the assets acquired and
      liabilities assumed at the date of acquisition:





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


(1) The
            intangible assets subject to amortization comprise customer relationships,
            which
            are being amortized over one to ten years (weighted average: 8.3
            years).
 (2) Intangible
            assets not subject to amortization comprise approximately US$ 6.5 million
            in
            trademarks and US$ 6.5 million relating to television broadcast
            licenses.




Mr.
      Sarbu
      has the right to sell his remaining 10.0% shareholding in Pro TV and MPI to
      us
      under a put option agreement entered into in July 2004 at a price to be
      determined by an independent valuation, subject to a floor price of US$ 1.45
      million for each 1.0% interest sold. A put option of 4.21% 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. For more information, see Note 5. As at
      September 30, 2006, we consider the fair value of the put option to be
      approximately US$ nil.




*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)**


**Slovak
      Republic**





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





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





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





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





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





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


(1) The
            intangible assets subject to amortization comprise approximately US$
            7.2 million
            in customer relationships, which are being amortized over three to fourteen
            years (weighted average: 13.8 years), and US$ 0.9 million relating to
            television
            broadcast licenses, which are being amortized over fourteen
            years.
 (2) Intangible
            assets not subject to amortization comprise trademarks.
 (3) Total
            purchase price includes US$ 0.3 million of capitalized acquisition
            costs.
  **Ukraine**





*Acquisition
      -* *Ukrpromtorg-2003
      LLC*





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


*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)**


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





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


(1) The
            intangible assets subject to amortization comprise approximately US$
            0.6 million
            relating to television broadcast licenses, which are being amortized
            over nine
            years, approximately US$ 0.3 million relating to a favorable lease contract,
            which is being amortized over 19 years, and approximately US$ 0.1 million
            relating to order backlog, which was amortized during the
            year.
 (2) Total
            purchase price includes US$ 0.4 million of capitalized acquisition
            costs.




**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 September 30, 2006, and December 31, 2005 is
      summarized as follows:





**Croatia**
            
            **Czech
                Republic**
            
            **Romania**
            
            **Slovak
                Republic**
            
            **Slovenia******
            
            **Ukraine**
            
            **Total****Balance,
                December 31, 2005**
            
            **$**
            **695**
            
            **$**
            **706,950**
            
            **$**
            **19,754**
            
            **$**
            **-**
            
            **$**
            **15,088**
            
            **$**
            **4,096**
            
            **$**
            **746,583**Additions
            
            
            -
            
            
            -
            
            
            11,376
            
            
            22,021
            
            
            -
            
            
            4,627
            
            
            38,024Other
                adjustments
            
            
            -
            
            
            (7,580
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,580
            )Impairment
                charge
            
            
            (748
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (748
            )Foreign
                currency movements
            
            
            53
            
            
            69,228
            
            
            -
            
            
            1,284
            
            
            1,042
            
            
            -
            
            
            71,607**Balance,
                September 30, 2006**
            
            **$**
            **-**
            
            **$**
            **768,598**
            
            **$**
            **31,130**
            
            **$**
            **23,305**
            
            **$**
            **16,130**
            
            **$**
            **8,723**
            
            **$**
            **847,886**





When
      we
      updated our medium-term forecast models at June 30, 2006, we determined that
      the
      forecast future cash flows of our Croatia operations had decreased compared
      to
      our previous forecast. In such circumstances, SFAS 142 “Goodwill and Other
      Intangible Assets” requires that the carrying value of the intangible assets
      with indefinite lives are compared to their fair value to determine whether
      an
      impairment exists. If an asset is determined to be impaired, the loss is
      measured as the excess of the carrying value over the fair value. As a result
      of
      our analysis, we recognized an impairment charge of US$ 0.7 million relating
      to
      goodwill. A further impairment charge relating to other Long-Lived Assets was
      not deemed necessary under the requirements of SFAS 144 “Accounting for the
      Impairment or Disposal of Long-Lived Assets”.




*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)**


*Broadcast
        licenses:*


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





**Indefinite-Lived**
              **Broadcast
                Licenses**
            
            **Amortized**
              **Broadcast**
              **Licenses**
            
            **Total****Balance,
                December 31, 2005**
            
            **$**
            **18,936**
            
            **$**
            **152,655**
            
            **$**
            **171,591**Additions
            
            
            6,475
            
            
            7,875
            
            
            14,350Amortization
            
            
            -
            
            
            (11,656
            )
            
            (11,656
            )Foreign
                currency movements
            
            
            584
            
            
            14,951
            
            
            15,535**Balance,
                September 30, 2006**
            
            **$**
            **25,995**
            
            **$**
            **163,825**
            
            **$**
            **189,820**





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





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





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005**Gross
                value
            
            $
            187,602
            
            $
            163,628Accumulated
                amortization
            
            
            (23,777
            )
            
            (10,973
            )**Total
                net book value**
            
            **$**
            **163,825**
            
            **$**
            **152,655**




*Other
      intangible assets:*





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





**Trademarks**
            
            **Customer**
              **Relationships**
            
            **Other**
            
            **Total****Balance,
                December 31, 2005**
            
            **$**
            **32,560**
            
            **$**
            **15,098**
            
            **$**
            **-**
            
            **$**
            **47,658**Additions
            
            
            7,636
            
            
            11,975
            
            
            398
            
            
            20,009Amortization
            
            
            -
            
            
            (2,213
            )
            
            (98
            )
            
            (2,311
            )Foreign
                currency movements
            
            
            2,130
            
            
            1,399
            
            
            -
            
            
            3,529**Balance,
                September 30, 2006**
            
            **$**
            **42,326**
            
            **$**
            **26,259**
            
            **$**
            **300**
            
            **$**
            **68,885**




*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)**


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





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





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005**Gross
                value
            
            $
            30,573
            
            $
            17,038Accumulated
                amortization
            
            
            (4,014
            )
            
            (1,940
            )**Total
                net book value**
            
            **$**
            **26,559**
            
            **$**
            **15,098**


**5.
      INVESTMENTS**





We
      hold
      the following investments in unconsolidated affiliates:








**Voting
                interest**
            
            **September
                30,**
              **2006**
            
            **December
                31,**
              **2005**STS
            
            49%
            
            
            -
            
            
            23,886Media
                Pro
            
            10%
            
            
            16,569
            
            
            -Radio
                Pro
            
            Various
            
            
            -
            
            
            50**$**
            **16,569**
            
            **$**
            **23,936**





STS
      has
      been consolidated since January 23, 2006, the date of acquisition of ARJ (see
      Note 3).





On
      August
      11, 2006 we acquired a 10.0% interest in Media Pro. The remaining 90% of Media
      Pro is held by Adrian Sarbu, the general director of our Romania
      operations.





In
      consideration for the purchase of this interest, we paid EUR 8.0 million
      (approximately US$ 10.1 million at the date of acquisition) in cash and
      transferred our existing 20.0% investment in Radio Pro, which we determined
      to
      have a fair value of US$ 6.2 million based upon an independent valuation. As
      a
      result of this transaction, we were required to record a gain of US$ 6.2 million
      on the disposal of our investment in Radio Pro, which had previously been
      carried on our consolidated balance sheet at US$ 0.1 million.





We
      have
      the right to put our investment in Media Pro to Mr. Sarbu for a three-month
      period from August 12, 2009 at a price equal to the greater of EUR 13.0 million
      (approximately US$ 16.5 million) and the value of our investment, as determined
      by an independent valuer. This put option is secured by a pledge of a 4.79%
      shareholding in Pro TV held by Mr. Sarbu. For more information, see Note 3.
      As
      at September 30, 2006, we consider the fair value of this put option to be
      US$
      nil.




*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)**




**6.
      SENIOR NOTES**





Our
      Senior Notes consist of the following:





**Carrying
                Value**
            
            **Fair
                Value****September
                30,**
              **2006**
            
            **December
                31,**
              **2005**
            
            **September
                30,**
              **2006**
            
            **December
                31,**
              **2005**EUR
                245.0 million 8.25% Senior Notes
            
            $
            310,170
            
            $
            288,984
            
            $
            339,636
            
            $
            323,737EUR
                125.0 million floating rate Senior Notes
            
            
            158,250
            
            
            147,440
            
            
            166,954
            
            
            156,324**$**
            **468,420**
            
            **$**
            **436,424**
            
            **$**
            **506,590**
            
            **$**
            **480,061**





On
      May 5,
      2005, we issued Senior Notes in the aggregate principal amount of EUR 370.0
      million consisting of EUR 245.0 million of 8.25% Senior Notes due May 2012
      and
      EUR 125.0 million of floating rate Senior Notes due May 2012, which bear
      interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”) plus 5.50% (8.57%
      was applicable at September 30, 2006). Interest is payable semi-annually in
      arrears on each May 15 and November 15. The fair value of the Senior Notes
      as at
      September 30, 2006 and December 31, 2005 was calculated by multiplying the
      outstanding debt by the traded market price at the relevant date.





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





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





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





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





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





Further,
      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, if any, to the redemption
      date.


*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)**





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.




**7.
      RESTRICTED CASH**





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





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005**Czech
                Republic
            
            $
            -
            
            $
            24,554Croatia
            
            
            3,951
            
            
            3,640Directors’
                and officers’ insurance
            
            
            5,448
            
            
            5,285Other
            
            
            741
            
            
            693**Total
                restricted cash**
            
            **$**
            **10,140**
            
            **$**
            **34,172**




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




**8.
      ACCOUNTS RECEIVABLE**





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





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005****Trading:**Third-party
                customers
            
            $
            102,853
            
            $
            103,921Less:
                allowance for bad debts and credit notes
            
            
            (10,945
            )
            
            (8,612
            )Related
                parties
            
            
            5,546
            
            
            2,034Less:
                allowance for bad debts and credit notes
            
            
            (272
            )
            
            (265
            )**Total
                trading**
            
            **$**
            **97,182**
            
            **$**
            **97,078****Other:**Third-party
                customers
            
            $
            258
            
            $
            257Less:
                allowance for bad debts and credit notes
            
            
            (96
            )
            
            (83
            )Related
                parties
            
            
            444
            
            
            434Less:
                allowance for bad debts and credit notes
            
            
            (290
            )
            
            (290
            )**Total
                other**
            
            **$**
            **316**
            
            **$**
            **318****Total
                accounts receivable**
            
            **$**
            **97,498**
            
            **$**
            **97,396**




*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)**




**9.
      OTHER ASSETS**





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





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005****Current:**Prepaid
                programming
            
            $
            23,171
            
            $
            17,534Other
                prepaid expenses
            
            
            8,153
            
            
            6,009Deferred
                tax
            
            
            1,578
            
            
            3,025VAT
                recoverable
            
            
            1,721
            
            
            7,888Loan
                to related party
            
            
            600
            
            
            600Capitalized
                debt costs
            
            
            2,766
            
            
            2,250Assets
                held-for-sale
            
            
            364
            
            
            341Other
            
            
            3,348
            
            
            1,209**Total
                other current assets**
            
            **$**
            **41,701**
            
            **$**
            **38,856****Non-current:**Capitalized
                debt costs
            
            $
            11,811
            
            $
            11,618Loan
                to related party
            
            
            1,655
            
            
            1,910Deferred
                tax
            
            
            1,245
            
            
            779Other
            
            
            2,510
            
            
            753**Total
                other non-current assets**
            
            **$**
            **17,221**
            
            **$**
            **15,060**





Capitalized
      debt costs primarily comprise the costs incurred in connection with the issuance
      of our Senior Notes in May 2005 (see Note 6), and are being amortized over
      the
      term of the Senior Notes using the effective interest method. The assets
      held-for-sale relate to land and buildings in our Croatia
      operations.




**10.
      PROPERTY, PLANT AND EQUIPMENT**





Property,
      plant and equipment consists of the following at September 30, 2006 and December
      31, 2005:





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005**Land
                and buildings
            
            $
            37,065
            
            $
            17,548Station
                machinery, fixtures and equipment
            
            
            95,738
            
            
            72,017Other
                equipment
            
            
            20,596
            
            
            20,447Software
                licenses
            
            
            13,421
            
            
            8,360Construction
                in progress
            
            
            13,658
            
            
            5,180**Total
                cost**
            
            
            **180,478**
            
            
            **123,552**Less:
                Accumulated depreciation
            
            
            (87,029
            )
            
            (64,655
            )**Total
                net book value**
            
            **$**
            **93,449**
            
            **$**
            **58,897****Assets
                held under capital leases (included in the above)**Land
                and buildings
            
            $
            5,331
            
            $
            4,980Station
                machinery, fixtures and equipment
            
            
            1,450
            
            
            1,434**Total
                cost**
            
            
            **6,781**
            
            
            **6,414**Less:
                Accumulated depreciation
            
            
            (1,128
            )
            
            (1,167
            )**Net
                book value**
            
            **$**
            **5,653**
            
            **$**
            **5,247**




*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)**




**11.
      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**





Accounts
      payable and accrued liabilities consist of the following at September 30, 2006
      and December 31, 2005:





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005**Accounts
                payable
            
            $
            27,102
            
            $
            21,533Programming
                liabilities
            
            
            33,356
            
            
            18,891Deferred
                income
            
            
            18,344
            
            
            7,202Settlement
                liability
            
            
            -
            
            
            10,007Accrued
                staff costs
            
            
            10,281
            
            
            9,402Accrued
                production costs
            
            
            6,936
            
            
            5,882Accrued
                interest payable
            
            
            14,891
            
            
            4,483Accrued
                legal costs
            
            
            3,621
            
            
            3,620Accrued
                rent costs
            
            
            1,484
            
            
            82Other
                accrued liabilities
            
            
            6,416
            
            
            3,747**Total
                accounts payable and accrued liabilities**
            
            **$**
            **122,431**
            
            **$**
            **84,849**





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





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




*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)**




**12.
      CREDIT FACILITIES AND OBLIGATIONS UNDER CAPITAL LEASES**





Group
      loan obligations and overdraft facilities consist of the following at September
      30, 2006 and December 31, 2005:





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005****Credit
                facilities:**Corporate
            
            
            (a)
            
            $
            -
            
            $
            -Croatia
                operations
            
            
            (b)
                - (c)
            
            
            936
            
            
            1,135Czech
                Republic operations
            
            
            (d)
                - (f)
            
            
            11,173
            
            
            42,703Romania
                operations
            
            
            (g)
            
            
            -
            
            
            -Slovenia
                operations
            
            
            (h)
            
            
            -
            
            
            -Ukraine
                operations
            
            
            (i)
            
            
            900
            
            
            -**Total
                credit facilities**
            
            
            
            
            **$**
            **13,009**
            
            **$**
            **43,838****Capital
                leases:**Croatia
                operations, net of interest
            
            
            
            
            $
            22
            
            $
            132Czech
                Republic operations, net of interest
            
            
            
            
            
            2
            
            
            6Romania
                operations, net of interest
            
            
            
            
            
            278
            
            
            290Slovak
                Republic operations, net of interest
            
            
            
            
            
            151
            
            
            -Slovenia
                operations, net of interest
            
            
            
            
            
            4,127
            
            
            4,040**Total
                capital leases**
            
            
            
            
            **$**
            **4,580**
            
            **$**
            **4,468****Total
                credit facilities and capital leases**
            
            
            
            
            **$**
            **17,589**
            
            **$**
            **48,306**Less
                current maturities
            
            
            
            
            
            (12,063
            )
            
            (43,566
            )**Total
                non-current maturities**
            
            
            
            
            **$**
            **5,526**
            
            **$**
            **4,740**





**Corporate**





(a)
      On
      July 21, 2006, we entered into a five-year revolving loan agreement for EUR
      100.0 million (approximately US$ 126.6 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. Initial drawings up to EUR 100.0 million will be used
      for
      certain specified projects in Central and Eastern Europe.





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 6). 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
          25*
 *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 September 30, 2006.




**Croatia**





(b)
      A
      total of EUR 0.7 million (approximately US$ 0.9 million) was drawn down under
      two agreements our Croatia operations have with Hypo Alpe-Adria-Bank d.d. These
      loans bear a variable interest rate of three-month EURIBOR plus 2.50% and are
      repayable in quarterly instalments until April 1, 2011. As at September 30,
      2006, an aggregate rate of 5.75% applied to these loans. These loans are secured
      by certain fixed assets of OK, which as at September 30, 2006 have a carrying
      value of approximately US$ 0.1 million.





(c)
      EUR
      0.04 million (approximately US$ 0.04 million) was drawn down by our Croatia
      operations under a loan agreement with BKS Bank fur Karnten and Steiermark
      AG.
      This loan bears a variable interest rate of three-month EURIBOR plus 3.00%
      and
      is repayable on October 1, 2006. As at September 30, 2006, an aggregate rate
      of
      6.10% applied to this loan.





**Czech
      Republic**





(d)
      As at
      September 30, 2006, there were no drawings by CET 21 under a four-year credit
      facility of CZK 1.2 billion (approximately US$ 53.6 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 guarantee of CME Media Services and a pledge of
      receivables, which are also subject to a factoring arrangement between CME
      Media
      Services and Factoring Ceska Sporitelna, a.s., a subsidiary of CS.





(e)
      CZK
      250.0 million (approximately US$ 11.2 million), the full amount of the facility,
      has been drawn by CET 21 and CME Media Services under a working capital facility
      agreement with CS which matures on January 31, 2007 and bears interest at the
      three-month Prague Inter-Bank Offered Rate (“PRIBOR”) plus 1.95% (three-month
      PRIBOR relevant to drawings under this facility at September 30, 2006 was
      2.53%). This working capital facility is secured by a pledge of receivables,
      which are also subject to a factoring arrangement between CME Media Services
      and
      Factoring Ceska Sporitelna, a.s.





(f)
      As at
      September 30, 2006, there were no drawings under a CZK 600.0 million
      (approximately US$ 26.8 million) factoring facility between CME Media Services
      and Factoring Ceska Sporitelna, a.s. available until March 31, 2010. The
      facility bears interest at one-month PRIBOR plus 1.40% for the period that
      actively assigned accounts receivable are outstanding.





**Romania**





(g)
      As at
      September 30, 2006, our Romania operations had made no drawings under a EUR
      3.0
      million (approximately US$ 3.8 million) three-month overdraft facility with
      ING
      Bank N.V. Amsterdam. This facility is secured by a floating charge over the
      accounts receivable of our Romania operations and allows drawings to be made
      in
      US dollars (bearing interest at one-month LIBOR plus 2.00%), Euro (bearing
      interest at one-month EURIBOR plus 2.00%) or New Romanian Lei (bearing interest
      at 'best market rate').





**Slovenia**





(h)
      On
      July 29, 2005, Pro Plus entered into a revolving facility agreement for up
      to
      EUR 37.5 million (approximately US$ 47.5 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 September 30, 2006, there were no drawings under this revolving
      facility.


*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)**


**Ukraine**





(i)
      On
      August 16, 2006, our Ukraine operations entered into a US$ 0.9 million,
      three-year loan with Dertus Finance Group, the minority shareholder in
      Ukrpromtorg. This loan is unsecured and bears interest at 9%.





*Total
      Group*





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





2006
            
            $
            11,2952007
            
            
            1652008
            
            
            1722009
            
            
            1,0822010
            
            
            1942011
                and thereafter
            
            
            468,521**Total**
            
            **$**
            **481,429**





*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 September 30, 2006:





2006
            
            $
            4912007
            
            
            6242008
            
            
            6222009
            
            
            4962010
            
            
            4962011
                and thereafter
            
            
            3,450**6,179**Less:
                amount representing interest
            
            
            (1,599
            )**Present
                value of net minimum lease payments**
            
            **$**
            **4,580**




**13.
      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$ 478.2 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$ 475.9 million) receivable on July 15,
      October 15, January 15, and April 15, to the termination date of April 15,
      2012.




*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)**


The
      fair
      value of these financial instruments as at September 30, 2006 was a US$ 2.8
      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 6). They are
      financial instruments that are used to minimize currency risk and are considered
      an economic hedge of foreign exchange rates. These instruments have not been
      designated as hedging instruments as defined under SFAS No. 133, “Accounting for
      Derivative Instruments and Hedging Activities”, and so changes in their fair
      value are recorded in the consolidated statement of operations and in the
      consolidated balance sheet in other non-current liabilities.




**14.
      SHAREHOLDERS’ EQUITY**





*Preferred
      Stock*





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





*Class
      A and B Common Stock*





100,000,000
      shares of Class A Common Stock and 15,000,000 shares of Class B Common Stock
      were authorized as at September 30, 2006 and December 31, 2005. The rights
      of
      the holders of Class A Common Stock and Class B Common Stock are identical
      except for voting rights. The shares of Class A Common Stock are entitled to
      one
      vote per share and the shares of Class B Common Stock are entitled to ten votes
      per share. Class B Common Stock is convertible into Class A Common Stock for
      no
      additional consideration on a one-for-one basis. Holders of each class of shares
      are entitled to receive dividends and upon liquidation or dissolution are
      entitled to receive all assets available for distribution to shareholders.
      The
      holders of each class have no preemptive or other subscription rights and there
      are no redemption or sinking fund provisions with respect to such
      shares.





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





On
      May 3,
      2006, EL/RSLG Media Inc. converted 336,000 shares of Class B Common Stock,
      on
      May 9, 2006, Leonard A. Lauder converted 140,000 and LWG Family Partners L.P.
      converted 215,000 shares of Class B Common Stock, on May 11, 2006, EL/RSLG
      Media
      Inc. converted 4,895 shares of Class B Common Stock, and on June 23, 2006,
      Ronald Lauder converted 57,799 shares of Class B Common Stock into a combined
      total of 753,694 shares of Class A Common Stock.





On
      August
      28, 2006, Ronald Lauder exercised options over 100,000 shares of Class B Common
      Stock.




*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)**





**15.
      STOCK-BASED COMPENSATION**





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





**For
                the Three Months**
              **Ended
                September 30,**
            
            **For
                the Nine Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Stock-based
                compensation charged under FIN 44
            
            $
            -
            
            $
            40
            
            $
            -
            
            $
            872Stock-based
                compensation charged under FAS 123(R) (2005: FAS 123)
            
            
            967
            
            
            616
            
            
            2,385
            
            
            1,552**Total
                stock-based compensation**
            
            **$**
            **967**
            
            **$**
            **656**
            
            **$**
            **2,385**
            
            **$**
            **2,424**





**Stock-based
      compensation under FIN 44**




For
      certain options issued in 1998 and 2000, our stock-based compensation charge
      was
      calculated according to FASB Interpretation 44, “Accounting for Certain
      Transactions involving Stock Compensation” (“FIN 44”). This requires that
      compensation costs for modified or variable awards are adjusted for increases
      and decreases in the intrinsic value in subsequent periods until that award
      is
      exercised, forfeited or expires unexercised, subject to a minimum of the
      original intrinsic value at the original measurement date. The last of these
      options was exercised on December 15, 2005. The amounts charged have been
      presented following the conclusion of our review of historic stock option grants
      (for further information, see Note 2).





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





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





**2006
      Option Grants**





Pursuant
      to the Amended and Restated 1995 Stock Incentive Plan, the Compensation
      Committee of our Board of Directors awarded grants of options to employees
      to
      purchase 22,000 shares of our Class A Common Stock, with a vesting period of
      four years, on February 1, 2006, 12,500 such options, with a vesting period
      of
      four years, on May 1, 2006, 50,000 such options, with a vesting period of four
      years, on June 8, 2006, and 80,000 such options, with a vesting period of four
      and a half years, on July 28, 2006. Pursuant to the Amended and Restated 1995
      Stock Incentive Plan, the Compensation Committee of our Board of Directors
      awarded grants of options to non-executive directors to purchase 48,000 shares
      of our Common Stock, with a vesting period of four years, on June 7, 2006.
      The
      exercise price of the granted options ranges from US$ 56.42 to US$ 64.81 per
      share. The fair value of the option grants was estimated on the date of the
      grant using the Black-Scholes option-pricing model, with the following
      assumptions used:





**Date
                of Option Grant**
            
            **Number
                of**
              **Options**
              **Granted**
            
            **Risk-free**
              **Interest**
              **Rate
                (%)**
            
            **Expected**
              **Term**
              **(years)**
            
            **Expected**
              **Volatility**
              **(%)**
            
            **Dividend**
              **Yield**
              **(%)**
            
            **Weighted-**
              **Average**
              **Fair
                Value**
              **(US$/share)**February
                1, 2006
            
            
            22,000
            
            
            4.52
            %
            
            6.25
            
            
            45.87
            %
            
            0
            %
            $
            30.74May
                1, 2006
            
            
            12,500
            
            
            5.04
            %
            
            6.25
            
            
            44.55
            %
            
            0
            %
            $
            33.21June
                7, 2006
            
            
            48,000
            
            
            4.98
            %
            
            6.25
            
            
            44.46
            %
            
            0
            %
            $
            29.96June
                8, 2006
            
            
            50,000
            
            
            4.96
            %
            
            6.25
            
            
            44.53
            %
            
            0
            %
            $
            28.83July
                28, 2006
            
            
            80,000
            
            
            4.92
            %
            
            4.50
            
            
            44.05
            %
            
            0
            %
            $
            26.16





The
        expected stock price volatility was calculated based on an analysis of the
        historical stock price volatility of our shares and its peers for the expected
        term of each grant. We consider this basis to represent the best indicator
        of
        expected volatility over the life of the option. The expected dividend yield
        for
        these grants was assumed to be 0%. The weighted average fair value of all
        the
        grants made in the three months ended September 30, 2006 was US$ 26.16 per
        option. The weighted average fair value of all the grants made in the nine
        months ended September 30, 2006 was US$ 28.68 per option. In accordance with
        FAS
        123(R), the total fair value of the option grants made in the nine months
        ended
        September 30, 2006 of US$ 5.7 million is being recognized as an expense in
        the
        consolidated statement of operations over the requisite service period of
        the
        award.


*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)**


**2005
      Option Grants**





Pursuant
      to the Amended and Restated 1995 Stock Incentive Plan, the Compensation
      Committee of our Board of Directors awarded a grant of options to non-executive
      directors and employees to purchase 122,000 shares of our Common Stock on June
      2, 2005. These options vest in equal installments over 4 years. The exercise
      price of the granted options ranges from US$ 44.50 to US$ 46.73 per share,
      with
      a weighted average exercise price of US$ 44.61. The total fair value of the
      option grants was estimated on the date of the grant using the Black-Scholes
      option-pricing model, with the following assumptions used:





**Date
                of Option Grant**
            
            **Number
                of**
              **Options**
              **Granted**
            
            **Risk-free**
              **Interest**
              **Rate
                (%)**
            
            **Expected**
              **Term**
              **(years)**
            
            **Expected**
              **Volatility**
              **(%)**
            
            **Dividend**
              **Yield**
              **(%)**
            
            **Weighted-**
              **Average**
              **Fair
                Value**
              **($/share)**June
                2, 2005
            
            
            122,000
            
            
            3.74
            %
            
            6.25
            
            
            53.24
            %
            
            0
            %
            $
            24.56





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





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





**Shares**
            
            **Weighted**
              **Average
                Exercise**
              **Price
                per Share**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual
                Term**
              **(years)**
            
            **Aggregate**
              **Intrinsic
                Value**Outstanding
                at January 1, 2006
            
            
            1,118,275
            
            $
            22.23
            
            
            7.11
            
            $
            39,763Granted
            
            
            212,500
            
            
            59.50Exercised
            
            
            (195,450
            )
            
            18.66Forfeited
            
            
            (21,750
            )
            
            39.61**Outstanding
                at September 30, 2006**
            
            
            **1,113,575**
            
            **$**
            **29.75**
            
            
            **7.30**
            
            **$**
            **41,521**Vested
                or expected to vest at September 30, 2006
            
            
            1,023,248
            
            
            28.86
            
            
            7.33
            
            
            39,079**Exercisable
                at September 30, 2006**
            
            
            **487,650**
            
            **$**
            **14.67**
            
            
            **6.51**
            
            **$**
            **25,541**





The
      aggregate intrinsic value (the difference between the stock price on the last
      day of trading of the third quarter of 2006 and the exercise prices multiplied
      by the number of in-the-money options) represents the total intrinsic value
      that
      would have been received by the option holders had all option holders exercised
      their options as of September 30, 2006. This amount changes based on the fair
      value of our Common Stock. The total intrinsic value of options exercised during
      the nine months ended September 30, 2006 and 2005, was US$ 8.4 million and
      US$
      25.1 million, respectively. As of September 30, 2006, there was US$ 10.2 million
      of total unrecognized compensation expense related to options. The expense
      is
      expected to be recognized over a weighted average period of 3.0 years. Proceeds
      received from the exercise of stock options was US$ 3.6 million and US$ 5.0
      million for the nine months ended September 30, 2006 and 2005,
      respectively.


*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)**





**16.
      EARNINGS PER SHARE**





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





**For
                the Three Months**
              **Ended
                September 30,**
            
            **For
                the Nine Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Net
                income / (loss) available for common shareholders**
            
            $
            3,934
            
            $
            (9,654
            )
            $
            (5,808
            )
            $
            7,770**Weighted
                average outstanding shares of common stock
                (000’s)**
            
            
            40,651
            
            
            37,883
            
            
            39,792
            
            
            33,549Dilutive
                effect of employee stock options (000’s)
            
            
            537
            
            
            -
            
            
            -
            
            
            829**Common
                stock and common stock equivalents (000’s)**
            
            
            41,188
            
            
            37,883
            
            
            39,792
            
            
            34,378**Net
                income / (loss) per share:**Basic
            
            $
            0.09
            
            $
            (0.25
            )
            $
            (0.14
            )
            $
            0.23Diluted
            
            $
            0.09
            
            $
            (0.25
            )
            $
            (0.14
            )
            $
            0.23





At
      September 30, 2006 and 2005, we did not include stock options to purchase
      407,000 shares and 122,000 shares of Common Stock, respectively, in the
      calculations of diluted income / (loss) per share because their inclusion would
      be anti-dilutive.




**17.
      SEGMENT DATA**





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





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





We
      acquired our Czech Republic operations on May 2, 2005; therefore, we include
      only limited qualified comparisons of financial results for our Czech Republic
      operations for the nine-month period ending September 30, 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 business segments
      for
      purposes of evaluating their performance and therefore are not included in
      Segment EBITDA include:


Ÿ
              expenses
                  presented as corporate operating costs in our consolidated statements
                  of
                  operations and comprehensive
                  income;
 
 Ÿ
              foreign
                  currency exchange gains and losses;


*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)**


Ÿ
              change
                  in fair value of derivatives; and
 
 Ÿ
              certain
                  unusual or infrequent items (e.g., extraordinary gains and losses,
                  impairments of assets or investments, gain on sale of unconsolidated
                  affiliates).


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





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





*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)**





Below
      are
      tables showing our Segment Net Revenues, Segment EBITDA, segment depreciation
      and segment asset information by operation, including a reconciliation of these
      amounts to our consolidated US GAAP results for the three and nine months ended
      September 30, 2006 and 2005 for condensed consolidated statement of operations
      data and as at September 30, 2006 and December 31, 2005 for condensed
      consolidated balance sheet data:




**For
                the Three Months Ended September 30,****Segment
                Net Revenues (1)**
            
            **Segment
                EBITDA****2006**
            
            **2005**
            
            **2006**
            
            **2005****Country:**Croatia
                (NOVA TV)
            
            $
            4,288
            
            $
            4,183
            
            $
            (4,558
            )
            $
            (4,786
            )Czech
                Republic (TV NOVA, GALAXIE SPORT)
            
            
            40,141
            
            
            40,883
            
            
            17,234
            
            
            11,940Romania
                (2)
            
            
            29,298
            
            
            21,138
            
            
            11,719
            
            
            7,831Slovak
                Republic (MARKIZA TV)
            
            
            13,895
            
            
            11,720
            
            
            2,408
            
            
            876Slovenia
                (POP TV, KANAL A)
            
            
            9,101
            
            
            7,655
            
            
            1,225
            
            
            1,032Ukraine
                (STUDIO 1+1, KINO)
            
            
            15,759
            
            
            13,208
            
            
            (2,020
            )
            
            2,483**Total
                segment data**
            
            **$**
            **112,482**
            
            **$**
            **98,787**
            
            **$**
            **26,008**
            
            **$**
            **19,376****Reconciliation
                to condensed consolidated statement of
                operations:****Consolidated
                net revenues / income before provision for income taxes, minority
                interest, equity in income of unconsolidated affiliates and discontinued
                operations**
            
            **$**
            **112,482**
            
            **$**
            **87,067**
            
            **$**
            **1,784**
            
            **$**
            **(5,090**
            **)**Corporate
                operating costs
            
            
            -
            
            
            -
            
            
            8,342
            
            
            4,840Depreciation
                of station property, plant and equipment
            
            
            -
            
            
            -
            
            
            6,080
            
            
            4,230Amortization
                of broadcast licenses and other intangibles
            
            
            -
            
            
            -
            
            
            5,015
            
            
            4,678Unconsolidated
                equity affiliates (3)
            
            
            -
            
            
            11,720
            
            
            -
            
            
            876Interest
                income
            
            
            -
            
            
            -
            
            
            (1,554
            )
            
            (1,716
            )Interest
                expense
            
            
            -
            
            
            -
            
            
            11,066
            
            
            11,574Foreign
                currency exchange gain, net
            
            
            -
            
            
            -
            
            
            (6,018
            )
            
            (856
            )Change
                in fair value of derivatives
            
            
            -
            
            
            -
            
            
            881
            
            
            -Other
                expense
            
            
            -
            
            
            -
            
            
            412
            
            
            840**Total
                segment data**
            
            **$**
            **112,482**
            
            **$**
            **98,787**
            
            **$**
            **26,008**
            
            **$**
            **19,376**


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




*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)**




**For
                the Nine Months Ended September 30,****Segment
                Net Revenues (1)**
            
            **Segment
                EBITDA****2006**
            
            **2005**
            
            **2006**
            
            **2005****Country:**Croatia
                (NOVA TV)
            
            $
            13,745
            
            $
            16,791
            
            $
            (11,639
            )
            $
            (9,547
            )Czech
                Republic (TV NOVA, GALAXIE SPORT) (2)
            
            
            137,002
            
            
            88,647
            
            
            59,569
            
            
            40,226Romania
                (3)
            
            
            96,938
            
            
            66,786
            
            
            39,756
            
            
            25,969Slovak
                Republic (MARKIZA TV)
            
            
            45,147
            
            
            43,990
            
            
            9,258
            
            
            11,002Slovenia
                (POP TV, KANAL A)
            
            
            34,883
            
            
            31,509
            
            
            10,688
            
            
            10,202Ukraine
                (STUDIO 1+1, KINO)
            
            
            62,871
            
            
            44,747
            
            
            14,447
            
            
            9,768**Total
                segment data**
            
            **$**
            **390,586**
            
            **$**
            **292,470**
            
            **$**
            **122,079**
            
            **$**
            **87,620****Reconciliation
                to condensed consolidated statement of
                operations:****Consolidated
                net revenues / income before provision for income taxes, minority
                interest, equity in income of unconsolidated affiliates and discontinued
                operations**
            
            **$**
            **388,825**
            
            **$**
            **248,480**
            
            **$**
            **9,595**
            
            **$**
            **20,082**Corporate
                operating costs
            
            
            -
            
            
            -
            
            
            24,019
            
            
            16,108Depreciation
                of station property, plant and equipment
            
            
            -
            
            
            -
            
            
            17,841
            
            
            9,292Amortization
                of broadcast licenses and other intangibles
            
            
            -
            
            
            -
            
            
            13,967
            
            
            6,611Impairment
                charge
            
            
            -
            
            
            -
            
            
            748
            
            
            35,331Unconsolidated
                equity affiliates (4)
            
            
            1,761
            
            
            43,990
            
            
            (1,283
            )
            
            11,002Interest
                income
            
            
            -
            
            
            -
            
            
            (4,748
            )
            
            (3,354
            )Interest
                expense
            
            
            -
            
            
            -
            
            
            32,921
            
            
            18,305Foreign
                currency exchange (gain) / loss, net
            
            
            -
            
            
            -
            
            
            25,469
            
            
            (30,286
            )Change
                in fair value of derivatives
            
            
            -
            
            
            -
            
            
            2,757
            
            
            -Other
                expense
            
            
            -
            
            
            -
            
            
            793
            
            
            4,529**Total
                segment data**
            
            **$**
            **390,586**
            
            **$**
            **292,470**
            
            **$**
            **122,079**
            
            **$**
            **87,620**


(1) All
            net
            revenues are derived from external customers. There are no inter-segmental
            revenues.
 (2) We
            acquired our Czech Republic operations in May 2005.
 (3) Romanian
            networks are PRO TV, PRO CINEMA, ACASA and PRO TV
            INTERNATIONAL.
 (4) Our
            Slovak Republic operations were accounted for as an equity affiliate
            until
            January 23, 2006.




*Page
          34*
 *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
                September 30,**
            
            **For
                the Nine Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Depreciation
                of station property, plant and equipment and amortization of broadcast
                licenses and other intangibles:**Croatia
            
            $
            793
            
            $
            917
            
            $
            2,224
            
            $
            2,133Czech
                Republic (1)
            
            
            5,957
            
            
            5,776
            
            
            17,365
            
            
            8,158Romania
            
            
            1,659
            
            
            1,063
            
            
            4,023
            
            
            2,677Slovak
                Republic
            
            
            791
            
            
            707
            
            
            3,139
            
            
            1,641Slovenia
            
            
            952
            
            
            701
            
            
            2,492
            
            
            1,684Ukraine
            
            
            943
            
            
            451
            
            
            2,742
            
            
            1,251**Total**
            
            **$**
            **11,095**
            
            **$**
            **9,615**
            
            **$**
            **31,985**
            
            **$**
            **17,544****Reconciliation
                to condensed consolidated statement of
                operations:**Unconsolidated
                equity affiliates
            
            
            -
            
            
            (707
            )
            
            (177
            )
            
            (1,641
            )**Total
                consolidated depreciation and amortization**
            
            **$**
            **11,095**
            
            **$**
            **8,908**
            
            **$**
            **31,808**
            
            **$**
            **15,903**Represented
                as follows:Depreciation
                of station property, plant & equipment
            
            
            6,080
            
            
            4,230
            
            
            17,841
            
            
            9,292Amortization
                of broadcast licenses and other intangibles
            
            
            5,015
            
            
            4,678
            
            
            13,967
            
            
            6,611




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




**September
                30,**
              **2006**
            
            **December
                31,**
              **2005****Total
                assets (1):**Croatia
            
            $
            24,333
            
            $
            25,017Czech
                Republic
            
            
            1,087,983
            
            
            1,018,253Romania
            
            
            179,952
            
            
            123,699Slovak
                Republic
            
            
            76,915
            
            
            41,873Slovenia
            
            
            68,156
            
            
            62,926Ukraine
            
            
            74,026
            
            
            49,438**Total
                segment assets**
            
            **$**
            **1,511,365**
            
            **$**
            **1,321,206****Reconciliation
                to condensed consolidated balance sheets:**Unconsolidated
                equity affiliates
            
            
            -
            
            
            (41,873
            )Corporate
            
            
            159,185
            
            
            109,517**Total
                assets**
            
            **$**
            **1,670,550**
            
            **$**
            **1,388,850**




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




*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)**


**September
                30,**
              **2006**
            
            **December
                31,**
              **2005****Long-lived
                assets (1):**Croatia
            
            $
            7,327
            
            $
            6,264Czech
                Republic
            
            
            19,963
            
            
            16,027Romania
            
            
            20,260
            
            
            13,154Slovak
                Republic
            
            
            16,926
            
            
            14,245Slovenia
            
            
            15,510
            
            
            15,523Ukraine
            
            
            11,490
            
            
            7,127**Total
                long-lived assets**
            
            **$**
            **91,476**
            
            **$**
            **72,340****Reconciliation
                to condensed consolidated balance sheets:**Unconsolidated
                equity affiliates
            
            
            -
            
            
            (14,245
            )Corporate
            
            
            1,973
            
            
            802**Total
                long-lived assets**
            
            **$**
            **93,449**
            
            **$**
            **58,897**




(1)
                Reflects property, plant and
                equipment.





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





**18.
      DISCONTINUED OPERATIONS**





**For
                the Three Months**
              **Ended
                September 30,**
            
            **For
                the Nine Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Income
                on disposal of discontinued operations
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            164Tax
                on disposal of discontinued operations
            
            
            (2,333
            )
            
            (3,332
            )
            
            (4,863
            )
            
            (5,540
            )**Net
                loss from discontinued operations**
            
            **$**
            **(2,333**
            **)**
            **$**
            **(3,332**
            **)**
            **$**
            **(4,863**
            **)**
            **$**
            **(5,376**
            **)**





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$ 2.3 million for the three months
      ended
      September 30, 2006 (charge of US$ 3.3 million for the three months ended
      September 30, 2005), and a charge of US$ 4.9 million for the nine months ended
      September 30, 2006 (charge of US$ 5.5 million for the nine months ended
      September 30, 2005).





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





*Page
          36*
 *Index*


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


**19.
      COMMITMENTS AND CONTINGENCIES**





**Commitments**





*a)
      Station Programming Rights Agreements*





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





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005**Croatia
            
            $
            9,925
            
            $
            3,014Czech
                Republic
            
            
            13,919
            
            
            22,812Romania
            
            
            23,676
            
            
            14,073Slovak
                Republic
            
            
            2,278
            
            
            -Slovenia
            
            
            3,082
            
            
            3,080Ukraine
            
            
            12,525
            
            
            8,864**Total**
            
            **$**
            **65,405**
            
            **$**
            **51,843**





*b)
      Operating Lease Commitments*





For
      the
      nine months ended September 30, 2006 and 2005, we incurred aggregate rent on
      all
      facilities of US$ 7.0 million and US$ 4.3 million, respectively. Future minimum
      operating lease payments at September 30, 2006 for non-cancelable operating
      leases with remaining terms in excess of one year (net of amounts to be
      recharged to third parties) are payable as follows:





2006
            
            $
            3,4672007
            
            
            1,9232008
            
            
            1,5592009
            
            
            7442010
            
            
            7442011
                and thereafter
            
            
            394**Total**
            
            **$**
            **8,831**





*c)
      Acquisition of* *Minority
      Shareholdings in Romania*





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% 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 September 30, 2006, we consider the fair value
        of the
        put option to be approximately US$ nil.




*Page
          37*
 *Index*


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


*d)
      Other*




*Dutch* *Tax*





On
      February 9, 2004, we entered into an agreement with the Dutch tax authorities
      to
      settle all tax liabilities outstanding for the period through 2003, including
      receipts in respect of our 2003 award in the arbitration against the Czech
      Republic, for a payment of US$ 9.0 million. We expected to continue to pay
      tax
      in the Netherlands of between US$ 1.0 and US$ 2.5 million for the foreseeable
      future and therefore agreed to a minimum tax payable of US$ 2.0 million per
      year
      for the years 2004 - 2008 and US$ 1.0 million for 2009. Should the Dutch
      Ministry of Finance later rule that arbitration awards such as the one we
      received are not taxable, we will be entitled to claim a tax loss, which can
      be
      offset against other taxable income but will not reduce our minimum payment
      commitments.





As
      at
      September 30, 2006, we provided US$ 5.5 million (US$ 3.5 million in non-current
      liabilities and US$ 2.0 million in current liabilities) (as at December 31,
      2005: US$ 2.1 million (US$ 0.7 million in non-current liabilities and US$ 1.4
      million in current liabilities)) of tax in the Netherlands as the difference
      between our obligation under this agreement and our estimate of tax in the
      Netherlands that is likely to fall due over this period from business
      operations, based on current business structures and economic conditions, and
      charged US$ 2.3 million for the three months ended September 30, 2006 (charge
      of
      US$ 3.3 million for the three months ended September 30, 2005) and charged
      US$
      4.9 million for the nine months ended September 30, 2006 (charge of US$ 5.5
      million for the nine months ended September 30, 2005) through discontinued
      operations in our condensed consolidated statement of operations.




*Czech
      Republic - Guarantee and Factoring of Trade Receivables*





CET
      21
      and CME Media Services have a working capital credit facility of CZK 250.0
      million (approximately US$ 11.2 million) with Ceska Sporitelna, a.s. that
      matures on January 31, 2007, which was fully drawn at September 30, 2006. This
      facility is secured by a pledge of receivables, which are also subject to a
      factoring arrangement between CME Media Services and Factoring Ceska Sporitelna,
      a.s.





CME
      Media
      Services has a factoring arrangement of CZK 600.0 million (approximately US$
      26.8 million) with Factoring Ceska Sporitelna, a.s., that bears interest for
      the
      period that actively assigned accounts receivable are outstanding. As at
      September 30, 2006, there were no drawings under this arrangement.





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




**Contingencies**





*a)
      Litigation*





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





*Page
          38*
 *Index*


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


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





*Croatia*





*Global
      Communications Dispute*





On
      October 29, 2004, OK filed suit against Global Communications d.o.o. claiming
      approximately HRK 53.0 million (approximately US$ 9.1 million) in damages.
      Global Communications is a company controlled by Ivan Caleta, who had previously
      operated Nova TV (Croatia) through OK. Global Communications, together with
      GRP
      Media d.o.o., another company controlled by Mr. Caleta, had provided certain
      goods and services to OK and Nova TV (Croatia) in exchange for advertising
      time.
      Global Communications and GRP Media were functionally managing the advertising
      inventory of Nova TV (Croatia). On December 31, 2003, Global Communications
      entered into an agreement by which OK acknowledged that Global Communications
      was entitled to approximately 375,000 seconds of advertising time for goods
      and
      services previously provided. Following our acquisition of Nova TV (Croatia)
      and
      OK in July 2004, OK concluded that Global Communications had used all of its
      seconds by June 2004 based on a substantial discrepancy discovered between
      the
      utilization of advertising time recorded by Global Communications and that
      recorded by AGB Puls, an independent television audience measurement service
      operating in Croatia. In the course of its investigation of the usage of seconds
      by Global Communications, OK discovered that computer records of advertising
      seconds kept for OK may have been altered. OK brought a suit to recover amounts
      for advertising time used by Global Communications in excess of the 375,000
      seconds agreed. Global Communications filed a counterclaim in January 2005
      for
      HRK 68.0 million (approximately US$ 11.7 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. 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.





*Former
      Shareholder Dispute*




On
      July
      21, 2005, Narval A.M. d.o.o., Studio Millenium d.o.o. and Richard Anthony
      Sheldon, three of the former shareholders of OK, filed suit against Nova TV
      (Croatia) for rescission of the sale and purchase contract pursuant to which
      they sold 75% of OK to Nova TV (Croatia) in July 2004 (the “OK Sale Contract”).
      Nova TV (Croatia) acquired OK immediately prior to our acquiring Nova TV
      (Croatia). The provisions of the OK Sale Contract required Nova TV (Croatia)
      to
      make payment to the four shareholders of OK by September 1, 2004, upon receipt
      of appropriate invoices and bank account details. The fourth shareholder, Pitos
      d.o.o., issued an invoice that was duly received by Nova TV (Croatia) and
      payment was made thereunder. The other three shareholders claim that they
      hand-delivered a joint invoice to one of the former directors of Nova TV
      (Croatia), but we continue to dispute this. Under the Croatian Obligations
      Act,
      one party to a contract who has performed may unilaterally rescind a contract
      if
      the other party fails to perform after receipt of a written warning. On May
      24,
      2006, the lower commercial court decided in favor of the plaintiffs to rescind
      the OK Sale Contract and ordered the defendant to pay court costs. We have
      appealed the decision on the basis that evidence supporting our position was
      not
      allowed to be presented to the court. On August 28, 2006, we received a lower
      court decision of an injunction against us that, inter alia, prohibits a sale
      or
      encumbrance of 75% of the shares of OK. We have also appealed this decision.
      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 do not expect the Croatia operations to suffer any significant
      loss or disruption as a consequence of these actions.




*Page
          39*
 *Index*


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


*Czech
      Republic*





*Antimonopoly
      Office*





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





*Romania*





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





*Slovenia*





On
      November 20, 2002, we received notice of a claim filed by Mrs. Zdenka Meglic,
      the founder and a former shareholder of MMTV 1 d.o.o (MMTV), against MMTV,
      a
      subsidiary of CME Media Enterprises B.V. In her claim against MMTV, Mrs. Meglic
      is seeking an amount equal to SIT 190.0 million (approximately US$ 1.0 million)
      for repayment of monies advanced to MMTV from 1992 to 1994 (in the amount of
      approximately SIT 29.0 million (approximately US$ 0.2 million)) plus accrued
      interest. On September 9, 2004, the court of first instance found against MMTV
      and issued a judgment requiring MMTV to pay SIT 190.0 million (approximately
      US$
      1.0 million) plus interest as well as costs. On September 24, 2004, MMTV filed
      an appeal against the judgment. On December 15, 2004, the appellate court
      vacated the judgment of the lower court and returned the case for further
      proceedings. We do not believe that Mrs. Meglic will prevail and will continue
      to defend the claim.





*Slovak
      Republic*





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





*Ukraine*




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





At
        a
        hearing on October 31, 2006, the appellate court, in an oral decision,
        overturned the decision of the court of first instance and denied Mr.
        Kolomoisky’s claim that he is entitled to a 70% interest in Studio 1+1 held by
        Mr. Rodnyansky. A written decision is expected to be published in November.
        Mr.
        Kolomoisky has two months from the issuance of the decision to file an appeal
        with the court of cassation, the highest court in Ukraine.  The court of
        cassation has discretion whether to accept such an appeal. In the absence
        of
        both an acceptance by the court of cassation of such an appeal and a favorable
        ruling by that court, Mr. Kolomoisky no longer has a basis for claiming this
        ownership right in Studio 1+1 on the same grounds.




*Page
          40*
 *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 Mr. Kolomoisky, by our partners
        and by
        third parties who are not direct parties in interest to legal proceedings
        initiated by Mr. Kolomoisky against Mr. 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.
        Our partners are no longer seeking to enforce the injunction filed at their
        initiative; we expect that this injunction will be removed once the case
        file in
        this matter has been transferred to the appellate court and the appeal filed
        by
        Mr. Kolomoisky in respect of this injunction has been
        scheduled.





*b)
      Licenses*





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




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





**Croatia**
            The
                license of NOVA TV (Croatia) expires in April 2010.**Czech
                Republic**
            The
                license of TV NOVA (Czech Republic) expires in January
                2017.**Romania**
            Licenses
                expire on dates ranging from late November 2006 to October
                2015.**Slovak
                Republic**
            The
                license of MARKIZA TV expires in September 2019.**Slovenia**
            The
                licenses of POP TV and KANAL A expire in August 2012.**Ukraine**
            The
                  15-hour license of STUDIO 1+1 expires in December 2006. In July
                  2006, the
                  Ukrainian Media Council issued a decision to extend this license
                  with the
                  issuance of a new license subject to satisfying two conditions
                  (see Note 1
                  and Part II, Item I, “Legal Proceedings, Ukraine” and Part II, Item 1A.
                  Risk Factors). The license to broadcast for the remaining nine
                  hours in
                  off-prime time expires in August 2014. The three licenses held
                  by
                  Ukrpromtorg expire in November 2008, March 2010 and October
                  2012.




*Page
          41*
 *Index*


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





*c)
      Restrictions on Dividends from Consolidated Subsidiaries and Unconsolidated
      Affiliates*





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




*Page
          42*
 *Index*




**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


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


**(Unaudited)**




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





**Contents**





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




**I.
      Forward-looking Statements**





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





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


**II.
      Executive Summary**





*Continuing
      Operations*





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


**For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
              **(as
                restated)**
            
            ***Movement***Net
                revenues
            
            $
            112,482
            
            $
            87,067
            
            *$*
            *25,415*Operating
                income
            
            
            6,571
            
            
            4,752
            
            
            *1,819*Net
                income / (loss) from continuing operations
            
            
            6,267
            
            
            (6,322
            )
            
            *12,589***Net
                income / (loss)**
            
            **$**
            **3,934**
            
            **$**
            **(9,654**
            **)**
            ***$***
            ***13,588***




*Page
          43*
 *Index*





**For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
              **(as
                restated)**
            
            ***Movement***Net
                revenues
            
            $
            388,825
            
            $
            248,480
            
            *$*
            *140,345*Operating
                income
            
            
            66,787
            
            
            9,276
            
            
            *57,511*Net
                income / (loss) from continuing operations
            
            
            (945
            )
            
            13,146
            
            
            *(14,091*
            *)***Net
                (loss) / income**
            
            **$**
            **(5,808**
            **)**
            **$**
            **7,770**
            
            ***$***
            ***(13,578***
            ***)***




The
        principal events for the three months ended September 30, 2006 are as
        follows:
 
 —
              In
                  the three months ended September 30, 2006, we achieved a Segment
                  EBITDA
                  margin of 23% compared to 20% for the three months ended September
                  30,
                  2005 Segment EBITDA is defined and reconciled to our consolidated
                  US GAAP
                  results in Item 1, Note 17).
 
 —
              On
                  July 19, 2006, the Ukrainian Media Council issued a decision to
                  extend the
                  15-hour broadcasting license of Studio 1+1 for a ten-year period
                  from
                  January 1, 2007. Issuance of the license itself is subject to the
                  payment
                  of a fee of approximately UAH 5.9 million (approximately US$ 1.2
                  million),
                  which has been paid, and to the requirement that Studio 1+1 bring
                  its
                  corporate documents into conformity with recent amendments to the
                  Ukrainian Media Law (see Part II, Item 1A. Risk
                  Factors).
 
 —
              On
                  July 21, 2006, we entered into a five-year EUR 100.0 million revolving
                  project loan facility, which, once fully drawn, can be repaid and
                  then
                  used as a revolving credit facility to further increase our financing
                  flexibility and reduce our average cost of
                  debt.
 
 —
              On
                  July 1, 2006 we launched a new entertainment channel in Ukraine,
                  KINO,
                  targeted at a young demographic. In the three months since launch,
                  KINO
                  has secured an average all day audience share of approximately
                  2.5% in the
                  Kiev area.
  —
              On
                  August 11, 2006 we completed the acquisition of a 10.0% stake in
                  Media
                  Pro, a group of Romanian companies with operations in the fields
                  of
                  publishing, information, printing, cinema, entertainment and radio.
                  For
                  more information on our acquisition of Media Pro, see Item 1, Notes
                  3 and
                  5.
 
 —
                During
                    the quarter our Audit Committee commenced a voluntary review of our
                    stock option granting practices covering the period from 1994
                    to 2002. The
                    review found certain instances of administrative and procedural
                    deficiencies that occurred in the period between 1994 and 1998
but
                    found no evidence from which it could be concluded that the errors
                    were
                    the result of deliberate or intentional misstatement.The errors
                    identified neither relate to nor impact the current year results.
                    We have
                    restated our historic financial statements to correct these errors.
                    See
                    Part I, Item 1, Note 2 for further
                    information.


*Management
        Changes*


—
              On
                  July 28, 2006, Michael Garin’s agreement to serve as Chief Executive
                  Officer was extended from 2008 to
                  2010.
 
 —
              On
                  August 1, 2006, Adrian Sarbu was appointed an executive in the
                  Czech
                  Republic with CET 21, effective March 3, 2006 until December 31,
                  2007.
 
 —
              On
                  August 3, 2006, Robert E. Burke announced his intention to step
                  down as
                  the Company’s President and Chief Operating Officer effective October 1,
                  2006.
 
 —
              On
                  October 5, 2006, Marina Williams’ agreement to serve as Executive Vice
                  President was extended from 2008 to
                  2010.




*Future
      Developments*





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




*Page
          44*
 *Index*




**III.
      Analysis of Segment Results**





**OVERVIEW**





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





For
      a
      full reconciliation of our Segment Net Revenues and Segment EBITDA by operation
      to our consolidated US GAAP results for the three and nine months ended
      September 30, 2006 and 2005 see Item 1, Note 17.





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





**SEGMENT
                FINANCIAL INFORMATION****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **(1)**
            
            **2005**
            
            **(1)****Segment
                Net Revenues**Croatia
                (NOVA TV)
            
            $
            4,288
            
            
            4
            %
            $
            4,183
            
            
            4
            %Czech
                Republic (TV NOVA, GALAXIE SPORT)
            
            
            40,141
            
            
            36
            %
            
            40,883
            
            
            41
            %Romania
                (2)
            
            
            29,298
            
            
            26
            %
            
            21,138
            
            
            22
            %Slovak
                Republic (MARKIZA TV) (3)
            
            
            13,895
            
            
            12
            %
            
            11,720
            
            
            12
            %Slovenia
                (POP TV, KANAL A)
            
            
            9,101
            
            
            8
            %
            
            7,655
            
            
            8
            %Ukraine
                (STUDIO 1+1, KINO)
            
            
            15,759
            
            
            14
            %
            
            13,208
            
            
            13
            %**Total
                Segment Net Revenues**
            
            **$**
            **112,482**
            
            
            **100**
            **%**
            **$**
            **98,787**
            
            
            **100**
            **%****Segment
                EBITDA**Croatia
                (NOVA TV)
            
            $
            (4,558
            )
            
            (17
            )%
            $
            (4,786
            )
            
            (25
            )%Czech
                Republic (TV NOVA, GALAXIE SPORT)
            
            
            17,234
            
            
            66
            %
            
            11,940
            
            
            62
            %Romania
                (2)
            
            
            11,719
            
            
            45
            %
            
            7,831
            
            
            40
            %Slovak
                Republic (MARKIZA TV) (3)
            
            
            2,408
            
            
            9
            %
            
            876
            
            
            5
            %Slovenia
                (POP TV, KANAL A)
            
            
            1,225
            
            
            5
            %
            
            1,032
            
            
            5
            %Ukraine
                (STUDIO 1+1, KINO)
            
            
            (2,020
            )
            
            (8
            )%
            
            2,483
            
            
            13
            %**Total
                Segment EBITDA**
            
            **$**
            **26,008**
            
            
            **100**
            **%**
            **$**
            **19,376**
            
            
            **100**
            **%****Segment
                EBITDA Margin (4)**
            
            
            **23**
            **%**
            
            
            
            
            **20**
            **%**


(1) Percentage
            of Total Segment Net Revenues and Total Segment EBITDA.
 (2) Romania
            networks are PRO TV, PRO CINEMA, ACASA and PRO TV
            INTERNATIONAL.
 (3) Our
            Slovak Republic operations were accounted for as an equity affiliate
            until
            January 23, 2006.
 (4) We
            define
            Segment EBITDA Margin as the ratio of Total Segment EBITDA to Total Segment
            Net
            Revenues.


*Page
          45*
 *Index*





**SEGMENT
                FINANCIAL INFORMATION****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **(1)**
            
            **2005**
            
            **(1)****Segment
                Net Revenues**Croatia
                (NOVA TV)
            
            $
            13,745
            
            
            3
            %
            $
            16,791
            
            
            6
            %Czech
                Republic (TV NOVA, GALAXIE SPORT) (2)
            
            
            137,002
            
            
            35
            %
            
            88,647
            
            
            30
            %Romania
                (3)
            
            
            96,938
            
            
            25
            %
            
            66,786
            
            
            23
            %Slovak
                Republic (MARKIZA TV) (4)
            
            
            45,147
            
            
            12
            %
            
            43,990
            
            
            15
            %Slovenia
                (POP TV, KANAL A)
            
            
            34,883
            
            
            9
            %
            
            31,509
            
            
            11
            %Ukraine
                (STUDIO 1+1, KINO)
            
            
            62,871
            
            
            16
            %
            
            44,747
            
            
            15
            %**Total
                Segment Net Revenues**
            
            **$**
            **390,586**
            
            
            **100**
            **%**
            **$**
            **292,470**
            
            
            **100**
            **%****Segment
                EBITDA**Croatia
                (NOVA TV)
            
            $
            (11,639
            )
            
            (10
            )%
            $
            (9,547
            )
            
            (11
            )%Czech
                Republic (TV NOVA, GALAXIE SPORT) (2)
            
            
            59,569
            
            
            49
            %
            
            40,226
            
            
            46
            %Romania
                (3)
            
            
            39,756
            
            
            32
            %
            
            25,969
            
            
            29
            %Slovak
                Republic (MARKIZA TV) (4)
            
            
            9,258
            
            
            8
            %
            
            11,002
            
            
            13
            %Slovenia
                (POP TV, KANAL A)
            
            
            10,688
            
            
            9
            %
            
            10,202
            
            
            12
            %Ukraine
                (STUDIO 1+1, KINO)
            
            
            14,447
            
            
            12
            %
            
            9,768
            
            
            11
            %**Total
                Segment EBITDA**
            
            **$**
            **122,079**
            
            
            **100**
            **%**
            **$**
            **87,620**
            
            
            **100**
            **%****Segment
                EBITDA Margin (5)**
            
            
            **31**
            **%**
            
            
            
            
            **30**
            **%**


(1) Percentage
            of Total Segment Net Revenues and Total Segment EBITDA.
 (2) We
            acquired our Czech Republic operations in May 2005.
 (3) Romania
            networks are PRO TV, PRO CINEMA, ACASA and PRO TV
            INTERNATIONAL.
 (4) Our
            Slovak Republic operations were accounted for as an equity affiliate
            until
            January 23, 2006.
 (5) We
            define
            Segment EBITDA Margin as the ratio of Total Segment EBITDA to Total Segment
            Net
            Revenues.




*Page
          46*
 *Index*


**ANALYSIS
      BY GEOGRAPHIC SEGMENT**





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





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





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





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 grew by approximately
      4% in local currency in 2005 and is expected to show single digit growth during
      2006.





In
      the
      nine months ended September 30, 2006, the national all day audience share for
      NOVA TV (Croatia) was 15% compared to 14% for the nine months ended September
      30, 2005. Our major competitors are the two state-owned channels HRT1 and HRT2,
      with national all day audience shares for the nine months ended September 30,
      2006 of 35% and 18%, respectively, and privately owned broadcaster RTL with
      24%.





The
      average prime time ratings for NOVA TV (Croatia) increased from 5.6% in the
      nine
      months ended September 30, 2005 to 6.8% in the nine months ended September
      30,
      2006.


*Page
          47*
 *Index*





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





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





**CROATIA
                SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            3,022
            
            $
            3,147
            
            *$*
            *(125*
            *)*Non-spot
                revenues
            
            
            1,266
            
            
            1,036
            
            
            *230*Segment
                Net Revenues
            
            $
            4,288
            
            $
            4,183
            
            *$*
            *105*Segment
                EBITDA
            
            $
            (4,558
            )
            $
            (4,786
            )
            *$*
            *228*Segment
                EBITDA Margin
            
            
            (106
            )%
            
            (114
            )%
            
            *8*
            *%*





·
            **Segment
                Net Revenues**for the three months ended September 30, 2006 increased by US$ 0.1
                million, or 3%, compared to the three months ended September 30,
                2005. In
                local currency, Segment Net Revenues decreased by 3%. Spot revenues
                decreased by US$ 0.1 million, or 4%, due to lower volumes of GRPs
                sold as
                a result of competitor price reductions and the expiration of legacy
                deals.





Non-spot
      revenues increased by US$ 0.2 million, or 22%, due to an increase in short
      message service (“SMS”), teletext and telesales revenues.





·
            **Segment
                EBITDA**for
                the three months ended September 30, 2006 was a loss of US$ 4.6 million
                compared to a loss of US$ 4.8 million for the three months ended
                September
                30, 2005. In local currency, Segment EBITDA increased by
                7%.





Costs
      charged in arriving at Segment EBITDA for the three months ended September
      30,
      2006 decreased by US$ 0.1 million, or 1%, compared to the three months ended
      September 30, 2005. Cost of programming increased by US$ 1.6 million, or 34%,
      due largely to the inclusion of the salary-related costs of production staff
      within cost of programming rather than other operating costs; excluding the
      impact of this change in classification, cost of programming decreased by US$
      0.6 million, or 12%, largely due to the decision to restrict expenditure on
      higher cost local productions. Other operating costs decreased by US$ 1.9
      million, or 79%, primarily due to the difference in classification described
      above; excluding the impact of this change in classification, other operating
      costs increased by US$ 0.3 million due to higher headcount. Selling, general
      and
      administrative expenses increased by US$ 0.2 million, or 11%, in the period
      ended September 30, 2006 primarily due to increased costs of marketing and
      research.




*Page
          48*
 *Index*





**Nine
      months ended September 30, 2006 compared to the nine months ended September
      30,
      2005**





**CROATIA
                SEGMENT FINANCIAL INFORMATION****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            10,773
            
            $
            11,706
            
            *$*
            *(933*
            *)*Non-spot
                revenues
            
            
            2,972
            
            
            5,085
            
            
            *(2,113*
            *)*Segment
                Net Revenues
            
            $
            13,745
            
            $
            16,791
            
            *$*
            *(3,046*
            *)*Segment
                EBITDA
            
            $
            (11,639
            )
            $
            (9,547
            )
            *$*
            *(2,092*
            *)*Segment
                EBITDA Margin
            
            
            (85
            )%
            
            (57
            )%
            
            *(28*
            *)%*





·
            **Segment
                Net Revenues**for the nine months ended September 30, 2006 decreased by US$ 3.0
                million,
                or 18%, compared to the nine months ended September 30, 2005. In
                local
                currency, Segment Net Revenues decreased by 18%. Spot revenues decreased
                by US$ 0.9 million, or 8%, due to a lower volume of GRPs sold due to
                competitor price reductions and the expiration of legacy deals. The
                volume
                loss was in part offset by price
                increases.





Non-spot
      revenues decreased by US$ 2.1 million, or 42%, mainly due to decreased levels
      of
      sponsorship. Lower levels of barter revenues also contributed to this decrease
      as some contracts were forgone in accordance with our policy to minimize barter
      transactions.





·
            **Segment
                EBITDA**for
                the nine months ended September 30, 2006 was a loss of US$ 11.6 million
                compared to a loss of US$ 9.5 million for the nine months ended September
                30, 2005. In local currency, Segment EBITDA decreased by
                23%.





Costs
      charged in arriving at Segment EBITDA for the nine months ended September 30,
      2006 decreased by US$ 1.0 million, or 4%, compared to the nine months ended
      September 30, 2005. Cost of programming increased by US$ 0.8 million, or 6%,
      due
      largely 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 decreased by US$ 1.0 million
      or
      6%, as a result of the decision to restrict expenditure on higher cost local
      productions. Other operating costs decreased by US$ 1.0 million, or 14%,
      primarily due to the difference in classification described above; excluding
      the
      impact of this change in classification, other operating costs increased by
      US$
      0.8 million, or 15%, due to increased transmission costs as a result of an
      expansion in transmitter coverage and higher headcount. Selling, general and
      administrative expenses decreased by US$ 0.8 million, or 13%, in the period
      ended September 30, 2006, primarily on account of the comparative period
      including approximately US$ 0.9 million of one-time consultancy fees and
      commissions relating to program acquisitions.




**(B)
      CZECH REPUBLIC**





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





The
      national all day audience share of our channel, TV Nova (Czech Republic), for
      the nine months ended September 30, 2006 remained in line with the nine months
      ended September 30, 2005 at 42%. The major competitors are the two state-owned
      channels CT1 and CT2, with national all day audience shares for the nine months
      ended September 30, 2005 of 21% and 10% respectively, and privately owned
      broadcaster TV Prima with 20%.


*Page
          49*
 *Index*





During
      the first quarter of 2006, we announced a new advertising sales strategy based
      on our belief that growth in the television advertising market in the Czech
      Republic has been impeded over the past several years due to broadcasters
      focusing on obtaining an increased share of revenues committed to television
      advertising rather than fostering market growth by focusing on maximizing value
      received from the sale of GRPs. The focus of the TV Nova (Czech Republic) group
      is now on the development of advertising revenues over the medium term by
      supporting and then capturing market growth through a more sophisticated pricing
      policy. In conjunction with this advertising strategy, the TV Nova (Czech
      Republic) group is initiating a series of measures to reduce the costs of its
      operations, including the cancellation of poorly performing formats and
      reductions in operational costs. Under this multi-year cost reduction program,
      we anticipate that our cost savings will be partially offset by one-time charges
      during its implementation.





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





A
      fundamental component of this strategy is continued strong audience share and
      ratings for TV NOVA (Czech Republic), which have been maintained since the
      new
      pricing policy was implemented on April 1, 2006. During the nine months ended
      September 30, 2006, the national all day audience share of TV NOVA (Czech
      Republic) remained constant as compared with the nine months ended September
      30,
      2005 at approximately 42%, TV Prima fell from 23% to 20%, CT1 remained constant
      at 21% while the national all day audience share of CT2 grew from 9% to 10%.
      The
      increase in audience share of CT2 in the nine months ended September 30, 2006
      was due to the periods of broadcast of the Winter Olympics in February, World
      Ice Hockey Championship in May and the Soccer World Cup in June.





The
      average prime time ratings for TV NOVA (Czech Republic) decreased from 17.2%
      in
      the nine months ended September 30, 2005 to 16.7% in the nine months ended
      September 30, 2006. Again, CT2 was the primary beneficiary due to the broadcasts
      of the sports events described above.





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





**CZECH
                REPUBLIC SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            35,757
            
            $
            34,660
            
            *$*
            *1,097*Non-spot
                revenues
            
            
            4,384
            
            
            6,223
            
            
            *(1,839*
            *)*Segment
                Net Revenues
            
            $
            40,141
            
            $
            40,883
            
            *$*
            *(742*
            *)*Segment
                EBITDA
            
            $
            17,234
            
            $
            11,940
            
            *$*
            *5,294*Segment
                EBITDA Margin
            
            
            43
            %
            
            29
            %
            
            *14*
            *%*





·
            **Segment
                Net Revenues**for the three months ended September 30, 2006 decreased by US$ 0.7
                million, or 2%. In local currency, Segment Net Revenues decreased
                by 10%.
                Spot revenues increased by US$ 1.1 million, or 3%, due to price rate
                growth off-setting lower GRPs sold. The decrease in non-spot revenues
                of
                US$ 1.8 million in the three months ended September 30, 2006 can
                be
                primarily attributed to a decrease in barter
                revenues.




*Page
          50*
 *Index*




·
            **Segment
                EBITDA**for
                the three months ended September 30, 2006 increased by US$ 5.3 million,
                or
                44%, compared to the three months ended September 30, 2005, resulting
                in a
                Segment EBITDA margin of 43% compared to 29% delivered in the prior
                year.
                In local currency, Segment EBITDA increased by
                32%.





Costs
      charged in arriving at Segment EBITDA for the three months ended September
      30,
      2006 decreased by US$ 6.0 million, or 21%, compared to the three months ended
      September 30, 2005. Cost of programming decreased by US$ 9.2 million, or 44%,
      primarily through reducing expenditure on local production by US$ 8.1 million
      as
      part of cost management initiatives. Other operating costs increased by US$
      3.4
      million, or 133%, reflecting increases in broadcast costs, increased rights
      costs, increased costs of management personnel and costs of redundancy payments.
      Selling, general and administrative expenses decreased by US$ 0.2 million
      primarily due to savings in facilities and overheads and reduced expenditure
      on
      marketing and research.





**Nine
      months ended September 30, 2006 compared to the nine months ended September
      30,
      2005**





**CZECH
                REPUBLIC SEGMENT FINANCIAL INFORMATION****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005***
            
            ***Movement***Spot
                revenues
            
            $
            118,590
            
            $
            77,202
            
            *$*
            *41,388*Non-spot
                revenues
            
            
            18,412
            
            
            11,445
            
            
            *6,967*Segment
                Net Revenues
            
            $
            137,002
            
            $
            88,647
            
            *$*
            *48,355*Segment
                EBITDA
            
            $
            59,569
            
            $
            40,226
            
            *$*
            *19,343*Segment
                EBITDA Margin
            
            
            43
            %
            
            45
            %
            
            *(2*
            *)%*


*
      From
      May 2, 2005 only





·
            **Segment
                  Net Revenues**for the nine months ended September 30, 2006 were US$ 137.0 million.
                  We
                  acquired the TV Nova (Czech Republic) group on May 2, 2005 and
                  accordingly
                  our results of operations for the nine months ended September 30,
                  2005
                  reflect our ownership from that date. Based on management estimates,
                  we
                  believe that Segment Net Revenues for the full nine months ended
                  September
                  30, 2005, including the period prior to our ownership from January
                  1, 2005
                  through May 1, 2005 were approximately US$ 169.7 million. This
                  decrease in
                  Segment Net Revenues can be primarily attributed to the initial
                  reaction
                  of advertisers to the implementation of our new sales policy, which
                  led to
                  a decrease in the number of GRPs
                  sold.





·
            **Segment
                  EBITDA**for the nine months ended September 30, 2006 was US$ 59.6 million.
                  Costs
                  charged in arriving at Segment EBITDA for the nine months ended
                  September
                  30, 2006 included US$ 43.4 million of costs of programming, US$
                  18.7
                  million of other operating costs and US$ 15.3 million of selling,
                  general
                  and administrative expenses. Based on management estimates, we
                  believe
                  that Segment EBITDA for the full nine months ended September 30,
                  2005,
                  including the period prior to our ownership from January 1, 2005
                  through
                  May 1, 2005, was approximately US$ 79.5 million. Based on these
                  management
                  estimates for the nine months ended September 30, 2005, costs charged
                  in
                  arriving at Segment EBITDA for the nine months ended September
                  30, 2006
                  have decreased by US$ 12.8 million, or
                  14%.





**(C)
      ROMANIA**





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




*Page
          51*
 *Index*




The
      combined national all day audience share of our three channels (PRO TV, ACASA,
      and PRO CINEMA) for the nine months ended September 30, 2006 remained in line
      with the nine months ended September 30, 2005 at 25%. The major competitors
      are
      the two state-owned channels TVR1 and TVR2, with national all day audience
      shares for the nine months ended September 30, 2006 of 17% and 5%, respectively,
      and privately owned broadcaster Antena 1 with 14%.





The
      combined average prime time ratings for our channels for the nine months ended
      September 30, 2006 were 9.9% compared to 10.1% for the nine months ended
      September 30, 2005. The most significant prime time ratings movement for the
      nine months ended September 30, 2006 was a fall for TVR 1 from 8.3% for the
      nine
      months ended September 30, 2005 to 7.6% for the nine months ended September
      30,
      2006 while all other large channels remained in line with the prior year. For
      the total market, prime time ratings for the nine months ended September 30,
      2006 were in line compared to the same period in the prior
      year.


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




**ROMANIA
                SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            27,239
            
            $
            19,784
            
            *$*
            *7,455*Non-spot
                revenues
            
            
            2,059
            
            
            1,354
            
            
            *705*Segment
                Net Revenues
            
            $
            29,298
            
            $
            21,138
            
            *$*
            *8,160*Segment
                EBITDA
            
            $
            11,719
            
            $
            7,831
            
            *$*
            *3,888*Segment
                EBITDA Margin
            
            
            40
            %
            
            37
            %
            
            *3*
            *%*




·
            **Segment
                Net Revenues**for
                the three months ended September 30, 2006****increased
                by US$ 8.2 million, or 39%, compared to the three months ended September
                30, 2005. Spot revenues increased by US$ 7.5 million, or 38%, driven
                by an
                increase in the number of GRPs sold across our three-channel operation
                compared to the three months ended September 30, 2005 and double-digit
                rate growth in revenues in each of our
                channels.





Non-spot
      revenues increased by US$ 0.7 million, or 52%, principally due to increased
      cable tariff revenue.





·
            **Segment
                EBITDA**for
                the three months ended September 30, 2006 increased by US$ 3.9 million,
                or
                50%, compared to the three months ended September 30, 2005, resulting
                in
                an EBITDA margin of 40%, up from the 37% EBITDA margin delivered
                in the
                prior year.





Costs
      charged in arriving at Segment EBITDA for the three months ended September
      30,
      2006 increased by US$ 4.3 million, or 32%, compared to the three months ended
      September 30, 2005. Cost of programming grew by US$ 3.8 million, or 54%, due
      to
      an increase in programming syndication of US$ 2.3 million and an increase in
      production expenses of US$ 1.4 million. Other operating costs increased by
      US$
      0.8 million, or 19%, mainly due to an increase in salary costs. Selling, general
      and administrative expenses decreased by US$ 0.3 million, or 14%.





*Page
          52*
 *Index*




**Nine
      months ended September 30, 2006 compared to the nine months ended September
      30,
      2005**




**ROMANIA
                SEGMENT FINANCIAL INFORMATION****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            91,109
            
            $
            62,946
            
            *$*
            *28,163*Non-spot
                revenues
            
            
            5,829
            
            
            3,840
            
            
            *1,989*Segment
                Net Revenues
            
            $
            96,938
            
            $
            66,786
            
            *$*
            *30,152*Segment
                EBITDA
            
            $
            39,756
            
            $
            25,969
            
            *$*
            *13,787*Segment
                EBITDA Margin
            
            
            41
            %
            
            39
            %
            
            *2*
            *%*




·
            **Segment
                Net Revenues**for
                the nine months ended September 30, 2006****increased
                by US$ 30.2 million, or 45%, compared to the nine months ended September
                30, 2005. Spot revenues increased by US$ 28.2 million, or 45%, driven
                by
                an increase in the number of GRPs sold across our three-channel operation
                compared to the nine months ended September 30, 2005 and double-digit
                rate
                growth in revenues in each of our
                channels.





Non-spot
      revenues increased by US$ 2.0 million, or 52%, principally due to increased
      cable tariff revenue.





·
            **Segment
                EBITDA**for
                the nine months ended September 30, 2006 increased by US$ 13.8 million,
                or
                53%, compared to the nine months ended September 30, 2005, resulting
                in an
                EBITDA margin of 41%, compared to 39% in the nine months ended September
                30, 2005.





Costs
      charged in arriving at Segment EBITDA for the nine months ended September 30,
      2006 increased by US$ 16.4 million, or 40%, compared to the nine months ended
      September 30, 2005. Cost of programming grew by US$ 12.5 million, or 55%, due
      to
      US$ 7.0 million increase in programming syndication and an increase in
      production expenses of US$ 5.5 million. Other operating costs increased by
      US$
      3.1 million, or 26%, mainly due to an increase in salary costs. Selling, general
      and administrative expenses increased by US$ 0.7 million, or 12%, primarily
      due
      to increases in office running costs of US$ 0.3 million and increases in
      marketing and research costs of US$ 0.3 million.





**(D)
      SLOVAK REPUBLIC**





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





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





MARKIZA
      TV is the leading channel in the Slovak Republic. National all day audience
      share for the nine months ended September 30, 2006 was 33%, compared to 32%
      for
      the nine months ended September 30, 2005. The major competitor is the
      state-owned channel STV1, with a national all day audience share of 19% for
      the
      nine months ended September 30, 2006. The national all day audience share of
      TV
      JOJ, the only other significant privately owned channel, was 16% for the nine
      months ended September 30, 2006.




*Page
          53*
 *Index*




The
      average prime time ratings for MARKIZA TV for the nine months ended September
      30, 2006 were 12.7% compared to 13.8% in the nine months ended September 30,
      2005. Prime time ratings for the whole market fell from 39.7% in the nine months
      ended September 30, 2005 to 37.3% in the nine months ended September 30,
      2006.





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




**SLOVAK
                REPUBLIC SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            12,735
            
            $
            10,835
            
            *$*
            *1,900*Non-spot
                revenues
            
            
            1,160
            
            
            885
            
            
            *275*Segment
                Net Revenues
            
            $
            13,895
            
            $
            11,720
            
            *$*
            *2,175*Segment
                EBITDA
            
            $
            2,408
            
            $
            876
            
            *$*
            *1,532*Segment
                EBITDA Margin
            
            
            17
            %
            
            7
            %
            
            *10*
            *%*




·
            **Segment
                Net Revenues**for
                the three months ended September 30, 2006 increased by US$ 2.2 million,
                or
                19%, compared to the three months ended September 30, 2005. In local
                currency, Segment Net Revenues increased by 10%. The increase in
                Segment
                Net Revenues was primarily due to an increase of US$ 1.9 million
                in spot
                revenues. The increase in spot revenues was due to the combination
                of
                increased health insurance advertising, increased prices and favorable
                exchange rate variance.




Non-spot
      revenues for the three months ended September 30, 2006 increased by US$ 0.3
      million, or 31%, compared to the three months ended September 30, 2005, due
      to
      higher revenues from a government-sponsored lottery program and telephone voting
      sales related to a new show called The Real Destiny.





·
            **Segment
                EBITDA**for
                the three months ended September 30, 2006 increased by US$ 1.5 million,
                or
                175%, from US$ 0.9 million in the three months ended September 30,
                2005.
                In local currency, Segment EBITDA increased by
                92%.





Costs
      charged in arriving at Segment EBITDA for the three months ended September
      30,
      2006 increased by US$ 0.6 million, or 6%, compared to the three months ended
      September 30, 2005. Cost of programming increased by US$ 0.9 million, or 21%,
      due to an increase in the volume of higher cost local productions. Other
      operating costs increased by US$ 0.1 million, or 3%, due primarily to severance
      payments and increases in salaries for new management. Selling, general and
      administrative expenses fell by US$ 0.4 million, or 15%, due to savings in
      overheads compared to the same period last year.





*Page
          54*
 *Index*





**Nine
      months ended September 30, 2006 compared to the nine months ended September
      30,
      2005**




**SLOVAK
                REPUBLIC SEGMENT FINANCIAL INFORMATION****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            42,231
            
            $
            40,795
            
            *$*
            *1,436*Non-spot
                revenues
            
            
            2,916
            
            
            3,195
            
            
            *(279*
            *)*Segment
                Net Revenues
            
            $
            45,147
            
            $
            43,990
            
            *$*
            *1,157*Segment
                EBITDA
            
            $
            9,258
            
            $
            11,002
            
            *$*
            *(1,744*
            *)*Segment
                EBITDA Margin
            
            
            21
            %
            
            25
            %
            
            *(4*
            *)%*




·
            **Segment
                Net Revenues**for
                the nine months ended September 30, 2006 increased by US$ 1.2 million,
                or
                3%, compared to the nine months ended September 30, 2005. In local
                currency, Segment Net Revenues increased by 1%. The increase in Segment
                Net Revenues was due to an increase of US$ 1.4 million, or 4%, in
                spot
                revenues partially offset by a decline of US$ 0.3 million, or 9%,
                in
                non-spot revenues. The increase in spot revenues was due to the
                combination of favorable exchange rate variance, increased health
                insurance advertising and increased
                prices.





Non-spot
      revenues for the nine months ended September 30, 2006 fell by US$ 0.3 million,
      or 9%, compared to the nine months ended September 30, 2005, due to lower
      revenues from sales of Markiza magazine, following increased competition, and
      the impact of 2005 having enjoyed significant telephone voting sales related
      to
      the success of the reality show “Mojsejovci”.





·
            **Segment
                EBITDA**for
                the nine months ended September 30, 2006 decreased by US$ 1.7 million,
                or
                16%, compared to the ninemonths
                ended September 30, 2005. In local currency, Segment EBITDA decreased
                by
                17%.





Costs
      charged in arriving at Segment EBITDA for the nine months ended September 30,
      2006 increased by US$ 2.9 million, or 9%, compared to the nine months ended
      September 30, 2005. Cost of programming increased by US$ 3.7 million, or 24%,
      due to an increase in the volume of higher cost local productions and write-off
      costs for an unsuccessful show of US$ 0.4 million. Other operating costs
      increased by US$ 0.4 million, or 4%. Selling, general and administrative
      expenses were lower by US$ 1.2 million, or 18%, due to savings in facilities
      and
      overheads compared to the nine months ended September 30, 2005.


**(E)
      SLOVENIA**





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





The
      combined national all day audience share of our two channels (POP TV and KANAL
      A) increased from 35% in the nine months ended September 30, 2005 to 38% in
      the
      nine months ended September 30, 2006. The major competitors are state-owned
      channels SLO1 and SLO2, with national all day audience shares for the nine
      months ended September 30, 2006 of 23% and 10%, respectively.





The
      combined average prime time ratings for our channels for the nine months ended
      September 30, 2006 were 14.2% compared to 13.0% for the nine months ended
      September 30, 2005.





*Page
          55*
 *Index*





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





**SLOVENIA
                SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            8,637
            
            $
            7,246
            
            *$*
            *1,391*Non-spot
                revenues
            
            
            464
            
            
            409
            
            
            *55*Segment
                Net Revenues
            
            $
            9,101
            
            $
            7,655
            
            *$*
            *1,446*Segment
                EBITDA
            
            $
            1,225
            
            $
            1,032
            
            *$*
            *193*Segment
                EBITDA Margin
            
            
            13
            %
            
            13
            %
            
            *0*
            *%*





·
            **Segment
                Net Revenues**for
                the three months ended September 30, 2006 increased by US$ 1.4 million,
                or
                19%, compared to the three months ended September 30, 2005. In local
                currency, Segment Net Revenues increased by
                13%.





Spot
      revenues increased by US$ 1.4 million, or 19%, as our operations continued
      to
      benefit from a strong ratings performance which led to an increase in the volume
      of spots sold across our two channels. Non-spot revenues remained in line with
      the same period last year.





·
            **Segment
                EBITDA**for
                the three months ended September 30, 2006 increased by US$ 0.2 million,
                or
                19%, compared to the three months ended September 30, 2005. Segment
                EBITDA
                Margin remained in line at 13%. In local currency, Segment EBITDA
                also
                remained in line with the same period last
                year.





Costs
      charged in arriving at Segment EBITDA for the three months ended September
      30,
      2006 increased by US$ 1.3 million, or 19%, compared to the three months ended
      September 30, 2005. Cost of programming increased by US$ 0.7 million, or 26%,
      compared to the three months ended September 30, 2005 as a result of increased
      investment in programming, especially local productions. Other operating costs
      increased by US$ 0.5 million, or 19%, compared to the three months ended
      September 30, 2005 primarily due to higher transmitter and associated
      maintenance costs, and higher bonus accruals. Selling and general and
      administrative expenses increased by US$ 0.1 million, or 4%, compared to the
      same period in the previous year.





**Nine
      months ended September 30, 2006 compared to the nine months ended September
      30,
      2005**





**SLOVENIA
                SEGMENT FINANCIAL INFORMATION****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            33,312
            
            $
            29,944
            
            *$*
            *3,368*Non-spot
                revenues
            
            
            1,571
            
            
            1,565
            
            
            *6*Segment
                Net Revenues
            
            $
            34,883
            
            $
            31,509
            
            *$*
            *3,374*Segment
                EBITDA
            
            $
            10,688
            
            $
            10,202
            
            *$*
            *486*Segment
                EBITDA Margin
            
            
            31
            %
            
            32
            %
            
            *(1*
            *)%*




*Page
          56*
 *Index*





·
            **Segment
                Net Revenues**for
                the nine months ended September 30, 2006 increased by US$ 3.4 million,
                or
                11%, compared to the nine months ended September 30, 2005. In local
                currency, Segment Net Revenues increased by
                13%.





Spot
      revenues increased by US$ 3.4 million, or 11%, in the nine months ended
      September 30, 2006 as our operations continued to benefit from ratings
      performance which led to an increase in GRPs sold across our two channels.
      The
      Soccer World Cup in June 2006 contributed to US$ 0.9 million of this increase.
      Non-spot revenues remained in line with the same period last year.





·
            **Segment
                EBITDA**for
                the nine months ended September 30, 2006 increased by US$ 0.5 million,
                or
                5%, compared to the nine months ended September 30, 2005. Segment
                EBITDA
                Margin decreased from 32% for the nine months ended September 30,
                2005 to
                31% in the nine months ended September 30, 2006. In local currency,
                Segment EBITDA increased by 7%.





Costs
      charged in arriving at Segment EBITDA for the nine months ended September 30,
      2006 increased by US$ 2.9 million, or 14%, compared to the nine months ended
      September 30, 2005. Cost of programming increased by US$ 1.7 million, or 19%,
      reflecting the costs associated with showing the Soccer World Cup (US$ 0.8
      million), and the additional expense of airing more higher-cost local
      productions than in the prior year. Other operating costs increased by US$
      0.8
      million, or 9%, compared to the nine months ended September 30, 2005, primarily
      due to higher transmitter and associated maintenance costs and higher bonus
      accruals. Selling, general and administrative expenses increased by US$ 0.4
      million, or 10%, compared to the nine months ended September 30, 2005 due to
      higher marketing and promotion costs.





**(F)
      UKRAINE**





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





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





The
      average prime time ratings for STUDIO 1+1 for the nine months ended September
      30, 2006 were 8.4% compared to 7.6% for the nine months ended September 30,
      2005 .





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.


*Page
          57*
 *Index*





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





**UKRAINE
                SEGMENT FINANCIAL INFORMATION****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            14,454
            
            $
            11,819
            
            *$*
            *2,635*Non-spot
                revenues
            
            
            1,305
            
            
            1,389
            
            
            *(84*
            *)*Segment
                Net Revenues
            
            $
            15,759
            
            $
            13,208
            
            *$*
            *2,551*Segment
                EBITDA
            
            $
            (2,020
            )
            $
            2,483
            
            *$*
            *(4,503*
            *)*Segment
                EBITDA Margin
            
            
            (13
            )%
            
            19
            %
            
            *(32*
            *)%*




·
              **Segment
                  Net Revenues**for
                  the three months ended September 30, 2006****increased
                  by US$ 2.6 million, or 19%, compared to the three months ended
                  September
                  30, 2005. Spot revenues increased by US$ 2.6 million, or 22%, and
                  non-spot
                  revenues decreased by US$ 0.1 million, or
                  6%.
 
 ·
              **Segment
                  EBITDA**for the three months ended September 30, 2006****decreased
                  by US$ 4.5 million, or 181%, compared to the three months ended
                  September
                  30, 2005.





Because
      the segment financial information for Ukraine is aggregated, we now provide
      separate financial information and commentary on Studio 1+1 and our other
      channels (namely CHANNEL 35 and CHANNEL 7/KINO).





**STUDIO
                1+1 FINANCIAL INFORMATION****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            14,413
            
            $
            11,819
            
            *$*
            *2,594*Non-spot
                revenues
            
            
            1,165
            
            
            1,389
            
            
            *(224*
            *)*Segment
                Net Revenues
            
            $
            15,578
            
            $
            13,208
            
            *$*
            *2,370*Segment
                EBITDA
            
            $
            (838
            )
            $
            2,483
            
            *$*
            *(3,321*
            *)*Segment
                EBITDA Margin
            
            
            (5
            )%
            
            19
            %
            
            *(24*
            *)%*


·
              **Segment
                  Net Revenues**for
                  the three months ended September 30, 2006****increased
                  by US$ 2.4 million, or 18%, compared to the three months ended
                  September
                  30, 2005.
 
 Spot
        revenues for the three months ended September 30, 2006 grew US$ 2.6 million,
        or
        22%, compared to the three months ended September 30, 2005. This reflects
        our
        ability to convert our continued strong ratings performance into increased
        revenues, albeit in an environment of aggressive pricing by
        competitors.
 
 Non-spot
        revenues in the three months ended September 30, 2006 decreased by US$ 0.2
        million, or 16%, compared to the three months ended September 30, 2005, largely
        due to the impact of non-recurring revenues earned on the exploitation of
        movie
        rights in the prior year.
 
 ·
              **Segment
                    EBITDA**for
                    the three months ended September 30, 2006 decreased by US$ 3.3
                    million, or
                    134%, compared to the three months ended September 30, 2005.
                    Segment
                    EBITDA Margin decreased from 19% in the three months ended September
                    30,
                    2005, to a loss of 5% in the three months ended September 30,
                    2006.




*Page
          58*
 *Index*




Costs
      charged in arriving at Segment EBITDA for the three months ended September
      30,
      2006 increased by US$ 5.7 million, or 53%, compared to the three months ended
      September 30, 2005. Cost of programming grew by US$ 4.5 million, or 82%,
      reflecting our decision to continue showing higher-cost programming over the
      summer in order to maintain our strong ratings into the fall season, as well
      as
      ongoing price inflation for Russian series, which are essential to maintaining
      strong ratings. Selling, general and administrative expenses increased by US$
      1.4 million, or 78%, mainly due to increases in taxes, bad debt expense and
      consulting fees. Partially offsetting these increases was a decrease of US$
      0.2
      million, or 7%, in other operating costs.




**OTHER
                CHANNELS FINANCIAL INFORMATION****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            41
            
            $
            -
            
            *$*
            *41*Non-spot
                revenues
            
            
            140
            
            $
            -
            
            
            *140*Segment
                Net Revenues
            
            $
            181
            
            $
            -
            
            *$*
            *181*Segment
                EBITDA
            
            $
            (1,182
            )
            $
            -
            
            *$*
            *(1,182*
            *)*Segment
                EBITDA Margin
            
            
            (653
            )%
            
            -
            
            
            *(653*
            *)%*





·
            **Segment
                Net Revenues**for our other channels were US$ 0.2 million in the three months ended
                September 30, 2006.





·
            **Segment
                EBITDA**for our other channels for the three months ended September 30, 2006
                was a
                loss of US$ 1.2 million. Costs charged in arriving at Segment EBITDA
                for
                the three months ended September 30, 2006 were US$ 1.4 million, which
                included US$ 0.8 million of programming costs, US$ 0.4 million of
                other
                operating costs, and US$ 0.2 million of selling, general and
                administrative expenses.





**Nine
      months ended September 30, 2006 compared to the nine months ended September
      30,
      2005**





**UKRAINE
                SEGMENT FINANCIAL INFORMATION****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            55,350
            
            $
            39,544
            
            *$*
            *15,806*Non-spot
                revenues
            
            
            7,521
            
            
            5,203
            
            
            *2,318*Segment
                Net Revenues
            
            $
            62,871
            
            $
            44,747
            
            *$*
            *18,124*Segment
                EBITDA
            
            $
            14,447
            
            $
            9,768
            
            *$*
            *4,679*Segment
                EBITDA Margin
            
            
            23
            %
            
            22
            %
            
            *1*
            *%*


·
              **Segment
                  Net Revenues**for
                  the nine months ended September 30, 2006****increased
                  by US$ 18.1 million, or 41%, compared to the nine months ended
                  September
                  30, 2005. Spot revenues increased by US$ 15.8 million, or 40%,
                  and
                  non-spot revenues increased by US$ 2.3 million, or
                  45%.
  *Page
            59*
 *Index*
  ·
              **Segment
                  EBITDA**for the nine months ended September 30, 2006****increased
                  by US$ 4.7 million, or 48%, compared to the nine months ended September
                  30, 2005.





**STUDIO
                1+1 FINANCIAL INFORMATION****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            54,988
            
            $
            39,544
            
            *$*
            *15,444*Non-spot
                revenues
            
            
            7,129
            
            
            5,203
            
            
            *1,926*Segment
                Net Revenues
            
            $
            62,117
            
            $
            44,747
            
            *$*
            *17,370*Segment
                EBITDA
            
            $
            16,183
            
            $
            9,768
            
            *$*
            *6,415*Segment
                EBITDA Margin
            
            
            26
            %
            
            22
            %
            
            *4*
            *%*


·
              **Segment
                  Net Revenues**for
                  the nine months ended September 30, 2006****increased
                  by US$ 17.4 million, or 39%, compared to the nine months ended
                  September
                  30, 2005.





Spot
      revenues increased by US$ 15.4 million, or 39%, and non-spot revenues increased
      by US$ 1.9 million, or 37%.





The
      increase in spot revenues reflects the significant ongoing growth of the market.
      There has been a cautious market environment since the March 2006 elections
      and
      aggressive pricing by competitors.





The
      increase in non-spot revenues was primarily due to a significant rise in program
      sponsorship, which has increased year-on-year due to more active management
      and
      additional devoted internal resources. Included within non-spot revenues for
      2005 is a one-time sale of programming of US$ 1.8 million.





·
            **Segment
                EBITDA**for
                the nine months ended September 30, 2006 increased by US$ 6.4 million,
                or
                66%, compared to the nine months ended September 30,
                2005.





Costs
      charged in arriving at Segment EBITDA for the nine months ended September 30,
      2006 increased by US$ 11.0 million, or 31%, compared to the nine months ended
      September 30, 2005. Cost of programming grew by US$ 7.0 million, or 35%, due
      to
      price inflation for Russian series and improvements to our programming schedule.
      Other operating costs increased by US$ 1.5 million, or 16%, primarily due to
      increases in staff costs as a result of the restructuring of independent
      contractor arrangements. Selling, general and administrative expenses have
      increased by US$ 2.5 million, or 40%, including an additional US$ 0.8 million
      of
      costs of increased rental space, and US$ 0.5 million of higher consultancy
      costs, compared with the same period in the previous year.




*Page
          60*
 *Index*





**OTHER
                CHANNELS FINANCIAL INFORMATION****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Spot
                revenues
            
            $
            362
            
            $
            -
            
            *$*
            *362*Non-spot
                revenues
            
            
            392
            
            
            -
            
            *$*
            *392*Segment
                Net Revenues
            
            $
            754
            
            $
            -
            
            *$*
            *754*Segment
                EBITDA
            
            $
            (1,736
            )
            $
            -
            
            *$*
            *(1,736*
            *)*Segment
                EBITDA Margin
            
            
            (230
            )%
            
            -
            
            
            *(230*
            *)%*





·
            **Segment
                Net Revenues**for our other channels were US$ 0.8 million in the nine months ended
                September 30, 2006.





·
            **Segment
                EBITDA**for our other channels for the nine months ended September 30, 2006
                was a
                loss of US$ 1.7 million. Costs charged in arriving at Segment EBITDA
                for
                the nine months ended September 30, 2006 were US$ 2.5 million, which
                included US$ 1.3 million of programming costs, US$ 0.8 million of
                other
                operating costs, and US$ 0.4 million of selling, general and
                administrative expenses.





**PROGRAMMING
      PAYMENTS AND PROGRAM AMORTIZATION**





Our
      cost
      of programming for the three and nine months ended September 30, 2006 and 2005
      is as follows:





**COST
                OF PROGRAMMING****For
                the Three Months**
              **Ended
                September 30,**
              **(US$
                000’s)**
            
            **For
                the Nine Months**
              **Ended
                September 30,**
              **(US$
                000’s)****2006**
            
            **2005**
            
            **2006**
            
            **2005**Production
                expenses
            
            $
            22,932
            
            $
            22,475
            
            $
            71,952
            
            $
            45,942Program
                amortization
            
            
            24,988
            
            
            17,995
            
            
            77,236
            
            
            48,931**Cost
                of programming**
            
            **$**
            **47,920**
            
            **$**
            **40,470**
            
            **$**
            **149,188**
            
            **$**
            **94,873**





Total
      consolidated programming costs (including amortization of programming rights
      and
      production costs) increased by US$ 7.5 million, or 18%, in the three months
      ended September 30, 2006 compared to the three months ended September 30, 2005
      primarily due to:




—
              US$
                  1.6 million of additional programming costs from our Croatia
                  operations;
 
 —
              US$
                  5.4 million of programming costs from our Slovak Republic operations,
                  which were consolidated from January 23, 2006, having previously
                  been
                  accounted for as an equity
                  affiliate;
 
 —
              US$
                  3.8 million of additional programming costs from our Romania
                  operations;
 
 —
              US$
                  0.7 million of additional programming costs from our Slovenia operations;
                  and
 
 —
              US$
                  5.3 million of additional programming costs from our Ukraine
                  operations.
 
 Partially
        offset by:
 
 —
              A
                  decrease of US$ 9.2 million of programming costs from our Czech
                  Republic
                  operations.




*Page
            61*
 *Index*
  Total
        consolidated programming costs (including amortization of programming rights
        and
        production costs) increased by US$ 54.3 million, or 57%, in the nine months
        ended September 30, 2006 compared to the nine months ended September 30,
        2005
        primarily due to:
  —
                US$
                    13.9 million of additional programming costs from our Czech Republic
                    operations, which are included for the entire nine-month period
                    rather
                    than for the period from acquisition on May 2, 2005 in the prior
                    year;
 
 —
                US$
                    17.1 million of programming costs from our Slovak Republic operations,
                    which were consolidated from January 23, 2006, having previously
                    been
                    accounted for as an equity
                    affiliate;
 
 —
                US$
                    12.5 million of additional programming costs from our Romania
                    operations;
                    and
 
 —
                US$
                    8.3 million of additional programming costs from our Ukraine
                    operations.
  The
        amortization of acquired programming for each of our consolidated operations
        for
        the three and nine months ended September 30, 2006 and 2005 and for the Slovak
        Republic (MARKIZA TV), which has been consolidated from January 23, 2006,
        is set
        out in the table below. For comparison, the table also shows the cash paid
        for
        programming by each of our operations in the respective periods. The cash
        paid
        for programming is reflected within net cash generated from continuing operating
        activities in our condensed consolidated statement of cash
        flows.





**PROGRAM
                AMORTIZATION AND CASH PAID FOR PROGRAMMING****For
                the Three Months**
              **Ended
                September 30,**
              **(US$
                000’s)**
            
            **For
                the Nine Months**
              **Ended
                September 30,**
              **(US$
                000’s)****2006**
            
            **2005**
            
            **2006**
            
            **2005**Program
                amortization:Croatia
                (NOVA TV)
            
            $
            2,640
            
            $
            2,970
            
            $
            9,530
            
            $
            10,670Czech
                Republic (TV NOVA)
            
            
            5,263
            
            
            6,375
            
            
            19,152
            
            
            9,324Romania
                (PRO TV, ACASA, PRO CINEMA and PRO TV INTERNATIONAL)
            
            
            5,809
            
            
            3,491
            
            
            19,599
            
            
            12,636Slovenia
                (POP TV and KANAL A)
            
            
            1,418
            
            
            1,030
            
            
            4,623
            
            
            3,257Ukraine
                (STUDIO 1+1 and KINO)
            
            
            7,557
            
            
            4,129
            
            
            19,688
            
            
            13,044**$**
            **22,687**
            
            **$**
            **17,995**
            
            **$**
            **72,592**
            
            **$**
            **48,931**Slovak
                Republic (MARKIZA TV)
            
            
            2,301
            
            
            1,983
            
            
            4,644
            
            
            5,215**$**
            **24,988**
            
            **$**
            **19,978**
            
            **$**
            **77,236**
            
            **$**
            **54,146**Cash
                paid for programming:Croatia
                (NOVA TV)
            
            $
            4,341
            
            $
            8,537
            
            $
            11,939
            
            $
            14,016Czech
                Republic (TV NOVA)
            
            
            2,941
            
            
            7,614
            
            
            19,154
            
            
            14,422Romania
                (PRO TV, ACASA, PRO CINEMA and PRO TV INTERNATIONAL)
            
            
            15,786
            
            
            9,240
            
            
            33,181
            
            
            28,850Slovak
                Republic (MARKIZA TV)
            
            
            2,831
            
            
            2,197
            
            
            8,373
            
            
            7,446Slovenia
                (POP TV and KANAL A)
            
            
            2,373
            
            
            1,305
            
            
            5,872
            
            
            4,185Ukraine
                (STUDIO 1+1 and KINO)
            
            
            13,514
            
            
            4,820
            
            
            27,311
            
            
            15,596**$**
            **41,786**
            
            **$**
            **33,713**
            
            **$**
            **105,830**
            
            **$**
            **84,515**




*Page
          62*
 *Index*


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





**IV
      (a) Consolidated net revenues for the three months ended September 30, 2006
      compared to the three months ended September 30, 2005**





**CONSOLIDATED
                NET REVENUES****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Croatia
            
            $
            4,288
            
            $
            4,183
            
            *$*
            *105*Czech
                Republic
            
            
            40,141
            
            
            40,883
            
            
            *(742*
            *)*Romania
            
            
            29,298
            
            
            21,138
            
            
            *8,160*Slovak
                Republic
            
            
            13,895
            
            
            -
            
            
            *13,895*Slovenia
            
            
            9,101
            
            
            7,655
            
            
            *1,446*Ukraine
            
            
            15,759
            
            
            13,208
            
            
            *2,551***Total
                consolidated net revenues**
            
            **$**
            **112,482**
            
            **$**
            **87,067**
            
            ***$***
            ***25,415***





Our
      consolidated net revenues increased by US$ 25.4 million, or 29%, for the three
      months ended September 30, 2006 compared to the three months ended September
      30,
      2005 due to:


—
              Inclusion
                  of US$ 13.9 million of net revenues from our Slovak Republic operations,
                  which had previously been accounted for as an equity
                  affiliate;
 
 —
              An
                  increase of US$ 8.2 million in net revenues from our Romania operations
                  as
                  described in “Item 2, III. Analysis of Segment
                  Results”;
 
 —
              An
                  increase of US$ 2.6 million in net revenues from our Ukraine operations
                  as
                  described in “Item 2, III. Analysis of Segment
                  Results”;
 
 —
              An
                  increase of US$ 1.4 million in net revenues from our Slovenia operations
                  as described in “Item 2, III. Analysis of Segment Results”;
                  and
 
 —
              An
                  increase of US$ 0.1 million in net revenues from our Croatia operations
                  as
                  described in “Item 2, III. Analysis of Segment
                  Results”.
 
 Partially
        offset by:
 
 —
              A
                  decrease of US$ 0.7 million of net revenues from our Czech Republic
                  operations as described in “Item 2, III. Analysis of Segment
                  Results”.




*Page
          63*
 *Index*





**IV
      (b) Consolidated net revenues for the nine months ended September 30, 2006
      compared to the nine months ended September 30, 2005**





**CONSOLIDATED
                NET REVENUES****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Croatia
            
            $
            13,745
            
            $
            16,791
            
            *$*
            *(3,046*
            *)*Czech
                Republic *
            
            
            137,002
            
            
            88,647
            
            
            *48,355*Romania
            
            
            96,938
            
            
            66,786
            
            
            *30,152*Slovak
                Republic **
            
            
            43,386
            
            
            -
            
            
            *43,386*Slovenia
            
            
            34,883
            
            
            31,509
            
            
            *3,374*Ukraine
            
            
            62,871
            
            
            44,747
            
            
            *18,124***Total
                consolidated net revenues**
            
            **$**
            **388,825**
            
            **$**
            **248,480**
            
            ***$***
            ***140,345***


*
      From
      May 2, 2005 only


**
      From
      January 23, 2006 only





Our
      consolidated net revenues for the nine months ended September 30, 2006 increased
      by US$ 140.3 million, or 56%, compared to the nine months ended September 30,
      2005 due to:


—
              An
                  increase of US$ 48.4 million in net revenues from our Czech Republic
                  operations which are included for the entire nine-month period
                  rather than
                  for the period from acquisition on May 2, 2005 in the prior
                  year;
 
 —
              Inclusion
                  of US$ 43.4 million of net revenues from our Slovak Republic operations
                  for the period from acquisition on January 23, 2006, which had
                  previously
                  been accounted for as an equity
                  affiliate;
 
 —
              An
                  increase of US$ 30.2 million in net revenues from our Romania operations
                  as described in “Item 2, III. Analysis of Segment
                  Results”;
 
 —
              An
                  increase of US$ 18.1 million in net revenues from our Ukraine operations
                  as described in “Item 2, III. Analysis of Segment Results”;
                  and
 
 —
              An
                  increase of US$ 3.4 million in net revenues from our Slovenia operations
                  as described in “Item 2, III. Analysis of Segment
                  Results”.
 
 Partially
        offset by:
 
 —
              A
                  decrease of US$ 3.0 million in net revenues from our Croatia operations,
                  as described in “Item 2, III. Analysis of Segment
                  Results”.




*Page
          64*
 *Index*





**IV
      (c) Consolidated cost of revenues for the three months ended September 30,
      2006
      compared to the three months ended September 30, 2005**





**CONSOLIDATED
                COST OF REVENUES****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Operating
                costs
            
            $
            22,073
            
            $
            15,331
            
            *$*
            *6,742*Cost
                of programming
            
            
            47,920
            
            
            40,470
            
            
            *7,450*Depreciation
                of station property, plant and equipment
            
            
            6,080
            
            
            4,230
            
            
            *1,850*Amortization
                of broadcast licenses and other intangibles
            
            
            5,015
            
            
            4,678
            
            
            *337***Total
                consolidated cost of revenues**
            
            **$**
            **81,088**
            
            **$**
            **64,709**
            
            ***$***
            ***16,379***





Total
      consolidated cost of revenues increased by US$ 16.4 million, or 25%, in the
      three months ended September 30, 2006 compared to the three months ended
      September 30, 2005 and is analyzed by component below:


**Operating
        costs:** Total
        consolidated operating costs increased by US$ 6.7 million, or 44%, in the
        three
        months ended September 30, 2006 compared to the three months ended September
        30,
        2005 primarily due to:
 
 —
              Inclusion
                  of US$ 3.8 million of operating costs from our Slovak Republic
                  operations,
                  which were consolidated from January 23, 2006, having previously
                  been
                  accounted for as an equity
                  affiliate;
 
 —
              An
                  additional US$ 3.4 million of operating costs from our Czech Republic
                  operations;
 
 —
              An
                  additional US$ 0.8 million of operating costs from our Romania
                  operations;
 
 —
              An
                  additional US$ 0.5 million of operating costs from our Slovenia
                  operations; and
 
 —
              An
                  additional US$ 0.2 million of operating costs from our Ukraine
                  operations.
 
 Partially
        offset by:
 
 —
              A
                  decrease of US$ 1.9 million in operating costs from our Croatia
                  operations.
 
 **Cost
        of programming:** See
        discussion in Item 2, III. “Analysis of Segment Results”.
 
 **Depreciation
        of property, plant and equipment:** Total
        consolidated depreciation of property, plant and equipment increased by US$
        1.9
        million, or 44%, in the three months ended September 30, 2006 compared to
        the
        three months ended September 30, 2005 primarily due to:
 
 —
              Inclusion
                  of US$ 0.6 million of depreciation from our Slovak Republic operations,
                  which were consolidated from January 23, 2006, having previously
                  been
                  accounted for as an equity affiliate;
                  and
 
 —
              Increased
                  capital investment in our other
                  segments.
 
 **Amortization
        of broadcast licenses and other intangibles:** Total
        consolidated amortization of broadcast licenses and other intangibles increased
        by US$ 0.3 million, or 7%, in the three months ended September 30, 2006 compared
        to the three months ended September 30, 2005 primarily due to:
 
 —
              Inclusion
                  of US$ 0.2 million of amortization from our Slovak Republic operations,
                  which were consolidated from January 23, 2006, having previously
                  been
                  accounted for as an equity
                  affiliate.




*Page
          65*
 *Index*





**IV
      (d) Consolidated cost of revenues for the nine months ended September 30, 2006
      compared to the nine months ended September 30, 2005**





**CONSOLIDATED
                COST OF REVENUES****2006**
            
            **2005**
            
            ***Movement***Operating
                costs
            
            $
            71,087
            
            $
            44,733
            
            *$*
            *26,354*Cost
                of programming
            
            
            149,188
            
            
            94,873
            
            
            *54,315*Depreciation
                of station property, plant and equipment
            
            
            17,841
            
            
            9,292
            
            
            *8,549*Amortization
                of broadcast licenses and other intangibles
            
            
            13,967
            
            
            6,611
            
            
            *7,356***Total
                consolidated cost of revenues**
            
            **$**
            **252,083**
            
            **$**
            **155,509**
            
            ***$***
            ***96,574***





Total
      consolidated cost of revenues increased by US$ 96.6 million, or 62%, in the
      nine
      months ended September 30, 2006 compared to the nine months ended September
      30,
      2005 and is analyzed by component below:




**Operating
      costs:** Total
      consolidated operating costs increased by US$ 26.4 million, or 59%, in the
      nine
      months ended September 30, 2006 compared to the nine months ended September
      30,
      2005 primarily due to:


—
              An
                  additional US$ 10.6 million of operating costs from our Czech Republic
                  operations, which are included for the entire nine-month period
                  rather
                  than for the period from acquisition on May 2, 2005 in the prior
                  year;
 
 —
              Inclusion
                  of US$ 10.5 million of operating costs from our Slovak Republic
                  operations, which were consolidated from January 23, 2006, having
                  previously been accounted for as an equity
                  affiliate;
 
 —
              An
                  additional US$ 3.1 million of operating costs from our Romania
                  operations;
                  and
 
 —
              An
                  additional US$ 2.3 million of operating costs from our Ukraine
                  operations.
 
 Partially
        offset by:
 
 —
              A
                  US$ 1.0 million decrease in additional operating costs from our
                  Croatia
                  operations.
 
 **Cost
        of programming:** See
        discussion in Item 2, III. “Analysis of Segment Results”.
 
 **Depreciation
        of property, plant and equipment:** Total
        consolidated depreciation of property, plant and equipment increased by US$
        8.5
        million, or 92%, in the nine months ended September 30, 2006 compared to
        the
        nine months ended September 30, 2005 primarily due to:
 
 —
              An
                  additional US$ 3.0 million of depreciation from our Czech Republic
                  operations, which are included for the entire nine-month period
                  rather
                  than for the period from acquisition on May 2, 2005 in the prior
                  year;
 
 —
              Inclusion
                  of US$ 2.4 million of depreciation from our Slovak Republic operations,
                  which were consolidated from January 23, 2006, having previously
                  been
                  accounted for as an equity
                  affiliate;
 
 —
              An
                  additional US$ 1.4 million of depreciation from our Ukraine operations
                  due
                  to increased capital investment;
 
 —
              An
                  additional US$ 0.8 million of depreciation from our Slovenia operations
                  due to increased capital investment;
                  and
 
 —
              An
                  additional US$ 0.8 million of depreciation from our Romania operations
                  due
                  to increased capital
                  investment.




*Page
          66*
 *Index*




**Amortization
      of broadcast licenses and other intangibles:** Total
      consolidated amortization of broadcast licenses and other intangibles increased
      by US$ 7.4 million, or 111%, in the nine months ended September 30, 2006
      compared to the nine months ended September 30, 2005 primarily due
      to:


—
              An
                  additional US$ 6.2 million of amortization from our Czech Republic
                  operations, which are included for the entire nine-month period
                  rather
                  than for the period from acquisition on May 2, 2005 in the prior
                  year;
 
 —
              Inclusion
                  of US$ 0.6 million of amortization from our Slovak Republic operations,
                  which were consolidated from January 23, 2006, having previously
                  been
                  accounted for as an equity
                  affiliate;
 
 —
              An
                  additional US$ 0.5 million of amortization from our Romania operations
                  following our acquisitions of increased stakes in 2005 and 2006;
                  and
 
 —
              An
                  additional US$ 0.1 million of amortization from our Ukraine operations
                  following our acquisition of Ukrpromtorg in
                  2006.




**IV
      (e) Consolidated station selling, general and administrative expenses for the
      three months ended September 30, 2006 compared to the three months ended
      September 30, 2005**





**CONSOLIDATED
                STATION SELLING, GENERAL AND ADMINISTRATIVE
                EXPENSES****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Croatia
            
            $
            2,202
            
            $
            1,975
            
            *$*
            *227*Czech
                Republic
            
            
            5,317
            
            
            5,539
            
            
            *(222*
            *)*Romania
            
            
            1,806
            
            
            2,101
            
            
            *(295*
            *)*Slovak
                Republic
            
            
            2,303
            
            
            -
            
            
            *2,303*Slovenia
            
            
            1,356
            
            
            1,298
            
            
            *58*Ukraine
            
            
            3,497
            
            
            1,853
            
            
            *1,644***Total
                consolidated station selling, general and administrative
                expenses**
            
            **$**
            **16,481**
            
            **$**
            **12,766**
            
            ***$***
            ***3,715***





Total
        consolidated station selling, general and administrative expenses increased
        by
        US$ 3.7 million, or 29%, in the three months ended September 30, 2006 compared
        to the three months ended September 30, 2005 primarily due to:
 
 —
              Inclusion
                  of US$ 2.3 million of station selling, general and administrative
                  expenses
                  from our Slovak Republic operations, which were consolidated from
                  January
                  23, 2006, having previously been accounted for as an equity
                  affiliate;
 
 —
              An
                  increase of US$ 1.6 million in the station selling, general and
                  administrative expenses of our Ukraine
                  operations;
 
 —
              An
                  increase of US$ 0.2 million in the station selling, general and
                  administrative expenses of our Croatia operations;
                  and
 
 —
              An
                  increase of US$ 0.1 million in the station selling, general and
                  administrative expenses of our Slovenia
                  operations.
 
 Partially
        offset by:
 
 —
              An
                  decrease of US$ 0.3 million in station selling, general and administrative
                  expenses of our Romanian operations;
                  and
 
 —
              A
                  decrease of US$ 0.2 million in the station selling, general and
                  administrative expenses of our Czech Republic
                  operations.




*Page
          67*
 *Index*




**IV
      (f)** **Consolidated
      station selling, general and administrative expenses** **for
      the nine months ended September 30, 2006 compared to the nine months ended
      September 30, 2005**





**CONSOLIDATED
                STATION SELLING, GENERAL AND ADMINISTRATIVE
                EXPENSES****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Croatia
            
            $
            4,991
            
            $
            5,754
            
            *$*
            *(763*
            *)*Czech
                Republic *
            
            
            15,383
            
            
            10,845
            
            
            *4,538*Romania
            
            
            6,616
            
            
            5,909
            
            
            *707*Slovak
                Republic **
            
            
            5,216
            
            
            -
            
            
            *5,216*Slovenia
            
            
            3,840
            
            
            3,478
            
            
            *362*Ukraine
            
            
            9,142
            
            
            6,270
            
            
            *2,872***Total
                consolidated station selling, general and administrative
                expenses**
            
            **$**
            **45,188**
            
            **$**
            **32,256**
            
            ***$***
            ***12,932***


*
      From
      May 2, 2005 only


**
      From
      January 23, 2006 only


Total
      consolidated station selling, general and administrative expenses increased
      by
      US$ 12.9 million, or 40%, in the nine months ended September 30, 2006 compared
      to the nine months ended September 30, 2005 primarily due to:


—
              An
                  additional US$ 4.5 million of station selling, general and administrative
                  expenses from our Czech Republic operations, which are included
                  for the
                  entire nine-month period rather than for the period from acquisition
                  on
                  May 2, 2005 in the prior year;
 
 —
              Inclusion
                  of US$ 5.2 million of station selling, general and administrative
                  expenses
                  from our Slovak Republic operations, which were consolidated from
                  January
                  23, 2006, having previously been accounted for as an equity
                  affiliate;
 
 —
              An
                  increase of US$ 0.7 million in the station selling, general and
                  administrative expenses of our Romania
                  operations;
 
 —
              An
                  increase of US$ 2.9 million in the station selling, general and
                  administrative expenses of our Ukraine operations;
                  and
 
 —
              An
                  increase of US$ 0.4 million in the station selling, general and
                  administrative expenses of our Slovenia
                  operations.
 
 Partially
        offset by:
 
 —
              A
                  decrease of US$ 0.8 million in station selling, general and administrative
                  expenses of our Croatia
                  operations.




*Page
          68*
 *Index*




**IV
      (g) Corporate operating costs for the three months ended September 30, 2006
      compared to the three months ended September 30, 2005**





**CORPORATE
                OPERATING COSTS****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
              **(as
                restated)**
            
            ***Movement***Corporate
                operating costs (excluding stock-based compensation)
            
            $
            7,375
            
            $
            4,184
            
            *$*
            *3,191*Stock-based
                compensation
            
            
            967
            
            
            656
            
            
            *311***Corporate
                operating costs**
            
            **$**
            **8,342**
            
            **$**
            **4,840**
            
            ***$***
            ***3,502***





Corporate
      operating costs (excluding stock-based compensation) increased by US$ 3.2
      million, or 76%, for the three months ended September 30, 2006 compared to
      the
      three months ended September 30, 2005 primarily due to:


—
              An
                  increase in staff-related costs of US$ 1.3 million in the three
                  months
                  ended September 30, 2006 compared to the three months ended September
                  30,
                  2005; and
 
 —
              An
                  increase in professional fees of US$ 1.1 million in the three months
                  ended
                  September 30, 2006 compared to the three months ended September
                  30, 2005,
                  mainly due to activities in the
                  Ukraine.




Stock-based
        compensation for the three months ended September 30, 2006 was a charge of
        US$
        1.0 million compared to a charge of US$ 0.7 million for the three months
        ended
        September 30, 2005 (for further information, see Item 1, Note 15). The amount
        charged in the three months ended September 30, 2005 has been restated (for
        further information, see Item 1, Note 2).





**IV
      (h) Corporate operating costs for the nine months ended September 30, 2006
      compared to the nine months ended September 30, 2005**





**CORPORATE
                OPERATING COSTS****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
              **(as
                restated)**
            
            ***Movement***Corporate
                operating costs (excluding stock-based compensation)
            
            $
            21,634
            
            $
            13,684
            
            *$*
            *7,950*Stock-based
                compensation
            
            
            2,385
            
            
            2,424
            
            
            *(39*
            )**Corporate
                operating costs**
            
            **$**
            **24,019**
            
            **$**
            **16,108**
            
            ***$***
            ***7,911***





Corporate
      operating costs (excluding stock-based compensation) increased by US$ 8.0
      million, or 58%, for the nine months ended September 30, 2006 compared to the
      nine months ended September 30, 2005 primarily due to:


—
              An
                  increase in professional fees of US$ 3.1 million in the nine months
                  ended
                  September 30, 2006 compared to the nine months ended September
                  30, 2005,
                  mainly due to activities in the Ukraine;
                  and
 
 —
              An
                  increase in staff-related costs of US$ 2.0 million in the nine
                  months
                  ended September 30, 2006 compared to the nine months ended September
                  30,
                  2005; and
 
 —
              A
                  lease-exit charge of approximately US$ 1.6 million including additional
                  depreciation of US$ 0.3 million incurred in relation to the cost
                  of moving
                  our London office.




*Page
          69*
 *Index*




Stock-based
        compensation for the nine months ended September 30, 2006 was a charge of
        US$
        2.4 million in line with the charge for the nine months ended September 30,
        2005
        (for further information, see Item 1, Note 15). The amount charged in the
        nine
        months ended September 30, 2005 has been restated (for further information,
        see
        Item 1, Note 2).





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





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





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





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





**OPERATING
                INCOME****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
              **(as
                restated)**
            
            ***Movement*****Operating
                income**
            
            **$**
            **6,571**
            
            **$**
            **4,752**
            
            ***$***
            ***1,819***





Total
        consolidated operating income increased by US$ 1.8 million for the three
        months
        ended September 30, 2006 compared to the three months ended September 30,
        2005.
        Operating margin remained at 6% in line with the three months ended September
        30, 2005. The amount charged in the three months ended September 30, 2005
        has
        been restated (for further information, see Item 1, Note 2).





**IV
      (k) Operating income for the nine** **months ended September 30, 2006 compared to the nine months ended September
      30,
      2005**





**OPERATING
                INCOME****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
              **(as
                restated)**
            
            ***Movement*****Operating
                income**
            
            **$**
            **66,787**
            
            **$**
            **9,276**
            
            ***$***
            ***57,511***





Total
        consolidated operating income increased by US$ 57.5 million for the nine
        months
        ended September 30, 2006 compared to the nine months ended September 30,
        2005.
        Operating margin was 17% compared to 4% in the nine months ended September
        30,
        2005. The amount charged in the nine months ended September 30, 2005 has
        been
        restated (for further information, see Item 1, Note 2).




*Page
          70*
 *Index*





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





**OTHER
                INCOME / (EXPENSE) ITEMS****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Interest
                income
            
            $
            1,554
            
            $
            1,716
            
            *$*
            *(162*
            *)*Interest
                expense
            
            
            (11,066
            )
            
            (11,574
            )
            
            *508*Foreign
                currency exchange gain, net
            
            
            6,018
            
            
            856
            
            
            *5,162*Change
                in fair value of derivatives
            
            
            (881
            )
            
            -
            
            
            *(881*
            *)*Other
                expense
            
            
            (412
            )
            
            (840
            )
            
            *428*Provision
                for income taxes
            
            
            (1,235
            )
            
            (2,206
            )
            
            *971*Minority
                interest in (income) / loss of consolidated subsidiaries
            
            
            (461
            )
            
            1,037
            
            
            *1,498*Equity
                in income / (loss) of unconsolidated affiliates
            
            
            -
            
            
            (63
            )
            
            *63*Gain
                on sale of unconsolidated affiliate
            
            
            6,179
            
            
            -
            
            
            *6,179*Discontinued
                operations
            
            $
            (2,333
            )
            $
            (3,332
            )
            *$*
            *999*





**Interest
      income** for the
      three months ended September 30, 2006 decreased by US$ 0.2 million compared
      to
      the three months ended September 30, 2005.





**Interest
      expense** for the
      three months ended September 30, 2006 decreased by US$ 0.5 million compared
      to
      the three months ended September 30, 2005.





**Foreign
      currency exchange gain, net:** For the
      three months ended September 30, 2006, we recognized a US$ 6.0 million gain
      primarily as a result of the weakening of the Euro against the US dollar during
      the three-month period. Our fixed and floating rate Senior Notes are denominated
      in Euros, and we incurred a transaction gain of approximately US$ 4.7 million
      on
      the Senior Notes due to movements in the spot rate between June 30, 2006 and
      September 30, 2006. In the three months ended September 30, 2005, we recognized
      a transaction gain of US$ 0.9 million as a result of the strengthening of the
      US
      dollar against the Euro.





**Change
      in fair value of derivative:** For the
      three months ended September 30, 2006, we incurred a US$ 0.9 million loss 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 13.





**Other
      expense:** For the
      three months ended September 30, 2006, we recognized other expenses of US$
      0.4
      million compared to US$ 0.8 million for the three months ended September 30,
      2005.





**Provision
      for income taxes:** The
      provision for income taxes for the three months ended September 30, 2006 was
      US$
      1.2 million compared to US$ 2.2 million for the three months ended September
      30,
      2005. In the three months ended September 30, 2005 we incurred a tax charge
      despite reporting a taxable loss primarily due to the fact that the there was
      no
      tax benefit attributable to the interest payable on the Senior
      Notes.





**Minority
      interest in (income) / loss of consolidated subsidiaries:** For the
      three months ended September 30, 2006, minority interest in the income of
      consolidated subsidiaries was US$ 0.5 million, compared to minority interest
      in
      the loss of consolidated subsidiaries of US$ 1.0 million for the three months
      ended September 30, 2005. This primarily reflects our acquisition of the
      minority share of our operations in the Czech Republic in May 2006, partially
      offset by the higher profitability of our Romania operations.




*Page
          71*
 *Index*




**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 September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Romania
                operations
            
            $
            -
            
            $
            (134
            )
            *$*
            *134*Slovak
                Republic operations
            
            
            -
            
            $
            71
            
            *$*
            *(71*
            *)***Equity
                in income / (loss) of unconsolidated affiliates**
            
            **$**
            **-**
            
            **$**
            **(63**
            **)**
            ***$***
            ***63***





Our
      Slovak Republic operations ceased to be accounted for as an equity affiliate
      on
      January 23, 2006 when we acquired majority control of the license company via
      our acquisition of ARJ (for further information see Item 1, Note 3). We disposed
      of our Romanian equity affiliate on August 11, 2006 (for further information
      see
      Item 1, Note 5).





**Gain
      on sale of unconsolidated affiliate:** We
      recognized a gain of US$ 6.2 million on the sale of our investment in our
      Romanian affiliate on August 11, 2006. For further information, see Item 1,
      Note
      5.





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





**DISCONTINUED
                OPERATIONS****For
                the Three Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Pre-tax
                income from discontinued operations (Czech Republic)
            
            $
            -
            
            $
            -
            
            *$*
            *-*Tax
                on disposal of discontinued operations (Czech Republic)
            
            
            (2,333
            )
            
            (3,332
            )
            
            *999***Net
                loss from discontinued operations**
            
            **$**
            **(2,333**
            **)**
            **$**
            **(3,332**
            **)**
            ***$***
            ***999***





On
      June
      19, 2003, our Board of Directors decided to withdraw from operations in the
      Czech Republic. On October 23, 2003, we sold our 93.2% interest in CNTS, our
      former Czech operating company, for US$ 53.2 million. The revenues and expenses
      of our former Czech operations and the award income and related legal expenses
      have therefore all been treated as discontinued operations.





For
      the
      three months ended September 30, 2006, the amounts charged to discontinued
      operations represent an increase in accruals for additional payments we expect
      to make to the Dutch tax authorities pursuant to the agreement we entered into
      on February 9, 2004 (see also Item 1, Note 18).




*Page
          72*
 *Index*




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





**OTHER
                INCOME / (EXPENSE) ITEMS****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Interest
                income
            
            $
            4,748
            
            $
            3,354
            
            *$*
            *1,394*Interest
                expense
            
            
            (32,921
            )
            
            (18,305
            )
            
            *(14,616*
            *)*Foreign
                currency exchange gain / (loss), net
            
            
            (25,469
            )
            
            30,286
            
            
            *(55,755*
            *)*Change
                in fair value of derivatives
            
            
            (2,757
            )
            
            -
            
            
            *(2,757*
            *)*Other
                expense
            
            
            (793
            )
            
            (4,529
            )
            
            *3,736*Provision
                for income taxes
            
            
            (8,811
            )
            
            (8,112
            )
            
            *(699*
            *)*Minority
                interest in (income) / loss of consolidated subsidiaries
            
            
            (7,178
            )
            
            (3,644
            )
            
            *(3,534*
            *)*Equity
                in income / (loss) of unconsolidated affiliates
            
            
            (730
            )
            
            4,820
            
            
            *(5,550*
            *)*Gain
                on sale of unconsolidated affiliate
            
            
            6,179
            
            
            -
            
            
            *6,179*Discontinued
                operations
            
            $
            (4,863
            )
            $
            (5,376
            )
            *$*
            *513*




**Interest
      income** for the
      nine months ended September 30, 2006 increased by US$ 1.4 million compared
      to
      the nine months ended September 30, 2005 primarily as a result of interest
      earned on our increased level of cash deposits following our equity offering
      in
      March 2006.





**Interest
      expense** for the
      nine months ended September 30, 2006 increased by US$ 14.6 million compared
      to
      the nine months ended September 30, 2005 primarily as a result of the issuance
      of our EUR 245.0 million (approximately US$ 310.2 million) 8.25% Senior Notes
      and EUR 125.0 million (approximately US$ 158.3 million) floating rate Senior
      Notes on May 5, 2005.





**Foreign
      currency exchange gain / (loss), net:** For the
      nine months ended September 30, 2006 we recognized a US$ 25.5 million loss
      primarily as a result of the strengthening of the Euro against the US dollar
      during the first six months of the period. Our fixed and floating rate Senior
      Notes are denominated in Euros, and we incurred a transaction loss of
      approximately US$ 32.0 million on the Senior Notes due to movements in the
      spot
      rate between December 31, 2005 and September 30, 2006. For the nine months
      ended
      September 30, 2005, we recognized a US$ 30.3 million gain as a result of the
      strengthening of the US dollar against the Euro during that period.





**Change
      in fair value of derivative:** For the
      nine months ended September 30, 2006, we incurred a loss of US$ 2.8 million
      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 13.





**Other
      expense:** For the
      nine months ended September 30, 2006 we incurred other expenses of US$ 0.8
      million compared to US$ 4.5 million for the nine months ended September 30,
      2005. The amount recognized in the nine months ended September 30, 2005 was
      primarily a result of a US$ 3.4 million fee incurred to secure bridge financing
      in relation to our acquisition of the TV Nova (Czech Republic)
      group.





**Provision
      for income taxes:** The
      provision for income taxes was US$ 8.8 million for the nine months ended
      September 30, 2006 compared to US$ 8.1 million for the nine months ended
      September 30, 2005. The increase in the provision also reflects approximately
      US$ 2.5 million in respect of the write-off of deferred tax assets.





**Minority
      interest in (income) / loss of consolidated subsidiaries:**  For
      the
      nine months ended September 30, 2006, minority interest in the income of
      consolidated subsidiaries was US$ 7.2 million, compared to US$ 3.6 million
      for
      the nine months ended September 30, 2005. This movement primarily reflects
      the
      recognition of the minority share of the net income in our operations in the
      Czech Republic, which we acquired on May 2, 2005, as well as the increased
      profitability of our Romania and Ukraine operations.




*Page
          73*
 *Index*




**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 nine months ended September
      30, 2006 decreased by US$ 5.6 million compared to the nine months ended
      September 30, 2005 as detailed below:





**EQUITY
                IN INCOME / (LOSS) OF UNCONSOLIDATED AFFILIATES****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Romania
                operations
            
            $
            9
            
            $
            (210
            )
            *$*
            *219*Slovak
                Republic operations
            
            
            (739
            )
            
            5,030
            
            
            *(5,769*
            *)***Equity
                in income / (loss) of unconsolidated affiliates**
            
            **$**
            **(730**
            **)**
            **$**
            **4,820**
            
            ***$***
            ***(5,550***
            ***)***





Our
      Slovak Republic operations ceased to be accounted for as an equity affiliate
      on
      January 23, 2006 when we acquired majority control of the license company via
      our acquisition of ARJ (for further information see Item 1, Note 3). We disposed
      of our Romanian equity affiliate on August 11, 2006 (for further information
      see
      Item 1, Note 5).





**Gain
      on sale of unconsolidated affiliate:** We
      recognized a gain of US$ 6.2 million on the sale of our investment in our
      Romanian affiliate on August 11, 2006. For further information, see Item 1,
      Note
      5.





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





**DISCONTINUED
                OPERATIONS****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**
            
            ***Movement***Pre-tax
                income from discontinued operations (Czech Republic)
            
            $
            -
            
            $
            164
            
            *$*
            *(164*
            *)*Tax
                on disposal of discontinued operations (Czech Republic)
            
            
            (4,863
            )
            
            (5,540
            )
            
            *677***Net
                loss from discontinued operations**
            
            **$**
            **(4,863**
            **)**
            **$**
            **(5,376**
            **)**
            ***$***
            ***513***





On
      June
      19, 2003, our Board of Directors decided to withdraw from operations in the
      Czech Republic. On October 23, 2003, we sold our 93.2% interest in CNTS, our
      former Czech operating company, for US$ 53.2 million. The revenues and expenses
      of our former Czech operations and the award income and related legal expenses
      have therefore all been treated as discontinued operations.





For
      the
      nine months ended September 30, 2006, the amounts charged to discontinued
      operations represent additional payments we expect to make to the Dutch tax
      authorities pursuant to the agreement we entered into on February 9, 2004 (see
      also Item 1, Note 18).





*Page
          74*
 *Index*




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





**SUMMARIZED
                CONDENSED CONSOLIDATED BALANCE SHEET****(US$ 000’s)****September
                30,**
              **2006**
            
            **December
                31,**
              **2005**
            
            ***Movement***Current
                assets
            
            $
            377,125
            
            $
            286,926
            
            *$*
            *90,199*Non-current
                assets
            
            
            1,293,425
            
            
            1,101,924
            
            
            *191,501*Current
                liabilities
            
            
            179,974
            
            
            206,961
            
            
            *(26,987*
            *)*Non-current
                liabilities
            
            
            540,251
            
            
            488,099
            
            
            *52,152*Minority
                interests in consolidated subsidiaries
            
            
            20,300
            
            
            13,237
            
            
            *7,063*Shareholders’
                equity
            
            $
            930,025
            
            $
            680,553
            
            *$*
            *249,472*





**Current
      assets:** Current
      assets have increased US$ 90.2 million at September 30, 2006 compared to
      December 31, 2005, primarily as a result of the receipt of the cash proceeds
      from the offering of 2,530,000 shares of Class A Common Stock completed on
      March
      29, 2006, partially offset by the use of cash to fund acquisitions and reduce
      amounts drawn under credit facilities.





**Non-current
      assets:** Non-current assets have increased US$ 191.5 million at September 30, 2006
      compared to December 31, 2005, primarily as a result of the consolidation of
      the
      assets of our Slovak Republic operations following the acquisition of ARJ on
      January 23, 2006, as well as the recognition of additional goodwill and other
      intangible assets following the acquisition of an additional 5% stake in our
      Romania operations.





**Current
      liabilities:** Current
      liabilities have decreased US$ 27.0 million at September 30, 2006 compared
      to
      December 31, 2005, primarily as a result of the repayment of US$ 25.1 million
      of
      amounts due under credit facilities in the Czech Republic, and the payment
      of
      deferred consideration relating to the acquisition of our Czech Republic
      operations, partially offset by the consolidation of the liabilities of our
      Slovak Republic operations following the acquisition of ARJ.





**Non-current
      liabilities:** Non-current liabilities have increased US$ 52.2 million at September 30, 2006
      compared to December 31, 2005, reflecting a US$ 32.0 million increase in the
      value of our Senior Notes as a result of the movement in the spot rate between
      December 31, 2005 and September 30, 2006, as well as recognition of an
      additional US$ 9.2 million of deferred tax liabilities and a liability of US$
      2.8 million on the revaluation of the currency swaps entered into in April
      2006.


**Minority
      interests in consolidated subsidiaries:** Minority
      interests in consolidated subsidiaries have increased US$ 7.1 million at
      September 30, 2006 compared to December 31, 2005, primarily as a result of
      the
      recognition of a minority interest in our newly consolidated Slovak Republic
      operations, which had previously been reported as an equity accounted affiliate,
      as well as improved profitability of our Romania and Ukraine
      operations.





**Shareholders’
      equity:** Total
      shareholders’ equity has increased US$ 249.5 million at September 30, 2006
      compared to December 31, 2005, primarily as a result of the sale in a public
      offering of 2,530,000 shares of Class A Common Stock on March 29, 2006 for
      net
      proceeds of approximately US$ 168.6 million.





The
      remaining movement in shareholders’ equity relates primarily to an increase in
      Accumulated Other Comprehensive Income (US$ 80.7 million), proceeds from the
      exercise of stock options (US$ 3.6 million), and the net loss of US$ 5.8 million
      for the nine months ended September 30, 2006.




*Page
          75*
 *Index*




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





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





Cash
      and
      cash equivalents increased by US$ 92.8 million during the nine months ended
      September 30, 2006. The change in cash and cash equivalents is summarized as
      follows:





**SUMMARY
                OF CASH FLOWS****For
                the Nine Months Ended September 30,**
              **(US$
                000's)****2006**
            
            **2005**Net
                cash generated from continuing operating activities
            
            $
            67,907
            
            $
            44,543Net
                cash used in continuing investing activities
            
            
            (100,818
            )
            
            (285,105
            )Net
                cash received from financing activities
            
            
            132,227
            
            
            197,829Net
                cash used in discontinued operations - operating
                activities
            
            
            (1,690
            )
            
            (2,000
            )**Net
                increase / (decrease) in cash and cash
                equivalents**
            
            **$**
            **92,844**
            
            **$**
            **(52,193**
            **)**





*Operating
      Activities*





Cash
      generated from continuing operations increased US$ 23.4 million to US$ 67.9
      million in the nine months ended September 30, 2006 after having made the final
      US$ 10.0 million repayment of the settlement liability of the TV Nova (Czech
      Republic) group. The settlement liability represented an amount owed by CET
      21
      under a settlement agreement among CET 21, CNTS and the PPF Group dated December
      19, 2003. This liability was assumed as part of the TV Nova (Czech Republic)
      group acquisition and was refinanced at lower interest rates using our credit
      facilities from Ceska Sporitelna, a.s. Excluding this payment, cash generated
      from operating activities was US$ 77.9 million.





*Investing
      Activities*





Cash
      used
      in investing activities decreased from US$ 285.1 million to US$ 100.8 million
      in
      the nine months ended September 30, 2006. Our investing cash flows in 2006
      primarily comprised of:


—
              Capital
                  expenditure of US$ 31.8 million, largely in respect of the expansion
                  of
                  our broadcasting facilities and equipment in Romania and the Czech
                  Republic;
 —
              Payment
                  of US$ 30.1 million in connection with our acquisition of ARJ (for
                  further
                  information, see Item 1, Note 3);
 —
              Payment
                  of US$ 27.2 million in connection with the 5% increase in our holding
                  of
                  our Romanian operations (for further information, see Item 1, Note
                  3);
 —
              Payment
                  of EUR 8.0 million (approximately US$ 10.3 million) in connection
                  with our
                  acquisition of our 10% stake in Media Pro (for further information,
                  see
                  Item 1, Note 5); and
 —
              Payment
                  of a further US$ 2.0 million following completion of our acquisition
                  of a
                  65.5% stake in Ukrpromtorg-2003 LLC (for further information, see
                  Item 1,
                  Note 3).





*Financing
      Activities*





Net
      cash
      received from financing was US$ 132.2 million during the nine months ended
      September 30, 2006 compared to US$ 197.8 million during the nine months ended
      September 30, 2005. Net proceeds from financing activities in 2006 consisted
      primarily of the following:


—
              Receipt
                  of approximately US$ 168.6 million (net of fees) from a public
                  offering of
                  2,530,000 shares of our Class A Common Stock;
  *Page
            76*
 *Index*
  —
              Receipts
                  of US$ 35.9 million from drawing on credit facilities in Czech
                  Republic
                  and Slovenia, largely to finance the acquisition of ARJ and the
                  increased
                  investment in our Romania operations;
                  and
  —
              Repayment
                  of US$ 72.3 million of amounts drawn under the same credit
                  facilities.




*Discontinued
      Operations*





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





**V
      (b) Sources and Uses of Cash**





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





Corporate
      law in the Central and Eastern European countries in which we operate stipulates
      generally that dividends may be declared by the partners or the shareholders
      out
      of yearly profits subject to the maintenance of registered capital and required
      reserves after the recovery of accumulated losses. The reserve requirement
      restriction generally provides that before dividends may be distributed, a
      portion of annual net profits (typically 5%) be allocated to a reserve, which
      is
      capped at a proportion of the registered capital of a company (ranging from
      5%
      to 25%).





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


**Operating
                segment (US$ 000’s)**
            
            **September
                30,**
              **2006**
            
            **December
                31,**
              **2005**Croatia
            
            $
            57,057
            
            $
            40,166Czech
                Republic
            
            
            392,657
            
            
            441,569Romania
            
            
            26,181
            
            
            28,873Slovak
                Republic
            
            
            88
            
            
            88Slovenia
            
            
            -
            
            
            39Ukraine
            
            
            5,348
            
            
            10,617**Total**
            
            **$**
            **481,331**
            
            **$**
            **521,352**




*Page
          77*
 *Index*




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





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


**Payments
                due by period (US$ 000’s)****Total**
            
            **Less
                than 1**
              **year**
            
            **1-3
                years**
            
            **3-5
                years**
            
            **More
                than**
              **5
                years****Contractual
                Obligations:**Long-term
                debt - principal
            
            $
            481,429
            
            $
            11,295
            
            $
            337
            
            $
            1,276
            
            $
            468,521Long-term
                debt - interest
            
            
            230,103
            
            
            19,591
            
            
            78,362
            
            
            78,324
            
            
            53,826Capital
                lease obligations
            
            
            6,179
            
            
            491
            
            
            1,246
            
            
            992
            
            
            3,450Operating
                leases
            
            
            8,831
            
            
            3,467
            
            
            3,482
            
            
            1,488
            
            
            394Unconditional
                purchase obligations
            
            
            60,836
            
            
            59,909
            
            
            876
            
            
            51
            
            
            -Other
                long-term obligations
            
            
            33,193
            
            
            28,584
            
            
            4,609
            
            
            -
            
            
            -**Total
                Contractual Obligations**
            
            **$**
            **820,571**
            
            **$**
            **123,337**
            
            **$**
            **88,912**
            
            **$**
            **82,131**
            
            **$**
            **526,191**




*Long-Term
      Debt*





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


**September
                30,**
              **2006**
              **(US$
                000’s)**Corporate
            
            
            (1)
                - (2)
            
            $
            468,420Croatia
                operations
            
            
            (3)
                - (4)
            
            
            936Czech
                Republic operations
            
            
            (5)
                - (7)
            
            
            11,173Romania
                operations
            
            
            (8)
            
            
            -Slovenia
                operations
            
            
            (9)
            
            
            -Ukraine
                operations
            
            
            (10)
            
            
            900**Total**
            
            
            
            
            **$**
            **481,429**


(1)
              In
                  May 2005, we issued Senior Notes in the aggregate principal amount
                  of EUR
                  370.0 million consisting of EUR 245.0 million of 8.25% Senior Notes
                  due
                  May 2012 and EUR 125.0 million of floating rate Senior Notes due
                  May 2012,
                  which bear interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”)
                  plus 5.50% (8.57% was applicable at September 30, 2006). Interest
                  is
                  payable semi-annually in arrears on each May 15 and November
                  15.
 
 The
        Senior Notes are secured senior obligations and rank pari passu with all
        existing and future senior indebtedness and are effectively subordinated
        to all
        existing and future indebtedness of our subsidiaries. The amounts outstanding
        are guaranteed by certain of our subsidiaries 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.
 
 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.
  *Page
            78*
 *Index*
  As
        of
        September 30, 2006, Standard & Poor’s senior unsecured debt rating for our
        Senior Notes remained unchanged from December 31, 2005 at B+, with a corporate
        credit rating of BB- / stable. At September 30, 2006, 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$ 126.6 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. Initial drawings
                    up to
                    EUR 100.0 million will be used for certain specified projects
                    in Central
                    and Eastern Europe.
 
 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 September 30,
        2006.
 
 Covenants
        contained in the Loan are in line with those contained in our Senior Notes
        (see
        Note 6). 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)
              A
                  total of EUR 0.7 million(approximately
                  US$ 0.9 million) was drawn down under two loan agreements our Croatia
                  operations have with Hypo Alpe-Adria-Bank d.d.These
                  loans bear a variable interest rate of three-month EURIBOR plus
                  2.50% and
                  are repayable in quarterly instalments until April 1, 2011. As
                  at
                  September 30, 2006, an aggregate rate of 5.75% applied to these
                  loans.These loan facilities are secured by certain fixed assets of OK,
                  which as
                  at September 30, 2006 have a carrying amount of approximately US$
                  0.1
                  million.
 
 (4)
              EUR
                  0.04 million (approximately US$ 0.04 million) was drawn down by
                  our
                  Croatia operations under a loan agreement with BKS Bank fur Karnten
                  and
                  Steiermark AG.This loan bears a variable interest rate of three-month EURIBOR
                  plus 3.00%
                  and is repayable on October 1, 2006. As at September 30, 2006,
                  an
                  aggregate rate of 6.10% applied to this
                  loan.
 
 (5)
              CET
                  21 has a four-year credit facility of CZK 1.2 billion (approximately
                  US$
                  53.6 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 guarantee of CME Media Services and a pledge of receivables,
                  which are also subject to a factoring arrangement between CME Media
                  Services and Factoring Ceska Sporitelna, a.s., a subsidiary of
                  CS. As at
                  September 30, 2006, there were no drawings under this facility.
                  Following
                  the merger of CET 21 with CME Media Services, scheduled for late
                  2006,
                  this credit facility will be
                  renegotiated.
  *Page
            79*
 *Index*
  (6)
              CET
                  21 and CME Media Services have a working capital credit facility
                  of CZK
                  250.0 million (approximately US$ 11.2 million) with CS, which matures
                  on
                  January 31, 2007. This working capital facility bears interest
                  at the
                  three-month PRIBOR rate plus 1.95%. This facility is secured by
                  a pledge
                  of receivables, which are also subject to a factoring arrangement
                  between
                  CME Media Services and Factoring Ceska Sporitelna, a.s. As at September
                  30, 2006, the full CZK 250.0 million (approximately US$ 11.2 million)
                  was
                  drawn under this facility bearing interest at an aggregate 4.18%
                  (the
                  applicable three-month PRIBOR rate at September 30, 2006 was
                  2.53%).
 
 (7)
              As
                  at September 30, 2006, there were no drawings under a CZK 600.0
                  million
                  (approximately US$ 26.8 million) factoring facility with Factoring
                  Ceska
                  Sporitelna, a.s., a subsidiary of CS. This facility 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.
 
 (8)
              As
                  at September 30, 2006, our Romania operations had made no drawings
                  under a
                  EUR 3.0 million (approximately US$ 3.8 million) three-month overdraft
                  facility with ING Bank N.V. Amsterdam. This facility is secured
                  by a
                  floating charge over the accounts receivable of our Romania operations
                  and
                  allows drawings to be made in US dollars (bearing interest at one-month
                  LIBOR plus 2.00%), Euro (bearing interest at one-month EURIBOR
                  plus 2.00%)
                  or New Romanian Lei (bearing interest at 'best market
                  rate').
 
 (9)
              A
                  revolving five-year facility agreement was entered into by Pro
                  Plus for up
                  to EUR 37.5 million (approximately US$ 47.5 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 September 30, 2006, there were no drawings
                  under
                  this revolving facility.
 
 (10)
              On
                  August 16, 2006, our Ukraine operations entered into a US$ 0.9
                  million,
                  three-year loan with Dertus Finance Group, the minority shareholder
                  in
                  Ukrpromtorg-2003 LLC. This loan is unsecured and bears interest
                  at a rate
                  of 9%.




*Capital
      Lease Obligations*





Capital
      lease obligations include future interest payments of US$ 1.6 million. For
      more
      information on our capital lease obligations see Item 1, Note 12.





*Operating
      Leases*





For
      more
      information on our operating lease commitments see Item 1, Note 19.





*Unconditional
      Purchase Obligations*





Unconditional
      purchase obligations largely comprise future programming commitments. At
      September 30, 2006, we had commitments in respect of future programming of
      US$
      65.4 million (December 31, 2005: US$ 51.8 million). This includes contracts
      signed with license periods starting after September 30, 2006. For more
      information on our programming commitments see Item 1, Note 19.





*Other
      Long-Term Obligations*





Included
      in Other Long-Term Obligations are our commitments to the Dutch tax authorities
      of US$ 5.5 million (see Item 1, Note 19) .




*Page
          80*
 *Index*




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 September 30, 2006, we consider the fair value of the
        put
        option to be approximately US$ nil.




**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, 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.





Our
        future cash needs will depend on our overall financial performance, our ability
        to service the indebtedness incurred under the Senior Notes as well as other
        indebtedness incurred by us and any future investment and development decisions.
        Our ability to raise further funds through external debt facilities depends
        on
        our satisfaction of a leverage ratio under the Senior Notes. In the short-term
        we are able to fund our operations from cash generated from operations, our
        current cash resources (US$ 164.5 million, at September 30,
        2006)
        and available undrawn credit facilities (US$ 258.3 million, at September
        30,
        2006).





Our
      Croatia operations continue to require funding to improve our ratings
      performance and increase our market share. We expect the funding required to
      support Nova TV (Croatia) to be in excess of US$ 20.0 million during 2006,
      and
      have provided US$ 6.4 million in cash funding to Nova TV (Croatia) in the three
      months ended September 30, 2006.





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




**V
      (e) Tax Inspections**





Pro
      Plus
      has been the subject of an income tax inspection by the Republic of Slovenia
      tax
      authorities for the years 1995 to 1998. As a result of these inspections, the
      Slovenian tax authorities had levied an assessment seeking unpaid income taxes,
      customs duties and interest charges of SIT 1.1 billion (approximately US$ 5.7
      million). The Slovenian authorities have asserted that capital contributions
      and
      loans made by us to Pro Plus in 1995 and 1996 should be extraordinary revenue
      to
      Pro Plus. On this basis, the Slovenian authorities claim that Pro Plus made
      a
      profit in 1995 and 1996 for which it owes income taxes and interest.
      Additionally, the Slovenian tax authorities claim that the fixed assets imported
      as capital contributions were subject to customs duties, which were not paid.
      On
      February 9, 2001, the Slovenian tax authorities concluded that the cash capital
      contributions for 1995 and 1996 were not extraordinary income. This has reduced
      the assessment to SIT 636.8 million (approximately US$ 3.4 million) in aggregate
      principal amount. Pro Plus appealed this decision to the Administrative Court
      in
      Ljubljana and requested the tax authorities defer the demand for payment until
      a
      final judgment has been issued. The tax authorities agreed to defer its demand
      for payment until a final decision on the matter had been reached. On April
      18,
      2005, the Administrative Court issued a decision in favor of Pro Plus and
      dismissed the claims of the tax authorities. The tax authorities filed an appeal
      with the Slovenian Supreme Court in May 2005. We do not have a provision in
      our
      financial statements in relation to this legal action.




*Page
            81*
 *Index*




**V
      (f) Off-Balance Sheet Arrangements**





None.




**VI.
      Critical Accounting Policies and Estimates**





Our
      accounting policies affecting our financial condition and results of operations
      are more fully described in Part II, Item 8 of our Annual Report on Form 10-K
      for the year ended December 31, 2005, as amended by our Form 10-K/A filed with
      the SEC on March 15, 2006. The preparation of these financial statements
      requires us to make judgments in selecting appropriate assumptions for
      calculating financial estimates, which inherently contain some degree of
      uncertainty. We base our estimates on historical experience and on various
      other
      assumptions that we believe to be reasonable under the circumstances, the
      results of which form the basis of making judgments about the carrying values
      of
      assets and liabilities and the reported amounts of revenues and expenses that
      are not readily apparent from other sources. Actual results may differ from
      these estimates under different assumptions or conditions.





We
      believe our critical accounting policies are as follows: program rights,
      goodwill and intangible assets, impairment or disposal of long-lived assets,
      revenue recognition, income taxes, reporting exchange differences on
      intercompany foreign currency transactions that are long-term in nature, and
      contingencies. These critical accounting policies affect our more significant
      judgments and estimates used in the preparation of our condensed consolidated
      financial statements. There have been no significant changes in our critical
      accounting policies since December 31, 2005.




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





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





**Foreign
      Currency Exchange Risk Management**





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





On
      April
      27, 2006, we entered into currency swap agreements with two counterparties
      whereby we swapped a fixed annual coupon interest rate (of 9.0%) on notional
      principal CZK 10.7 billion (approximately US$ 478.2 million), payable on July
      15, October 15, January 15, and April 15, to the termination date of April
      15,
      2012, for a fixed annual coupon interest rate (of 9.0%) on EUR 375.9 million
      (approximately US$ 475.9 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 September 30, 2006 was a US$ 2.8
      million liability.





These
      currency swap agreements reduce our exposure to movements in foreign exchange
      rates on a part of the CZK-denominated cash flows generated by our Czech
      Republic operations that is approximately equivalent in value to the
      EUR-denominated interest payments on our Senior Notes (see Item 1, Note 6).
      They
      are financial instruments that are used to minimize currency risk and are
      considered an economic hedge of foreign exchange rates. These instruments have
      not been designated as hedging instruments as defined under SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities”, and so changes
      in their fair value are recorded in the consolidated statement of operations
      and
      in the consolidated balance sheet in other non-current
      liabilities.


*Page
          82*
 *Index*




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





**Interest
      Rate Risk Management**





As
      at
      September 30, 2006, we have 9 tranches of debt that provide for interest at
      a
      spread above a base rate of EURIBOR, LIBOR or PRIBOR, and 2 tranches of debt,
      which were maintained with a fixed interest rate. A significant rise in the
      EURIBOR, LIBOR or PRIBOR base rate would have an adverse effect on our business
      and results of operations.





*Interest
      Rate Table as at September 30, 2006*


**Expected
                Maturity Dates**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **Thereafter****Total
                debt in EUR (000’s)**Fixed
                rate
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            245,000Average
                interest rate (%)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8.25
            %Variable
                rate
            
            
            90
            
            
            130
            
            
            137
            
            
            145
            
            
            153
            
            
            125,080Average
                interest rate (%)
            
            
            5.66
            %
            
            5.50
            %
            
            5.50
            %
            
            5.50
            %
            
            5.50
            %
            
            8.57
            %**Total
                debt in USD (000’s)**Fixed
                rate
            
            
            -
            
            
            -
            
            
            -
            
            
            900
            
            
            -
            
            
            -Average
                interest rate (%)
            
            
            -
            
            
            -
            
            
            -
            
            
            9.00
            %
            
            -
            
            
            -**Total
                debt in CZK (000’s)**Variable
                rate
            
            
            250,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Average
                interest rate (%)
            
            
            4.18
            %
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -





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


**Yearly
                interest charge if interest rates increase by**
              **(US$
                000' s):****Value
                of Debt as at**
              **September
                30, 2006**
              **(US$
                000’s)**
            **Interest
                Rate**
              **as
                at**
              **September**
              **30,
                2006**
            **Yearly
                Interest**
              **Charge**
              **(US$
                000’s)**
            **1%**
            **2%**
            **3%**
            **4%**
            **5%**159,178
              (EUR
                125.7 million)
            4.73%
                - 8.57%
            $  
                13,613
            $ 
                 15,205
            $  
                16,797
            $ 
                 18,389
            $  
                19,980
            $ 
                 21,57211,173
              (CZK
                250.0 million)
            4.18%
            467
            579
            691
            802
            914
            1,026**Total**
            
            **$****14,080**
            **$  
                15,784**
            **$  
                17,488**
            **$  
                19,191**
            **$  
                20,894**
            **$  
                22,598**




*Page
          83*
 *Index*




**Item
      4. Controls and Procedures**





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




**PART
      II OTHER INFORMATION**





**Item
      1. Legal Proceedings**





*General*





We
      are,
      from time to time, a party to litigation that arises in the normal course of
      our
      business operations. Other than those claims discussed below, we are not
      presently a party to any such litigation, which could reasonably be expected
      to
      have a material adverse effect on our business or operations.





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





*Croatia*





*Global
      Communications Dispute*





On
      October 29, 2004, OK filed suit against Global Communications d.o.o. claiming
      approximately HRK 53.0 million (approximately US$ 9.1 million) in damages.
      Global Communications is a company controlled by Ivan Caleta, who had previously
      operated Nova TV (Croatia) through OK. Global Communications, together with
      GRP
      Media d.o.o., another company controlled by Mr. Caleta, had provided certain
      goods and services to OK and Nova TV (Croatia) in exchange for advertising
      time.
      Global Communications and GRP Media were functionally managing the advertising
      inventory of Nova TV (Croatia). On December 31, 2003, Global Communications
      entered into an agreement by which OK acknowledged that Global Communications
      was entitled to approximately 375,000 seconds of advertising time for goods
      and
      services previously provided. Following our acquisition of Nova TV (Croatia)
      and
      OK in July 2004, OK concluded that Global Communications had used all of its
      seconds by June 2004 based on a substantial discrepancy discovered between
      the
      utilization of advertising time recorded by Global Communications and that
      recorded by AGB Puls, an independent television audience measurement service
      operating in Croatia. In the course of its investigation of the usage of seconds
      by Global Communications, OK discovered that computer records of advertising
      seconds kept for OK may have been altered. OK brought a suit to recover amounts
      for advertising time used by Global Communications in excess of the 375,000
      seconds agreed. Global Communications filed a counterclaim in January 2005
      for
      HRK 68.0 million (approximately US$ 11.7 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. 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 .





*Former
      Shareholder Dispute*





On
        July
        21, 2005, Narval A.M. d.o.o., Studio Millenium d.o.o. and Richard Anthony
        Sheldon, three of the former shareholders of OK, filed suit against Nova
        TV
        (Croatia) for rescission of the sale and purchase contract pursuant to which
        they sold 75% of OK to Nova TV (Croatia) in July 2004 (the “OK Sale Contract”).
        Nova TV (Croatia) acquired OK immediately prior to our acquiring Nova TV
        (Croatia). The provisions of the OK Sale Contract required Nova TV (Croatia)
        to
        make payment to the four shareholders of OK by September 1, 2004, upon receipt
        of appropriate invoices and bank account details. The fourth shareholder,
        Pitos
        d.o.o., issued an invoice that was duly received by Nova TV (Croatia) and
        payment was made thereunder. The other three shareholders claim that they
        hand-delivered a joint invoice to one of the former directors of Nova TV
        (Croatia), but we continue to dispute this. Under the Croatian Obligations
        Act,
        one party to a contract who has performed may unilaterally rescind a contract
        if
        the other party fails to perform after receipt of a written warning. On May
        24,
        2006, the lower commercial court decided in favor of the plaintiffs to rescind
        the OK Sale Contract and ordered the defendant to pay court costs. We have
        appealed the decision on the basis that evidence supporting our position
        was not
        allowed to be presented to the court. On August 28, 2006, we received a lower
        court decision of an injunction against us that, inter alia, prohibits a
        sale or
        encumbrance of 75% of the shares of OK. We have also appealed this decision.
        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 do not expect the Croatia operations to suffer any significant
        loss or disruption as a consequence of these actions.




*Page
          84*
 *Index*





*Czech
      Republic*





*Antimonopoly
      Office*





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





*Romania*





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





*Slovenia*





On
      November 20, 2002, we received notice of a claim filed by Mrs. Zdenka Meglic,
      the founder and a former shareholder of MMTV 1 d.o.o (MMTV), against MMTV,
      a
      subsidiary of CME Media Enterprises B.V.. In her claim against MMTV, Mrs. Meglic
      is seeking an amount equal to SIT 190 million (approximately US$ 1.0 million)
      for repayment of monies advanced to MMTV from 1992 to 1994 (in the amount of
      approximately SIT 29 million (approximately US$ 0.2 million)) plus accrued
      interest. On September 9, 2004, the court of first instance found against MMTV
      and issued a judgment requiring MMTV to pay SIT 190 million (approximately
      US$
      1.0 million) plus interest as well as costs. On September 24, 2004, MMTV filed
      an appeal against the judgment. On December 15, 2004, the appellate court
      vacated the judgment of the lower court and returned the case for further
      proceedings. We 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”. Mr. Kolomoisky is
      attempting to enforce what he alleges was a binding oral agreement with Mr.
      Rodnyansky to purchase the latter’s 70% interest in Studio 1+1 for consideration
      of US$ 70.0 million and to transfer that interest to Mr. Kolomoisky on receipt
      of a prepayment of US$ 2.0 million. The lawsuit arises from abortive
      negotiations among Mr. Kolomoisky, Mr. Rodnyansky and Boris Fuchsmann for the
      acquisition by Mr. Kolomoisky of the totality of interests in the Studio 1+1
      Group held by Mr. Rodnyansky and Mr. Fuchsmann, subject to Mr. Kolomoisky
      assuming all of their obligations under our existing partnership arrangements.
      On August 16, 2006, the district court in Kiev ruled in favor of Mr. Kolomoisky
      and found that he is entitled to the 70% interest in Studio 1+1 held by
      Rodnyansky. Our Ukrainian affiliate Intermedia and Mr. Rodnyansky filed appeals
      against this decision.




*Page
          85*
 *Index*




At
      a
      hearing on October 31, 2006, the appellate court, in an oral decision,
      overturned the decision of the court of first instance and denied Mr.
      Kolomoisky’s claim that he is entitled to a 70% interest in Studio 1+1 held by
      Mr. Rodnyansky. A written decision is expected to be published in November.
      Mr.
      Kolomoisky has two months from the issuance of the decision to file an appeal
      with the court of cassation, the highest court in Ukraine.  The court of
      cassation has discretion whether to accept such an appeal. In the absence of
      both an acceptance by the court of cassation of such an appeal and a favorable
      ruling by that court, Mr. Kolomoisky no longer has a basis for claiming this
      ownership right in Studio 1+1 on the same grounds.


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 Mr. Kolomoisky, by our partners
        and by
        third parties who are not direct parties in interest to legal proceedings
        initiated by Mr. Kolomoisky against Mr. 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.
        Our partners are no longer seeking to enforce the injunction filed at their
        initiative; we expect that this injunction will be removed once the case
        file in
        this matter has been transferred to the appellate court and the appeal filed
        by
        Mr. Kolomoisky in respect of this injunction has been
        scheduled.




*Page
          86*
 *Index*


**Item
      1A. Risk Factors**





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





**Risks
      Relating to our Business and Operations**





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





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





Our
      current broadcasting licenses expire at various times between 2006 and 2017
      including the broadcasting license covering fifteen hours (primarily prime
      and
      off prime time) in Ukraine which expires on December 31, 2006. On July 19,
      2006,
      the Ukrainian Media Council issued a decision to extend the 15-hour broadcasting
      license of Studio 1+1 for a ten-year period from January 1, 2007. Issuance
      of
      the license itself is subject to the payment of a fee of approximately UAH
      5.9
      million (approximately US$ 1.2 million), which has been paid, and to the
      requirement that Studio 1+1 bring its corporate documents into conformity with
      recent amendments to the Ukrainian Media Law. Although Studio 1+1 has amended
      its corporate documents to conform with the Ukrainian Media Law, it has not
      yet
      succeeded in registering its amended charter (which is one of its corporate
      documents that memorializes the amendments adopted by Studio 1+1). Because
      of
      ongoing ancillary litigation to enjoin transactions related to the ownership
      of
      Studio 1+1 that have been initiated by Mr. Kolomoisky, by our partners and
      by
      third parties who are not direct parties in interest to legal proceedings
      initiated by Mr. Kolomoisky against Mr. Rodnyansky on October 11, 2005 or not
      otherwise participating in any negotiations, the district administration in
      Kiev
      where such amendments are registered is presently enjoined from registering
      any
      amendments to the charter of Studio 1+1 (see Item 1, “Legal Proceedings,
      Ukraine”). If we are not able to lift any such injunction or otherwise register
      the necessary amendments to the charter of Studio 1+1, we may not receive a
      license certificate following the expiration of the current license on December
      31, 2006. In the event that we do not receive a license certificate, Studio
      1+1
      may not be able to broadcast for 15 hours per day. The failure to receive this
      license certificate, any non-renewal or termination of any other broadcasting
      or
      operating licenses or other authorizations or material modification of the
      terms
      of any renewed licenses may have a material adverse effect on our financial
      position, results of operations and cash flows.





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





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


*Page
          87*
 *Index*





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





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





Our
      revenue generating operations are located in Central and Eastern Europe. These
      markets pose different risks from those posed by investments in more developed
      markets and the impact in our markets of unforeseen circumstances on economic,
      political or social life is greater. Countries in this region have economic
      and
      political systems, legal and tax regimes, standards of corporate governance
      and
      business practices that continue to develop. Government policies may be subject
      to significant adjustments, especially in the event of a change in leadership,
      which may result in social or political instability or disruptions, potential
      political influence on the media, inconsistent application of tax and legal
      regulations, arbitrary treatment before judicial or other regulatory authorities
      and other general business risks. Other potential risks inherent in markets
      such
      as ours with changing economic and political environments include exchange
      controls, higher tariffs and other levies, as well as longer payment
      cycles.





The
      relative level of development of our markets and the influence of local parties
      also presents a potential for biased treatment of us by local regulators or
      before the local courts in the event of disputes involving our investments.
      If
      such a dispute occurs, those regulators or courts might favor local interests
      over our interests. Ultimately this could lead to loss of our business
      operations, as occurred in the Czech Republic in 1999. We are involved in
      certain disputes with some of the former shareholders of our Croatian operations
      and some of these shareholders may also challenge a restructuring that we have
      undertaken in response to a request from the Croatian Media Council. The ability
      of certain of these shareholders to exert influence on local institutions may
      create a potential for biased treatment of us. An adverse outcome in the Global
      Communications lawsuit (see Item 1, “Legal Proceedings, Croatia”) or a
      successful challenge to the restructuring could have an adverse impact on our
      financial position, results of operations and cash flows.





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





We
      generate almost all of our revenues from the sale of advertising airtime on
      our
      television channels. Our advertising revenues in general depend on the pricing
      of our advertising time as well as other factors, including television viewing
      levels, changes in audience preferences, our stations’ technical reach,
      technological developments relating to media and broadcasting, competition
      from
      other broadcasters and other media operators, seasonal trends in the advertising
      market in the countries in which we operate, and shifts in population and other
      demographics. Advertisers generally use gross ratings points to measure
      television viewing levels. Our ability to generate gross ratings points depends
      on our offering programming which appeals to our target audiences, responding
      to
      technological developments in media, competing effectively with other
      broadcasters seeking to attract similar audiences and managing the impact of
      any
      seasonal trends.





In
      the
      Czech Republic, we are implementing a new advertising sales strategy to capture
      market growth through a more sophisticated pricing policy (see Part I, Item
      2,
“Czech Republic”). There can be no assurance that we will be able to implement
      successfully the new advertising sales strategy in the Czech Republic or to
      respond successfully to changes in other factors affecting advertising sales
      generally in order to maintain and increase our advertising sales. Any decline
      in advertising sales due to a failure to respond to such changes or to
      successfully implement new sales strategies, particularly in the Czech Republic,
      could have a material adverse effect on our financial position, results of
      operations and cash flows.





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





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




*Page
          88*
 *Index*




*Our
      operating results are dependent on general economic conditions*





The
      results of our operations rely heavily on advertising revenue, and demand for
      advertising is affected by prevailing general economic conditions. Adverse
      economic conditions generally and downturns in the economies of our operating
      countries specifically are likely to negatively impact the advertising
      industries in those countries and, consequently, the results of our operations.
      In addition, disasters, acts of terrorism, civil or military conflicts or
      general political uncertainty may create economic uncertainty that reduces
      advertising spending. Although recently there has been growth in the economies
      of our operating countries, there can be no assurance that this trend will
      continue or that any such improvement in general economic conditions will
      generate increased advertising revenue for our group. Global and local downturns
      in the general economic environment may cause our customers to reduce the
      amounts they spend on advertising, which could result in a decrease in demand
      for our advertising airtime. This would adversely affect our business, financial
      condition, results of operations and cash flow.





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





Television
      programming is one of the most significant components of our operating costs.
      The commercial success of our channels depends substantially on our ability
      to
      develop, produce or acquire syndicated television programming content that
      matches audience tastes, attracts high audience shares and generates advertising
      revenues. Our programming costs or requirements may increase in response to
      increased competition from existing and new television broadcasting channels
      for
      such programming or related talent. The costs of acquiring programming content
      attractive to our viewers, such as feature films and popular television series,
      may increase as a result of such competition. In addition, our expenditure
      in
      respect of locally produced programming content may increase due to the
      implementation of new laws and regulations mandating the broadcast of a greater
      number of locally produced programs, changes in audience tastes in our markets
      in favor of locally produced content, and competition for talent. In addition,
      we typically acquire syndicated programming rights under multi-year commitments
      before we can predict whether such programming will perform. In the event any
      such programming does not attract adequate audience share, it may be necessary
      to write down the value of such programming. Any such increase in programming
      costs or write-downs could have a material adverse effect on our business,
      financial condition, results of operations and cash flow.





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





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


*Page
          89*
 *Index*




The
      television broadcasting industry may be affected by rapid innovations in
      technology. The implementation of new technologies and the introduction of
      broadcasting distribution systems other than analogue terrestrial broadcasting,
      such as digital broadcasting, cable and satellite distribution systems, the
      internet, video-on-demand and the availability to television programming on
      portable digital devices, have fragmented television audiences in more developed
      markets and could adversely affect our businesses. In addition, compression
      techniques and other technological developments allow for expanded programming
      offerings to be offered to highly targeted audiences. Reductions in the cost
      of
      creating additional channel capacity could lower entry barriers for new channels
      and encourage the development of increasingly targeted niche programming on
      various distribution platforms. Our television broadcasting operations may
      be
      required to expend substantial financial and managerial resources on the
      implementation of new broadcasting technologies or distribution systems. In
      addition, an expansion in competition due to technological innovation may
      increase competition for audiences and advertising revenue as well as the
      competitive demand for programming. Any requirement for substantial further
      investment for digitalization or to address competition that arises on account
      of technological innovations in broadcasting may have an adverse effect on
      our
      business, financial condition, results of operations and cash
      flows.





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





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


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




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





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





The
      acquisition, ownership and operation of television broadcasting operations
      requires substantial capital investment. Our total capital requirements are
      based on our estimates of future operating results, which are based on a variety
      of assumptions that may prove to be inaccurate. If our assumptions prove to
      be
      inaccurate, if our assumptions or plans change, or if our costs increase due
      to
      competitive pressures or other unanticipated developments, we may need to obtain
      additional financing. Sources of financing may include public or private debt
      or
      equity financings, proceeds from the sale of assets or other financing
      arrangements. Any additional equity or equity-linked financings may dilute
      the
      economic interest of the holders of our Common Stock. In addition, it is not
      possible to ensure that such financings will be available within the limitations
      on the incurrence of additional indebtedness contained in the Indenture pursuant
      to which our Senior Notes were issued or pursuant to the terms of the EBRD
      Loan
      Agreement (see Part I, Item 1, Notes 6 and 12). Furthermore, such financings
      may
      not be available on acceptable terms, or may be subject to limits on the
      incurrence of indebtedness under the Indenture.


*Page
          90*
 *Index*




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





Our
      leverage has been significantly increased with the issuance of EUR 370.0 million
      (US$ 468.4 million at September 30, 2006) fixed and floating Senior Notes (see
      Part I, Item 1, Note 6) in connection with the acquisition of the TV Nova (Czech
      Republic) group. As a result, we have significant debt service obligations
      and
      we are restricted in the manner in which our business is conducted. We
      anticipate that our high leverage will continue for the foreseeable future.
      Our
      high leverage could have important consequences to our business and results
      of
      operations, including but not limited to the following: our vulnerability to
      a
      downturn in our business or economic and industry conditions has increased;
      our
      ability to obtain additional financing to fund future working capital, capital
      expenditures, business opportunities and other corporate requirements has been
      limited. We may have a higher level of debt than certain of our competitors,
      which may put us at a competitive disadvantage; a substantial portion of our
      cash flow from operations is required to be dedicated to the payment of
      principal of, and interest on, our indebtedness, which means that this cash
      flow
      is not available to fund our operations, capital expenditures or other corporate
      purposes; and our flexibility in planning for, or reacting to, changes in our
      business, the competitive environment and the industry in which we operate
      has
      been limited. Any of these or other consequences or events could have a material
      adverse effect on our ability to satisfy our debt obligations and would
      therefore have potentially harmful consequences for the development of our
      business and strategic plan.





*Under
      the Senior Notes and the EBRD Loan Agreement, we have pledged shares in our
      subsidiaries that hold substantially all of our assets and a default on our
      obligations could result in our inability to continue to conduct our business*





Pursuant
      to the terms of our Indenture and the EBRD Loan Agreement, we have pledged
      shares in our two principal subsidiary holding companies, which own
      substantially all of our interests in our operating companies, including the
      TV
      Nova (Czech Republic) Group, Pro TV, STS, Pro Plus and Studio 1+1. If we were
      to
      default on the Indenture or the EBRD Loan Agreement, the Indenture trustee
      or
      the EBRD would have the ability to sell all or a portion of all of these assets
      in order to pay amounts outstanding under the Indenture or the EBRD Loan
      Agreement.





*Our
      success depends on attracting and retaining key personnel*





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





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





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





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





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




*Page
          91*
 *Index*




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





In
      Romania, the Slovak Republic and Ukraine, the local shareholders of our
      television operating companies are individuals with other business interests
      in
      those countries, including interests in television and other media related
      companies. In Romania our general director is also a shareholder in our
      operating company and the controlling shareholder of one of our affiliates
      engaged in the production and distribution of television programming. Our local
      operating companies enter into transactions with parties related to our local
      shareholders and general directors, including barter transactions. Some or
      all
      of these transactions may present conflicts of interest that may in turn result
      in the conclusion of transactions on terms that are not arms length. In
      addition, some related party receivables have been collected more slowly than
      unrelated third party receivables, which has resulted in slower cash flow to
      our
      operating companies to the detriment of our shareholders. It is likely that
      our
      subsidiaries will continue to enter into related party transactions in the
      future. As a result, there is a continuing risk that related party transactions
      will have a negative impact on cash flows.





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





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





*Our
      operations may not be profitable in the future*





The
      year
      ended December 31, 2004 was the first year in which we recorded net income
      from
      continuing operations. In preceding years since our incorporation, we recorded
      net operating losses from continuing operations. As of September 30, 2006,
      we
      had an accumulated deficit of US$ 58.0 million.





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





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





*If
      our goodwill or amortizable intangible assets become impaired we may be required
      to record a significant charge to earnings*





We
      review
      our amortizable intangible assets for impairment when events or changes in
      circumstances indicate the carrying value may not be recoverable. Goodwill
      is
      required to be tested for impairment at least annually. Factors that may be
      considered a change in circumstances indicating that the carrying value of
      our
      goodwill or amortizable intangible assets may not be recoverable include a
      decline in stock price and market capitalization, future cash flows, and slower
      growth rates in our industry. We may be required to record a significant charge
      to earnings in our financial statements during the period in which any
      impairment of our goodwill or amortizable intangible assets is determined
      resulting in an impact on our results of operations.




*Page
          92*
 *Index*




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





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





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





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





*Enforcement
      of civil liabilities and judgments may be difficult*





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




**Risks
      Relating to Our Common Stock**





*CME
      Holdco L.P. is in a position to decide corporate actions that require
      shareholder approval and may have interests that differ from those of other
      shareholders*




CME
      Holdco L.P. owns the outstanding shares of our Class B Common Stock, each of
      which carries 10 votes per share. Ronald Lauder, the chairman of our Board
      of
      Directors, is the majority owner of CME Holdco L.P. and, subject to certain
      limitations described below, is entitled to vote those shares on behalf of
      CME
      Holdco L.P. The shares over which Ronald Lauder has voting power represent
      64.8%
      of the aggregate voting power of our Common Stock. On September 1, 2006, Adele
      (Guernsey) L.P., a fund affiliated with Apax Partners, acquired 49.7% of CME
      Holdco L.P. Under the terms of the limited partnership agreement of CME Holdco
      L.P., Adele (Guernsey) L.P. has certain consent rights in respect of the voting
      and disposition of the shares of Class B Common Stock. CME Holdco L.P. is in
      a
      position to control the outcome of corporate actions requiring shareholder
      approval, such as the election of directors, including two recommended by Adele
      (Guernsey) L.P., and transactions involving a change of control. The interests
      of CME Holdco L.P. may not be the same as those of other shareholders, and
      such
      shareholders will be unable to affect the outcome of such corporate actions
      for
      so long as CME Holdco L.P. retains voting control.




*Page
          93*
 *Index*





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





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





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





As
      at
      September 30, 2006, we have a total of 1.0 million options to purchase Class
      A
      Common Stock outstanding and 0.1 million options to purchase Class B Common
      Stock outstanding. An affiliate of PPF holds 3,500,000 unregistered shares
      of
      Class A Common Stock and has the right to demand a registration of up to 100%
      of
      such shares in May 2007. We cannot predict what effect, if any, the issuance
      of
      shares underlying options, the registration of such unregistered shares or
      any
      future sales of our shares will have on the market price of our shares. However,
      if more shares are issued, the economic interest of current shareholders may
      be
      diluted and the price of our shares may be adversely affected.





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




*Page
          94*
 *Index*




**Item
      6. Exhibits**





a)
      The
      following exhibits are attached:





31.01
            s.
                302 Sarbanes-Oxley Certification - CEO, dated November 9,
                200631.02
            s.
                302 Sarbanes-Oxley Certification - CFO, dated November 9,
                200632.01
            s.
                906 Sarbanes-Oxley Certification - CEO and CFO, dated November 9,
                2006
                (furnished only)10.60*
            Amended
                and Restated Contract of Employment between Marina Williams, Executive
                Vice President, and CME Development Corporation, dated October 5,
                200610.61*
            Amended
                and Restated Contract of Employment between Wallace Macmillan, Chief
                Financial Officer, and CME Development Corporation, dated October
                6,
                2006.





*
      Management contract








**S** **IGNATURES**





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:
                  November 9, 2006
              /s/
                  Michael GarinMichael
                  GarinChief
                  Executive Officer(Duly
                  Authorized Officer)Date:
                  November 9, 2006
              /s/
                  Wallace MacmillanWallace
                  MacmillanVice
                  President - Finance(Principal
                  Financial Officer and Accounting
                  Officer)


*Page
          95*
 *Index*


**EXHIBIT
      INDEX**





31.01
            s.
                302 Sarbanes-Oxley Certification - CEO, dated November 9,
                200631.02
            s.
                302 Sarbanes-Oxley Certification - CFO, dated November 9,
                200632.01
            s.
                906 Sarbanes-Oxley Certification - CEO and CFO, dated November 9,
                2006
                (furnished only)10.60*
            Amended
                and Restated Contract of Employment between Marina Williams, Executive
                Vice President, and CME Development Corporation, dated October 5,
                200610.61*
            Amended
                and Restated Contract of Employment between Wallace Macmillan, Chief
                Financial Officer, and CME Development Corporation, dated October
                6,
                2006.





*
      Management contract






*Page
      96*