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**ZAO PricewaterhouseCoopers Audit**Kosmodamianskaya Nab. 52, Bld. 5115054 MoscowRussiaTelephone +7 (095) 967 6000Facsimile +7 (095) 967 6001

 Report of Independent Accountants****

To the Board of Directors andShareholders of ABC Moscow Broadband Communication Limited:

In our opinion, the accompanying balance sheets and the relatedstatements of operations, of changes in shareholders' equity and cash flowspresent fairly, in all material respects, the financial position of ABC MoscowBroadband Communication Limited at December 31, 2002 and December 31, 2001, andthe results of their operations and their cash flows for the three years in theperiod ended December 31, 2002 in conformity with accounting principlesgenerally accepted in the United States of America.  These financial statements are theresponsibility of the Company's management; our responsibility is to express anopinion on these financial statements based on our audits.  We conducted our audits of these statementsin accordance with auditing standards generally accepted in the United Statesof America, which require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe that ouraudits provide a reasonable basis for our opinion.

**/s/ ZAO PricewaterhouseCoopers Audit**

Moscow, RussiaMay 23 , 2003

 

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**ABCMoscow Broadband Communication LimitedBalance SheetsDecember 31, 2002 and 2001(in thousands, except share data)**

 

**2002 **

2001 

**Assets**

 

 

Current assets

 

 

   Cash and cash equivalents

**$      557 **

$   4,344 

   Prepaid expenses and other current assets

**            - **

            9 

          Total current assets

**557 **

4,353 

 

** **

 

   Investment in ComCor-TV (Note 3)

**8,036 **

5,465 

   Notes and accounts receivable from  ComCor-TV

**819 **

2,527 

   Investment in Institute for Automated  Systems (Note 3)

**         48 **

         48 

          Total assets

**$   9,460 **

$ 12,393 

**Liabilities and Shareholders'  Equity**

** **

 

   Accounts payable

**$        30 **

$          2 

   Accrued expenses

**22 **

129 

   Payable to Andersen Group, Inc. (Note 5)

**            - **

            6 

          Total liabilities

**         52 **

        137 

Commitments and  contingencies

** **

 

 

** **

 

Shareholders' equity

** **

 

   Common  stock, Series A, 1 Cyprus Pound (US $2.20) par value;     1,000 shares authorized, issued and  outstanding in 2002 and 2001 (Note 4)

**2 **

  2 

   Common  stock, Series B, $1,000 par value; 19,000 shares authorized,     issued and outstanding in 2002 and  2001,    respectively (Note 4)

**19,000 **

  19,000 

   Additional paid-in capital

**1,409 **

1,409 

   Accumulated deficit

** (11,003)**

(8,155)

          Total shareholders' equity

**   9,408 **

  12,256 

           Total liabilities and shareholders'  equity

** $    9,460 **

$ 12,393 

The accompanying notes are an integral part of these financialstatements.

 

 
**ABC Moscow BroadbandCommunication LimitedStatements of OperationsFor the Years Ended December 31, 2002, 2001 and 2000(in thousands)**

 

**Year Ended   December 31, 2002**

Year Ended December 31, 2001

Year Ended December 31, 2000

Interest income

**$      68 **

$    311 

$    499 

Expenses

** **

 

 

   Salaries

**265 **

254 

246 

   Legal and  consulting

**188 **

589 

912 

   Allocations  from Andersen Group, Inc.

**- **

158 

212 

   Travel and  other

**        34 **

      143 

       233 

Total operating expenses

**      487 **

   1,144 

    1,603 

Net loss before equity in losses of    unconsolidated subsidiary

**(419)**

  (833)

  (1,104)

Equity in losses of ComCor-TV

**  (2,429)**

  (1,852)

  (1,814)

Net loss

**$(2,848)**

$(2,685)

$(2,918)

 The accompanying notes are an integral part of these financialstatements.

 

 
**ABC Moscow BroadbandCommunication LimitedStatement of Changes in Shareholders' Equity (Deficit)For the Years Ended December 31, 2002, 2001 and 2000(in thousands, except share data)**

 

** **

** **

** **

** **

**Additional**

** **

** **

 

**Class A Common Stock**

**Class B Common Stock**

**Paid-in**

**Accumulated**

** **

 

**Shares**

**Par  Value**

**Shares**

**Par Value**

**Capital**

**Deficit**

**Total**

Balance at December 31, 1999 (unaudited)

  1,000 

  $  2 

  - 

  $        - 

  $ 1,516 

  $(2,552)

  $(1,034)

Issuance of common stock  Class B, net of issuance   costs of $107,000

 

- 

 

- 

  17,450 

  17,450 

  (107)

  - 

  17,343 

Conversion of shareholders'  payable to common stock   Class B (Note 4)

  - 

  - 

  1,000 

  1,000 

  - 

  - 

  1,000 

Net loss

       - 

    - 

         - 

         - 

         - 

  (2,918)

(2,918)

Balance at December 31, 2000

  1,000 

  2 

  18,450 

  18,450 

  1,409 

  (5,740)

  14,391 

Issuance of common stock  Class B

  - 

  - 

  550 

  550 

  - 

  - 

  550 

Net loss

       - 

    - 

         - 

          - 

         - 

(2,685)

(2,685)

Balance at December 31,  2001

  1,000 

  2 

  19,000 

  19,000 

  1,409 

  (8,155)

  12,256 

Net loss

       - 

    - 

         - 

           - 

         - 

(2,848)

(2,848)

**Balance at December 31,  2002**

**1,000 **

**$  2 **

**19,000 **

**$19,000 **

**$1,409 **

**$(11,003)**

**$9,408 **

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

44

 
**ABC Moscow BroadbandCommunication LimitedStatement of Cash FlowsFor the Years Ended December 31, 2002, 2001 and 2000(in thousands)**

 

**Year Ended December 31, 2002**

Year Ended December 31, 2001  

Year Ended    December 31, 2000

**Cash flows from operating activities**

 

 

 

   Net loss

**$ (2,848)**

$ (2,685)

$ (2,918)

   Equity in  losses of ComCor-TV

**2,429 **

1,852 

1,814 

   Change in  prepaid expenses and other current assets

**9 **

(9)

- 

   Change in  accounts payable and accrued liabilities

**(79)**

(123)

4 

   Change in  payable to Andersen Group, Inc.

**         (6)**

          (9)

      (17)

                Net  cash used in operating activities

**     (495)**

      (974)

 (1,117)

**Cash flow from investing activities**

** **

 

 

   Purchase of  investment in ComCor-TV

**(5,000)**

8 

(9,020)

   Notes  receivable from ComCor-TV

**    1,708 **

 (2,527)

           - 

                Net  cash used in investing activities

**  (3,292)**

 (2,519)

 (9,020)

**Cash flows from financing activities**

** **

 

 

   Cash  received from issuance of Class B shares,     net of offering expenses

**- **

  - 

  17,343 

   Cash  received for common stock subscribed (Note 4)

**            - **

           - 

      550 

Net cash provided by financing activities

**            - **

           - 

 17,893 

Net (decrease) increase in cash

**(3,787)**

(3,493)

7,756 

Cash at beginning of year

**    4,344 **

   7,837 

       81 

Cash at end of year

**$     557 **

$ 4,344 

$ 7,837 

The accompanying notes are an integral part of these financialstatements.

 

 
**ABC Moscow BroadbandCommunication LimitedNotes to Financial StatementsFor the Years Ended December 31, 2002, 2001 and 2000**

** **

**1.             Nature of the Business**ABC Moscow Broadband Communication Limited ("MoscowBroadband" or the "Company") is a Cyprus-based associationformed in 1995 as Treglos Investments Limited to act as a holding company forinvestments in Russian companies.  From1995 to early 2000, its primary investment had been an approximately 6%interest in The Institute for Automated Systems ("IAS"), a Moscow-basedtelecommunications company.  In June2000, the Company changed its name from Treglos Investments Limited to ABCMoscow Broadband Communication Limited. In January 2000, Moscow Broadband entered into an agreement (the "JointVenture Agreement") with Moscow Telecommunications Corporation ("COMCOR")under which COMCOR and Moscow Broadband would fund the operations of ZAOComCor-TV ("ComCor-TV") and maintain joint and equal control overComCor-TV.  In April 2000 pursuant tothis agreement, the Company and COMCOR each provided capital to ComCor-TV inexchange for equal ownership of ComCor-TV's equity.  ComCor-TV is developing and operating anetwork to deliver cable television, high speed data transmission and Internetaccess, and IP telephony to up to 1,500,000 homes and businesses throughout theMoscow region. 

**2.             Summaryof Significant Accounting Policies**

**Use of Estimates**The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

**Cash and Cash Equivalents**The Company considers all highly liquid investments with an originalor remaining maturity of three months or less at the date of purchase to becash equivalents.  

**Interest Income**Interest income on bank deposits and loans toComCor-TV is recognized as earned.

**Income Taxes**Deferred taxes are determined based on the difference between thefinancial statement and tax basis of assets and liabilities using enacted taxrates in effect in the years in which the differences are expected toreverse.  Valuation allowances areprovided if, based upon the weight of available evidence, it is more likelythan not that some or all of the deferred tax assets will not be realized.

**3.             Investments**

The Company's investments in ComCor-TV and the IAS are subject to the risks anduncertainties of the economy of the Russian Federation.  This economy continues to displaycharacteristics of an emerging market. These characteristics include, but are not limited to, the existence ofthe following:  a currency that is notfreely convertible outside of the country; extensive currency controls; a lowlevel of liquidity in the public and private debt and equity markets; and highinflation.The prospects for future stability in the Russian Federation are largelydependent upon the effectiveness of economic measures undertaken by thegovernment, together with legal, regulatory and political developments.

**Financial Instruments**The carryingamounts of the Company's financial instruments, which include cash and cashequivalents, accounts payable, accrued expenses, and notes receivable,approximate their fair value at December 31, 2002 and 2001 due to their shortmaturities.

 
**Investment in IAS**The investment in IAS is carried at historical cost,adjusted for other than temporary declines in fair value.  Moscow Broadband invested $1,000,000 for thepurchase of shares of IAS in 1996. During the year ended December 31, 1998, the Company recorded an$833,000 impairment loss to reflect an other than temporary decline in itsvalue relating to the financial crisis in Russia at that time.  During the year ended December 31, 2001,10,722 shares of IAS with an adjusted cost basis of $119,000 were contributedto ComCor-TV as discussed below.  Suchshares were recorded by ComCor-TV at a fair value of $634,000 in accordancewith joint venture accounting.  As of December31, 2002 and 2001, the Company owned 4,402 shares which represent approximately1.8% of IAS.

**Investment in ComCor-TV**In April 2000, pursuant to the Joint VentureAgreement, the Company contributed $8,500,000 in cash to ComCor-TV, 10,722shares of IAS, and also contributed an additional $500,000 in cash during theyear ended December 31, 2001.  In return,the Company received a 50% equity ownership in ComCor-TV.  In accordance with the Joint VentureAgreement, the Company will share in half the profits and losses of ComCor-TVand is permitted to appoint half the directors to the ComCor-TV Board ofDirectors.  The Company shares jointcontrol over ComCor-TV with COMCOR and, as a result, the investment is beingaccounted for under the equity method.  In May 2002, the Company invested an additional $5,000,000 of cash into ComCor-TVpursuant to agreements under which both ComCor-TV and the Company would becomecontrolled subsidiaries of Andersen Group, Inc. ("Andersen"), a USpublicly traded company which currently owns 25% of the outstanding stock ofthe Company.  These agreements alsocalled for COMCOR to contribute operating assets and additional shares of IASwith an aggregate agreed-upon value of $17,478,000.At December 31, 2002, the reported value of the Company's investment inComCor-TV was $8,036,000 which equals 27.2% of the recorded value of ComCor-TV'snet assets.  The Company continues torecord a 50% equity interest in ComCor-TV's results of operations becausecapital contributions made into ComCor-TV by the Company and COMCOR were madepursuant to agreements signed that, if consummated, will result in both theCompany and ComCor-TV becoming 100% owned subsidiaries of Andersen Group, Inc.("Andersen"), a U.S. publicly traded company which owns 25% of theoutstanding stock of the Company.  Untilthese transactions are finalized, the Company and COMCOR equally share votingpower with respect to ComCor-TV's matters which require shareholder approval.During 2001 and 2002, the Company provided advances and loans to ComCor-TVsubject to various lending agreements. At December 31, 2001, the advances and loans totaled $2,527,162.  In April 2002, the Company advanced ComCor-TVan additional $250,000.  With theproceeds of the Company's $5,000,000 capital investment in May 2002, ComCor-TVrepaid $2,509,742 of the loans and advances along with accrued interestthereon.  From September 2002 throughDecember 2002, the Company loaned a net of $550,000 additional pursuant to asecured loan agreement.  At December 31,2002, the total of loans and advances to ComCor-TV was $819,047, which includes$1,627 of accrued interest receivable. As a result of the agreements reached in April 2003, as described inNote 7, realization of this amount is more reasonably assured, and accordingly,no provision for uncollectibility has been recorded.During 2002 and 2001, the Company recognized $28,115 and $6,521, respectively,of interest income from loans to ComCor-TV.

 The following presents ComCor-TV's summarizedfinancial information as of and for the years ended December 31, 2002 and 2001(in thousands): 

 

**2002**

2001

** **

**Consolidated Balance Sheet**

 

 

 

   Current assets

**$  6,014 **

$    2,930    

 

   Non-current assets

**  28,496 **

14,850    

 

          Total assets

**$34,510 **

$  17,780 

 

   Current liabilities

**$ 3,124 **

$    3,631    

 

   Non-current liabilities

**   1,816 **

2,099    

 

          Total liabilities

**   4,940 **

5,730    

 

  Minority interest

**28 **

25   

 

   Shareholders' equity

**  29,542 **

12,025    

 

 

**$34,510 **

$  17,780    

 
      
   
**         Years Ended December 31,**
** **

**2002**

2001

2000

**Consolidated Statement of Operations**

 

 

 

   Revenues

**$ 1,941 **

$   1,200     

359 

   Cost of revenues

**$(3,691)**

$  (2,004)

$(1,611)

   Loss from operations

**$(4,960)**

$  (5,101)

$(3,574)

   Net loss

**$(4,858)**

$  (3,704)

$(3,599)

 **4.             Common Stock**

The Company was originally capitalized with 1,000 shares of Class A commonstock, which has a par value of one Cyprus pound per share (US $2.20).  During 2000, the Company's Board of Directorsauthorized the creation of a separate class of common stock, Class B commonstock.  The Company is authorized toissue up to 19,000 shares of Class B common stock with a par value ofUS$1,000.  Each class of stock has equalrights with respect to voting, dividends and preference in liquidation. 

During 2000, the Companycompleted a private placement of 19,000 shares of its Class B common stock at aprice of $1,000 each.  As of December 31,2000, two investors in the private placement had not been issued stockcertificates for their 550 shares of Class B common stock pending foreign bankcitizenship approval.  Accordingly, the$550,000 of proceeds relating to these shares was classified as common stocksubscribed.  During the year endedDecember 31, 2001, all 550 shares of Class B common stock were issued to theseinvestors.   

At the time of theprivate placement, the Company was indebted to certain of the holders of theClass A common stock in the aggregate amount of $1,000,000 for expensesincurred on the Company's behalf from 1995 through December 1999.  Concurrent with the private placement, theseshareholders elected to convert this liability into equity through thesubscription of Class B shares.  Costsrelating to the private placement, and issuance of the shares, were charged toadditional paid-in capital. 

**5.             Related Party Transactions**

At December 31, 2002, the Company had only onecompensated officer, and it does not have its own facilities.  Accordingly, it relies on Andersen for allits administrative and operational activities. In connection therewith, Andersen charged $158,000 and $212,000 ofadministrative expenses to the Company during the years ended December 31, 2001and 2000, respectively.  Due to theincreased level of activities in 2002 being related to Andersen's plannedacquisition of ComCor-TV and the Company, Andersen did not allocate anyexpenses to the Company during 2002. 

The President of the Company is compensated directlyby the Company and is also the Chairman of Andersen.  The President and Chief Financial Officer ofAndersen also are Chairman and Chief Financial Officer, respectively, of theCompany.  

 
 **6.             Income Taxes**

 Theprincipal components of the deferred tax balances are as follows: 

 

**December 31, 2002**

December 31, 2001

Net operating loss carryforwards

**$ 879 **

$  268 

Deferred tax asset valuation allowance   

**(879)**

  (268)

Net deferred tax assets  

**$      - **

$      - 

 The Company is subject to incometax in Cyprus at the rate of 4.25%. There is no tax liability for the year because of the lossesincurred.  The losses can be carriedforward and utilized against the profits of the five years following the yearin which they were incurred.

 TheCompany has provided a valuation allowance for the full amount of its netdeferred tax assets since realization of any future benefit from deductible temporarydifferences and net operating loss and tax credit carryforwards cannot besufficiently assured at December 31, 2002. 

**7.             Subsequent Event**

 In May 2003, Andersen and COMCOR entered into agreements under which Andersen wouldacquire COMCOR's equity interest in ComCor-TV, including equity interests to bereceived from the conversion of amounts owed by ComCor-TV to COMCOR forservices provided during 2002 and estimated amounts to be provided in2003.  Pursuant to these agreements,Andersen committed to investing $3.5 million in cash into ComCor-TV within 20days of the signing of the agreements and committed to invest an additional $2.5 million into ComCor-TV atdefined periods through no later than August 31, 2004. 

Theagreements between COMCOR and Andersen require that Andersen also acquiresubstantially all of the equity interests of the Company to enable Andersen toown substantially all of the equity interests of ComCor-TV.  Concurrent with the closing of itsacquisition of COMCOR's equity holdings in ComCor-TV, Andersen intends to issue150 shares of its common stock for each Class A or Class B common share of theCompany that it does not already own to holders of such shares who accept itsexchange offer.
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