Securities and Exchange Commission
                              Washington, DC 20549

                                    FORM 10-K

[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13  or  15(d)  OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the fiscal  year ended  December 31, 1999
                                       OR
[  ]     TRANSITIONAL  REPORT  PURSUANT  TO SECTION 13 OR 15(d)OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the transition period from _______ to _______

                         Commission File Number 1-11484

                       HUNGARIAN TELEPHONE AND CABLE CORP.
             (Exact Name of Registrant as specified in its charter)

                  Delaware                                     13-3652685
         (State or other jurisdiction of                    (I.R.S. Employer
         incorporation or organization)                     Identification No.)

                  100 First Stamford Place, Stamford, CT 06902
               (Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (203) 348-9069

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class                    Name of Each Exchange on Which Registered
-------------------                    -----------------------------------------
Common Stock, par value $.001 per share         American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

         Indicate  by check  mark  whether  the  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 such shorter  period that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirement for the past 90 days. Yes X No __

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

         As of April 11,  2000,  12,009,479  shares of the  Registrant's  Common
Stock were  outstanding,  of which 12,007,179 were held by non-affiliates of the
Registrant.  The aggregate market value of the Registrant's Common Stock held by
non-affiliates,  computed by reference to the closing  price of the Common Stock
on the  American  Stock  Exchange as of April 10,  2000,  was  $92,305,189.  The
exclusion  of shares owned by any person from such amount shall not be deemed an
admission by the Registrant that such person is an affiliate of the Registrant.

                       Documents Incorporated by Reference

         Part III - Portions of the Registrant's  proxy statement for the Annual
Meeting of Stockholders for the fiscal year ended December 31, 1999.


<PAGE>


            Cautionary Statement Regarding Forward-Looking Statements

         Certain   statements   contained   herein   which   express   "belief,"
"anticipation,"  "expectation," or "intention" or any other projection,  insofar
as  they  may  apply   prospectively   and  are  not   historical   facts,   are
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Because such
statements include risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ  materially from those expressed or implied
by such forward-looking  statements include, but are not limited to, the factors
set  forth  in  "Item 7.  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations."

                                     PART I

         In this Part I of Form 10-K,  all  references to "$" or "U.S.  dollars"
are to  United  States  dollars  all  references to EUR  are to  euros  and  all
references  to "HUF" or "forints"  are to  Hungarian  forints.  Certain  amounts
stated in euros and forints herein also have been stated in U.S.  dollars solely
for the informational  purposes of the reader,  and should not be construed as a
representation  that such forint amounts  actually  represent  such U.S.  dollar
amounts or could be, or could have been, converted into U.S. dollars at the rate
indicated or at any other rate. Unless otherwise stated or the context otherwise
requires, such amounts have been stated at December 31, 1999 exchange rates. The
forint/U.S.   dollar   middle   exchange  rate  as  of  December  31,  1999  was
approximately 252.52 forints per U.S. dollar.

                                Item 1. Business
Company Overview

         Hungarian  Telephone and Cable Corp.  ("HTCC" or the "Registrant"  and,
together with its  consolidated  subsidiaries,  the  "Company")  provides  basic
telephone services in five defined regions within the Republic of Hungary (each,
an "Operating  Area" and together,  the "Operating  Areas")  pursuant to 25-year
telecommunications  concessions  granted  by  the  Hungarian  government.  HTCC,
through its four  majority-owned  operating  subsidiaries  (each,  an  Operating
Company and together,  the "Operating  Companies"),  owns and operates virtually
all  existing  public  telephone  exchanges  and local  loop  telecommunications
network  facilities in its Operating Areas and is the exclusive provider through
November 1, 2002 of non-cellular local voice telephone services in such areas.

         The Company acquired its concession rights from the Hungarian  Ministry
of Transportation,  Telecommunications and Water Management (the "Ministry") for
$11.5  million  (at  historical  exchange  rates)  and  purchased  the  existing
telecommunications    infrastructure   in   the   Operating   Areas,   including
approximately  61,400 access lines, from Magyar  Tavkozlesi Rt.  ("Matav"),  the
formerly  State-controlled  monopoly  telephone  company,  for $23.2 million (at
historical  exchange  rates).  Kelet-Nograd  Com Rt.  ("KNC") and Raba Com.  Rt.
("Raba-Com"),   two  of  the   Operating   Companies,   acquired   the  existing
telecommunications  assets  in their  respective  Operating  Areas in the  first
quarter of 1995, while Papa es Tersege Telefon  Koncesszios Rt.  ("Papatel") and
Hungarotel  Tavkozlesi Rt.  ("Hungarotel"),  the other two Operating  Companies,
acquired the existing  telecommunications  assets in their respective  Operating
Areas on January 1, 1996. Since the acquisition of such existing  networks,  the
Operating Companies have incurred capital expenditures through December 31, 1999

                                      -2-
<PAGE>

of $181  million (at  historical  exchange  rates) to expand and  upgrade  their
network   facilities   which  has  resulted  in  the   completion  of  a  modern
communications  network in each of the Operating  Areas,  which networks include
new digital  switches and increased  network  capacity,  utilizing the latest in
communications  transmission technology.  As of December 31, 1999, the Company's
telecommunications  networks had  approximately  200,500 access lines in service
(including  pay phones).  The completion of the Company's  network  construction
program has resulted in the addition of  approximately  139,100 new access lines
in service (including pay phones) to the 61,400 access lines acquired from Matav
and the  replacement  of all of the 10,810 manual  exchange  lines acquired from
Matav.

         The  Company  completed  its  network  modernization  and  construction
program in each of its Operating  Areas primarily  through turnkey  construction
contracts  with  Siemens   Telefongyar   Kft.,   Ericsson   Technika  and  Fazis
Telecommunication  System  Design and  Construction  Corporation.  The Company's
networks now have the capacity,  with some additional capital  expenditures,  to
provide basic telephone services to virtually all of the estimated 276,500 homes
and 36,200 business and other institutional  subscribers  (including  government
institutions)  within its Operating Areas. The build-out was primarily  financed
through a $170 million  credit  facility with Postabank es  Takarekpenztar  (the
"Original   Postabank   Credit   Facility"),   a   Hungarian   commercial   bank
("Postabank"),  which was subsequently refinanced and a $47.5 million contractor
financing   facility.   See  "-  Revision  of  Capital   Structure,"  "-  Recent
Developments,"  Item 3 "Legal  Proceedings,"  Item 7 Management  Discussion  and
Analysis of Financial  Conditions and Results of Operations - Introduction"  and
Notes 1(a) and 10(d) of Notes to Consolidated Financial Statements.

         The following  table sets forth certain  information as of December 31,
1999 with respect to each of the Operating Companies.
<TABLE>
<CAPTION>
<S>                                   <C>          <C>        <C>        <C>          <C>

                                       Raba-Com      KNC       Papatel    Hungarotel    Total

Population                              65,300      146,400     64,000     398,500     674,200
Residences                              26,300       59,600     24,000     166,600     276,500
Businesses and other(1)                  4,300        6,300      3,300      22,300      36,200
Access lines in operation:
     Residential                        19,800       40,400     17,400      97,300     174,900
     Business and other(2)               2,500        5,900      2,200      15,000      25,600
                                      --------     --------   --------   ---------    --------
           Total                        22,300       46,300     19,600     112,300     200,500
Pay phones                                 165          477        195       1,079       1,916
Population Penetration rate(3)            34.2          31.6       30.6        28.2        29.7
Residential Penetration rate (4)          75.3          67.8       72.5        58.4        63.3
--------
</TABLE>
(1) Represents Company estimates of business and other institutional subscribers
    or potential subscribers (including government institutions).
(2) Represents  Company  estimates of subscribers which are businesses and other
    institutional subscribers (including government institutions),  leased lines
    and pay phones. Includes ISDN equivalent lines.
(3) Population Penetration rate is defined as the number of access lines per 100
inhabitants.  (4)  Residential  Penetration  rate is  defined  as the  number of
residential access lines per 100 residences.


                                      -3-
<PAGE>


       The following  table sets forth the number of access lines served by each
of the Operating  Companies at takeover from Matav and at the end of 1995, 1996,
1997, 1998 and 1999.

<TABLE>
<CAPTION>
<S>               <C>              <C>            <C>          <C>          <C>          <C>

                      Takeover          1995          1996         1997        1998        1999
                      --------          ----          ----         ----        ----        ----

Raba-Com               2,500(1)         5,100        14,000       20,600       21,400     22,300
KNC                   13,000(1)        14,200        20,500       35,500       40,000     46,300
Papatel                3,800(2)         3,800        11,100       17,000       18,300     19,600
Hungarotel 42,100(2)  42,100           47,800       102,000      105,300      112,300
                  ----------       ----------     ---------    ---------    ---------   --------
     Total            61,400           65,200        93,400      175,100      185,000    200,500

</TABLE>

(1)  1st Quarter 1995
(2)  Year-End 1995


The Republic of Hungary

         Hungary is located in Central  Europe  bordering on Austria,  Slovenia,
Croatia,  Yugoslavia,  Romania, Ukraine and Slovakia. Six West European capitals
are within a one-hour  flight.  Its total area is  approximately  93,030  square
kilometers.  It has 10.1 million  inhabitants,  approximately  2 million of whom
reside in Hungary's capital, Budapest.

         For nearly 40 years,  Hungary was under  central  state  control with a
one-party government and a centrally planned economy. Democracy was restored and
the  foundations  of a market  economy were built  between  1988 and 1990.  Free
elections were held in 1990. Today, Hungary has a parliamentary democracy with a
single-chamber  National  Assembly.  As a result of a large scale  privatization
effort, private enterprise has become the basis of the Hungarian economy.

         Today,  Hungary is  considered  the most  developed  country in Central
Europe.  Since  1989,  foreign  direct  investment  has been  approximately  $20
billion.  Foreign direct  investment was approximately $2 billion in 1999 and is
expected to stay at that level in 2000. On a per capita basis,  Hungary has been
the largest Central  European  recipient of foreign direct  investment since the
transition to a market economy.  In comparison to Poland and the Czech Republic,
Hungary  received  (on a per capita  basis)  nearly 3 times the level of foreign
direct investment of Poland and twice that of the Czech Republic.

         Since  1995,  the  Hungarian  government  has  embarked  on an economic
stabilization  effort  aimed at putting  the  economy on a  sustainable  path of
low-inflationary growth. Hungary has experienced the following annual GDP growth
rates since the initiation of that effort:  1.7% in 1995;  1.3% in 1996; 3.5% in
1997;  5% in 1998,  and  4.9% in  1999.  The  unemployment  rate  has  gradually
decreased from 11.1% in 1995 to 7.0% in 1999.  The Hungarian  inflation rate has
been steadily  decreasing as well as evidenced by the following declining annual
inflation rates: 28.2% in 1995; 23.6% in 1996; 18.2% in 1997; 14.5% in 1998; and
10.0% in 1999.

         In March 1998,  Hungary's  application  for  membership in the European
Union  ("EU") was  accepted.  Hungary is now in the process of  negotiating  the
terms of its official accession into the EU. Hungary is not expected to become a
member of the EU until 2003 at the earliest.  In March 1999,  Hungary joined the
North Atlantic Treaty Organization.  Hungary is also a member of the World Trade
Organization.

                                      -4-
<PAGE>


Overview of Hungarian Telecommunications Industry

    Early State of Hungarian Telecommunications Industry

        In 1989,  the  state-owned  Post,  Telegraph and  Telephone  ("PTT") was
divided  into three  separate  companies:  the  Hungarian  Broadcasting  Company
("Antenna Hungaria"),  the Hungarian Post Office ("Magyar Posta") and Matav. The
Hungarian  PTT was  historically  the exclusive  provider of  telecommunications
services in Hungary. The Hungarian  telecommunications  market was significantly
underdeveloped  without  the  necessary  investment  in  the  telecommunications
infrastructure necessary to achieve a comparable level of teledensity to that of
Western  Europe.  As  of  December  31,  1995,  Hungary  had a  basic  telephone
penetration  rate of approximately 21 telephone access lines per 100 inhabitants
compared to a European  Union average of  approximately  48 access lines per 100
inhabitants and a United States average of approximately 60 access lines per 100
inhabitants. Of such access lines in Hungary,  approximately 40% were located in
Budapest (in which approximately 20% of Hungary's  population  resides).  In the
Company's Operating Areas, access line penetration was approximately nine access
lines  per 100  inhabitants  as of  December  31,  1995.  By  comparison,  basic
telephone  penetration  rates in other Eastern  European  countries  such as the
Czech Republic, Poland, Slovakia and Bulgaria, as of December 31, 1995, were 23,
15, 21 and 28 access lines per 100 inhabitants, respectively.

    Privatization of Matav and Local Telephone Service

         Beginning  in 1992,  the  Hungarian  government  began the  process  of
privatizing  Hungary's  telecommunications  industry  by selling an initial  30%
stake in Matav  (raised  to 67% in 1995) to a  consortium  called  MagyarCom,  a
company  wholly  owned by  Deutsche  Telekom  AG,  the German  public  telephone
operator  ("Deutsche   Telekom"),   and  Ameritech,   the  United  States  based
telecommunications  company. In 1997 Matav completed its initial public offering
pursuant to which  MagyarCom's  stake in Matav was reduced to approximately  60%
and the Hungarian  State's stake was reduced to approximately  6%. The Hungarian
State also retained certain  shareholder rights by retaining one "Golden Share."
In 1999 the Hungarian  State sold its  remaining 6% ownership  interest in Matav
but retained its "Golden Share." As of December 31, 1999,  MagyarCom owned 59.5%
of Matav while 40.5% was publicly traded.

         In  1992  the   Ministry   divided   the   country   into  54   primary
telecommunications  service  areas  in  order  to  take  some  of  such  primary
telecommunications service areas out of Matav's national network with respect to
the provision of local basic telephone  service while allowing Matav to continue
its  monopoly in the  provision  of domestic  and  international  long  distance
services. In 1993, the Ministry solicited bids for concessions to build, own and
operate  telecommunications  networks  in the 25  service  areas  which had been
chosen  to  exit  the  Matav  system.  As of  December  31,  1999,  23 of the 25
concessions for which the Ministry  solicited bids had been awarded.  Holders of
those  concessions today (each a Local Telephone  Operator,  "LTO", and together
the "LTOs") include: the Company (presently 5 areas);  United Telecom Investment
Rt. ("UTI"), a consortium formed by Alcatel Austria AG and US Telecom East, Inc.
(4 areas); Vivendi-Telecom Hungary ("Vivendi") owned by affiliates of Vivendi SA
of France and General Electric  Capital Corp. (5 areas);  an affiliate of United
Pan-Europe  Communications NV ("UPC") (1 area); a consortium comprised of Bezeq,
the Israeli PTO, and Matav (3 areas);  and Matav (5 areas).  Matav also retained
the rights to service 2 areas for which there were no successful  bidders.  Each
of the LTOs  (including  Matav) received 25 year licenses to provide local basic
telephone  service  with  exclusivity  rights  in their  respective  concessions

                                      -5-
<PAGE>

through  2002 (2001 in the case of Matav  except for 5 areas in which  Matav has
exclusivity rights through 2002). In addition to the fees paid to the government
which  aggregated  approximately  $80.0 million (at historical  exchange rates),
each of the non-Matav LTOs  negotiated a separate asset purchase  agreement with
Matav for each  concession  area's existing basic telephone plant and equipment,
which led to the transfer of approximately  260,000 access lines from a total of
1.2 million access lines in the Matav system. Matav's concession areas presently
cover  approximately  75% of Hungary's  population and  approximately 70% of its
geographic area.

    Cellular Service

         In addition to the  liberalization  of basic  telephone  services,  the
Ministry also initially  selected two consortia to provide  nationwide  cellular
telephone  services.  A consortium  comprised of Matav and MediaOne  Group Inc.,
formerly  part of U.S.  West,  was granted two  licenses to provide  both analog
(NMT-450)  ("Westel  450") and digital  (GSM-900)  ("Westel 900") services while
Pannon GSM  Tavkozlesi  ("Pannon") was granted a license to provide only digital
cellular  services.  Pannon's  shareholders  include  Telenor Invest A/S, Norway
(25.8%); Tele Danmark A/S (6.6%); Sonera Holding NV (23%), Media Tel Holding Rt.
(15.2%);  and KPN NV, the Dutch phone company ("KPN") (29.4%). In 1999, MediaOne
announced that it was going to sell its holdings in Westel 450 and Westel 900 to
Deutsche  Telekom.  Matav has announced that it intends to exercise an option it
has to purchase the interests in Westel 450 and Westel 900 that Deutsche Telekom
is acquiring from MediaOne.

         In June  1999,  a  consortium  comprised  of  Vodaphone  Air Touch Plc.
(50.1%),  RWE Telliance  (19.9%),  Antenna Hungaria (20%) and Magyar Posta (10%)
(together,  "Vodaphone") was the winning bidder for a digital 1800-megahertz (or
DCS frequency) mobile phone license. It began operations in late 1999.

    Domestic and International Long Distance Services

         At the end of 2001,  Matav's  right to provide  exclusive  domestic and
international  long distance voice  transmission  is due to expire.  In 1998, to
further  stimulate  future  competition  in this market,  the  Ministry  awarded
Pan-Tel  Rt., a newly  formed  Hungarian  company  ("Pan-Tel"),  the licenses to
provide such services as data transmission,  voice mail and other services which
are  not  subject  to  exclusive  concessions.   Pan-Tel  started  building  its
telecommunications network in 1998 which network is nearly complete. The current
shareholders of Pan-Tel include MAV Rt. (the Hungarian railway company) (25.1%),
PT Investment Holding Company (25.9%) and KPN (49%).

    The Hungarian Telecommunications Industry Today

         The Ministry  recently  announced  that it will revise its laws in 2000
regarding the  regulation  of the  telecommunication  market in accordance  with
European Union standards. The regulation of telephony,  cable television and the
Internet  would be  affected.  However,  the  Company  does not expect  that the
exclusivity period of its concession rights will be affected.


                                      -6-
<PAGE>


        Since the privatization of the Hungarian  telecommunications market, the
LTOs and Matav have spent  approximately  $822 million as of September  30, 1998
(at  September  30,  1998  exchange  rates)  to  build  modern  state-of-the-art
telecommunications   networks   throughout   Hungary.   As  a  result   of  such
construction,  Matav had approximately 2.9 million access lines connected to its
telecommunications  networks and the other LTOs (including the Company) had over
800,000  access  lines  connected  to their  telecommunications  networks  as of
December 31, 1999.

        In the mobile telecommunications  marketplace, Westel 450 and Westel 900
had 98,000 and  842,000  subscribers,  respectively,  as of December  31,  1999.
Pannon had approximately 669,000 subscribers as of December 31, 1999.

        Due to  the  completion  of  the  Company's  network  modernization  and
construction  program,  access line penetration in the Company's Operating Areas
has  increased to 30 access lines per 100  inhabitants  as of December 31, 1999.
Given  that the  Company's,  Matav's,  and the other  LTOs'  investments  in the
Hungarian  telecommunications  market  over the last  several  years  produced a
significant increase in the overall penetration rate in Hungary to approximately
34% as of December 31, 1999 and the  expansion of the mobile  telecommunications
market,  the Company expects to benefit from a continued  increase in the use of
its  telecommunications  services by its customer base as the overall  Hungarian
telecommunications market continues to expand. See also "- Competition."

     HTCC and its Operating Companies

         In 1994,  the Ministry  awarded KNC and Raba-Com  concession  rights to
construct  local  telephone  exchanges  and  provide  non-cellular  local  voice
telephone  services  for a period of 25 years,  with  exclusivity  for the first
eight years. The Company  subsequently  acquired two other Operating  Companies,
Hungarotel and Papatel, that had been awarded substantially identical concession
rights by the Ministry.  Matav continues to be the sole provider of domestic and
international long distance non-cellular voice telephone services through 2001.

         HTCC conducts its operations through the Operating Companies. Set forth
below is an organizational  chart of the Company and its principal  stockholders
as of April 11, 2000. Share ownership percentages of HTCC are based on shares of
HTCC's  common stock (the "Common  Stock")  owned as of April 11, 2000,  without
giving  effect to  outstanding  options  or  warrants.  Additionally,  ownership
percentages for the Operating  Companies do not give effect to future  Hungarian
equity  ownership  requirements.  See  "-Regulation - Hungarian Equity Ownership
Requirements."

                                      -7-
<PAGE>




                                    [CHART]









         HTCC was organized under the laws of the State of Delaware on March 23,
1992. The Common Stock is traded on the American Stock Exchange under the symbol
"HTC." The  Company's  United  States  office is  located at 100 First  Stamford
Place, Stamford, Connecticut 06902; telephone (203) 348-9069. As of May 1, 2000,
the U.S. offices will be at Suite 32, Tokeneke Center, 30 Center Street, Darien,
CT 06820. The Company's principal office in Hungary is located at Terez krt. 46,
H-1066, Budapest; telephone (361) 474-7700.

Certain Stockholders

         The  Company  has  benefited  from  the  extensive   telecommunications
experience and capabilities of certain of its stockholders. Set forth below is a
brief description of such stockholders.

     Citizens Utilities Company

         Citizens Utilities Company (together with its subsidiaries, "Citizens")
is a New York Stock Exchange  listed  company which provides  telecommunications
services and public services including gas distribution,  electric distribution,
water  distribution  and  wastewater  treatment  services to  approximately  1.9
million customers.  Citizens also owns 82% of Electric Lightwave,  Inc. (NASDAQ:
ELIX),  a  facilities-based,  integrated  communications  provider that offers a
broad range of services to  telecommunications-intensive  businesses  throughout
the United  States.  During 1999,  Citizens  announced  that it had entered into
various agreements to purchase approximately 900,000 telephone access lines from
GTE Corp. and US West Communications,  Inc. In addition, Citizens announced that
it was divesting  its public  services  businesses  and that it had entered into
agreements to sell its electric and water and  wastewater  operations.  Citizens
plans to use the proceeds from the  divestitures  to fund the  acquisitions.  At
December 31, 1999, Citizens had $5.8 billion of total assets and $2.1 billion in
shareholders'  equity.  For the year ended December 31, 1999,  Citizens had $1.1
billion of revenues from continuing operations and $144.5 million of net income.

                                      -8-
<PAGE>

         In  May 1995,  Citizens  purchased  300,000 shares of Common Stock from
a  former  executive  officer  of   the  Company  and   has  since  acquired  an
additional  1,902,908  shares of Common Stock and 30,000 shares of the Company's
Series A  Preferred  Stock  convertible  into  300,000  shares of Common  Stock,
pursuant to certain  agreements  entered into with HTCC (as amended and restated
in certain cases to date,  the "Citizens  Agreements").  Citizens also purchased
103,000 shares of Common Stock on the open market  bringing its ownership of the
outstanding  Common Stock as of April 11,  2000,  to 19.2%.  In  addition,  as a
result of the Citizens  Agreements,  Citizens has  received  certain  options to
purchase 4.5 million  shares of Common Stock.  These options expire on September
12, 2000,  with per share  exercise  prices  ranging from $12.75 to $18.00.  The
Citizens Agreements provide Citizens with certain preemptive rights to purchase,
upon the issuance of Common  Stock in certain  circumstances  to third  parties,
shares of Common Stock in order to maintain its percentage ownership interest on
a fully diluted basis.  Assuming the exercise of all of its  outstanding  rights
and options to purchase  Common Stock as of April 11, 2000,  Citizens  would own
35.1% of the  outstanding  Common  Stock on a  fully-diluted  basis.  For a more
detailed description of some of the Citizens Agreements,  see Notes 11 and 15 of
Notes to Consolidated  Financial Statements,  Item 13 "Certain Relationships and
Related Party  Transactions,"  Item 12 "Security Ownership of Certain Beneficial
Owners  and  Management,"  "-  Revision  of  Capital  Structure"  and "-  Recent
Developments."

     Tele Danmark A/S

         Tele Danmark A/S (together with its affiliates,  "Tele Danmark") is the
preeminent  provider of  telecommunications  services in Denmark.  Tele  Danmark
provides a full  range of  telecommunications  services  in  Denmark,  including
landline and cellular telephone services, data communications,  Internet, leased
lines, directory and operator services and cable television. Domestic operations
include 3,628,000 telephone subscriber lines,  1,311,000 cellular users, 825,000
cable television customers and 393,000 Internet dial-up customers.

         At December  31, 1999,  Tele Danmark had total assets of Danish  Kroner
54,625  billion  (approximately  $7.0  billion  at current  exchange  rates) and
shareholders'  equity of Danish  Kroner  21,456  (approximately  $2.7 billion at
current  exchange  rates).  During  1999,  Tele Danmark had net income of Danish
Kroner 3,513 billion  (approximately  $452 million at current exchange rates) on
net revenues of Danish  Kroner  38,206  billion  (approximately  $4.9 billion at
current exchange rates.)

         Tele Danmark's  activities  abroad have been an important  growth areas
over the last several  years.  Tele Danmark  operates in 12 European  countries.
International  operations  accounted  for more  than 42% of Tele  Danmark's  net
revenues in 1999. Tele Danmark has investments in the Nordic region, continental
Western  Europe as well as  Central  and  Eastern  Europe--among  them  Belgagom
(Belgium),  Ben (the Netherlands),  Sunrise  (Switzerland),  Talkline (Germany),
Polkomtel  (Poland),  Contactel  (the  Czech  Republic)  and UMC  (Ukraine).  In
Hungary,  Tele  Danmark  also  holds a 6.6%  stake in  Pannon,  one of the three
digital cellular phone providers in Hungary.


                                      -9-
<PAGE>



         As a result of certain  agreements between the Company and Tele Danmark
(the "Tele  Danmark  Agreements"),  the Company has issued  2,565,587  shares of
Common Stock to Tele Danmark.  As of April 11, 2000, Tele Danmark owned 21.3% of
the Company's outstanding Common Stock. The Tele Danmark Agreements provide Tele
Danmark with certain preemptive rights to purchase,  upon the issuance of Common
Stock in certain circumstances to third parties, shares of Common Stock in order
to maintain its percentage  ownership  interest of the outstanding Common Stock.
For a more  detailed  description  of some of the Tele Danmark  Agreements,  see
Notes 8 and 11 of Notes to Consolidated  Financial Statements,  Item 13 "Certain
Relationships and Related Party  Transactions,"  Item 12 "Security  Ownership of
Certain  Beneficial  Owners and Management," "- Revision of Capital  Structure,"
and "- Recent Developments."

         Tele Danmark's  stock trades on the  Copenhagen  Stock Exchange and the
New York Stock Exchange.  SBC  Communications of San Antonio,  Texas owns 42% of
the shares,  with the  remaining  shares held by  individual  and  institutional
shareowners all over the world.

    Postabank Rt.

         Postabank  was  established  in  1988  and  provides  a wide  range  of
commercial and retail banking services to its private and corporate customers in
Hungary.  The bank has achieved  significant  growth since its inception.  As of
December 31, 1999, its total assets were HUF 330 billion ($1.3  billion).  Today
it is the fifth largest Hungarian financial institution in terms of total assets
and  second in retail  deposits  with a 10%  market  share (6%  market  share in
corporate loans).

         In October  1996,  the  Company  entered  into a $170  million  10-Year
Multi-Currency  Credit Facility with Postabank (the "Original  Postabank  Credit
Facility").  In May 1999,  as part of a revision of its capital  structure,  the
Company issued 2,428,572 shares of Common Stock,  warrants to purchase 2,500,000
shares of  Common  Stock and notes in the  aggregate  amount of $25  million  to
Postabank.  The Company also entered  into a $138 million  Dual-Currency  Bridge
Loan  Agreement with Postabank (the  "Postabank  Bridge Loan  Agreement").  As a
result of such issuances and other agreements,  the Company paid off the balance
on the Original  Postabank  Credit Facility and terminated  such agreement.  The
Company expects to pay off the outstanding  balance on the Postabank Bridge Loan
Agreement with the proceeds of a syndicated loan agreement.

         As of April 11, 2000,  Postabank owned 20.2% of the outstanding  Common
Stock and 24.3% of the outstanding  Common Stock on a fully diluted basis. For a
more detailed description of some of the Postabank Agreements, see Notes 4, 5, 6
and  19  of  Notes  to  Consolidated  Financial  Statements,  Item  13  "Certain
Relationships and Related Party  Transactions,"  Item 12 "Security  Ownership of
Certain Beneficial Owners and Management," "- Revision of Capital Structure" and
"- Recent Developments."

    The Danish Investment Fund for Central and Eastern Europe

         The Investment  Fund for Central and Eastern Europe (the "Danish Fund")
is a Danish government initiated and financed investment fund founded in 1989 by
the  Ministry  of Foreign  Affairs.  The  purpose is to  promote  Danish  direct
investments in Central and Eastern Europe and to enhance the  possibilities  for


                                      -10-
<PAGE>

closer  cooperation  between Danish and Central and Eastern European  companies.
The Danish Fund  engages in projects  via equity  capital  and/or loans in joint
ventures with a participation of one or more Danish  companies.  The Danish Fund
has  experience in Hungary  (currently  four  projects)  and in  particular  the
Hungarian telecommunications sector, as it has been involved in Pannon from 1994
to 1996 and in two of the Operating Companies from 1994 to 1997. As of April 11,
2000, the Danish Fund owned 10.7% of the outstanding Common Stock. See Note 8 of
Notes to Consolidated Financial Statements.

    International Finance Corporation

         The International Finance Corporation (the "IFC") is the private-sector
financing  organization of the World Bank, a global  cooperative  which provides
financial  and  other aid to  developing  countries.  The IFC owns  20.0% of the
capital stock of Papatel.

Revision of Capital Structure

         In May 1999, the Company  entered into various  agreements as part of a
revision of its capital structure with the following  parties:  Postabank;  Tele
Danmark;  the  Danish  Fund;  and  CU  CapitalCorp  and  Citizens  International
Management  Services  Company,  each of which is a  wholly-owned  subsidiary  of
Citizens  Utilities  Company.  As a  result  of  such  agreements,  the  Company
extinguished  all of  its  obligations  (i)  to  Postabank  under  the  Original
Postabank  Credit Facility in the amount of  approximately  $193 million and the
amounts borrowed to settle a portion due under a contractor  financing  facility
in the amount of approximately $16 million; (ii) to one of its contractors under
a contractor  financing facility in the amount of approximately $35 million; and
(iii) to Citizens under a $8.4 million promissory note which was payable in 2004
and an  obligation to pay Citizens $21 million in 28 quarterly  installments  of
$750,000 each from 2004 through and including  2010.  The Company  borrowed $138
million from Postabank under a one-year  Dual-Currency  Bridge Loan Agreement in
Hungarian  forints and euros and $25 million pursuant to certain unsecured notes
which mature in 2007. Some of the various  agreements which were entered into as
of May 10, 1999 are described herein.  (The descriptions and summaries herein do
not purport to be complete,  and are subject to, and qualified in their entirety
by,  reference  to each such  agreement,  copies of which are filed as  exhibits
hereto. See Item 14 below).


                                      -11-
<PAGE>

         The Company and  Postabank  entered  into a  Dual-Currency  Bridge Loan
Agreement  (the  "Postabank  Bridge Loan  Agreement")  pursuant to which  HTCC's
subsidiaries  borrowed the  equivalent of $111 million in Hungarian  forints (at
historical  exchange  rates) and $27  million in euros (at  historical  exchange
rates)  which funds were  applied to the  repayment  of the  Original  Postabank
Credit  Facility.  The  loan  is  repayable  by May  2000.  HTCC  and one of its
subsidiaries,  HTCC  Consulting Rt. were  guarantors  for the HTCC  subsidiaries
under the  Postabank  Bridge  Loan  Agreement.  The  Company  pledged all of its
intangible and tangible  assets,  including  HTCC's  ownership  interests in its
subsidiaries,  and its real property to secure all of the obligations  under the
Postabank Bridge Loan Agreement. The Company and Postabank entered into a series
of  agreements  to secure  such  obligations  under the  Postabank  Bridge  Loan
Agreement.  On April 11, 2000, the Company entered into a EUR 130 million senior
security syndicated bank credit facility which funds will be used to pay off the
Postabank Bridge Loan Agreement. See " - Recent Developments."

         The Company and  Postabank  also  entered  into a  Securities  Purchase
Agreement (the  "Securities  Purchase  Agreement")  pursuant to which  Postabank
purchased  2,428,572  shares of Common Stock for an aggregate  purchase price of
$34  million.   The  Securities  Purchase  Agreement  provides  for  one  person
designated by Postabank to be nominated  for election to the Company's  Board of
Directors.  Postabank  cannot  transfer  its shares until the earlier of (x) the
repayment  in  full of all the  obligations  under  the  Postabank  Bridge  Loan
Agreement or (y) May 10, 2000,  and then Postabank can only transfer such shares
incrementally  through 2003 subject to the Company's right of first refusal. The
Company's  right of first  refusal  expires in January 2003 and is assignable by
the  Company  to any  beneficial  holder  of  more  than  10%  of the  Company's
outstanding  Common  Stock.  The  Company  applied the  proceeds  from the stock
issuance to the repayment of the Original Postabank Credit Facility. Pursuant to
the Securities Purchase  Agreement,  the Company issued notes to Postabank in an
aggregate  amount of $25 million (the  "Notes")  with  detachable  warrants (the
"Warrants").  The Notes  accrue  interest,  which is payable  semi-annually,  at
3-1/2% plus the LIBOR rate for the  applicable six month  interest  period.  The
Notes which mature in 2007 are transferable subject to applicable security laws.
The  Warrants  which were  issued  pursuant  to a series of  Warrant  Agreements
between the Company and Postabank enable Postabank to purchase  2,500,000 shares
of the  Company's  common  stock  at an  exercise  price of $10 per  share.  The
exercise  period  commences on January 1, 2004 and terminates on March 31, 2007.
The Company has the right to terminate  the Warrants in full or  proportionately
prior to January 1, 2004 provided that the Company repays a proportionate amount
of the Notes and up to 7-1/2%  of the  aggregate  principal  amount of the Notes
repaid concurrently with the termination of the Warrants.

         The Company and Tele Danmark  entered into a Stock  Purchase  Agreement
(the "TD  Stock  Purchase  Agreement")  pursuant  to which  the  Company  issued
1,571,429  shares of Common  Stock in  exchange  for $11  million.  The  Company
applied the proceeds  from the TD Stock  Purchase  Agreement to the repayment of
the Original Postabank Credit Facility.  Tele Danmark agreed not to transfer the
shares to any party prior to May 11, 2000 without the prior  written  consent of
the Company.

         The Company and the Danish Fund entered into a Stock Purchase Agreement
(the  "Danish  Fund Stock  Purchase  Agreement")  pursuant  to which the Company
issued 1,285,714 shares of Common Stock in exchange for $9 million.  The Company
applied  the  proceeds  from the Danish  Fund Stock  Purchase  Agreement  to the
repayment of the Original Postabank Credit Facility.  The Danish Fund agreed not
to transfer  the shares to any party  except for Tele  Danmark  prior to May 11,
2000 without the prior written consent of the Company.

         The Company and Citizens  entered into a Stock Purchase  Agreement (the
"Citizens  Stock  Purchase  Agreement')  pursuant to which the Company issued to
Citizens  1,300,000  shares of Common Stock and 30,000  shares of the  Company's
Series A  Preferred  Stock,  par  value  $0.001  (the  "Preferred  Shares").  In
consideration  for such  shares,  Citizens  (i)  transferred  to the Company for
cancellation  a $8.4 million  promissory  note issued by the Company to Citizens
which was to mature in 2004,  and (ii) agreed to renounce  and forego any rights
whatsoever to any payment of the $21 million which was payable by the Company to

                                      -12-
<PAGE>


Citizens in quarterly  installments  of $750,000 from 2004 through and including
2010.  Citizens,  as the holder of the Preferred  Shares, is entitled to receive
cumulative  cash dividends at an annual rate of 5%,  compounded  annually on the
liquidation  value of $70 per share. The Company may redeem the Preferred Shares
at any time.  Citizens can convert each of the  Preferred  Shares into shares of
the Company's  common stock on a one for ten basis.  The Citizens Stock Purchase
Agreement  requires  Citizens  not to transfer  any shares of HTCC common  stock
which it may hold prior to May 15, 2000 without the prior written consent of the
Company and Postabank.  Citizens  also  waived  any and all preemptive and anti-
dilution rights in connection with the transactions described above.

Recent Developments

    The April 2000 Syndicated Credit Facility

         On April 11, 2000,  the Company  entered into a EUR 130 million  Senior
Secured Debt Facility  Agreement (the "Debt  Agreement") with a European banking
syndicate  which was arranged by Citibank  N.A.  ("Citibank")  and  Westdeutsche
Landesbank Girozentrale ("WestLB").  The Company intends to draw down the entire
EUR 130 million ($124 million at current  exchange  rates),  which funds will be
used in their entirety, along with another $6 million of other Company funds, to
pay off the entire  outstanding  balance  (EUR 128 million,  approximately  $122
million at current  exchange rates) of the Postabank Bridge Loan Agreement which
will result in the  termination  of the Postabank  Bridge Loan  Agreement  which
matures on May 12, 2000, as well as fees associated with the Debt Agreement. The
borrowers  under the Debt  Agreement  are the  Operating  Companies who were the
borrowers under the Postabank Bridge Loan Agreement. The Debt Agreement and some
of the related  agreements are described below.  (The descriptions and summaries
herein do not purport to be complete, and are subject to, and qualified in their
entirety by, reference to each such agreement, copies of some of which are filed
as exhibits hereto. See Item 14 below).

         The Debt  Agreement has two  facilities.  Facility A is a floating rate
term loan in the amount of EUR 125 million (the "Term Facility") which principal
is repayable semi-annually on each June 30 and December 31 beginning on June 30,
2001 and ending on December 31, 2007. The amounts of the principal repayments on
the Term Facility are to be an  escalating  percentage of the amounts drawn down
(EUR 125 million). Any amounts borrowed under the Term Facility have to be drawn
down within thirty days of the  execution of the Debt  Agreement in either euros
or Hungarian forints. The Company intends to borrow the full EUR 125 million, or
its equivalent in euros and Hungarian forints. Any amounts borrowed in Hungarian
forints are repayable in Hungarian forints.  The Term Facility loans denominated
in euros accrue  interest at the rate of the Applicable  Margin  (defined below)
plus the EURIBOR rate for the applicable  interest  period.  The EURIBOR rate is
the  percentage  rate per annum  determined  by the  Banking  Federation  of the
European  Union for the  applicable  interest  period.  The  portion of the Term
Facility loan  denominated in Hungarian  forints accrues interest at the rate of
the  Applicable  Margin  (defined  below) plus the BUBOR rate for the applicable
interest  period.  The BUBOR rate is the  percentage  rate per annum  determined
according  to the rules  established  by the  Hungarian  Forex  Association  and
published by the National Bank of Hungary for the  applicable  interest  period.
The  applicable  interest  period  for the  portion of the Term  Facility  loans
denominated in euros is, at the Company's option,  one, three or six months. The
Company  intends to choose six months.  The applicable  interest  period for the
portion of the Term Facility loans  denominated in Hungarian  forints is, at the
Company's  option,  in one or three months.  The Company intends to choose three
months.  Interest is payable at the end of each interest period.  The Applicable
Margin is  initially  1.75%.  The  Applicable  Margin may be  adjusted  downward
incrementally to a minimum of 1.15% subject to the financial  performance of the
Company as measured by the ratio of the  Company's  senior debt to its  earnings
before interest, taxes, depreciation and amortization.

         Facility B is a  floating  rate  revolving  loan in the amount of EUR 5
million (the "Revolving  Facility")  which can only be drawn down in euros.  The

                                      -13-
<PAGE>

Revolving  Facility will be reduced to EUR 2.5 million on December 31, 2005. The
Revolving  Facility is available until December 31, 2007. The Company intends to
borrow the full amount of the  Revolving  Facility to pay off the balance of the
Postabank  Bridge Loan Agreement and fees associated with the  transaction.  The
principal amount borrowed under the Revolving Facility is due at the end of each
interest period at which point the Company can,  subject to certain  conditions,
roll over the amount of principal  borrowed.  The applicable interest period for
the Revolving  Facility is, at the Company's option,  one, three, or six months.
The Company intends to choose six months. Interest is payable at the end of each
interest period calculated similar to a Term Facility loan denominated in euros.

         As part of the Debt  Agreement,  the  Company is  required  to hedge at
least 50% of the euro  borrowings  until a minimum of 50% of Facility A has been
cancelled,  prepaid or repaid.  Dependent on its cash flow,  commencing in 2001,
the Company will be required to prepay the equivalent of $25 million on Facility
A until such time as $25 million has been prepaid.  The amount of the prepayment
in any year shall be at least 50% of the Company's excess cash flow, if any, for
the previous  financial  year as defined in the Debt  Agreement.  The prepayment
amount is due within 15 days of the publication of each annual Form 10-K filing.

         The Company is obligated to pay a commitment  fee equal to the lower of
 .75% or 50% of the Applicable Margin on any available unused  commitment.  Since
the Company intends to borrow the full amount of the Debt Agreement soon,  there
is no  commitment  fee payable at the  present  time.  The  Company  will pay an
arrangement  fee in the amount of EUR 2,665,000  (approximately  $2.5 million at
current exchange rates) and an agency fee in the amount of $60,000. HTCC and one
of  its  subsidiaries,   HTCC  Consulting  Rt.,  are  guarantors  for  the  HTCC
subsidiaries under the Debt Agreement. The Company pledged all of its intangible
and tangible assets,  including HTCC's ownership  interests in its subsidiaries,
and its real property to secure all of the obligations under the Debt Agreement.
The  Company  and  Citibank  Rt.(as  security  agent)  entered  into a series of
agreements to secure all of the Company's  obligations under the Debt Agreement.
The Debt Agreement  contains the customary  representation  and warranties.  The
Company  is  subject  to  some  restrictive  covenants  including   restrictions
regarding the ability of the Company to pay dividends,  borrow funds, merge with
another  company and  dispose of its assets.  The Debt  Agreement  contains  the
customary events of default,  which would trigger early repayment of the balance
on the Debt Agreement  including those related to a change of control.  If prior
to the later of December 31, 2001 or the Trigger Date (as defined  below),  Tele
Danmark  sells any of the shares of Common Stock that it currently  owns or Tele
Danmark and the Danish Fund no longer own, in the  aggregate,  at least 30.1% of
the  outstanding  Common  Stock,  the Company would be in default under the Debt
Agreement.  Tele  Danmark  and  the  Danish  Fund  currently  own  32.1%  of the
outstanding  Common Stock.  The Trigger Date is defined as the date on which for
the prior two fiscal  quarters the  Company's  debt to EBITDA ratio is less than
3.5 to 1. Following the Trigger Date,  Tele Danmark can only transfer its shares
with the prior written  consent of banks holding at least 66.7% of the Company's
outstanding debt under the Debt Agreement.

Strategy

         The  Company's  primary  focus is to continue to increase call revenues
and reduce  operating  costs while  continuing to add  residential  and business
customers to its networks.  To accomplish these goals, the Company is continuing
its efforts to expand its product and service  offerings to its entire  customer
base, increase its operational efficiencies and increased its marketing efforts.
The Company has  implemented  the following  operational  strategies in order to
further its business objectives.

                                      -14-
<PAGE>


     Revenue Growth

         The  Company  intends to  continue  to  increase  its call  revenues by
increasing  the  usage  of  its  product  and  service  offerings  by  both  its
residential   and  business   customers.   Since  the   availability  of  modern
telecommunications  services is a relatively  new phenomena in Hungary,  the key
factor in  increasing  the usage is  educating  both  customer  segments  on the
availability  and  benefits of the  Company's  products  and  services.  For the
residential  customers,  the Company is focusing  its efforts on  educating  the
residential  customer on the availability of such products and services as voice
mail, caller ID and call waiting, which are all new to the Company's residential
customer base. The Company is also highlighting the benefits of the Internet and
encouraging its use by offering special discounted rates for Internet usage. One
of the tools that the Company is  deploying  to increase  customer  awareness of
these  services is video and personal  demonstrations  in the  customer  service
centers  which are located in each of the Operating  Areas.  The Company is also
focusing its marketing and educating  efforts at its business  customers,  which
represent  44% of the  Company's  total call  revenues.  The  Company has placed
emphasis  on  increasing  the  installation  and usage  levels of the  Company's
business  customers  by  focusing  on the  marketing  and  sales of  deregulated
services including managed lease lines, PBX sales and services,  ISDN,  Internet
and Digifon Services (e.g. call  forwarding,  call waiting,  call barring).  The
Company  has  assigned  an account  manager  to each  business  customer  who is
responsible for meeting with each business  customer to find out such customer's
telecommunications  needs.  The account manager can then demonstrate each of the
Company's  products and  services  and,  working  together  with that  customer,
develop a telecommunications  strategy using the Company's products and services
which can best enhance that customer's business.

          The Company  plans to continue its revenue  growth by  increasing  the
penetration  levels in the  residential  sector.  To that end,  the  Company  is
continuing  its mass  marketing  efforts to the  residences who have not yet had
service.  The Company is also marketing the benefits of additional  lines to its
existing residential and business customer.

     New Products and Services

     The Company continues to offer the latest  telecommunications  products and
services as they become  available in the  telecommunications  marketplace.  The
Company  plans to  introduce  Internet  Protocol-  based  voice  services to its
customers  in 2000.  This will  enable the  Company to offer long  distance  and
international  calling  services at discounted rates without  violating  Matav's
domestic long distance and international calling monopoly.

     Marketing

         As the exclusive  provider of basic telephone services in the Operating
Areas, the Company's primary marketing objective is to increase the usage of its
telephone  services by its  existing  residential  and  business  customers.  In
addition,  the Company intends to attract new subscribers by targeting the needs
of various market segments, while  maintaining  superior  customer  service  and
reliability based on current "state of the art"  telecommunications  technology.
The Company's  targeted  market segments are: (i)  residential  customers;  (ii)
small businesses and professionals;  (iii) medium and large businesses; and (iv)
government institutions.

                                      -15-
<PAGE>



         For its residential  customers and potential  customers,  the Company's
marketing  efforts  include  advertising on radio and  television,  door-to-door
marketing surveys,  newspaper  advertising,  participation in local trade shows,
direct mail, community meetings and billboard  advertising.  The Company is also
offering  discounts for Internet users. To increase the residential  penetration
rate, the Company has  implemented  short  marketing  campaigns  targeting those
residences without phone service.  To induce the potential customers the Company
has offered special limited time only special rates on the connection fee. Since
many Hungarians still prefer face-to-face  personal  marketing,  the Company has
leveraged  the benefits of having a customer  service  center in each  Operating
Area to give personal demonstrations.

         For its larger  business  customers,  the Company  has trained  account
managers to service these customers and potential customers by educating them on
the  availability of "turn-key"  business  communications  solutions and several
"value added services"  including the premium rate services,  voice mail and all
of the Digifon services (e.g. call forwarding,  call waiting, call barring). The
Company believes that this effort will result in a greater  understanding by its
business  customers and potential  business  customers of the potential  revenue
gains that can be achieved with advanced telecommunications technology.

    Customer Service

         The Company believes that providing a high level of customer service is
important to achieving  its  objective of  attracting  additional  customers and
increasing the usage of existing services by its current customer base. Prior to
completion of the construction  program, some customers waited for over 20 years
for telephone service. Today, most residences and businesses can be connected to
one of the Company's networks within 7 days. The Company also operates full time
operator  service  centers in each of the  Operating  Areas which are staffed by
operators capable of providing,  among other things, call completion assistance,
directory assistance and trouble reporting on a 24 hour basis. In addition,  the
Company  operates  customer service centers in each of the Operating Areas which
offer facsimile,  Internet,  photocopying  and telephone bill payment  services.
These offices also sell  communications  equipment,  process  telephone  service
applications and handle billing inquiries.  The Company reorganized its customer
service centers by implementing the necessary  changes to make such centers more
"customer friendly." The Company is providing more choices for its customers and
more product information  instruction.  For its business customers,  the Company
has account representatives for each customer.

         Most  of  the  Company's   subscriber   base  consists  of  residential
customers.  As of  December  31,  1999,  87%  of  subscribers  were  residential
customers and 13% were business and other institutional  subscribers  (including
government institutions).

     Operational Efficiency

         The Company is increasing its productivity  and operational  efficiency
by achieving  certain  economies  of scale with  respect to network  management,
administration,   customer  service,  billing,   accounts  receivable,   payroll
processing,  purchasing and network  maintenance.  For example,  the Company has
implemented  its own centralized  operating and accounting  system in all of its
Operating Areas. A significant  increase in operational  efficiency has resulted

                                      -16-
<PAGE>

from the  implementation  of this system  specifically  in the areas of customer
billing  and  financial  accountability.  In  addition,  some  of the  Company's
Operating  Areas are  contiguous,  which  facilitates the realization of certain
economies  of scale.  For  example,  by using  fiber  optic  technology  between
contiguous   Operating  Areas,   the  Company   realizes   certain   operational
efficiencies by  centralizing  certain  functions.  As of December 31, 1999, the
Operating Companies had a total of 296 access lines per employee.

    Mergers and Strategic Alliances

         As the  Hungarian  telecommunications  market  continues to develop and
become more  liberalized  as the monopolies of Matav and the LTOs expire and the
newer entrants  expand their  presence in Hungary,  the Company will continue to
review  its  options  with   respect  to  any  merger  or   strategic   alliance
possibilities that will enhance shareholder value.

Operations

     Services

         The Company provides  non-cellular local voice telephone service in the
Operating  Areas  which  allows   subscribers  to  have  facsimile,   and  modem
transmission  capabilities  and  makes  available  to its  subscribers,  through
interconnection  with Matav,  domestic and international long distance services.
In  addition  to these  standard  services,  the  Company  currently  offers its
subscribers  data  transmission  and  other  value-added   services,   including
Internet, voice mail, ISDN, caller ID, call waiting, call forwarding,  three-way
calling, toll free calling services and audio text services.

         The  Company's  revenues  are derived  from the  provision of local and
domestic and international long distance telephone services which consist of (i)
charges for measured  telephone  service,  which vary  depending on the day, the
time of day, distance and duration of the call, (ii) connection and subscription
fees, and (iii) other operating revenues  consisting  principally of charges and
fees from leased  lines,  public  phones,  detailed  billing and other  customer
services, including revenues from the sale and lease of telephone equipment.

         Measured Service. Charges for local and domestic and international long
distance  measured  service vary with the number of pulses  generated by a call.
The number of pulses  generated for a particular  call depends upon the day, the
time of day, the distance covered and the duration of the call.  Currently,  the
Company charges HUF 12.0 ($.048) per pulse for all local calls. The Ministry has
traditionally  adjusted such fees annually based on the Hungarian Consumer Price
Index.  However,  the  Ministry  did not  change  the fees per  pulse in 2000 as
compared to 1999 because of the  Ministry's  efforts to  rebalance  the fees for
telecommunications services. To that end, the Ministry did not change the length
between  pulses for local  calls but  increased  the length  between  pulses for
domestic long distance and international  calls. The net result is that the fees
for local  calls will not change  from 1999 to 2000 while the fees for  domestic
long distance and  international  calls in 2000 will decrease 40% from the rates
in 1999. For all local calls within an Operating  Area, the Company  retains all
of the revenues  associated  with the call.  For domestic  long  distance  calls

                                      -17-
<PAGE>

outside of an Operating Area (including those between Operating Areas, including
adjacent Operating Areas) and all international calls, the Company has a revenue
sharing  arrangement  with Matav the terms of which are  governed by a decree of
the Ministry. Pursuant to this revenue sharing arrangement,  the Company charges
for and collects  from its  customers  the fees for domestic  long  distance and
international  calls.  The Company  then pays these fees to Matav but retains an
interconnection  fee. For domestic long distance and international  calls to the
Company's  customers,  the  Company  receives  an  interconnection  fee.  Mobile
telephone  calls to customers in the Operating Areas and calls from customers in
the  Operating  Areas to mobile  phones are  included in  long-distance  service
revenues  shared with Matav.  Since 1998 the Ministry has taken gradual steps to
regulate the interconnection  fees in accordance with  internationally  accepted
benchmarks  with the goal of creating a cost-based  interconnection  fee regime.
The Company  believes  that this  revised  regulatory  policy has resulted in an
overall  increase in the  Company's  revenue per call in 1999 for domestic  long
distance and  international  calls over the amount received in 1998 and that the
Company will realize additional benefits in the future. See "- Regulation - Rate
Setting and Revenue Sharing."

         Subscription  and  Connection  Fees.  The  Company  collects  a monthly
subscription fee from its customers. Such fees vary depending on such factors as
whether the services are provided to a residential or business or other customer
(including  government  institutions),  and whether the  customer is linked to a
digital or analog  exchange.  The Company charges a monthly  subscription fee to
digital  customers of HUF 1,532 ($6.07) for residential  customers and HUF 2,672
($10.58) for business and other institutional  subscribers (including government
institutions). These rates increased 32% from 1999. The company also offers some
of its low usage customers a reduced  subscription  fee with a limited amount of
local calls at the regular  local  calling rate but a higher local  calling rate
for usage  over  such  limit.  See "-  Regulation  - Rate  Setting  and  Revenue
Sharing."

         Connection fees are earned when a customer is added to the network. The
Company  may collect  the full  connection  fee  provided  that the  customer is
connected within 30 days;  otherwise,  the Company may only collect a portion of
the  connection  fee and must  connect  the  subscriber  within  one year.  Upon
connection,  the  Company  may collect  the  remaining  portion of the fee.  The
connection  fee is not  recognized  as income  until  the  customer  receives  a
telephone and the connection is made. Currently,  connection fees are HUF 30,000
($118.80) for  residential  customers and HUF 90,000  ($356.41) for business and
other institutional subscribers (including government  institutions),  which are
the maximum  allowable  fees,  pursuant to a decree of the  Ministry.  Customers
requesting  additional access lines are charged an additional connection fee per
line.

         Other  Operating  Revenue.  The Company  supplies  private line service
(point-to-point  and  point-to-multi-point)   primarily  to  businesses.  As  of
December  31,  1999,  approximately  3,323  leased  lines  were in  service.  In
addition,  as of December 31,  1999,  the Company had 1,916 public pay phones in
the Operating  Areas in accordance  with the terms of the Concession  Contracts.
The Company  generates  additional  revenues from the  provision of  value-added
services,  including  ISDN,  voice mail,  call  waiting,  call  forwarding,  and
three-way  calling,  as well as  through  the  sale  and  leasing  of  telephone
equipment.

     Pricing

         Maximum  pricing levels are set by the Ministry and  historically  rate
increases have tracked  inflation,  as measured by either the Hungarian Producer
Price Index ("PPI") or the Hungarian Consumer Price Index ("CPI").  In 1997, the
Ministry set forth a new regulatory framework for regulating annual increases in
the fees for (a) local calls, (b) domestic long distance and international calls
and (c)  subscription  fees.  In  addition  to  separate  price  caps  for  such
categories  of  services,  the Ministry  enacted a  rebalancing  formula,  which

                                      -18-
<PAGE>

provides for greater  increases in charges for subscription fees and local calls
than in domestic long distance and international calls. See also "- Regulation -
Rate Setting and Revenue  Sharing." The  Company's  customers are on a one-month
billing cycle. For domestic long distance and  international  calls, the Company
is required to charge the same tariffs as Matav.  For local  calls,  the Company
may choose to increase  its rates up to the  permitted  amount or charge a lower
rate.  Measured  service rate  increases  are effected by the Ministry by either
increasing  charges  per pulse or reducing  the time  interval  between  pulses,
depending on the time of day and other factors. In addition, the Company charges
additional fees for services such as data transmission, voice mail, call waiting
and call  transfer in all of its  Operating  Areas.  The fees  charged for these
services are not subject to regulation by the Ministry.

         The Company has been allowing its subscribers to pay connection fees on
various  installment  basis  plans  and  encourages  customers  to  lease  their
telephones. The Company believes that to date the various installment plans have
resulted in an increase in the number of subscribers in the Operating Areas.

         The Company currently  purchases  telephone sets in bulk from a variety
of  manufactures.  Customers  can choose to buy the phone or lease the phone and
pay a monthly  fee of HUF 180  ($0.71).  Although  there is no Ministry or other
governmental  regulation relating to lease rates, the Company adjusts such rates
annually  according to the  Hungarian  PPI.  Approximately  49% of the Company's
subscribers as of December 31, 1999 leased their phones from the Company.

Network Design, Construction and Performance

         The Company has constructed a versatile modern  communications  network
which  substantially  replaced the antiquated  system purchased from Matav. This
new system  provides many of the  technologically  advanced  services  currently
available  in the United  States and  Western  Europe.  The  Company's  networks
maintain  the North  American  standard,  or "P01",  grade of  service.  The P01
standard  means that one call out of 100 will be blocked in the busiest  hour of
the  busiest  season.  The  Company  believes  that  its  ability  to  meet  the
telecommunications  requirements  of its  customers  through  a  combination  of
conventional   fiber  optic  and  wireless  local  loop  technology  affords  it
significant  flexibility with respect to network development and network capital
expenditures.  The Company has replaced all manually  operated local battery and
common  battery  cord type  switchboards  purchased  from Matav while  retaining
certain analog  switching  systems.  The Company  upgraded such analog switching
systems allowing such systems to mimic many of the features  available in modern
digital switching systems with a minimal investment.

     Conventional Network Design

         In developing its networks, the Company has implemented service quality
and  redundancy  objectives  on par with  Western  European  and North  American
digital  network  standards.  Certain of the networks  constructed  are based on
digital  hosts and  remotes  with  fiber  optic  rings  and  copper  feeder  and
distribution.  Such a distribution system is the conventional system used in the
United States and Western Europe. Telecommunications services are transmitted to
the home through twisted pair copper wire telephone cable.

                                      -19-
<PAGE>

         The  Company's  conventional  networks  have been designed to employ an
open  architecture,   generally  using  Synchronous  Digital  Hierarchy  ("SDH")
technology for system resilience. The Company's networks are designed to provide
voice and high speed data  services.  The  Company  believes  that the  flexible
design of the  conventional  networks  it has  constructed  allows it to readily
implement new technologies  and provide enhanced or new services.  The Company's
switches in its conventional  networks allow it to connect to networks  operated
by other LTOs or by Matav in order to route voice and data transmissions between
subscribers.

     Wireless Network Design

         In certain  portions of the Operating  Areas,  the Company is deploying
wireless  network   technology   based  upon  the  Digital   Enhanced   Cordless
Telecommunications   ("DECT")  system  which   interfaces  radio  technology  to
fiber-optic,  digital  microwave  or  fixed  copper  networks.  The  use of DECT
technology  generally  reduces the time and expense of installation and securing
rights of way. In a conventional network build,  significant  investment must be
made in order to offer  service to a large  proportion  of  potential  customers
whether or not they become actual  customers.  By contrast,  the use of the DECT
system in a network build-out  provides for capital  investment  proportional to
the number of  customers  actually  connected  because the radio links and other
required equipment are installed only for those households  choosing to take the
service and are installed only at the time service is requested.

         In many areas in which the  Company  is  utilizing  a wireless  network
design,  the  Company is  deploying  a fiber optic cable to the node in the same
fashion as in a conventional network build-out.  At each newly constructed node,
the Company has constructed a radio base station ("RBS"),  rather than switching
to twisted pair copper wire  distribution to the home. Each RBS has the capacity
to provide service to between 200 and 600 customers. As additional customers are
brought onto the network,  the Company  will install a  transceiver  unit at the
subscriber's  premises.  Such  transceiver's  operating  software  is  digitally
encrypted so that it will operate only with its  supporting  RBS. A conventional
telephone  jack  is  then  installed  in  the  subscriber's  household  near  an
electrical  outlet which is used to power the  transceiver  unit. The subscriber
then uses a conventional phone to make outgoing and receive incoming calls.

         The DECT-based  wireless  local loop system  provides the same grade of
service as a conventional  telephone network. In addition,  a DECT-based network
is able to provide many of the same services as a  conventional  copper  network
including voice mail, call forwarding and call barring.

     Network Administration

         The Company  actively  monitors the switching  centers and all critical
network  operational  parameters in each Operating Area. As digital features are
introduced into their  respective  networks,  the network  technicians  have the
ability to monitor  the  networks  and  evaluate  and respond  accordingly.  The
Company  will also be able to analyze the  performance  data  generated by these
systems  in order to make the  operating  adjustments  or  capital  expenditures
necessary to enhance individual network operations.

The Operating Companies

         The  following  is  a  brief  description  of  each  of  the  Operating
Companies:


                                      -20-
<PAGE>


      Hungarotel

         The  Company  holds a 99.0%  interest  in  Hungarotel  while a  private
Hungarian  investor owns the  remaining  1.0%.  The  Hungarotel  Operating  Area
encompasses the southern  portion of Bekes County,  which borders  Romania.  The
Hungarotel Operating Area is comprised of 75 municipalities and has a population
of  approximately  398,500  with an  estimated  166,600  residences  and  22,300
business and other potential subscribers  (including  government  institutions).
Bekes is the most intensively cultivated agrarian region in Hungary and produces
a substantial portion of Hungary's total wheat production.  Industry,  generally
related  to food  processing,  glass and  textile  production,  is also a strong
employer in the region.  Foreign  investors in the Operating  Area include Owens
Illinois of the United States and a number of European manufacturers. The region
is also a center for natural gas exploration and production.  As of December 31,
1999,  Hungarotel  had  112,300  access  lines  connected  to its  network.  The
Hungarotel  network utilizes a combination of a conventional  build, fiber optic
and wireless local loop technology.

      KNC

         The Company  holds a 94.8%  interest  in KNC.  The KNC  Operating  Area
municipalities  own 5.0% and Antenna  Hungaria owns the remaining  0.2%. The KNC
Operating  Area is  comprised  of 74  municipalities  in the eastern  portion of
Nograd County,  which borders Slovakia.  The KNC Operating Area has a population
of approximately 146,400, with an estimated 59,600 residences and 6,300 business
and  other  potential  subscribers  (including  government  institutions).   The
principal   economic   activities  in  the  KNC  Operating  Area  include  light
manufacturing,  tourism, some coal mining and agriculture.  Foreign investors in
the region include the Irish dairy producer, Avonmore, and the Japanese company,
Paramount Glass. The Operating Area's proximity to Budapest, 1-1/2 hours by car,
and its many  cultural  attractions  makes it a  desirable  weekend  and tourist
destination.  As of December 31, 1999, KNC had 46,300 access lines  connected to
its network.  The KNC network  utilizes a combination of a  conventional  build,
fiber optic and wireless local loop technology.

      Papatel

         The Company  holds a 79.2%  interest  in Papatel.  The IFC owns a 20.0%
interest and Papa, the principal city in the Papatel  Operating  Area,  owns the
remainder.  The Operating Area is composed of 51  municipalities  located in the
northern  portion  of  Veszprem  County  and is  contiguous  with  the  Raba-Com
Operating  Area. The population of the Papatel  Operating Area is  approximately
64,000  with an  estimated  24,000  residences  and  3,300  business  and  other
potential  subscribers  (including  government  institutions).   The  region  is
relatively  underdeveloped  economically with the principal economic  activities
centering around light industry, appliance manufacturing, agriculture and forest
products.  Significant foreign investors in the Operating Area include ATAG, the
Dutch  appliance  maker,  and  Electricite  de France.  As of December 31, 1999,
Papatel had 19,600 access lines  connected to its network.  The Papatel  network
utilizes a combination of a conventional  build,  fiber optic and wireless local
loop technology.

      Raba-Com

         The Company holds a 90.7% interest in Raba-Com.  Municipalities  in the
Raba-Com  Operating Area own the remaining 9.3%. The Raba-Com  Operating Area is
comprised  of 63  municipalities  in  Vas  County,  which  borders  Austria  and

                                      -21-
<PAGE>

Slovenia.  The Raba-Com Operating Area has a population of approximately 65,300,
with an estimated 26,300  residences and 4,300 business and other  institutional
subscribers   (including  government   institutions).   The  principal  economic
activities  in  the  Raba-Com   Operating  Area  include  heavy   manufacturing,
agriculture and tourism.  Significant  employers  include:  Linde (the Hungarian
central   natural  gas   distributor);   Phillips  (a  Dutch-owned   electronics
manufacturer); EcoPlast (a plastics producer); and Saga (a British-owned poultry
processor).  As of December 31, 1999, Raba-Com had 22,300 access lines connected
to its network.  The Raba-Com  network  utilizes a combination of a conventional
build and fiber optic infrastructure.

Regulation

         In November  1992,  the  Hungarian  Parliament  enacted  the  Hungarian
Telecommunications  Act of 1992 (the  "Telecom  Act") which took effect in 1993.
The Hungarian Telecom Act provided for, among other things, the establishment of
the conditions under which individuals and companies  (including Matav,  foreign
persons and foreign owned companies) could bid for concessions to build, own and
operate local  telecommunications  networks in  designated  service  areas.  The
Hungarian  Telecom Act also gave the  Ministry  the  authority  to regulate  the
industry,   including   the  setting  of  local,   domestic  long  distance  and
international  rates,  the sharing of revenues  between the LTOs and Matav,  the
accrediting  of  equipment  vendors and the setting of  standards  in respect of
network  development and services offered.  In order to meet these  obligations,
the  Hungarian  Telecom  Act  created  a  professional   supervisory  body,  the
Telecommunications  Chief Inspectorate (the "Inspectorate")  which is supervised
by the  Ministry.  Its tasks include  supervising  the progress of the LTOs with
respect to build-out scheduling,  equipment purchases and the quality of network
construction.

     Concession Contracts

         Pursuant  to the  Hungarian  Telecom  Act and in  accordance  with  the
Concession  Act of 1991, in connection  with the award of a concession,  each of
the LTOs entered  into a Concession  Contract  with the Ministry  governing  the
rights  and  obligations  of the LTO with  respect  to each  concession.  Topics
addressed by individual concession contracts include the royalties to be paid to
the Ministry, guidelines concerning LTO capital structure, build-out milestones,
employment guidelines and the level of required contributions to meet social and
educational  requirements.  For example, the Concession Contracts stipulate that
an LTO may not change its capital structure by more than 10% without the express
written consent of the Ministry and that former Matav  employees  generally must
be retained  for the first five to eight years of  operation.  The Company  may,
however, enter into termination agreements with its employees.

         Corporate  Governance.  The amended Concession Contracts for Hungarotel
and  Papatel  provide  that two out of every  five  members  of their  Boards of
Directors and one-half of the members of their  Supervisory  Boards be Hungarian
citizens.

         Exclusivity.  The  Concession  Contracts  provide  that each  Operating
Company has the exclusive  right to provide  non-cellular  local voice telephone
services for eight years.  Commencing in 2002,  the Ministry will have the right
to grant additional concessions for non-cellular local voice telephone services.


                                      -22-
<PAGE>


         Milestones/Network  Construction.  Each  of  the  Concession  Contracts
prescribe  certain  build-out  obligations   ("milestones")  that  require  each
Operating  Company  to  install  a  specified  number  of  access  lines  within
prescribed  time periods.  Each of the Operating  Companies met their  build-out
requirements in 1999.
See "- Fines."

         Royalties.  Each of the LTOs is required by the terms of its individual
concession  contract  to  pay  annual  royalties  to  the  Ministry  equal  to a
percentage of net revenue from basic  telephone  services.  Net revenue for this
purpose are  generally  defined as gross revenue from basic  telephone  services
less interconnect fees paid to Matav. The royalty  percentage may also differ by
region. For example, the Operating Companies must pay royalties in the following
percentage  amounts:  KNC 0.1%;  Raba-Com 1.5%;  Hungarotel  (Bekescsaba)  2.3%;
Hungarotel  (Oroshaza)  0.3%; and Papatel 2.3%. These amounts are paid annually,
in arrears.

         Social and  Educational  Contributions.  In addition  to the  royalties
described above,  Concession  Contracts may also call for social and educational
contributions  based on revenues of the Operating  Company,  excluding  VAT. The
Concession  Contracts for KNC and Raba-Com  require them to contribute  1.5% and
1.0% of such revenues,  respectively, to support social and educational projects
in their Operating Areas. The Concession  Contracts for Hungarotel require it to
pay an  amount  equal  to 10  times  the  local  occupational  excise  tax.  The
applicability  and  enforceability  of such  obligation is presently  uncertain.
However,  the Ministry stated in a letter to Hungarotel that it will not enforce
this particular provision of Hungarotel's Concession Contract.

         Renewal.  Each Concession Contract provides for a 25-year term with the
right to submit a  proposal,  within 18 months  prior to the  expiration  of the
Concession  Contract to apply for an additional  12-1/2 years which the Ministry
may  grant  if  it  approves  the  Operating  Company's  proposal,   subject  to
consultation  with local  authorities and professional  and consumer  protection
bodies. Such extension would involve the payment of an additional concession fee
to be set by the Ministry prior to the submission of the proposal.  In the event
the  proposal  is  rejected  or is not timely  filed,  the  concession  would be
auctioned by the Ministry,  although the existing  Operating  Company would have
priority in the event the  Operating  Company's  proposal  provides for the same
terms and conditions as that of another bidder.

         Fines.   The  failure  to  meet  required  construction  milestones may
result  in  the levying of fines by the Ministry.  Such fines are computed based
on  a  contractual  formula  and  may  be  substantial.   Each  of the Operating
Companies met their build-out  requirements in 1999.

         Termination  upon  Lack of  Performance.  If an LTO is unable to comply
with its  Concession  Contracts,  the  Ministry  has the right to  abrogate  the
Concession  Contract.  In  such an  instance,  the  Ministry  has  authority  to
determine alternative provisions for such service, which may include the sale of
the LTO's  telecommunications  assets to another provider. In such case, the LTO
would be  obligated  to sell its  assets  under the terms of a  contract  to the
provider to whom the concession is transferred. The Company believes that it has
demonstrated  substantial performance to date under its Concession Contracts and
that its relations with the Ministry are good and, therefore,  the chance of any
termination of any Concession Contract is remote.


                                      -23-
<PAGE>


         Dispute  Resolution.   Any   disputes   arising  with  respect  to  the
interpretation  of  a  Concession  Contract  will  be adjudicated by a Hungarian
court.

     Hungarian Equity Ownership Requirements.

         The Ministry has stipulated in the Concession  Contracts for Hungarotel
and Papatel,  as amended in June 1996, that each of the Operating Companies must
meet certain Hungarian ownership  requirements so that by the end of the seventh
year of their Concession  Contracts Hungarian ownership must consist of 25% plus
one share of the relevant  Operating  Company.  For the first three months after
assuming  operations of an Operating Area from Matav, no Hungarian ownership was
required.  For the  seven-year  period  following  the  date or  amendment  of a
Concession  Contract,  as the case may be, Hungarian  ownership must be at least
10%, except that during such period,  such ownership may be reduced to as low as
1% for a period of up to two years.  During such  seven-year  period,  while the
Hungarian  ownership block is required to be at least 10%, such Hungarian owners
of a 10% equity  holding in an  Operating  Company  must have voting power of at
least 25% plus one share,  thus  providing  Hungarian  owners the right to block
certain   transactions   which,   under  Hungarian   corporate  law,  require  a
supermajority  (75%) of stockholders  voting on the matter,  such as mergers and
consolidations, increases in share capital and winding-up.

         For these purposes, Hungarian ownership of shares means shares owned by
Hungarian citizens. Shares owned by a corporation are considered Hungarian owned
only in proportion to the Hungarian ownership of such corporation.  The LTOs can
also fulfill the 25% plus one share Hungarian  ownership  requirement by listing
such shares on the Budapest Stock Exchange.

         The equity ownership  requirements  and exceptions  described above are
contained in the June 1996  amended  Concession  Contracts  for  Hungarotel  and
Papatel.  The equity  ownership  requirements  expressly  set forth in KNC's and
Raba-Com's Concession Contracts call for a stricter 25% plus one share Hungarian
ownership  requirement.  However, the Ministry has stated,  pursuant to a letter
dated September 18, 1996, that it intends that all of the Operating Companies be
treated equally with respect to such ownership requirements.

         If the Hungarian  ownership does not meet the required levels,  the LTO
is required to give notice to the  Ministry,  which may then  require the LTO to
rectify the situation  within three months,  or a shorter period if the Ministry
considers that there has been a delay in the required notification. With respect
to the Company, Postabank, a Hungarian commercial bank, owns approximately 20.2%
of  HTCC  which  is the  majority  owner  of all  of  the  Operating  Companies.
Therefore,  the Ministry  deems the Company in  compliance  with the current 10%
ownership requirement,  however, the Company is currently not in compliance with
the 25% ownership requirement. The Ministry is, however, currently reviewing the
Hungarian equity  ownership  requirements and has indicated that it is not going
to enforce at this time the 10% Hungarian equity ownership  requirement.  In the
event that the Ministry adopts new Hungarian equity ownership requirements,  the
Company  will  formulate  plans  to meet  any such  Hungarian  equity  ownership
requirements.  Failure to do so, or failure to comply with the greater  than 25%
Hungarian  ownership  requirement at the end of the  seven-year  period might be
considered a serious  breach of a Concession  Contract,  giving the Ministry the
right, among other things, to terminate the Concession Contract. There can be no
assurance  that the Company will be able to increase the Hungarian  ownership in
the Operating  Companies in a manner sufficient to comply with such requirements
in the future.

                                      -24-
<PAGE>

         The Hungarian  ownership  requirements  would effectively give minority
Hungarian  stockholders in the Operating  Companies the ability to block certain
corporate  transactions  requiring the approval of 75% of stockholders voting on
the matter, including mergers and consolidations, increases in share capital and
winding-up.  In  addition,  unless  the  Hungarian  ownership  requirements  are
formally  changed,  compliance  would  result in a  reduction  in the  Company's
ownership in the Operating Companies, and, consequently,  the Company's share of
income,   if  any,  or  loss  of  the  Operating   Companies   will  be  reduced
proportionately.

       Rate-Setting and Revenue Sharing

         Pursuant to the  Hungarian Act LXXXVII of 1990 on Pricing (the "Pricing
Act") and the Telecom Act, the Ministry, issues, in agreement with the Hungarian
Ministry  of Finance,  decrees  regulating  the  tariffs for  telecommunications
services provided by the Company, Matav and the other LTOs.

         In 1997 the  Ministry  adopted  Decree No.  31/1997 of the KHVM on Fees
Related to  Telecommunication  Services  Subject to Concession (the "1997 Tariff
Decree") which regulated the Operating  Companies'  subscription  fees, fees for
local  calls,  and fees  collected  on  behalf of Matav  for long  distance  and
international  calls.  The 1997 Tariff  Decree set separate  price caps for each
category of service  through  2000,  which price caps  provided  for annual rate
increases  based on the CPI for the prior year. The Ministry may also reduce the
CPI percentage  increase by an efficiency factor to obtain the maximum allowable
price  increase.  The 1997 Decree also provided for a rebalancing  formula which
allowed greater  increases in the charges for subscription  fees and local calls
than in domestic long distance or  international  calls. For 2000, in accordance
with the general  policies  set forth in the 1997 Tariff  Decree,  the  Ministry
adopted Decree No. 1/2000 (I.18) (the "2000 Tariff  Decree") which provides for:
a 32% increase in the subscription fee for the Company's residential  customers;
a 60% increase in the subscription fee for the Company's business customers;  no
increase in local calls  within an  Operating  Area;  and a 40% decrease in long
distance and international  calls. The intended effect of the 2000 Decree was to
provide  for an  overall  2000  price  increase  of a  maximum  6%  based on the
anticipated  inflation  rate in 2000. The 1999 increase in the Hungarian CPI was
10%.

          The Ministry also regulates the revenue sharing  arrangements  between
the LTOs  (including  the  Operating  Companies)  and Matav with respect to long
distance and international  calls. The revenue sharing  arrangements provide for
the Operating Companies to retain an interconnection fee from the fees collected
from the Operating  Companies'  customers  for long  distance and  international
calls and for Matav to pay the Operating  Companies an  interconnection  fee for
domestic  long  distance  or  international  calls  terminating  with one of the
Operating Company's  customers.  In 1998 the Ministry announced that it intended
to start regulating the interconnection  fees based on internationally  accepted
benchmarks  with the goal of creating a  cost-based  interconnection  fee regime
within the  parameters of European  Union  standards.  To that end,  starting in
1999,  the  interconnection  fees  were  revised  to  compensate  the LTOs  more
favorably  for costs than in the prior years.  For 2000,  the  Ministry  adopted
Decree 8/2000  (III.29) (the "2000  Interconnection  Decree") which provides for
each LTO to receive in 2000 an average  interconnection  fee of HUF 13.22/minute
for the  initiation  of a domestic long  distance or  international  call and an
average fee of HUF  8.02/minute  for the termination of a domestic long distance
or international  call. For future years, the LTOs other than Matav as part of a
formal association (the "LTO Association") recently provided the Ministry with a
paper outlining its position with respect to the implementation of a longer term
cost-based  interconnection  fee regime,  which is already a requirement  for EU
members. See " - Competition."

                                      -25-
<PAGE>

         The Ministry  regulates  the  subscriber  connection  fees  pursuant to
Decree 11/1995 (VII.12) KHVM, as amended, on the One-Time Access Fee Payable for
Establishment  of Public  Telephone  Service Access Points (the  "Connection Fee
Decree").  The Connection Fee Decree provides for maximum subscriber  connection
fees at HUF 90,000 ($415.70) for business customers and HUF 30,000 ($138.57) for
residential  customers.   See  "-  Operations  -  Services  -  Subscription  and
Connection Fees."

     Hungarian Taxation

         Corporate  Income  Tax.  The  operations  of  the  Company's  Hungarian
subsidiaries,  including  the  Operating  Companies,  are  subject to  Hungarian
corporate income tax. Generally, Hungarian corporations are subject to tax at an
annual rate of 18.0%. The Operating  Companies  fulfilled certain criteria which
entitled  them to a 100.0%  reduction  in income  taxes for the five year period
ending  December  31,  1998  and a  60.0%  reduction  in  income  taxes  for the
subsequent five year period ending December 31, 2003,  provided certain criteria
continue to be met. See Note 1(j) of Notes to Consolidated Financial Statements.
The Operating Companies are currently eligible for such tax treatment.  However,
the corporate income tax is reviewed,  and subject to change,  annually. Any tax
increase or change in the tax exempt  status of the  Operating  Companies  could
have a material adverse effect on the Company.

         Value  Added  Tax  ("VAT").  The  Hungarian  VAT  system  is  virtually
identical to the one used in most European  countries.  VAT is a consumption tax
which is fully borne by the final consumer of a product or service.  The current
rates of VAT in Hungary vary  between  0.0% and 25.0%,  depending on the type of
product or service.

         Social Insurance  Contributions.  The level of contributions for social
insurance  in Hungary is one of the highest in Europe.  In 1999  employers  were
required to pay the state 33% of an employee's gross salary as a social security
contribution   and  3.0%  of  an  employee's  gross  salary  as  the  employer's
contribution  to the  unemployment  fund.  In addition,  the Company must pay an
additional HUF 3,600 ($14.26) per month for each employee for health  insurance.
The  Company's  share of  pension,  unemployment,  social  security  and  health
insurance payments are reflected in operating and maintenance expenses.

Competition

         The  Concession   Contracts   provide  for  an  eight-year   period  of
exclusivity in the provision of  non-cellular  local voice  telephone  services,
which ends in 2002, while the initial 25-year terms of the Concession  Contracts
are  scheduled to expire in 2019.  Other  telecommunications  service  providers
presently are permitted to apply for licenses to provide non-exclusive  services
(e.g.,  data  transmission  and voice mail)  throughout  Hungary,  including the
Operating Areas. In addition, beginning in 2002, other competitors may choose to
enter the non-cellular  local voice telephone services market, but the terms and
conditions upon which such market entry will be effected are today unclear.

                                      -26-
<PAGE>

         In  1998,  the  Ministry   awarded   Pan-Tel  the  license  to  provide
non-exclusive  telecommunications  services such as data  transmission and voice
mail. The current shareholders of Pan-Tel include MAV Rt. (the Hungarian railway
company,  "MAV"), PT Investment  Holding Company and KPN NV (the Dutch telephone
company).  In 1998 Pan-Tel started  building its nationwide fiber optic backbone
network along the  rights-of-way of MAV which is expected to be completed by the
end of 2000.  Pan-Tel is currently  providing business  communications  services
such as digital data, fax and video  transmission using Internet Protocol ("IP")
data transmission technology,  primarily to large customers.  Pan-Tel focused on
the large,  multinational companies and government  organizations as its initial
target market.  In 1999, the Hungarian  government  granted Pan-Tel two separate
licenses  to  provide  IP-based  voice  services  to  residential  and  business
customers. The Hungarian government determined that such service did not violate
Matav's  monopolistic  voice  concession since voice-over IP is considered "data
transfer".  Matav has recently initiated its own voice-over IP service.  Pan-Tel
also  owns a  majority  stake  in  one of  Hungary's  largest  Internet  Service
Providers.

         The  Company  faces  competition  from  the  four  Hungarian   cellular
providers:  Westel 450; Westel 900;  Pannon;  and the newest entrant  Vodaphone.
Presently,  the airtime and monthly fees charged by the cellular  operators  are
generally more than the fees for comparable services charged by the Company.

         Another entrant into the marketplace,  Novacom  Telecommunications Kft.
("Novacom") owned by affiliates of RWE Telliance AG, a German telecommunications
company,  EnBW AG, a German  electricity  provider and Elmu Rt.,  the  Hungarian
electricity distributor ("Elmu"), is expanding the fiber optic infrastructure of
Elmu in order to compete in the  telecommunications  market.  Novacom offers its
customers  corporate network services,  managed leased lines, ISDN, frame relay,
X25, ATM IP-based data  transmission,  closed user group voice and PBX services.
Novacom also recently initiated voice-over IP service.

         Other  Hungarian  telecommunications  providers  include the  following
entities:  GTS Hungary Kft.  ("GTS") which provides data  transmission  services
through a nationwide  microwave  network and a satellite based network (GTS also
owns  one of  the  leading  Hungarian  ISPs);  Antenna  Hungaria,  the  national
broadcaster  which is still  state-owned,  has a national  microwave network and
recently announced plans to establish a joint venture with Hungarian Electricity
Works Rt.  ("MVM") to operate MVM's  existing  telecom  network;  and Global One
Telecommunications  Kft., which provides  IP-based data  transmission  services.
There are also several other VSAT (very small  aperture  terminal)  providers in
Hungary.

         The Hungarian cable  television  market is highly  fragmented with over
150 cable  television  providers.  The Hungarian  cable  television  industry is
undergoing  consolidation.  United  Pan-Europe  Communications NV ("UPC") is the
largest cable television operator in Hungary. UPC owners include UnitedGlobalCom
Inc., the global  television  operator of Denver,  Colorado (51%), and Microsoft
Corp. (8%) of Redmond, Washington.

         The Ministry  recently  announced  that it will revise its laws in 2000
regarding the  regulation  of the  telecommunication  market in accordance  with
European Union standards. The regulation of telephony,  cable television and the
Internet  would be affected.  The Company  does not expect that the  exclusivity
period of its concession rights, which expire in 2002, will be affected.

                                      -27-
<PAGE>

         Hungary's  application  for membership in the European Union (the "EU")
was  accepted.  Hungary is now in the  process of  negotiating  the terms of its
accession into the EU. The EU has adopted numerous  directives  providing for an
open telecommunications market among its member nations. Hungary is not expected
to become a member of the  European  Union  until 2003 at the  earliest by which
time the exclusivity rights of the LTOs and Matav will have expired.

Employees

         The Company had a total of  approximately  665 employees,  including 10
expatriates,  as of March 1999.  The Company  considers its  relations  with its
employees to be satisfactory.

                               Item 2. Properties

         The Company  leases its office  space in Budapest at a current  monthly
rental of DM 30,749  (approximately  $15,000 at  current  exchange  rates).  The
Company is in the process of selling its old office  headquarters  in  Budapest.
The  Company  leases  1,157  square feet of office  space at 100 First  Stamford
Place,  Stamford,  CT at a monthly  rental of $2,508.  The Company is moving its
U.S. office to Suite 32, Tokeneke  Center,  30 Center Street,  Darien,  CT 06820
effective May 1, 2000 at a monthly rental of $1,500.  The Company  believes that
its leased and owned  office  space is  adequate  for its  present  needs but is
currently reviewing its alternatives as to its future needs.

         In addition, each Operating Company owns or leases the following office
or customer  service space in its respective  Operating Area: KNC owns or leases
57,000 square feet of total space; Raba-Com owns or leases 15,000 square feet of
total space;  Hungarotel owns or leases 119,594 square feet of total space;  and
Papatel owns or leases 18,000 square feet of total space.

                            Item 3. Legal Proceedings

         Hungarotel  is  a  defendant  in  a  lawsuit  filed  by  Dialcont  Kft.
("Dialcont")  on March 28,  1996 in Hungary  alleging a breach of  contract  for
services  allegedly  provided  by  Dialcont  during  1994 and 1995.  The Company
believes that  Dialcont's  claims are without merit and is vigorously  defending
itself against such claims. Dialcont is seeking HUF 222 million ($879,000). This
action is still pending in the Hungarian court system.

         Raba-Com is a defendant in a lawsuit filed by an individual residential
customer  in Hungary on  December 4, 1997.  The  plaintiff  sought a refund of a
minimal amount alleging that his home was connected to Raba-Com's  network in an
untimely  fashion.  Raba-Com  prevailed  on the merits in the lower  court.  The
plaintiff  appealed the case in the appellate  court which court  overturned the
lower court's  decision.  Raba-Com  filed an appeal with the  Hungarian  Supreme
Court which is still pending.  Should, however,  Raba-Com lose its appeal at the
Supreme  Court  level,  the Company  could be subject to  additional  claims for
refunds.  The Company believes it has meritorious defenses to this claim and any
others that may be filed regarding this matter.

         HTCC  Consulting  Rt.  ("Consulting")   and   Papatel  are  involved in
several  disputes  with the Hungarian  taxing  authorities (the "APEH") pursuant
to  which the APEH alleges that Consulting owes HUF 105  million  (approximately


                                      -28-
<PAGE>


$416,000)  and  Papatel  owes  HUF  26  million  (approximately   $103,000)  for
various  reasons.   The Operating  Companies  believe  that  the APEH claims are
without merit and are vigorously  defending  themselves against such claims.

         During 1996 and 1997,  the Company  entered into  several  construction
contracts  with a  Hungarian  contractor  which  totaled  $59.0  million  in the
aggregate,  $47.5 of which was financed by a contractor financing facility.  The
contractor financed the facility through Postabank. As of December 31, 1998, the
balance  owed  by  the  Company  on  the  contractor   financing   facility  was
approximately $36.6 million.  The Company and the contractor have a disagreement
with respect to several issues  relating to the quality and quantity of the work
done by the contractor.  The Company has rejected  invoices of approximately HUF
700 million  (approximately $2.8 million). In order to resolve these issues, the
Company  purchased  from  Postabank the  receivables  owed by the  contractor to
Postabank with respect to the contractor  financing  facility.  The Company also
purchased from Postabank some of the  obligations  which the Company owed to the
contractor  under the  contractor  financing  facility  which  were  assumed  by
Postabank.  The  Company  then  set  off  its  uncontested  liabilities  to  the
contractor  against  the  amounts  owed to the  Company by the  contractor.  The
contractor  is now  seeking  payment  under  separate  invoices in the amount of
approximately  $24 million for work which the  Company is  disputing  because of
quality and quantity issues. The Company still has claims against the contractor
of  approximately  $31 million which is more than the  contractor's  claim.  The
Company is reviewing its options with respect to such dispute.  At this time the
outcome of such dispute cannot be predicted with certainty. The Company believes
that it will prevail on the merits such that it will not be responsible  for the
full amount of the contractor's  claims. There can, however, be no assurances as
to the final outcome or course of action of such dispute.

         The Company and its  subsidiaries  are involved in various  other legal
actions  arising in the ordinary  course of business.  The Company is contesting
these legal actions in addition to the suits noted above;  however,  the outcome
of individual  matters is not predictable with assurance.  Although the ultimate
resolution  of these  actions  (including  the actions  discussed  above) is not
presently  determinable,  the Company believes that any liability resulting from
the current  pending legal actions  involving the Company,  in excess of amounts
provided  therefor,  will not have a material  adverse  effect on the  Company's
consolidated financial position, results of operations or liquidity.

           Item 4. Submission of Matters to a Vote of Security Holders

         No matters were submitted to a vote of the Company's  security  holders
during the quarter ended December 31, 1999.

                                      -29-
<PAGE>
                                     PART II

  Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Market Information

           The Company's Common Stock trades on the American Stock Exchange (the
"Amex")  under  the  symbol  "HTC."  Trading  of the  Common  Stock  on the Amex
commenced on December 20, 1995. From December 8, 1994 through December 19, 1995,
the Common Stock was quoted on the Nasdaq  National Market and from December 28,
1992  through  December  7,  1994 the  Common  Stock was  quoted  on the  Nasdaq
Small-Cap Market. In 1998, NASD, parent of The Nasdaq Stock Market,  merged with
the American Stock Exchange.  Subsequent to the merger,  The Nasdaq-Amex  Market
Group was created as a holding  company under which both The Nasdaq Stock Market
and the American  Stock  Exchange  function as  independent  subsidiaries,  with
separate listed companies.

         The  following  table sets  forth the high and low sale  prices for the
Common Stock as reported by the Amex for each quarter in 1998 and 1999.

                                     High         Low
Quarter Ended:
-------------

1998
March 31, 1998 . . . . . . . . . . . $11-1/8    $ 7-1/2
June 30, 1998. . . . . . . . . . . .   8-3/4      4-7/8
September 30, 1998 . . . . . . . . .   6-1/8      2-1/8
December 31, 1998. . . . . . . . . .   6-5/8      3

1999
March 31, 1999 . . . . . . . . . . . $ 5-1/4    $ 3-1/4
June 30, 1999. . . . . . . . . . . .   7          3-3/4
September 30, 1999 . . . . . . . . .   6-1/2      4-9/16
December 31, 1999. . . . . . . . . .   7-1/4      4-13/16

         On April 11,  2000,  the closing sale price for the Common Stock on the
Amex was $7-1/2.

Stockholders

         As of April 11, 2000, the Company had 12,009,479 shares of Common Stock
outstanding  held by 114  holders of record.  The Company  believes  that it has
approximately 1,500 beneficial owners who hold their shares in street names.

         The Company will furnish, without charge, on the written request of any
stockholder,  a copy of the  Company's  Annual  Report on Form 10-K for the year
ended  December  31,  1999,  including  financial  statements  filed  therewith.
Stockholders  wishing a copy may send their  request to the Company at 100 First
Stamford Place, Suite 204, Stamford,  CT 06902 until April 30, 2000 and to Suite
32, Tokeneke Center, 30 Center Street, Darien, CT 06820 thereafter.

                                      -30-
<PAGE>

Dividend Policy

         It is the present policy of the Company to retain earnings,  if any, to
finance the development and growth of its businesses.  Accordingly, the Board of
Directors does not anticipate that cash dividends will be paid until earnings of
the Company  warrant  such  dividends,  and there can be no  assurance  that the
Company can achieve such earnings.

         At present,  HTCC's only  source of  revenues  is  payments,  including
repayment of any  intercompany  loans,  payments  under its  management  service
agreements and dividends,  if any, from the Operating  Companies.  The Operating
Companies'  ability to pay dividends or make other capital  distributions to the
Company is governed by Hungarian law.  Currently,  the Operating  Companies have
negative net equity and are not permitted to pay dividends.

                         Item 6. Selected Financial Data

                       HUNGARIAN TELEPHONE AND CABLE CORP.
                                AND SUBSIDIARIES
                      Selected Financial and Operating Data
                     (Dollars in Thousands, Except Per Share
                                    Amounts)
<TABLE>
<CAPTION>
<S>                                           <C>               <C>             <C>             <C>          <C>    <

                                                 1999             1998             1997            1996         1995
                                               ----------       ---------        ---------      ---------     --------
For the Year
Operating revenues                             $ 45,438          $ 38,707        $ 37,891       $ 20,910      $  4,070
Operating income (loss)                        $ 16,189          $ (6,059)       $ (1,263)      $(20,553)     $(17,829)

Net loss before extraordinary items, net       $(17,773)         $(50,612)       $(36,236)      $(54,769)     $(20,024)
Net income (loss)                              $  3,172          $(50,612)       $(36,236)      $(54,769)     $(20,024)
Net income (loss) per common share             $   0.33          $  (9.53)       $  (7.97)      $ (13.14)     $  (6.30)

At Year-End
Total assets                                   $154,683          $177,067        $186,485       $156,615      $110,387
Long-term debt, excluding
current installments                           $122,917          $202,881        $194,537       $148,472      $ 23,467
Total stockholders' (deficiency)
equity                                         $ (6,946)         $(89,037)       $(41,837)      $(23,790)     $ 15,739

</TABLE>

          The  extraordinary item  in  1999  arose   on  the  extinguishment  of
liabilities  to Citizens and amounts due under a contractor  financing  facility
offset in part by the  write off of the  remaining  unamortized  deferred  costs
pertaining to a credit  facility  with  Postabank,  which was also  extinguished
during the year.

                                      -31-
<PAGE>


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Introduction

         HTCC  is  engaged  primarily  in the  provision  of  telecommunications
services  through its  majority-owned  operating  subsidiaries,  KNC,  Raba-Com,
Papatel  and   Hungarotel.   The  Company   earns   substantially   all  of  its
telecommunications revenue from measured service fees, monthly line rental fees,
connection fees, public pay telephone services and ancillary services (including
charges for additional services purchased at the customer's discretion).

         During 1996 and 1997 the  Company  embarked  on a  significant  network
development  program which met its  substantial  demand  backlog,  increased the
number of basic  telephone  access  lines in  service  and  modernized  existing
facilities.  The  development  and  installation  of the  network in each of the
Company's Operating Areas required significant capital expenditures.

         Now that the Company's network is substantially  built-out, the ability
of the Company to generate  sufficient revenues to satisfy cash requirements and
become profitable will depend upon a number of factors,  including the Company's
ability to attract  additional  customers,  revenues  per  customer and on-going
construction costs. These factors are expected to be primarily influenced by the
success of the Company's  operating  and marketing  strategies as well as market
acceptance of  telecommunications  services in the Company's Operating Areas. In
addition,  the  Company's  profitability  may  be  affected  by  changes  in the
Company's regulatory environment and other factors that are beyond the Company's
control.  The success of the Company's strategy is dependent upon its ability to
increase revenues through increased usage and the addition of new subscribers.

         The Company  funded its  construction  costs and working  capital needs
over the past several years primarily  through a $170 million  Postabank  Credit
Facility  (the  "Original  Postabank  Credit  Facility")  and  a  $47.5  million
contractor  financing facility.  The Company and the Hungarian  contractor which
granted the contractor  financing  facility have a disagreement  with respect to
several  issues  relating to the  quality  and  quantity of the work done by the
contractor.  In addition, on March 31, 1999, the Company did not have sufficient
funds on hand to pay the first installment due on the Original  Postabank Credit
Facility. Due to this fact, as well as the disagreement the Company has with the
Hungarian  contractor,  on March 30, 1999, and May 12, 1999, the Company entered
into a  series  of  transactions  (see  notes  4,  5,  6, 8 and 11 of  Notes  to
Consolidated  Financial  Statements)  which  restructured the Company's debt and
capital  structure.  As  the  final  step  in  the  Company's  debt  and  equity
restructuring which started in 1999, on April 11, 2000, the Company entered into
a EUR  130  million  Senior  Secured  Debt  Facility  with  a  European  banking
syndicate. See "- Liquidity and Capital Resources" below.

         To date, the Company's  activities have involved the acquisition of the
concessions  and  telecommunications  networks  from  Matav  and the  subsequent
design,   development  and   construction   of  the  modern   telecommunications
infrastructure  that  the  Company  now has in  service.  The  Company  paid the
Ministry $11.5 million (at historical exchange rates) for its concessions, spent
approximately  $23.2  million  (at  historical  exchange  rates) to acquire  the
existing  telecommunications assets in its Operating Areas from Matav, and spent
$181 million  through  December 31, 1999 (at historical  exchange  rates) on the
development and  construction of its  telecommunications  infrastructure.  Since
commencing the provision of telecommunications  services in the first quarter of
1995, the Company's network construction and expansion program has added 139,100
access  lines  through  December 31, 1999 to the 61,400  access  lines  acquired
directly  from Matav.  As a result,  the Company  had  200,500  access  lines in
operation at year end 1999.

                                      -32-
<PAGE>


Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998
     Net Revenues
                                                            Year ended
      (dollars in millions)                            1999            1998
      Measured service revenues                      $ 35.2          $ 32.2
      Subscription revenues                            10.9            10.7
      Net interconnect charges                         (7.0)           (9.8)
                                                      -----           -----
      Net measured service and subscription revenues   39.1            33.1
      Connection fees                                   1.8             2.0
      Other operating revenues, net                     4.5             3.6
                                                      -----           -----
      Telephone Service Revenues, Net                 $45.4           $38.7
                                                      ======          =====

         The Company  recorded a 17% increase in net telephone  service revenues
to $45.4 million for the year ended December 31, 1999 from $38.7 million for the
year ended December 31, 1998.

         Net measured service and subscription  revenues  increased 18% to $39.1
million for the year ended  December  31,  1999 from $33.1  million for the year
ended December 31, 1998. Measured service revenues increased 9% to $35.2 million
in 1999 from $32.2 million in 1998 while  subscription  revenues increased 2% to
$10.9  million in 1999 from $10.7 million in 1998.  These  increases in call and
subscription  fee  revenues  are the result of a 7% increase  in average  access
lines in service from  approximately  178,000 lines for the year ended  December
31, 1998 to  approximately  190,000 lines for the year ended  December 31, 1999.
The growth in access lines is not fully reflected in increased  measured service
revenues  as newer  customers  require a period  of  maturity  before  producing
revenues similar to established telephone customers.

         These  revenues  have been  offset by net  interconnect  charges  which
totaled  $7.0  million for the year ended  December 31, 1999 as compared to $9.8
million  for the year ended  December  31,  1998.  As a  percentage  of call and
subscription  revenues,  net interconnect charges have declined from 23% for the
year ended December 31, 1998 to 15% for the year ended December 31, 1999, due to
a higher  proportion of local  traffic as additional  access lines are placed in
service plus a negotiated  reduction in interconnect  fees effective  January 1,
1999. Based upon recent  negotiations  with Matav and the Hungarian  Ministry of
Telecommunications,  the Company  expects net  interconnect,  as a percentage of
call and subscription revenues, to remain consistent with 1999 levels in 2000.

         Connection  fees for the year ended  December  31,  1999  totaled  $1.8
million as  compared  to $2.0  million  for the year ended  December  31,  1998.
Connection  fees increased in functional  currency terms by 5% due to additional
access lines being  connected in 1999 as compared to 1998.  However,  due to the
devaluation of the Hungarian  forint during the period,  connection fees for the
year have remained relatively consistent in U.S dollar terms with 1998 amounts.


                                      -33-
<PAGE>


         Other operating  revenues increased 25% to $4.5 million during the year
ended  December 31, 1999 compared to $3.6 million during the year ended December
31, 1998 due to revenues  generated from the provision of direct lines and other
miscellaneous telephony service revenues.

     Operating and Maintenance Expenses

         Operating and maintenance expenses for the year ended December 31, 1999
decreased to $17.5 million compared to $19.6 million for the year ended December
31, 1998. On a per line basis,  operating and maintenance  expenses decreased to
approximately  $92 per average  access line for the year ended December 31, 1999
from  $110  for  the  year  ended  December  31,  1998 as the  Company  achieved
productivity   improvements  and  increased  its  focus  on  reducing  operating
expenses,  particularly  through reductions in the number of expatriates working
for the Company. The Company does not expect significant  decreases in operating
and maintenance  expenses in 2000. However,  on a per line basis,  operating and
maintenance  costs are expected to decline as additional  access lines are added
during 2000.

     Depreciation and Amortization

         Depreciation  and amortization  charges  increased to $11.8 million for
the year ended  December 31, 1999 from $11.6 million for the year ended December
31, 1998. Depreciation and amortization charges increased in functional currency
terms by approximately 13% due to additional capital expenditures.  However, due
to the devaluation of the Hungarian  forint during the period,  depreciation and
amortization charges for the year ended 1999 have remained relatively consistent
in U.S.  dollar terms with 1998 amounts.  The Company expects  depreciation  and
amortization  charges in 2000 to increase in  functional  currency  terms due to
additional capital expenditures in its operating subsidiaries,  however, in U.S.
dollar  terms  the  Company  expects  depreciation  and  amortization  to remain
consistent  with 1999 amounts due to devaluation of the operating  subsidiaries'
functional currency.

     Management Fees

         There was no  management  fee expense for the year ended  December  31,
1999 as compared to $2.5  million for the year ended  December  31,  1998.  This
decrease is due to the termination of management  services agreement between the
Company and Citizens  International  Management Services Company. See Note 15 of
Notes  to  Consolidated  Financial  Statements.  The  Company  does not have any
continuing management services agreements.

     Cost of Termination of Management Services Agreement

         For the year ended  December  31, 1998,  the Company  recorded a charge
totaling  $11.1  million  representing  the  present  value of  payments  due to
Citizens  International  Management  Services  Company under a  termination  and
consulting agreement. See Note 15 of Notes to Consolidated Financial Statements.

                                      -34-
<PAGE>

     Income (Loss) from Operations

         Income from  operations  was $16.2 million for the year ended  December
31, 1999  compared to a loss from  operations of $6.1 million for the year ended
December 31, 1998.  Adjusted for the cost of terminating the management services
agreement  and  management  fees,  income  from  operations  for the year  ended
December 31, 1998 amounted to $7.6 million.  Contributing  to such  improvements
were higher  revenues  and lower  operating  and  maintenance  expenses  and the
elimination  of the  management  fees  described  above  during  the year  ended
December 31, 1999 as compared to the year ended  December  31,  1998,  offset by
increased depreciation and amortization charges during the year.

     Foreign Exchange Losses

         Foreign  exchange losses increased $2.6 million to $2.8 million for the
year ended  December 31, 1999 from $0.2 million for the year ended  December 31,
1998. Such foreign  exchange  losses resulted  primarily from the devaluation of
the Hungarian forint against the U.S. dollar during the period. This increase in
foreign exchange losses during the period is due to the Company's  restructuring
of its debt obligations in May 1999. Prior to its  restructuring the Company had
debt  denominated  in Hungarian  forints.  The Company now has debt  obligations
denominated  in U.S.  dollars  and  euros,  as well as  Hungarian  forints.  See
"Liquidity and Capital  Resources"  section below for information  regarding the
Company's  debt  restructuring  during the period.  See also the  "Inflation and
Foreign Currency" and "Market Risk Exposure" sections below.

     Interest Expense

         Interest expense decreased to $32.5 million for the year ended December
31, 1999 from $45.9 million for the year ended December 31, 1998.  This decrease
was attributable to lower average debt levels during the year ended December 31,
1999 as compared to the year ended December 31, 1998.  This reduction in average
debt levels outstanding during the period is due to the Company's  restructuring
of its debt  obligations  in May 1999. The decrease also reflects lower interest
rates  paid on  borrowings  in U.S.  dollars  and euros  compared  to  Hungarian
forints.

     Interest Income

         Interest  income  increased to $1.7 million for the year ended December
31, 1999 from $0.7 million for the year ended December 31, 1998 primarily due to
higher average cash balances outstanding during the period.

     Other, net

         Other, expense amounted to $0.4 million for the year ended December 31,
1999 as compared to other income of $0.8 million for the year ended December 31,
1998. This decrease is due to an approximate  $0.8 million gain realized related
to the  termination  of the former  management  services  agreement  between the
Company and Citizens International  Management Services Company during 1998. The
Company does not have any continuing management services agreements. See Note 15
of Notes to Consolidated Financial Statements.

     Loss Before Extraordinary Items

         As a result of the factors discussed above, the Company recorded a loss
before  extraordinary  items of $17.8 million,  or $1.85 per share, for the year
ended  December  31, 1999 as compared  to a loss before  extraordinary  items of
$50.6 million, or $9.53 per share, for the year ended December 31, 1998.

                                      -35-
<PAGE>

      Extraordinary Items, net

         For  the  year  ended  December  31,  1999,  the  Company  recorded  an
extraordinary  item of $20.9 million comprised of extraordinary  income of $27.1
million  which  consists  of a  $9.0  million  gain  on  extinguishment  of  the
liabilities  the  Company  had  with  Citizens  and  a  $18.1  million  gain  on
extinguishment of all amounts due under a contractor financing facility,  offset
in part by a  non-cash  charge of $6.2  million  related  to the  write-off  the
remaining  unamortized  deferred  financing costs and credits  pertaining to the
Original Postabank Credit Facility.


      Net Income (Loss)

         As a result of the factors  discussed  above,  the Company recorded net
income of $3.2 million,  or $0.33 per share for the year ended December 31, 1999
as  compared to a net loss of $50.6  million,  or ($9.53) per share for the year
ended December 31, 1998.


Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997

     Net Revenues
                                                            Year ended
      (dollars in millions)                            1998            1997
      Measured service revenues                      $ 32.2          $ 26.2
      Subscription revenues                            10.7             7.2
      Net interconnect charges                         (9.8)          (10.2)
                                                       -----         ------
      Net measured service and subscription revenues   33.1            23.2
      Connection fees                                   2.0            12.9
      Other operating revenues, net                     3.6             1.8
                                                      -----           -----
      Telephone Service Revenues, Net                $ 38.7           $37.9
                                                      =====           =====


         The Company recorded a 2% increase in net telephone service revenues to
$38.7  million for the year ended  December 31, 1998 from $37.9  million for the
year ended December 31, 1997.

         Net measured service and subscription  revenues  increased 43% to $33.1
million for the year ended  December  31,  1998 from $23.2  million for the year
ended  December 31,  1997.  Measured  service  revenues  increased  23% to $32.2
million in 1998 from $26.2 million in 1997 while subscription revenues increased
49% to $10.7 million in 1998 from $7.2 million in 1997.  These increases in call
and subscription fee revenues are the result of a 35% increase in average access
lines in service from  approximately  132,000 lines for the year ended  December
31, 1997 to  approximately  178,000 lines for the year ended  December 31, 1998.
The growth in access lines is not fully reflected in increased  measured service
revenues  as newer  customers  require a period  of  maturity  before  producing
revenues similar to established telephone customers.

                                      -36-
<PAGE>

         These  revenues  have been  offset by net  interconnect  charges  which
totaled $9.8  million for the year ended  December 31, 1998 as compared to $10.2
million  for the year ended  December  31,  1997.  As a  percentage  of call and
subscription  revenues,  net interconnect charges have declined from 31% for the
year ended December 31, 1997 to 23% for the year ended December 31, 1998, due to
a higher  proportion of local  traffic as additional  access lines are placed in
service plus a negotiated  reduction in interconnect  fees effective  January 1,
1998.

         Connection  fees for the year ended  December  31,  1998  totaled  $2.0
million as compared to $12.9 million for the year ended December 31, 1997.  This
decrease reflects the reduction in the number of new access lines connected from
approximately  81,700 during the year ended  December 31, 1997 to  approximately
9,900  lines  during the year ended  December  31,  1998.  Connection  fees were
expected to decline substantially during the year as the majority of wait-listed
customers have been provided with access lines.  The Company expects  connection
fees to continue to decline as no significant  backlog of wait-listed  customers
exists.

         Other operating revenues increased 100% to $3.6 million during the year
ended  December 31, 1998 compared to $1.8 million during the year ended December
31,  1997 due to  revenues  generated  from the  provision  of direct  lines and
revenues generated from Lucent PBX sales and related maintenance services.

     Operating and Maintenance Expenses

         Operating and maintenance expenses for the year ended December 31, 1998
decreased to $19.6 million compared to $25.0 million for the year ended December
31, 1997. On a per line basis,  operating and maintenance  expenses decreased to
approximately  $110 per average access line for the year ended December 31, 1998
from  $190  for  the  year  ended  December  31,  1997 as the  Company  achieved
productivity  improvements,  including  discontinuing the use of labor intensive
manual switchboards through the use of modern switching  technology,  as well as
increased focus on reducing operating expenses.

     Termination of Management Services Agreement

         For the year ended  December  31, 1998,  the Company  recorded a charge
totaling  $11.1  million  representing  the  present  value of  payments  due to
Citizens  International  Management  Services  Company under a  termination  and
consulting agreement. See Note 15 of Notes to Consolidated Financial Statements.

     Depreciation and Amortization

         Depreciation  and amortization  charges  increased to $11.6 million for
the year ended  December 31, 1998 from $8.3 million for the year ended  December
31, 1997.

     Management Fees

         Management fees pursuant to management service agreements  decreased to
$2.5 million for the year ended December 31, 1998 from $5.8 million for the year
ended December 31, 1997.  This decrease was due to the termination of management
services  agreement  between the Company and Citizens  International  Management
Services Company. See Note 15 of Notes to Consolidated Financial Statements. The
Company does not have any continuing management services agreement.

                                      -37-
<PAGE>

     Loss from Operations

         Loss from  operations  increased  to $6.1  million  for the year  ended
December 31, 1998 compared to $1.3 million for the year ended December 31, 1997.
Excluding  the  cost  of  terminating  the  management  services  agreement  and
management  fees,  income from  operations for the years ended December 31, 1998
and  1997  would  have  been  $7.6  million  and  $4.5  million,   respectively.
Contributing to such  improvements  were higher revenues and lower operating and
maintenance  expenses during the year ended December 31, 1998 as compared to the
year ended December 31, 1997, offset by increased  depreciation and amortization
charges during the year

     Foreign Exchange Loss

         Foreign  exchange  losses  decreased to $0.2 million for the year ended
December 31, 1998 from $0.5 million for the year ended  December 31, 1997.  Such
foreign  exchange losses  resulted from the devaluation of the Hungarian  forint
against the U.S. dollar and the German Mark.

     Interest Expense

         Interest expense increased to $45.9 million for the year ended December
31, 1998 from $35.2 million for the year ended December 31, 1997.  This increase
was  attributable  to higher  average debt levels during the year ended December
31, 1998 as compared to the year ended December 31, 1997 as the Company incurred
additional   indebtedness   in  order  to  continue  the   construction  of  its
telecommunications   networks  and  repay  other  loan   obligations.   Interest
capitalized and included in the cost of construction of certain long term assets
amounted to approximately $0.3 million during 1998 and $4.5 million in 1997.

     Other, net

         Other,  net income amounted to $0.8 million for the year ended December
31,  1998 as  compared to $13,000 for the year ended  December  31,  1997.  This
increase  during the year ended December 31, 1998 is due to an approximate  $0.8
million  gain  realized  related to the  termination  of the  former  management
services  agreement  between the Company and Citizens  International  Management
Services Company.  Under such termination  agreement,  the Company satisfied its
obligations,  under a previous management services agreement, of $9.6 million by
issuing  100,000 shares of Common Stock valued at $513,000 and a promissory note
in the amount of $8.4 million.  See Note 15 of Notes to  Consolidated  Financial
Statements.

     Net Loss

         As a result of the factors  discussed above, the Company recorded a net
loss of $50.6 million,  or $9.53 per share, for the year ended December 31, 1998
as compared  to a net loss of $36.2  million,  or $7.97 per share,  for the year
ended December 31, 1997.


                                      -38-
<PAGE>


Liquidity and Capital Resources

         The Company has historically funded its capital requirements  primarily
through  a  combination  of debt,  equity  and  vendor  financing.  The  ongoing
development and  installation of the network in each of the Company's  Operating
Areas  required  significant  capital  expenditures  ($181 million at historical
exchange rates through December 31, 1999).  The Company's  networks now have the
capacity to provide basic  telephone  services to virtually all of the potential
subscribers within its Operating Areas.

         On October 15, 1996,  the Company  entered into a $170 million  10-year
Multi-Currency  Credit Facility with Postabank (the "Original  Postabank  Credit
Facility").  Proceeds from the Original Postabank Credit Facility could be drawn
entirely in Hungarian  forints and up to 20% of the principal  could be drawn in
U.S.  dollars  through  March 31,  1999.  Drawdowns  in  Hungarian  forints bore
interest  at a rate  of  2.5%  above  the  average  of the  yield  on  six-  and
twelve-month discounted Hungarian treasury bills while drawdowns in U.S. dollars
bore interest at 2.5% above LIBOR. Interest for the first two years was deferred
at the Company's option. Amounts outstanding in Hungarian forints, including any
deferred interest,  were payable in 32 equal quarterly installments beginning on
March 31, 1999.

         In October 1996,  the Company  borrowed the equivalent of $82.3 million
in Hungarian forints under the Original Postabank Credit Facility. Approximately
$75.2  million of this  amount  was used to repay  Citicorp  all funds  advanced
pursuant to a $75.0 million  secured term loan credit  facility  entered into in
March  1996,  and $2.0  million  in fees and costs  representing  settlement  in
connection with the cancellation of the Company's  proposed private placement of
debt securities.  The remaining $5.1 million was used to pay management fees and
reimbursable  costs  owed  to  Citizens  pursuant  to  the  Management  Services
Agreement with Citizens.  An additional $5.6 million of the facility was used to
pay loan  origination  fees and costs to  Postabank  under the terms of the loan
agreement, $2 million of which were reimbursed to the Company in equal quarterly
installments  over a two year period,  and was being  amortized over the life of
the  loan  facility.  The  remainder  of the  proceeds  were  used  to  complete
construction of the Company's  telecommunication  networks,  provide  additional
working capital,  and refinance or repay other existing debt obligations.  As of
December  31, 1998,  the Company had borrowed the entire $170 million  under the
Postabank Credit Facility.

         On May 12, 1999, the Company entered into various agreements as part of
a revision of its capital  structure with the following  parties:  Postabank Rt.
("Postabank"); Tele Danmark A/S ("Tele Danmark"); the Danish Investment Fund for
Central and Eastern  Europe (the "Danish  Fund");  CU  CapitalCorp  and Citizens
International  Management  Services  Company,  each of which  is a  wholly-owned
subsidiary of Citizens  Utilities  Company  (Citizens  Utilities Company and its
subsidiaries  are hereinafter  referred to as  "Citizens").  As a result of such
agreements,  the Company  extinguished  all of its  obligations (i) to Postabank
under the Original Postabank Credit Facility in the amount of approximately $193
million  and the amounts  borrowed  to settle a portion  due under a  contractor
financing  facility in the amount of approximately  $16 million;  (ii) to one of
its  contractors  under  a  contractor  financing  facility  in  the  amount  of
approximately $35 million; and (iii) to Citizens under a $8.4 million promissory
note which was payable in 2004 and an  obligation to pay Citizens $21 million in
28 quarterly installments of $750,000 each from 2004 through and including 2010.
The  effect  of these  transactions  has  been a  significant  reduction  in the
financial  obligations  of the Company.  The Company has borrowed from Postabank
$138 million  ($134  million at current  exchange  rates) under a one-year  dual

                                      -39-
<PAGE>


currency  bridge loan  agreement in Hungarian  forints and euros and $25 million
pursuant to certain  unsecured  notes which mature in 2007.  Some of the various
agreements which were entered into as of May 12, 1999 are described herein. (The
descriptions and summaries herein do not purport to be complete, and are subject
to, and qualified in their entirety by, reference to each such agreement, copies
of which are filed as Exhibits hereto).

         The Company and  Postabank  entered  into a Dual  Currency  Bridge Loan
Agreement  (the  "Postabank  Bridge Loan  Agreement")  pursuant to which  HTCC's
subsidiaries  borrowed the  equivalent of $111 million in Hungarian  forints and
$27 million in euros which funds were  applied to the  repayment of the Original
Postabank  Credit  Facility.  The loan is  repayable  on May 10,  2000 and bears
interest  at an initial  rate of 2.25% (the  "Margin")  plus the  Budapest  Bank
Offering  Rate  or Euro  LIBOR  Rate  (currently  approximately  15%  and  2.5%,
respectively)  which  Margin  increases  incrementally  to 4.25%,  in  quarterly
increments  of 1% over the next  year.  HTCC and one of its  subsidiaries,  HTCC
Consulting  Rt. are  guarantors  for the HTCC  subsidiaries  under the Postabank
Bridge  Loan  Agreement.  The Company  has  pledged  all of its  intangible  and
tangible assets,  including HTCC's ownership interests in its subsidiaries,  and
its real property to secure all of the  obligations  under the Postabank  Bridge
Loan  Agreement.  The Company entered into a series of agreements to secure such
obligations under the Postabank Bridge Loan Agreement.

         The Company and  Postabank  also  entered  into a  Securities  Purchase
Agreement (the  "Securities  Purchase  Agreement")  pursuant to which  Postabank
purchased  2,428,572  shares of the  Company's  common  stock  for an  aggregate
purchase price of $34 million.  The Securities  Purchase  Agreement provides for
one person designated by Postabank to be nominated for election to the Company's
Board of Directors.  Postabank  cannot  transfer its shares until the earlier of
(x) the repayment in full of all the obligations under the Postabank Bridge Loan
Agreement or (y) May 10, 2000,  and then Postabank can only transfer such shares
incrementally  through 2003 subject to the Company's right of first refusal. The
Company's  right of first  refusal  expires in January 2003 and is assignable by
the  Company  to any  beneficial  holder  of  more  than  10%  of the  Company's
outstanding  common  stock.  The  Company  applied the  proceeds  from the stock
issuance to the repayment of the Original Postabank Credit Facility. Pursuant to
the Securities Purchase  Agreement,  the Company issued notes to Postabank in an
aggregate  amount of $25 million (the  "Notes")  with  detachable  warrants (the
"Warrants").  The Notes accrue interest, which is payable semi-annually,  at the
LIBOR rate applicable for the six month interest  period,  plus 4%. On April 11,
2000,  the Notes were amended  such that the interest  rate was changed to LIBOR
plus 3.5%. The Notes which mature in 2007 are transferable subject to applicable
security laws.  The Warrants  which were issued  pursuant to a series of Warrant
Agreements  between the  Company  and  Postabank  enable  Postabank  to purchase
2,500,000  shares of the Company's  common stock at an exercise price of $10 per
share.  The exercise period commences on January 1, 2004 and terminates on March
31,  2007.  The  Company  has the right to  terminate  the  Warrants  in full or
proportionately  prior to January 1, 2004  provided  that the  Company  repays a
proportionate amount of the Notes and an amount equal to 7-1/2% of the aggregate
principal amount of the Notes repaid,  concurrently  with the termination of the
Warrants.

         The Company and Tele Danmark  entered into a Stock  Purchase  Agreement
(the "TD  Stock  Purchase  Agreement")  pursuant  to which  the  Company  issued
1,571,429  shares of Common  Stock in  exchange  for $11  million.  The  Company
applied the proceeds  from the TD Stock  Purchase  Agreement to the repayment of
the Original Postabank Credit Facility.  Tele Danmark agreed not to transfer the
shares to any party prior to May 11, 2000 without the prior  written  consent of
the Company.

                                      -40-
<PAGE>


         The Company and the Danish Fund entered into a Stock Purchase Agreement
(the  "Danish  Fund Stock  Purchase  Agreement")  pursuant  to which the Company
issued 1,285,714 shares of Common Stock in exchange for $9 million.  The Company
applied  the  proceeds  from the Danish  Fund Stock  Purchase  Agreement  to the
repayment of the Original Postabank Credit Facility.  The Danish Fund agreed not
to transfer  the shares to any party  except for Tele  Danmark  prior to May 11,
2000 without the prior written consent of the Company.

         The Company and Citizens  entered into a Stock Purchase  Agreement (the
"Citizens  Stock  Purchase  Agreement')  pursuant to which the Company issued to
Citizens  1,300,000  shares of Common Stock and 30,000  shares of the  Company's
Series  A  Preferred  Stock,  par  value  $0.01  (the  "Preferred  Shares").  In
consideration  for such  shares,  Citizens  (i)  transferred  to the Company for
cancellation  a $8.4 million  promissory  note issued by the Company to Citizens
which was to mature in 2004, (ii) agreed to forego half of the accrued  interest
due on the promissory note through May 15, 1999 and (iii) agreed to renounce and
forego any rights whatsoever to any payment of the $21 million which was payable
by the Company to  Citizens  in  quarterly  installments  of $750,000  from 2004
through and including 2010. Citizens,  as the holder of the Preferred Shares, is
entitled  to  receive  cumulative  cash  dividends  at an  annual  rate  of  5%,
compounded  annually on the liquidation  value of $70 per share. The Company may
redeem  the  Preferred  Shares at any time.  Citizens  can  convert  each of the
Preferred  Shares into  shares of the  Company's  common  stock on a one for ten
basis.  The  Citizens  Stock  Purchase  Agreement  provided  that if the average
closing  price of the  Company's  common  stock for the twenty (20) trading days
ending  March 31, 2000 is less than $7.00 per share,  then HTCC shall issue such
number of HTCC  Preferred  Shares (with a value of $70 per share) equal in value
to (i) 1,600,000  times (ii) $7.00 less the average closing price of HTCC common
stock for such twenty (20) trading day period.  The average closing price of the
Company's  common stock for the above  mentioned  period was more than $7.00 per
share and as a result,  no additional  shares of HTCC preferred  stock have been
issued to Citizens. The Citizens Stock Purchase Agreement also requires Citizens
not to transfer  any shares of HTCC common  stock which it may hold prior to May
15,  2000  without  the prior  written  consent of the  Company  and  Postabank.
Citizens  also  waived  any and  all  preemptive  and  anti-dilution  rights  in
connection  with the  transactions  described  above.  As a result  of the Stock
Purchase Agreement with Citizens,  the Company recorded  extraordinary income of
$9.0 million during the second quarter of 1999 which represented the gain on the
extinguishment of the liabilities the Company had with Citizens.

         During 1996 and 1997,  the Company  entered into  several  construction
contracts  with a  Hungarian  contractor  which  totalled  $59.0  million in the
aggregate,  $47.5  million  of which  was  financed  by a  contractor  financing
facility.  The  contractor  financed the financing  facility  through a facility
provided by  Postabank.  As of December  31,  1998,  the balance  owed under the
contractor  financing facility was $36.6 million.  On March 30, 1999,  Postabank
assumed HUF 7 billion  plus accrued  interest of HUF 348 million  (approximately
$30.9  million)  of the  Company's  liability  under  the  contractor  financing
facility from the contractor,  due to the contractor's  financial  difficulties,
and sold this debt back to the  Company for HUF 3 billion  (approximately  $12.6
million).  The purchase of the debt was financed by Postabank.  On the same day,
the Company purchased HUF 4 billion  (approximately  $16.8 million) of loans the
contractor had with Postabank for HUF 900 million  (approximately  $3.8 million)
and  subsequently  offset the  booked  value of the loans  purchased  of HUF 900
million (approximately $3.8 million) against the outstanding amounts owed to the
contractor.  The purchase of these loans was also  financed by  Postabank.  As a
result of the above transactions,  the Company recorded an extraordinary gain of
HUF 4.3 billion  (approximately $18.1 million) during the second quarter of 1999
which  reflects  the  extinguishment  of all  amounts  due under the  contractor
financing facility.


                                      -41-
<PAGE>

         As a result of the agreements  above, the Company had 11,981,579 shares
of common stock  outstanding as of December 31, 1999. The following parties hold
the following  percentages of such shares:  Postabank 20.3%; Tele Danmark 21.4%;
the Danish Fund 10.7%;  Citizens  19.2%;  and others 28.4%.  On a  fully-diluted
basis, the Company had 20,218,638 shares outstanding. The following parties hold
the following  percentages of such shares:  Postabank 24.4%; Tele Danmark 12.7%;
the Danish Fund 6.4%; Citizens 35.2%; and others 21.3%.

         On April 11, 2000,  the Company  entered into a EUR 130 million  Senior
Secured Debt Facility  Agreement (the "Debt  Agreement") with a European banking
syndicate.  The Company  intends to draw down the entire EUR 130  million  ($124
million at current exchange rates),  which funds will be used in their entirety,
along with  another $6 million  of other  Company  funds,  to pay off the entire
outstanding balance EUR 128 million  (approximately $128 million at December 31,
1999 exchange rates) of the Postabank Bridge Loan Agreement which will result in
the  termination of the Postabank  Bridge Loan which matures on May 12, 2000, as
well as fees associated  with the Debt  Agreement.  The borrowers under the Debt
Agreement are the Operating Companies who were the borrowers under the Postabank
Bridge Loan Agreement.

         The Debt  Agreement has two  facilities.  Facility A is a floating rate
term loan in the amount of EUR 125 million (the "Term Facility") which principal
is repayable semi-annually on each June 30 and December 31 beginning on June 30,
2001 and ending on December 31, 2007. The amount of the principal  repayments on
the Term Facility are to be an  escalating  percentage of the amounts drawn down
(EUR 125 million). Any amounts borrowed under the Term Facility have to be drawn
down within thirty days of the  execution of the Debt  Agreement in either euros
or, if funded by the banking syndicate,  Hungarian forints.  The Company intends
to borrow the full EUR 125 million,  or its  equivalent  in euros and  Hungarian
forints.  Any amounts  borrowed in Hungarian  forints are repayable in Hungarian
forints.  The Term Facility loans  denominated  in euros accrue  interest at the
rate of the  Applicable  Margin  (defined  below) plus the EURIBOR  rate for the
applicable  interest  period.  The EURIBOR rate is the percentage rate per annum
determined by the Banking  Federation of the European  Union for the  applicable
interest period. The Term Facility loans denominated in Hungarian forints accrue
interest at the rate of the  Applicable  Margin  (defined  below) plus the BUBOR
rate for the applicable  interest period.  The BUBOR rate is the percentage rate
per annum determined  according to the rules  established by the Hungarian Forex
Association  and  published by the National  Bank of Hungary for the  applicable
interest  period.  The  applicable  interest  period  for  Term  Facility  Loans
denominated  in euros is, at the Company's  option in one,  three or six months.
The Company  intends to choose six months.  The applicable  interest  period for
Term Facility Loans denominated in Hungarian forints is, at the Company's option
in one or three months. The Company intends to choose three months.  Interest is
payable at the end of each interest period.  The Applicable  Margin is initially
1.75%. The Applicable Margin may be adjusted downward incrementally to a minimum
of 1.15% subject to the financial  performance of the Company as measured by the
ratio of the  Company's  senior debt to its  earnings  before  interest,  taxes,
depreciation and amortization.

                                      -42-
<PAGE>

         Facility B is a  floating  rate  revolving  loan in the amount of EUR 5
million (the "Revolving  Facility")  which can only be drawn down in euros.  The
Revolving  Facility will be reduced to EUR 2.5 million on December 31, 2005. The
Revolving  Facility is available until December 31, 2007. The Company intends to
borrow the full amount of the  Revolving  Facility to pay off the balance of the
Postabank  Bridge Loan Agreement and fees associated with the  transaction.  The
principal amount borrowed under the Revolving Facility is due at the end of each
interest period at which point the Company can,  subject to certain  conditions,
roll over the amount of principal  borrowed.  The applicable interest period for
the Revolving  Facility is, at the Company's option,  one, three, or six months.
The Company intends to choose six months. Interest is payable at the end of each
interest  period  calculated  similar to Term  Facility A loans  denominated  in
euros.

         As a part of the Debt  Agreement,  the  Company is required to hedge at
least 50% of the euro  borrowings  until a minimum of 50% of Facility A has been
cancelled,  prepaid or repaid.  Dependent on its cash flow,  commencing in 2001,
the Company will be required to prepay the equivalent of $25 million on Facility
A until such time as $25 million has been prepaid.  The amount of the prepayment
in any year shall be at least 50% of the Company's excess cash flow, if any, for
the previous  financial  year as defined in the Debt  Agreement.  The prepayment
amount is due within 15 days of the publication of each annual Form 10-K filing.

         The Company is obligated to pay a commitment  fee equal to the lower of
0.75% or 50% of the Applicable Margin on any available unused commitment.  Since
the Company intends to borrow the full amount of the Debt Agreement soon,  there
will be no commitment  fee payable at the present time.  The Company will pay an
arrangement fee in the amount of EUR 2,665,000 (approximately $2,500,000) and an
agency  fee in the amount of  $60,000.  HTCC and one of its  subsidiaries,  HTCC
Consulting  Rt., are guarantors for the HTCC  operating  subsidiaries  under the
Debt  Agreement.  The Company has pledged  all of its  intangible  and  tangible
assets,  including HTCC's ownership interests in its subsidiaries,  and its real
property to secure all of the obligations under the Debt Agreement.  The Company
and Citibank  Rt.(as  security  agent)  entered into a series of  agreements  to
secure  all of the  Company's  obligations  under the Debt  Agreement.  The Debt
Agreement  contains  customary  representation  and  warranties.  The Company is
subject to some  restrictive  covenants  including  restrictions  regarding  the
ability of the Company to pay dividends,  borrow funds, merge and dispose of its
assets. The Debt Agreement contains the customary events of default, which would
trigger early  repayment of the balance on the Debt  Agreement  including  those
related to a change of control.  If prior to the later of the  December 31, 2001
or the Trigger Date (as defined below),  Tele Danmark sells any of the shares of
Common  Stock  that it  currently  owns or Tele  Danmark  and the  Danish  Fund,
together,  no longer own 30.1% of the outstanding Common Stock, then an event of
default  shall have  occurred.  Tele Danmark and the Danish Fund  currently  own
32.1% of the outstanding  Common Stock.  The Trigger Date is defined as the date
on which for the prior two fiscal quarters the Company's debt to EBITDA ratio is
less than 3.5 to 1.  Following the Trigger Date,  Tele Danmark can only transfer
its shares with the prior written consent of banks holding at least 66.7% of the
Company's outstanding debt under the Debt Facility.

         In 1995, the Company  applied for network  construction  subsidies from
the  Hungarian   government.   In  December  1995,   certain  of  the  Company's
applications were approved, subject to certain conditions, which resulted in the
Company being awarded subsidies  aggregating $0.9 million.  The Company received
such  subsidies  in  installments  in the  fourth  quarter of 1996 and the first
quarter of 1997. One-half of such funds were received in the form of a grant and
one-half in the form of a non-interest  bearing loan repayable over a three year
period beginning in 1997.

                                      -43-
<PAGE>

         Net cash provided by operating activities totaled $18.5 million for the
year ended  December  31,  1999  compared  to $11.1  million  for the year ended
December 31, 1998.  For the years ended  December 31, 1999 and 1998, the Company
used $9.9 million and $15.6  million,  respectively,  in  investing  activities,
which  was   primarily   used  to  fund  the   construction   of  the  Company's
telecommunications  networks.  Financing  activities  provided  net cash of $1.0
million  and $9.3  million  for the  years  ended  December  31,  1999 and 1998,
respectively.

Inflation and Foreign Currency

         For the  year  ended  December  31,  1999,  inflation  in  Hungary  was
approximately  10% on an annualized  basis.  It is the stated policy goal of the
Hungarian government to keep inflation from exceeding  approximately 7% in 2000.
Due to the  strengthening of the U.S. dollar on  international  currency markets
during the year,  the Hungarian  forint/U.S.  dollar  exchange rate increased to
252.52 as of December 31, 1999, an effective devaluation during 1999 of 14.3%.

         The  Company's  Hungarian  operations  generate  revenues in  Hungarian
forints and incur operating and other expenses,  including capital expenditures,
predominately  in  Hungarian  forints but also in U.S.  dollars.  The  Company's
resulting foreign currency exposure is difficult to hedge due to the significant
costs involved and the lack of a market for such hedging.  In addition,  certain
of the  Company's  balance sheet  accounts are  expressed in foreign  currencies
other than the Hungarian forint, the Company's Hungarian subsidiaries functional
currency.  Accordingly, when such accounts are converted into Hungarian forints,
the Company is subject to foreign  exchange gains and losses which are reflected
as a  component  of  net  income  or  loss.  When  the  Company's  subsidiaries'
forint-denominated  accounts  are  translated  into U.S.  dollars for  financial
reporting  purposes,  the  Company is subject to  translation  adjustments,  the
effect of which is reflected as a component of stockholders' deficiency.

         While the Company has the ability to increase the prices it charges for
its services  commensurate with increases in the Hungarian  Consumer Price Index
("CPI")  pursuant to its licenses from the Hungarian  government,  it may choose
not to implement the full amount of the increase  permitted  due to  competitive
and other concerns.  In addition,  the rate of increase in the Hungarian CPI may
be less than the rate at which the Hungarian forint devalues.  As a result,  the
Company may be unable to generate cash flows to the degree necessary to meet its
obligation in currencies other than the Hungarian forint.

Year 2000

         The Company  initiated a project designed to identify and mitigate Year
2000 computer  deficiencies  in 1998.  The Company formed a Year 2K project team
consisting of Company  employees and  representatives  of systems  vendors.  The
Company also formed an oversight  committee  comprised of senior  management  to
oversee the Y2K issue.

         The Company originally estimated the total costs of remediation,  which
included  the  replacement   and/or  upgrade  of  certain   equipment  would  be
approximately  $785,000.  However,  due to  agreements  with its switch  vendors
during 1999, the Company was able to obtain Y2K switching  upgrades for no cost.
For the year  ended  December  31,  1999,  the  Company  expensed  approximately
$162,000 for remediation of the Y2K problem,  which is included in the Company's
Consolidated Statement of Operations.

                                      -44-
<PAGE>


         From December 31, 1999, to March 15, 2000,  the Company  operated a Y2K
information  center to monitor  the  Company's  facilities  and  operations.  No
material problems were reported in any of the Company's facilities or operations
during  this  period.  As of the  date  of  this  filing,  the  Company  had not
experienced any material Year 2000 problems with its IT or non-IT  systems,  nor
had the Company  experienced any material problems with any of its key customers
or suppliers.  The Company will continue to monitor its systems for possible Y2K
related problems,  but based on its experience since December 31, 1999, does not
expect that any material Y2K problems will emerge.

Prospective Accounting Pronouncements

         In June 1998,  Statement of Financial  Account Standards No. 133 ("SFAS
133"),  "Accounting  for Derivative  Instruments  and Hedging  Activities",  was
issued.  SFAS 133 established  accounting and reporting standards for derivative
instruments and for hedging  activities.  SFAS requires that an entity recognize
all derivatives as either assets or liabilities and measure those instruments at
fair value.  The Statement,  as amended by SFAS 137, is effective for all fiscal
quarters of fiscal  years  beginning  after June 15,  2000.  The Company has not
purchased  derivative  instruments or entered into hedging activities during the
three years ended  December 31, 1999. The Company will be required to enter into
hedging  transactions  under the terms of the Company's  EUR 130 million  Senior
Secured Debt Facility,  which was entered into on April 11, 2000. The Company is
currently  evaluating  the effect,  if any, the  pronouncement  will have on its
consolidated financial position and results of operations.

Market Risk Exposure

         The Company is exposed to various types of risk in the normal course of
its  business,   including  the  impact  of  foreign   currency   exchange  rate
fluctuations  and interest  rate  changes.  Company  operations,  including  all
revenues and  approximately  75% of operational costs are Hungarian forint based
and are  therefore  subject to exchange rate  variability  between the Hungarian
forint and U.S.  dollar.  This  variability  is  mitigated  by several  factors,
including  the Hungarian  National Bank policy to peg the Hungarian  forint to a
currency  basket and the  telecommunications  pricing  law. The  "crawling  peg"
policy of the National Bank of Hungary  maintained a scheduled daily devaluation
of the Hungarian  forint through a currency  basket  consisting of 70% euros and
30% U.S.  dollars for 1999.  Effective  January 1, 2000, the Hungarian forint is
pegged 100% to the Euro.  The Hungarian  forint is allowed to trade within 2.25%
of the  mid-point  of its  trading  band.  For the first  quarter  of 2000,  the
Hungarian government devaluation policy was 0.4% per month. As of April 1, 2000,
the Hungarian  government  announced the monthly  planned  devaluation  rate was
decreased to 0.3% per month for the Hungarian forint, which totals approximately
3.9% for 2000. The  telecommunications  pricing law allows prices to increase by
the Consumer  Price Index (CPI)  adjusted for an efficiency  factor of up to 2%.
Thus, to the extent that adjusted CPI follows devaluation, revenues are somewhat
insulated from exchange rate risk.

         The debt obligations of the Company are Hungarian forint, euro and U.S.
dollar  denominated.  The interest rate on the Hungarian forint debt obligations
is based on the Budapest Interbank Offer Rate (BUBOR). The interest rates on the
euro and U.S. dollar denominated obligations are based on LIBOR. Over the medium
to long term,  the BUBOR rate is expected to follow  inflation  and  devaluation

                                      -45-
<PAGE>

trends and the Company does not currently  believe it has any material  interest
rate risk on any of its Hungarian forint  denominated debt obligations.  If a 1%
change in the BUBOR interest rate were to occur, the Company's  interest expense
would  increase  or  decrease  by  approximately  $1.0  million  based  upon the
Company's year-end debt level. If a 1% change in the LIBOR interest rate were to
occur,   the  Company's   interest   expense  would   increase  or  decrease  by
approximately $500,000.

         The  Company  is also  exposed to  exchange  rate risk in so far as the
Company  has debt  obligations  in other  than the  functional  currency  of its
majority owned  Hungarian  subsidiaries.  Given the Company's debt  obligations,
which include euro and U.S. dollar denominated debt, if a 1% change in Hungarian
forint/euro exchange rates were to occur, the Company's exchange rate risk would
increase or  decrease by  approximately  $252,000.  If a 1% change in  Hungarian
forint/U.S.  dollar  exchange rates were to occur,  the Company's  exchange rate
risk would increase or decrease by approximately $250,000.

               Item 8. Financial Statements and Supplementary Data

         Reference  is  made to the  Consolidated  Financial  Statements  of the
Company, beginning with the index thereto on page F-1.

Item 9.   Changes  In  and  Disagreements  With  Accountants  on  Accounting and
          Financial Disclosure

         None.

          Item 9(a). Change in Reporting Office of Independent Auditor

         In  1999  KPMG  Hungaria  Kft.,  the  Hungarian  member  firm  of  KPMG
International, assumed responsibility for the issue of the independent auditors'
report on the consolidated financial statements of the Company as of and for the
three year period ended December 31, 1999. The New York, New York office of KPMG
LLP was  responsible for the issue of the  independent  auditors'  report on the
consolidated  financial  statements of the Company as of and for the three years
ended  December 31, 1998.  The report issued thereon by KPMG LLP dated March 24,
1999 contained a "going concern" explanatory  paragraph concerning the Company's
ability  to  continue  as a going  concern.  The  independent  auditors'  report
contained herein does not have a "going concern" explanatory paragraph.

                                    PART III

           Item 10. Directors and Executive Officers of the Registrant

         There is  incorporated  in this Item 10 by  reference  the  information
appearing under the captions "Election of Directors - Nominees for Director" and
"- Section 16(a)  Beneficial  Ownership  Reporting  Compliance" in the Company's
definitive proxy statement for the 2000 Annual Meeting of  Stockholders,  a copy
of which  will be filed not later  than 120 days  after the close of the  fiscal
year.


                                      -46-
<PAGE>


                         Item 11. Executive Compensation

         There is  incorporated  in this Item 11 by  reference  the  information
appearing under the caption "Election of Directors" in the Company's  definitive
proxy  statement for the 2000 Annual  Meeting of  Stockholders,  a copy of which
will be filed not later than 120 days after the close of the fiscal year.

     Item 12. Security Ownership of Certain Beneficial Owners and Management

         There is  incorporated  in this Item 12 by  reference  the  information
appearing  under  the  captions  "Introduction  -  Stock  Ownership  of  Certain
Beneficial Owners," "- Stock Ownership of Management" and "- Potential Change in
Control" in the Company's definitive proxy statement for the 2000 Annual Meeting
of Stockholders, a copy of which will be filed not later than 120 days after the
close of the fiscal year.

             Item 13. Certain Relationships And Related Transactions

         There is  incorporated  in this Item 13 by  reference  the  information
appearing under the caption  "Election of Directors - Certain  Relationships and
Related Party  Transactions" and "- Indebtedness of Management" in the Company's
definitive proxy statement for the 2000 Annual Meeting of  Stockholders,  a copy
of which  will be filed not later  than 120 days  after the close of the  fiscal
year.


                                     PART IV

    Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

         (a)(1)   List of Financial Statements

                  Reference  is made to the  index on page F-1 for a list of all
financial statements filed as part of this Form 10-K.

         (a)(2)   List of Financial Statement Schedules

                  Reference  is made to the  index on page F-1 for a list of all
         financial statement schedules filed as part of this Form 10-K.



                                      -47-
<PAGE>



         (a)(3)   List of Exhibits

Exhibit
Number            Description

 2                Plan  of acquisition, reorganization, arrangement, liquidation
                  or succession  (None)

 3(i)             Certificate of  Incorporation  of the Registrant,  as amended,
                  filed  as  Exhibit  4.1  to  the   Registrant's   Registration
                  Statement on Form S-8 filed on June 24, 1997 and  incorporated
                  herein by reference

 3(ii)            By-laws of the Registrant, as amended, filed as Exhibit 4.2 to
                  the Registrant's  Registration  Statement on Form S-8 filed on
                  June 24, 1997 and incorporated herein by reference

4.1               Specimen  Common Stock  Certificate,  filed as Exhibit 4(a) to
                  the Registrant's  Registration Statement on From SB-2 filed on
                  October 27, 1994 and  incorporated  herein by reference  (File
                  #33-80676)

4.2               Certificate  of  Designations of Series A - Preferred Stock of
                  Hungarian  Telephone  and Cable Corp., filed as Exhibit 4.1 to
                  the Registrant's Quarterly Report on Form 10-Q for the quarter
                  ended March 31, 1999 and incorporated herein by reference

9                 Voting trust agreement  (None)

10                Material contracts:

10.1              Concession  Agreement  dated May 10, 1994 between the Ministry
                  of  Transportation, Telecommunications and Water Management of
                  the  Republic  of  Hungary  and Raba-Com Rt., filed as Exhibit
                  10(y)(y) to  the  Registrant's  Current Report on Form 8-K for
                  February 28, 1994 (Registrant File #1-11484) and  incorporated
                  herein by reference

10.2              Concession  Agreement  dated May 10, 1994 between the Ministry
                  of Transportation, Telecommunications and  Water Management of
                  the Republic  of  Hungary  and  Kelet-Nograd Com Rt., filed as
                  Exhibit 10(z)(z) to  the  Registrant's  Current Report on Form
                  8-K  for February  28, 1994  (Registrant  File  #1-11484)  and
                  incorporated herein by reference

10.3              English   translation  of  Amended  and  Restated   Concession
                  Contract  between Papa es Tersege Telefon  Koncesszios Rt. and
                  the Hungarian Ministry for Transportation,  Telecommunications
                  and  Water  Management  dated  as of June 3,  1996,  filed  as
                  Exhibit  10.78 to the  Registrant's  Quarterly  Report on Form
                  10-Q for the  quarter  ended  June 30,  1996 and  incorporated
                  herein by reference

10.4              English   translation  of   Amended  and  Restated  Concession
                  Contract between Hungarotel   Tavkozlesi Rt. and the Hungarian
                  Ministry  for  Transportation,  Telecommunications  and  Water
                  Management  dated  as  of  June  3,  1996 (Oroshaza), filed as
                  Exhibit 10.79  to the  Registrant's  Quarterly  Report on Form
                  10-Q  for  the  quarter  ended  June 30, 1996 and incorporated
                  herein by reference


                                      -48-
<PAGE>


Exhibit
Number            Description

10.5              English   translation  of  Amended  and  Restated   Concession
                  Contract between  Hungarotel  Tavkozlesi Rt. and the Hungarian
                  Ministry  for  Transportation,  Telecommunications  and  Water
                  Management  dated as of June 3,  1996  (Bekescsaba),  filed as
                  Exhibit  10.80 to the  Registrant's  Quarterly  Report on Form
                  10-Q for the  quarter  ended  June 30,  1996 and  incorporated
                  herein by reference

10.6              Non-Employee Director Stock Option Plan, as amended to date

10.7              1992 Incentive Stock Option Plan of the Registrant, as amended
                  to date

10.8              Employment  Agreement dated as of December 4, 1998 between the
                  Registrant  and  Ole  Bertram  filed  as  Exhibit 10.12 to the
                  Registrant's Form 10-K for 1998 filed on March 30, 1999.

10.9              Termination  and Release  Agreement  dated as of July 26, 1996
                  between the  Registrant  and Robert  Genova,  filed as Exhibit
                  10.62 to the Registrant's  Current Report on Form 8-K for July
                  26, 1996 and incorporated herein by reference

10.10             Consulting  Agreement  dated  as  of July 26, 1996 between the
                  Registrant  and  Robert  Genova, filed as Exhibit 10.63 to the
                  Registrant's  Current Report on Form 8-K for July 26, 1996 and
                  incorporated herein by reference

10.11             Noncompetition Agreement dated as of July 26, 1996 between the
                  Registrant  and  Robert  Genova, filed as Exhibit 10.64 to the
                  Registrant's Current Report on  Form 8-K for July 26, 1996 and
                  incorporated herein by reference

10.12             Irrevocable  Proxy  dated  July  26, 1996  executed  by Robert
                  Genova  appointing  Hungarian Telephone and Cable Corp. as his
                  proxy, filed as  Exhibit  10.65  to  the  Registrant's Current
                  Report on  Form  8-K for July 26, 1996 and incorporated herein
                  by reference

10.13             Termination  and Release  Agreement  dated as of July 26, 1996
                  between the  Registrant  and Frank R. Cohen,  filed as Exhibit
                  10.66 to the Registrant's  Current Report on Form 8-K for July
                  26, 1996 and incorporated herein by reference

10.14             Consulting  Agreement  dated  as  of July 26, 1996 between the
                  Registrant  and  Frank R. Cohen, filed as Exhibit 10.67 to the
                  Registrant's Current  Report on Form 8-K for July 26, 1996 and
                  incorporated herein by reference

10.15             Noncompetition Agreement dated as of July 26, 1996 between the
                  Registrant  and  Frank R. Cohen, filed as Exhibit 10.68 to the
                  Registrant's Current  Report on Form 8-K for July 26, 1996 and
                  incorporated herein by reference

10.16             Irrevocable  Proxy  dated  July  26, 1996 executed by Frank R.
                  Cohen  appointing  Hungarian  Telephone and Cable Corp. as his
                  proxy,  filed  as  Exhibit 10.69  to  the Registrant's Current
                  Report on  Form 8-K  for July 26, 1996 and incorporated herein
                  by reference

10.17             Termination  and Release  Agreement  dated as of July 26, 1996
                  between  the  Registrant  and  Donald  K.  Roberton,  filed as
                  Exhibit 10.70 to the  Registrant's  Current Report on Form 8-K
                  for July 26, 1996 and incorporated herein by reference


                                      -49-
<PAGE>


Exhibit
Number            Description

10.18             Consulting  Agreement  dated  as  of July 26, 1996 between the
                  Registrant and Donald K. Roberton,  filed  as Exhibit 10.71 to
                  the Registrant's Current Report on Form 8-K  for July 26, 1996
                  and incorporated herein by reference

10.19             Noncompetition Agreement dated as of July 26, 1996 between the
                  Registrant and Donald K.  Roberton,  filed as Exhibit 10.72 to
                  the Registrant's  Current Report on Form 8-K for July 26, 1996
                  and incorporated herein by reference

10.20             Irrevocable Proxy  dated  July  26, 1996 executed by Donald K.
                  Roberton appointing Hungarian Telephone and Cable Corp. as his
                  proxy, filed as  Exhibit  10.73  to  the  Registrant's Current
                  Report on Form 8-K for July 26, 1996  and  incorporated herein
                  by reference

10.21             Registration  Agreement,  dated  May  31,  1995,  between  the
                  Registrant and CU CapitalCorp., filed  as  Exhibit 10(f)(f) to
                  the Registrant's  Current  Report on Form 8-K for May 31, 1995
                  and incorporated herein by reference

10.22             Replacement  and  Termination Agreement, dated as of September
                  30, 1998,  between  the  Registrant and Citizens International
                  Management  Services  Company  and  CU CapitalCorp.  filed  as
                  Exhibit 10.69 to  the  Registrant's Current Report on Form 8-K
                  for September 30, 1998 and incorporated herein by reference

10.23             Form of Promissory Note dated September 30, 1998 issued by the
                  Registrant  payable   to  Citizens  International   Management
                  Services  Company  filed  as Exhibit 10.70 to the Registrant's
                  Current  Report  on  Form 8-K   for  September  30,  1998  and
                  incorporated herein by reference

10.24             Amended,  Restated  and  Consolidated  Stock  Option Agreement
                  dated as of  September  30,  1998,  between the Registrant and
                  CU CapitalCorp. filed  as  Exhibit  10.71  to the Registrant's
                  Current  Report  on   Form   8-K  for  September  30, 1998 and
                  incorporated herein by reference

10.25             Dual-Currency   Bridge  Loan   Agreement   between   Hungarian
                  Telephone and Cable Corp. and its  subsidiaries  and Postabank
                  es Takarekpenztar Reszvenytarsasag,  as Lender, Facility Agent
                  and Security Agent dated as of May 12, 1999,  filed as Exhibit
                  10.1 to the Registrant's Quarterly Report on Form 10-Q for the
                  quarter  ended  March  31,  1999 and  incorporated  herein  by
                  reference

10.26             Securities  Purchase Agreement between Hungarian Telephone and
                  Cable  Corp.,  as  Seller  and  Postabank  es   Takarekpenztar
                  Reszvenytarsasag, as Buyer, dated as of May 12, 1999, filed as
                  Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q
                  for the quarter ended March 31, 1999 and  incorporated  herein
                  by reference

10.27             Form   of  Warrant   to  Purchase  Common  Stock  of Hungarian
                  Telephone  and Cable Corp., dated as of May 12, 1999, filed as
                  Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
                  for the quarter  ended  March 31, 1999 and incorporated herein
                  by reference


                                      -50-
<PAGE>


Exhibit
Number            Description

10.28             Form of Unsecured Note issued by Hungarian Telephone and Cable
                  Corp. to Postabank es Takarekpenztar  Reszvenytarsasag,  dated
                  as of May 12, 1999,  filed as Exhibit 10.4 to the Registrant's
                  Quarterly  Report on Form 10-Q for the quarter ended March 31,
                  1999 and incorporated herein by reference

10.29             Stock Purchase Agreement between Hungarian Telephone and Cable
                  Corp., as Seller,  and Tele Danmark A/S, as Buyer, dated as of
                  May 12,  1999,  filed  as  Exhibit  10.5  to the  Registrant's
                  Quarterly  Report on Form 10-Q for the quarter ended March 31,
                  1999 and incorporated herein by reference

10.30             Stock Purchase Agreement between Hungarian Telephone and Cable
                  Corp., as Seller,  and the Danish  Investment Fund for Central
                  and Eastern Europe, as Buyer,  dated as of May 12, 1999, filed
                  as Exhibit 10.6 to the  Registrant's  Quarterly Report on Form
                  10-Q for the quarter  ended  March 31,  1999 and  incorporated
                  herein by reference

10.31             Stock  Purchase  Agreement among Hungarian Telephone and Cable
                  Corp., as Seller,  and   Citizens   International   Management
                  Services  Company,  as Buyer, and CU CapitalCorp., dated as of
                  May 12,  1999,   filed  as  Exhibit  10.7  to the Registrant's
                  Quarterly  Report on Form 10-Q for the quarter ended March 31,
                  1999 and incorporated herein by reference

10.32             EUR  130  million Senior Secured Debt Facility dated April 11,
                  2000  among  Hungarian  Telephone  and  Cable  Corp.  and  its
                  subsidiaries;   Citibank  N.A.  and  Westdeutsche   Landesbank
                  Girozentrale,  as  arrangers;   Citibank  International PLC as
                  facility agent; and Citibank Rt. as Security Agent.

10.33             Form  of   Amended  and  Restated  Unsecured  Note  issued  by
                  Hungarian  Telephone  and   Cable   Corp.   to   Postabank  es
                  Takarekpenztar Reszvenytarsasag, dated as of April 11, 2000.

10.34             Security   Deposit  Agreement  dated  April  11,  2000   among
                  Hungarian  Telephone  and  Cable  Corp. as Depositor; Citibank
                  Rt.,    as  Depositee  and  Security  Agent;  and   Hungarotel
                  Tavkozlesi  Rt.,  Raba  Com.  Rt.,   Papa  es  Tersege Telefon
                  Koncesszios Rt., and Kelet-Nograd Com Rt., as Countersignors.

10.35             Security  Deposit  Agreement  dated  April 11, 2000 among HTCC
                  Consulting  Rt.,  as Depositor; Citibank Rt., as Depositee and
                  Security Agent;  and Hungarotel Tavkozlesi Rt., Raba Com. Rt.,
                  Papa  es  Tersege  Telefon  Koncesszios Rt.,  and Kelet-Nograd
                  Com Rt., as Countersignors.

11                Statement re computation of per share earnings  (not required)

12                Statement re computation of ratios  (not required)

13                Annual report to security holders  (not required)

16                Letter re change in certifying accountant  (not required)

18                Letter re change in accounting principles  (None)


                                      -51-
<PAGE>
Exhibit
Number            Description

21                Subsidiaries  of  the  Registrant,  filed as Exhibit 21 to the
                  Registrant's Form 10-K for the fiscal year ending December 31,
                  1997 and incorporated herein by reference

22                Published   report  regarding  matters  submitted  to  vote of
                  security holders  (not required)

23                Consents of experts and counsel  (not required)

24                Power of Attorney  (not required)

27.1              Financial Data Schedule


         (b)      Reports on Form 8-K

         None.

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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, on April 11, 2000.

                                       HUNGARIAN TELEPHONE AND CABLE CORP.
                                       (Registrant)


                                       By /s/ Ole Bertram
                                          Ole Bertram
                                          President and Chief Executive Officer,
                                          Director

         Pursuant to the  requirements of the Securities  Exchange of 1934, this
Report  has been  signed  below by the  following  persons  and on behalf of the
Registrant and in the capacities indicated as of April 11, 2000.

Signature/Name                                   Title


/s/William T. McGann                             Treasurer and Controller
--------------------------------------------
William T. McGann                                (Principal Accounting Officer;
                                                 Principal Financial Officer)


/s/David A. Finley                               Director, Chairman of the Board
--------------------------------------------
David A. Finley



                                      -52-
<PAGE>


Signature/Name                                   Title



/s/Daryl A. Ferguson                             Director
------------------------------------
Daryl A. Ferguson


/s/Torben V. Holm                                Director
------------------------------------
Torben V. Holm


/s/Lennart F. Meineche                           Director
------------------------------------
Lennart F. Meineche


/s/John B. Ryan                                  Director
------------------------------------
John B. Ryan


/s/William E. Starkey                            Director
------------------------------------
William E. Starkey


/s/Leonard Tow                                   Director
------------------------------------
Leonard Tow

                                      -52-
<PAGE>
              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

         The following information is included on the pages indicated:

         Consolidated Financial Statements                            Page

              Independent Auditors' Report                            F-2
              Consolidated Balance Sheets                             F-3
              Consolidated Statements of Operations and Comprehensive
                   Income (Loss)                                      F-4
              Consolidated Statements of Stockholders' Deficiency     F-5
              Consolidated Statements of Cash Flows                   F-6
              Notes to Consolidated Financial Statements              F-7 - F-33

                  Financial Statements Schedules:

                  All  financial  statement   schedules   are  omitted  as   the
         required  information is not applicable or the information is presented
         in the consolidated financial statements or related notes.




































                                       F-1


<PAGE>




          Independent Auditors' Report


          The Board of Directors and Stockholders
          Hungarian Telephone and Cable Corp.

          We have  audited  the  accompanying  consolidated  balance  sheets  of
          Hungarian  Telephone and Cable Corp. and  subsidiaries  as of December
          31,  1999  and  1998,  and  the  related  consolidated  statements  of
          operations and comprehensive income (loss),  stockholders'  deficiency
          and cash flows for each of the years in the  three-year  period  ended
          December 31, 1999.  These  consolidated  financial  statements are the
          responsibility of the Company's  management.  Our responsibility is to
          express an opinion on these consolidated financial statements based on
          our audits.

          We conducted our audits in accordance with generally accepted auditing
          standards in the United  States of America.  Those  standards  require
          that we plan and  perform  the  audit to obtain  reasonable  assurance
          about   whether  the  financial   statements   are  free  of  material
          misstatement.  An audit includes examining,  on a test basis, evidence
          supporting the amounts and disclosures in the financial statements. An
          audit also  includes  assessing  the  accounting  principles  used and
          significant  estimates made by  management,  as well as evaluating the
          overall financial statement  presentation.  We believe that our audits
          provide a reasonable basis for our opinion.

          In our opinion,  the  consolidated  financial  statements  referred to
          above present fairly, in all material respects, the financial position
          of Hungarian Telephone and Cable Corp. and subsidiaries as of December
          31, 1999 and 1998, and the results of their  operations and their cash
          flows for each of the years in the  three-year  period ended  December
          31, 1999, in conformity with generally accepted accounting  principles
          in the United States of America.


                                                              KPMG HUNGARIA KFT.

          Budapest, Hungary
          April 12, 2000

















                                       F-2


<PAGE>


       HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES DRAFT 4/11/00
                           Consolidated Balance Sheets
                           December 31, 1999 and 1998
                        (In thousands, except share data)

<TABLE>
<CAPTION>
<S>                                <C>                             <C>                    <C>
                                    Assets                               1999               1998
                                    ------                               ----               ----

Current assets:
    Cash                                                           $     17,197              8,489
    Restricted cash                                                         111                 64
    Accounts receivable, net of allowance
       of $1,030 in 1999 and $962 in 1998                                 6,940              6,703
    Inventories                                                             885              1,111
    Prepayments and other current assets                                  1,082                187
                                                                      ---------            -------

       Total current assets                                              26,215             16,554
Property, plant and equipment, net                                      115,526            136,489
Goodwill, net of accumulated amortization
    of $1,775 in 1999 and $1,303 in 1998                                  7,859             10,000
Other intangibles, net of accumulated amortization
    of $1,156 in 1999 and $1,238 in 1998                                  4,526              5,592
Other assets                                                                557              8,432
                                                                      ---------          ---------
Total assets                                                       $    154,683            177,067
                                                                        =======           ========
                   Liabilities and Stockholders' Deficiency
Current liabilities:
    Current installments of long-term debt                         $          -             31,804
    Short-term loans                                                      5,048                  -
    Accounts payable                                                      3,994              2,061
    Accruals                                                              5,561              3,552
    Other current liabilities                                             1,349                932
    Due to related parties                                                  996              1,011
                                                                       --------            -------
       Total current liabilities                                         16,948             39,360

Long-term debt, excluding current installments                          122,917            202,881
Long-term notes payable, $25,000,000 aggregate face
    amount;  interest  - LIBOR plus 4%,  due March 31,  2007
    (less  unamortized discount based on imputed
    interest rate of 5% - $8,256,000 in 1999; $0 in 1998)                16,744                  -
Due to related parties                                                    1,728             22,372
Deferred credits and other liabilities                                    3,292              1,491
                                                                      ---------          ---------
Total liabilities                                                       161,629            266,104
                                                                       --------            -------
Commitments and Contingencies
Stockholders' deficiency:
    Preferred stock, $.01 par value; $70.00 liquidation value.
       Authorized 200,000 shares; issued and outstanding
       30,000 shares in 1999 and no shares in 1998                            -                  -
    Common stock, $.001 par value.  Authorized
       25,000,000 shares; issued and outstanding
       11,981,579 shares in 1999 and 5,395,864 in 1998                       11                  5
    Additional paid-in capital                                          144,052             71,467
    Accumulated deficit                                               (164,705)          (167,809)
    Accumulated other comprehensive income                               13,696              7,300
                                                                      ---------        -----------
       Total stockholders' deficiency                                   (6,946)           (89,037)
                                                                     ----------        -----------
Total liabilities and stockholders' deficiency                     $    154,683            177,067
                                                                     ==========        ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-3


<PAGE>


              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
      Consolidated Statements of Operations and Comprehensive Income (Loss)
                  Years ended December 31, 1999, 1998 and 1997
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
<S>                                                   <C>               <C>                <C>
                                                                1999              1998             1997
                                                                ----              ----             ----

Telephone services revenues, net                       $       45,438           38,707           37,891
                                                        -------------    -------------     ------------

Operating expenses:
    Operating and maintenance expenses                         17,467           19,575           25,044
    Depreciation and amortization                              11,782           11,560            8,349
    Management fees                                                 -            2,500            5,761
    Termination of management
       services agreement                                           -           11,131                -
                                                        -------------    -------------      -----------

    Total operating expenses                                   29,249           44,766           39,154
                                                        -------------    -------------     ------------

Income (loss) from operations                                  16,189          (6,059)          (1,263)

Other income (expenses):
    Foreign exchange losses, net                              (2,786)            (230)            (517)
    Interest expense                                         (32,450)         (45,856)         (35,159)
    Interest income                                             1,708              686              690
    Other, net                                                  (434)              847               13
                                                        -------------    -------------     ------------

Loss before extraordinary items                              (17,773)         (50,612)         (36,236)

Extraordinary items, net                                       20,945                -                -
                                                        -------------    -------------     ------------

Net income (loss)                                      $        3,172         (50,612)         (36,236)

Preferred stock dividends                                        (68)                -                -
                                                        -------------    -------------     ------------

Net income (loss) available for
    common stockholders                                         3,104         (50,612)         (36,236)

Comprehensive income adjustments                                6,396            2,336            6,458
                                                        -------------    -------------     ------------

Total comprehensive income (loss)                      $        9,500         (48,276)         (29,778)
                                                       ==============    =============     ============


Earnings (loss) per common share - basic and diluted:

    Before extraordinary items                         $       (1.85)           (9.53)           (7.97)

    Extraordinary items                                $         2.18                -                -
                                                        -------------    -------------     ------------

    Net earnings (loss)                                $         0.33           (9.53)           (7.97)
                                                        =============    =============     ============

Weighted average number of
Common shares outstanding - basic and diluted               9,617,939        5,309,985        4,546,163
                                                        =============    =============     ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       F-4


<PAGE>



              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
               Consolidated Statements of Stockholders' Deficiency
                  Years ended December 31, 1999, 1998 and 1997
                        (In thousands, except share data)


<TABLE>
<CAPTION>
<S>                                <C>        <C>     <C>       <C>        <C>          <C>             <C>          <C>

                                                                                         Accumulated
                                                                Additional               Other                        Total
                                              Common  Preferred Paid-in    Accumulated   Comprehensive  Deferred      Stockholders'
                                    Shares    Stock    Stock    Capital    Deficit       Income         Compensation  Deficiency
---------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996      4,179,626   $ 4       -      59,327     (80,961)       (1,494)         (666)        $(23,790)
Exercise of options and warrants      81,586     -       -         635          -             -              -              635
Shares issued as compensation          5,000     -       -          52          -             -              -               52
Options issued to officers               -       -       -          70          -             -              -               70
Shares issued to Tele Danmark A/S    969,158     1       -      10,688          -             -              -           10,689
Earned compensation                      -       -       -          -           -             -             285             285
Foreign currency translation adjustment  -       -       -          -           -          6,458             -            6,458
Net loss                                 -       -       -          -      (36,236)           -              -          (36,236)
---------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997      5,235,370   $ 5       -       70,772   (117,197)        4,964           (381)       $(41,837)
Earned compensation                      -       -       -          -          -             -              125             125
Cancellation of shares               (25,000)    -       -        (256)        -             -              256               -
Exercise of options and warrants      56,400     -       -         224         -             -              -               224
Shares issued as compensation         10,625     -       -          93         -             -              -                93
Shares issued to Citizens            100,000     -       -         513         -             -              -               513
Shares issued as consideration
   relating To former acquisitions    18,469     -       -          -          -             -              -                 -
Options granted in connection with
   Termination agreement                 -       -       -         121         -             -              -               121
Net loss                                 -       -       -          -      (50,612)          -              -           (50,612)
Foreign currency translation adjustment  -       -       -          -          -           2,336            -             2,336
---------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998       5,395,864  $ 5       -      71,467    (167,809)        7,300            -          $(89,037)
Shares issued to Tele Danmark A/S   1,571,429    2       -      10,998         -             -              -            11,000
Shares issued to Postabank          2,428,572    2       -      33,998         -             -              -            34,000
Shares issued to Citizens           1,300,000    1       -      11,199         -             -              -            11,200
Shares issued to Danish Fund        1,285,714    1       -       8,999         -             -              -             9,000
Stock issuance cost                      -       -       -      (1,488)        -             -              -            (1,488)
Warrant issued in connection with
   Long-term notes                       -       -       -       8,825         -             -              -             8,825
Modification of option terms             -       -       -          54         -             -              -                54
Cumulative preferred stock
   dividends in arrears                  -       -       -          -          (68)          -              -               (68)
Net income                               -       -       -          -        3,172           -              -              3,172
Foreign currency translation adjustment  -       -       -          -          -           6,396            -              6,396
---------------------------------------------------------------------------------------------------------------------------------

Balances at December 31, 1999      11,981,579  $ 11      -       144,052   (164,705)      13,696            -           $(6,946)

---------------------------------------------------------------------------------------------------------------------------------

</TABLE>

See accompanying notes to consolidated financial statements.












                                       F-5


<PAGE>




              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 1999, 1998 and 1997
                                 (In thousands)

<TABLE>
<CAPTION>
<S>                                                <C>                 <C>              <C>

                                                            1999            1998             1997
                                                            ----            ----             ----

Net cash provided by operating activities           $     18,522          11,118            4,937
                                                       ---------        --------        ---------

Cash flows from investing activities:

     Construction of telecommunications
         networks                                         (9,998)        (16,451)         (83,055)
     Decrease (increase) in construction deposits            (17)            520            9,780
     Other                                                    86             301                -
                                                       ---------        --------        ---------
         Net cash used in investing activities            (9,929)        (15,630)         (73,275)
                                                       ----------       --------        ---------
Cash flows from financing activities:

     Borrowings under long-term debt agreement            41,391          16,099           72,064
     Borrowings under short-term debt agreements         124,753               -                -
     Proceeds from exercise of options and warrants            -             224              635
     Repayments and settlement of long-term debt        (217,697)         (7,048)         (14,326)
     Proceeds from issuance of common stock, net          52,511               -                -
                                                       ---------        --------        ---------
         Net cash provided by financing activities           958           9,275           58,373
                                                       ---------        --------        ---------
Effect of foreign exchange rate changes on cash             (843)           (305)          (1,880)
                                                       ----------       ---------       ----------

Net increase (decrease) in cash                            8,708           4,458          (11,845)

Cash at beginning of year                                  8,489           4,031           15,876
                                                       ---------        --------        ---------
Cash at end of year                                 $     17,197           8,489            4,031
                                                       =========        ========        =========


</TABLE>

See accompanying notes to consolidated financial statements.











                                       F-6
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


(1)    Summary of Significant Accounting Policies

       (a)    Description of Business and Other Related Matters

              Hungarian  Telephone  and Cable Corp.  was  organized on March 23,
              1992 to own and manage  telecommunications  companies  in Hungary.
              Four  subsidiaries of the Company ("the Operating  Companies") are
              presently  engaged  in  the  ownership  and  operation  of  public
              switched telephone service.

              The Company, through two of its subsidiaries, commenced operations
              in  two   concession   regions  in  1995  and  through  two  other
              subsidiaries,  commenced operations in three additional concession
              areas effective January 1, 1996. Accordingly,  the Company devoted
              substantially  all of its efforts  through 1994 and a considerable
              portion  of  1995  to  obtaining  concession  rights,  negotiating
              acquisitions,  raising  capital in the form of debt and equity and
              preparing  to  commence  operations.  As  a  result,  the  Company
              recognized no revenues until 1995.

              From 1995 through  1998,  the  Company's  activities  involved the
              acquisition of the  concessions  and  telecommunications  networks
              from Magyar  Tavkozlesi Rt.  ("Matav") and the subsequent  design,
              development  and  construction  of the  modern  telecommunications
              infrastructure  that the Company now has in service. By the end of
              1998,  the Company's  networks had the capacity,  with only normal
              capital  expenditure  requirements in the future, to provide basic
              telephone  services to virtually all of the potential  subscribers
              within its operating areas. The Company earns substantially all of
              its telecommunications revenue from measured service fees, monthly
              line rental fees,  connection fees, public pay telephone  services
              and ancillary services  (including charges for additional services
              purchased  at the  customer's  discretion).  The Company  paid the
              Ministry  $11.5  million (at  historical  exchange  rates) for its
              concessions,  spent  approximately  $23.2  million (at  historical
              exchange rates) to acquire the existing  telecommunications assets
              in its  Operating  Areas from  Matav,  and has spent $181  million
              through  December 31, 1999 (at historical  exchange  rates) on the
              development   and    construction   of   its    telecommunications
              infrastructure. The Company funded these costs and working capital
              needs  primarily  through  a $170  million  Credit  Facility  with
              Postabank Rt. (the  "Original  Postabank  Credit  Facility") and a
              $47.5 million contractor  financing facility.  The Company and the
              Hungarian   contractor  which  granted  the  contractor  financing
              facility  have a  disagreement  with  respect  to  several  issues
              relating  to the  quality  and  quantity  of the work  done by the
              contractor.  In addition,  on March 31, 1999,  the Company did not
              have sufficient funds on hand to pay the first  installment due on
              the Original Postabank Credit Facility.  Due to this fact, as well
              as the disagreement the Company has with the Hungarian contractor,
              on March 30, 1999,  and May 12, 1999,  the Company  entered into a
              series  of  transactions  (see  notes  4, 5,  6, 8 and  11)  which
              restructured  the  Company's  debt and capital  structure.  As the
              final step in the Company's debt and capital  restructuring  which
              started in 1999, on April 11, 2000, the Company entered into a EUR
              130 million Senior  Secured Debt Facility with a European  banking
              syndicate (see note 19).

       (b)    Principles of Consolidation and the Use of Estimates

              The  consolidated   financial   statements   include the financial
              statements  of the Hungarian  Telephone and Cable  Corp.  and  its
              majority  owned   subsidiaries;   Kelet-Nograd  Com  Rt.,  "KNC"),
              Raba-Com   Rt.,    ("Raba-Com"),     Hungarotel   Tavkozlesi   Rt.
              ("Hungarotel"),    Papa   es   Tersege  Telefon   Koncesszios  Rt.
              ("Papatel"),    HTCC   Consulting   Rt.  ("HTCC  Consulting")  and
              Pilistav  Rt.  ("Pilistav").   All  material intercompany balances
              and transactions have been eliminated.

                                      F-7
<PAGE>
            HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


              The consolidated  financial  statements are prepared in accordance
              with U.S. generally accepted accounting principles (U.S. GAAP). In
              preparing  financial  statements  in  conformity  with U.S.  GAAP,
              management  is required to make  estimates  and  assumptions  that
              affect  reported   amounts  of  assets  and  liabilities  and  the
              disclosure of contingent assets and liabilities at the date of the
              financial statements and revenue and expenses during the reporting
              period. Actual results could differ from those estimates.

       (c)    Revenue Recognition

              Telephone  service  revenues  are  recognized  when earned and are
              primarily  derived  from  usage of the  Company's  local  exchange
              networks and facilities or under revenue  sharing  agreements with
              Matav, the international  and national long distance  interconnect
              service provider.

              Advance  subscriber  payments  represent  advance  connection fees
              received from telephone  subscribers  and are recognized as income
              when the subscriber is connected to the telephone network. Advance
              fees  received  are  required  to be repaid  with  interest if the
              subscriber is not connected to the local telephone network.

        (d)   Foreign Currency Translation

              The statutory accounts of the Company's consolidated  subsidiaries
              and affiliates are maintained in accordance with local  accounting
              regulations and are stated in local  currencies.  Local statements
              are adjusted to U.S. GAAP and then translated into U.S. dollars in
              accordance  with Statement of Financial  Accounting  Standards No.
              52, "Accounting for Foreign Currency Translation" ("SFAS 52").

              Since commencement of revenue generating  activities,  the Company
              has used the Hungarian  forint ("HUF") as the functional  currency
              for  its  majority  owned  Hungarian  subsidiaries.   Accordingly,
              foreign  currency assets and liabilities are translated  using the
              exchange  rates in effect at the balance  sheet  date.  Results of
              operations  are generally  translated  using the average  exchange
              rates prevailing throughout the year. The effects of exchange rate
              fluctuations   on   translating   foreign   currency   assets  and
              liabilities  into U.S.  dollars are  accumulated  as part of other
              comprehensive  income in  stockholders'  equity.  Foreign exchange
              fluctuations  related to  intercompany  balances  are  included in
              equity if such balances are intended to be long-term in nature. At
              the time the Company settles such balances,  the resulting gain or
              loss is reflected  in the  consolidated  statement of  operations.
              Gains and losses from foreign  currency  transactions are included
              in operations in the period in which they occur.

       (e)    Cash Equivalents

              For the purposes of the consolidated statements of cash flows, the
              Company  considers  all highly liquid debt  instruments  purchased
              with a maturity of three months or less to be cash equivalents.


                                      F-8
<PAGE>
            HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997




       (f)    Inventories

              Inventories  consist  primarily of telephones for resale and spare
              parts,  are valued  using the FIFO  method,  and are stated at the
              lower of cost or market.

       (g)    Property, Plant and Equipment

              Property,  plant and equipment are stated at cost. Depreciation is
              computed using the straight-line  method over the estimated useful
              lives of the respective assets.

       (h)    Intangible Assets

              Intangible  assets are comprised of  concession  fees paid and the
              excess of cost over net assets  acquired.  The concession fees are
              being  amortized  over the  25-year  concession  period  using the
              straight-line method. The excess of cost over net assets acquired,
              goodwill,  is also amortized over 25 years using the straight-line
              method.

       (i)    Stock Based Compensation

              The Company accounts for its stock option plans in accordance with
              Statement of Financial Accounting Standards ("SFAS") No. 123 which
              allows  entities to continue to apply the provisions of Accounting
              Principles  Board ("APB") Opinion No. 25 and provide pro forma net
              income (loss) and pro forma earnings (loss) per share  disclosures
              for employee  stock option grants made in 1995 and future years as
              if the  fair-value-based  method,  as defined in SFAS No. 123, had
              been applied.  The Company has elected to apply the  provisions of
              APB Opinion No. 25 and provide the pro forma  disclosure  required
              by SFAS No. 123. See Note 12.

       (j)    Income Taxes

              Deferred tax assets and liabilities,  net of appropriate valuation
              allowances,   are  recognized  for  the  future  tax  consequences
              attributable  to  differences   between  the  financial  statement
              carrying  amounts of  existing  assets and  liabilities  and their
              respective   tax  bases  and   operating   loss  and  tax   credit
              carry-forwards.  Deferred tax assets and liabilities,  if any, are
              measured  using  enacted  tax rates  expected  to apply to taxable
              income  in the  years in which  those  temporary  differences  are
              expected to be  recovered  or settled.  The effect on deferred tax
              assets and  liabilities  of a change in tax rates is recognized in
              operations in the period that includes the enactment date.

              The Company's  Hungarian  operating  subsidiaries  are 100% exempt
              from  Hungarian  income tax for a period of five  years  beginning
              from January 1, 1994 and 60% exempt for the subsequent  five years
              as  long  as  (1)   capitalization   stays  above  50,000,000  HUF
              (approximately  $198,000 at December 31, 1999 exchange rates), (2)
              foreign ownership exceeds 30% of the registered  capital,  and (3)
              more than 50% of the revenue earned arises from  telecommunication
              services.

       (k)    Net Earnings (Loss) Per Share

              Basic  earnings  (loss) per share  ("EPS") is computed by dividing
              income or loss attributable to common stockholders by the weighted
              average  number  of  common  shares  outstanding  for the  period.
              Diluted EPS reflects the  potential  dilution from the exercise or
              conversion of securities into common stock.

                                      F-9
<PAGE>

            HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


              Net earnings (loss) and weighted  average shares  outstanding used
              for computing  diluted loss per common share were the same as that
              used for  computing  basic loss per  common  share for each of the
              years ended December 31, 1999, 1998 and 1997.

              The Company had potentially  dilutive common stock  equivalents of
              8,237,059,  7,474,915 and  7,200,859 for the years ended  December
              31, 1999, 1998 and 1997, respectively,  which were not included in
              the  computation of diluted net loss per common share because they
              were  antidilutive  for  the  periods  presented.  The  basis  for
              determining  whether  common stock  equivalents  were  potentially
              dilutive was loss before extraordinary items.

       (l)    Impairment  of  Long-Lived  Assets  and  Long-Lived  Assets  to Be
              Disposed Of

              The Company  evaluates the carrying value of long-lived  assets to
              be held and used,  including goodwill,  whenever events or changes
              in  circumstances  indicate  that the  carrying  amount may not be
              recoverable.  The carrying value of a long-lived asset,  including
              goodwill,  is considered impaired when the projected  undiscounted
              future cash flows  related to the asset are less than its carrying
              value.  The  Company  measures  impairment  based on the amount by
              which the  carrying  value  exceeds  the fair market  value.  Fair
              market value is determined  primarily  using the projected  future
              cash  flows  discounted  at a  rate  commensurate  with  the  risk
              involved.  Losses  on  long-lived  assets  to be  disposed  of are
              determined in a similar manner, except that fair market values are
              reduced for the cost to dispose.

 (2)   Cash and Restricted Cash

       (a)    Concentration

              At December 31, 1999, cash of $16,622,000 ($374,000 denominated in
              U.S.  dollars and the  equivalent of  $16,248,000  denominated  in
              Hungarian  Forints)  was on  deposit  with  banks in  Hungary.  In
              addition,  cash of  $575,000  denominated  in U.S.  dollars was on
              deposit with two major banks in the United States.

       (b)    Restriction

              At December 31, 1999,  $22,000 of cash denominated in U.S. dollars
              was  deposited  in escrow  accounts  under  terms of  construction
              contracts. In addition, $89,000 was restricted pursuant to certain
              arrangements with other parties.



                                      F-10
<PAGE>
            HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997




 (3)   Property, Plant and Equipment

       The components of property,  plant and equipment at December 31, 1999 and
1998 are as follows:

<TABLE>
<CAPTION>
<S>                                           <C>                 <C>          <C>

                                                       1999          1998       Estimated Useful Lives
                                                       ----          ----       ----------------------
                                                          (in thousands)

         Land and Buildings                    $       6,526         7,402       25 to 50 years
         Telecommunications equipment                128,116       141,752        7 to 25 years
         Other equipment                               5,766         5,891           5 years
         Construction in progress                      1,921           700
                                                     -------       -------
                                                     142,329       155,745

         Less: accumulated depreciation             (26,803)      (19,256)
                                                    --------      --------
                                               $     115,526       136,489
                                                    ========      ========

</TABLE>

       Interest  capitalized and included in the cost of construction of certain
       long-term  assets  amounted  to   approximately   $310,000  in  1998  and
       $4,504,000 in 1997. No interest has been capitalized in 1999.

 (4)   Short-Term Loans

       There  were  no  short-term  loans  outstanding  at  December  31,  1998.
       Short-term loans at December 31, 1999 consist of the following:

                                                                       1999
                                                                  (in thousands)
       Bridge loan:
           Euro - EUR 25,000,000                                    $  25,238
           Hungarian Forint - HUF 25,940,624,000                      102,727
                                                                      -------

       Total short-term loans                                         127,965

       Less amounts refinanced subsequent to December 31, 1999        122,917
                                                                      -------


       Short-term loans, excluding portion classified as
       long-term debt                                               $   5,048
                                                                    =========


       On May 12, 1999, as a part of the  restructuring  of its debt and capital
       structure,  see Notes 5 and 11, the Company  borrowed  from  Postabank es
       Takarekpenztar  ("Postabank"),  a Hungarian commercial bank, $138 million
       ($128 million at December 31, 1999 exchange  rates) under a one-year dual
       currency bridge loan agreement in Hungarian forints and euros. The bridge
       loan is repayable  on May 12, 2000 and bears  interest at an initial rate
       of 2.25% (the "Margin") plus the Budapest Interbank Offering Rate or Euro
       LIBOR Rate  (14.64% and 3.47%,  respectively  at December 31, 1999) which
       Margin increases  incrementally  to 4.25%, in quarterly  increments of 1%
       during the loan term.  At December  31,  1999,  the Margin was 3.25%.  On
       April 11, 2000, the Company signed a 130 million Euro senior secured debt
       facility agreement with a syndicate of Hungarian and non-Hungarian banks,
       the proceeds of which will be used to repay the existing  bridge loan. As
       a result of this refinancing,  the Company has classified $123 million of
       its short-term loans at December 31, 1999, as long-term debt. See Note 19
       for further explanation of this subsequent event.

                                      F-11
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


       HTCC and one of its subsidiaries,  HTCC Consulting Rt. are guarantors for
       the HTCC  subsidiaries  under the Bridge Loan Agreement.  The Company has
       pledged all of its  intangible  and  tangible  assets,  including  HTCC's
       ownership interests in its subsidiaries,  and its real property to secure
       all of the obligations under the Bridge Loan Agreement.

(5)    Long-term Debt

Long-term  debt at December 31, 1999  consisted of short-term  loans  refinanced
subsequent to December 31, 1999  in the amount of $122,917,000.  See Notes 4 and
19 for further explanation.


       Long-term debt at December 31, 1998 consisted of the following:

<TABLE>
<CAPTION>
<S>                                                                                      <C>
                                                                                              1998

                                                                                         (in thousands)
       Loan payable including deferred  interest,  interest at the National Bank
           of Hungary weighted average Treasury Bill + 2.5% (19% at December 31,
           1998), payable in 32 quarterly  installments beginning March 31, 1999
           with final payment due December 21, 2006; HUF 42,863,437,000
           outstanding at December 31, 1998.                                             $     197,984
       Construction loan including deferred interest, interest at the National
           Bank of Hungary  weighted  average  Treasury Bill + 2.5% (19% at
           December 31, 1998) payable in 20 quarterly  installments  beginning
           March 31, 1998 with final payment due December 31, 2002;
           HUF 7,926,002,000 outstanding at December 31, 1998.                                  36,610

       Loan payable, without interest due in equal annual installments
           over three years                                                                         91
                                                                                       ---------------

       Total long-term debt                                                             $      234,685

       Less current installments                                                                31,804
                                                                                       ---------------

       Long-term debt, excluding current installments                                      $   202,881
                                                                                       ===============
</TABLE>

       On October 15, 1996, the Company and its subsidiaries entered into a $170
       million  10-year  Multi-Currency  Credit  Facility  with  Postabank  (the
       "Original  Postabank Credit Facility").  The Company utilized the funding
       provided  by  the  Original   Postabank   Credit   Facility  to  continue
       construction of its telecommunications networks, provide working capital,
       and repay other debt  obligations  during 1997 and 1998.  The Company did
       not have  sufficient  funds to meet the  required  repayment  obligations
       under the Original Postabank Credit Facility as of March 31, 1999. On May
       12, 1999,  the Company  entered into  various  agreements  as part of the
       restructuring  of its  capital  structure  with  the  following  parties:
       Postabank;  Tele Danmark A/S ("Tele Danmark");  and the Danish Investment

                                      F-12
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997

       Fund for Central and Eastern  Europe (the "Danish Fund") (see Notes 8 and
       11). As a result of such agreements,  the Company extinguished all of its
       obligations to Postabank under the Original  Postabank Credit Facility in
       the amount of  approximately  $193 million and the $16.4 million borrowed
       in settlement of the amount due under the contractor  financing  facility
       described  below.  On the same day, the Company  borrowed from  Postabank
       $138 million ($128  million at December 31, 1999 exchange  rates) under a
       one-year dual  currency  bridge loan  agreement in Hungarian  forints and
       euros and $25 million  pursuant to certain  unsecured  notes payable (the
       "Notes") (see Note 6).

       As a  result  of the  extinguishment  of the  Original  Postabank  Credit
       Facility,  the Company recorded an extraordinary  loss of HUF 1.5 billion
       (approximately  $6.2 million at  historical  exchange  rates)  during the
       second quarter of 1999 which  represented  the write-off of the remaining
       unamortized  deferred  financing  costs,  included  in other  assets  and
       deferred  credits  at  December  31,  1998,  pertaining  to the  Original
       Postabank Credit Facility.

        During  1996 and 1997,  Hungarotel  entered  into  several  construction
        contracts  with a Hungarian  contractor  which totalled $59.0 million in
        the aggregate (at historical exchange rates), $47.5 million of which was
        financed by a contractor financing facility.  The financing was provided
        by the  contractor.  The  contractor  financed  the  financing  facility
        through a facility  provided by Postabank.  As of December 31, 1998, the
        balance owed under the contractor  financing facility was $36.6 million.
        On March 30, 1999, Postabank assumed HUF 7 billion plus accrued interest
        of HUF 348 million  (approximately  $30.9 million at historical exchange
        rates)  of  the  Company's  liability  under  the  contractor  financing
        facility  from  the  contractor,   due  to  the  contractor's  financial
        difficulties,  and sold this debt back to the  Company for HUF 3 billion
        (approximately $12.6 million at historical exchange rates). The purchase
        of the debt was  financed  by  Postabank.  On the same day,  the Company
        purchased  HUF 4 billion  (approximately  $16.8  million  at  historical
        exchange  rates) of loans the  contractor had with Postabank for HUF 900
        million  (approximately  $3.8 million at historical  exchange rates) and
        subsequently  offset the booked value of the loans  purchased of HUF 900
        million  (approximately  $3.8  million  at  historical  exchange  rates)
        against the outstanding amounts owed to the contractor.  The purchase of
        these  loans was also  financed by  Postabank.  As a result of the above
        transactions,  the  Company  recorded an  extraordinary  gain of HUF 4.3
        billion  (approximately  $18.1  million at  historical  exchange  rates)
        during the second quarter of 1999 which reflected the  extinguishment of
        all amounts due under the contractor financing facility.

       In 1995, the Company was awarded subsidies from the Ministry  aggregating
       HUF  118,720,000  (approximately  $850,000 at December 31, 1995  exchange
       rates). The required conditions were satisfied in 1996 and the funds were
       received  one-half  in the form of a grant and  one-half in the form of a
       non-interest  bearing  loan  repayable  over a three year  period.  As of
       December 31, 1999, the loan had been fully repaid.

(6)    Long-term Notes Payable

       As described in Notes 4 and 5 above, on May 12, 1999, the Company entered
       into  various  agreements  as part of the  restructuring  of its debt and
       capital structure. As one part of this overall restructuring, the Company
       issued  notes to  Postabank  in an  aggregate  amount of $25 million with
       detachable warrants (the "Warrants"). The Notes accrue interest, which is
       payable  semi-annually,  at the LIBOR rate  applicable  for the six month
       interest  period plus 4%. On April 11, 2000,  the Notes were amended such
       that the  interest  rate was  changed to six month  LIBOR plus 3.5%.  The
       Notes  which  mature  in 2007  are  transferable  subject  to  applicable
       security laws.

       The Warrants which were issued pursuant to a series of Warrant Agreements
       between the Company and Postabank enable Postabank to purchase  2,500,000
       shares of the  Company's  common  stock at an  exercise  price of $10 per
       share. The exercise period commences on January 1, 2004 and terminates on
       March 31, 2007.  The fair value of the warrants  amounted to $8.8 million

                                      F-13
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


       and has been charged  directly to additional  paid-in  capital.  The fair
       value of the  warrants was  determined  using the Black  Scholes  Warrant
       Option valuation model. The unamortized discount on the notes at December
       31, 1999 was  approximately  $8.3  million.  The Company has the right to
       terminate  the  Warrants in full or  proportionately  prior to January 1,
       2004 provided that the Company repays a proportionate amount of the Notes
       and an amount equal to 7-1/2% of the  aggregate  principal  amount of the
       Notes repaid, concurrently with the termination of the Warrants.

(7)    Deferred Credits and Other Liabilities

       During  1999, one of the Company's subsidiaries, Papatel, entered into an
       agreement    with   the    Hungarian    Ministry    of    Transportation,
       Telecommunications   and  Water  Management  (the  "Ministry")  for   the
       relinquishment  of the subsidiary's right to use a broadcasting frequency
       previously  granted  by the  Ministry.  The frequency was used to provide
       telephone  services to  certain  customers.  In return for the subsidiary
       agreeing to  relinquish  the  use of the  frequency,  the Ministry paid a
       total of 308 MHUF  ($1,220,000  at December 31, 1999 exchange rates) as a
       contribution  towards  the  costs  of  purchasing  and  installing  fixed
       network  equipment  to  replace  the   parts  of the  network  using  the
       frequency.  The new fixed  network equipment  was  placed into service on
       December 31, 1999,  and the  compensation  received  from  the  Ministry,
       which is included in deferred credits and other  liabilities  at December
       31, 1999,  will be  recognized  over the  new fixed  network  equipment's
       depreciable life as a reduction  in depreciation  expense over the future
       depreciable periods.

       During 1999, another of the Company's subsidiaries,  Hungarotel,  entered
       into an agreement with the Ministry for the  relinquishment  by July 2000
       of the  subsidiary's  right to use a  broadcasting  frequency  previously
       granted by the  Ministry.  The  frequency  is used to  provide  telephone
       services to certain  customers.  For  relinquishing  the right to use the
       frequency,  the  Ministry  has paid a total of 557  MHUF  ($2,205,000  at
       December 31, 1999  exchange  rates) which is  equivalent to the September
       30,  1999 net book value of the assets  utilizing  the  frequency,  which
       amount is included in deferred credits and other  liabilities at December
       31, 1999. In addition,  the Ministry also granted Hungarotel the right to
       an interest free loan in the amount of 334 MHUF  ($1,323,000  at December
       31, 1999 exchange  rates).  No amounts have been drawn under this loan as
       of December 31, 1999.  The 557 MHUF  deferred  credit will be  recognized
       over the remaining  life of the assets  utilizing the frequency to offset
       depreciation expense on such assets. Any gain, as a result of selling the
       equipment utilizing the frequency, will be recognized at such time as the
       equipment is sold.

(8)    Transactions  with  Tele  Danmark A/S and the Danish Fund for Central and
       Eastern Europe

       On July 1, 1997, the Company  entered into an agreement with Tele Danmark
       A/S ("TDI")  pursuant to which TDI agreed to exchange its 20% interest in
       each of two operating  subsidiaries  for 420,908  shares of the Company's
       common  stock.  The  value  of  shares  on the  date  of  issue  totalled
       $3,630,000.  Under the agreement, TDI was granted the preemptive right to
       maintain its equity  ownership  percentage and the right, if TDI acquired
       the 4.8% stake in each of the operating  subsidiaries owned by the Danish
       Fund for Central and Eastern  Europe  ("the Danish  Fund"),  to sell such
       shares to the Company on similar terms.

       On September 30, 1997, TDI exercised its right and agreed to exchange the
       4.8% interest in each of two operating  subsidiaries  purchased  from the
       Danish Fund for 101,018 shares of the Company's  common stock.  The value
       of shares on the date of issue totalled $1,301,000.

                                      F-14
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


       The total value of shares issued relating to these two  transactions  has
       been  recorded  as an  increase  to  goodwill  and to  Common  Stock  and
       additional paid-in capital.

       On  September  30,  1997,  the Company and TDI entered  into an agreement
       whereby  TDI agreed to  exchange  loans and  accrued  interest  totalling
       $5,534,000  to two  operating  subsidiaries  for  447,232  shares  of the
       Company's common stock.

       On May 12,  1999,  the  Company  and TDI  entered  into a Stock  Purchase
       Agreement  (the "TD  Stock  Purchase  Agreement")  pursuant  to which the
       Company issued 1,571,429 shares of the Company's common stock in exchange
       for $11  million.  The  Company  applied the  proceeds  from the TD Stock
       Purchase  Agreement to the  repayment of the  Original  Postabank  Credit
       Facility (see Note 5). TDI agreed not to transfer the shares to any party
       prior to May 11, 2000 without the prior written consent of the Company.

       As a result of these  transactions,  TDI's share ownership in the Company
       is 21.4% of the shares  outstanding  at December 31,  1999.  TDI has been
       granted preemptive rights to maintain its ownership percentage.

       On May 12,  1999,  the Company and the Danish Fund  entered  into a Stock
       Purchase Agreement (the "Danish Fund Stock Purchase  Agreement") pursuant
       to which the Company  issued  1,285,714  shares of the  Company's  common
       stock in exchange for $9 million.  The Company  applied the proceeds from
       the Danish Fund Stock Purchase Agreement to the repayment of the Original
       Postabank  Credit  Facility  (see Note 5). The Danish  Fund agreed not to
       transfer the shares to any party except for Tele Danmark prior to May 11,
       2000 without the prior  written  consent of the  Company.  As a result of
       this  transaction,  the Danish  Fund's share  ownership in the Company is
       10.7% of the shares outstanding at December 31, 1999.

(9)    Income Taxes

       The  statutory  U.S.  Federal tax rate for the years ended  December  31,
       1999, 1998 and 1997 was 35% and the Hungarian  corporate  income tax rate
       for the  years  ended  December  31,  1999,  1998 and  1997 was 18%.  For
       Hungarian  corporate  income tax purposes,  the operating  companies were
       entitled  to a 100%  reduction  in income  taxes for the five year period
       ending  December  31,  1998 and are now  entitled to a 60%  reduction  in
       income  taxes for the  subsequent  five year period  ending  December 31,
       2003.  The effective  tax rate was zero for the years ended  December 31,
       1999, 1998 and 1997 due to the Company incurring net operating losses for
       which no tax benefit was recorded.

       For U.S.  Federal  income  tax  purposes,  the  Company  has  unused  net
       operating  loss  carryforwards  at  December  31,  1999 of  approximately
       $16,760,000  which  expire  in  2007,  $142,000;  2008,  $422,000;  2009,
       $950,000;  2010, $6,507,000;  2011, $6,328,000;  2012, $1,906,000;  2018,
       $14,000;  and  2019,  $491,000.  As a result  of  various  recent  equity
       transactions,  management  believes the Company experienced an "ownership
       change" in 1999,  as defined by Section 382 of the Internal  Revenue Code
       which limits the annual  utilization of net operating loss  carryforwards
       incurred prior to the ownership change.


                                      F-15
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997

       For Hungarian corporate income tax purposes,  the Hungarian  subsidiaries
       have unused net  operating  loss  carryforwards  at December 31, 1999, at
       current  exchange rates, of  approximately  $62,972,000.  Of this amount,
       $12,437,000 may be carried forward  indefinitely  while $1,383,000 may be
       carried  forward until 2000,  $7,760,000  until 2001,  $11,741,000  until
       2002, $19,532,000 until 2003 and $10,119,000 until 2004.

       The tax effect of  temporary  differences  that give rise to  significant
       portions of deferred tax assets are as follows:

<TABLE>

<S>                                                      <C>                        <C>

                                                                       December 31
                                                                  ---------------------
                                                                1999                 1998
                                                                ----                 ----
                                                                      ($ thousand)

              Net operating loss carryforwards             $   5,866                5,982
              Write down of assets                               418                  418
              Stock compensation                               1,467                1,467
              Citizen's options                                3,926                2,205
              Termination benefits                               746                1,169
              Citizen's termination agreement                      -                3,896
              Management fees                                  3,236                3,236
              Interest expense                                 1,381                  918
              Other                                              474                  674
                                                            --------             --------
              Total gross deferred tax assets                 17,514               19,965
              Less valuation allowance                       (17,514)             (19,965)
                                                            --------             --------
              Net deferred tax assets                      $       0                    0
                                                            ========             ========
</TABLE>

       In  assessing  the  realizability  of  deferred  tax  assets,  management
       considers  whether it is more likely than not that some portion or all of
       the deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent  upon the  generation of future  taxable
       income  during the periods in which those  temporary  differences  become
       deductible.  Management considers projected future taxable income and tax
       planning  in  making  these  assessments.   During  1999,  the  valuation
       allowance  decreased  by  $2,451,000,  while  in  1998  it  increased  by
       $5,011,000.

(10)   Commitments and Contingencies

       (a)    Concession Agreements

              Certain  subsidiaries of the Company have been awarded  concession
              rights   by   the    Hungarian    Ministry   of    Transportation,
              Telecommunications  and Water  Management  ("the Ministry") to own
              and operate  local  public  telephone  networks in five regions of
              Hungary.  Each of the  concession  agreements are for a term of 25
              years and provide for an eight-year exclusivity period.

              Agreements   providing   concession   rights  in  two  regions  to
              Hungarotel  and one region to Papatel  were  entered into prior to
              their  acquisition  by the  Company and were  renegotiated  by the
              Company.  The renegotiated  concession  agreements provided for an
              initial payment to the Ministry of HUF 938,250,000  (approximately
              $6.7 at  December  31,  1995  exchange  rates)  which  was paid in
              November 1995, and for annual  concession fees based upon 2.3% and
              0.3% of net telephone service revenues for the regions operated by
              Hungarotel  and 2.3% of net  telephone  service  revenues  for the
              region operated by Papatel.


                                      F-16
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997

              In 1994, the Ministry awarded concession rights to own and operate
              local  public  telephone   networks  to  KNC  and  Raba-Com  under
              agreements  which  provide for annual  concession  fees based upon
              0.1%  and  1.5% of net  telephone  service  revenues  for  regions
              operated by KNC and Raba-Com, respectively.

              The concession  agreements  provide for,  among other things,  the
              subsidiaries to provide  telephone  service to specific numbers of
              customers  by specified  dates or be subject to possible  monetary
              penalties and possibly reduction in the period of exclusivity.  As
              of December 31, 1999, the Company  believes it has fulfilled these
              service  requirements  in their  concession  areas in all material
              respects, and has not provided for any potential liability.

              The activities of the subsidiaries which own concession rights are
              regulated  by the  Ministry  and by the terms of their  respective
              concession  agreements.  The Ministry  regulates the construction,
              operation and sale of local telephone exchanges and has been given
              the authority to regulate the industry.  This  authority  includes
              approving  local,  long  distance  and  international  rates,  the
              sharing of revenues  between  concession  companies and Matav, the
              equipment  that  can be  used  in the  public  switched  telephone
              network and requiring local companies to meet specified  standards
              as to growth and services.

              The  Ministry  has  stipulated  in the  Concession  Contracts  for
              Hungarotel and Papatel,  as amended in June 1996, that each of the
              Operating   Companies  must  meet  certain   Hungarian   ownership
              requirements  so  that  by the end of the  seventh  year of  their
              Concession  Contracts Hungarian ownership must consist of 25% plus
              one share of the relevant  Operating  Company.  For the seven-year
              period  following the date or amendment of a Concession  Contract,
              as the  case may be,  Hungarian  ownership  must be at least  10%,
              except that during such period,  such  ownership may be reduced to
              as  low  as 1%  for a  period  of up to  two  years.  During  such
              seven-year period, while the Hungarian ownership block is required
              to be at least  10%,  such  Hungarian  ownership  of a 10%  equity
              holding in an Operating Company must have voting power of at least
              25% plus one share,  thus providing  Hungarian owners the right to
              block certain  transactions  which, under Hungarian corporate law,
              require  a  supermajority  (75%)  of  stockholders  voting  on the
              matter,  such as mergers and  consolidations,  increases  in share
              capital and winding-up.

               For these  purposes,  Hungarian  ownership of shares means shares
               owned by Hungarian  citizens.  Shares owned by a corporation  are
               considered  Hungarian  owned only in  proportion to the Hungarian
               ownership of such corporation.  The LTOs can also fulfill the 25%
               plus one share  Hungarian  ownership  requirement by listing such
               shares on the Budapest Stock Exchange.

               The equity ownership  requirements and exceptions described above
               are contained in the June 1996 amended  Concession  Contracts for
               Hungarotel  and  Papatel.   The  equity  ownership   requirements
               expressly set forth in KNC's and Raba-Com's  Concession Contracts
               call  for a  strict  25%  plus  one  share  Hungarian  ownership.
               However,  the  Ministry  has stated,  pursuant to a letter  dated
               September  18, 1996,  that it intends  that all of the  Operating
               Companies  be treated  equally  with  respect  to such  ownership
               requirements.

               Following a capital  transaction  with Postabank in May 1999 (see
               note 11) each of the Operating  Companies is deemed in compliance
               with the 10% ownership requirement, however none of the Companies
               are  currently  in  compliance  with the 25% voting  requirement.
               Failure to comply with the 25% Hungarian ownership requirement at

                                      F-17
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997

               the end of the  seven-year  period might be  considered a serious
               breach of a Concession  Contract,  giving the Ministry the right,
               among other things, to terminate the Concession  Contract.  There
               can be no assurance that the Company will be able to increase the
               Hungarian  ownership  in  the  Operating  Companies  in a  manner
               sufficient to comply with such requirements in the future.

               The  Hungarian  ownership  requirements  would  effectively  give
               minority  Hungarian  stockholders in the Operating  Companies the
               ability to block  certain  corporate  transactions  requiring the
               approval of 75% of stockholders  voting on the matter,  including
               mergers  and  consolidations,  increases  in  share  capital  and
               winding-up.   In  addition,   unless  the   Hungarian   ownership
               requirements are formally  changed,  compliance would result in a
               reduction in the Company's ownership in the Operating  Companies,
               and, consequently, the Company's share of income, if any, or loss
               of the Operating Companies may be reduced proportionately.

       (b)    Construction Commitments

              KNC has a long-term frame contract with Siemens which provides for
              the continued  construction of a local  telephone  network and the
              addition of new subscribers in its service area.  During the year,
              the contract was amended to expand the number of  subscribers  the
              contractor  must connect in order to complete the  contract.  This
              contract  totals,  with the amendment  during 1999,  approximately
              $20.0 million, $2.6 million of which remains to be spent.

        (c)   Leases

              The Company leases office facilities in Connecticut, which require
              minimum annual rentals. Certain of the Company's subsidiaries also
              rent office space and other facilities. Rent expense for the years
              ended December 31, 1999, 1998 and 1997, was $395,000, $199,000 and
              $160,000,   respectively,   and  is  included  in  operating   and
              maintenance  expenses.  Lease  obligations for the subsequent five
              years are as follows (at current exchange rates):  2000, $307,000;
              2001,  $280,000;   2002,  $269,000;   2003,  $270,000;  and  2004,
              $290,000.

       (d)    Legal Proceedings

              Hungarotel  is a defendant  in a lawsuit  brought in Hungary  that
              alleges  breach of contract.  The plaintiff is seeking  payment of
              approximately HUF 222 million (approximately  $879,000 at December
              31, 1999 exchange  rates) plus interest.  The Company  believes it
              has  meritorious  defenses to the claim and does not believe there
              will be any  material  adverse  effect  from the  outcome  of this
              proceeding.

              Raba-Com  is a  defendant  in a  lawsuit  seeking  refund  of  the
              connection  fee  paid by a  residential  customer  due to delay in
              providing   telephone  service.   Management  believes  there  are
              meritorious defenses to the claim and expects to prevail.  Should,
              however,  the  legal  proceedings  result  in a final  unfavorable
              outcome,  the Company  could be subject to  additional  claims for
              refunds of connection fees received.

              HTCC Consulting and Papatel are involved in several  disputes with
              the Hungarian  taxing  authorities  (the "APEH") pursuant to which
              the APEH alleges  Consulting  owes HUF 105 million  (approximately
              $416,000 at December 31, 1999 exchange rates) and Papatel owes HUF
              26 million  (approximately  $103,000 at December 31, 1999 exchange
              rates) for various reasons.  The Operating  Companies believe that
              the APEH claims are  without  merit and are  vigorously  defending
              themselves against such claims.


                                      F-18
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997

              During  1996  and  1997,   the  Company   entered   into   several
              construction  contracts with a Hungarian  contractor which totaled
              $59.0  million  in the  aggregate,  $47.5  million  of  which  was
              financed by a contractor financing facility. At December 31, 1998,
              the  balance  on  the  contractor  financing  facility  was  $36.6
              million.  The Company and the contractor have a disagreement  with
              respect to several issues  relating to the quality and quantity of
              the work done by the contractor. The Company has rejected invoices
              of approximately  HUF 700 million  (approximately  $2.8 million at
              December  31,  1999  exchange   rates).   Following  a  series  of
              transactions with the contractor's major creditor, the Company was
              able to settle the  contractor's  claims arising from the accepted
              but unpaid  invoices.  During 1998 the Company and the  contractor
              engaged in settlement discussions in order to resolve these issues
              but were unable to reach a settlement. In addition, in March 1999,
              Hungarotel acquired a HUF 4 billion  (approximately  $15.8 million
              at December 31, 1999 exchange  rates) claim against the contractor
              in order to strengthen  its position in any  potential  procedures
              initiated by the contractor. The contractor is now seeking payment
              under separate invoices in the amount of approximately $24 million
              for work which the  Company is  disputing  because of quality  and
              quantity  issues.   The  Company  still  has  claims  against  the
              contractor  of  approximately  $31 million  which is more than the
              contractor's  claim.  The Company believes that it will prevail on
              the  merits  such  that it will  not be  responsible  for the full
              payment on the aggregate  contractual amount.  There can, however,
              be no  assurances  as to the final  outcome or course of action of
              such dispute.

              The Company and its  subsidiaries  are  involved in various  other
              claims  and  legal  actions  arising  in the  ordinary  course  of
              business.  In the opinion of management,  the ultimate disposition
              of these  matters will not have a material  adverse  effect on the
              Company's consolidated  financial position,  results of operations
              or liquidity.

       (e)    Agreements with Lucent Technologies

              In October 1997, the Company entered into an agreement with Lucent
              Technologies to become the exclusive distributor of Lucent PBX and
              Key System  products in  Hungary.  As part of the  agreement,  the
              Company  purchased  fixed assets and inventory  valued at $470,000
              and agreed to purchase commitments starting at $6 million for each
              of the next three years. The agreement provided for the imposition
              of  penalties  of up to $500,000  annually for failure to meet the
              purchase requirements.  The Company also assumed the employment of
              36  employees.  During  the first  quarter  of 1998,  the  Company
              amended  the  original  agreement  with  Lucent.  Under  the first
              amended  agreement,  the Company became the exclusive  supplier of
              PBX and Key System products in its Operating Areas while retaining
              non-exclusive  rights to service other Hungarian customers outside
              its Operating Areas. In addition, the Company was entitled to sell
              large call centers on a commission  basis.  The Company's  minimum
              purchase  commitments,  under the first  amended  agreement,  were
              reduced to $2 million  annually  with  potential  penalties  being
              reduced to a maximum of $200,000  annually for failure to meet the
              purchase  requirements.  As a part of the first amended agreement,
              the Company transferred back $400,000 of assets to Lucent and paid
              $150,000 to Lucent.  In  addition,  the Company  transferred  to a
              third  party  subcontractor,  28 of  the 36  employees  originally
              assumed.  For 1998,  the Company  negotiated a penalty  payment of
              approximately $24,000 towards Lucent for non-performance under the
              first amended  agreement,  and this was settled during 1999 in the
              form  of  marketing  and  sales  promotions  expenses.   Effective
              February  1999,  Lucent and the  Company  agreed  that the Company

                                      F-19
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997

              would give up its right of exclusivity in its Operating  Areas. In
              addition,  as a part of this agreement,  the Company no longer has
              any minimum purchase commitments towards Lucent, nor are there any
              potential  penalty fees payable.  At the present  time,  Lucent is
              changing its distribution  channels in Europe and has informed the
              Company  that once they have their new  distribution  channels  in
              place, the second amended agreement with Lucent will be terminated
              and the Company  will be able to enter into a new  agreement  with
              Lucent.  No  details  of the  proposed  new  agreement  have  been
              presented to the Company at the present time.

       (f)    Local Tax

              Hungarotel's  Concession  Contracts  require  Hungarotel to pay an
              amount  equal to 10 times the local  occupational  excise tax. The
              applicability and enforceability of such obligation is not certain
              at this time, however, the Ministry has clearly stated in a letter
              to Hungarotel that it will not enforce this  particular  provision
              of the  Concession  Contract.  It is not  possible to predict with
              certainty  the effect,  if any,  such  provision  will have on the
              Company.  The Company has not accrued any amounts  related to such
              tax.

       (g)    Subsidiary Capital Requirements

              In July 1998, Hungary adopted a law requiring corrective action by
              certain  Hungarian  companies  which have  negative net equity for
              more than two years.  Each of the  Operating  Companies  currently
              have negative net equity.  The effective date of the applicability
              of the law to the Operating Companies is not certain at this time.
              The  Company's  debt and  equity  restructuring  which  took place
              during  1999,  was the first step in several to remedy the capital
              structure in each of the  Operating  Companies  and the Company is
              continuing  to work on the  matter  in order to bring  each of the
              Operating  Companies  into  compliance  with  the law.  While  the
              Company believes that each of the Operating Companies will be able
              to  comply  with  the law if and  when it  affects  the  Operating
              Companies,  there can be no assurance that the Operating Companies
              will be able to comply with such law.

 (11)  Common and Preferred Stock

       In  connection  with a 1992 private  placement  and public  offering,  in
       addition to a 1994  private  placement,  the Company  issued  warrants to
       purchase  141,950  shares of Common Stock at prices ranging from $3.60 to
       $14.00 per share.  During  1998,  warrants  to purchase  4,650  shares of
       Common Stock at $3.60 were exercised. Proceeds from the exercise of these
       warrants totaled $17,000 in 1998.

       During 1998, a former officer exercised options to purchase 51,750 shares
       of Common Stock at $4.00 per share.  Proceeds  from the exercise of these
       options totaled $207,000.

       During 1997,  options to purchase 70,000 shares of Common Stock at prices
       ranging  from $7.00 to $10.00 per share and  warrants to purchase  11,586
       shares of Common Stock at $10.15 per share were exercised.  Proceeds from
       the  exercise of these  options and  warrants  amounted to  approximately
       $635,000.  In  addition,  the  company  issued  options to purchase up to
       70,000 shares of Common Stock at below market prices to three officers as
       compensation,  resulting  in a $70,000  increase  to  additional  paid-in
       capital.


                                      F-20
<PAGE>
              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


       During the third  quarter  of 1997,  the  Company  entered  into  various
       agreements  with TDI  pursuant  to  which  TDI  agreed  to  exchange  its
       ownership  interest  and  outstanding  loans  in  each  of two  operating
       subsidiaries for a total of 969,158 shares of the Company's Common Stock.
       The value of shares on the dates of issue totaled  $10,689,000  which was
       recorded as an increase to Common Stock and additional paid-in capital.

       During 1999, the Company issued  1,571,429 shares and 1,285,714 shares to
       TDI and the Danish Fund, respectively, as part of its overall capital and
       debt restructuring during the period (see Note 8).

       During the third  quarter  of 1998,  the  Company  entered  into  certain
       agreements with certain  wholly-owned  subsidiaries of Citizens Utilities
       Company (Citizens  Utilities Company and its subsidiaries are hereinafter
       referred to as  "Citizens")  pursuant  to which the  Company  settled its
       disagreements  with Citizens regarding certain issues with respect to (i)
       2.1 million  shares of the  Company's  common stock  subject to Citizens'
       accrued  preemptive  rights and (ii) the  Company's  management  services
       agreement  with  Citizens  dated  as of May  31,  1995  as  amended  (the
       "Management  Services  Agreement").  As  part  of the  settlement  of the
       Management  Services  Agreement  with Citizens (see note 15), the Company
       issued  100,000  shares of Common  Stock.  The value of the shares on the
       date of issue  totaled  $513,000  which was  recorded  as an  increase to
       Common Stock and additional paid-in capital.

       On May 12, 1999,  the Company and Citizens  entered into a Stock Purchase
       Agreement (the "Citizens Stock Purchase Agreement') pursuant to which the
       Company issued to Citizens 1,300,000 shares of the Company's common stock
       and 30,000 shares of the Company's  Series A Preferred  Stock,  par value
       $0.001 (the "Preferred  Shares") in consideration for the  extinguishment
       of liabilities  the Company had with Citizens (see note 15). The value of
       the  common  stock on the  date of issue  totaled  $9,100,000  which  was
       recorded as an increase to Common Stock and additional  paid-in  capital.
       The value of the preferred shares on the date of issue totaled $2,100,000
       which was  recorded  as an  increase to  Preferred  Stock and  additional
       paid-in  capital.  Citizens,  as the holder of the Preferred  Shares,  is
       entitled to receive  cumulative  cash  dividends at an annual rate of 5%,
       compounded  annually  on the  liquidation  value  of $70 per  share.  The
       Company may redeem the Preferred Shares at any time. Citizens can convert
       each of the Preferred Shares into shares of the Company's common stock on
       a one for ten basis.

       On May 12,  1999,  the  Company and  Postabank  entered into a Securities
       Purchase  Agreement (the "Securities  Purchase  Agreement")  pursuant  to
       which Postabank purchased 2,428,572 shares of the Company's common  stock
       for an  aggregate purchase price of $34 million.  The Securities Purchase
       Agreement  provides  for  one  person  designated  by  Postabank  to   be
       nominated  for  election to the Company's  Board of Directors.  Postabank
       cannot  transfer  its  shares  until the earlier of (x) the  repayment in
       full of all the  obligations  under the  Bridge Loan Agreement or (y) May
       10, 2000, and then Postabank can only transfer  such shares incrementally
       through  2003  subject  to the  Company's  right  of first  refusal.  The
       Company's  right  of  first  refusal  expires  in  January  2003  and  is
       assignable by the Company to any  beneficial  holder of more  than 10% of
       the Company's outstanding common stock. The Company applied  the proceeds
       from the stock  issuance  to  the  repayment  of the  Original  Postabank
       Credit  Facility  (see  Note 5).  Pursuant  to  the  Securities  Purchase
       Agreement,  the Company issued notes to Postabank  in an aggregate amount
       of $25 million  (see Note 6) with  detachable  warrants.   As a result of
       this  transaction,  Postabank's share ownership in the Company  was 20.3%
       of the Company's outstanding common stock as of December 31, 1999.

                                      F-21
<PAGE>

              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


       During  1998,  the  Company  issued  18,469  shares  of  Common  Stock as
       contingent  consideration  related to the  acquisition  of Hungarotel and
       Papatel in 1995, per the acquisition agreement.

       The Company has  reserved  8,237,059  shares as of December  31, 1999 for
       issuance under stock option plans and agreements and warrants.

 (12)  Stock Based Compensation

       Stock Option Plans

       The Company  adopted a stock option plan (the "Plan") in April 1992 which
       provided for the issuance of an aggregate of 90,000 stock  options  which
       was increased to 250,000 at the 1994 Annual Meeting of  Stockholders.  In
       1996, the  stockholders of the Company approved an increase in the number
       of shares available under the plan from 250,000 to 750,000.  In 1998, the
       stockholders of the Company  approved an increase in the number of shares
       available  under  the plan from  750,000  to  1,000,000.  Under the Plan,
       incentive and non-qualified options may be granted to officers, directors
       and consultants to the Company.  The plan is administered by the Board of
       Directors,   which   may   designate   a   committee   to   fulfill   its
       responsibilities.  Options  granted under the Plan are exercisable for up
       to 10 years from the date of grant.  As of  December  31,  1999,  820,990
       options  provided for by the Plan had been issued,  of which 167,500 were
       exercised and 653,490 remained outstanding.

       In  1997,  the  Company   adopted  a  director  stock  option  plan  (the
       "Directors'  Plan")  which  provides  for the issuance of an aggregate of
       250,000 stock  options.  Options  granted under the  Directors'  Plan are
       exercisable for up to 10 years from the date of grant. As of December 31,
       1999, 80,000 options provided for by the Directors' Plan had been issued,
       of which 5,000 were exercised and 75,000 remained outstanding.

       The Company  applies APB  Opinion No. 25 and related  interpretations  in
       accounting  for stock  options  issued under the Plan and the  Directors'
       Plan.  Had the Company  determined  compensation  cost for options issued
       under the plans  based on the fair value at the grant date  according  to
       SFAS No. 123, the  Company's  net pro forma income and Earnings Per Share
       would have been as follows:



<TABLE>
<CAPTION>

<S>                                          <C>            <C>         <C>          <C>
                                                               1999        1998        1997
                                                               ----        ----        ----
                                                                       (in thousands)

           Net  income (loss)                As reported     $3,172     ($50,612)    ($36,236)
                                               Pro forma     $2,526     ($51,065)    ($36,468)

           Earnings (loss) Per Share         As reported      $0.33       ($9.53)      ($7.97)
                                               Pro forma      $0.27       ($9.62)      ($8.02)
</TABLE>

       For purposes of the pro forma  calculation under SFAS 123, the fair value
       of each option  grant has been  estimated  on the date of grant using the
       Black Scholes option-pricing model with the following assumptions:  (1) a
       risk free rate of 5.03% in 1999,  5.58% in 1998 and 6.56% in 1997, (2) an
       expected life of 5 years for 1999, 6 years for 1998 and 7 years for 1997,
       and (3)  volatility of  approximately  81% for 1999, 84% for 1998 and 33%
       for 1997.

       Pro forma net loss reflects  only options  granted since January 1, 1995.
       Therefore,  the full impact of  calculating  compensation  cost for stock
       under SFAS 123 is not reflected in the pro forma net loss amounts because
       compensation  cost is  reflected  over the  options'  vesting  period and
       compensation  cost for  options  granted  prior to January 1, 1995 is not
       considered.


                                      F-22
<PAGE>
              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


       The following is a summary of stock options and warrants, including those
       issued under the Plan and  Directors'  Plan referred to above,  and other
       agreements  which were  granted,  exercised  and  cancelled for the three
       years ended December 31, 1999:


<TABLE>


<S>                 <C>                            <C>                      <C>
              -------------------------------------------------------------------------------------
                                                          Outstanding         Option/Warrant Price
                                                       Options/Warrants            Per Share
              ------------------------------------ ------------------------ -----------------------
                     December 31, 1996                       705,476             $3.60-$20.00
                     Granted                                 140,000             $8.75-$11.69
                     Exercised                              (81,586)             $7.00-$10.15
                     Cancelled                               (5,793)                $10.15
              ------------------------------------ ------------------------ -----------------------
                     December 31, 1997                       758,097             $3.60-$20.00
                     Granted                                 151,000             $5.81-$8.00
                     Exercised                              (56,400)             $3.60-$4.00
                     Cancelled                                  -                       -
              ------------------------------------ ------------------------ -----------------------
                     December 31, 1998                       852,697             $4.00-$20.00
                     Granted                                 189,990             $3.25-$6.00
                     Exercised                                  -                       -
                     Cancelled                             (116,950)             $8.00-$20.00
              ------------------------------------ ------------------------ -----------------------
                     December 31, 1999                       925,737             $3.25-$14.00
              ------------------------------------ ------------------------ -----------------------
</TABLE>

       The  following  table  summarizes  information  about  shares  subject to
       outstanding  options as of December 31, 1999 which were issued to current
       or former  employees,  directors  or  consultants  pursuant  to the Plan,
       Directors' Plan, employment or other agreements.


<TABLE>

<S>       <C>                <C>                  <C>                <C>             <C>              <C>

                                       Options Outstanding                            Options Exercisable
                                       -------------------                            -------------------
                                                                        Weighted-
                                                     Weighted-           Average                         Weighted-
              Number            Range of          Average Exercise    Remaining Life      Number          Average
           Outstanding       Exercise Prices          Price            in Years        Exercisable     Exercise Price
           -----------       ---------------          -----            --------        -----------     --------------
              408,237         $3.25-$6.78             $4.43             4.45             343,237         $4.21
              220,000         $8.00-$9.44             $8.57             3.32             220,000         $8.57
               97,500        $11.69-$12.25           $12.16             0.51              97,500        $12.16
              200,000            $14.00              $14.00             1.58             200,000        $14.00
              -------                                                                    -------
              925,737         $3.25-$14.00            $8.29             3.15             860,737         $8.50
             ========                                                                    =======

</TABLE>


       Stock Grants

       During the second  quarter of 1998,  the Company  issued 10,625 shares of
       Common  Stock to two  former  officers  as  compensation.  An  amount  of
       $93,000,  representing  the fair market value of the stock on the date of
       grant,  has been recorded as  compensation  expense and as an increase in
       Common Stock and additional paid-in-capital.

                                      F-23
<PAGE>
              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


       In March 1997,  the Company  issued 5,000  shares to a former  officer as
       compensation. An amount of $51,875, representing the fair market value of
       the stock on the date of grant, has been recorded as compensation expense
       and as an increase in Common Stock and additional paid-in-capital.

       In October  1996,  the Board of  Directors  of the  Company  amended  and
       restated employment  agreements with three executive officers. As part of
       these agreements, in March 1997, based on performance in 1996, options to
       purchase  70,000  shares  of stock  at an  exercise  price of $8.75  were
       granted which became effective April 1, 1997.

       In December 1995, the Company  entered into  employment  agreements  with
       three executives which provided for, among other things,  the granting of
       a total of 102,500  shares of Common Stock.  The Common Stock grants vest
       over a four year period from the effective date of each  agreement.  As a
       result of these  employment  agreements,  in 1995 the Company recorded an
       increase in additional paid-in-capital of $1,050,000, and a corresponding
       increase  in deferred  compensation  which was being  amortized  over the
       vesting  period.  During 1998, the Company  canceled 25,000 shares of the
       total  102,500  shares  granted  in  December  1995.  As a result  of the
       cancellation,   the   Company   recorded   a   decrease   in   additional
       paid-in-capital  of $256,000,  and a  corresponding  decrease in deferred
       compensation.

       In November  1999,  the Company  cancelled  30,000 fully vested  employee
       stock options  previously issued with an original exercise price of $8.00
       per share and an  expiration  date of March 31, 2003,  and issued  30,000
       options with like terms  except that the newly  issued  options have been
       granted with an exercise price of $5.46 per share, the fair value of such
       options  at  the  date  of  modification.   The  Company  has  recognized
       approximately  $54,000 of compensation expense in 1999 as a result of the
       modification.


                                      F-24
<PAGE>
              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997




 (13)  Reconciliation  of  Net  Income (Loss)  to Net Cash Provided by Operating
       Activities

       The reconciliation of net income (loss) to net cash provided by operating
       activities for the years ended December 31, 1999, 1998 and 1997 follows:

<TABLE>

<S>                                                           <C>             <C>             <C>
                                                                     1999          1998          1997
                                                                     ----          ----          ----
                                                                              (in thousands)
       Net income (loss)                                      $     3,172       (50,612)      (36,236)
       Adjustments to reconcile net income to
           net cash provided by operating activities:
              Depreciation of property, plant and
                     equipment                                     11,008        10,598         7,445
              Amortization of intangibles                             774           962           904
              Asset write-downs                                       237            45           162
              Non-cash compensation                                    54           339           407
              Unrealized foreign currency loss                      2,580           353           209
              Extraordinary items, net                            (20,193)            -             -
              Termination charges                                       -        11,131             -
              Other (income)/expense                               (1,177)         (787)          224
              Unpaid interest                                      16,345        36,494        34,963
           Changes in operating assets and liabilities
              net of  effects  of acquisitions:
              Accounts receivable                                  (1,277)       (2,199)       (6,273)
              Restricted cash                                          60           444        (4,797)
              VAT receivable                                            -         2,503         1,864
              Other assets                                          2,508         1,461        (3,938)
              Accounts payable and accruals                         4,929        (6,156)       (3,955)
              Due to related parties                                 (498)        2,144         4,364
                                                                  --------      -------       -------
       Net cash provided by operating activities              $    18,522        11,118         4,937
                                                                  =======       =======       =======


       Cash paid during the year for:
              Interest                                        $    10,521         9,362           196
                                                                  =======       =======       =======
</TABLE>

       Summary of non-cash transactions (figures in dollars):

       During 1999 the Company:

o      Issued  1,300,000  shares of Common Stock valued at $9,100,000 and 30,000
       shares  of  Preferred  Stock valued at 2,100,000 in settlement of an $8.4
       million  promissory note and Citizens renouncement and forgiveness of any
       rights  whatsoever in respect of the $21 million aggregate amount payable
       to Citizens beginning in 2004.

o      Modified  the  exercise  price  on  30,000  stock  options  issued  to an
       executive pursuant to a termination agreement.


                                      F-25
<PAGE>
              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997

       During 1998 the Company:

o      Issued  100,000  shares of Common  Stock valued at $513,000 and a
       promissory note in the amount of $8.4 million to Citizens in settlement
       of $9.6 million of accrued fees and expenses due and payable to Citizens
       under the  terminated management services agreement.
o      Issued 10,625 shares of Common Stock as compensation to two former
       executive officers  valued at $93,000.
o      Canceled  25,000  restricted  shares to a former executive  pursuant to a
       retirement agreement.
o      Issued  2,110,896 options to purchase Common Stock valued at $121,000 in
       settlement of Citizens' accrued preemptive rights.

       During 1997 the Company:

o      Issued  969,158  shares  of  Common Stock valued at $10,689,000 to TDI in
       exchange for interests and loans in two operating subsidiaries.
o      Issued 5,000  shares of  Common  Stock to a former officer and options to
       purchase  70,000  shares  of  Common  Stock to three officers at exercise
       prices below market as compensation.


(14)  Related Parties

       Transactions entered into with certain related parties are as follows:

       (a)    Transactions with former officers and directors

              On July 26, 1996, the Company entered into Termination and Release
              Agreements,  Consulting Agreements and Non-competition  Agreements
              with its former Chairman and Chief Executive Officer,  former Vice
              Chairman and former Chief Financial Officer, Treasurer,  Secretary
              and Director.  Pursuant to these agreements, the Company agreed to
              make  payments  for  severance,  consulting  fees and  non-compete
              agreements   amounting  to  $7.25   million,   in  equal   monthly
              installments over a 72 month period commencing August 31, 1996,
              and also issued options to purchase 200,000 shares of Common Stock
              at an exercise price of $14.00 per share.  These  commitments  are
              supported by letters of credit.  The Company  recorded a charge of
              approximately   $6.3  million  in  1996  and  has  made   payments
              aggregating  approximately  $1,208,000  in each of 1999,  1998 and
              1997 related to these agreements.

       (b)    Transactions with Citizens

              Transactions  with Citizens  including  those under the Management
              Service Agreements are discussed in Footnote 15.

       (c)    Transactions with Postabank

              Transactions with Postabank are discussed in Notes 4, 5, 6 and 11.


                                      F-26
<PAGE>
              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


       Amounts payable to related parties as of December 31, 1999 and 1998, were
as follows:

<TABLE>

<S>                                                         <C>               <C>
                                                                   1999                1998
                                                                   ----                ----
              Payable to former officers and directors       $   2,656,000     $     3,476,000
              Due to Citizens                                       68,000          19,873,000
              Due to Teleconstruct                                       -              34,000
                                                                 ----------         ----------
                                                             $   2,724,000     $    23,383,000
                                                                 =========          ==========

</TABLE>


(15)   Agreements with Citizens

       During 1995,  the Company and certain  subsidiaries  of Citizens  entered
       into a Master Agreement,  a Loan Agreement and related Promissory Note, a
       Warrant to Purchase  Shares of Common Stock to Citizens (the Warrant),  a
       Stock Pledge Agreement,  a Stock Option Agreement and second Stock Option
       Agreement,  a Registration  Agreement and a Management Services Agreement
       (the "Citizens Agreements"). Simultaneously, Citizens entered into voting
       agreements  with three  affiliates  of the  Company and  consummated  the
       purchase of 300,000  shares of Common  Stock of the Company from the then
       President,  Chief  Executive  Officer  and Chief  Financial  Officer  and
       Director of the Company.  Certain of these  agreements were  subsequently
       amended  in  connection  with  Citizens  providing  additional  financial
       support  to  the   Company  and   expanding   its   management   services
       responsibilities  as a result of the Company's  acquisition of additional
       concession companies.

       The  Citizens  Agreements,  as amended,  resulted  in  and  provided  for
       among  other  matters  the following:

o    The nomination by Citizens of one  representative to the Company's board of
     directors  (out of a minimum of six directors) for as long as Citizens owns
     at least 300,000 shares of Common Stock of the Company.

o    Citizen's  receipt of options  and a warrant to purchase  an  aggregate  of
     3,635,472  (as adjusted for items  described  below)  additional  shares of
     Common Stock of the Company at exercise  prices ranging from $13 to $18 per
     share  under the Stock  Option  Agreement  and  Warrant,  as  amended  (the
     "Citizens  Options and  Warrant").  The  Citizens  Options and Warrant were
     originally  due to expire at various  dates from May 31, 1997 to  September
     12, 2000. Expiration dates of the warrant and certain options were extended
     as  discussed  below.  All of the  options  were  subject to  anti-dilution
     provisions.

o    Certain  corporate,  financial,  technical,  construction,   marketing  and
     operational  services  were to be provided by Citizens to the Company under
     the terms of the Management Services Agreement.  Such services commenced on
     July 1, 1995 and were to continue  through  December 31, 2007. All services
     rendered  by  Citizens  were  subject  to the  oversight,  supervision  and
     approval of the  Company.  The  management  fee payable to Citizens was the
     greater of 5% of Adjusted  Gross  Revenues,  as defined,  or a fixed amount
     ranging from $100,000 to $395,800 per month from July 1995 through December
     31, 1996, and $416,600 per month for each month commencing January 1997 for
     the remainder of the term, subject to adjustment for inflation.  Management
     fees payable to Citizens  during 1998  amounted to  $2,500,000,  while 1997
     fees amounted to $5,000,000 plus reimbursable costs of $691,000. There were
     no fees payable in 1999 as a result of the  September  30, 1998  settlement
     with Citizens described below.


                                      F-27
<PAGE>
              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997

o    The right for Citizens to purchase  additional  shares of Common Stock,  if
     the Company  issues,  in  connection  with any public or private  offering,
     shares  of Common  Stock,  other  stock of the  Company  or any  securities
     convertible into, or exchangeable or exercisable for shares of Common Stock
     or other stock of the Company at the  applicable  offering price the number
     of shares as is necessary to maintain  Citizens'  then existing  percentage
     ownership on a fully diluted basis.

o    On October 18,  1996,  the Company  entered into  certain  agreements  with
     Citizens in  consideration  for, among other things,  Citizens'  support in
     fulfilling all terms under a Citicorp  Credit Facility and in obtaining the
     Original Postabank Credit Facility (see note 5). Under such agreements, the
     Company agreed to (i) extend to September 12, 2000 the exercise  periods of
     a warrant and certain  stock  options to purchase  approximately  2,139,801
     shares of Common  Stock (as  adjusted),  (ii) grant  Citizens the option to
     purchase an additional  875,850 shares of Common Stock at an exercise price
     of $12.75  exercisable  through  September 12, 2000, and (iii) pay Citizens
     $750,000  in  cash.  The  cost  of  this   consideration   to  the  Company
     representing the increase in fair value of the options previously  granted,
     the fair value of the newly granted  options and the cash payment  amounted
     to $11.97 million.  The fair value of the options was determined  using the
     Black Scholes option pricing  model.  The Company  reflected the portion of
     the cost related to the financial  support in  fulfilling  the terms of the
     Citicorp Credit Facility,  $5.7 million, as a charge in 1996. The remaining
     $6.27 million had been  capitalized in other assets with other direct costs
     incurred in obtaining the Postabank Credit Facility and was being amortized
     over  the term of the  related  debt.  As  discussed  in note 5 above,  the
     Company extinguished the Original Postabank Credit Facility during 1999 and
     as a result,  wrote-off the remaining unamortized deferred financing costs,
     which  included   the  $6.27  million  mentioned  above,  pertaining to the
     Original Postabank Credit Facility.

o    On September 30, 1998,  the Company  entered into certain  agreements  with
     Citizens pursuant to which the Company settled  disagreements with Citizens
     regarding  certain  issues with  respect to (i) 2.1  million  shares of the
     Company's common stock subject to Citizens'  accrued  preemptive rights and
     (ii) the Company's  management services agreement with Citizens dated as of
     May 31, 1995, as amended (the "Management Services Agreement").

o    Such  agreements  provided  for, among other things, (i) the termination of
     the  Master  Agreement  dated  as  of  May 31, 1995 between the Company and
     Citizens;  (ii) the  issuance  by  the  Company  to  Citizens  of   100,000
     shares  of  the  Company's  common  stock  and  a  promissory  note  in the
     principal  amount  of   $8,374,498  (the "Note")  in  settlement  of   $9.6
     million  accrued  fees and expenses  due  and  payable  to  Citizens  under
     the Management  Services Agreement; (iii) the termination of the Management
     Services  Agreement;   (iv)  payments  by  the  Company  to Citizens in the
     aggregate  amount of $21,000,000 payable in 28 quarterly installments  from
     2004 through and including 2010 in  part  as  consideration  for  Citizens'
     agreement  to  terminate  the Management  Services  Agreement  and in  part
     as  consideration  for  certain  consulting  services  to  be  provided  by
     Citizens  to the Company  from 2004 through  and  including  2010;  (v) the
     grant  by  the  Company  to  Citizens  of  certain  preemptive  rights   in
     connection   with  any  public  or  private  issuances  by  the  Company of
     shares of its common  stock to purchase within 30 days for cash such number
     of  shares of the Company's common stock sufficient to  maintain  Citizens'
     then  existing  percentage   ownership  interest  of  the Company's  common
     stock  on  a  fully  diluted  basis;   and  (vi)  the right of one Citizens
     designee to  the  Company's  Board  of  Directors  to  be  renominated  for
     reelection to the Company's Board of Directors for so long as Citizens owns
     at least  300,000  shares of the  Company's  common stock.

                                      F-28
<PAGE>
              HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


o    The  principal on the promissory  note was payable in full on September 15,
     2004 and bore  interest  at  a varying  rate per annum which was 2-1/2% per
     annum  above the  one-year  LIBOR  rate with  monthly  adjustments  in such
     varying rate. Accrued interest was to be paid annually.

o    The  Company  recorded a charge totaling $11.1 million in 1998 representing
     the present value of the $21 million aggregate amount  payable to  Citizens
     beginning  in 2004 in part as  consideration  for  Citizens'  agreement  to
     terminate the Management  Services  Agreement and in part as  consideration
     for certain  consulting  services to be provided by Citizens to the Company
     from 2004 through and including 2010.

o    The agreements included an Amended, Restated and Consolidated  Stock Option
     Agreement (the  "Restated  Stock Option  Agreement")  pursuant to which the
     Company  granted  Citizens  an option to purchase  2,110,896  shares of the
     Company's  common  stock at a price of $13.00 per share with an  expiration
     date of July 1, 1999 in settlement of Citizens' accrued  preemptive rights.
     The Restated Stock Option  agreement also  acknowledged  Citizens  existing
     options  to date to  purchase  an  aggregate  of  4,511,322  shares  of the
     Company's common stock at exercise prices ranging from $12.75 to $18.00 per
     share with an  expiration  date of  September  12,  2000.  The cost of this
     consideration  to the  Company  representing  the fair  value of the  newly
     granted  options in  settlement  of  Citizen's  accrued  preemptive  rights
     amounted  to  $121,000.  The fair value of the newly  granted  options  was
     determined  using the Black  Scholes  option  pricing  model.  The  Company
     reflected this cost as a charge in 1998.

o    On May 12,  1999,  the Company and Citizens  entered into a Stock  Purchase
     Agreement (the "Citizens Stock Purchase  Agreement')  pursuant to which the
     Company issued to Citizens  1,300,000  shares of the Company's common stock
     and 30,000  shares of the  Company's  Series A Preferred  Stock,  par value
     $0.01 (the "Preferred Shares"). In consideration for such shares,  Citizens
     (i) transferred to the Company for cancellation  the $8,374,000  promissory
     note issued by the Company to  Citizens  which was to mature in 2004,  (ii)
     forgave half of the accrued interest due on the promissory note through May
     15, 1999 and (iii) agreed to renounce and forego any rights  whatsoever  to
     any payment of the $21 million which was payable by the Company to Citizens
     in quarterly  installments of $750,000 each from 2004 through and including
     2010.  Citizens,  as the holder of the  Preferred  Shares,  is  entitled to
     receive  cumulative  cash  dividends  at an annual  rate of 5%,  compounded
     annually on the liquidation  value of $70 per share. The Company may redeem
     the  Preferred  Shares  at any  time.  Citizens  can  convert  each  of the
     Preferred Shares into shares of the Company's common stock on a one for ten
     basis. The Citizens Stock Purchase  Agreement  provided that if the average
     closing  price of the  Company's  common  stock for the twenty (20) trading
     days ending  March 31,  2000 is less than $7.00 per share,  then HTCC shall
     issue such number of HTCC Preferred  Shares (with a value of $70 per share)
     equal in value to (i) 1,600,000  times (ii) $7.00 less the average  closing
     price of HTCC common  stock for such twenty  (20)  trading day period.  The
     average closing price of the Company's common stock for the above mentioned
     period was more than $7.00 per share and as a result,  no additional shares
     of HTCC  preferred  stock have been issued to Citizens.  The Citizens Stock
     Purchase  Agreement  also  requires  Citizens not to transfer any shares of
     HTCC common stock which it may hold prior to May 15, 2000 without the prior

                                      F-29
<PAGE>
             HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


     written consent of the Company and Postabank.  Citizens also waived any and
     all preemptive and anti-dilution rights in connection with the transactions
     described in Notes 6, 8 and 11. As a result of the Stock Purchase Agreement
     with Citizens,  the Company recorded  extraordinary  income of $9.0 million
     during  the  second  quarter  of 1999  which  represented  the  gain on the
     extinguishment of the liabilities the Company had with Citizens.

       Additionally,  the   Company   is   also   obligated  to bear the cost of
       registering shares it has issued to Citizens, including  shares  issuable
       under  the Citizens Options.  As a result of the above  transactions,  on
       December 31, 1999  Citizens  held  19.2%  of  the  Company's  outstanding
       Common Stock and 4,511,322  options to purchase  Common  Stock.  Citizens
       ownership of the Company's outstanding  shares on a fully  diluted  basis
       is  approximately 35.2% at December 31, 1999.

(16)   Employee Benefit Plan

       Effective December 1996, the Company established a 401(k) salary deferral
       plan (the "401(k) Plan") on behalf of its U.S. employees. The 401(k) Plan
       is  a  qualified  defined  contribution  plan  and  allows  participating
       employees  to defer up to 15% of their  compensation,  subject to certain
       limitations.  Under the 401(k) Plan,  the Company has the  discretion  to
       match contributions made by the employee. No matching  contributions were
       made by the Company in 1999, 1998 or 1997.


(17)   Segment Disclosures

       The  Company  operates  in  a  single  industry  segment,  communications
       services.  The Company's operations involve developing and constructing a
       modern telecommunications infrastructure in order to provide a full range
       of the Company's  products and services in its five  concession  areas in
       Hungary.  While the Company's chief operating decision maker monitors the
       revenue  streams of the various  products and  services,  operations  are
       managed and financial  performance is evaluated  based on the delivery of
       multiple services to customers over an integrated network.  Substantially
       all of the  Company's  assets  are  located  in  Hungary  and  all of its
       revenues are generated in Hungary.

       Products and Services

       The  Company   groups  its  products  and  services  into  the  following
       categories:

       Telephone  Services - local dial tone and switched  products and services
       that  provide  incoming  and  outgoing  calls  over the  public  switched
       network.  This category  includes  reciprocal  compensation  revenues and
       expenses (i.e. interconnect).

       Network  Services -  point-to-point  dedicated  services  that  provide a
       private  transmission  channel for the Company's customers' exclusive use
       between  two  or  more  locations,   both  in  local  and  long  distance
       applications.

       Other  Service  and  Product  Revenues - PBX  hardware  sales and service
       revenues, as well as miscellaneous other telephony service revenues.


                                      F-30
<PAGE>
             HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997



       The revenues generated by these products and services for the years
       ended December 31 were as follows:
<TABLE>

<S>       <C>                                        <C>           <C>             <C>

                  ($ in thousands)                    1999            1998          1997
                                                      ----            ----          ----

           Telephone services                        $42,088        $35,969         $36,738
           Network services                            2,193          1,402             797
           Other service and product
              revenues                                 1,157          1,336             356
                                                     -------        -------         -------
                                                      45,438        $38,707         $37,891
                                                     =======        =======         =======
</TABLE>

       Included in telephone  services are connection fee revenues  amounting to
       $1,844,000,  $1,958,000 and  $12,925,000 for the years ended December 31,
       1999, 1998 and 1997, respectively.

       Major Customers

       For the  years  ended  December  31,  1999,  1998 and  1997,  none of the
       Company's  customers  accounted for more than 10% of the Company's  total
       revenue.


(18)   Quarterly Financial Data (unaudited)
       ------------------------------------

<TABLE>

<S>                                   <C>              <C>                 <C>

                                                ($ in thousands)
                                                                            Net Income (Loss)
                                       Revenue          Net Income (Loss)     per Share
                  1999
           First quarter               11,205              (8,014)            (1.49)
           Second quarter              10,790                15,977             1.77
           Third quarter               11,169               (2,736)           (0.23)
           Fourth quarter              12,274               (2,055)           (0.17)

                  1998
           First quarter                9,372              (11,700)           (2.22)
           Second quarter               9,718              (10,955)           (2.07)
           Third quarter                9,412              (19,073)           (3.61)
           Fourth quarter              10,205               (8,884)           (1.65)

</TABLE>

(19)     Subsequent Events

        On April 11, 2000,  the Company  entered  into a EUR 130 million  Senior
        Secured Debt Facility  Agreement (the "Debt  Agreement") with a European
        banking  syndicate.  The Company intends to draw down the entire EUR 130
        million ($124 million at current  exchange  rates),  which funds will be
        used in their  entirety,  along with another $6 million of other Company
        funds,  to pay off  the  entire  outstanding  balance  EUR  128  million
        (approximately  $128 million at December 31, 1999 exchange rates) of the
        Postabank  Bridge Loan Agreement which will result in the termination of
        the Postabank Bridge Loan which matures on May 12, 2000, as well as fees
        associated  with  the  Debt  Agreement.  The  borrowers  under  the Debt
        Agreement are the Operating  Companies who were the borrowers  under the
        Postabank Bridge Loan Agreement.

                                      F-31
<PAGE>
             HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


        The Debt  Agreement  has two  facilities.  Facility A is a floating rate
        term loan in the amount of EUR 125 million (the "Term  Facility")  which
        principal  is  repayable  semi-annually  on each June 30 and December 31
        beginning on June 30, 2001 and ending on December  31, 2007.  The amount
        of the principal repayments on the Term Facility are to be an escalating
        percentage  of the  amounts  drawn down (EUR 125  million).  Any amounts
        borrowed  under the Term  Facility  have to be drawn down within  thirty
        days of the  execution  of the Debt  Agreement  in  either  euros or, if
        funded by the banking syndicate,  Hungarian forints. The Company intends
        to  borrow  the full EUR 125  million,  or its  equivalent  in euros and
        Hungarian  forints.  Any  amounts  borrowed  in  Hungarian  forints  are
        repayable in Hungarian  forints.  The Term Facility loans denominated in
        euros  accrue  interest at the rate of the  Applicable  Margin  (defined
        below) plus the EURIBOR rate for the  applicable  interest  period.  The
        EURIBOR rate is the percentage rate per annum  determined by the Banking
        Federation of the European Union for the applicable interest period. The
        Term Facility loans  denominated in Hungarian forints accrue interest at
        the rate of the Applicable  Margin  (defined  below) plus the BUBOR rate
        for the  applicable  interest  period.  The BUBOR rate is the percentage
        rate per annum  determined  according  to the rules  established  by the
        Hungarian  Forex  Association  and  published  by the  National  Bank of
        Hungary for the applicable  interest  period.  The  applicable  interest
        period for Term Facility Loans denominated in euros is, at the Company's
        option in one,  three or six months.  The Company  intends to choose six
        months.   The  applicable   interest  period  for  Term  Facility  Loans
        denominated in Hungarian  forints is, at the Company's  option in one or
        three months.  The Company  intends to choose three months.  Interest is
        payable at the end of each interest  period.  The  Applicable  Margin is
        initially  1.75%.  The  Applicable   Margin  may  be  adjusted  downward
        incrementally to a minimum of 1.15% subject to the financial performance
        of the Company as measured by the ratio of the Company's  senior debt to
        its earnings before interest, taxes, depreciation and amortization.

        Facility  B is a  floating  rate  revolving  loan in the amount of EUR 5
        million  (the  "Revolving  Facility")  which  can only be drawn  down in
        euros.  The  Revolving  Facility  will be reduced to EUR 2.5  million on
        December 31, 2005.  The Revolving  Facility is available  until December
        31, 2007. The Company intends to borrow the full amount of the Revolving
        Facility to pay off the balance of the Postabank  Bridge Loan  Agreement
        and fees associated with the transaction.  The principal amount borrowed
        under the Revolving  Facility is due at the end of each interest  period
        at which point the Company can, subject to certain conditions, roll over
        the amount of principal borrowed. The applicable interest period for the
        Revolving  Facility is, at the  Company's  option,  one,  three,  or six
        months. The Company intends to choose six months. Interest is payable at
        the end of each interest  period  calculated  similar to Term Facility A
        loans denominated in euros.

        As a part of the Debt  Agreement,  the  Company is  required to hedge at
        least 50% of the euro  borrowings  until a minimum of 50% of  Facility A
        has been  cancelled,  prepaid  or  repaid.  Dependent  on its cash flow,
        commencing  in  2001,  the  Company  will  be  required  to  prepay  the
        equivalent  of $25  million on Facility A until such time as $25 million
        has been prepaid.  The amount of the  prepayment in any year shall be at
        least 50% of the  Company's  excess cash flow,  if any, for the previous
        financial year as defined in the Debt Agreement.  The prepayment  amount
        is due  within  15 days of the  publication  of each  annual  Form  10-K
        filing.

                                      F-32
<PAGE>
             HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997


        The Company is obligated  to pay a commitment  fee equal to the lower of
        0.75%  or  50%  of  the  Applicable   Margin  on  any  available  unused
        commitment.  Since the Company  intends to borrow the full amount of the
        Debt  Agreement  soon,  there will be no  commitment  fee payable at the
        present time. The Company will pay an  arrangement  fee in the amount of
        EUR 2,665,000 (approximately $2,500,000) and an agency fee in the amount
        of $60,000.  HTCC and one of its subsidiaries,  HTCC Consulting Rt., are
        guarantors for the HTCC operating subsidiaries under the Debt Agreement.
        The  Company  has pledged all of its  intangible  and  tangible  assets,
        including HTCC's ownership  interests in its subsidiaries,  and its real
        property to secure all of the obligations under the Debt Agreement.  The
        Company and Citibank  Rt.(as  security  agent)  entered into a series of
        agreements  to secure all of the  Company's  obligations  under the Debt
        Agreement.  The Debt Agreement  contains  customary  representation  and
        warranties.  The  Company  is  subject  to  some  restrictive  covenants
        including  restrictions  regarding  the  ability  of the  Company to pay
        dividends,  borrow  funds,  merge and  dispose of its  assets.  The Debt
        Agreement contains the customary events of default,  which would trigger
        early  repayment of the balance on the Debt  Agreement  including  those
        related to a change of  control.  If prior to the later of the  December
        31, 2001 or the Trigger Date (as defined below),  Tele Danmark sells any
        of the shares of Common Stock that it currently owns or Tele Danmark and
        the Danish Fund, together, no longer own 30.1% of the outstanding Common
        Stock,  then an event of default shall have  occurred.  Tele Danmark and
        the Danish Fund currently own 32.1% of the outstanding Common Stock. The
        Trigger  Date is  defined  as the date on which for the prior two fiscal
        quarters  the  Company's  debt to  EBITDA  ratio is less  than 3.5 to 1.
        Following  the Trigger  Date,  Tele Danmark can only transfer its shares
        with the prior  written  consent of banks  holding at least 66.7% of the
        Company's outstanding debt under the Debt Agreement.

                                      F-33

<PAGE>

                      HUNGARIAN TELEPHONE AND CABLE CORP.

                               Index to Exhibits

Exhibit No.       Description

10.32             EUR  130  million Senior Secured Debt Facility dated April 11,
                  2000  among  Hungarian  Telephone  and  Cable  Corp.  and  its
                  subsidiaries;   Citibank  N.A.  and  Westdeutsche   Landesbank
                  Girozentrale,  as  arrangers;   Citibank  International PLC as
                  facility agent; and Citibank Rt. as Security Agent.

10.33             Form  of   Amended  and  Restated  Unsecured  Note  issued  by
                  Hungarian  Telephone  and   Cable   Corp.   to   Postabank  es
                  Takarekpenztar Reszvenytarsasag, dated as of April 11, 2000.

10.34             Security   Deposit  Agreement  dated  April  11,  2000   among
                  Hungarian  Telephone  and  Cable  Corp. as Depositor; Citibank
                  Rt.,    as  Depositee  and  Security  Agent;  and   Hungarotel
                  Tavkozlesi  Rt.,  Raba  Com.  Rt.,   Papa  es  Tersege Telefon
                  Koncesszios Rt., and Kelet-Nograd Com Rt., as Countersignors.

10.35             Security  Deposit  Agreement  dated  April 11, 2000 among HTCC
                  Consulting  Rt.,  as Depositor; Citibank Rt., as Depositee and
                  Security Agent;  and Hungarotel Tavkozlesi Rt., Raba Com. Rt.,
                  Papa  es  Tersege  Telefon  Koncesszios Rt.,  and Kelet-Nograd
                  Com Rt., as Countersignors.

27.1              Financial Data Schedule