Exhibit 99.1

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Cabeltel AD

We have audited the accompanying  consolidated balance sheets of Cabeltel AD and
subsidiaries   as  of  December  31,  2004,  2003  and  2002,  and  the  related
consolidated statements of income,  shareholders' equity and cash flows for each
of  the  years  in  the  three-year   period  ended  December  31,  2004.  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 U.S.  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  Our audits  include  consideration  of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion of the  effectiveness  of the company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
consolidated  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 Cabeltel AD and
subsidiaries  as of  December  31,  2004,  2003 and 2002,  and the  consolidated
results  of their  operations  and their cash flows for each of the years in the
three-year  period  ended  December  31,  2004  in  conformity  with  accounting
principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going  concern.  The Company  incurred a net
loss of approximately $1,900,000 for the year ended December 31, 2004 and, as of
that date,  current  liabilities  exceeded current  liabilities by approximately
$14,500,000.  These conditions,  along with other factors discussed in Note C to
the consolidated  financial  statements,  are enough to raise  substantial doubt
about the Company's ability to continue as a going concern.  These  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

/s/ FARMER FUQUA & HUFF, P.C.Plano, TexasApril 15, 2005, except for Note C which
is dated November 18, 2005

<PAGE>
<TABLE>
<CAPTION>

                          CABLETEL AD and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
                             (Amounts in thousands)

                                  December 31,



                               ASSETS                  2004        2003       2002
                                                     --------    --------   --------
<S>                                                  <C>         <C>        <C>
CURRENT ASSETS
    Cash and cash equivalents                        $    590    $  1,420   $    423
    Accounts receivable - trade                         1,391       1,942        382
    Inventory                                           3,408         235        181
    Other current assets, net                              74          44         65
                                                     --------    --------   --------

                        Total Current Assets            5,463       3,641      1,051



PROPERTY AND EQUIPMENT, AT COST
    Buildings and improvements                            581         544        400
    Equipment and furnishings                          11,946       7,378      6,163
    Assets under construction                          11,508       3,833      1,363
                                                     --------    --------   --------
                                                       24,035      11,755      7,926

    Less accumulated depreciation and amortization     (5,036)      3,454      1,943
                                                     --------    --------   --------
                                                       18,999       8,301      5,983

GOODWILL                                                3,248       2,956      2,692

OTHER ASSETS                                                7          29          7
                                                     --------    --------   --------

Total Assets                                         $ 27,717    $ 14,927   $  9,733
                                                     ========    ========   ========
</TABLE>



         The accompanying notes are an integral part of this statement.

<PAGE>
<TABLE>
<CAPTION>

                          CABLETEL AD and Subsidiaries

                     CONSOLIDATED BALANCE SHEETS - CONTINUED
                             (Amounts in thousands)

                                  December 31,



                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                      2004        2003        2002
                                                    --------    --------    --------
<S>                                                 <C>         <C>         <C>

CURRENT LIABILITIES
    Accounts payable - trade                        $ 12,324    $  3,177    $  2,039
    Accrued expenses                                     264         122         146
    Current notes payable - related party              3,657       2,248       2,032
    Current maturities of long-term debt               3,797         297          22
                                                    --------    --------    --------

                      Total Current Liabilities       20,042       5,844       4,239


LONG-TERM LIABILITIES
    Long-term debt                                     3,364       2,438          48
    Net deferred tax liability                            12          68         188
                                                    --------    --------    --------

                          Total Liabilities           23,418       8,350       4,475

MINORITY INTEREST                                        177         656         580

STOCKHOLDERS' EQUITY
    Common stock, $69.70 par value;
         122,542 shares; issued and outstanding,       8,541       8,541       8,541
    Accumulated other comprehensive income (loss)       (281)       (356)       (955)
    Accumulated deficit                               (4,138)     (2,264)     (2,908)
                                                    --------    --------    --------

                                                       4,122       5,921       4,678
                                                    --------    --------    --------


Total liabilities & equity                          $ 27,717    $ 14,927    $  9,733
                                                    ========    ========    ========
</TABLE>


         The accompanying notes are an integral part of this statement.


<PAGE>
<TABLE>
<CAPTION>


                          CABLETEL AD and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             (Amounts in thousands)

                                                                      Year ended
                                                          --------------------------------
                                                                     December 31,
                                                          --------------------------------
                                                            2004        2003        2002
                                                          --------    --------    --------
<S>                                                       <C>         <C>         <C>
Revenue                                                   $  9,463    $  8,338    $  6,262
                                                          --------    --------    --------
                                                             9,463       8,338       6,262
                                                          --------    --------    --------
Operating expenses
    Cable operations                                         5,760       5,627       3,858
    Lease expense                                              948         560         565
    Depreciation and amortization                            1,476       1,439         790
    Corporate general and administrative                     3,648       1,002         511
                                                          --------    --------    --------
                                                            11,832       8,628       5,724
                                                          --------    --------    --------

                 Operating earnings (loss)                  (2,369)       (290)        538

Other income (expense)
    Interest income                                             10           6        --
    Interest expense                                          (268)       (202)        (45)
    Gain on foreign transactions, net                          239         413         338
    Gain on sale of assets, net                                278         229        --
    Other income (expense), net                                309         389           1
                                                          --------    --------    --------
                                                               568         835         294
                                                          --------    --------    --------
Earnings (loss) before income taxes
    and minority interest                                   (1,801)        545         832

Income tax (benefit) expense                                    30         (66)        121

Minority interest                                               43         (33)         78
                                                          --------    --------    --------

         Net earnings (loss) from continuing operations     (1,874)        644         633
                                                          --------    --------    --------

Discontinued operations                                       --          --          (508)

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

        Net income (loss)                                 $ (1,874)   $    644    $    125
                                                          ========    ========    ========
</TABLE>


         The accompanying notes are an integral part of this statement.

<PAGE>
<TABLE>
<CAPTION>


                          CABLETEL AD and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)


                                                             Year ended December 31,
                                                           2004       2003       2002
                                                         -------    -------    -------
<S>                                                      <C>        <C>        <C>
Cash flows from operating activities
   Net earnings (loss)                                   $(1,874)   $   644    $   125
   Adjustments to reconcile net earnings (loss) to net
      Cash provided by (used in) operating activities
         Depreciation and amortization                     1,476      1,439        790
         Gain on foreign currency transactions              (239)      (413)      (338)
         Gain on sale of assets                             (278)      (229)      --
         Increase in minority interest                        43        216         78
         Changes in operating assets and liabilities
             Accounts receivable - trade                     717     (1,377)       (32)
                  Property held for sale                  (3,153)      --         --
             Other current and non-current assets             (1)        33         53
             Accounts payable and other liabilities          741        741        635
                                                         -------    -------    -------

                Net cash provided by (used in)
                     operating activities                 (2,568)     1,054      1,311

Cash flows from investing activities
   Purchase of property and equipment                     (4,567)    (3,013)    (1,512)
   Proceeds from disposal of property and equipment        1,783       --         --
   Purchase of intangible assets                             (63)      --         --
   Purchase of minority interests in subsidiaries           (492)      --         --
                                                         -------    -------    -------

                Net cash provided by (used in)
                     investing activities                 (3,339)    (3,013)    (1,512)

Cash flows from financing activities
   Proceeds from borrowings                                5,727      4,658        457
   Payments on debt                                         (650)    (1,702)      (218)
                                                         -------    -------    -------

                Net cash provided by (used in)
                     financing activities                  5,077      2,956        239
                                                         -------    -------    -------

               Net increase (decrease) in cash
                     and cash equivalents                   (830)       977         38
Cash and cash equivalents at beginning of year             1,420        423        385
                                                         -------    -------    -------

Cash and cash equivalents at end of year                 $   590    $ 1,420    $   423
                                                         =======    =======    =======
</TABLE>


         The accompanying notes are an integral part of this statement.

<PAGE>
<TABLE>
<CAPTION>

                          CABLETEL AD and Subsidiaries

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                  (Amounts in thousands, except share amounts)



                                                                                Accumulated
                                           Common stock                            Other
                                      ----------------------    Accumulated    Comprehensive
                                        Shares       Amount       deficit      Income (Loss)     Total
                                      ----------   ----------   -----------    ------------    ----------
<S>                                   <C>          <C>          <C>            <C>             <C>
Balance at January 1, 2002                   123        8,541        (3,033)         (1,521)        3,987

     Comprehensive income:                  --           --            --              --            --
         Unrealized gain on foreign
           currency translation             --           --            --               566           566
     Net earnings                           --           --             125            --             125
                                      ----------   ----------   -----------    ------------    ----------

Balance at December 31, 2002                 123        8,541        (2,908)           (955)        4,678

     Comprehensive income:                  --           --            --              --            --
         Unrealized gain on foreign
           currency translation             --           --            --               599           599
     Net earnings                           --           --             644            --             644
                                      ----------   ----------   -----------    ------------    ----------

Balance at December 31, 2003                 123        8,541        (2,264)           (356)        5,921

     Comprehensive income:                  --           --            --              --            --
         Unrealized gain on foreign
           currency translation             --           --            --                75            75
      Net loss                              --           --          (1,874)           --          (1,874)
                                                       ------        ------          ------        ------
Balance at December 31, 2004                 123        8,541        (4,138)           (281)        4,122
                                      ==========   ==========   ===========    ============    ==========
</TABLE>



         The accompanying notes are an integral part of this statement.

<PAGE>


                          CABLETEL AD and Subsidiaries
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2004





NOTE A - BUSINESS DESCRIPTION AND PRESENTATION

Nature of Operations

CABLETEL AD ("the Company") was incorporated in the Republic of Bulgaria and its
principal  activities include operating a cable TV (CATV) distribution  network,
rendering of  telecommunication,  internet  access and fiber optic line capacity
services in the country of Bulgaria.

The parent  entity of CABLETEL AD is Narisma  Holdings  Limited and the ultimate
parent entity is Cabeltel International Corporation

As of December 31, 2004 the Company had nearly 130,000 cable TV subscribers  and
access to another  400,000  households  in Bulgaria.  It had also  completed the
first  alternative  fiber  optical  backbone in Bulgaria  with  connectivity  to
Turkey, Greece, Romania and Macedonia.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant  accounting  policies applied in the preparation of
the accompanying consolidated financial statements follows:

Basis of Preparation
--------------------

The consolidated  financial  statements  include the accounts of the Company and
its  majority-owned  subsidiaries  and are  prepared on the basis of  accounting
principles  generally accepted in the United States of America.  All significant
intercompany transactions and accounts have been eliminated.

The functional currency of the Company is Bulgarian Leva (BGN). The accompanying
balance  sheets have been  translated at year-end  exchange rates from Bulgarian
Leva (BGN) to U.S.  Dollars ($). The  statements of operations  were  translated
using a annual average  exchange rate from Bulgarian Leva (BGN) to U.S.  Dollars
($).  The effects of  translation  are  recorded in the  cumulative  translation
component of shareholder's equity.

    Basis of Consolidation
    ----------------------

The consolidated  financial  statements comprise the financial statements of the
Company and its  subsidiaries as of December 31st of each year.  Adjustments are
made to bring into line any dissimilar accounting policies that may exist.

All intercompany balances and transactions, including unrealized profits arising
from intra-group transactions, have been eliminated in full.

Subsidiaries are  consolidated  from the date on which control is transferred to
the  Company  and cease to be  consolidated  from the date on which  control  is
transferred  out  of  the  Company.  Where  there  is a  loss  of  control  of a
subsidiary,  the consolidated  financial  statements include the results for the
part of the  reporting  year during  which the Company  has  control.  Where the
effect is immaterial  subsidiaries are not included in the consolidation even if
not  disposed of at the  beginning of the year.  Where the effect is  immaterial
subsidiaries  are  consolidated  from the beginning of the year even if acquired
during the year.



                                      F-27
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Use of Estimates
----------------

In preparing  financial  statements in  conformity  with  accounting  principles
generally  accepted in the United  States of America,  management is required to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the  financial  statements  and revenues and  expenses  during the  reporting
period. Actual results could differ from those estimates.

Cash Equivalents
----------------

The Company considers all short-term  deposits and money market investments with
a maturity of less than three months to be cash equivalents.

Property, plant and equipment
-----------------------------

Property,  plant and  equipment  is  carried  at cost.  Statement  of  Financial
Accounting  Standards  No. 144,  "Accounting  for the  Impairment or Disposal of
Long-Lived  Assets"  ("SFAS No.  144"),  requires  that a property be considered
impaired if the sum of the expected future cash flows  (undiscounted and without
interest  charges)  is  less  than  the  carrying  amount  of the  property.  If
impairment  exists,  an  impairment  loss is  recognized,  by a  charge  against
earnings,  equal to the  amount by which  the  carrying  amount of the  property
exceeds  the fair  value  less cost to sell the  property.  If  impairment  of a
property is  recognized,  the carrying  amount of the property is reduced by the
amount of the impairment,  and a new cost for the property is established.  Such
new cost is depreciated over the property's remaining useful life.  Depreciation
is provided by the straight-line method over estimated useful lives, which range
from 3 to 30 years.

Inventories
-----------

Inventories  are stated at the lower of cost or net  realizable  value.  Cost is
determined  weighted average method. Net realizable value is the estimate of the
selling  price in the ordinary  course of business,  less the cost of completion
and selling expenses.

Goodwill
--------

Goodwill represents the excess of the cost of an acquisition over the fair value
of the  Company's  share  of  the  net  assets  of the  acquired  subsidiary  or
associated  undertaking  at the  date of  acquisition.  Until  January  1,  2002
goodwill was amortized using the straight-line  method over its estimated useful
life.  The Company has adopted FASB 142 Business  Combinations  from the date it
was issued and after initial  recognition  goodwill is measured at cost less any
accumulated  impairment  losses.  The value of goodwill is reviewed annually and
written down for permanent impairment where it is considered necessary.

Other Intangible Assets
-----------------------

The cost of  acquired  patents,  trademarks  and  licenses  is  capitalized  and
amortized using the  straight-line  method over their useful lives. The carrying
amount of each intangible asset is reviewed  annually and adjusted for permanent
impairment where it is considered necessary.



                                      F-28
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Impairment of Long-Lived Assets
-------------------------------

The Company reviews its long-lived assets and certain  identifiable  intangibles
for  impairment  when  events or  changes  in  circumstances  indicate  that the
carrying   amount  of  the  assets  may  not  be   recoverable.   In   reviewing
recoverability,  the Company  estimates the future cash flows expected to result
from use of the  assets  and  eventually  disposing  of them.  If the sum of the
expected future cash flows  (undiscounted  and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized based on
the asset's fair value.

The  Company  determines  the fair value of assets to be disposed of and records
the asset at the lower of fair  value less  disposal  costs or  carrying  value.
Assets are not depreciated while held for disposal.

Interest-bearing loans and borrowings
-------------------------------------

All loans and borrowings are initially  recognized at cost, being the fair value
of the consideration received net of issue costs associated with the borrowing.

After  initial   recognition,   interest-bearing   loans  and   borrowings   are
subsequently  measured at amortized  cost using the effective  interest  method.
Amortized  cost is  calculated  by taking into account any issue costs,  and any
discount or premium on settlement.

Gains and losses are recognized in net profit or loss when the  liabilities  are
derecognized or impaired, as well as through the amortization process.

Revenue
-------

Revenue  is  recognized  to the extent  that it is  probable  that the  economic
benefits will flow to the Company and the revenue can be reliably measured.  The
following  specific  recognition  criteria  must also be met  before  revenue is
recognized:

Rendering of services

Revenue  from cable TV is  recognized  based on the  subscriptions  received for
services performed.  When the subscriptions  relate to subsequent periods,  they
are deferred and  recognized as revenue over the period during which the service
is performed.

Revenue from rented lines is recognized on a straight-line basis over the period
of the rent.

Revenue from data  transfer  and other  services is  recognized  over the period
during which the service is performed.



                                      F-29
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Revenue - continued
-------------------

Sale of duct

Revenue is recognized when the significant risks and rewards of ownership of the
duct  have  passed  to the  buyer and the  amount  of  revenue  can be  measured
reliably.

Interest
--------

Revenue is recognized  as the interest  accrues  (using the  effective  interest
method that is the rate that exactly  discounts  estimated  future cash receipts
through the  expected  life of the  financial  instrument)  to the net  carrying
amount of the financial asset.

Accounting for Leases
---------------------

Leases of property,  plant and equipment where the Company assumes substantially
all the  benefits  and risks of  ownership  are  classified  as finance  leases.
Capital leases are capitalized at the estimated  present value of the underlying
lease  payments.  Each lease  payment is  allocated  between the  liability  and
finance  charges  so as to  achieve  a  constant  rate  on the  finance  balance
outstanding.  The corresponding rental obligations,  net of finance charges, are
included in other long-term payables. The interest element of the finance charge
is charged to the income  statement over the lease period.  The property,  plant
and equipment  acquired under finance leasing  contracts is depreciated over the
useful life of the asset.

Leases  of assets  under  which all the risks  and  benefits  of  ownership  are
effectively retained by the lessor are classified as operating leases.  Payments
made  under  operating   leases  are  charged  to  the  income  statement  on  a
straight-line  basis over the period of the lease.  When an  operating  lease is
terminated before the lease period has expired,  any payment required to be made
to the  lessor by way of penalty  is  recognised  as an expense in the period in
which termination takes place.

Employee benefits
-----------------

Short-term employee benefits include salaries, social security contributions and
short-term compensated absences for current employees. They are recognized as an
expense or  included  in the cost of an asset when  service is  rendered  to the
Company.

Long-term  employee  benefits  include  benefits  that  the  Company  has  legal
obligation to pay to their employees upon retirement  depending on the length of
their service with the employer.  According to Bulgarian  Labor Code an employee
is entitled to retirement benefit of six gross monthly salaries if the length of
service  with the  current  employer is not less than ten years,  otherwise  two
gross salaries.

The Company has estimated the retirement  benefit provision at the balance sheet
date.  The  directors  believe  that the  retirement  benefit  provision  has an
immaterial effect on the consolidated financial statements and therefore decided
not to recognize it.



                                      F-30
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Foreign Currency Transactions

Foreign  currency  transactions by the Company are accounted for at the exchange
rates  prevailing at the date of the  transactions;  gains and losses  resulting
from the settlement of such  transactions  and from the  translation of monetary
assets and liabilities  denominated in foreign  currencies are recognized in the
income statement.

Income Tax
----------

Deferred income tax is provided,  using the liability  method,  on all temporary
differences  at the  balance  sheet  date  between  the tax bases of assets  and
liabilities and their carrying amounts for financial reporting purposes.

Deferred  income  tax  liabilities  are  recognized  for all  taxable  temporary
differences:

o        except where the deferred  income tax  liability  arises from  goodwill
         amortization  or the initial  recognition of an asset or liability in a
         transaction that is not a business  combination and, at the time of the
         transaction,  affects neither the accounting  profit nor taxable profit
         or loss; and

o        in respect of taxable temporary differences associated with investments
         in  subsidiaries,  except  where  the  timing  of the  reversal  of the
         temporary  differences  can be  controlled  and it is probable that the
         temporary differences will not reverse in the foreseeable future.

Deferred  income  tax  assets  are  recognized  for  all  deductible   temporary
differences,  carry-forward  of unused tax assets and unused tax losses,  to the
extent that it is probable that taxable  profit will be available  against which
the deductible temporary differences, and the carry-forward of unused tax assets
and unused tax losses can be utilized:

o except  where  the  deferred  income  tax  asset  relating  to the  deductible
temporary  difference  arises  from  the  initial  recognition  of an  asset  or
liability in a transaction  that is not a business  combination and, at the time
of the transaction,  affects neither the accounting profit nor taxable profit or
loss; and

o        in  respect  of  deductible  temporary   differences   associated  with
         investments in subsidiaries, deferred tax assets are only recognized to
         the extent  that it is probable  that the  temporary  differences  will
         reverse in the foreseeable  future and taxable profit will be available
         against which the temporary differences can be utilized.

The  carrying  amount of deferred  income tax assets is reviewed at each balance
sheet  date  and  reduced  to the  extent  that it is no  longer  probable  that
sufficient taxable profit will be available to allow all or part of the deferred
income tax asset to be utilized.

Income Tax - continued
----------------------

Deferred  income tax assets and  liabilities  are measured at the tax rates that
are expected to apply to the year when the asset is realized or the liability is
settled,  based  on  tax  rates  (and  tax  laws)  that  have  been  enacted  or
substantively enacted at the balance sheet date.



                                      F-31
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Income tax relating to items,  recognized  directly in equity,  is recognized in
equity and not in the income statement.

Financial Risk Management
-------------------------

The Company's  activities  expose it to a variety of financial risks,  including
the effects of foreign  currency  exchange rates and interest rates.  Management
monitors the overall risk and seeks to minimize potential adverse effects on the
financial performance of the Company.

Foreign exchange risk
---------------------

The Company  operates in Bulgaria and is currently  exposed to foreign  exchange
risk  arising  from  purchase of program  rights and of  equipment  from foreign
suppliers and from borrowing  from the  shareholders,  both  denominated in USD,
different  from the  reporting  currency.  The  exposures  involved  are closely
monitored to ensure effective risk management.

Interest rate risk
------------------

The Company's interest bearing  liabilities are with fixed and floating interest
rates. The Company usually borrows at fixed and floating rates and the exposures
involved are monitored regularly.

Credit risk
-----------

The  Company  has no  significant  concentrations  of credit  risk.  The Company
operates in the CATV business  where normally the  subscribers  pay regularly in
their majority.

Liquidity risk
--------------

The Company is operating in the cash  generating  CATV,  telephony  and internet
business  and is  additionally  financed by its  shareholders  and banks for its
investment  activity in cable network and  acquisition  of CATV  operators.  The
liquidity  is  addressed  by  continuing  support of the parent  company and the
ultimate  parent  company,  and  negotiating  new  loans  with  banks as well as
restructuring the existing ones.

New Accounting Pronouncements
-----------------------------

SFAS No. 151--In November 2004, the Financial  Accounting Standards Board issued
Statement  of Financial  Accounting  Standards  No. 151,  "Inventory  Costs,  an
Amendment of ARB No. 43, Chapter 4" ("SFAS No.151"). SFAS No. 151 amends ARB 43,
Chapter 4, to clarify that abnormal amounts of idle facility  expense,  freight,
handling costs and wasted  materials  (spoilage) be recognized as current period
charges.  It also requires that allocation of fixed production  overheads to the
costs  of  conversion  be  based  on  the  normal  capacity  of  the  production
facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal
years  beginning  after  June 15,  2005.  The  adoption  of SFAS No.  151 is not
expected to have a material  impact on the  consolidated  financial  position or
results of operations of the Company.




                                      F-32
<PAGE>


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

New Accounting Pronouncements - continued
-----------------------------------------

SFAS No. 152--In December 2004, the Financial  Accounting Standards Board issued
Statement of Financial Accounting Standards No. 152, "Accounting for Real Estate
Time-Sharing  Transactions" ("SFAS No. 152"). SFAS No. 152 amends FASB Statement
No.  66,  Accounting  for  Sales of Real  Estate,  to  reference  the  financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA  Statement  of Position  04-2,  Accounting  for Real Estate
Time-SharingTransactions ("SOP 04-2"). This Statement also amends FASB Statement
No. 67,  Accounting  for Costs and  Initial  Rental  Operations  of Real  Estate
Projects, to state that the guidance for (a) incidental operations and (b) costs
incurred to sell real estate projects does not apply to real estate time-sharing
transactions.  The accounting  for those  operations and costs is subject to the
guidance in SOP 04-2.

SFAS No. 152 is effective for financial  statements  for fiscal years  beginning
after June 15, 2005, and is to be reported as a cumulative effect of a change in
accounting  principle.  The  adoption of SFAS No. 152 is not  expected to have a
material impact on the consolidated  financial position or results of operations
of the Company.

SFAS No. 123--In December 2004, the Financial  Accounting Standards Board issued
Statement  of  Financial  Accounting  Standards  No. 123,  Share-Based  Payment,
revised  ("SFAS  No.  123R").   SFAS  No.  123R  addresses  the  accounting  for
share-based  payments to employees,  including grants of employee stock options.
Under  the new  standard,  companies  will no  longer  be  able to  account  for
share-based  compensation  transactions using the intrinsic method in accordance
with APB Opinion No. 25,  Accounting  for Stock  Issued to  Employees.  Instead,
companies will be required to account for such  transactions  using a fair-value
method and recognize the expense in the consolidated  statement of income.  SFAS
No. 123R will be effective for periods beginning after June 15, 2005 and allows,
but does not  require,  companies  to restate  the full  fiscal  year of 2005 to
reflect the impact of expensing  share-based  payments  under SFAS No. 123R. The
Company  has  not  yet  determined  which  fair-value  method  and  transitional
provision it will follow.  The adoption of SFAS No. 123R is not expected to have
a material impact on the Company's consolidated financial position or results of
operations.  See Stock-Based  Employee  Compensation for the pro forma impact on
net income and net income per share from  calculating  stock-based  compensation
costs under the fair value alternative of SFAS No. 123.

SFAS No. 153--In December 2004, the Financial  Accounting Standards Board issued
Statement of Financial  Accounting  Standards No. 153, Exchanges of Non-monetary
Assets, an Amendment of APB Opinion No. 29 ("SFAS No. 153"). The guidance in APB
Opinion  No.  29,  Accounting  for  Non-monetary  Transactions,  is based on the
principle that exchanges of non-monetary  assets should be measured based on the
fair value of the assets exchanged. The guidance in APB Opinion No. 29, however,
included certain  exceptions to that principle.  SFAS No. 153 amends APB Opinion
No.  29 to  eliminate  the  exception  for  non-monetary  exchanges  of  similar
productive  assets and  replaces it with a general  exception  for  exchanges of
non-monetary  assets  that do not  have  commercial  substance.  A  non-monetary
exchange  has  commercial  substance  if the future cash flows of the entity are
expected to change  significantly  as a result of the exchange.  SFAS No. 153 is
effective for  non-monetary  asset  exchanges in fiscal periods  beginning after
June 15,  2005.  The adoption of SFAS No. 153 is not expected to have a material
impact on the  consolidated  financial  position or results of operations of the
Company.






                                      F-33
<PAGE>

NOTE C - GOING CONCERN

The  consolidated  financial  statements  have been  prepared on a going concern
basis.

As a result of the  operations  of the  Company in current  and prior  reporting
periods,  significant losses have been accumulated and current  liabilities have
exceeded  current  assets,  which may cast  doubts as regards to its  ability to
continue its activities as a going concern.  The future viability of the Company
depends upon the business  environment as well as upon the continuing support of
the existing and potential  shareholders and providers of finance. The directors
have  analyzed  the  ability of the  Company  and its  subsidiaries  to continue
operations in the future and have taken  measures to strengthen  its position by
continuing  financial  support of the parent  company  and the  ultimate  parent
company,  seeking agreements to sell capacity to international telecom operators
and to sell underground  optical fiber network segments,  launching new services
such as telephony, increasing CABLETEL trademark recognition and thus increasing
the  number  of   subscribers.   The  directors  seek  external  growth  through
acquisitions   of  other  cable   operators  in  Bulgaria.   As  part  of  these
considerations, Cabeltel International Corporation, the ultimate parent company,
has sought  various  sources of  financing  for the  future  growth and  current
operations  cost of CABLETEL AD. As mentioned in Note S, CABELTEL  International
lnc. has discussed a number of possible arrangements with several new investors.

The directors,  in light of their  assessment of expected  future cash flows and
continued financial support from the parent entity believe that the Company will
continue its  operations and settle its  obligations  in the ordinary  course of
business,  without  externally  forced  revisions of its  operations  or similar
actions.

NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the amount at which a financial  instrument  may be  exchanged  or
settled in an arm's length  transaction  as best proof of its market value in an
active market.

The  estimated  fair value of the  financial  instruments  is  determined by the
Company  on the  basis  of  available  market  information,  if any,  or  proper
valuation  models.  When the  management  uses available  market  information to
determine the financial  instruments'  fair value, the market  information might
not  completely  reflect  the value at which these  instruments  may be actually
realized.

The  management  of the  Company  believes  that  the fair  value  of  financial
instruments comprising cash items, trade and other receivables, interest-bearing
loans and  borrowings,  trade and other  payables does not differ  significantly
from their current  carrying  amounts,  especially  when they are  short-term in
nature or their  interest  rates  are  changing  in line with the  change in the
current market conditions.

The following  methods and  assumptions  were used to estimate the fair value of
each class of  financial  instruments  for which it is  practicable  to estimate
values at December 31, 2004, 2003 and 2002:

Cash and cash equivalents - The carrying amount  approximates fair value because
of the short maturity of these instruments.

Long-term  debt - The fair value of the  Company's  long-term  debt is estimated
based on market  rates for the same or similar  issues.  The  carrying  value of
long-term debt approximates its fair value.



                                      F-34
<PAGE>
<TABLE>
<CAPTION>

NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS -Continued

Notes  receivable  - The fair  value of the note  receivable  from an  affiliate
partnership is estimated to approximate  fair value based on its short maturity.
It is not practical to estimate the fair value of notes  receivable from sale of
properties  because no quoted  market  exists and there are no  comparable  debt
instruments to provide a basis for valuation.

NOTE E - PROPERTY PLANT AND EQUIPMENT (amounts in thousands)

Assets under construction include the optical backbone that was 90% completed as
of December 31, 2004.  The Company  expects to complete it by the second quarter
of 2005.

The carrying  value of vehicles and equipment  held under  finance  leases as of
December 31, 2004 and 2003 is $239 and $183, respectively.

Land and buildings  with a carrying  amount of $334,  equipment of $696 thousand
and assets under construction $1,013 are subject to a first charge to secure the
Company's loans.

    The management of the Company has performed an impairment review of
    property, plant and equipment as of December 31, 2004. No indications of
    impairment have been established and therefore no impairment loss has been
    recognized in the consolidated financial statements.

NOTE F - INTANGIBLE ASSETS (amounts in thousands)

                                                                             Other
                                                                           intangible
                                                 Goodwill       Assets       Total
                                                 ---------    ---------    ---------
<S>                                                <C>            <C>        <C>
Balance at January 1, 2002, net of accumulated       2,287          102        2,389
amortization
Additions                                              (25)           7          (18)
Amortization of other intangibles, only               --            (33)         (33)
Translation gain (loss)                                338           16          354
                                                 ---------    ---------    ---------

Balance at December 31, 2002                         2,600           92        2,692
                                                 =========    =========    =========

Additions                                             --             17           17
Disposals at net book value                           --            (31)         (31)
Amortization of other intangibles, only               --            (40)         (40)
Translation gain (loss)                                305           13          318
                                                 ---------    ---------    ---------

Balance at December 31, 2003                         2,905           51        2,956
                                                 =========    =========    =========

Additions                                              349           61          410
Disposals at net book value                           (117)         (23)        (140)
Amortization of other intangibles, only               --            (27)         (27)
Translation gain (loss)                                 47            2           49
                                                 ---------    ---------    ---------
Balance at December 31, 2004                         3,184           64        3,248
                                                 =========    =========    =========
</TABLE>



                                      F-35
<PAGE>

NOTE G - INVENTORIES (amounts in thousands)

Work in progress  comprises  segments of the national  fiber  backbone which are
under  construction  and  subject  to  sale in  accordance  with  the  concluded
agreements.

                      2004       2003       2002
                   --------   --------   --------

Work in progress      2,242       --         --
Materials             1,166        235        181
                   --------   --------   --------

                      3,408        235        181
                   ========   ========   ========

During 2004, the Company sold an inventory segment with a cost of $946, for cash
to an unrelated third-party, resulting in a gain of approximately $802.

NOTE H - TRADE AND OTHER RECEIVABLES (amounts in thousands)

                                                     2004      2003      2002
                                                   -------   -------   -------

Trade receivables and accrued CATV subscriptions       819       444       252
Taxes refundable                                       447        61        45
Advances paid                                           35     1,368        36
Other receivables                                       90        69        49
                                                   -------   -------   -------

                                                     1,391     1,942       382
                                                   =======   =======   =======

Taxes  refundable are comprised  mainly of value addes taxes (VAT) refundable of
$390, $4 and $3 as of December 31, 2004, 2003 and 2002, respectively.

As of December 31, 2003  advances  paid related  mainly to delivery of materials
for telephone services.

As of  December  3l,  2004,  2003 and 2002 the Company  has not  identified  any
doubtful   receivables  and  therefore  no  doubtful  debt  allowance  has  been
recognized in the consolidated financial statements.




<PAGE>


NOTE I - LONG TERM DEBT (amounts in thousands)

Long-term debt is comprised of the following:

                                              2004     2003       2002
                                            -------   -------   -------
Note payable to financial institution
maturing December 2006; fixed
interest rate of 11% ; collateralized by
equipment, specific land and
buildings, and future
trade receivables                               856       538      --

Note payable to financial institution
maturing May 2006; fixed interest
rate of 11%; collateralized by a pledge
over the Company's commercial enterprise      4,896     2,048      --

Notes payable to various third-parties
maturing May 2006; effective
interest rates of 9%; collateralized
by underground duct construction              1,231      --        --

Obligations due under capital leases for
equipment and machinery due through 2006;
effective interest rates from 7% - 12%          178       149        70

                                            -------   -------   -------
         Less current maturities              3,797       297        22

                                            =======   =======   =======
                                              3,364     2,438        48
                                            =======   =======   =======

Aggregate annual principal maturities of long-term debt at December 31, 2004 are
as follows:

2005                 3,797
2006                 3,364
                 ---------

                 $   7,161
                 =========











                                      F-36
<PAGE>

NOTE J - ACCOUNTS PAYABLE - TRADE (amounts in thousands)

Accounts payable - trade is comprised of the following:

                                                2004       2003       2002
                                              --------   --------   --------
Vendor financing for backbone construction       6,654       --         --

Trade accounts payable                           3,161        949        754

Accrual for program, broadcast and
construction rights payable                      1,296      1,504        398

Taxes payable                                      628       --         --
Payables to employees                              433        198        289
Payroll taxes payable                              112        235        348
Other payables and accruals                         40        291        250

                                              --------   --------   --------
                                                12,324      3,177      2,039
                                              ========   ========   ========

NOTE K - INCOME TAXES (amounts in thousands)

The Company  pays income tax in Bulgaria  based on their  earnings.  All amounts
presented  below  have been  translated  to U.S.  Dollars  ($) for  presentation
purposes.

Major components of income tax (expense)/benefit for the years ended 3l December
2004, 2003 and 2002 are:

                                          2004       2003       2002
                                        -------    -------    -------
Current income tax (expense)/benefit    $   (80)   $   (75)   $    73
Deferred income tax                          50        141         48
                                        -------    -------    -------
Income tax (expense)/benefit reported
  in consolidated statement of income       (30)        66        121
                                        =======    =======    =======


In 2004,  2003 and 2002,  the  nominal  statutory  effective  tax rate is 19.5%,
23.5%, and 23.5%  respectively.  Effective January 1, 2005 the nominal corporate
income tax rate is reduced to15%.



<PAGE>
<TABLE>
<CAPTION>

NOTE K - INCOME TAXES (amounts in thousands) - Continued

A reconciliation of income tax (expense) / benefit applicable to loss before tax
and minority interest at the statutory income tax rate to income tax (expense) /
benefit at the Group's  effective  income tax rate for the years ended  December
31, 2004, 2003 and 2002 is as follows:

                                                  2004      2003      2002
                                                 ------    ------    ------

Loss before tax and minority interest            (1,801)      545       324

U.S. GAAP adjustment for Goodwill amortization
and capitalized interest expense for backbone    (1,161)     (798)     (673)
                                                 ------    ------    ------
                                                 (2,962)     (253)     (349)
                                                 ======    ======    ======
Income tax benefit at statutory rate of 19.5%
  for 2004 / 23.5% for 2003 and 2002                578       (60)      (82)
Unused tax loss for 2004 at statutory tax rate
  of 19.5%                                         (197)     --        --
Effect of permanent differences                    (414)       (6)      203
Effect of change in tax rate                          3      --        --
                                                 ------    ------    ------

Income tax (expense)/benefit                        (30)       66       121
                                                 ======    ======    ======

As of December  31,  2004,  2003 and 2002 the  composition  of the  deferred tax
(liability)  / asset and related  statement  of income and  statement  of equity
effects are as follows:

                                               Deferred tax (liability)/asset  Deferred tax (expense)/benefit
                                               ------------------------------  ------------------------------
                                                2004       2003       2002      2004        2003        2002
                                               ------     ------     ------    ------      ------      ------
<S>                                                 <C>       <C>       <C>        <C>       <C>           <C>
Intangible assets recognized as expense             8         11        119        (3)       (108)         (3)
Unused leave allowance                             15         17         19      --            (2)         (2)
Capitalized network extension expenditure         (43)       (96)      (347)       53         251          53
                                               ------     ------     ------    ------      ------      ------
Net deferred tax (liability)/benefit charged      (20)       (68)      (209)       50         141          48
to statement of income
                                               ------     ------     ------    ------      ------      ------

Foreign currency translation difference          --         --           21        (2)       --          --

Deferred tax on revaluation reserve / Net
deferred tax charged to equity                      8       --         --           8        --          --
                                               ------     ------     ------    ------      ------      ------

Net deferred tax (liability)/total change in
benefit                                           (12)       (68)      (188)       56         141          48
                                               ======     ======     ======    ======      ======      ======
</TABLE>







                                      F-37
<PAGE>
<TABLE>
<CAPTION>

NOTE K  - INCOME TAXES (amounts in thousands) - Continued

The entities of the Group have incurred tax losses as follows:

  Tax period            Period of availability for tax relief       2004         2003          2002
                                                                   --------     --------      -------
<C>                                                                <C>          <C>           <C>
2004                         2005 through 2009                        1,103         --           --
2003                         2004 through 2008                        1,192        1,192         --
2001                         2002 through 2006                          316          316          316
2000                         2001 through 2005                          314          314           14
1999                         2000 through 2004                          --           27            27
1998                         1999 through 2003                          --            --           10
                                                                   --------     --------      -------
Total tax loss carried forward                                        2,925        1,849          667
Effective income tax rate                                                15%        19.5%        23.5%
                                                                   --------     --------      -------
Deferred income tax asset not recognized                                439          361          157
                                                                   ========     ========      =======
</TABLE>

These losses can be carried  forward as relief against  future taxable  profits.
However,  since  the  amounts  and  timing of future  taxable  income  cannot be
estimated  reliably due to the uncertainties of the economic  environment of the
Group,  no deferred  tax asset has been  recognized  for the tax losses  carried
forward as of December 31, 2004.

Tax periods of CABLETEL AD until 2003, inclusive have been subject to tax audits
covering  corporate  income tax,  municipal tax and personal income tax. The tax
authorities   reimbursed  to  the  Company   corporate  income  tax  of  BGN  40
(approximately $28).

NOTE L - GAIN ON SALES (amounts in thousands)


                                           2004        2003        2002
                                         --------    --------    --------
Gain on sale of duct                     $    802    $   --      $   --
Gain (loss) on disposal of investment        (162)        368        --
Gain (loss) on disposal of fixed asset       (362)       (139)       --
                                         --------    --------    --------

Total gain on sale of assets                  278         229        --
                                         ========    ========    ========


NOTE M - OTHER INCOME (EXPENSE) (amounts in thousands)

         Other income (expenses) consists of the following:

                               Year ended December 31,
                              2004       2003      2002
                            -------    -------   -------
Program rights fee income   $   338    $  --     $  --
Tax Penalties                  (159)      --        --
Rental Income                    44       --        --
Advertising income               14         62      --
Other                            72        327         1
                            -------    -------   -------

                            $   309    $   389   $     1
                            =======    =======   =======



                                      F-38
<PAGE>
<TABLE>
<CAPTION>

NOTE N - CASH FLOW INFORMATION (amounts in thousands)

    Supplemental information on cash flows is as follows:

                                                     Year ended December 31,
                                                    2004      2003       2002
                                                  -------   -------   -------

Interest paid                                     $   407   $  --     $    17
Income taxes paid                                      83        43        69

Non-cash investing and financing activities:
   Unrealized foreign currency translation gain        67       597       565
   Purchase of property and equipment
    vendor financed                                 8,200      --        --

NOTE O - DISCONTINUED OPERATIONS (amounts in thousands)

Discontinued  Operations  was a loss of $508  in  2002.  During  2000  and  2001
CableTEL's  growth occurred by acquiring other existing cable operators.  During
that period in time cable  operators in Bulgaria  were  required to actually own
and operate TV studios.  In early 2003 The Company  sold its studio  operations.
Any gain or loss in 2003 was immaterial and the loss from operations in 2002 was
$508.

NOTE P - ACQUISITIONS AND DISPOSALS (amounts in thousands)

Purchase of minority interests in existing subsidiaries:

During 2004 the Company purchased additional interests in existing  subsidiaries
with the effective date of transactions for accounting purposes being January 1,
2004. The additional interests acquired are:

Subdiary                                                                           Additional interest purchased
------------------------------------------------------------------------     ------------------------------------
<S>                                                                                                       <C>
KIS AD, Russe                                                                                             26.91%
Union Television Velingrad OOD                                                                            30.00%
Union Kabel OOD                                                                                           52.50%
Dovacom EOOD                                                                                              52.50%

Details  of  net  assets  acquired,  goodwill  arising  on the  transaction  and
consideration, in aggregate, are as follows (in thousands):

                                                                                                  Carrying value
Additional interest of net assets purchased                                                                 $393
Goodwill arising on transaction                                                                              353
                                                                                                -----------------
                                                                                                            $746
                                                                                                =================

Consideration:

Cash paid                                                                                                   $539
Interest of net assets of Pleven Sprint OOD disposed                                                         207
                                                                                                -----------------
                                                                                                            $746
                                                                                                =================
</TABLE>



                                      F-39
<PAGE>

NOTE P - ACQUISITIONS AND DISPOSALS (amounts in thousands) - Continued

The Company's  interest of 51% of Pleven  Sprint was swapped for the  additional
52.50% of Dovacom (refer to "Disposals, Pleven Sprint OOD" caption below).

Acquisition of subsidiary:

Bulmet OOD
----------

On March 4, 2004 the Group  acquired  a 100%  interest  in Bulmet  OOD,  a cable
operator in the town of Svishtov.  The  effective  date of the  combination  for
accounting  purposes is March 31, 2004. The  management of the Company  believes
that the change in the net assets for the period from March 5, 2004 to March 31,
2004 would not have a material effect on the  presentation  of the  consolidated
financial statements.  Management believes that the carrying value of net assets
of Bulmet OOD  approximates the fair value of the aggregated  individual  assets
and liabilities.  The Company acquired Bulmet's net assets of $8 for $4 in cash,
resulting in negative goodwill of approximately $4.

Disposals:

During  2004  the  Company   disposed  in  full  the   following   interests  of
subsidiaries,

Subsidiary                                                     Disposed interest

TV Mix AD                                                          100.00%
Pleven Sprint OOD                                                   51.00%


TV Mix AD
---------

In March 2004 the management of the Company decided to dispose of a wholly owned
subsidiary,  TV Mix AD, operator of the Mix TV channel,  which was not a part of
the core business (CATV) of the Company.  The effective date of the disposal for
accounting  purposes is January 1, 2004. The management of the Company  believes
that the results for the period from January 1, 2004 to March  31,2004 would not
have  material  effect  on  the  presentation  of  the  consolidated   financial
statements.

Pleven Sprint OOD
-----------------

On March 4, 2004 the  management  of the  Company  decided  to dispose of Pleven
Sprint OOD, a 51%  subsidiary.  The disposal was completed as an exchange for an
additional  52.50o/o  interest in Dovacom EOOD. The share  exchange  transaction
resulted  in no loss  of  subscribers,  with  the  subscribers  added  from  the
acquisition  of Dovacom EOOD,  being of a similar  number to those lost from the
disposal of Pleven Sprint OOD.  Given the neutral  impact on subscriber  numbers
from the share exchange transaction,  management of the Group consider that that
any difference between the results of Pleven Sprint OOD and Dovacom EOOD for the
period from January 1, 2004 to March 3, 2004 would not have  material  effect on
the presentation of the consolidated financial statements,  and therefore it has
been decided to consolidate  Dovacom EOOD from January 1, 2004 as a wholly owned
subsidiary  and to  discontinue  the  inclusion of Pleven Sprint OOD with effect
from January 1, 2004.  The  management of the Group  considers that the carrying
values of the  additional  interest of net assets in Dovacom EOOD  purchased and
interest of the net assets in Pleven  Sprint OOD disposed of  approximate  their
fair values.





                                      F-40
<PAGE>
<TABLE>
<CAPTION>

NOTE Q - RELATED PARTIES (amounts in thousands)

On  October 1, 2003 The  Company  entered  into a  consulting  agreement  with a
shareholder whereby the related party is to receive $21 per month for consulting
services.  These services include technical and financial advice to the Company.
The initial  agreement  was amended on March 26, 2004 to extend the agreement to
March 26, 2009.  This  agreement  may be terminated  upon mutual  consent of the
parties or by any of the parties with a three month written notification.

Global  Communication  Technologies,  Inc.  ("Globaltec")  is a manufacturer  of
telecommunications   switching   equipment.   Globaltec   is  owned  by  related
shareholders.  In 2004  CableTEL AD paid $1,993 to Globaltec for the purchase of
hardware,  software and  licensing.  In addition,  CableTEL AD paid  Globaltec's
Bulgarian  subsidiary  $164  in  consulting  fees  to  implement  the  switching
equipment installation and management.

Related party balances are comprised of the following:

Related party                      Nature of outstanding balance    2004       2003        2002
------------------------------     -----------------------------   --------   --------    --------
<S>                                                                <C>        <C>         <C>
Narisma Holdings Limited           $2,384 loan                       $2,282     $2,248      $2,032
Narisma Holdings Limited           trade payable                        418       --          --
                                                                   --------   --------    --------
                                                                      2,700      2,248       2,032

Cabeltel International Corp        $300 loan                            306       --          --
Cabeltel International Corp        $660 loan                            651       --          --
                                                                   --------   --------    --------
                                                                        957        --         --

                                                                   --------   --------    --------
                                                                     $3,657     $2,248      $2,032
                                                                   ========   ========    ========
</TABLE>

$2,384 loan from Narisma Holdings Limited
-----------------------------------------

The loan is  unsecured  and was  repayable  in full on December  31,  2004.  The
effective  annual  interest  rate is 4.23%.  The loan has not been repaid and/or
rescheduled  till  the date  when the  consolidated  financial  statements  were
authorized for issue.  The management  intends to settle it when they secure the
necessary financial resources.

$300 Loan from Cabeltel International Corporation.
--------------------------------------------------

The loan is  unsecured  and is  repayable  in full on  November  18,  2005.  The
effective annual interest rate is the Wall Street Journal prime rate.

$660 Loan from Cabeltel International Corporation
-------------------------------------------------

The loan is unsecured  and is repayable in full on July 11, 2005.  The effective
annual  interest  rate is 12%. The loan has not been repaid  and/or  rescheduled
till the date when the  consolidated  financial  statements  were authorized for
issue.  The  management  intends  to settle it when they  secure  the  necessary
financial resources.



                                      F-41
<PAGE>
<TABLE>
<CAPTION>

NOTE Q - RELATED PARTIES (amounts in thousands) - Continued

Related party transactions include the following:

Related party                   Nature of transactions                   2004          2003        2002
----------------------------    -----------------------------------    ----------    ---------    --------
<S>                             <C>                                     <C>          <C>          <C>
Narisma Holdings Limited        Technical services received             $ 1,120      $     57     $
                                                                                                         -
Narisma Holdings Limited        Interest accrued                             89            84            -
Cabeltel International Corp     Loan received and interest accrued          874             -            -
</TABLE>

All applicable related party transactions have been carried out at market prices
and resulted in approximate net foreign  exchange gains of $239,  $413, and $338
for 2004, 2003 and 2002, respectively.

NOTE R - COMMITMENTS AND CONTINGENCIES (amounts in thousands)

Cable Partners Bulgaria LLC vs. Greenbriar  Corporation (the Company's  ultimate
parent) and shareholder

On January 24, 2005 a lawsuit was filed in the District  Court of Dallas County,
Texas by Cable  Partners  Bulgaria  LLC,  ("CPB") a Colorado  limited  liability
company  against the  Company's  ultimate  parent.  The  lawsuit  states that on
October 12, 2004 CPB entered into a letter  agreement with the owners of Eurocom
to  acquire  the  assets of  Eurocom,  a cable  operator  in the city of Plovdiv
Bulgaria.  The  lawsuit  further  indicates  that the  October  12,  2004 letter
outlines a time line for the  completion  of due  diligence  by CPB. The lawsuit
states that in November 2004 a conversation occurred between a representative of
CPB and the CEO of the Company  during which time such  representative  told the
CEO that CPB had an agreement to purchase Eurocom.

The  lawsuit  alleges  that the  Company's  ultimate  parent  intentionally  and
improperly caused the sellers of Eurocom to enter into discussions with CableTEL
which ultimately led to CableTEL entering into a separate and competing contract
to  purchase  Eurocom.   CPB  alleges  that  the  Company's   ultimate  parent's
interference  was  improper  and that CPB has been  damaged  in the amount of at
least $6,400.  The lawsuit further alleges that CPB's letter agreement  provided
for a three year  management  agreement with the sellers of Eurocom and that CPB
was  would be  further  damaged  by the loss of the  experience,  expertise  and
contacts of the sellers of Eurocom in an amount to be determined  at trial.  CPE
further seeks exemplary damages of an unspecified amount.

The Company's  ultimate  parent  believes the lawsuit is totally  without merit.
CableTEL  had  been  holding  discussions,  conducting  due  diligence  and  had
agreements  in place with the owners of Eurocom  well before  either the alleged
November  conversation or the October 12, 2004 letter. In addition the Company's
ultimate  parent  believes the lawsuit  misstates  certain key facts which could
prove to be critical in CPB's ability to prevail in this matter.

Other  The  Company  has been  named as a  defendant  in other  lawsuits  in the
ordinary  course of business.  Management is of the opinion that these  lawsuits
will  not  have  a  material  effect  on the  financial  condition,  results  of
operations or cash flows of the Company.







                                      F-42
<PAGE>

NOTE R - COMMITMENTS AND CONTINGENCIES (amounts in thousands) - Continued

Contract with an international carrier
--------------------------------------

On December 23, 2004 the Company  entered  into a long-term  contract to provide
capacity to an international  carrier. The Company has not executed the contract
yet as it is  considering  other  solutions  to optimize  the costs of providing
capacity.  As of  the  date  of  the  approval  of  the  consolidated  financial
statements,  based on the existing agreement with the international  carrier and
subcontractors,  the  management  has estimated that the outcome of the contract
would be a loss of  approximately  $1,400.  The  management has not provided for
that loss in the consolidated  financial  statements for the year ended December
31, 2004 as it is  considered,  based on legal advice,  that the Company will be
able to  terminate  the  contract  with the  international  carrier  without any
penalties being payable.

American Realty Investors' debt subordination
---------------------------------------------

On November 30, 2004 the  management  of the Company  decided to join as a joint
debtor  together  with  American  Realty  Investors,  a related  party,  under a
Bulgarian bank loan  agreement from 2003. As a result,  on January 10, 2005, the
Company  paid $657 to repay the debt of American  Realty  Investors to the bank.
The Company will be reimbursed subsequently through a negotiated settlement with
Narisma Holdings Limited, the parent company.

Legal claim initiated by Union Television AD
--------------------------------------------

Union Television AD, a former wholly-owned  subsidiary of the Company,  disposed
of in 2003, has initiated  litigation against the Company claiming invalidity of
Sofia City Court's decision on the legal  reorganization of Union Television AD.
In accordance  with a General  Meeting of  Shareholders'  decision,  a new legal
entity,  Cable  Bulgaria West, was  established.  In accordance  with a protocol
approved by the General  Meeting of  Shareholders,  Cable Bulgaria West acquired
the  assets  and  liabilities  of Union  Television  AD  related to its cable TV
operations, including the cable networks. The claimants argued that the protocol
performed  was  without  legal  grounds,  as the  decision  was not voted at the
General Meeting of Shareholders. Cable Bulgaria West was merged into CABLETEL AD
in 2002 and all its assets and liabilities were transferred to CABLETEL AD.

Based on legal advice, the management of the Company considers that the claim of
Union  Television AD is groundless  and that the  probability  of an unfavorable
court decision for the Company is remote.

Broadcasting rights
-------------------

The Company has contracts with program  providers for broadcasting  rights.  The
contract fee payable to most of the foreign providers for broadcasting rights is
based on the number of  subscribers a cable  operator has. The  subscriber  base
reported  to  providers  is in most cases a constant  number  (based on contract
commitment date  information)  and does not reflect the actual  subscriber base,
which the terms of the contract  provide for. The industry  practice in Bulgaria
to date has been to report  the number of  subscribers  negotiated  on  contract
commencement.  Under most of the re-broadcasting contracts, the suppliers retain
the right to audit the reported subscriber base. The possibility exists that the
program providers can exercise their  contractual  rights to perform an audit at
any time to confirm the  calculation of the liabilities due to them and this may
identify the number of subscribers  reported is not representative of the actual
viewing subscriber base.




                                      F-43
<PAGE>

NOTE R - COMMITMENTS AND CONTINGENCIES (amounts in thousands) - Continued

Broadcasting rights - continued
-------------------------------

Given past  experience  of the  approach  of  program  providers  the  Company's
management  considers it is unlikely that the  contractual  rights to perform an
audit will be exercised. In addition, as the Company's management has been aware
of the potential issues related to reported numbers of subscribers which are not
in direct compliance with the terms and conditions of the signed contracts, they
have undertaken the following steps to eliminate the potential exposure:

o        adopted a more  transparent  approach in the  reporting  of  subscriber
         numbers.  This is  reflecting  increased  maturity  in the market as it
         moves from a development  stage,  where  broadcasting  rights providers
         have  accepted fee payment based on contract  date  subscriber  numbers
         with no claims for retrospective adjustments;

o        negotiated new contracts with the  broadcasting  rights providers where
         either a flat fee is agreed or a reported  subscriber  base is accepted
         by both parties and not subject to audits retrospectively;

o        continuous  discussions  with all the program  providers to ensure that
         all  parties are aware of the  current  status of activity  levels on a
         regular  basis and how they  relate to  existing  and  potential  newly
         negotiated contract terms.

Based on the above the  Company's  management  believes that they have ensured a
fair assessment of the number of subscribers declared to the broadcasting rights
providers and therefore,  a material  misstatement  of the  broadcasting  rights
liabilities is unlikely.

NOTE S - SUBSEQUENT EVENTS (amounts in thousands)

$2,729 investment bank loan
---------------------------

On January 18, 2005 the Company concluded a loan agreement for a total amount of
$2,729 to finance underground duct construction.  The maturity of the investment
loan is December 31, 2005 and it is repayable in 6 equal monthly installments of
$455 for the period from July 1 to  December  31,  2005.  The  effective  annual
interest rate is 3 month Euribor plus 7.75%. The loan is secured by specifically
identified underground duct segments.

Frame agreement with the Council of Ministers of Bulgaria
---------------------------------------------------------

On June 14, 2005 the Company  has signed a frame  agreement  with the Council of
Ministers to sell specific  segments of its  underground  optical fiber network.
Cabeltel   International   Corporation   has  discussed  a  number  of  possible
arrangements  with several entities in relation to the ownership of the Company.
As a  result  of the  discussions,  on  June  16,  2005  Cabeltel  International
Corporation  gave Cable Partners  Europe LLC (CPE) an  exclusivity  period of 45
days to review the  operations  of the Company and to negotiate  an  arrangement
with  either  Cabeltel   International   Corporation  or  the  Company  for  the
acquisition  by CPE of  part  of  the  operations  of  the  Company,  with  such
acquisition  being  subject  to  regulatory  approvals.  As of the  date  of the
approval of the consolidated  financial statements,  no definitive agreement has
been negotiated, written or executed that would be considered to be binding upon
Cabeltel International Corporation or CPE.