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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For Fiscal Year Ended December 31, 2002
OR

For the transition period from                               to                              

Commission File Number 1-5706

METROMEDIA INTERNATIONAL GROUP, INC.

(Exact name of registrant, as specified in its charter)

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

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 requirements for the past 90 days. Yes o    No ý

        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. ý

        Indicate by check mark if disclosure whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934 Yes o    No ý

        The aggregate market value of voting stock of the registrant held by non-affiliates of the registrant at June 30, 2003 computed by reference to the last reported sale price of the Common Stock on the composite tape on such date was $15,410,722.

        The number of shares of Common Stock outstanding as of June 30, 2003 was 94,034,947.

        Documents Incorporated By Reference

        None

TABLE OF CONTENTS

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        Certain statements set forth below in this Form 10-K constitute "Forward-looking Statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. See "Special Note Regarding Forward-Looking Statements" on page 37.

Part I

Item 1. Business

        Metromedia International Group, Inc. ("MIG" or the "Company") is a holding company owning interests, through its wholly owned subsidiary Metromedia International Telecommunications, Inc., in communications and media businesses that operate in Russia, Georgia and several other European countries. Interests in business ventures are managed and operated in the following three business segments: telephony, radio and cable TV.

        The Company's principal executive offices are located at 505 Park Avenue, 21st Floor, New York, New York, 10022, telephone: (212) 527-3800.

Recent Developments

Restructuring Strategy

        The Company is presently in the process of an overall restructuring in which its interests in cable TV, Radio and certain telephony businesses will be sold and a substantially downsized supervisory staff will manage the remaining business ventures. This restructuring was prompted by and is intended to resolve the severe liquidity issues confronting the Company since the beginning of 2002. This restructuring focuses on "core" telephony business operations that are currently self-financed and hold leading positions in their respective markets. These core operations will be held and developed, with the expectation that their future dividend distributions will be sufficient to meet the Company's debt service and overhead requirements. All other "non-core" operations will be sold; with the intention that sale proceeds will mitigate short-term liquidity concerns and provide capital for further core business development.

        Upon completion of the restructuring, the Company intends that its core holdings will consist primarily of:

•

ZAO PeterStar ("PeterStar"), the leading competitive local exchange carrier in St. Petersburg, Russia, in which the Company has a 71% equity interest;



•

Magticom, Ltd. ("Magticom"), the leading GSM mobile telephony operator in Georgia, in which the Company has a 34.5% equity interest; and



•

Baltic Communications Limited ("BCL"), a local and long distance telephony operator in St. Petersburg, Russia, in which the Company has a 100% equity interest.

        PeterStar and Magticom are leaders in their respective markets with substantial opportunity for further growth. All three businesses currently generate cash dividends on growing revenue streams. Each is self-financed for capital expenditures.

        The Company's non-core businesses to be sold include eight cable TV businesses located in Russia, Belarus, Romania, Moldova, Latvia and Lithuania; and seventeen radio businesses located in Finland, Hungary, Bulgaria, Estonia, Latvia and the Czech Republic. The Company is marketing these non-core businesses in a measured fashion to avoid loss of value that might accompany an accelerated sale process, and the Company expects to fund limited further development of certain of these businesses during the sale process to pursue maximum disposition value. The Company also plans to sell its non-core telephony businesses Tyumenruskom, a D-Amps mobile telephony operator in the Tyumen region of Russia, and Telecom Georgia, a long distance transit operator in Georgia.

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        The Company historically maintained sizeable management and support staff operations in New York, Vienna and Moscow. A staff downsizing program began in 2002 and substantially accelerated in the first quarter of 2003, when the Company decided to terminate substantially all its employees at its headquarters in New York and certain European-based business venture support personnel. The terminations have staggered effective dates in relation to the Company's expected restructuring milestones. By the end of 2003, the Company anticipates that its non-operating personnel will be reduced to less than twenty persons. This will represent a very substantial reduction in the overhead spending level from the level at the start of 2002. However, in connection with these matters, see "Item 14: Internal Controls and Procedures" and "Risks associated with the Company—The Company has experienced a significant reduction in its personnel, including its executive ranks, which may affect the Company's ability to develop and execute its business strategies and manage its operations", and "—Other Business Factors—Employees".

        The Company projects that its current corporate cash reserves, anticipated cash proceeds of non-core asset sales and continuing dividends from core operations will be sufficient for the Company to meet its future operating and debt service obligations on a timely basis. Opportunities to refinance the Company's 10¹/2% Senior Discount Notes due 2007 with a current outstanding principal balance (fully accreted) of $152.0 million (the "Senior Discount Notes") are also being pursued, but present Company plans presume the continued service of this debt on current terms. The Company, however, cannot provide assurances that its restructuring efforts will be successful or, if successful, that they will provide for sufficient cash reserves to support long-term sustainable operations.

        If the Company does not successfully complete its restructuring and does not realize the cash proceeds it anticipates on further sale of its non-core businesses, the Company does not believe that it will be able to pay the approximately $8.0 million interest payment due on March 30, 2004 on its Senior Discount Notes and fund its operating, investing and financing cash flows through July 2004. Assuming no proceeds from further sale of non-core assets, the Company projects that its cash flow and existing capital resources will permit it to pay the approximately $8.0 million interest payment due on September 30, 2003 on its Senior Discount Notes. See "Item 7: Management's Discussion and Analysis of Financial Condition and Results from Operations—Liquidity and Capital Resources" and "Risk Associated With the Company—Absent the completion of the sale of its non-core assets and the receipt of cash distributions from subsidiary operations, the Company may not have sufficient liquidity to meet interest obligations on its Senior Notes for the next twelve months, which would constitute an event of default under its indenture".

Asset Sales

        In 2002, the Company began marketing its non-core operations to meet its liquidity needs. United Financial Group ("UFG") was engaged in June 2002 to assist the Company in evaluating certain offers that it had received for its Russian and Georgian telephony businesses. This effort eventually led to the marketing of the Company's Telephony businesses, and UFG undertook a formal marketing process for those businesses. The Company also pursued sales of other business holdings, including its non-strategic

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holding in Snapper, Inc. ("Snapper") a US-based lawn and garden equipment manufacturer. The following asset sales were concluded in 2002:

(1)

The Company sold to Simplicity Manufacturing, Inc. all of the assets, except cash, of Snapper, for initial cash consideration of $15.6 million and the assumption of certain Snapper liabilities. The Company is currently finalizing a post-closing audit process and the Company anticipates that it will receive additional cash proceeds from the sale of Snapper in the range of $5.2 million to $7.0 million from the buyer.

        In addition to these asset sale proceeds, the Company obtained various cash distributions during 2002 from its remaining business operations, including a $7.4 million dividend from Peterstar. These combined cash inflows permitted the Company to meet the September 2002 interest obligation on its Senior Discount Notes and to continue operations through the year and increase the Company's corporate cash reserves. In February 2003, the Company engaged Communications Equity Associates ("CEA") in an advisory capacity to assist in marketing of the Radio and Cable businesses.

        On April 24, 2003, the Company completed an exchange with Adamant Advisory Services, a British Virgin Islands company ("Adamant"), of its ownership interest in certain of its businesses in Russia for approximately $58.6 million, face value, of the Company's Senior Discount Notes held by Adamant. In the transaction, the Company conveyed to Adamant its ownership interests in Comstar (a Moscow based fixed-line telephony operator in which the Company had a 50% equity interest), Kosmos TV (a Moscow based cable television operator), and the Company's Russian Radio operations. In addition to conveying the Senior Discount Notes to the Company, Adamant paid $5.0 million in cash and also released the Company of its $3.5 million obligation to pay interest accrued on the Senior Discount Notes being exchanged. With the completion of this transaction, the Company's outstanding principal on the Senior Discount Notes was reduced to $152.0 million. In April 2003, the Company also terminated the UFG marketing associated with its core Telephony businesses (PeterStar, BCL and Magticom).

        On June 30, 2003, the Company completed the sale of its interests in Technocom Limited to Grosco Holdings, a Cyprus company, for cash consideration of $4.5 million. Simultaneous with the sale of Technocom, the Company entered into agreements intended to settle all historical claims concerning Technocom-related businesses including claims arising from the litigation in Guernsey that Technocom initiated in 2002 concerning its majority-owned subsidiary Roscomm and from arbitration proceedings initiated in 2003 in connection with that Guernsey litigation. Technocom, a wholly owned subsidiary, held interests in several Russian telecommunication enterprises including satellite-based transport operator Teleport-TP.

        The Company is presently engaged in active marketing of its remaining non-core radio and cable TV businesses. The Company expects to complete these sales by end of first quarter 2004. This sale process and the sales already completed in 2003 are consistent with the Company's overall restructuring program.

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Liquidity Concerns

        The Company is a holding company; accordingly, it does not generate cash flows from operations. As of December 31, 2002 and June 30, 2003, the Company had approximately $18.9 million and $17.4 million, respectively, of unrestricted cash at its headquarters level. In addition, as of December 31, 2002 and June 30, 2003, the Company had approximately $11.4 million and $2.9 million, respectively, of cash at the Company's consolidated business ventures. Furthermore, as of December 31, 2002 and June 30, 2003, the Company had approximately $12.4 million and $2.8 million, respectively, of cash at the Company's unconsolidated business ventures.

        Due to legal and contractual restrictions, a substantial portion of the cash balances in certain of the Company's business ventures and subsidiaries cannot be readily accessed, if at all, to meet the Company's corporate liquidity requirements. See "—Risks Associated with the Company—The Company is dependent on certain local parties, and we cannot assure you that it will be able to maximize its return on certain investments" and "Item 7: Management's Discussion and Analysis of Financial Condition and Results from Operations—Liquidity and Capital Resources."

        The Company projects that its current corporate cash reserves, anticipated cash proceeds of non-core asset sales and continuing dividends from core operations will be sufficient for the Company to meet its future operating and debt service obligations on a timely basis and will resolve its remaining liquidity concerns. Opportunities to refinance the Company's Senior Discount Notes are also being pursued, but present Company plans presume the continued service of this debt on current terms. The Company, however, cannot provide assurances that its restructuring efforts will be successful or, if successful, that they will provide for sufficient cash reserves to support long-term sustainable operations. If the Company does not successfully complete its restructuring and does not realize the cash proceeds it anticipated on further sale of its non-core businesses, the Company does not believe that it will be able to pay the approximately $8.0 million interest payment due on March 30, 2004 on its Senior Discount Notes and fund its operating, investing and financing cash flows through July 2004. Assuming no proceeds from further sale of non-core assets, the Company projects that its cash flow and existing capital resources will permit it to pay the approximately $8.0 million interest payment due on September 30, 2003 on its Senior Discount Notes. See "Item 7: Management's Discussion and Analysis of Financial Condition and Results from Operations—Liquidity and Capital Resources" and "Risks Associated with the Company—Absent the completion of the sale of its non-core assets and the receipt of cash distributions from subsidiary operations, the Company may not have sufficient liquidity to meet interest obligations on its Senior Discount Notes for the next twelve months, which would constitute an event of default under its indenture."

        The outstanding principal on the Senior Discount Notes becomes due in full on September 30, 2007. Failure on the part of the Company to make any required payment of interest or principal on the Senior Discount Notes would represent a default under the Senior Discount Notes. A default, if not waived, could result in acceleration of the Company's indebtedness, in which case the full amount of the Senior Discount Notes would become immediately due and payable. If this occurs, the Company would not be able to repay the Senior Discount Notes and would likely not be able to borrow sufficient funds to refinance them.

        The Company is actively pursuing sale of non-core businesses to raise additional cash and has undertaken to maximize cash distributions from all of its business ventures. The Company believes these measures will succeed in providing sufficient liquidity to meet cash demands for the coming twelve months and beyond. However, the Company cannot assure that it will be successful in selling any of its non-core businesses or that these sales will raise sufficient cash to meet short-term liquidity requirements. The Company also is subject to legal and contractual restrictions, including those under the indenture for the Senior Discount Notes, on its use of any cash proceeds from sale of its assets or those of its business ventures or subsidiaries.

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        If the Company is not able to satisfactorily address the liquidity issues described above, the Company may have to resort to certain other measures, including ultimately seeking the protection afforded under the US Bankruptcy Code. The Company cannot assure at this time that it will be successful in avoiding such measures.

        As a result of the uncertainties attributable to the Company's liquidity, the report of KPMG LLP contains an explanatory paragraph that states that the Company has suffered recurring net losses and net operating cash deficiencies and does not presently have sufficient funds on hand to meet its current debt obligations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in "Item 8: Financial Statements and Supplementary Data" and "Notes to Consolidated Financial Statements—Note 1 Basis of Presentation, Going Concern and Recent Developments." The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Impairment Charges

        The Company recorded a $42.6 million non-cash charge in its 2002 consolidated financial statements and a $106.1 million non-cash charge in its 2001 consolidated financial statements. These charges result from the Company's analysis of the recoverability of long-lived assets and investments in certain of its continuing business ventures. In addition, the Company recorded charges of $14.4 million and $44.8 million on its discontinued components in 2002 and 2001 respectively. As a result of adopting SFAS No. 142, the Company recorded a transitional impairment charge of $3.2 million as of January 1, 2002. See "Item 8: Financial Statements and Supplementary Data" and "Notes to Consolidated Financial Statements—Note 1 Basis of Presentation, Going Concern and Recent Developments".

Renegotiation of Indebtedness

        During 2003, the Company engaged in discussions with representatives of holders of a substantial portion of its $152.0 million outstanding Senior Discount Notes concerning refinancing of this debt. To date, no refinancing has been agreed upon and further refinancing discussions with these substantial Senior Discount Note holders have been suspended. The Company's present plans anticipate continued servicing of the Senior Discount Notes on current terms. The Company continues to pursue opportunities for refinancing its debt on favorable terms, however, no assurance can be given as to the Company's ability to consummate a refinancing transaction.

Delisting

        On February 25, 2003, the Company received notice from the staff of the American Stock Exchange (the "Exchange" or "AMEX") indicating that the Exchange filed an application with the United States Securities and Exchange Commission on February 20, 2003, to strike the Company's Common Stock and 7¹/4% Cumulative Convertible Preferred Stock from listing and registration on the Exchange, effective at the opening of the trading session on March 3, 2003. As a result, the Company's Common Stock (OTCBB:MTRM) and 7¹/4% Cumulative Convertible Preferred Stock (OTCBB:MTRMP) are now trading on the OTC Bulletin Board.

Corporate History

        The Company was organized in 1929 under Pennsylvania law and reincorporated in 1968 under Delaware law. Prior to 1995, the Company operated under the names of "The Actava Group Inc." and "Fuqua Industries, Inc.", and during that time period, the Company owned, operated and sold dozens of companies in diverse industries, including photofinishing, lawn and garden equipment and sporting goods. On November 1, 1995, as a result of the merger of Orion Pictures Corporation ("Orion") and

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Metromedia International Telecommunications, Inc. ("MITI") with and into wholly-owned subsidiaries of the Company and the merger of MCEG Sterling Incorporated ("MCEG") with and into the Company, the Company changed its name from "The Actava Group Inc." to "Metromedia International Group, Inc." MITI held interests in communications and media ventures operating principally in countries that were formerly part of the Soviet Union. Orion was a motion picture production and distribution company. MCEG was an independent film production and distribution company. With the November 1995 mergers, the Company adopted a strategy of development of media, communications and entertainment holdings, with emphasis on developments in the emerging markets of the former Soviet Union countries. On February 28, 1997, as a result of the merger of Asian American Telecommunications into a wholly owned subsidiary of the Company, the scope of communications business development was extended to include the People's Republic of China.

        On July 10, 1997, the Company consummated the sale of substantially all of its entertainment assets, consisting of Orion Pictures Corporation, Samuel Goldwyn Company and Motion Picture Corporation of America (and each of their respective subsidiaries), including its feature film and television library of over 2,200 titles, to P&F Acquisition Corp., the parent company of Metro-Goldwyn-Mayer, Inc., for a gross consideration of $573.0 million. Thereafter, on April 16, 1998, the Company sold to Silver Cinemas, Inc. its remaining entertainment assets consisting of all of the assets of the Landmark Theatre Group ("Landmark"), except cash, for an aggregate cash purchase price of approximately $62.5 million and the assumption of certain Landmark liabilities. These transactions provided significant funds for the Company's expansion of its emerging market communications and media businesses.

        On September 30, 1999, the Company consummated the acquisition of PLD Telekom, holder of interests in several communications businesses providing high quality long distance and international telecommunications services in the Commonwealth of Independent States ("CIS"). In December 1999, the Company was forced to liquidate its interests in the telecommunications business ventures in China by order of the Chinese government, and the Company's subsequent interests in China were limited to several start-up E-commerce business ventures.

        By 2002, the Company operated as a holding company for telephony, radio and cable TV business operations located essentially in Eastern Europe, Russia and Central Asia. Remaining operations in China were in early development. The Company also owned the non-strategic business Snapper Inc., a lawn and garden equipment manufacturer. Cash proceeds of prior year operations and sale of business holdings had been invested in acquisition or development of the Company's primary communications and media businesses in Europe, Russia and Central Asia. Cash reserves had been substantially depleted by these investments, coupled with a historically high level of overhead spending. The Company faced a serious liquidity situation, compounded by the onset of semi-annual interest payment obligations for the Senior Discount Notes commencing in September 2002.

        During 2002, and in response to growing liquidity pressures, the Company implemented measures to monetize its interest in several non-core businesses. Sufficient cash was generated from these sales and from dividends received from remaining business operations to meet 2002 requirements, including payment in October 2002 of $11.2 million of interest then due on the Senior Discount Notes. The Company, however, continued to face serious liquidity pressures on entering 2003. Additional cash reserves were developed from previously described asset sales undertaken in 2003, which enabled the Company to pay $8.0 million of interest then due on its Senior Discount Notes and also eliminate nearly one-third of the Company's outstanding principal on the Company's Senior Discount Notes. The Company believes that its present strategy of monetizing its interest in its non-core media businesses, reduction of operating overheads, and reliance on cash dividends of core telephony business operations will both resolve remaining liquidity concerns and yield a stable, ongoing business focused, initially at least, on telecommunications services in Russia and Georgia. However, no assurances can be made that the Company's present strategy will be successful.

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Description of Business—Fixed Telephony

Overview

        The Company owns interest in fixed telephony operators in Russia and Georgia. These operators offer local telephony services, national and long distance telephony, transit services for a variety of telecommunications operators, and data communications services for businesses and individual customers. These operators provide services to stationary locations via copper, fiber optic or wireless loop connections. Certain of these businesses are further described as "Competitive Local Exchange Carriers" or CLECs, providing telephony services in markets also served by an incumbent monopoly carrier. A CLEC obtains telephone numbers and access to national or international telephone networks via interconnection with the incumbent monopoly operator.

        The following table summarizes the Company's principal competitive fixed telephony business ventures and subsidiaries at December 31, 2002 and the Company's voting interest percentage in each company at that date:

(1)

Each parenthetical notes the area of operations for each operational business venture or subsidiary.

(2)

The Company follows the consolidation method of accounting for this business operation within the Company's 2002 consolidated financial statements.

(3)

The Company follows the equity method of accounting for this business operation within the Company's 2002 consolidated financial statements.

(4)

Technocom accounted for its ownership interest in Teleport-TP using the consolidation method of accounting in the three months ended March 31, 2002, the equity method of accounting for the three months ended June 30, 2002 and the cost basis of accounting thereafter. See "Item 8: Financial Statements and Supplementary Data" and "Notes to Consolidated Financial Statements—Note 14 Commitments and Contingent Liabilities."

        Since January 1, 2003, as part of its restructuring efforts, the Company has divested its interests in ZAO Comstar and Technocom, Ltd. As a further step of this restructuring strategy, the Company expects to sell its interests in Telecom Georgia. The core businesses, PeterStar and BCL, will be retained and developed.

        To stay competitive in the fixed telephony business segment, the Company is required to make significant capital investment in order to construct, develop and maintain its network infrastructure and operational systems. Accordingly, the Company's capital expenditure program for its fixed telephony business segment, for the next twelve months ended June 2004, is anticipated to approximate $14.8 million and we anticipate that this amount will be funded by the cash reserves and the operating cash flows of the respective business ventures.

PeterStar (St. Petersburg, Russia)

        The Company owns a 71% equity interest in PeterStar. The remaining 29% is owned by Telecominvest, a telecommunications holding company with interests in over 30 telecommunications, media and technology companies in Russia.

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        Overview:    PeterStar is the leading CLEC in Russia's second largest city, St. Petersburg and is licensed to offer telecommunications services throughout the Northwest Region of Russia. PeterStar commands a significant share of the St. Petersburg market and a volume of business almost twice that of its nearest CLEC competitor.

        PeterStar operates a digital, fiber optic telecommunications network that is fully interconnected with the incumbent network of St. Petersburg Telephone Network (PTS, recently renamed North-West Telecom) and has direct and indirect connections via more than 1,200 kilometers of fiber optic cable in St. Petersburg with national and international switches.

        PeterStar is increasing the long-run stability of its business by expanding its own facilities network, thereby decreasing dependence on PTS. By year-end 2002, nearly 60% of PeterStar's customers were served via facilities owned and operated by PeterStar. The company is also aggressively introducing its own data transport, Internet and Voice-Over-IP (VoIP) services. These new generation services meet the steadily expanding demand for data and IP-based trafficking among commercial customers and provide a low-cost, high-function alternative to traditional circuit switched telephony. The PeterStar brand is well established in St. Petersburg as a hallmark for high quality service at competitive prices.

        PeterStar opened branch operations in Moscow in 2003 to expand services to those of its St. Petersburg customers with Moscow business interests. PeterStar anticipates further expansions into the Northwest region of Russia, exploiting its established St. Petersburg operational capacities, customer base and network. PeterStar's long-run strategy focuses on developing national-scale operations centered on its dominant position in the St. Petersburg area.

        The following table summarizes PeterStar's key operating and financial results for the last three years:

(1)

Excludes depreciation and amortization of the network infrastructure.

(2)

Amounts represent whole numbers.

(3)

In 2001, PeterStar lost its wholesale mobile operator traffic business to a competitor's network. This mobile transit traffic business represented a high margin business for the Company and as a result the loss of revenues had a significant impact on PeterStar earnings.

        Customers and Markets:    PeterStar provides integrated, high-quality telecommunications services to business and residential customers in the city of St. Petersburg. PeterStar is the sole land-line telecommunications services provider on Vasilievsky Island, a predominantly residential district in the city of St. Petersburg where it serves nearly all of the residential users. Although the tariffs of PeterStar in this area are regulated so as to be equal to those of PTS, PeterStar management believes that Vasilievsky Island represents a significant opportunity because of the large potential base of customers for its Internet and VoIP services.

        Customers are connected to the PeterStar network via direct fiber optic connection or via copper links to nearby fiber optic nodes. The method of connection depends on the service, availability of

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copper pairs, and traffic volume. Large corporate users with greater requirements are generally linked to the PeterStar network directly via fiber optic cable. This results in efficient, inexpensive, more reliable connections with high data transmission speeds. PeterStar implemented narrow band wireless local loop capabilities in 1999 and in first quarter 2003 launched wireless broad-band capabilities, thus enabling it to speedily extend services to customers not yet reached by its fiber networks. This capability allows rapid service deployment to new customers and reduces reliance on rented copper facilities provided by PTS.

        Services:    Services provided include local, national and international long distance voice telephony, data transfer, Internet access, and value added services such as Voice-Over-IP (VoIP) services. PeterStar offers both regular numbers (one line—one number), and serial numbers (several lines—one number). Several subscriber lines can be grouped into series, with one number assigned to the combined series. Serial numbers can support several simultaneous calls and are an effective solution for the offices of large companies, and information and reference systems.

        PeterStar has developed a number of telephony and data transmission services for its business customers, enabling them to connect to the PeterStar network via one or more digital circuits. These services include: ISDN services, broadband Internet access via its fiber network, digital dedicated circuit services (providing high communication quality with a flexible pricing policy), frame relay services (providing telephony at prices 20-30% lower than that for dedicated channels) and DSL services (providing high speed Internet access). Within this service line, PeterStar offers telephony equipment installation services (including the development of technical requirements and network design) at customer's offices, and after-sale support. PeterStar also offers dial-up Internet access (available to both its telephony subscribers and to the subscribers of other operators).

        PeterStar is the official distributor of Avaya equipment, enabling it to offer turn-key solutions for its customers (telecommunications services plus hardware). The equipment is sold to customers who use PeterStar network services. PeterStar also sells Ericsson, Cisco and General Datacom equipment.

        PeterStar-issued calling cards can be used in the following Russian cities—Moscow, St Petersburg, and Novgorod, as well as in the countries of Australia, Belgium, Denmark, Finland, France, Germany, Norway, Sweden and the United Kingdom.

        Network and Technology:    PeterStar's fully digital telephone network is built on the nodes of PTS network and has connections to the networks of other operators: Petersburg Transit Telecom, Telecom XXI, Metrocom, Golden Telecom, Rostelecom, and others. The PeterStar telephone network makes it possible to provide telephony services to customers over analog communication lines as well as over E1 digital trunks with the possibility of implementing ISDN functions.

        The PeterStar wireless access network ("WAN") is built using a cellular structure, with cells covering the St. Petersburg region and Leningrad oblast. Each cell contains a base station with one or more radio ports. Each radio port is equipped with sector antennas to implement the point-to-multipoint access scheme. Subscriber terminals enable between one and four subscriber lines to be connected. PeterStar WAN consists of two segments—1.5 GHz and 2.4 GHz. Currently, both networks connect 3,890 lines.

        PeterStar data and Internet access network covers St. Petersburg and the neighboring regions, such as Petrodvorets, Pavlovsk, Pushkin, Sestroretsk, Zelenogorsk, and Krondshtadt. The network has gateways to all carriers represented on the territory of St. Petersburg and the Leningrad oblast. At present, PeterStar possesses four Internet access nodes in order to access the Internet over dedicated switched circuits. The capacity of PeterStar Internet nodes is 1,680 simultaneous switched connections and 558 dedicated channels, 64 Kbps each. The Company has the following external Internet channels: Cable & Wireless—155 Mbps, Golden Telecom (TeleRoss)—100 Mbps and Rostelecom 100 Mbps. A VoIP node has been installed for 1,290 simultaneous connections.

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        The data network consists of a Frame Relay, ATM, and Gigabit Ethernet. The Frame Relay network uses 2 Mbps streams provided by PeterStar transport network as internode trunks. The equipment installed makes it possible to provide services on leasing dedicated circuits and Frame relay channels at a speed of N*64 Kbps (N = 1... 31). The ATM network is built on three switches combined in a ring with a speed of 622 Mbps. The PeterStar Gigabit Ethernet network makes it possible to construct closed corporate networks for business and banking structures and for wireless broadband access to PeterStar Internet nodes at speeds of 10/100 Mbps over fiber communication lines.

        Competition:    There are a number of competitive local exchange carriers operating in St. Petersburg, including PTT, Golden Telecom, Comincom-Combellga, Equant, Metrocom and the Company's BCL business venture. Although targeting the same market segments, PeterStar remains the market leader amongst St. Petersburg operators, boasting the widest network coverage after PTS (the local incumbent operator) with direct access to end users. PeterStar also competes with PTS on certain services.

        In 2001, PeterStar lost its wholesale mobile transit business to PTT, which had the same shareholder as two out of three St. Petersburg mobile operators: Delta Telecom and North West GSM. At the time, mobile transit traffic provided a significant portion of PeterStar's operating margins, and the loss had an immediate negative impact on PeterStar's earnings. Nevertheless, PeterStar continued to show healthy financial results and strong revenue growth. By year-end 2002, revenues had recovered to near pre-2001 levels, based principally on growth in conventional telephony and new data services.

        Licenses:    PeterStar holds various material licenses to provide telecommunications, telematic, data transmission and video conference services; it also holds a license to lease circuits. These licenses are generally granted by various Russian regulatory authorities for 5 to 10 years and are typically renewable through negotiations.

        PeterStar's license for local and national telephony connections contains the provision that PeterStar shall, by the end of 2001, deploy 70% of 300,000 telephone numbers originally allowed for PeterStar's use. PeterStar did not meet the terms of this provision. PeterStar and Company management believe that the telephone number deployment level set out in the license is permissive rather than mandatory; setting an upper limit on PeterStar's use of telephone numbers rather than imposing a requirement to deploy numbers to that limiting level. This interpretation is supported by the fact that PeterStar's license as a whole has not been challenged in annual reviews by the Russian regulatory authority, despite the fact that the regulator did note PeterStar's non-conformity with the aforementioned number deployment provision in its July 2002 review. Furthermore, this authority is directly involved in all continuing telephone number deployment activities, including those of PeterStar. However, if the aforementioned license provision were ever to be interpreted as expressing a mandatory deployment requirement, this could have an adverse effect on PeterStar. While it is highly unlikely that the license would be revoked under such circumstances, PeterStar could be obligated to purchase and implement telephone numbers up to the level set out in the aforementioned license provision. This could entail substantial unplanned and uncompensated expense. PeterStar could also be at risk of having the maximum limit on its telephone numbering capacity lowered from the current level of 300,000. This could impose limitations on PeterStar's future capacity to grow revenues associated with telephone number based service offerings.

        The granting authorities have the power to terminate the licenses at any time, subject to certain restrictions. PeterStar cannot operate its business without these licenses. See "—Risks Associated with the Company—Licenses on which the Company's business depend could be cancelled or not renewed, resulting in material impairment to the value of these businesses."

Baltic Communications Limited (St. Petersburg, Russia)

        Baltic Communications Limited ("BCL") is a wholly owned subsidiary of MIG.

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        Overview:    BCL is a local and long distance telephony operator in St. Petersburg, Russia. In addition to St. Petersburg, BCL serves clients from the Leningrad oblast, the greater metropolitan area of St. Petersburg. BCL provides local, long-distance, and international direct dial telephony, Internet, data transfer and leased line services as well as "carrier-to-carrier" services to traditional telephony operators, IP telephony operators and Internet providers. Furthermore, BCL offers pre-paid and credit card payphones and calling card services to the business and consumer markets.

        BCL's current strategy focuses on rapidly deploying Internet services such as Voice over IP calling cards and high bandwidth dedicated Internet connections. This strategy responds to customer demand for integrated data and voice service packages, and increasing demand for Internet/IP solutions. It also aims to decrease BCL's dependence on traditional long distance and transit services, where margins are continually falling.

        The following table summarizes BCL's key operating and financial results for the last three years:

(1)

Excludes depreciation and amortization of the network infrastructure.

(2)

Amounts represent whole numbers.

        Customers and Markets:    BCL's customer base consists of three main categories: (i) business customers, (ii) other telecommunications service providers, and (iii) consumers.

        BCL's business customer base is a mix of foreign companies and leading Russian businesses, typically active in international business and trading. BCL provides a full range of services and solutions to these clients, from basic telephony services to the provision of turn-key installations including office PBXs and LAN/WAN services. New Internet and IP-based services being introduced by BCL are targeted especially at meeting needs of this customer segment.

        BCL works with other carriers and service providers, both internationally and within Russia, providing them with a range of solutions including IP telephony, IP capacity, bandwidth and last mile service. BCL also houses and supports the Reuters financial information node in St. Petersburg, as well as the Cable & Wireless Managed Private Line, ATM and Russia.net wholesale IP nodes.

        Foreign tourists, travelers and local residents needing to make national and international telephone calls are also served by BCL's network of pre-paid and credit card pay phones, located in the main tourist and transport centers of St. Petersburg as well as on the main highway to Finland and at the Russian-Finnish border crossings. In addition, BCL has successfully introduced a range of long-distance and international IP telephony calling cards, distributed through 300 dealer points in St. Petersburg to local residents, students and tourists.

        Services:    BCL's traditional business is dedicated telephony services and for this it has its own switching and international transmission facilities in St. Petersburg, acting as a gateway for corporate customers in both St. Petersburg and the Leningrad region. The BCL dedicated network consists of an international and a local switch and international fiber optic transmission to its carrier partners via Finland. BCL's primary international carrier relationships are with Cable & Wireless Communications

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of the United Kingdom, TeleDanmark of Denmark, Sonera of Finland and Telia of Sweden. BCL has also implemented a digital overlay network with a local switch interconnected with the St. Petersburg city phone company, PTN, in order to provide local numbering capacity to its customers. Additionally, BCL has successfully developed international IP telephony services in conjunction with iBasis and Primus of the U.S.A. and Dentel of Germany.

        BCL has continued focusing on IP-based solutions for its business customers and has expanded its Internet network and bandwidth in conjunction with Cable & Wireless, Golden Telecom and Relcom as well as through an IP peering relationship at the St. Petersburg Internet exchange, SPB-IX. BCL provides dial-up, ISDN, leased line and Ethernet access to the Internet using equipment from Cisco.

        BCL provides a frame relay service between St. Petersburg and Moscow in conjunction with IAS, the Concert data partner for Russia, and also co-operates with Cable & Wireless to support Frame Relay, ATM, Managed Private Line and IP access services to Moscow and internationally. BCL provides X.25 services, both within St. Petersburg and internationally, which are typically used for airline ticketing and hotel reservation systems.

        BCL has its own SDH based fiber optic transport network covering all of the main business sectors of St. Petersburg. BCL also has its own microwave radio network for connecting larger customers located in the suburbs of St. Petersburg and in the Leningrad region. In addition, BCL rents local copper access lines from PTN to connect smaller customers and also has its own wireless local loop access for connecting customers in areas where PTN cannot provide service.

        BCL provides a high level of service support and a single point of contact for all of its customers through its Russian and English speaking customer service team and also provides a 24 hours, 7 days per week bilingual helpdesk.

        Network and Technology:    The BCL network system includes trunk and last mile networks. The trunk network comprises a transport network and a high capacity end-user network.

        BCL's transport network is based on a 95-kilometer fiber optic network and a microwave network. The BCL network covers all of the key business areas of St. Petersburg. The SDH (synchronous digital hierarchy) transport network currently comprises four STM-1 (synchronous transfer mode-1) rings, and the Ethernet transport network is based on direct links to the fiber optic cable network. The BCL network in the Vyborg region consists of a 4-kilometer fiber optic network and 3 microwave links. In the Vsevolzhsk region, BCL provides service over a microwave link.

        BCL operates a last mile network for its dedicated and overlay voice services, as well as for data and internet services. BCL provides Domestic Long Distance and International calls services through a dedicated telephony network. BCL utilises a number of E1 channels and copper last mile circuits leased from North-West Telecom, LenSvyaz (Vyborg), Sonera, Rascom and Cable & Wireless.

        The Overlay telephony network has a total installed capacity of 3,000 customer lines and is connected to the PSTN via North-West Telecom, Petersburg Transit Telecom and PeterStar. Local numbering capacity is also provided to BCL by these 3 carriers (2,100 numbers).

        The Data transmission provides X.25 protocol data transmission services and Internet and Voice over IP services. BCL's network connects to the internet by 3 diversely routed links, to the main peering point in St. Petersburg. BCL also has an internet node in Vyborg, supporting dial up, leased line and Ethernet access.

        Competition:    BCL has licenses for the provision of dedicated and overlay telephony services, as well as for private lines, data and telematic services, including IP telephony. The licenses allow BCL to develop its services in St. Petersburg and the Leningrad region, as well as in Moscow for overlay telephony, private line, data and telematic services. BCL faces the same competitors and competitive issues that confront the Company's PeterStar business.

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        Licenses:    BCL holds various material licenses to provide telecommunications, telematic, data transmission and video conference services: It also holds a license to lease circuits and to perform construction works. These licenses are generally granted by various Russian regulatory authorities for 2 to 6 years and are typically renewable through negotiations. The granting authorities have the power to terminate the licenses at any time, subject to certain restrictions. BCL cannot operate its business without these licenses. See "—Risks Associated with the Company—Licenses on which the Company's business depend could be cancelled or not renewed, resulting in material impairment to the value of these businesses."

Telecom Georgia (Tbilisi, Georgia)

        The Company owns 30% of Telecom Georgia. The remaining 70% is owned by the Georgian state government (51%) and Bulcom-c Ltd. (19%) a private Cyprus company.

        Overview:    Telecom Georgia is an international and long distance telephony service provider in Georgia, with more than 1,100 international channels and direct interconnect arrangements with major international long distance carriers including AT&T, Sprint, MCI Worldcom, British Telecom, Deutsche Telecom, France Telecom and Telecom Italia.

        The following table summarizes Telecom Georgia's key operating and financial results for the last three years:

(1)

Excludes depreciation and amortization of the network infrastructure.

(2)

Amounts represent whole numbers.

        The government of Georgia has announced its intention to privatize its 51% stake in Telecom Georgia. The initial two attempts to privatize were not successful and the government is not presently pursuing any auction or other privatization measure. The Company believes that privatization may be delayed for an indefinite period.

        Customers and Products:    Telecom Georgia markets its services on the basis of a strong advertising campaign, competitive tariffs and high quality service, focused equally on corporate and residential subscribers. The company has exclusive rights to the 810 international long distance dialing code, which is the most known and frequently used long distance prefix.

        Network and Technology:    Telecom Georgia's long distance telecommunications network splits Georgia into eastern and western zones, with digital transit switches in each zone that are connected via SDH microwave. In turn, they are linked in Tbilisi with Intelsat and Turksat earth stations. Telecom Georgia also has connections to fiber capacity both within the country and to international carriers.

        Competition:    Although Telecom Georgia remains a significant provider of international and long distance services, barriers to entry to this market are very low and competition has increased significantly since the opening of the market in 1998. Currently there are several new entrants offering international telephone service, including Egrisi, Goodwillcom, and Global Erty. Telecom Georgia competes primarily on the basis of tariffs, contractual relationships and aggressive marketing strategies.

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Although Telecom Georgia has maintained a significant market share in international and long distance telephony services in Georgia, its revenue stream and margins have continually eroded due to competition and rapidly declining traffic termination rates.

        In the third quarter of 2002, a Georgian government-owned telephone operator, GEC, began to offer services competing with those of Telecom Georgia. GEC had previously utilized Telecom Georgia to process a significant portion of its telephony traffic. Telecom Georgia believes that GEC has a significant competitive advantage over Telecom Georgia due to its customer base, brand and country wide last mile capabilities.

ZAO Comstar (Moscow, Russia)

        On April 24, 2003, the Company sold its 50% ownership interest in Comstar.

Technocom Ltd.

        On June 27, 2003, the Company sold its interest in Technocom Ltd. ("Technocom"). Technocom was a wholly owned subsidiary that held ownership interests in several Russian telecommunication enterprises. The most significant of its ownership interest was a 49.94% equity interest (56% voting interest) investment in the satellite-based transport operator Teleport-TP, a Moscow-based long distance and international operator targeting the commercial sector and other telecommunications operators with its satellite-based telecommunications services. The Company's interest in Technocom Limited was sold to Grosco Holdings, a Cypriot company, for cash consideration of $4.5 million. Simultaneous with the sale of Technocom, the Company entered into agreements intended to settle all historical claims concerning Technocom-related businesses; including claims arising from the litigation in Guernsey that Technocom initiated in 2002.

Description of Business—Wireless Telephony

Overview

        The Company owns interest in wireless telephony operators in Russia and Georgia. These operators offer mobile telephony and roaming services, and related information services for businesses and individual customers. These operators provide services via wireless mobile telephony networks, and have an operating process that is substantially different from that of the Company's fixed telephony businesses.

        The following table summarizes the Company's wireless telephony principal operating business ventures and subsidiaries at December 31, 2002 and the Company's voting interest percentage in each company at that date:

(1)

Each parenthetical notes the area of operations for each operational business venture or subsidiary.

(2)

The Company follows the equity method of accounting for this business operation within the Company's 2002 consolidated financial statements.

        As a further step in its restructuring strategy, the Company expects to sell its interests in Tyumenruskom. The core business, Magticom, will be retained and developed.

        To stay competitive in the wireless telephony business segment, the Company is required to make significant capital investment in order to construct, develop and maintain its network infrastructure and operational systems. Accordingly, the Company's capital expenditure program for its wireless telephony

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business segment, for the next twelve months ended June 2004, is anticipated to approximate $14.3 million and we anticipate that this amount will be funded by the cash reserves and the operating cash flows of the respective business ventures.

Magticom (Tbilisi, Georgia)

        The Company owns a 70.41% interest in Telcell Wireless LLC (with Western Wireless holding the balance), which in turn is a 49% shareholder of Magticom. The remaining 51% is owned by Magti, Ltd. and G-Com.

        Overview:    Magticom operates and markets mobile voice communication services to private and commercial users nationwide in Georgia utilizing that utilizes a GSM telephony infrastructure. Magticom's network coverage supports roaming throughout Georgia.

        The following table summarizes Magticom's key operating and financial results for the last three years:

(1)

Excludes depreciation and amortization of the network infrastructure.

(2)

Amounts in thousands.

        Magticom began to operate and offer services in the 1800 MHz range in 2000 (in addition to its existing 900 MHz range), thereby providing a substantial expansion to available capacity. In 2002, Magticom continued to extend its service coverage from urban areas into surrounding locales.

        Management believes the comparatively low mobile penetration level and telephone density in Georgia, together with competitive advantages in coverage and distribution, will support steady subscriber growth for Magticom.

        Services:    Magticom's services are marketed through a combination of tariffing, distribution, entry cost and bundled service strategies oriented towards targeted individuals, corporations and organizations. Magticom sells wireless phones at a small mark-up to cost. This pass-through strategy encourages quick market penetration and early acceptance of wireless telephony as a desirable alternative or addition to existing fixed telephony service.

        Customers and Markets:    Magticom offers mobile telephony and roaming services to business and consumer users in Georgia. The company's wide range of coverage in Georgia supports country-wide roaming and distinguishes Magticom from its competitors. Most service is pre-paid via deposits or scratch-cards. Magticom frequently introduces innovative scratch card pricing and promotion programs to continually adapt its effective rate structure to meet current consumer interests. For its high-end customers, Magticom offers wireless internet and messaging services. In 2003 it introduced a series of information services for consumers, including games, sport scores and horoscopes. These have proven to be immediately attractive. Magticom has distinguished itself by providing access into remote areas of the Caucasus mountains providing basic telephone access for previously isolated villages.

        Network and Technology:    Magticom's network operates using the GSM standard, which is the leading standard for wireless service throughout Western Europe and Asia and allows Magticom's

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customers to roam throughout Europe. The establishment of GSM as the leading standard in terms of number of networks and subscribers in Asia and Europe, as well as facilities such as automatic global roaming between networks, provides a comparative advantage over competing digital wireless systems or analog systems (such as AMPS) which cannot readily offer international roaming service. Magticom's network covers essentially all populated areas of Georgia.

        Competition:    Magticom's primary competitors are Geocell, a Georgian-Turkish business venture using a GSM system, and an existing smaller provider of wireless telephony services which uses the AMPS technology in its network, both of which commenced service prior to Magticom. Competition between operators has been on the basis of coverage but is transitioning to a combination of pricing, services and brand recognition.

        Magticom was the second GSM entrant into the Georgian market and therefore had the disadvantage of competing with the established wireless provider. Barriers to entry in wireless telephony markets are very high, since the number of licenses for a particular market is typically limited and initial establishment of a wireless system requires substantial capital expenditures. Therefore, although Magticom faced difficulties in gaining market share from the initial operator in this market, Magticom does not anticipate that the Georgian market will become further fragmented because of these barriers to entry. Magticom is now the market leader in Georgia, based on revenues and number of subscribers.

        License.    Magticom holds material licenses to provide telecommunications. These licenses are generally granted by regulatory authorities for a ten year time period and are typically renewable through negotiations. The granting authorities have the power to terminate the license any time, subject to certain restrictions. Magticom cannot operate its business without these licenses. See "—Risks Associated with the Company—Licenses on which the Company's business depend could be cancelled or not renewed, resulting in material impairment to the value of these businesses."

Tyumenruskom (Tyumen, Russia)

        The Company owns a 46% interest Tyumenruskom. The remaining 54% is owned by Tyumentelecom and Rustel.

        Overview:    Tyumenruskom operates and markets mobile voice communication services to private and commercial users in the Tyumen region of Russia utilizing a D-AMPS telephony infrastructure.

        The following table summarizes Tyumenruskom's key operating and financial results for the last three years:

(1)

Excludes depreciation and amortization of the network infrastructure.

(2)

Amounts represent whole numbers.

        The business venture commenced full commercial operations in 2000. Possessing only a D-AMPS license, the venture is in a disadvantageous competitive position compared to operators offering more feature-rich and roaming-capable GSM services. However, despite competition from the local GSM operator, the company was able to sustain steady growth in 2002, increasing the customer base to 14,000, as compared to 8,440 subscribers as of fiscal year-end 2001. The likelihood of continued growth at this rate, however, is limited as GSM competition in the Tyumen region intensifies. A second GSM operator, MTS, commenced operations in late 2002. This has significantly increased the competitive pressure in the marketplace and a third GSM operator is expected to commence operations in mid-third quarter 2003.

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        Tyumenruskom has applied for a GSM 1800 license, which, under current Russian legislation can be granted to the existing AMPS operators in Russia. Upgrading to this technology would significantly improve the competitiveness of the business venture; however, the upgrade would require a significant capital investment. The prospects of satisfactory return on such investment are sharply limited by the already extensive GSM competition in the region. In consideration of these factors and the limited growth possibilities in Tyumen, the Company has chosen to market its interests in Tyumenruskom rather than invest in further development. The venture's customer base and service infrastructure will be of value to other operators now competing in the Tyumen market.

Description of Business—Cable TV

Overview

        The following table summarizes the Company's Cable TV principal operating business ventures and subsidiaries at December 31, 2002 and the Company's voting interest percentage in each company at that date: