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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

COMMISSION FILE NUMBER 000-22877

UPC POLSKA, INC.
(DEBTOR-IN-POSSESSION AS OF JULY 7, 2003)
(Exact Name of Registrant as Specified in Its Charter)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 770-4001

        Indicate by check ý 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 ý    No o

The number of shares outstanding of UPC Polska, Inc.'s common stock as of June 30, 2003, was:

Common Stock 1,000

UPC POLSKA, INC.
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED JUNE 30, 2003

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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

UPC POLSKA, INC.
CONSOLIDATED BALANCE SHEETS
(STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)

ASSETS

See accompanying notes to unaudited consolidated financial statements.

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UPC POLSKA, INC.
CONSOLIDATED BALANCE SHEETS
(STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)

LIABILITIES AND STOCKHOLDER'S DEFICIT

See accompanying notes to unaudited consolidated financial statements.

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UPC POLSKA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)

See accompanying notes to unaudited consolidated financial statements.

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UPC POLSKA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(STATED IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)

See accompanying notes to unaudited consolidated financial statements.

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UPC POLSKA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)

See accompanying notes to unaudited consolidated financial statements.

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UPC POLSKA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE THREE AND THE SIX MONTHS ENDED JUNE 30, 2003

(UNAUDITED)

1.     GENERAL

        UPC Polska, Inc. (previously @Entertainment, Inc.) is a Delaware corporation which was established in May 1997. UPC Polska, Inc. succeeded Poland Communications, Inc. ("PCI") as the group holding company to facilitate an initial public offering of stock in the United States and internationally (the "IPO"). PCI was founded in 1990 by David T. Chase, a Polish-born investor. On August 6, 1999, United Pan-Europe Communications N.V. ("UPC") acquired all of the outstanding shares of UPC Polska, Inc. Until December 2, 2002, UPC Polska, Inc. was wholly owned by UPC. On December 2, 2002, UPC transferred all issued shares in the capital of UPC Polska, Inc. to UPC's wholly owned subsidiary, UPC Telecom B.V. ("UPC Telecom"). UPC also assigned to UPC Telecom all of the UPC Polska Senior Discount Notes due 2009, UPC Polska Series C Discount Notes due 2008 and UPC Polska Senior Notes due 2008 (collectively, the "UPC Polska Notes"), previously owned by UPC, and all rights and obligations arising from loan agreements between UPC Polska Inc. and UPC. References to "UPC" mean United Pan-Europe Communications N.V. References to "UPC Telecom" mean UPC Telecom B.V. References to the "Company" or "UPC Polska" mean UPC Polska, Inc.

2.     GOING CONCERN AND LIQUIDITY RISKS

        These unaudited consolidated financial statements have been prepared on a going concern basis. Due to the large capital investment required for the construction and acquisition of the cable networks, acquisition of programming rights and the administrative costs associated with commencing D-DTH and programming operations, the Company has incurred substantial debt and significant operating losses since inception. There is a substantial uncertainty whether UPC Polska's sources of capital, working capital and projected operating cash flow would be sufficient to fund the Company's expenditures and service the Company's indebtedness over the next years. Accordingly, there is substantial doubt regarding the Company's ability to continue as a going concern. UPC Polska's ability to continue as a going concern is dependent on (i) the Company's ability to restructure its outstanding indebtedness to third parties and affiliates and (ii) the Company's ability to generate the cash flows required to enable it to maintain the Company's assets and satisfy the Company's liabilities, in the normal course of business, at the amounts stated in the consolidated financial statements. The report of the Company's independent accountant, KPMG Polska Sp. z o.o., on the Company's consolidated financial statements for the year ended December 31, 2002, includes a paragraph that states that the Company has suffered recurring losses from operations and has a negative working capital and a net capital deficiency that raises substantial doubt about the Company's ability to continue as a going concern.

        Several of the Company's Polish subsidiaries have statutory shareholders' equity less than the legally prescribed limits because of accumulated losses. As required by Polish law, the management of these companies will have to make decisions on how to increase the shareholders' equity to be in compliance with the Polish Commercial Code. The Company is currently considering several alternatives, including the conversion of intercompany debt into equity, in order to resolve these deficiencies.

THE PLAN OF REORGANIZATION

        In order to address financial issues facing the Company, on July 7, 2003, the Company filed a voluntary petition for relief under Chapter 11 ("Chapter 11") of the United States Bankruptcy Code (the "U.S. Bankruptcy Code"), and on July 8, 2003, the Company filed a pre-negotiated plan of reorganization ("Plan of Reorganization"), with the United States Bankruptcy Court for the Southern District of New York (the "U.S. Bankruptcy Court") (Case No. 03-14358) and on July 28, 2003, the

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Company filed a disclosure statement ("Disclosure Statement") with the U.S Bankruptcy Court. The Plan of Reorganization was filed jointly by the Company and the UPC Telecom's subsidiary UPC Polska Finance, Inc. ("Polska Finance"). During the pendency of the bankruptcy proceedings, the Company remains in possession of its properties and assets and the management of the Company continues to operate the business of the Company as debtor-in-possession. As a debtor-in-possession, the Company is authorized to operate the business of the Company, but may not engage in transactions outside the ordinary course of business without approval of the Bankruptcy Court.

        The Plan of Reorganization contemplates a restructuring of the Company's balance sheet, including the following principal terms:

•

third party holders of the UPC Polska Notes (excluding UPC Telecom) will receive $80.0 million in cash and $60.0 million in new 9.0% Senior Notes due 2006 (the "New Senior Notes") co-issued by the Company and Polska Finance, in exchange for the outstanding UPC Polska Notes held by such persons;



•

UPC Telecom and two other subsidiaries of UPC, Belmarken Holding B.V., ("Belmarken") and UPC Operations B.V. will receive $15.0 million in cash and 100% of the newly issued common stock of reorganized UPC Polska, Inc. in exchange for the cancellation of all of the loans and affiliated debt of UPC Polska and all of the UPC Polska Notes held by UPC Telecom; and



•

holders of all allowed general unsecured claims, including Reece Communications, Inc. ("RCI"), as holder of a $6.0 million principal amount of note issued by UPC Polska (the "RCI Note") will receive the amount of cash and New Senior Notes per $1,000 claim amount of each allowed general unsecured claim against the Company which is equal to the amount of cash and New Senior Notes per $1,000 claim amount payable to holders of UPC Polska Notes (other than the UPC Telecom owned UPC Polska Notes).

        Consummation of the Plan of Reorganization is subject to various conditions.

        Upon completion of the proposed recapitalization of the Company, the New Senior Notes are expected to be the only long-term debt of the Company.

        As a result of the Company's filing for relief under Chapter 11, all the Company's outstanding debt became due and payable. The Company is entitled to various protections under the U.S. Bankruptcy Code, including an automatic stay, which subject to certain exceptions, prohibits creditors from taking actions to collect or enforce claims against the Company during the pendency of the Chapter 11 proceedings.

        For more information about the Plan of Reorganization and restructuring of UPC Polska, please see the Disclosure Statement which was filed as an exhibit to the Company's Form 8-K, dated July 28, 2003.

        The accompanying pre-petition consolidated financial statements as of and for the period ended June 30, 2003 have been prepared on a going concern basis. As a result of entering into the Chapter 11 proceedings on July 7, 2003, the Company's consolidated financial statements during the restructuring process will be prepared in accordance with AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") and the Company will continue to apply generally accepted accounting principles as a going concern which assumes the realization of assets and the payment of liabilities in the ordinary course of business. SOP 90-7 requires that pre-petition liabilities that are subject to compromise be adjusted to amounts expected to be allowed as claims in the Chapter 11 case and segregated in the Company's balance sheet as "Liabilities

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Subject to Compromise". This SOP also requires that interest expense be reported only to the extent that it will be paid during the bankruptcy proceedings or to the extent that it is an allowed claim. In addition, revenues, expenses, realized gains and losses, and provisions for losses resulting from the restructuring will be reported separately as reorganization items in the statements of operations.

AGREEMENT FOR RESTRUCTURING

        In the fourth fiscal quarter of 2002, certain of the Company's main creditors, including UPC and its affiliates, UPC Telecom and Belmarken, and certain other holders of the UPC Polska Notes, engaged in discussions about the restructuring of the Company's indebtedness. In early 2003, the Company directly and through its advisors started discussions with representatives of, among others, UPC Telecom, Belmarken and a group of holders of the UPC Polska Notes regarding the terms of the restructuring.

        Continuing into the second fiscal quarter of 2003, the Company held further discussions with representatives of UPC Telecom, Belmarken and certain holders of the UPC Polska Notes about the process for, and the terms of, a recapitalization of the Company and a restructuring of the Company's indebtedness. These discussions culminated in the execution, on June 19, 2003, of a restructuring agreement (the "Restructuring Agreement"), which was extended to an additional creditor on July 2, 2003. The Restructuring Agreement provides for a restructuring substantially on the same terms contained in the Plan of Reorganization.

        In the Restructuring Agreement, the parties agreed to implement the proposed restructuring through a plan of reorganization under Chapter 11. UPC Telecom and Belmarken and the participating noteholders also agreed subject to terms and conditions of a Restructuring Agreement, to vote their claims in favor of the Plan of Reorganization. As of the date of this filing, the participating noteholders (excluding UPC Telecom) represented approximately 75% of all outstanding UPC Polska Notes held by third parties that are not affiliates of the Company (approximately 17% of all outstanding UPC Polska Notes are held by UPC Telecom).

        The restructuring contemplated by the Restructuring Agreement is subject to various closing conditions.

SUMMARY OF STATUS OF THE RESTRUCTURING

        As of the date of filing of this Quarterly Report on Form 10-Q, the restructuring has not been completed, nor has the Plan of Reorganization been confirmed by the U.S. Bankruptcy Court. The Company presently expects that the Plan of Reorganization will become effective and the restructuring will be completed by the end of 2003.

        If the Company is not able to complete the restructuring contemplated by the Plan of Reorganization, the Company might be required to liquidate or take other restructuring actions. These may have a greater adverse effect on the Company's financial condition and results of operations and the value of its debt than the restructuring contemplated by the Plan of Reorganization.

        BACKGROUND TO RESTRUCTURING

        During 2001, the Company reviewed its long term plan for all segments of its operations and identified businesses which were profitable on an operating profit basis and businesses which required extensive additional financing to become profitable. The Company also assessed its ability to obtain additional financing on terms acceptable to it. These reviews resulted in a determination that, as of that point, the Company's only profitable business on an operating profit basis was cable television and it

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could not provide further financing to its D-DTH and programming businesses. As a result, the Company changed its business strategy towards its operating segments. The Company decided to dispose of its D-DTH and programming businesses and revised its business strategy for cable television from aggressive growth to a focus on achievement of positive cash flow.

        Even after the disposal of its D-DTH and programming businesses, the Company faced substantial financial issues. The Company had substantial payment obligations on its third party and affiliated company debt commencing in 2004, as well as significant commitments under operating leases and programming rights. Under the contractual terms of the UPC Polska Notes, interest payments aggregate to approximately $50.8 million per annum in 2004 and approximately $69.2 million per annum in 2005 and thereafter. At June 30, 2003, the unpaid accrued and capitalized interest owing to UPC Telecom and Belmarken aggregated to $140.4 million.

        In prior years, UPC and Belmarken permitted the Company to defer payment of interest due from the Company. In addition, UPC Telecom and Belmarken have agreed to permit such deferral until the earlier of (A) April 1, 2004 or (B) the occurrence of any other event of default under any of the Company's loans from UPC Telecom or Belmarken, or any acceleration of debts in excess of $15.0 million under any agreement evidencing debt of the Company. Under the Indentures governing the UPC Polska Notes and the agreements governing the loans payable to UPC Telecom and Belmarken, the Company's filing of a voluntary petition for relief under Chapter 11 on July 7, 2003 created an event of default. Consequently, waivers received from UPC Telecom and Belmarken expired on July 7, 2003. Due to this fact, the entire indebtedness of the Company, has been classified as a short-term liability as of June 30, 2003.

        In February 2003, PCI elected to satisfy and discharge the Poland Communications Notes ("PCI Notes") in accordance with the Indenture governing PCI Notes (the "PCI Indenture"). On March 19, 2003, the Company deposited with the PCI Indenture trustee $15.8 million, an amount to be held in trust and sufficient to pay and discharge the entire indebtedness of the PCI Notes plus accrued interest at maturity (November 1, 2003). Since PCI is not a party to the Plan of Reorganization, PCI's obligation to pay the PCI Notes as described above are not affected by the Chapter 11 case. On the Company's consolidated balance sheet as of June 30, 2003, restricted cash of $15.7 million includes $15.1 million held in an escrow account with the PCI Indenture trustee. As a result of the discharge of the PCI Notes, PCI has been released from its covenants contained in the PCI Indenture. The remaining part of restricted cash is a deposit held as a collateral for guarantee for the rent of the Company's office space.

        The RCI Note bears interest of 7% per annum and matures in August 2003. UPC is the guarantor of the note. Since an event of default occurred under UPC's indentures, which was not cured or waived within the applicable grace period, a cross-default occurred under the RCI Note. As a result, RCI had the right to receive interest at the default rate of 12% per annum and to accelerate the repayment of the RCI Note. On January 15, 2003, RCI filed a complaint in the Superior Court in New Castle County, Delaware against the Company regarding its default on the RCI Note. The demand was made for immediate payment in full of the unpaid $6.0 million principal amount of the RCI Note together with all accrued and unpaid interest at the default rate. The litigation was formally served on January 29, 2003. On February 25, 2003, a default judgment was entered against the Company in the amount of $6,110,465.60 (representing the outstanding principal and accrued interest from January 1, 2003 through February 25, 2003) plus an unidentified amount for "all other costs of this action". The Company has not paid any amounts demanded by RCI, or filed responsive pleadings in the litigation. RCI started at the end of June 2003 a procedure in the District Court of Warsaw to enforce the default

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judgment. Since UPC Polska filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code, this procedure is covered by an automatic stay and the judgment will be covered by the Chapter 11 process.

        The Company, since its acquisition by UPC, has relied completely on funding from its shareholder UPC and UPC's affiliates. The Company believes it will not be able to obtain significant funding from UPC in the foreseeable future. UPC has reviewed its funding requirements and possible lack of access to debt and equity capital in the near term and has modified its business and funding strategies. As a result of its financial circumstances, on December 3, 2002, UPC filed a petition for the relief under Chapter 11 of the U.S. Bankruptcy Code and a petition for a moratorium on payment and for a plan of compulsory composition (Akkoord) under Dutch Bankruptcy law. The Company understands that UPC expects the restructuring contemplated by the Chapter 11 and Akkoord plans to be completed promptly after applicable appeal periods and procedures have been completed. However, the Chapter 11 and Akkoord proceedings are not yet final. An appeal has been made to the Dutch Supreme Court in respect of the Akkoord, and consummation of the restructuring contemplated by the Chapter 11 and Akkoord plans is subject to various conditions. Accordingly, the Company cannot make any assurance that these conditions will be satisfied or that UPC's restructuring will be consummated.

        Although the Company had anticipated being able to rely on UPC to meet its payment obligations, given UPC's liquidity concerns and funding limitations, the Company is not certain that it will receive the necessary (or any) financing from UPC, even if UPC's restructuring is consummated. Accordingly, in order to continue its operations, the Company believes it needs to restructure its outstanding indebtedness to UPC Telecom, Belmarken, RCI and the holders of the UPC Polska Notes. If the Company is unable to successfully restructure its debt in accordance with the Plan of Reorganization or rely on UPC for financial support, it will have to meet its payment obligations with cash on hand, funds obtained from public or private debt and bank financing or any combination thereof, or to consider liquidation or other restructuring actions. However, the Company has limited sources of funding available to it outside of its operating cash flows.

3.     MERGER OF D-DTH BUSINESS

        On August 10, 2001, the Company, UPC and Group Canal+ S.A. ("Canal+"), the television and film division of Vivendi Universal, announced the signing of a Shareholder Agreement and Contribution and Subscription Agreement ("Definitive Agreements") to merge their respective Polish digital satellite direct-to-home ("D-DTH") platforms, as well as the Canal+ Polska premium channel, to form a common Polish D-DTH platform (the "Canal+ merger"). The transaction contemplated by such agreements was consummated on December 7, 2001. As part of the transaction, the Company, through its affiliate Polska Telewizja Cyfrowa Wizja TV Sp. z o.o. ("PTC"), contributed Wizja TV Sp. z o.o. and UPC Broadcast Centre Ltd., the Company's Polish and United Kingdom D-DTH businesses, respectively, to Telewizyjna Korporacja Partycypacyjna S.A. ("TKP"), the Polish subsidiary of Canal+. The Company received 150.0 million Euros (approximately $133.4 million as of December 7, 2001) in cash and PTC received a 25% ownership interest in TKP upon receipt of court approval and other legal matters in connection with the issuance of new TKP shares.

        In connection with the requirements of the Definitive Agreements, the Company was required to fund 30.0 million Euros ($26.8 million as of December 31, 2001) to TKP. On February 1, 2002, the Company and Canal+ completed all Polish legal formalities in connection with the transaction. On the same day, the Company funded TKP with 30.0 million Euros (approximately $26.0 million as of February 1, 2002) in the form of a shareholder loan ("JV loan") and registered its 25% investment in

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TKP with the Commercial Court in Poland. The Company included the value of the JV loan in its valuation of the fair value of its 25% investment in TKP. The Company valued its 25% ownership interest at fair market value as of the acquisition date (December 7, 2001) at 30.0 million Euros (approximately $26.8 million as of December 31, 2001). The Company accounts for this investment using the equity method. As a result of the recognition of the Company's share in TKP's losses the book value of this investment was zero as of June 30, 2003.

        On February 12, 2003, the Company and Canal+ agreed to certain changes to their agreements governing TKP, including a change to TKP's capitalization and the manner in which proceeds from any sale of TKP would be distributed among its shareholders, to retain the original economic structure of the shareholders' investments, following the capitalization. The Company and Canal+ agreed that upon the sale of their investment in TKP the sales proceeds will be distributed in the following proportion:

•

if the proceeds are less than or equal to 270.0 million Euros, PTC will receive an amount corresponding to 30/270 of the proceeds (11.1%), and



•

if the proceeds are higher than 270.0 million Euros, the excess over 270.0 million Euros will be distributed between PTC and Canal+ and its affiliate on a pro rata basis corresponding to their shareholding. Thus, PTC will receive 11.1% of the proceeds up to 270.0 million Euros and 25% of the excess of the proceeds over 270.0 million Euros.

        On February 27, 2003, the JV loan was repaid to the Company in the principal amount of 30.0 million Euros ($32.3 million as of February 27, 2003) and that amount was subsequently contributed by the Company to TKP's paid-in capital, following the shareholders' resolution to increase the share capital of TKP. The Company acquired 60,000 registered series C shares at the issue price of 500 Euros each. Canal+ and PolCom Invest S.A., an affiliate of Canal+, contributed together 90.0 million Euros into paid-in capital on the same date. After the contribution, PTC continued to hold 25% of TKP's shares. As the loan granted to TKP of 30.0 million Euros was included in the fair market value of the investment in TKP as of December 7, 2001, the above transactions (repayment of the loan to the Company by TKP and further capital contribution of 30.0 million Euros) have no influence on the valuation of the investment in TKP. In June 2003, TKP paid interest on the repaid principal of the loan in the amount of $2.3 million.

4.     BASIS OF PRESENTATION

BASIS OF PRESENTATION

        The information furnished by the Company has been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to these rules and regulations. The Company maintains its books of accounts in Poland, the Netherlands and in the United States of America in accordance with local accounting standards in the respective countries. These financial statements include all adjustments to the Company's statutory books to present these statements in accordance with U.S. GAAP. The consolidated financial statements include the financial statements of UPC Polska, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated balance sheets, statements of operations, statements of comprehensive loss and statements of cash flows are unaudited, but in the opinion of management, reflect all adjustments which are necessary for a fair statement of the Company's consolidated results of

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operations and cash flows for the interim period and the Company's financial position as of June 30, 2003. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 filed with the SEC (the "2002 Annual Report"). The interim financial results are not necessarily indicative of the results of the full year.

        The preparation of financial statements in conformity with U.S. GAAP requires management 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 the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates which include, but are not limited to: allowance for doubtful accounts, impairment charges of long-lived assets, valuation of investments in affiliates and revenue recognition.

        The financial statements have been prepared on a going-concern basis, which contemplates continuity of operations, realization of assets, and liquidation of liabilities and commitments in the normal course of business.

        Certain amounts have been reclassified in the corresponding period's unaudited consolidated financial statements to conform to the unaudited consolidated financial statement presentation for the three and six months ended June 30, 2003.

PRINCIPLES OF CONSOLIDATION

        The consolidated financial statements include the accounts of UPC Polska, Inc. and all of its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

NEW ACCOUNTING PRINCIPLES

        On April 30, 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", which amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to address (1) decisions reached by the Derivatives Implementation Group, (2) developments in other Board projects that address financial instruments, and (3) implementation issues related to the definition of a derivative. SFAS 149 has multiple effective date provisions depending on the nature of the amendment to Statement 133, and the Company is currently considering its potential effect on the financial statements.

        On May 15, 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". The Statement requires issuers to classify as liabilities (or assets in some circumstance) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, the Statement is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company will adopt the provisions of the Statement on July 1, 2003. The Company believes that the adoption of SFAS 150 will not have a material impact on its financial position and results of operations.

5.     INTANGIBLE ASSETS

        On January 1, 2002 the Company adopted SFAS 142, "Goodwill and Other Intangible Assets". Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized, but are tested for impairment on an annual basis and whenever indicators of impairment arise. The goodwill

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impairment test, which is based on fair value, is performed at the reporting unit level. All recognized intangible assets that are deemed not to have an indefinite life are amortized over their estimated useful lives and reviewed for impairment in accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".

        In adopting SFAS 142, the Company worked with an external party to assist in the determination and comparison of the fair value of the Company's reporting unit with its respective carrying amount, including goodwill. The fair value of the Company's reporting units was estimated using the expected present value of future cash flows as well as a market multiple approach, under which a risk adjusted market multiple obtained by comparison with various publicly traded companies in the cable industry, was applied to the Company's revenue stream.

        As a result of the Company's impairment test completed in the fourth quarter of 2002, the Company recorded a goodwill impairment charge of $371.0 million, net of income taxes of zero as a cumulative effect of accounting change. As a result of the adoption of SFAS 142, the net book value of goodwill as at June 30, 2003 and December 31, 2002 is zero.

        The Company's amortized intangible assets consist of software licenses in the net amount of $1.0 million as of June 30, 2003. As of June 30, 2003 the gross carrying value and accumulated depreciation amounted to $4.2 million and $3.2 million, respectively.

6.     RELATED PARTY TRANSACTIONS

        During the ordinary course of business, the Company enters into transactions with related parties. The principal related party transactions are described below.

CALL CENTER REVENUE

        During 2002, the Company provided certain call center services to TKP in connection with Canal+ merger transaction. The total revenue from these services amounted to $938,000 and $1,856,000 for the three and six months ended June 30, 2002, respectively. These call center services were terminated in the second quarter of 2002.

OTHER REVENUE

        Commencing April 2002, the Company has provided certain IT services relating to a subscriber's management system to other Central European affiliates of UPC. The total revenue from these services amounted to $109,000 and $226,000 for the three and six months ended June 30, 2003, respectively, as compared to $281,000 for both the three and six months ended June 30, 2002.

        Commencing March 2003, the Company has provided certain marketing services related to internet market research to an affiliate of UPC. The total revenue from these services amounted to $392,000 and $431,000 for the three and six months ended June 30, 2003, respectively.

        Additionally, during the three month period ended June 30, 2002, the Company has provided to TKP certain IT services for D-DTH subscriber data migration to TKP's D-DTH platform. The total revenue from these services amounted to $221,000 for the three and the six months ended June 30, 2002. These revenues were generated only during the three months ended June 30, 2002 and no additional services were provided to TKP to generate such revenue for the remainder of 2002 and the year 2003.

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