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ANNUAL REPORT2005

CONSOLIDATED COMMUNICATIONS CORPORATION PLC

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2Contents

REPORT AND GROUP FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

1

CONTENTS PAGE

Directors and other information 2

Board of directors 4

Chief executive officers report 6

Report of the directors 9

Independent auditors’ report 16

Statement of accounting policies 18

Group profit and loss account 21

Group statement of total recognised gains and losses 22

Group balance sheet 23

Company balance sheet 24

Group cash flow statement 25

Notes to the group financial statements 26

Global rebranding 44

3C in the news 45

Products and services 46

CONTENTS

Directors and other information2


DIRECTORS: David Wickham (British), Chairman Graham Pollard (British), Chief Executive Officer Markus Pedriks (Estonian) Melvyn Quiller (British) Jonathan Saville (British)

SECRETARY AND Phil Vickers REGISTERED OFFICE: 168 Pembroke Road Dublin 4 Ireland

COMPANY NUMBER: 265280 - registered in the Republic of Ireland

BUSINESS ADDRESS: 40 Marsh Wall London E14 9TP United Kingdom

WEBSITE: www.3cplc.com

AUDITORS: Horwath Bastow Charleton Chartered Accountants and Registered Auditors Marine House Clanwilliam Court Dublin 2 Ireland

BANKERS: Bank of Ireland The Quay Wexford Ireland

Natwest P.O. Box 12258 1 Princes Street London, EC2R 8PA United Kingdom

DIRECTORS AND OTHER INFORMATION

Directors and other information 23


AIM NOMINATED ADVISORS AND BROKER: Seymore Pierce Limited Bucklersbury House 3 Queen Victoria Street London EC3N 2AA United Kingdom

SOLICITORS: John O’Connor Solicitors 168 Pembroke Road Dublin 4 Ireland

REGISTRARS: Computershare Investor Services (Ireland) Limited Heron House Corrig Road Sandyford Dublin 18 Ireland

SHARE TRADING: AIM market, London. Ticker: CCM

ß DIRECTORS AND OTHER INFORMATION

Board of Directors4


Graham PollardChief Executive Officer

Graham Pollard joined the Board in March 2005 and has over twenty years’ experience working for and with international telecommunications companies. He is the former Chief Executive Officer of TTG Netherlands and Belgium - part of TTG Europe plc - where he was responsible for all aspects of the running of the companies and had main board responsibility for fixed line sales and the Group’s IT functions.

While at TTG he also built up a successful and profitable Carrier to Carrier VoIP business and has considerable experience in the international wholesale market. Previous positions include Sales Director of COLT Telecommunications’ national indirect service where he was responsible for managing the nationwide network of 150 resellers and for growing annual revenue to £42m within two years. He also co-founded Telecom Direct Ltd, a national switchless reseller, and helped to make it one of the top five such companies in the UK.

Markus Pedriks(Non-executive)

Markus is a Managing Partner of BCEE Advisors Ltd and director of Baring Communications Equity (Emerging Eu-rope) Ltd. a specialist media and telecommunications private equity fund for Central and Eastern Europe. He has over 12 years of telecommunications and media-company operating experience in Western and Eastern Europe. Prior to its sale to Tele2 in 1999, he was non-executive Chairman of Levicom, the largest private telecommunications and media company in the Baltic Republics. Levicom’s activities comprise cable television, fixed and mobile telephony, ISP, e-commerce and web consulting/services. Previously, Markus was Director of Sales and Marketing at Unisource Mobile, the consortium of AT&T and the Dutch, Spanish, Swedish and Swiss Telecomoperators.

Prior to Unisource, he was General Manager of Aircall’s (UK) satellite and terrestrial data-broadcasting unit and was involved in sales and marketing for their paging and cellular businesses. Markus is also involved in other activities in the community including chairing the fundraising for Friends of Rainbow. He holds an MBA from IMD in Lausanne, and a BA in Economics from McGill University in Montreal, and is a Canadian and Estonian national.

David Wickham(Non-executive) Chairman

David works with a number of start-ups and multinationals in the telecommunications and technology sectors. David was previously Chief Executive of Energis Plc., the business and Internet services communications company. Before joining Energis, he held a number of senior management positions with Cable and Wireless including Chief Executive of Cable and Wireless Global Network and Managing Director of International and Partner Services. David currently serves on the Boards of a number of companies.

CONTENTSCONTENTSBOARD OF DIRECTORS

Board of Directors 5


Jonathan M Saville(Non-executive)

Jonathan is Managing Director of JMS Consulting Limited, a company formed to provide strategic, business develop-ment and legal advice to UK and international technology and telecommunications businesses. Jonathan has an ex-tensive track record within commercial and legal areas of telecommunications and technology. Jonathan is a solicitor by training and was a member of the senior management team (and sat on various subsidiary boards of directors) at Mercury Communications Limited before joining COLT Telecom Group plc as Executive Director of Legal and Regula-tory Affairs and Company Secretary. At COLT Jonathan was part of the senior executive team responsible for floating COLT on the London Stock Exchange and NASDAQ. Jonathan was also one of only two Executive Directors to sit on the COLT Telecom Group plc Main Board. Jonathan sits on various board of directors and advisory boards of UK and international telecommunications and technology companies and also from time to time commentates on the indus-try on national television and with other media.

Melvyn Quiller(Non-executive)

Melvyn Quiller is a qualified mechanical engineer and spent a substantial part of his career working for a major British engineering conglomerate, “The 600 Group plc”, in transport and communication related projects in various countries throughout the Middle East and Eastern Europe. He was appointed to the board of the subsidiary company responsi-ble for overseas turn-key projects in 1973 and held the position of Managing Director for nine years up to 1986. In 1997 he was appointed to the board of ZAO Russian Telecommunications Network (RTN), a Russian company operating terrestrial and satellite networks for the provision of national and international voice and data services. He resigned from RTN in 1999 when 3C was formed and he was appointed managing director, a position held until July 2004

CONTENTSCONTENTSß BOARD OF DIRECTORS

6

CONTENTSCONTENTSCHIEF ExECUTIVE OFFICERS REPORT

Chief executive officers report


I am pleased to announce the audited results for the year ended 31 December 2005. This is the first Annual Report following our move to the Alternative Investment Market of the London Stock Exchange (“AIM”) in September 2005.

Completing the move to AIM in September 2005 marked the end of a demanding yet rewarding period for the Company. Since September we have made good progress in restructuring our operating companies to deliver maximum cost-efficiency and commer-cial effectiveness. We now believe we have the appropriate foundations for solid growth in 2006.

The restructure has included the appointment of new managers in Russia and Hungary, a significant strengthening of 3C’s sales and marketing operations and the development of new IP products, which are now being launched under the Group-wide 3C brand. The restructuring continues and over the last few weeks we have substantially reduced staff numbers in Russia, while still maintaining our customer base.

3C has developed its sales teams in both countries, with a particular focus on Hungary, to take full advantage of the newly liberalised telecommunications market. The Company launched Carrier Pre-Select (CPS) and ADSL in Hungary in the last quarter of 2005. To date over 700 customers have been signed up to these services, which represents a tripling of the Hungarian customer base.

More recently, 3C Hungary launched its IP telephony service and, following successful market trials, the service was launched in March. The service already has over 650 customers, which represents the ideal upgrade target market for the full IP Centrex product, due to be launched in Q2 2006. In both countries 3C will use its newly developed third party reseller channel to target the SME sector, a marketplace consisting of more than 1.4 million registered companies.

The Company’s renewed focus on the retail market has resulted in an improvement in retail gross margins which has generated gross profit of £1,804,372 (2004: £1,791,795).

A complete review of our wholesale operations has been undertaken to focus the business and develop higher margin routes. A new experienced Head of Wholesale was appointed to oversee our operations in the UK and the team has been strengthened in Russia.

Ten new bi-lateral agreements with international carriers have been signed within the last six months - with Interroute and Telstra announced just last week - and new Prime Carrier software introduced to improve the efficiency and effec-tiveness of our wholesale offering. This software allows us to manage our wholesale business much more closely and automate the system to eradicate human error during inputting and management of tariff tables.

As stated in our Prospectus in 2005 we intended to raise money against the land we own in Budapest and I am delighted to report that on 22 May 2006 we agreed a mortgage with Raiffeisen Bank Kft to raise $850,000, which is secured against the land.

In the short term, this mortgage will release a proportion of the equity in the land to meet our current needs and drive the business forward in 2006 and 2007 while we continue to seek a buyer.

The Directors are optimistic that the Company is well positioned to move forward during the remainder of the year.

Group Revenue for the period was £6,689,451 and gross profit was £1,804,372. The comparable period last year pro-duced revenue of £7,982,793 and gross profit of £1,791,795. The gross profit increased £12,577 despite the drop in revenue as a result of an improvement in the overall gross margin from 22.4% to 27.0%.

7

CONTENTSCONTENTSß CHIEF ExECUTIVE OFFICERS REPORT

Chief executive officers report


FINANCIAL HIGHLIGHTSRevenue in 2005 fell as a result of the rationalisation of the wholesale operation and a move away from non-profitable routes. We intend to rebuild the wholesale business by pursuing higher margin routes during the forthcoming year.

Russian retail revenue increased 4% to £2.4m in 2005, excluding a large one-off installation fee received in 2004, and gross margin increased by 5% to 38%.

Retail revenue in Hungary was consistent at £2.1m in 2004 and 2005 with gross margin also being maintained.

Operating loss before depreciation and amortisation was £851,762 in 2005 compares to £1,143,553 in 2004.

Strengthening the executive management teams and the sales and marketing operations in Russia and Hungary resulted in staff and sales and marketing costs increasing by £356,279 in 2005. This increase has been mitigated in the year by favourable movements in exchange rates.

DIVIDENDThe Company returned an operating loss and accordingly no dividend is proposed for the accounting period under review.

OUTLOOKHaving strengthened the executive team and restructured the businesses, the Directors are pleased with the early re-sults from the introduction of new services - particularly from third party channels - and are confident that the Group has positioned itself correctly to benefit from its renewed sales and marketing activities during 2006.

The feature-rich and totally scalable IP soft-switch has been installed and connected to 3C’s carrier class TMD switch at its headquarters in London’s docklands. This will enable all of the Company’s IP and Voice Over IP services to be routed via this switch from any country in Europe.

With this capability in place, the Company feels that it is well placed to exploit the SME markets in Hungary, Russia, CIS and other parts of Eastern and Central Europe with this new range of IP services. We are addressing large markets, which are experiencing significant growth following the explosion of broadband in these regions. Broadband users in Russia and Hungary alone having grown by over 500% in the last 5 years.

The Company is particularly encouraged by the partnership that it has developed with Zyxel, one of the world’s leading global broadband access solutions specialists. The arrangement we have secured allows our services to be offered via the third party agents of Zyxel in Hungary and Russia, and for our IP telephony product, 3Netphone, to be bundled with two of Zyxel’s best-selling routers and wireless phones.

Q2 2006, the Company will be introducing its fully functional IP Centrex service, which will enable companies from Small Office Home Office (SOHO) through SME’s to large Corporates to deploy all the features of office-based telephony - and more - at a fraction of the cost. We believe there will be significant demand for such services in the countries we address and have already received interest from several multi-nationals based in Hungary.

Overall, the Directors feel that we can look forward with renewed confidence for the future growth of this business.

Graham PollardChief Executive Officer

Report of the Directors for the year ended 31 December 20058


The directors submit their report together with the audited financial statements for the year ended 31 December 2005.

STATEMENT OF DIRECTORS’ RESPONSIBILITIESThe directors are required to prepare financial statements on a going concern basis which give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for the year. In prepar-ing the financial statements, the directors are required to select suitable accounting policies and then apply them consistently and to make judgements and estimates that are reasonable and prudent.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to ensure that the financial statements comply with the Companies Acts 1963 to 2005. To ensure that proper books and accounting records are kept in accordance with Section 202 Companies Act, 1990, the company has availed of the services of appropriately qualified personnel and has maintained appropriate computerised accounting systems. The books of account are maintained at the company’s office at 40 Marsh Wall, London, E14 9TP. The directors are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The maintenance and integrity of the web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters, and accordingly the auditors accept no responsibility for any changes that may have occurred to the information contained in the financial statements since they were initially presented on the website.

BUSINESS REVIEW AND FUTURE ACTIVITIESThe principal activity of the group is the provision of telecommunications services, data transmission, broadband and internet access.

Our view of the business and future prospects is outlined in the Chief Executive Officers Report which accompanies the group financial statements.

RESULTS, DIVIDENDS AND RETENTIONS

2005 2004

£ £

The results and appropriations are summarised as follows:

Loss for the year after taxation (2,570,976) (2,535,534)

Balance at beginning of year - (Deficit) (6,099,990) (3,564,456)

Balance at end of year - (Deficit) (8,670,966) (6,099,990)

REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2005

Report of the Directors for the year ended 31 December 2005 9


STATE OF AFFAIRS AND EVENTS SINCE THE BALANCE SHEET DATEIn the opinion of the directors, the state of the company’s affairs is satisfactory.

On the 22 May 2006, 3C Kft signed a loan facility agreement with Raiffeisen Bank in Budapest Hungary. The facility pro-vides for a loan in the amount of $850,000 for a one year period. The loan is secured against land owned by LM Hungary in Budapest and also via a charge over the trade debtors of 3C Kft. The purpose of the loan is to finance working capital requirements and to develop the trading activities of the group.

DIRECTORS AND THEIR INTERESTSThe present membership of the board is set out on page 2.The interests of the Directors and Secretary in office at the 31 December 2005, all of which are beneficially held, in the share capital of the company at 1 January 2005, 31 December 2005 and 29 May 2006 are as below:

ORDINARY SHARES

30 May 2006 31 December 2005 1 January 2005

Graham Pollard (appointed 22 February 2005) 1,800,000 1,800,000 —

David Wickham 450,000 450,000 —

Markus Pedriks — — —

Melvyn Quiller 8,819,400 8,819,400 8,519,400

Jonathan Saville 650,000 650,000 350,000

Phil Vickers (appointed secretary 31 January 2006) — — —

David French (resigned 31 January 2006) 125,000 125,000 —

Dr. Ivan Laska (resigned 9 November 2005) 150,000 150,000 —

Peter Edmunds (resigned 8 February 2005) — — —

DEFERRED SHARES

30 May 2006 31 December 2005 1 January 2005

Graham Pollard (appointed 22 February 2005) — — —

David Wickham — — —

Markus Pedriks — — —

Melvyn Quiller 8,519,400 8,519,400 —

Jonathan Saville 350,000 350,000 —

Phil Vickers (appointed secretary 31 January 2006) — — —

David French (resigned 31 January 2006) 125,000 125,000 —

Dr. Ivan Laska (resigned 9 November 2005) 150,000 150,000 —

Peter Edmunds (resigned 8 February 2005) — — —

In accordance with the Articles of Association, Mr David Wickham and Mr Jonathan Saville will retire by rotation from the board at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.

ß REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2005




SUBSTANTIAL SHAREHOLDINGSThe directors have been informed of the following substantial shareholdings in excess of 3% of the issued ordinary share capital at 29 May 2006:

Number %

Baring Communications Equity (Emerging Europe) Limited and BCEE Advisers Limited 78,490,377 24.61

NDNT Acquisition LLC 46,613,509 14.61

Nortrust Nominees Limited 25,000,000 7.84

Adam & Company International Nominees Limited 20,582,608 6.45

Chafe Abou Richeh 14,411,000 4.52

Ashdale Investment Trust Services Limited 9,998,000 3.13

Note: Baring Communications Equity (Emerging Europe) Limited owns 88.2% of NDNT Acquisitions LLC.

SHARE OPTIONSThe following share options have been granted by the Board of Directors at the 31 December 2005:

Directors No. of shares Exercise Price Exercise dates

Graham Pollard 6,000,000 4.25p 22/2/05-5/08/13

David Wickham 1,500,000 8.375p 31/3/04-5/08/14

Melvyn Quiller 500,000 6.875p 2/7/04-5/08/14

Melvyn Quiller 150,000 € 0.10 16/9/02-31/12/08

Jonathan Saville 1,000,000 8.375p 31/3/04-5/08/14

David French (resigned 31 January 2006) 1,750,000 8.375p 31/3/04-5/08/14

David French (resigned 31 January 2006) 2,250,000 4.25p 22/2/05-5/08/13

Dr. Ivan Laska (resigned 9 November 2005) 500,000 6.00p 13/9/04-5/08/14

Employees 875,000 € 0.10 16/9/02-31/12/08

Other parties 588,236 € 0.36 1/01/02-31/12/08

Other parties 784,313 € 0.48 1/1/02-31/12/08

Other parties 2,456,079 € 0.10 1/1/02-31/12/08

POLITICAL CONTRIBUTIONSThere were no political donations which require disclosure under the Electoral Act 1997.




GOING CONCERNThe financial statements have been prepared on the going concern basis which assumes that the Company and its subsidiaries will continue in operational existence for the foreseeable future. Since the year end the company has raised loan finance for a period of twelve months on the strength of land owned by LM Hungary near Budapest. The company intends to sell this land and the directors are confident that this sale and the achievement of the rigorous operational and performance targets outlined in the groups business plan will ensure that the company has significant financial resources for the foreseeable future.

The financial statements do not include any adjustment that would result if additional funding were not forthcoming or if the performance targets outlined in the groups business plan were not met. Whilst taking into account the uncertainties described above, the directors believe that it is appropriate for the financial statements to be prepared on a going concern basis.

COMPOSITION OF THE GROUPDetails of all subsidiary undertakings are in note 14 to the financial statements

CORPORATE GOVERNANCEThe Directors are committed to embracing the principals of best practice in respect of corporate governance com-mensurate with the size, stage of development and financial status of the group.

BOARD OF DIRECTORSThe Board of Directors currently comprises 4 non-executive directors and 1 executive director and meets on a regular basis throughout the year.

Meetings are held at 40 Marsh Wall, London, E14 9TP and other locations.

The agreed list of matters which the Board has formally reserved to itself for decision making include overall group strategy, acquisition and divestment policy, approval of major capital investment and group funding and treasury policy. It also reviews the strategic direction of the group’s operations and monitors performance against agreed objectives.

Full board papers are sent to each director in sufficient time before board meetings and all supporting papers and information are readily available to all directors on request. The board papers include the minutes of all committees of the board which have been held since the previous board meeting.

All directors have direct access to the advice and services of the Company Secretary, who is responsible for ensuring that board procedures are followed and that applicable rules and regulations are complied with. There is also an agreed procedure for the directors to take independent professional advice as necessary in the furtherance of their duties. All directors who are appointed receive a full introduction to the group and its operations and training will be provided on request.

The roles of Chairman and Chief Executive are separated. The non-executive directors are independent of management and have no material interest save as disclosed or other business relationship with the group.




Markus Pedriks and a former director, David French, are directors of Baring Communications Equity (Emerging Europe) Limited, which is a major shareholder of the company. All directors bring an independent judgement to bear on issues of strategy, performance and standards of conduct. To ensure transparency in this area, the Board has requested the Company Secretary to maintain a register of any conflicts of interest declared by the directors. The Chairman is a non-executive. The Board delegates certain responsibilities to specific committees, as described below.

It is the Board’s policy to comply where relevant with the best practices of Corporate Governance with regard to shareholder relationships. All trading activity is carried on through its Russian, Hungarian, U.S. and English based subsidiaries, JSC Satcom-Tel, Zao DirectNet, 3C kft, NDNT Inc and NDNT (UK) Limited and it is the board’s policy to carry out all operations in compliance with the local laws of the Russian Federation, Hungary, the U.S. and England.




SHAREHOLDERSThe company is fully conscious of the need for communication with shareholders and welcomes their participation at general meetings. The company has developed an active website for information purposes. Representatives of the Board and the chairmen of the various sub-committees attend the Annual General Meeting and are available to answer questions. Separate resolutions are proposed at the Annual General Meeting on each substantially separate issue including a resolution to receive and consider the Annual Report and Financial Statements. Notice of the Annual General Meeting together with the Annual Report are sent to the shareholders are least 21 days before the meeting and details of proxy votes for and against each resolution are announced after the result of hand votes.

REMUNERATION COMMITTEEThe remuneration committee is responsible for advising on the remuneration packages needed to attract, retain and motivate executive directors of the required quality. The remuneration committee is responsible for developing strategy and policy on executive remuneration and for deciding on the remuneration packages of individual directors including the Chairman. The remuneration committee is responsible for reviewing the current incentive option programme and for recommending changes to the programme and for the grant of equity based incentives.

The remuneration committee currently comprises Markus Pedriks and Jonathan Saville.

REMUNERATION POLICYIn setting its remuneration policy, the remuneration committee has given full consideration to Schedule B of the Com-bined Code. The policy seeks to enhance the company’s performance and ensure that executive directors are fairly and responsibly rewarded for their individual contributions. It considers a number of factors including; - The basic salaries and benefits of executive directors in comparable companies; - The need to attract and retain directors of an appropriate calibre; and - The need to ensure executive directors’ commitment to continued success of the company by means of appropriate incentive schemes.

AUDIT COMMITTEEThe audit committee is responsible for assisting the board in ensuring that the group’s financial systems provide ac-curate and up to date information on its financial position and that the group’s published financial statements repre-sent a true and fair reflection of this position. The audit committee also assists the board in ensuring that appropriate accounting policies, internal controls and compliance procedures are in place and monitors the management of risk. The audit committee is permitted to meet with the auditors without management being present.The independence and objectivity of the external auditors is considered on a regular basis with specific considera-tions of non-audit services performed and fees paid.

The audit committee currently comprises Jonathan Saville and Markus Pedriks.

NOMINATION COMMITTEEThe nominations committee is responsible for proposing to the Board any new appointments or replacement appoint-ments of both executive and non-executive directors, including the Chairman, and makes recommendations to the Board on Board composition and balance.

The nominations committee currently comprises Jonathan Saville and Markus Pedriks.




INTERNAL CONTROL The directors have overall responsibility for the group’s system of internal control and have delegated responsibility for the implementation of this system to executive management. This system includes financial controls which enable the board to meet its responsibilities for the integrity and accuracy of the group’s accounting records.

The group’s system of internal financial control provides reasonable, though not absolute assurance that assets are safeguarded, transactions authorised and recorded properly and that material errors or irregularities are either pre-vented or detected within a timely period. Having made appropriate enquiries the directors consider that the system of internal financial, operational and compliance controls and risk management operated effectively during the period covered by the financial statements and up to the date on which the financial statements were signed.The key procedures established by the directors to date with a view to providing effective internal financial control include the following:

Detailed monthly management reporting, including variance to budget reporting.The audit committee considers all significant control matters.The organisation structure has clearly defined lines of authority.There is a formal schedule of matters reserved for the board as discussed above.An ongoing policy of the recruitment of quality and experienced personnel.A detailed investment approval process which requires board approval of all major capital projects and regular review of physical performance and expenditure on these projects.

ADMISSION TO AIM AND SHARE CAPITALOn 29 September 2005 the company’s shares ceased to trade on the OFEX market, London. On 30 September 2005 the company obtained a listing for its shares on the Alternative Investment Market (AIM) in London.

On 18 July 2005 each issued ordinary share of €0.06 was sub-divided into one ordinary share of €0.01 each and one deferred share of €0.05 each. Each of the unissued ordinary shares of €0.06 each was subdivided into six ordinary shares of €0.01 each. The authorised share capital of the company following the re-organisation was 1,384,919,490 ordinary shares of €0.01 each and 203,016,102 deferred shares of €0.05 each.

The company issued a total of 115,653,367 ordinary shares of €0.01 each during the year as follows:On 30 September 2005, the company made an allotment of 72,305,556 ordinary shares of €0.01 each at £0.02 to a limited number of placees on the AIM listing of the London Stock Exchange, which raised a total of £1,446,111. The issue was made in order to raise additional finance to enable the company to finance the launch of additional services, improve and increase sales and marketing capability and for general working capital.

On 30 September 2005 Baring Communications Equity (Emerging Europe) Limited (BCEE) and Mr Emmett O’Connell cancelled loans of US$1,200,000 and €100,000 in consideration for the issue of 34,473,073 and 3,364,738 ordinary shares of €0.01 each respectively together with the issue of warrants over 14,000,000 ordinary shares. The 9,000,000 warrants issued to BCEE and the 5,000,000 warrants issued to Mr O’Connell are exercisable at £0.02 per share until 30 September 2012.

►►►►►►




ADMISSION TO AIM AND SHARE CAPITAL CONTINUEDOn 30 September 2005 the company allotted 5,510,000 ordinary shares of €0.01 each in settlement of professional services received from Seymour Pierce.

On 30 September 2005 the company issued 1,875,000 warrants to JM Finn & Co in consideration of professional services rendered.

Allowing for the exercise of unexercised options and warrants there remains a total of 1,032,021,393 unissued ordinary shares at 31 December 2005.

CREDITOR PAYMENT POLICYPayments to suppliers are made in accordance with agreed and negotiated arrangements except where disputes arise. At 31 December 2005 trade creditors of the Group represented 76 days (2004: 94 days)

AUDITORSDuring the year Horwath Clark Whitehill resigned as auditors and Horwath Bastow Charleton were appointed to fill a casual vacancy. Horwath Bastow Charleton are eligible and have expressed their willingness to continue in office in accordance with the provisions of Section 160(2) of the Companies Act, 1963.

ON BEHALF OF THE BOARD

Graham Pollard )

Directors

Jonathan Saville )

Date: 30 May 2006

Independent auditors’ report to the shareholders of Consolidated Communications Corporation Plc 16


We have audited the financial statements of Consolidated Communications Corporation plc for the year ended 31 December 2005 which comprise the statement of accounting policies, group profit and loss account, group statement of total recognised gains and losses, group balance sheet, company balance sheet, statement of group cash flows, and notes numbered 1 to 30. These accounts have been prepared under the historical cost convention and the ac-counting policies set out therein.

This report is made solely to the company’s members, as a body, in accordance with Section 193 of the Companies Act, 1990. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORSThe directors are responsible for preparing the Annual Report, including as set out in the Statement of Directors’ Responsibilities in the directors’ report, the preparation of the financial statements in accordance with applicable Irish law and accounting standards issued by the Accounting Standards Board and promulgated by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland).

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland, and are properly prepared in accordance with Irish Statute com-prising the Companies Acts 1963 to 2005 and the European Communities (Companies: Group Accounts) Regulations 1992. We also report to you whether in our opinion: proper books of account have been kept by the company; whether, at the balance sheet date, there exists a financial situation requiring the convening of an extraordinary general meeting of the company; and whether the information given in the directors’ report is consistent with the financial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit and whether the company’s balance sheet is in agreement with the books of account.

We also report to you if, in our opinion, any information specified by law regarding directors’ remuneration and directors’ transactions is not given and, where practicable, include such information in our report.

We read the other information contained in the Annual Report, comprising only the Chief Executive Officer’s Re-port and the Directors Report, and consider whether it is consistent with the audited financial statements. We con-sider the implications for our report to shareholders if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

BASIS OF OPINIONWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF CONSOLIDATED COMMUNICATIONS CORPORATION PLC

Independent auditors’ report to the shareholders of Consolidated Communications Corporation Plc 17


We planned and performed our audit so as to obtain all the information and explanations which we considered neces-sary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Fundamental Uncertainty - Going ConcernIn forming our opinion, we have considered the adequacy of the disclosures made in Note 1 to the financial state-ments concerning the company’s ability to continue as a going concern. In view of the significance of these matters, we consider that they should be brought to your attention. Our opinion is not qualified in this respect.

OPINIONIn our opinion, the financial statements give a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland of the state of the affairs of the company and the group as at the 31 December 2005 and of the result and cash flows of the group for the year then ended and have been properly prepared in accordance with the Companies Acts 1963 to 2005 and the European Communities (Companies: Group Accounts) Regulations 1992.

We have obtained all the information and explanations that we consider necessary for the purposes of our audit. In our opinion, proper books of account have been kept by the company. The balance sheet of the company is in agree-ment with the books of account.

In our opinion, the information given in the directors’ report on pages 9 to 15 is consistent with the financial state-ments.

The net assets of the company as stated in the company balance sheet on page 24 are more than half of the amount of its called up share capital and, in our opinion, on that basis there did not exist a financial situation, which under Section 40(1) of the Companies (Amendment) Act 1983, would require the convening of an extraordinary general meeting of the company.

Horwath Bastow CharletonChartered Accountants and Registered AuditorsMarine HouseClanwilliam CourtDublin 2

Date: 30 May 2006

ß INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF CONSOLIDATED COMMUNICATIONS CORPORATION PLC

Statement of accounting policies18


The following accounting policies are applied consistently in dealing with items which are considered material in relation to the group’s financial statements.

BASIS OF PREPARATIONThe financial statements have been prepared in accordance with applicable Irish law and Generally Accepted Accounting Practice in Ireland.

BASIS OF ACCOUNTINGThe financial statements are prepared under the historical cost convention and in accordance with applicable accounting standards.

REPORTING AND FOREIGN CURRENCIESThe financial statements are prepared using Sterling (£Stg) as the reporting currency.

Transactions in foreign currencies are recorded at the exchange rate ruling at the date of the transactions or at a contracted rate. The resulting monetary assets and liabilities are translated at the balance sheet rate or the contracted rate and the exchange differences are dealt with through the profit and loss account.

The group’s net investments in overseas subsidiary undertakings are translated at the rate ruling at the balance sheet date. The profit and losses of overseas subsidiary undertakings are translated at average rates for the year. Exchange differences resulting from the retranslation of the opening balance sheet of overseas subsidiary undertakings at closing rates, together with the differences on the translation of the profit and loss accounts are recorded as a movement in the foreign exchange reserve and reflected in the statement of total recognised gains and losses.

BASIS OF CONSOLIDATIONThe group financial statements consolidate the financial statements of the company and all of its subsidiaries up to 31 December 2005.

The results of subsidiary undertakings acquired or disposed of in the year are included in the group prof-it and loss account from the date of acquisition or up to the date of disposal. Upon the acquisition of a business, fair values are attributed to the separate net assets acquired.

Acquisitions of companies are accounted for using acquisition rules. Goodwill represents the excess of the consideration paid for the acquisition of shares in subsidiaries over the fair value of their separable net assets.

In the company’s own balance sheet, investments in subsidiaries are stated at cost less provision for any permanent diminution in value.

STATEMENT OF ACCOUNTING POLICIES

Statement of accounting policies 19


GOODWILLPurchased goodwill arising on the acquisition of a business represents the excess of the acquisition cost over the fair value of the identifiable net assets when they were acquired.

The group’s policy is to review goodwill for impairment at the end of the first full financial year following the acquisition and in other periods where circumstances have indicated that the carrying value of goodwill may not be recoverable.

Goodwill is amortised over the period in which the values of the underlying businesses are expected to exceed the values of their identifiable net assets, and not in any case exceeding 10 years. In the current year the directors have deemed it appropriate to amortise the net book value of goodwill over 6 years.

OTHER INTANGIBLE FIxED ASSETSIntangible fixed assets are stated at cost less accumulated amortisation. Amortisation is provided on intangible as-sets on a straight line basis so as to write off the cost over their economic lives.

TANGIBLE FIxED ASSETS AND DEPRECIATIONTangible fixed assets are stated at historical cost less accumulated depreciation. Depreciation is provided on tangible assets, excluding land, on a straight line basis so as to write off their historical cost or valuation over their estimated economic lives.

All plant, machinery and equipment is depreciated over an estimated life of five years with the exception of certain telecommunications equipment held by 3C kft which has an estimated life of 15 years.

Fully depreciated assets are retained in tangible fixed assets and depreciation accounts until they are removed from service. In the case of disposals, assets and related depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to the group profit and loss account.

Development land is carried at cost less any provision for impairment.

STOCKSStocks are carried at the lower of cost or net realisable value. Cost is determined on a first-in first-out valuation ba-sis.

LEASED ASSETSAssets subject to finance leases are included in Plant, Machinery & Equipment in the balance sheet and depreciated over their estimated economic lives. Operating lease payments are recognised as an expense in the profit and loss account on a straight-line basis over the lease term.

DEFERRED TAxATIONDeferred taxation is recognised, where material, on all timing differences where the transac-tion or event that gives rise to an obligation to pay more or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured using rates of tax that have been enacted at the bal-ance sheet date. Deferred taxation is not provided in respect of timing differences arising from the sale or revaluation of fixed assets unless, by the balance sheet date, a binding commitment to sell the asset has been entered into and it is unlikely that the gain will be rolled over.

ß STATEMENT OF ACCOUNTING POLICIES

Statement of accounting policies20

ß STATEMENT OF ACCOUNTING POLICIES


SHARE ISSUE ExPENSESExpenses that arise on the issue of ordinary share capital are charged to the share premium account.

RELATED PARTY TRANSACTIONSThe Group has taken advantage of the exemptions of FRS 8 not to disclose transactions with other Group companies.

FINANCIAL INSTRUMENTSThe Group does not use derivative instruments or any financial instruments to hedge financial assets or liabilities. All financial assets and liabilities are carried at the lower of cost and net realisable value. Provision is made for diminution in value where appropriate. Interest payable/receivable is charged/credited to the profit and loss account in the period to which it relates.

Group profit and loss account for the year ended 31 December 2005 21


2005 2004

Notes £ Stg £ Stg

TURNOVER - CONTINUING OPERATIONS 2 6,689,451 7,982,793

COST OF SALES (4,885,079) (6,190,998)

GROSS PROFIT 1,804,372 1,791,795

ADMINISTRATIVE EXPENSES EXCLUDING AMORTISATION (2,681,406) (2,997,478)

OTHER OPERATING INCOME 25,272 62,130

OPERATING LOSS BEFORE DEPRECIATION (851,762) (1,143,553)

OTHER ADMINISTRATIVE EXPENSES

DEPRECIATION (402,388) (561,682)

AMORTISATION (1,275,867) (820,901)

OPERATING LOSS 4 (2,530,017) (2,526,136)

INTEREST PAYABLE 5 (44,475) (25,687)

INTEREST RECEIVABLE 6 3,516 6,319

LOSS ON ORDINARY ACTIVITIES BEFORE TAxATION (2,570,976) (2,545,504)

TAxATION 8 — 9,970

LOSS ON ORDINARY ACTIVITIES AFTER TAxATION (2,570,976) (2,535,534)

BASIC LOSS PER ORDINARY SHARE 9 (1.11p) (1.38p)

All losses for the above financial years are attributable to the equity holders of the Company. The results for the year arise on continuing operations.

Approved by the board of directors on 30 May 2006 and signed on its behalf by:

Graham Pollard )

Directors

Jonathan Saville )

GROUP PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2005

Group statement of total recognised gains and losses ast 31 December 200522


2005 2004

£ Stg £ Stg

Loss for the financial year (2,570,976) (2,535,534)

Currency translation difference on foreign currency net investment

(Note 20) (629,318) (282,627)

TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR (3,200,294) (2,818,161)

CONSOLIDATION NOTE OF HISTORICAL COST PROFITS AND LOSSESThere is no material difference between the loss on ordinary activities before taxation and the retained profit and loss account and the equivalent figure calculated on a historical cost basis.

GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES AS AT 31 DECEMBER 2005

Group balance sheet as at 31 december 2005 23


2005 2004

Notes £ Stg £ Stg

FIxED ASSETS

Intangible assets 10 16,875 7,813

Goodwill 11 6,379,337 7,655,204

Tangible assets 12 2,145,453 2,579,062

8,541,665 10,242,079

CURRENT ASSETS

Stocks 15 6,897 11,965

Debtors 16 1,650,970 1,921,548

Cash at bank and in hand 802,500 350,959

2,460,367 2,284,472

CREDITORS (Amounts falling due within one year) 17 (2,444,143) (2,665,807)

NET CURRENT ASSETS / (LIABILITIES) 16,224 (381,335)

TOTAL NET ASSETS 8,557,889 9,860,744

CAPITAL AND RESERVES

Called up share capital 19 8,893,889 8,105,522

Share premium account 20 8,695,855 7,586,783

Foreign exchange reserve 20 (509,859) 119,459

Capital and acquisition reserve 20 148,970 148,970

Profit and loss account - (Deficit) 20 (8,670,966) (6,099,990)

SHAREHOLDERS’ FUNDS - EQUITY 21 8,557,889 9,860,744


Graham Pollard )

Directors

Jonathan Saville )

GROUP BALANCE SHEET AS AT 31 DECEMBER 2005

Company balance sheet as at 31 December 200524


2005 2004Notes £ Stg £ Stg

FIxED ASSETS

Tangible assets 12 9,926 5,218

Financial assets 13 4,083,369 4,083,369

4,093,295 4,088,587

CURRENT ASSETS

Debtors 16 6,654,063 4,967,239

Cash at bank and in hand 602,804 195,563

7,256,867 5,162,802

CREDITORS (Amounts falling due within one year) 17 (332,079) (365,718)

NET CURRENT ASSETS 6,924,788 4,797,084

TOTAL ASSETS LESS CURRENT LIABILITIES 11,018,083 8,885,671

CREDITORS (Amounts falling due after more than one year) 17 (460,286) (579,654)

TOTAL NET ASSETS 10,557,797 8,306,017

CAPITAL AND RESERVES

Called up share capital 19 8,893,889 8,105,522

Share premium account 20 8,695,855 7,586,783

Capital and acquisition reserve 20 148,970 148,970

Profit and loss account - (Deficit) 20 (7,180,917) (7,535,258)

SHAREHOLDERS’ FUNDS - EQUITY 21 10,557,797 8,306,017


Graham Pollard )

Directors

Jonathan Saville )

COMPANY BALANCE SHEET AS AT 31 DECEMBER 2005

25Group cash flow statement for the year ended 31 December 2005 25


2005 2004

Notes £ Stg £ Stg

NET CASH OUTFLOW FROM OPERATING ACTIVITIES 23 (792,713) (1,132,607)

RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 24 (40,959) (19,368)

CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 24 (189,352) (127,850)

CASH OUTFLOW BEFORE FINANCING ACTIVITIES (1,023,024) (1,279,825)

FINANCING 24 1,897,439 929,125

INCREASE/(DECREASE) IN CASH IN THE YEAR 874,415 (350,700)

RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET FUNDS

INCREASE/(DECREASE) IN CASH IN THE YEAR 874,415 (350,700)

FOREIGN EXCHANGE ADJUSTMENTS (422,874) (241,069)

CHANGE IN NET FUNDS RESULTING FROM CASH FLOWS 451,541 (591,769)

NET FUNDS AT 1 JANUARY 2005 350,959 942,728

NET FUNDS AT 31 DECEMBER 2005 25 802,500 350,959

GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005

Notes to the Group financial statements for the year ended 31 December 2005 26


NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

1. GOING CONCERN The financial statements have been prepared on the going concern basis which assumes that the Company and its

subsidiaries will continue in operational existence for the foreseeable future. Since the year end the company has raised loan finance for a period of twelve months on the strength of land owned by LM Hungary near Budapest. The company intends to sell this land and the directors are confident that this sale and the achievement of the rigorous operational and performance targets outlined in the groups business plan will ensure that the company has significant financial resources for the foreseeable future.

The financial statements do not include any adjustment that would result if additional funding were not forthcom-ing or if the performance targets outlined in the groups business plan were not met. Whilst taking into account the uncertainties described above, the directors believe that it is appropriate for the financial statements to be prepared on a going concern basis.

2. TURNOVER Turnover, all of which arises from continuing operations, represents amounts invoiced by the group in respect of

goods and services, excluding value added tax.

3. SEGMENTAL ANALYSIS During the financial period the group operated in one class of business, being the telecommunications service sec-

tor. The analysis by geographical area is:

2005 2005 2004 2004

Turnover Operating Loss Turnover Operating Loss

£ Stg £ Stg £ Stg £ StgRussia 4,635,541 (691,790) 5,922,489 (1,125,834)

UK — (1,566,552) — (1,389,108)

Hungary 2,053,910 (271,675) 2,060,304 (11,194)

6,689,451 (2,530,017) 7,982,793 (2,526,136)

Notes to the Group financial statements for the year ended 31 December 2005 27


ß NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

4. OPERATING LOSS Operating loss is stated after charging (crediting):

2005 2004

£ Stg £ Stg

Depreciation of tangible assets 402,388 561,682

Amortisation of intangible assets and goodwill 1,275,867 820,901

Loss on sale of tangible fixed assets 5,068 5,209

(Gain) / Loss on foreign exchange (440,290) 149,716

Auditors’ remuneration - audit services 30,000 27,500

Auditors’ remuneration - non-audit services – 4,250

The remuneration of the 2005 group auditors, Horwath Bastow Charleton, for the year totals £30,000. The comparative figure for 2004 relate to the remuneration of the previous auditors, Horwath Clark Whitehill. Audit fees in respect of overseas subsidiaries totalled £53,015. These fees were paid to members of Horwath International of which Horwath Bastow Charleton is a member.

5. INTEREST PAYABLE AND SIMILAR CHARGES

2005 2004

£ Stg £ Stg

On bank and other loans 16,554 25,687

On loans from related parties (Note 30) 27,921 –

44,475 25,687

6. INTEREST RECEIVABLE AND SIMILAR INCOME

2005 2004

£ Stg £ Stg

Bank interest receivable 3,516 6,319

28 Notes to the Group financial statements for the year ended 31 December 2005


7. EMPLOYEES The average number of employees of the group including executive directors, analysed by category was as fol-

lows:

2005 2004

Telecommunications 93 103

Directors 7 5

100 108

The aggregate payroll costs of these employees (excluding directors) was as follows:

2005 2004 £ Stg £ Stg

Wages and salaries 1,248,264 660,964

UK social security costs in 2005 were £26,304 (2004: £21,645). Social costs incurred in Russia and Hungary are included within the wages and salaries charge.

DIRECTORS’ EMOLUMENTSSalary Bonus

2005 2004 2005 2004

Executive Directors £ Stg £ Stg £ Stg £ Stg

Graham Pollard 124,167 — 43,750 —

David French 68,500 48,000 40,000 —

Peter Edmunds 8,750 83,384 — 83,384

201,417 131,384 83,750 83,384

2005 2004

Non Executive Directors £ Stg £ Stg

David Wickham 36,000 27,000

Melvyn Quiller 24,000 12,000

Jonathan Saville 25,000 25,000

Dr. Ivan Laska 10,000 2,500

Emmett O’Connell — 22,500

95,000 89,000


29Notes to the Group financial statements for the year ended 31 December 2005


7. DIRECTORS’ EMOLUMENTS CONTINUED

2005 2004

Summary £ Stg £ Stg

Executive Directors (two) (2004: two)

- salary and bonus 285,167 214,768

Non executive directors (four) (2004:five) 95,000 89,000

380,167 303,768

Directors’ remuneration comprises all of the fees, salaries, other benefits and emoluments paid to directors. The basis of the executive directors’ remuneration and the level of bonus paid are fixed by the remuneration committee, which is comprised solely of non-executive directors of the company.

Share Options The directors, as at 29 May 2006, have been granted options under the Share Option Scheme as follows:

No. of Ordinary share subject to option Exercise price

Graham Pollard (1) 6,000,000 4.25p

David Wickham (2) 1,500,000 8.375p

Markus Pedriks — —

Melvyn Quiller (3) 500,000 6.875p

Melvyn Quiller (4) 150,000 € 0.10

Jonathan Saville (5) 1,000,000 8.375p

David French (6) 765,625 8.375p

David French (7) 562,500 4.25p

Dr. Ivan Laska (8) 500,000 6.00p

1. These options were granted on 22 February 2005, of which 4,500,000 options become exercisable in 12 equal tranches over the three year vesting period of the options and a further 1,500,000 become exercisable if the price on AIM of the Ordinary Shares is at least twice the Placing Price for a continuous period of 60 days.

2. These options were granted on 31 March 2004, of which 1,208,333 options are currently exercisable, with the bal-ance becoming exercisable in 7 equal tranches over the remaining vesting period of the options.

3. These options were granted on 2 July 2004 and become exercisable in 12 equal tranches over the three year vesting period of the options.

4. These options are exercisable between 16 September 2002 and 31 December 2008.




7. DIRECTORS’ EMOLUMENTS CONTINUED

5. These options were granted on 31 March 2004, of which 805,556 options are currently exercisable, with the balance becoming exercisable in 7 equal tranches over the remaining vesting period of the options.

6. These options were granted on 31 March 2004 and become exercisable in 16 equal tranches over the four year vesting period of the options.

7. These options were granted on 22 February 2005, of which 1,687,500 options become exercisable in 12 equal tranches over the four year vesting period of the options and 562,500 become exercisable if the price on AIM of the Ordinary Shares is at least twice the Placing Price for a continuous period of 60 days.

8. These options were granted on 13 September 2004 and become exercisable in 12 equal tranches over the three year vesting period of the options.

In each case the options granted under the Share Option Scheme vest in equal instalments on the quarter days 31 March, 30 June, 30 September and 31 December over the vesting period of the options. In each case the options granted under the Share Option Scheme will lapse on 5 August 2014. Options granted to directors lapse eighteen months after their retirement from the board.

The market value of the shares on the AIM Listing commencing 30 September 2005 ranged from 2.44p to 1.938p and at 31 December 2005 the market value was 1.938p.




8. TAxATION2005 2004

£ Stg £ Stg

United Kingdom corporation tax on losses for the year — —

Overseas taxes on losses for the year — —

Deferred taxation — 9,970

Tax on loss on ordinary activities — 9,970

Factors affecting tax charge for period:

2005 2004

£ Stg £ Stg

Loss on ordinary activities before taxation (2,570,976) (2,545,504)

Loss on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (2004 : 30%) (771,293) (763,651)

Factors affecting charge:

Loss carried forward to be utilised in future periods 771,293 763,651

— —

Factors that may affect future tax charges:

The group has tax losses which can be carried forward to future periods that will reduce future tax charges, until they are fully utilised.

9. LOSS PER ORDINARY SHARE2005 2004

£ Stg £ StgBasic and diluted

Loss after taxation (2,570,976) (2,535,534)

Weighted average number of ordinary shares 231,929,444 183,955,335

Basic loss per ordinary share Stg (1.11)p Stg (1.38)p

Diluted loss per ordinary shares Stg( 1.11)p Stg (1.38)p

Basic loss per ordinary share is calculated by dividing the weighted average number of ordinary shares in issue into the loss after taxation for the year.

The basic loss per share and the fully diluted loss per share for both of the above years are the same, as the effect of the outstanding share options is anti-dilutive and is therefore excluded.





10. INTANGIBLE FIxED ASSETSMotorola Global

CorridorLicences Total

£ Stg £ Stg £ Stg

COST

At 1 January 2005 49,780 55,560 105,340

Additions — 10,470 10,470

At 31 December 2005 49,780 66,030 115,810

AMORTISATION/PROVISION FOR IMPAIRMENT

At 1 January 2005 49,780 47,747 97,527

Charge for year — 1,408 1,408

At 31 December 2005 49,780 49,155 98,935

NET BOOK VALUE

At 31 December 2005 — 16,875 16,875

At 31 December 2004 — 7,813 7,813

Licences represent telecommunications licences obtained from the Russian regulatory authorities. The licences are amortised over their lives.

The group is in the process of renewing certain Russian Telecommunications Licences which expired during the year.

11. GOODWILL2005

£ Stg

GROUP - COST

At 1 January 2005 9,095,334

Additions

At 31 December 2005 9,095,334

AMORTISATION

At 1 January 2005 1,440,130

Charge for period 1,275,867

At 31 December 2005 2,715,997

NET BOOK VALUE

At 31 December 2005 6,379,337

At 31 December 2004 7,655,204




12. TANGIBLE FIxED ASSETS

Development Land Plant Machinery & Equipment

Total

£ Stg £ Stg £ Stg

COST

At 1 January 2005 977,380 5,140,929 6,118,309

Additions — 188,409 188,409

Disposals — (34,000) (34,000)

Currency adjustment (164,723) 276,418 111,695

At 31 December 2005 812,657 5,571,756 6,384,413

DEPRECIATION

At 1 January 2005 — 3,539,247 3,539,247

On disposals — (20,814) (20,814)

Charge for the year — 402,388 402,388

Currency adjustment — 318,139 318,139

At 31 December 2005 — 4,238,960 4,238,960

NET BOOK VALUE

At 31 December 2005 812,657 1,332,796 2,145,453

At 31 December 2004 977,380 1,601,682 2,579,062

34


Notes to the Group financial statements for the year ended 31 December 2005

12. TANGIBLE FIxED ASSETS: COMPANY

Equipment Total

£ Stg £ Stg

COST

At 1 January 2005 7,805 7,805

Additions 8,358 8,358

At 31 December 2005 16,163 16,163

DEPRECIATION

At 1 January 2005 2,587 2,587

Charge for the year 3,650 3,650

At 31 December 2005 6,237 6,237

NET BOOK VALUE

At 31 December 2005 9,926 9,926

At 31 December 2004 5,218 5,218

13. INVESTMENTS

2005 2004COMPANY:Shares in subsidiary undertakings 4,083,369 4,083,369


35


14. SUBSIDIARY UNDERTAKING At 31 December 2005 the Company had the following wholly owned subsidiaries:

Name and registered office

Country of Incorporation

Details of Investment

Proportion held by company

PrincipalActivity

JSC Satcom-Tel,13/3 Yauzsky Blvd,Moscow 109028,Russian Federation.

Russian Federation10,616,000 Ordinary Shares of 1 Rouble each

100% Provision of telecom-munications services

3C kft,1121 Budapest,Konkoly - Thege út 29 - 33,Hungary.

Hungary Quota to the value of Thuf 376,960 100% Provision of telecom-

munications services

L.M. Hungary kft,1121 Budapest,Konkoly - Thege út 29 - 33,Hungary.

Hungary Quota to the value of Thuf 3,000 100% Property Company

Global Corridor,40 Marsh Wall,London,E14 9TP.

England 2 Ordinary Shares of £1 each 100% Provision of telecom-


NDNT, IncBox 111, PMB 572666 5th Avenue, New York,NY, 10103-0001.

United States 100 Common Shares of $0.001 each 100% Provision of telecom-


ZAO Directnet,Telecommunications,4, bldg 1A,Leninskly prospect,Russia.

Russian Federation103,825,050 Ordinary Shares of 1 Rouble each

100%* Provision of telecom-munications services

NDNT (UK) Limited,40 Marsh Wall,London, servicesE14 9TP.

England 2 Ordinary Shares of £1 each 100%* Provision of telecom-

munications

*Subsidiaries indirectly owned via NDNT Inc.

Under Hungarian law, no share capital is issued by the Company. Each Company issues a quota, which may be di-vided between the owners of the Company in proportion to the capital invested. The company acquired 100% of the quota of each of the above Hungarian Companies on 30 September 2001.



36


15. STOCKS GROUP

Group Company

£ Stg £ Stg

STOCK OF SPARE PARTS

At 31 December 2004 11,965 —

At 31 December 2005 6,897 —

16. DEBTORS2005 2004

Group Company Group Company

£ Stg £ Stg £ Stg £ Stg

Amounts due within one year

Trade debtors 974,979 — 1,532,832 —

Value added tax 338,956 17,675 183,603 11,719

Other debtors 266,317 4,983 74 74

Prepayments 70,718 15,912 128,992 112,149

1,650,970 38,480 1,845,501 123,942

Amounts due after more than one year

Amounts owed by group undertakings — 6,615,583 — 4,843,297

Deposits receivable on leased premises — — 76,047 —

1,650,970 6,654,063 1,921,548 4,967,239



37


17. CREDITORS (amounts falling due within one year)

2005 2004



Trade creditors 1,399,172 114,413 2,100,055 164,297

Deposits — — 2,091 2,091

Other taxes and social security 14,968 14,968 2,723 2,723

Other taxes payable 297,747 — 150,104 (3,029)

Other creditors 394,834 41,785 246,352 112,646

Accruals 337,422 160,913 164,482 86,990

2,444,143 332,079 2,665,807 365,718

CREDITORS (amounts falling due after more than one year)Amounts owed to group undertakings

— 460,286 — 579,654

18. PROVISIONS FOR LIABILITIES AND CHARGES

Movements on the provision for deferred taxation are:

2005 2004



At beginning of year — — 9,970 —

Movement in the period — — (9,970) —

At end of year — — — —

The group has significant tax losses carried forward. No recognition has been made within the financial statements for any deferred tax asset arising from these losses due to uncertainty over the recoverability of this asset.






19. CALLED UP SHARE CAPITAL2005 2004

£ Stg £ Stg

Authorised Share Capital

400,000,000 Ordinary shares of €0.06 each — 16,988,745

1,384,919,490 Ordinary shares of €0.01 each 9,803,352 —

203,016,102 deferred shares of €0.05 each 7,185,393 —

16,988,745 16,988,745

The movement on share capital and share premium during the year was as follows:

Number of Deferred shares

Number of Ordinary shares

Share Capital £ Stg

Share Premium£ Stg

Balance after share capital reorganisation

203,016,102 203,016,102 8,105,522 7,586,783

Issued in the year — 115,653,367 788,367 1,524,700

Share issue expenses — — — (415,628)

At 31 December 2005 203,016,102 318,669,469 8,893,889 8,695,855

On 18 July 2005 each issued ordinary share of €0.06 was sub-divided into one ordinary share of €0.01 each and one deferred share of €0.05 each. Each of the unissued ordinary shares of €0.06 each was subdivided into six ordinary shares of €0.01 each. The authorised share capital of the company following the re-organisation was 1,384,919,490 ordinary shares of €0.01 each and 203,016,102 deferred shares of €0.05 each.

During the year the company issued 115,653,367 ordinary shares of €0.01 per share, full details of which are set out in the report of the directors.

At 31 December 2005 options over 18,353,628 ordinary shares and warrants over 15,875,000 remained outstanding, full details of which are set out in the report of the directors.





20. EQUITY RESERVES

Capital and Acquisition

Reserve

Share Premium Account

Foreign Currency Reserve

Profit and Loss

AccountTotal

GROUP £ Stg £ Stg £ Stg £ Stg £ Stg

At 31 December 2004 148,970 7,586,783 119,459 (6,099,990) 1,755,222

Premium on issue of shares — 1,524,700 — — 1,524,700

Foreign currency differences — — (629,318) — (629,318)

Loss for period — — — (2,570,976) (2,570,976)

Expenses in relation to share issue — (415,628) — — (415,628)

At 31 December 2005 148,970 8,695,855 (509,859) (8,670,966) 336,000

COMPANY

At 31 December 2004 148,970 7,586,783 — (7,535,258) 200,495

Premium on issue of shares — 1,524,700 — — 1,524,700

Profit for period — — — 354,341 354,341

Expenses in relation to share issue — (415,628) — — (415,628)

At 31 December 2005 148,970 8,695,855 — (7,180,917) 1,663,908

In accordance with the provisions of the Companies (Amendment) Act 1986, the Company has not presented a profit and loss account. A profit of £354,341 (2004 : loss of £569,471) has been dealt with in the profit and loss account of the Company.

21. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS

2005 2004


£ Stg £ Stg £ Stg £ StgShareholders’ funds at 31 December 2004

9,860,744 8,306,017 11,749,780 7,946,358

Total recognised gains and losses for year

(3,200,294) 354,341 (2,818,161) (569,466)

Net proceeds of equity share issue

1,897,439 1,897,439 929,125 929,125

At 31 December 2005 8,557,889 10,557,797 9,860,744 8,306,017

22. ULTIMATE CONTROLLING PARTY The directors are not aware of any controlling interest in Consolidated Communications Corporation plc. Details of

significant shareholdings in the company at the date of signing the financial statements are set out in the directors’ report.





23. NET CASH OUTFLOW FROM OPERATING ACTIVITIES2005 2004

£ Stg £ Stg

Operating loss (2,530,017) (2,526,136)

Depreciation 402,388 561,682

Amortisation of intangible assets and goodwill 1,275,867 820,901

Provision for listed investment — 31,341

(Increase) / decrease in stocks 5,068 115,504

Decrease / (increase) in debtors 270,579 (140,468)

(Decrease) / increase in creditors (221,664) 149,076

Loss on sale of tangible fixed assets 5,066 5,209

Other non-cash items — (149,716)

Net cash outflow from operating activities (792,713) (1,132,607)

24. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT

24.1 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE2005 2004

£ Stg £ Stg

Interest paid (44,475) (25,687)

Interest received 3,516 6,319

(40,959) (19,368)

24.2 CAPITAL ExPENDITURE AND FINANCIAL INVESTMENT2005 2004

£ Stg £ Stg

Purchase of fixed assets (197,470) (127,850)

Sale of tangible fixed assets 8,118 -

(189,352) (127,850)

24.3 FINANCING - ExTERNAL2005 2004

£ Stg £ Stg

Proceeds of issue of share 2,313,067 929,125

Share issue expenses (415,628) -

1,897,439 929,125




25. ANALYSIS OF CHANGES IN NET FUNDS

2004 Cash flows Non-cash movement

2005

£ Stg £ Stg £ Stg £ StgCash at bank and in hand 350,959 874,415 (422,874) 802,500

26. MAJOR NON-CASH TRANSACTIONS During the year the company issued ordinary shares with an issue value of £2,313,067. Of this issue,

£689,461 and £67,295 was in consideration of the cancellation of loans advanced to the company by Baring Com-munications Equity (Emerging Europe) Limited and Mr. Emmett O’Connell, respectively. In addition, £67,295 was in lieu of professional fees to Seymour Pierce in respect of the admission to AIM of the company’s shares.

27. FINANCIAL INSTRUMENTS (a) Policy The group’s financial instruments comprise bank borrowings, some cash and liquid resources and various items,

such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the group’s operations.

It is, and has been throughout the period under review, the group’s policy that no trading in financial instruments shall be undertaken. Furthermore, the group does not undertake any hedging of its financial instruments.

The main risks arising from the group’s financial instruments are foreign currency risk in respect of £78, 122 (2004: £35,419) held in US Dollars, £120,527 (2004: £116,579) held in Hungarian HUF, and the net investment in the assets and liabilities in overseas subsidiaries that trade in US Dollars and Hungarian HUF. The board reviews and agrees the policy for managing this risk as summarised below:

(b) Bank borrowing and facilities The groups’ overseas subsidiary 3C kft had a bank loan of HUF NIL (2004: HUF 376,000) at 31 December 2005 which

bore interest at NIL% (2004: 4%) above Hungarian base rate.

(c) Interest rate and financial assets The group’s current account balances earn minimal interest.

(d) Currency exposures All financial assets and liabilities are Sterling denominated, except for cash balances of £198,649 (2004:

£151,998) held in US Dollars and Hungarian HUF as detailed above.

(e) Fair value There is no material difference between the fair value and the book value of financial liabilities.




28. CONTINGENT LIABILITIES

Other than the risks associated with the emerging business and political environment in Russia, which can not be predicted or quantified with any certainty, the directors have not identified any contingent liabilities at the latest balance sheet date. The financial statements do not include any provisions which may be necessary if the business or political environment in Russia, in which the group operates, was to materially and adversely change.

29. COMMITMENTS AND CONTINGENCIES

TAxATION The taxation system in the Russian Federation is relatively new and is characterised by numerous taxes and

frequently changing legislation, which is often unclear, contradictory and subject to interpretation. Often differing interpretations exist among numerous taxation authorities and jurisdictions. Taxes are subject to review and investigation by a number of authorities, which are enabled by law to impose severe fines, penalties and interest charges. These facts may create tax risks in the Russian Federation substantially more significant than in other countries. Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation. However, the relevant authorities may have differing interpretations, the effect of which could be significant.

TRADE DISPUTES NDNT is subject to a number of disputes with its suppliers and customers in the course of the normal conduct of its

business. Management believes that it has adequately provided for the ultimate resolution of these disputes.

POLITICAL ENVIRONMENT The operations and earnings of the NDNT Group continue, in varying degrees, to be affected by political, legislative,

fiscal and regulatory developments in Russia. Because of the capital intensive nature of the business, the NDNT Group is also subject to physical risks of various kinds. The nature and frequency of these developments and events associated with these risks, which generally are not covered by insurance as well as their affect on future operations and earnings are not predictable. While no provisions for self-insurance are included in the accompanying financial statements, the occurrence of significant losses and impairments associated with the facilities could have a material effect on the company’s operations. NDNT’s operations are dependent on its activities in the Russian Federation, which are in turn authorised by the various licenses that it holds and maintains for that purpose. Although manage-ment has no reason to believe that there are circumstances that would suggest a risk that the relevant licenses will not be renewed or that any license may be suspended or terminated, the political environment cannot preclude such an event occurring.




30. RELATED PARTY TRANSACTIONS

As the group produces consolidated accounts which are publicly available, advantage has been taken of the exemp-tion from disclosing transactions with other group undertakings under FRS 8.

Transactions with other related parties are as follows:

Emmett O’Connell In 2002, Emmett O’Connell (a former director of the company) advanced a loan of €100,000 to the Company.

Pursuant to a subscription letter dated 23 September 2005, Emmett O’Connell agreed to cancel the principal debt outstanding in consideration for the issue of 3,364,738 ordinary shares of €0.01 each. The amount of interest pursuant to the loan remained due and payable. Pursuant to a deed of release dated 23 September 2005, Mr. O’Connell agreed to cancel his existing warrants, which are exercisable at a subscription price of €0.06 per share, in consideration for the issue of 5 million new warrants exercisable at Stg£0.02.

The interest rate applicable to the loan was 1% per month and interest paid to Emmett O’Connell during the current year amounted to £5,550.

Baring Communications Equity (Emerging Europe) Limited A loan agreement dated 24 May 2005 between the Company, LM Hungary, 3C kft and Baring Communications

Equity (Emerging Europe) Limited whereby Baring Communications Equity (Emerging Europe) Limited agreed to make available to the Company a loan facility in the amount of US$1,200,000. The interest rate applicable to the loan was 8% and amounted to £8,611 in the current financial year.

Pursuant to a subscription letter dated 23 September 2005 Baring Communications Equity (Emerging Europe) Limited agreed to cancel the debt outstanding pursuant to this loan in consideration for the issue of 34,473,073 ordinary shares of €0.01 each. Pursuant to a deed of release dated 23 September 2005 Baring Communications Equity (Emerging Europe) Limited agreed to cancel its existing entitlement to 1,601,307 warrants in consideration for the issue of 9 million new warrants

Markus Pedrekis Markus Pedriks is a director of the Company. On 14 April 2005 Markus Pedriks advanced a loan to bridge a

Baring Communications Equity (Emerging Europe) Limited advance (see above) of US$500, 000 to the Company. On 2 June 2005 the loan was repaid together with costs associated with the facility and accrued interest that totalled £13,760.

JM Finn & Co. Pursuant to a deed of release dated 22 September 2005 JM Finn & Co. agreed to release the Company from a liability

in respect of broker services provided of £26,437.50 in consideration for the issue of 1, 875,000 warrants.

Marketing and PR activities44


GLOBAL REBRAND

Marketing and PR activities 45


86 • Russian Investment Review •

it&telecommunications

n Are you currently engaged in a pro-cess of restructuring?n Yes - there has been a process of re-structuring, which has mainly centred around the senior management team at plc level and preparing the compa-ny to move forward. In Russia one of the issues that we have had is that be-ing a relatively small carrier we have not owned any fibre in the ground.This has meant that, historically, we have had to deal with the larger-end client-base and we have had to rent fibre from our competitors, which isexpensive, cumbersome and time con-suming.

We want to be able to access the SME market place in Moscow specificallyas it is an enormous market place with over a million registered SMEs.

Our strategy going forward in-volves an IP Centrex product – which essentially is a network-embedded telephone system. It has all the func-tionality of a traditional telephone system – and indeed more - except ev-erything is provided over broadband, without the need for a large box in the

office. All of the maintenance issuesare resolved; it gives total flexibilityand saves money. The call charges to everywhere are less, between officesof the same company they are free and

you don’t need expensive telephone lines from the incumbent, just a good broadband link. That product is an indirectly delivered product, so all that is needed is for customers to have a broadband connection since we don’t need to go to the incumbent or any of our competitors for the last-mile con-

nection. Consequently, our ability to deliver the product is much improved. It’s simpler, we control the process, and it and offers up the whole Russian market to us.

At the same time, 3C Russia has a full range of directly connected prod-ucts – voice, internet, data, private wires – but we will add the IP Centrex product during the second quarter of 2006 which will give us access to the SME market place as our brand new feature -rich soft-switch is now ready and in fact there are already over 300 IP telephony customers from Hungary switching through it.

n Does this mean that you will be boosting your sales efforts?n Yes but with a different focus. The other benefit of this is that we can startusing third party channels to sell the product. Rather than having ten very good sales guys employed directly by our Moscow office, our target in 2006 isto employ 50 sales channels through a third party. Those 50 channels could be made up of 200 people. A channel is an

“You can make your business move much faster in other parts of the world, but there are many benefits to being in Russia: particularly the way in which it is growing as a country and the available technology”

Graham Pollard, Group CEO, 3C, outlines the strategy of introducing an IP Centrex product – a network-embedded telephone system – to capitalise and build on the growth of Russia’s SME sector

3C IN THE NEWS

Products and services46

3C offers a full range of telecommunications, internet, data and IP services for consumers


BT Infonet Service in Hungary

3Net

Dial-up Internet Service in Russia

3Net Virtual Public Network Service in Hungary and Russia

3Vpn

3C’s feature rich Broadband Telephony Service for businesses in Hungary, Russia and the UK.

3Centrex NEW3C’s IP Telephony Service for Hungary, Russia and the UK

3NetPhone NEW

Domain Registration Service in Hungary

3Domain

PRODUCTS AND SERVICES

Products and services 47

and businesses across Russia, Hungary, Central Europe and the United Kingdom.


Global Wholesale Carrier to Carrier Division

Wholesale

IPL and OPX Channels in Russia

3IPL and OPxSatellite Services in Hungary and Russia

3Vsat

3PhoneCarrier Pre-Select Service for Hungary

NEWADSL Service in Hungary

3Adsl NEW

ß PRODUCTS AND SERVICES

Company number:265280 registered in Republic of Ireland

Ticker:CCM (AIM)

Registered Office:168 Pembroke Road, Dublin 4

Business address:40 Marsh Wall, London, E14 9TP

Websitewww.3c-plc.com

40 Marsh WallLondon, E14 9TPUnited Kingdom

Tel: +44 (0) 845 241 6601Fax: +44 (0) 845 241 [email protected]

Konkoly Thege út 29-33 H-1121 Budapest, Hungary

Tel: +36 1-275 5200Fax: +36 1 275 [email protected]

125 Varshavskoe shosse,Floor 2, Section 5117405 - Moscow, Russia

Tel: +7 495 755 7750Fax: +7 495 755 7751 [email protected]

40 Marsh WallLondon, E14 9TPUnited Kingdom

Tel: +44 (0) 845 241 6601Fax: +44 (0) 845 241 [email protected]

90 Broad Street, 25th Floor, New York, NY. 10004USA

Tel: +1 212 480 4450fax: +1 212 480 [email protected]

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