| MOSCOW CABLECOM CORP Item 1A RISK FACTORS The risks described below in addition to the other cautionary statements and risks described elsewhere, and the other information contained in this Report and in our other filings with the SEC, including our subsequent reports on Forms 10-Q and 8-K should be carefully considered in evaluating our Company and our business |
| The risks and uncertainties described below are not the only ones we face |
| Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business |
| If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on Moscow CableCom, our business, financial condition and results of operations could be seriously harmed |
| In that event, the market price for our common stock will likely decline and you may lose all or part of your investment |
| The Company may experience liquidity difficulties due to continued operating losses and the capital expenditure requirements of our business |
| Although AKADO received a total of dlra10 million in February and March 2006 from the RM Term Loan that was entered into in January 2005, such cash resources are not expected to be adequate to enable AKADO to continue or accelerate the build-out of its HFC Network throughout Moscow and meet other anticipated capital expenditure commitments and operating cash needs |
| As a result, the Company and AKADO could be exposed to future liquidity difficulties |
| We continue to incur losses, as AKADO’s revenues are not yet sufficient to meet its cash operating expenses, and the Company requires continued access to capital to meet its corporate level operating expenses and its other cash obligations |
| If the Company or AKADO is exposed to liquidity difficulties there is no assurance that additional financing could be obtained on favorable terms or at all |
| In addition, if we are able to attract additional financing, we cannot be assured that such additional funds will be adequate to meet our planned business needs or unforeseen cash requirements |
| We cannot be sure that a market will develop for our television services, including future services we may offer |
| AKADO currently offers its subscribers a number of value-added services, such as high-speed Internet access and cable television |
| Our market penetration for cable television services is still relatively low at an average of 5dtta0prca of homes passed and with no individual region having a market penetration reaching 10prca |
| We may also develop plans to offer IP-based telephony and web hosting services |
| AKADO may not be successful in creating or competing in a market for these value-added services |
| In particular, the Company cannot be assured that AKADO can: • enhance its current services; • develop new services that meet changing subscriber needs; • generate significant demand for its new services through successful advertising and marketing initiatives; • satisfy subscriber expectations with respect to value-added services; • provide its new services in a profitable manner; and • continue to offer value-added services in the event of adverse changes in economic conditions |
| Our inability to effectively introduce, market and sell new and enhanced services or to anticipate consumer demand for such services could have a material adverse effect on our business, results of operations, financial condition and future prospects |
| Our financial results could be adversely impacted by asset impairments or other charges |
| Effective March 1, 2002, we adopted SFAS Nodtta 142, “Goodwill and Other Intangible Assets |
| ” As a result, we are required to test both acquired goodwill and other indefinite-lived intangible assets for impairment on an annual basis based upon a fair value approach, rather than amortizing them over time |
| We have chosen to perform our annual impairment review of goodwill during the fourth quarter of each fiscal year |
| We are also required to test goodwill for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce our enterprise fair value below its book value |
| These events or circumstances could include a significant change in the business climate, including a significant sustained decline in our market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other factors |
| If our market value is less than our book value, we could be required to record an impairment charge |
| We may also be required to record an earnings charge or incur unanticipated expenses if, due to a change in strategy or other reason, we determine that the value of other assets has been impaired or we terminate a contractual commitment |
| The amount of any such annual or interim impairment or other charge could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken |
| Effective March 1, 2002, 9 ______________________________________________________________________ [37]Table of Contents we also adopted SFAS 144 “Impairment or Disposal of Long-Lived Assets” |
| As a result, we are required to test for recoverability of our long-lived assets, which exclude goodwill and intangible assets which we are amortizing, whenever events or changes in circumstances indicate that their carrying amount may not be recoverable |
| We prepare an annual impairment review using estimates of undiscounted cash flows during the remaining useful lives of the assets |
| If such estimated cash flows are less than the carrying value of the assets, we may have to record an impairment charge |
| We also expect to record additional compensation expense in connection with our adoption of SFAS 123R, “Share-based Payment”, effective January 1, 2006 |
| SFAS 123R requires us to record as an expense the fair value of stock options granted over the vesting period of such options |
| We estimate that the adoption of SFAS 123R will require us to record additional expense of dlra1cmam051cmam000 in 2006 |
| However, these amounts are subject to change if we grant additional options, or some of the options currently outstanding are cancelled or forfeited, or we apply a different valuation method from that which we have applied in the past |
| If we fail to establish and maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud, which could adversely affect our business and the trading price of our stock |
| We are currently in the process of evaluating our internal controls system to allow management to report on, and our independent auditors to audit, our internal controls over financial reporting |
| We will be performing the system and process evaluations and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 |
| These systems are necessary to produce accurate financial reports and prevent fraudulent activity |
| We will be required to begin complying with Section 404 for our first fiscal year ending after July 15, 2007 |
| We have identified a series of significant deficiencies affecting our anti-fraud detection and prevention procedures and controls, which in the aggregate result in a material weakness in the Company’s internal controls over financial reporting |
| We have also identified that we did not have an adequate level of review of complex and judgmental accounting issues |
| We have other compensating controls in place that allow us to conclude that the consolidated financial statements fairly present the financial condition of the Company as of December 31, 2005, and the results of operations for the year then ended, and we are currently implementing remediation measures to address these material weaknesses |
| See Item 9A “Controls and Procedures |
| ” However, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations |
| Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board rules and regulations that remain unremediated |
| If we fail to implement the requirements of Section 404 in a timely manner, we may be subject to sanctions or investigation by regulatory authorities such as the SEC In addition, if any material weakness or deficiency is identified or is not remedied, investors may lose confidence in the accuracy of our reported financial information, and our stock price could be significantly adversely affected as a result |
| We operate in a highly competitive industry, particularly for the delivery of Internet access |
| There is substantial competition for the delivery of cable television and Internet access services in Moscow |
| We expect competition to intensify as a result of the development of new technologies, products and services |
| Other television service providers serve each of the markets in which AKADO competes |
| This competition may put downward pressure on subscriber and revenue growth and profit margins |
| Television service providers compete principally on service area, price, service quality, and features |
| AKADO’s ability to compete successfully will depend on its ability to anticipate and respond to various competitive factors, including service quality, coverage area, new services, service features and enhancements, changes in consumer preferences, demographic trends, economic conditions and competitors’ pricing strategies |
| Similarly, there is significant competition for the delivery of Internet access services |
| Although we believe that AKADO is the largest provider of cable-based Internet access in Moscow, there is significant competition from ADSL carriers and individual Home LAN providers |
| The trend of lower monthly tariffs for product offerings is expected to continue |
| We are dependent upon COMCOR for the delivery of our services and the expansion of our HFC Network |
| Our HFC Network is connected to COMCOR’s MFON pursuant to a 50 year agreement that was amended in March 2005 |
| If COMCOR should experience technical difficulties with its fiber backbone or any of the related equipment, we would not be able to offer our services to our customer base |
| We are dependent on outside parties to expand our HFC Network |
| In Moscow, in order for us to build out our HFC Network in the various regions, we require authorization from the Prefects of each of the regions |
| Currently, we rely on COMCOR to petition and obtain such authorizations |
| We are not certain that we would be able to obtain such authorizations without COMCOR or its key officials |
| Our operating plans are very much dependent on our ability to build-out our HFC Network in administrative regions of Moscow for which we have not had approvals obtained on our behalf |
| If we did not receive the support of COMCOR or its key officials in this process, we have no basis to believe that we would be able to readily obtain the required authorizations to continue our build-out activities |
| We are also dependent upon COMCOR to have secondary nodes, or signal relay stations, available to connect our new build-out to its fiber optic network |
| Delays in COMCOR’s ability to make such a connection would result in delays in our ability to market and sell our services and put new construction into revenue generating status |
| 10 ______________________________________________________________________ [38]Table of Contents Renova Media could exert an uneven influence on the strategic direction of our company |
| Renova Media, which is controlled by Victor Vekselberg, has an equity interest in the Company of approximately 33dtta8prca and it has a warrant to purchase additional shares of stock which could increase its equity ownership in the Company to approximately 59dtta1prca |
| Additionally, through voting agreements with certain shareholders, Renova Media has voting control over the Company |
| Renova Media has selected five of the directors on our ten person Board of Directors and it has the right to select an additional director |
| In addition, we were indebted to Renova Media in an amount of dlra20dtta2 million at December 31, 2005, and have recently become indebted for an additional dlra10 million |
| This indebtedness is likely to grow if quarterly interest charges continue to be compounded into the principal balance of the borrowing |
| Although we believe the funds received from Renova Media have been very beneficial for our operational growth, large increases in the amount of our indebtedness could be harmful to our shareholders |
| These factors could lead to conflicts of interest between Renova Media and our other stockholders |
| Certain of our directors and shareholders may have conflicts of interest with us |
| Affiliates of Renova Media, one of our major shareholders, have entered into agreements with and made investments in companies that may compete with us |
| In connection with its investment in our Series B Preferred Stock, Renova Media entered into a shareholders agreement with COMCOR which provides that, in the election of directors to our board, they will vote all of the shares of Common Stock and Series B Preferred Stock which they beneficially own in favor of three individuals designated by COMCOR and six individuals designated by Renova Media |
| Each of Renova Media and COMCOR have also agreed to vote their shares in favor of Oliver R Grace, Jr |
| and James Jay Pinto or replacement nominees named by Messrs |
| Grace and Pinto |
| In addition, Renova Media has agreed to use its best efforts to ensure that the combination of the directors designated by COMCOR and those designated by Renova Media comprise a majority of the directors on the Board |
| Affiliates of Renova Media could be engaged in commercial activities and transactions which may give rise to conflicts of interest, and we may compete with such affiliates for the same prospective customers |
| This includes, but is not limited to the ownership interest in Corbina Telecom and the prospective ownership in TeleInform by a Renova Media affiliate |
| In addition, some of our directors are affiliated with Renova Media and COMCOR, which have invested in, and may in the future invest in, other entities engaged in or intending to engage in the delivery of cable television, internet access and telephony services, some of which may compete with us, or they may invest in entities that are, or could become our vendors or suppliers Certain of our directors or executive officers may play a direct or indirect role in the activities of these other entities |
| Such involvement may create a conflict of interest in determining business strategies and making certain business decisions |
| We may not be in a position to influence any party’s decision to engage in activities that would give rise to a conflict of interest, and they may take actions that are not in our shareholders’ best interests, or are conducted on terms that could be viewed as not being “at arm’s length” |
| Continued rapid changes in technologies could materially adversely affect us |
| The television and internet access services industry is experiencing significant technological change |
| This change includes: • Evolving industry standards; • Ongoing improvements in the capacity and quality of digital technology; • Shorter development cycles for new products, enhancements and changes in end-user needs and preferences; • Development of data and high bandwidth network capabilities; • Migration to next-generation services; and • Expanded availability and functionality of other competing technologies |
| The pace and extent of customer demand may not continue to increase which could result in shortfalls from anticipated subscriber growth rates |
| As a result, the future prospects of the industry and of AKADO and the success of its competitive services remain uncertain |
| Also, alternative technologies may develop that may provide alternative service superior to that available from AKADO Such developments could have a material adverse affect on AKADO which may require us to make substantial investments in order to remain competitive |
| AKADO must face operational risks associated with a growing company |
| AKADO’s revenues have shown strong growth in each of the past three years, and we are hopeful that opportunities will allow us to continue on this strong growth pattern |
| However, to continue strong revenue growth we need to continue to build out our HFC Network and attract new subscribers |
| Many cable companies face challenges in gaining access to individual residences or apartment buildings to sell and market their services |
| In addition, planned increases in our growth rates will require the hiring and training of qualified installers and other technical workers |
| Although we believe the available labor pool in Moscow is conducive to such growth, there can be no assurance of our ability to attract and train a sufficient number of workers to meet projected order flow demands |
| In addition, growing companies face challenges associated with managing and administering to the needs of higher volumes of transactions |
| This requires hiring and training customer support and other administrative and operational support staff and managers to ensure procedures and controls are properly implemented to serve our growing customer base and to ensure that all elements of the operations and administration function adequately |
| Although we believe that we can meet these needs through additional hiring and through the advancement of the careers of present employees, there can be no assurance of our ability to successfully meet these growing challenges |
| 11 ______________________________________________________________________ [39]Table of Contents We may grow through the acquisition of businesses or operations not yet identified |
| In addition to the “organic” growth of our business which we intend to achieve through the expansion of our HFC Network and through continued marketing to existing and newly passed areas, we may expand through the acquisition of other operations or companies |
| Such acquisitions could result in additional customers or in enhanced or expanded service offerings |
| Any such expansion may not necessarily be limited to within the city of Moscow |
| The effects of any such acquisitions are uncertain but include the risks of dilution to our existing shareholders and of failure for such acquired operations to meet our expectations |
| We do not carry all of the insurance coverage customary in more economically developed countries for a business of our size and nature, and as a result could experience substantial loss or disruption |
| The insurance industry is not yet well developed in Russia, and many forms of insurance protection common in more economically developed countries are not yet available in Russia on comparable terms, including coverage for business interruption |
| At present, we have no coverage for business interruption or loss of key management personnel |
| We do not maintain separate funds or otherwise set aside reserves for these types of losses |
| Any such loss may cause substantial disruption and may have a material adverse effect on our business, results of operations and financial condition |
| Risks relating to the political environment in Russia Businesses in Russia, especially media companies, can be subject to politically motivated actions |
| The Russian government has taken various actions in recent years against business people and companies operating in Russia that have been perceived as having been politically motivated, including actions for technical violations of law or violations of laws that have been applied retroactively, including violations of tax laws |
| These actions have on occasion resulted in significant fluctuations in the market prices of the securities of businesses operating in Russia, a weakening of investor confidence in Russia and doubts about the progress of market and political reforms in Russia |
| These concerns were intensified as a result of the events leading to the imprisonment of Mikhail Khordorkovsky and the effective re-nationalization of Yukos, the oil company he controlled |
| Broader political developments could adversely affect our business operations and financial condition |
| The current Russian presidential administration has taken a number of steps to expand its authority, including by further centralizing power in a number of areas and removing decision making authority from the federal regions |
| The ultimate extent or impact of these changes is uncertain |
| These and future changes in the government, major policy shifts or lack of consensus between various branches of the government and powerful economic groups could disrupt or reverse economic and regulatory reforms |
| In addition, the Russian presidential elections scheduled for 2008 could bring more volatility to the market |
| Any disruption or reversal of reform policies could lead to political or governmental instability or the occurrence of conflicts among powerful economic groups, which could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of our common stock |
| It has been widely reported in the Russian and foreign media that the Russian government is exerting pressure on the so-called “oligarchs” to cause them to divest their commercial interests in certain areas of economic activity |
| The media have also reported that the government has exerted significant influence on companies owned or controlled by the oligarchs through tax inspections, management changes, threats of and actual prosecution of management and key officials, and other means |
| Real and perceived pressure on the oligarchs and their businesses has seriously affected the economic activities of these enterprises and their management |
| If the current or future governments in Russia were to apply similar pressure on the Company, our subsidiaries, on Renova Media or its affiliates, or on COMCOR, it could have serious adverse effects on our operations and financial results |
| Such effects could include, but would not be limited to, the inability of the board of directors to act independently from external pressure and the distraction of our management from our day-to-day operations |
| Risks relating to the economic environment in Russia Emerging markets such as Russia are subject to greater risks than more developed markets and financial turmoil in any emerging market could disrupt our business, as well as cause the price of our common stock to decline |
| Generally, investment in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved in, and are familiar with, investing in such markets |
| Investors should also note that emerging markets such as Russia are subject to rapid change and that the information set out in this prospectus may become outdated relatively quickly |
| Moreover, financial turmoil in any emerging market country tends to adversely affect prices in stock markets of other emerging market countries as investors move their money to more stable, developed markets |
| As has happened in the past, financial problems or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment in Russia and adversely affect the Russian economy |
| Such economic downturn could, among other things, impact our ability to attract or retain subscribers or our vendors’ abilities to support our operating needs |
| 12 ______________________________________________________________________ [40]Table of Contents Economic instability in Russia could reduce consumer spending, which could adversely affect our results of operations |
| Since the dissolution of the Soviet Union, the Russian economy has experienced at various times: • significant declines in gross domestic product; • hyperinflation; • an unstable currency; • high government debt relative to gross domestic product; • a weak banking system providing limited liquidity to Russian enterprises; • a large number of loss-making enterprises that continued to operate due to the lack of effective bankruptcy proceedings; • significant use of barter transactions and illiquid promissory notes to settle commercial transactions; • widespread tax evasion; • the growth of black and gray market economies; • pervasive capital flight; • high levels of corruption and the penetration of organized crime into the economy; • significant increases in unemployment and underemployment; and • the impoverishment of a large portion of the Russian population |
| Recent trends in the Russian economy, such as the increase in gross domestic product, a relatively stable ruble and a reduced rate of inflation, may not continue or may be abruptly reversed |
| Additionally, because Russia produces and exports large quantities of natural gas and oil, the Russian economy is especially vulnerable to fluctuations in the price of these commodities on the world market |
| A strengthening of the ruble in real terms relative to the US dollar, changes in monetary policy, inflation, a decline in natural gas and oil prices or other factors could adversely affect Russia’s economy and our business in the future |
| Any such market downturn or economic slowdown could also severely limit our and our customers’ access to capital, also adversely affecting our and our customers’ businesses in the future |
| The Russian banking system remains underdeveloped, and other banking crisis could place severe liquidity constraints on our business |
| Russia’s banking and other financial systems are less developed and regulated than those of many other developed countries, and Russian legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent application |
| The August 1998 financial crisis resulted in the bankruptcy and liquidation of many Russian banks and almost entirely eliminated the developing market for commercial bank loans at that time |
| Many Russian banks do not meet international banking standards, and the transparency of the Russian banking sector still lags far behind internationally accepted norms |
| In part due to inadequate supervision by regulators, certain banks do not follow existing Central Bank of Russia regulations with respect to lending criteria, credit quality, loan loss reserves or diversification of exposure |
| Furthermore, Russian bank deposits made by corporate entities generally are not insured |
| Recently, there has been a rapid increase in lending by Russian banks, which many believe has been accompanied by deterioration in the credit quality of borrowers |
| In addition, a robust domestic corporate debt market is leading to Russian banks increasingly holding large amounts of Russian corporate ruble bonds in their portfolios |
| Weaknesses in the Russian banking sector, combined with the relatively high risk credit portfolios of Russian banks, may result in the banking sector being more susceptible to market downturns or economic slowdowns, including due to Russian corporate defaults |
| In addition, the Russian Central Bank has, from time to time, revoked the licenses of certain Russian banks, which in the second quarter of 2004 resulted in market rumors about additional bank closures and many depositors withdrawing their savings |
| If a banking crisis were to occur, companies operating in Russia would be subject to severe liquidity constraints due to the limited supply of domestic savings and the withdrawal of foreign funding sources that would occur during such a crisis |
| 13 ______________________________________________________________________ [41]Table of Contents Risks relating to Russian legislation and the Russian legal system |
| Weaknesses in the Russian legal system create an uncertain environment for investment and business activity and could have a material adverse effect on our business and the value of our common stock |
| Russia is still developing the legal framework required to support a market economy, and its legal system is largely characterized by: • inconsistencies between and among laws, presidential decrees and governmental, ministerial and local regulations, orders, decisions, resolutions and other acts; • substantial gaps in the regulatory structure resulting from the delay in adoption or absence of implementing regulations; • limited judicial and administrative guidance on interpreting Russian legislation; • the relative inexperience of judges and courts in interpreting recent commercial legislation; • a lack of judicial independence from political, social and commercial forces; • a high degree of discretion on the part of the judiciary and governmental authorities; and • poorly developed bankruptcy procedures that are subject to abuse |
| The independence of the judicial system and of the prosecutor general’s office and their immunity from economic, political and other influences have at times been questioned |
| The court system is understaffed and underfunded |
| Judges and courts are generally inexperienced in the area of business and corporate law |
| As is true of civil law systems generally, judicial precedents generally have no binding effect on subsequent decisions |
| Not all Russian legislation and court decisions are readily available to the public or organized in a manner that facilitates understanding |
| The Russian judicial system can be slow, and enforcement of court orders can in practice be very difficult |
| All of these factors make judicial decisions in Russia difficult to predict and effective redress uncertain |
| Additionally, court claims and governmental prosecutions are sometimes used in furtherance of political aims |
| In addition, several key Russian laws, including the amended Communications Law, have only recently become effective |
| The untested nature of much of recent Russian legislation, the lack of consensus about the scope, content and pace of economic and political reform and the rapid evolution of the Russian legal system in ways that may not always coincide with market developments may place the enforceability and underlying constitutionality of laws in doubt and result in ambiguities, inconsistencies and anomalies in the Russian legal system |
| Any of these weaknesses could affect our ability to enforce our rights under our licenses and under our contracts, or to defend ourselves against claims by others |
| Furthermore, we cannot assure you that regulators, judicial authorities or third parties will not challenge our compliance with applicable laws, decrees and regulations |
| These uncertainties also extend to property rights |
| Although legislation has been enacted to protect private property against expropriation and nationalization, due to the lack of experience in enforcing these provisions and due to political factors, these protections may not be enforced in the event of an attempted expropriation or nationalization |
| Expropriation or nationalization of any of our entities or their assets, potentially without adequate compensation, would have a material adverse effect on our business, financial condition, results of operations and prospects |
| Unlawful, selective or arbitrary government action may have an adverse effect on our business and the value of our common stock |
| Government authorities have a high degree of discretion in Russia and have at times exercised their discretion selectively or arbitrarily, without hearing or prior notice, and sometimes in a manner that is contrary to law or influenced by political or commercial considerations |
| The Government also has the power, in certain circumstances, to interfere with the performance of, nullify or terminate contracts |
| Unlawful, selective or arbitrary actions have included withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutions and civil actions |
| Federal and local government entities have also used common defects in documentation as pretexts for court claims and other demands to invalidate and/or to void transactions, apparently for political purposes |
| We cannot assure you that regulators, judicial authorities or third parties will not challenge our compliance (including that of our subsidiaries) with applicable laws, decrees and regulations in Russia |
| Unlawful or arbitrary government action could have a material adverse effect on our business and on the value of our common stock |
| 14 ______________________________________________________________________ [42]Table of Contents Changes in the Russian tax system or arbitrary or unforeseen application of existing rules could materially adversely affect our financial condition |
| Our tax burden may become greater than the estimated amount that we have recorded to date and paid or accrued on our balance sheets |
| Russian tax authorities have often been arbitrary and aggressive in their interpretation of tax laws and their many ambiguities, as well as in their enforcement and collection activities |
| Many companies are often forced to negotiate their tax bills with tax inspectors who may demand higher taxes than applicable law appears to provide |
| Any additional tax liability, as well as any unforeseen changes in Russian tax laws, could have a material adverse effect on our future results of operations or cash flows in a particular period |
| Under Russian accounting and tax principles, financial statements of Russian companies are not consolidated for tax purposes |
| As a result, each Russian-registered entity in our group pays its own Russian taxes and we cannot offset the profits or losses in any single entity against the profits and losses of any other entity |
| Consequently, our overall effective tax rate may increase as we expand our operations, unless we are able to implement an effective corporate structure that minimizes the effect of these Russian accounting and tax norms |
| The Russian tax system imposes additional burdens and costs on our operations in Russia, and complicates our tax planning and related business decisions |
| The uncertainty involved potentially exposes us to significant fines and penalties and enforcement measures despite our best efforts at compliance, and could result in a greater than expected tax burden on our subsidiaries |
| These factors raise the risk of a sudden imposition of arbitrary or onerous taxes on our operations in Russia |
| This could adversely affect our business and the value of our common stock |
| In addition, Russian tax authorities have recently begun to increase control over companies regarding the ability to recover value added tax (VAT) paid to suppliers in excess of VAT received from customers for companies which have debt within their capital structure |
| We are currently defending our interpretations of tax regulations which, if we are not successful, may result in a write – down as much as dlra300cmam000 to dlra700cmam000 of the VAT recoverable reflected on our balance sheet as of December 31, 2005, or as of a future date |
| Any US or other foreign judgments that may be obtained against us may be difficult to enforce against us in Russia |
| Although we are a Delaware corporation, subject to suit in US federal and other courts, we have no operations in the United States, substantially all of our assets are located in Russia, and several of our directors and their assets are located outside the United States |
| Although arbitration awards are generally enforceable in Russia, judgments obtained in the United States or in other foreign courts, including those with respect to US federal securities law claims, may not be enforceable in Russia |
| There is no mutual recognition treaty between the United States and the Russian Federation, and no Russian federal law provides for the recognition and enforcement of foreign court judgments |
| Therefore, it may be difficult in practice to enforce any US or other foreign court judgment obtained against our company, any of our operating subsidiaries or any of our directors in Russia |