<PAGE>


================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                   -----------
                                    FORM 20-F
                                   -----------

[ ]      REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                                       OR

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2002

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number: 3337776

                                   ----------
                          AZTECA HOLDINGS, S.A. DE C.V.
             (Exact name of registrant as specified in its charter)
                                       N/A
                 (Translation of registrant's name into English)
                              UNITED MEXICAN STATES
                 (Jurisdiction of incorporation of organization)

                                   ----------
                               Periferico Sur 4121
                          Colonia Fuentes del Pedregal
                               14141 Mexico, D.F.
                    (Address of principal executive offices)
                                   ----------

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

                      12 1/2% Senior Secured Notes due 2005

     Securities registered or to be registered pursuant to Section 12(g) of the
Act:

                                      None

     Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:

           12 1/2% Senior Secured Notes due 2005 (the "12 1/2% Notes")

           10 1/2% Senior Secured Notes due 2003 (the "10 1/2% Notes")

     Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report: None

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to filing
requirements for the past 90 days.

                           Yes [X]            No [ ]

     Indicate by check mark which financial statement item the registrant has
elected to follow.
                         Item 17 [ ]       Item 18 [X]

================================================================================

<PAGE>


                                TABLE OF CONTENTS

                                     PART I

Item 1*     Identity of Directors, Senior Management and Advisers............. 1
Item 2*     Offer Statistics and Expected Timetable........................... 1
Item 3      Key Information................................................... 1
Item 4      Information on the Company........................................17
Item 5      Operating and Financial Review and Prospects......................47
Item 6      Directors, Senior Management and Employees........................68
Item 7      Major Shareholders and Related Party Transactions.................70
Item 8      Financial Information.............................................77
Item 9      The Offer and Listing.............................................78
Item 10     Additional Information............................................78
Item 11     Quantitative and Qualitative Disclosures About Market Risk........89
Item 12*    Description of Securities other than Equity Securities............90

                                     PART II

Item 13*    Defaults, Dividend Arrearages and Delinquencies...................90
Item 14*    Material Modifications to the Rights of Security Holders and Use
            of Proceeds.......................................................90
Item 15     Controls and Procedures...........................................90
Item 16A*   Audit Committee Financial Expert..................................91
Item 16B*   Code of Ethics....................................................91

                                    PART III

Item 17**   Financial Statements..............................................91
Item 18     Financial Statements..............................................92
Item 19     Exhibits..........................................................92

*  Omitted because the item is inapplicable.
** The registrant has responded to Item 18 in lieu of this Item.

      Azteca Holdings, S.A. de C.V. ("Azteca Holdings" or the "Company") is a
corporation (sociedad anonima de capital variable) organized under the laws of
the United Mexican States ("Mexico"), and its subsidiaries (unless otherwise
indicated). References to the following terms will have the meanings set forth
below.

"Azteca International"           Azteca International Corporation, a corporation
                                 organized under the laws of the State of
                                 Delaware

"Cosmofrecuencias"               Cosmofrecuencias, S.A. de C.V., a corporation
                                 (sociedad anonima de capital variable)
                                 organized under the laws of Mexico, and its
                                 subsidiaries

"Dataflux"                       Dataflux, S.A. de C.V., a corporation (sociedad
                                 anonima de capital variable) organized under
                                 the laws of Mexico

<PAGE>

"Grupo COTSA"                    Grupo COTSA, S.A. de C.V., a corporation
                                 (sociedad anonima de capital variable)
                                 organized under the laws of Mexico, and its
                                 subsidiaries

"Grupo Elektra"                  Grupo Elektra, S.A. de C.V., a corporation
                                 (sociedad anonima de capital variable)
                                 organized under the laws of Mexico, and its
                                 subsidiaries

"Operadora Unefon"               Operadora Unefon, S.A. de C.V., a corporation
                                 (sociedad anonima de capital variable)
                                 organized under the laws of Mexico

"Servicios"                      Servicios SPC, S.A. de C.V., a corporation
                                 (sociedad anonima de capital variable)
                                 organized under the laws of Mexico

"Todito"                         Todito.com, S.A. de C.V., a corporation
                                 (sociedad anonima de capital variable)
                                 organized under the laws of Mexico

"TV Azteca"                      TV Azteca, S.A. de C.V., a corporation
                                 (sociedad anonima de capital variable)
                                 organized under the laws of Mexico, and its
                                 subsidiaries (except as otherwise specified)

"Unefon"                         Unefon, S.A. de C.V., a corporation (sociedad
                                 anonima de capital variable) organized under
                                 the laws of Mexico, and its subsidiaries
                                 (except as otherwise specified)

      Except as stated to the contrary herein, all references herein to
television ratings and audience share relate to data gathered by IBOPE AGB
Mexico. IBOPE AGB Mexico is one of the nine Latin American branch offices of the
Brazilian Institute of Statistics and Public Opinion (Instituto Brasileiro de
Opiniao Publica e Estatistica), which was founded in 1942. Unless otherwise
indicated, the survey data provided in this annual report on Form 20-F ("Annual
Report") pertains only to surveys of the 27 largest cities in Mexico, which
represent approximately 46% of Mexico's population. IBOPE AGB Mexico's 27-City
Survey included an estimated 10 million television households as of June 2002,
the most recent date of this survey.

      References herein to "audience share" for a period mean the number of
television sets tuned in to a particular program as a percentage of the number
of television households watching television during that period. References to
"commercial audience share" for a period refers to the number of viewers
classified by IBOPE AGB Mexico as ABC+, C and D+ (based on total household
income) watching one of Mexico's four national television networks (the Azteca 7
and 13 networks operated by TV Azteca and Channels 2 and 5, operated by
Televisa, S.A. de C.V. ("Televisa")). References to "rating" for a period refers
to the number of television sets tuned in to a particular program as a
percentage of the total number of all television households. References to
"average

                                       ii

<PAGE>

weekday, prime-time audience share" mean the average daily audience share,
Monday through Friday, during the hours of 7:00 p.m. to 12:00 a.m.

      References to "US$," "$," "dollars," and "U.S. dollars," are to the lawful
currency of the United States of America ("U.S."). All references to "Ps." or
"pesos" are to the lawful currency of Mexico.

      References to "U.S. GAAP" are to generally accepted accounting principles
in the U.S. and references to "Mexican GAAP" are to generally accepted
accounting principles in Mexico.

      This Annual Report contains both historical and forward-looking
statements. All statements other than statements of historical fact are, or may
be deemed to be, forward-looking statements. These forward-looking statements
are not based on historical facts, but rather reflect the Company's current
expectations concerning future results and events. These forward-looking
statements generally can be identified by the use of statements that include
phrases such as "believe," "expect," "anticipate," "intend," "plan," "foresee,"
"likely," "will" or other similar words or phrases. Similarly, statements that
describe the Company's objectives, plans or goals are or may be forward-looking
statements. These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the Company's actual results,
performance or achievements to be different from any future results, performance
or achievements expressed or implied by these statements. Readers are cautioned
to review carefully all information, including the financial statements and the
notes to the financial statements, included or incorporated by reference into
this Annual Report.

      In addition to the risk factors described under "Risk Factors," the
following important factors could affect future results, causing these results
to differ materially from those expressed in the Company's forward-looking
statements:

..    the Company's ability and the ability of TV Azteca to service its
     respective debt (including the payment of the outstanding principal and
     accrued but unpaid interest on the 10 1/2% Notes and the initial
     amortization payment and accrued but unpaid interest on the 10 3/4% Senior
     Secured Amortizing Notes Due 2008 (the "10 3/4% Notes", together with the
     10 1/2% Notes and the 12 1/2% Notes, the "Azteca Holdings Notes"), in each
     case due on July 15, 2003;

..    the outcome of pending disputes and legal proceedings involving TV Azteca
     and its affiliates;

..    competitive factors affecting TV Azteca and its subsidiaries in Mexico and
     the U.S.;

..    cancellations of significant advertising contracts of TV Azteca;

..    limitations on the Company's access to sources of financing on competitive
     terms;

..    commencement of war or armed hostilities directly or indirectly involving
     or affecting Mexico or the U.S.;

..    terrorist attacks initiated against the U.S. or its allies in the U.S. or
     elsewhere;

..    significant economic or political developments in Mexico and globally which
     affect Mexico; and

                                       iii

<PAGE>

..    changes in the Mexican regulatory environment.

      These factors and the other risk factors described in this Annual Report
are not necessarily all of the important factors that could cause actual results
to differ materially from those expressed in any of the Company's
forward-looking statements. Other unknown or unpredictable factors also could
harm the Company's future results. The forward-looking statements included in
this Annual Report are made only as of the date of this Annual Report and the
Company cannot assure you that projected results or events will be achieved. The
Company disclaims any obligation to update or revise any of these
forward-looking statements, whether as a result of new information, future
events or otherwise.

      The Company maintains its books and records in pesos and prepares its
consolidated financial statements in pesos. The Mexican Institute of Public
Accountants ("MIPA") has issued Bulletin B-10 "Recognition of the Effects of
Inflation on Financial Information" and Bulletin B-12 "Statements of Changes in
Financial Position." These bulletins outline the inflation accounting
methodology mandatory for all Mexican companies reporting under Mexican GAAP.
Pursuant to Mexican GAAP, which differs in some significant respects from U.S.
GAAP, financial data for all periods in the financial statements included in
this Annual Report (the "Consolidated Financial Statements"), unless otherwise
noted, have been restated in constant pesos at December 31, 2002, using the
National Consumer Price Index ("NCPI"). The effect of the inflation accounting
principles described above has not been reversed in the reconciliation to U.S.
GAAP. See Note 18 to the Consolidated Financial Statements.

      This Annual Report contains translations of certain peso amounts into U.S.
dollars at specified rates solely for the convenience of the reader. These
translations should not be construed as representations that the peso amounts
actually represent such U.S. dollar amounts or could be converted into U.S.
dollars at the rate indicated. Unless otherwise indicated, U.S. dollar amounts
have been translated from pesos at an exchange rate of Ps.10.395 to US$1.00, the
average interbank free market exchange rate on December 31, 2002 as reported by
the Banco de Mexico ("Mexican Central Bank"). On June 16, 2003, this exchange
rate was Ps.10.470 to US$1.00. U.S. dollar amounts for Unefon have been
translated from pesos at an exchange rate of Ps.10.4393 to US$1.00, the average
rate on December 31, 2002 in the wholesale foreign exchange market for
operations payable in 48 hours as reported by the Mexican Central Bank. On June
16, 2003, this exchange rate was Ps.10.470 to US$1.00.

      Market data and other statistical information used throughout this Annual
Report as noted are based on independent industry publications, government
publications, reports by market research firms or other published independent
sources. Some data are also based on the Company's good faith estimates, which
are derived from its review of internal surveys, as well as the independent
sources listed above. Although the Company believes these sources are reliable,
it has not independently verified the information and cannot guarantee its
accuracy and completeness.

      The term "billion" as used in this Annual Report means one thousand
million.

                                       iv

<PAGE>

                                     PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not required.

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

Not required.

ITEM 3.    KEY INFORMATION

SELECTED FINANCIAL DATA

      The following selected historical consolidated financial data for the
years ended December 31, 2000, 2001 and 2002 have been derived from the audited
Consolidated Financial Statements which are included herein, which have been
audited by PricewaterhouseCoopers, the Company's independent auditors, and
prepared in accordance with Mexican GAAP, which differs in certain respects from
U.S. GAAP. Note 18 to the Consolidated Financial Statements provides a
description of the principal differences between Mexican GAAP and U.S. GAAP as
they relate to the Company and a reconciliation to U.S. GAAP of the Company's
results of operations, stockholders' equity and certain other selected financial
data for the years ended December 31, 2000, 2001 and 2002. The historical
consolidated financial information for the years ended December 31, 1998 and
1999 have been derived from the Company's audited financial statements, which
are not included in this Annual Report and which have been audited by the
Company's independent auditors. These historical results are not necessarily
indicative of results to be expected from any future period.

      The data set forth below should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated Financial
Statements, including the notes to those financial statements, which are
included herein. The Consolidated Financial Statements were prepared giving
effect to Bulletins B-10 and B-12 issued by the MIPA, which provide,
respectively, for the recognition of certain effects of inflation by the Company
and require that the statement of changes in financial position reflect changes
from the restated historical balance sheet to the current balance sheet.
Pursuant to Mexican GAAP, the summary consolidated financial information set
forth below, and all data in the Consolidated Financial Statements, have been
restated in constant pesos as of December 31, 2002. The effect of the inflation
accounting principles described above has not been reversed in the
reconciliation to U.S. GAAP. See Note 18 to the Consolidated Financial
Statements.

<TABLE>
<CAPTION>
(in millions of U.S dollars or constant pesos of                        YEAR ENDED DECEMBER 31,
December 31, 2002 purchasing power, except share    ----------------------------------------------------------------
and per share data)                                    1998      1999       2000       2001       2002      2002(1)
--------------------------------------------------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                                 <C>        <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Mexican GAAP:
Net revenue.......................................  Ps. 6,259  Ps. 5,042  Ps. 5,993  Ps. 6,127  Ps. 6,743  US$ 648.7
Programming, production, exhibition and
 transmission costs...............................      2,111      2,372      2,683      2,472      2,511      241.5
Selling and administrative expenses...............        984        972        943        973        991       95.3
Total costs and expenses..........................      3,096      3,344      3,626      3,445      3,502      336.9
Depreciation and amortization(2)..................      1,068        754        697        676        447       43.0
Operating profit(3)...............................      2,095        945      1,670      2,006      2,794      268.8
Other expenses--net...............................       (275)      (937)      (291)      (221)      (202)     (19.4)
Net comprehensive financing (cost) income(4)......     (1,955)       151       (805)      (435)    (1,728)    (166.2)
(Loss) income before provision for income tax,
 deferred income tax and extraordinary items......       (134)       159        574      1,349        864       83.1
Provision for income tax and deferred income tax
 (expense) benefit................................       (494)      (420)        59          9       (308)     (29.6)
Extraordinary items(5)............................        134         89       (336)         0          0          0
Net (loss) income.................................       (495)      (171)       297      1,358        556       53.5
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
(in millions of U.S dollars or constant pesos of             AS OF AND FOR THE YEAR ENDED DECEMBER 31,
December 31, 2002 purchasing power, except ratios,  ------------------------------------------------------------
percentages, exchange rates and coverage data)        1998      1999      2000      2001      2002      2002(1)
--------------------------------------------------  --------  --------  --------  --------  ---------  ---------
<S>                                                 <C>        <C>        <C>        <C>        <C>         <C>
Net income (loss) of minority stockholders....      Ps.    11  (Ps.  127) Ps.   162  Ps.   669   Ps.   436  US$  41.9
Net (loss) income of majority stockholders....           (506)       (45)       135        688         120       12.0
Net (loss) income per share applicable to
 majority stockholders........................          (0.63)     (0.06)      0.17       0.86        0.15         --
U.S. GAAP:
Net revenue...................................      Ps. 6,459  Ps. 5,316  Ps. 6,364  Ps. 6,527   Ps. 6,925  US$ 666.2
Operating income (loss)(3)....................          1,532       (988)       487        579       2,075      199.6
Net (loss) income before minority interest....         (1,076)       174        (95)       285          80        7.7
Minority interest.............................            191         40          3       (208)       (194)     (18.7)
Net (loss) income.............................           (885)       214        (92)        77        (113)     (10.9)
Basic and diluted (loss) income per share.....          (1.10)      0.27      (0.12)      0.10        0.14        0.0
Basic weighted average number of common
 shares outstanding (in millions).............          800.8      800.8      800.8      800.8       800.8         --
BALANCE SHEET DATA:
Mexican GAAP:
Property, machinery and equipment--Net........      Ps. 4,352  Ps. 3,804  Ps. 2,827  Ps. 2,450  Ps.  2,328  US$ 223.9
Television concessions--Net...................          4,229      4,048      3,865      3,743       3,742      360.0
Total assets..................................         19,569     21,988     21,707     22,757      22,907    2,203.6
Total debt(6).................................         11,057      9,996      9,291      8,659       9,058      871.4
Advertising advances(7).......................          3,108      3,704      4,458      4,850       4,609      443.4
Unefon advertising advance....................              0      2,273      2,313      2,258       2,167      208.5
Todito advertising, programming and services
 advance......................................              0          0        912        715         504       48.5
Majority stockholders' equity.................          1,565      1,542      1,267      1,860       1,946      187.2
Minority stockholders' equity.................          1,594      2,296      1,586      2,252       2,570      247.2
Total stockholders' equity....................          3,158      3,839      2,852      4,112       4,516      434.4
U.S. GAAP:
Property, machinery and equipment--Net........      Ps. 4,419  Ps. 3,985  Ps. 3,015  Ps. 2,642   Ps. 2,360  US$ 227.0
Total assets..................................         21,141     21,345     20,566     21,126      21,392    2,057.9
Total debt(6).................................         11,056      9,996      9,291      8,659       9,346      899.0
Advertising advances(7).......................          3,107      3,704      4,458      4,850       4,593      441.8
Minority interest.............................          1,421      2,354      2,044      2,395       2,745      264.1
Majority stockholders' equity.................          1,335      2,399      2,192      2,435       2,219      213.5

OTHER FINANCIAL DATA:
Mexican GAAP:
Resources (used in) provided by:
    Operating activities......................           (934)     1,227      2,019      1,847         460       44.3
    Investing activities......................           (498)    (1,871)    (1,122)    (1,036)       (736)     (70.8)
    Financing activities......................           (643)       424       (737)      (459)         (8)      (0.8)
 Capital expenditures.........................            650        198        202        185         194       18.7
 U.S. GAAP
 Cash flow provided by (used in):
    Operating activities......................            838      1,825      1,081      1,589       1,895      182.3
    Investing activities......................         (1,786)    (2,426)      (438)    (1,678)     (1,796)    (172.8)
    Financing activities......................            507        527       (581)       383        (644)     (61.9)

OTHER DATA:
NCPI (at period end)..........................           76.2       85.6       93.2       97.4       102.9         --
Peso/U.S. Dollar exchange rate (at period end)      Ps. 8.914  Ps. 9.500  Ps. 9.650  Ps. 9.160  Ps. 10.395         --
Coverage of the Azteca 7 network (at period
 end) (8).....................................             94%        94%        95%        95%         95%        --
Coverage of the Azteca 13 network (at period
 end)(8)......................................             97%        97%        97%        97%         97%        --
</TABLE>

                                               (footnotes on the following page)

                                        2

<PAGE>

----------
(1)  The U.S. Dollar amounts represent the peso amounts expressed as of December
     31, 2002 purchasing power, translated at an exchange rate of Ps.10.395 per
     U.S. Dollar, the average interbank free market exchange rate on December
     31, 2002 as reported by the Mexican Central Bank.

(2)  Effective January 1, 2002, TV Azteca changed the annual depreciation rate
     applied to its transmission towers from 16% to 5% based on the remaining
     useful life of these assets. This resulted in a decrease in depreciation
     expense of Ps.42 million (US$4.0 million) for the year ended December 31,
     2002. Also on January 1, 2002, TV Azteca adopted Statement C-8 "Intangible
     Assets" issued by the MIPA. As a result of the adoption of Statement C-8,
     TV Azteca determined that its television concessions qualified as
     indefinite useful life intangible assets. Accordingly, TV Azteca no longer
     amortizes its television concessions. The effect of this adoption resulted
     in a decrease in amortization expense of Ps.117 million (US$11.3 million).

(3)  The decrease in operating profit in 1999, under Mexican GAAP, resulted from
     the absence of World Cup Soccer Championship ("World Cup") revenues in 1999
     and the decision by TV Azteca not to raise its advertising rates in 1999,
     which resulted in a decrease in revenues on a constant peso basis. The
     decrease in operating income in 1999, under U.S. GAAP, was due to the
     write-offs of exhibition rights, inventory and accounts receivable as well
     as higher non-cash compensation expense relating to options granted under
     TV Azteca's stock option plans in 1999.

(4)  Changes in net comprehensive financing cost reflect fluctuations in the
     peso-U.S. dollar exchange rate. Net comprehensive financing costs decrease
     in years in which the peso appreciates against the U.S. dollar and increase
     in years in which the peso depreciates against the U.S. dollar since the
     Company's U.S. dollar denominated monetary liabilities exceed the Company's
     U.S. dollar denominated monetary assets.

(5)  Extraordinary items in 1998 and 1999 include income tax benefits from
     utilization of tax loss carryforwards. Extraordinary items in 2000 include
     the effect of the National Broadcasting Company ("NBC") Settlement--net of
     income tax. Pursuant to a change in Mexican GAAP for the period after
     December 31, 1999, the Company is not required to report as an
     extraordinary item income tax benefits from utilization of tax loss
     carryforwards. Effective January 1, 2000, the Company adopted the
     guidelines of new Statement D-4, "Accounting Treatment of Income Tax, Asset
     Tax and Employees' Statutory Profit Sharing" issued by the MIPA. Pursuant
     to this statement, the amortization of tax loss carryforwards is not
     considered an extraordinary item, but rather a component of the provision
     for income tax and deferred income tax (expense) benefit. During the years
     ended December 31, 2000, 2001 and 2002, the benefit of the amortization of
     tax loss carryforwards amounted to Ps.197 million, Ps.1,346 million and
     Ps.1,028 million (US$98.8 million), respectively.

(6)  Represents the Company's total liabilities excluding the following items:
     interest payable, exhibition rights payable, accounts payable and accrued
     expenses, amounts due to related parties, advertising advances, Unefon
     advertising advance and Todito advertising, programming and services
     advance.

(7)  Advertising advances are treated as long-term liabilities under Mexican
     GAAP but are treated as current liabilities under U.S. GAAP.

(8)  Percentage of Mexican television households within broadcast range of the
     Azteca 7 and Azteca 13 networks, based upon data internally prepared by TV
     Azteca.

EXCHANGE RATES

      Mexico has had a free market for foreign exchange since 1994. Prior to
December 1994, the Mexican Central Bank kept the peso-U.S. dollar exchange rate
within a range prescribed by the government through intervention in the foreign
exchange market. In December 1994, the government suspended intervention by the
Mexican Central Bank and allowed the peso to float freely against the U.S.
dollar. The peso declined sharply in December 1994 and continued to fall under
conditions of high volatility in 1995. In 1996 and most of 1997, the peso fell
more slowly and was less volatile. In the last quarter of 1997 and for much of
1998, the foreign exchange markets were volatile as a result of financial crises
in Asia and Russia and financial turmoil in countries including Brazil and
Venezuela. The peso declined during this period, but was relatively stable in
1999, 2000 and 2001. The recent financial crises in Argentina and Venezuela have
caused instability in Latin American financial markets and could have a negative
impact on the value of the Mexican peso. The

                                        3

<PAGE>

Company cannot assure you that the Mexican government will maintain its current
policies with regard to the peso or that the peso will not further depreciate or
appreciate significantly in the future.

      The following table sets forth, for the periods indicated, the high, low,
average and period-end interbank free market exchange rate. The rates have not
been restated in constant currency units.

                                                        EXCHANGE RATE
                                        ----------------------------------------
                                                                          PERIOD
YEAR ENDED DECEMBER 31,                     HIGH     LOW     AVERAGE(1)    END
------------------------------------       ------  -------   ----------  -------
1998................................       10.640    8.039        9.241    8.914
1999................................       10.630    9.275        9.560    9.500
2000................................       10.078    9.181        9.445    9.650
2001................................        9.979    8.966        9.321    9.160
2002................................       10.395    9.050        9.757   10.395
2003 (through June 16, 2003)........       11.220   10.120       10.649   10.470

----------
(1)  Represents the average rates for each period indicated, based on the
     average of the interbank free market exchange rates on the last day of each
     month during the period, as reported by the Mexican Central Bank.

      The following table sets forth, for the periods indicated, the high and
low interbank free market exchange rate. The rates have not been restated in
constant currency units.

                                          EXCHANGE RATE
                                        ----------------
MONTH ENDED                              HIGH      LOW
------------------------------------    ------    ------
December 31, 2002...................    10.395    10.380
January 31, 2003....................    10.913    10.905
February 28, 2003...................    11.022    11.017
March 31, 2003......................    10.760    10.756
April 30, 2003......................    10.770    10.308
May 31, 2003........................    10.424    10.113

RISK FACTORS

      Provided below are certain risks associated with the Company and an
investment in the Company's securities. The risks and uncertainties described
below are not the only ones the Company faces and represent some of the risks
that the Company's management believes are material to an investment in the
Company. Some of the risks of investing in the Company's securities are general
risks associated with doing business in Mexico. Other risks are specific to the
Company's business and to TV Azteca's business, as the Company is substantially
dependent on TV Azteca. The discussion below of general risks associated with
doing business in Mexico contains information about the Mexican government and
the Mexican economy obtained from official publications of the Mexican
government. The Company has not independently verified this information. Any of
the following risks, if they actually occur, could materially and adversely
affect the Company's business, financial condition or results of operations.

      RISKS RELATED TO THE NOTES

        The Company may not have sufficient funds to pay on July 15, 2003 the
        principal amount of, and the remaining interest payment on, the 10 1/2%
        Notes and the initial amortization and interest payments on the 10 3/4%
        Notes.

      The Company is a holding company and it has no independent business
operations or sources of revenue. The Company's only assets are shares of its
subsidiaries, principally TV Azteca, and its only sources of cash are
distributions made from those subsidiaries, sales of its assets or assets of its
subsidiaries, sales of its equity securities or equity securities of its
subsidiaries or capital contributions or loans from one or more of its
affiliates or third parties. The Company currently anticipates that the
aggregate amount of proceeds from the shareholder distribution to be paid by TV
Azteca on June 30, 2003 will not yield a

                                        4

<PAGE>

sufficient amount for the Company to pay on July 15, 2003 the principal amount
of, and the remaining interest payment on, the 10 1/2% Notes and the initial
amortization and interest payments on the 10 3/4% Notes. Therefore, unless the
Company receives capital contributions or loans from one or more of its
affiliates or third parties, distributions from one or more of its subsidiaries
(in addition to the anticipated shareholder distribution from TV Azteca) or the
Company sells some of its assets or equity securities or assets or equity
securities of its subsidiaries, the Company will be in default under the
indenture governing the 10 1/2% Notes (the "10 1/2% Notes Indenture") and the
indenture governing the 10 3/4% Notes (the "10 3/4% Notes Indenture") and could
also be in default under the indenture governing the 12 1/2% Notes (the "12 1/2%
Notes Indenture", together with the 10 1/2% Notes Indenture and the 10 3/4%
Notes Indenture, the "Azteca Holdings Indentures").

      Other than TV Azteca's distribution, none of the Company's subsidiaries,
including TV Azteca, is required to make any capital contributions, loans or
other payments to the Company with respect to its obligations under the 10 1/2%
Notes or 10 3/4% Notes. Therefore, the Company cannot assure you that it will
receive any such payments prior to July 15, 2003. Moreover, the 10 3/4% Notes
Indenture and the 12 1/2% Notes Indenture restrict the Company's ability to sell
or otherwise dispose of its assets and the assets of its direct and indirect
subsidiaries and, in the case of the 12 1/2% Notes, to use freely any
distributions the Company receives from its subsidiaries.

        The Azteca Holdings Notes are structurally subordinated to all of the
        existing and future indebtedness and liabilities of the Company's
        subsidiaries.

      Substantially all of the Company's indebtedness (other than the Azteca
Holdings Notes) is indebtedness of its subsidiaries, and, therefore, the Azteca
Holdings Notes are structurally subordinated to all existing and future
indebtedness of its subsidiaries. As of December 31, 2002, the principal amount
of the Company's outstanding indebtedness on a consolidated basis was Ps.9,058
million (US$871.4 million), of which Ps.6,158 million (US$592.4 million) was
indebtedness of TV Azteca and its subsidiaries.

      The Company's right, and its creditors' rights, to participate in the
assets of TV Azteca upon any liquidation or reorganization of TV Azteca will be
subject to the prior claims of TV Azteca's creditors. Therefore, the ability of
the Company's creditors to participate in TV Azteca's assets upon TV Azteca's
liquidation or reorganization will be limited to the Company's proportionate
interest in the capital stock of TV Azteca and will also be limited by the 12
1/2% Notes Indenture and the indenture (the "TV Azteca Indenture") governing TV
Azteca's 10 1/2% Series B guaranteed senior notes due 2007 ("TV Azteca 10 1/2%
Notes") and 10 1/8% Series A guaranteed senior notes due 2004 (the "TV Azteca 10
1/8% Notes" together with the TV Azteca 10 1/2% Notes, the "TV Azteca Notes").

        In the future, the Company may not have sufficient funds to make
        interest payments and/or scheduled principal payments on the 10 3/4%
        Notes and the 12 1/2% Notes.

      The Company has limited sources of liquidity and the Company may not have
sufficient funds to make the interest and principal payments on the 10 3/4%
Notes and the 12 1/2% Notes. If the Company does not have sufficient funds to
make these payments, the Company will have to obtain an alternative source of
funds, either from distributions from its subsidiaries, sales of its assets or
assets of its subsidiaries, sales of its equity securities or equity securities
of its subsidiaries or capital contributions or loans from one or more of its
affiliates or third parties. Although TV Azteca has recently adopted a
distribution policy that if maintained should provide the Company with funds to
pay its indebtedness, there can be no assurance that TV Azteca's business and
operations will generate sufficient free cash flow to maintain this distribution
policy.

      In the past, the Company has had to sell equity securities of TV Azteca to
fund its interest payment obligations under its debt securities. Although TV
Azteca is publicly traded, there can be no assurance as to the market value of
TV Azteca shares in the future. In addition, substantially all of the capital
stock of TV Azteca that the Company owns has been pledged or is subject to
covenant restrictions and cannot be sold by

                                        5

<PAGE>

the Company to satisfy its payment obligations under the 10 3/4% Notes or 12
1/2% Notes. Accordingly, the Company cannot assure you that it will be able to
obtain sufficient funds to meet its payment obligations on the 10 3/4% Notes and
the 12 1/2% Notes through any of these alternatives or that it will be permitted
by the 10 3/4% Notes Indenture, the 12 1/2% Notes Indenture or the debt
instruments of TV Azteca then in effect to obtain funds through any of these
alternatives.

        Since the Company is a holding company, its ability to make interest
        payments and the scheduled amortization payments on the Azteca Holdings
        Notes depends on the financial results of its subsidiaries, principally
        TV Azteca.

      The Company is obligated to make interest and scheduled amortization
payments on the Azteca Holdings Notes, and it must repay the Azteca Holdings
Notes upon any acceleration of the Azteca Holdings Notes. In addition, the
Company must make an offer to purchase the Azteca Holdings Notes in connection
with a change of control (as defined under the Azteca Holdings Indentures). As
the controlling shareholder of TV Azteca, the Company has the ability to cause
TV Azteca to make distributions up to the maximum amount permitted by law.
Historically, TV Azteca has not paid any significant dividends or distributions
to the Company. Although the Company expects that under TV Azteca's new
distribution policy the Company will receive distributions from TV Azteca that
will be sufficient to make the Company's interest and amortization payments,
there is no assurance that TV Azteca's financial results will permit it to make
such anticipated distributions or that TV Azteca will not modify or terminate
the distribution policy. Moreover, the Company's ability to use the
distributions is limited by the covenants contained in the 12 1/2% Notes
Indenture. See "--Only a portion of any distributions the Company receives from
TV Azteca may be used to pay principal and interest on the Azteca Holdings
Notes."

        Although TV Azteca recently announced a distribution policy that, if
        maintained, should provide the Company with the resources to reduce its
        outstanding debt, the distribution policy is not a binding commitment of
        TV Azteca and it may be modified or terminated in the future.

      TV Azteca's board of directors has announced the adoption of a new
distribution policy that, if maintained, should enable the Company, TV Azteca's
principal shareholder, to make scheduled principal and interest payments on the
10 3/4% Notes and the 12 1/2% Notes. However, TV Azteca is not required by law
to make these distributions available to us. As a result of strategic
opportunities, prevailing business conditions or other reasons, TV Azteca may
modify or terminate its current distribution policy. Accordingly, there can be
no assurance that TV Azteca will make such distributions available in the future
or that any amounts made available will be sufficient to satisfy the Company's
principal and interest obligations under the 10 3/4% Notes and the 12 1/2%
Notes.

        Only a portion of any distributions the Company receives from TV Azteca
        may be used to pay principal and interest on the Azteca Holdings Notes.

      The Company currently beneficially owns 55.0% of the capital stock of TV
Azteca, of which 3.1% is held directly through Alternativas Cotsa, the Company's
wholly-owned subsidiary. In connection with any distributions made by TV Azteca,
the public holders of TV Azteca's capital stock will receive 45.0% of the
distributions and the Company will receive the remainder. However, as a result
of the covenants contained in the 12 1/2% Notes Indenture, any distributions
made in respect of the securities that are pledged to secure the 12 1/2% Notes
must also be pledged as additional collateral for those notes. As of June 15,
2003, 33.8% of the aggregate amount of distributions received directly by the
Company from TV Azteca must be pledged to secure the 12 1/2% Notes. Therefore,
only 37.4% of the aggregate amount of any distributions provided by TV Azteca to
its shareholders (including amounts payable to Alternativas Cotsa) will be
available for the Company's payment obligations under the 10 1/2% Notes and 10
3/4% Notes.

                                        6

<PAGE>

        The Company may not be able to fund a change of control offer.

      Upon the occurrence of a change of control (as defined under the Azteca
Holdings Indentures), The Company will be required to offer to repurchase all
outstanding Azteca Holdings Notes at 101% of the principal amount of the Azteca
Holdings Notes, plus accrued but unpaid interest, if any, to the date of the
purchase. The occurrence of certain of the events that would constitute a change
of control will also require TV Azteca to offer to repurchase the TV Azteca
Notes and may constitute a default under the Company's existing or future
indebtedness or the Company's subsidiaries' existing or future indebtedness. A
default on the Company's indebtedness or on its subsidiaries' indebtedness could
result in such indebtedness effectively becoming due and payable. The source of
funds for any repurchase of the Azteca Holdings Notes and any such other
payments will be the Company's available cash or cash generated from other
sources. However, the Company cannot assure you that it will have sufficient
funds to purchase all of the Azteca Holdings Notes that might be delivered by
noteholders seeking to accept the offer to purchase as well as all such other
amounts that may be due and payable at that time.

        TV Azteca's ability to make distributions is restricted by the terms of
        its indenture.

      The TV Azteca Indenture, subject to certain conditions and exceptions,
restricts TV Azteca's ability to make dividends and other distributions in cash
to its shareholders. The ability of TV Azteca to make future distributions will
be limited at any time to the then current balance of the restricted payment
basket. Generally, the capacity of the restricted payments basket is increased
by positive adjusted EBITDA of TV Azteca, as defined in the TV Azteca Indenture,
net cash proceeds received by TV Azteca from the sale of its capital stock and
the reduction in investments received by TV Azteca in cash. In turn, the
capacity of the restricted payments basket is decreased when TV Azteca makes
restricted payments, such as dividends and other distributions, investments
other than permitted investments and interest payments on its indebtedness. As
of June 15, 2003, the balance under TV Azteca's restricted payments basket was
US$382.0 million. However, the balance under TV Azteca's restricted payments
basket will be reduced to US$257.0 million after giving effect to the payment of
the US$125.0 million shareholder distribution on June 30, 2003. The Company
cannot assure you that in the future the balance of TV Azteca's restricted
payment basket will be sufficient to permit it to make significant scheduled
shareholder distributions, if any at all.

        Mexican regulations would adversely affect the rights and interests of
        noteholders if the Company were subject to a bankruptcy proceeding
        (concurso mercantil).

      Under Mexico's Ley de Concursos Mercantiles ("Law on Mercantile
Reorganization"), if the Company is declared bankrupt, its obligations under the
Azteca Holdings Notes:

..    would be converted into pesos and then from pesos into inflation-adjusted
     units (Unidades de Inversion);

..    would be satisfied at the time claims of all the Company's creditors are
     satisfied;

..    would be subject to the outcome of, and priorities recognized in, the
     relevant proceedings;

..    would cease to accrue interest; and

..    would not be adjusted to take into account any depreciation of the peso
     against the dollar occurring after such declaration.

        The Company may have to make payments due on the Azteca Holdings Notes
        in pesos in certain circumstances.

      Although the Company is required to make payments of amounts owed on the
Azteca Holdings Notes in U.S. dollars, pursuant to the Ley Monetaria de los
Estados Unidos Mexicanos ("Mexican Monetary Law")

                                        7

<PAGE>

the Company is legally entitled to pay in pesos if payment of the TV Azteca
Notes is sought in Mexico (through the enforcement of a non-Mexican judgment or
otherwise). Such payment would be made at the rate of exchange for pesos
prevailing at the time and place of payment. In the event that the Company makes
payments in pesos, the Company cannot assure you that you could convert the
amounts paid in pesos into U.S. dollars or that the peso amounts would be
sufficient to purchase U.S. dollars equal to the amount of principal, interest
or additional amounts due on the Azteca Holdings Notes. However, the Company has
agreed under the Azteca Holdings Indentures to indemnify the holder of any
Azteca Holdings Notes for the difference between the U.S. dollar amount due to
the holder and the U.S. dollar amount that the holder is able to purchase with
the amount in pesos that the holder receives or recovers.

      RISKS RELATING TO THE OPERATIONS OF TV AZTECA

        TV Azteca is highly leveraged and its substantial leverage and debt
        service obligations could adversely affect its business.

      Although the Company has no substantial indebtedness other than the Azteca
Holdings Notes, TV Azteca is a highly leveraged company, which means that it has
a large amount of debt relative to its equity. TV Azteca has US$300.0 million
aggregate principal amount of TV Azteca 10 1/2% Notes outstanding and US$125.0
million TV Azteca 10 1/8% Notes outstanding and, as of December 31, 2002, TV
Azteca had US$167.4 million of indebtedness in addition to the TV Azteca Notes.
Moreover, the TV Azteca Indenture permits TV Azteca, based on its financial
results, to incur substantial additional indebtedness in the future. TV Azteca
will require substantial cash flow to meet its repayment obligations on the TV
Azteca Notes and any future additional indebtedness it may incur. TV Azteca may
not be able to generate enough cash to pay the principal, interest and other
amounts due under its indebtedness, and there is no assurance that market
conditions will permit TV Azteca to refinance its existing indebtedness at
maturity. TV Azteca's substantial leverage could have negative consequences,
including:

..    requiring the dedication of a substantial portion of its cash flow from
     operations to service indebtedness, thereby reducing the amount of cash
     flow available for other purposes, including capital expenditures,
     marketing efforts, future growth plans and distributions payable to its
     shareholders, including the Company;

..    limiting its ability to obtain additional financing or to refinance its
     existing indebtedness;

..    placing it at a possible competitive disadvantage relative to less
     leveraged competitors and competitors with greater access to capital
     resources;

..    increasing its vulnerability to downturns in its business or the Mexican
     economy generally; and

..    limiting its ability to implement its recently announced distribution
     policy.

        TV Azteca's and the Company's operations are subject to covenant
        restrictions that may adversely affect TV Azteca's and the Company's
        ability to conduct its respective businesses.

      The TV Azteca Indenture and the Azteca Holdings Indentures impose
significant operating and financial restrictions on TV Azteca and Azteca
Holdings. Such restrictions will affect, and in many respects will limit or
prohibit, among other things, TV Azteca's and the Company's ability to create
liens and to use the proceeds from certain asset sales. TV Azteca's highly
leveraged position and the restrictive covenants contained in the TV Azteca
Indenture and the Azteca Holdings Indentures may make TV Azteca and the Company
more vulnerable to economic downturns, limit the ability of TV Azteca and the
Company to and reduce the flexibility of TV Azteca and the Company in responding
to changing business or economic conditions or to substantial declines in
operating results.

                                        8

<PAGE>

        The Company has a controlling shareholder and the Company engages in
        transactions with related parties, including the Company's controlling
        shareholder.

      Approximately 92% of the Company's capital stock is owned directly or
indirectly by the family of Ricardo B. Salinas Pliego, who serves as the
Chairman of the Board, President and Chief Executive Officer of the Company and
Chairman of the Board of TV Azteca. Consequently, Mr. Salinas Pliego has the
power to elect a majority of the Company's directors and to determine the
outcome of substantially all actions requiring shareholder approval.

      Historically, the Company and its subsidiaries have engaged in a variety
of transactions with certain affiliates, including entities owned or controlled
by the family of Mr. Salinas Pliego, including TV Azteca, Unefon, Todito and
Grupo Elektra. While there are restrictions set forth in the Azteca Holdings
Indentures limiting some types of transactions with affiliates, the Company may
engage in certain permitted affiliated transactions in the future. The Company
cannot assure you that future agreements with the Company's affiliates will be
entered into on an arm's length basis.

        Television broadcasting in Mexico is highly competitive.

      Television broadcasting in Mexico is highly competitive and the popularity
of television shows, an important factor in advertising sales, is readily
susceptible to change. TV Azteca faces competition from other sources of
television programming. Televisa, TV Azteca's principal competitor, generated a
substantial majority of the Mexican television advertising sales in each of the
last four years. See "Item 4. Information on the Company--Competition--TV
Azteca." Televisa, which faced little competition in over-the-air television
market prior to the Company's acquisition of Channels 7 and 13 from the Mexican
government in 1993, has substantially more experience in the television industry
and substantially greater resources than TV Azteca does. Televisa is one of the
leading producers of Spanish-language television programming in the world and
has over 20 years of experience producing telenovelas. Televisa also has
significant interests in other media, including radio, publishing, music
recording and the Internet, which enables Televisa to offer its customers
attractive rates for packages combining advertising in various media.

      The Company cannot assure you that TV Azteca will be able to maintain or
improve its share of the Mexican television advertising or viewing market in the
future, nor can the Company assure you that TV Azteca's costs of obtaining
programming and hiring production and creative staff, or the prices at which TV
Azteca sells advertising time, will not be adversely affected by competition. In
addition to competing with conventional, over-the-air television stations,
including certain government-run stations as well as those owned by or
affiliated with Televisa, TV Azteca also competes for Mexican television viewers
with pay television providers. Cable television, multi-channel multipoint
distribution systems ("MMDS") and direct-to-home ("DTH") satellite services
represent a potential source of competition for TV Azteca's advertising sales,
audiences and program rights. According to IBOPE AGB Mexico, the penetration of
pay television as of July 31, 2002 was approximately 14.5% of all television
households.

      In November 1996, the U.S. and Mexico signed an agreement regarding
cross-border satellite television transmissions. Under the agreement, the
Mexican government allows U.S. satellite transmission companies to provide DTH
satellite services to Mexican households. The Company cannot assure you that pay
television services will not secure a more significant share of the Mexican
television audience and television advertising market in the future.

      In addition, TV Azteca also competes for advertising revenues with other
forms of advertising media, such as radio, billboards, newspapers, magazines and
the Internet.

                                        9

<PAGE>

        The seasonal nature of TV Azteca's business affects TV Azteca's revenue
        and low fourth quarter revenues could impact TV Azteca's results of
        operations.

      TV Azteca's business reflects seasonal patterns of advertising
expenditures, which is common in the television broadcast industry. TV Azteca's
revenue from advertising sales, which is recognized when the advertising is
aired, is generally highest in the fourth quarter because of the high level of
advertising during the holiday season. See "Item 5. Operating and Financial
Review and Prospects--Seasonality of Sales." Accordingly, TV Azteca's results of
operations depend disproportionately on revenue recognized in the fourth quarter
and a low level of fourth quarter advertising revenue could harm TV Azteca's
results of operations for the year.

        TV Azteca's revenue and profitability are affected by major broadcast
        events.

      In the past, TV Azteca has generated substantial advertising revenue from
broadcasting infrequently recurring major broadcast events. See "Item 5.
Operating and Financial Review and Prospects--Cyclicality Due to Major Broadcast
Events." TV Azteca's broadcast of the 2000 Summer Olympics, the Eurocup Soccer
Championship, the Gold Cup Soccer Championship and the 2002 World Cup as well as
the 2000 Mexican presidential campaign and election significantly increased net
revenue during the periods in which they were shown. The absence or cancellation
of major broadcast events in some years may harm TV Azteca's financial condition
and results of operations, as in 1999 and 2001, when there were no Summer
Olympic or Soccer Championship games. Similarly, TV Azteca's results of
operations may be harmed in years in which a major broadcast event that is
expected to draw a large viewing audience in Mexico is held but TV Azteca is
unable to obtain the broadcast rights to the event.

        If TV Azteca loses one or more of its key advertisers, it could lose a
        significant amount of its revenues.

      In 2002, TV Azteca's five largest advertisers, Colgate Palmolive, S.A. de
C.V., Pond's de Mexico, S.A. de C.V., Cerveceria Modelo, S.A. de C.V., Grupo
Carso, S.A. de C.V. and Producciones Infovision, S.A. de C.V., and their
affiliates, together accounted for 14% of TV Azteca's advertising revenue. The
termination of TV Azteca's relationship with any one of its principal
advertisers could harm its operating results.

        TV Azteca's costs of producing and acquiring programming may increase.

      TV Azteca's most significant variable operating costs relate to its
internally produced programming and its purchased programming. See "Item 4.
Information on the Company--TV Azteca--Programming--Programming Produced by TV
Azteca." The cost of internally produced programming varies considerably
depending on the type of programming, and is generally more expensive than
purchased programming. Moreover, the production of telenovelas is more expensive
relative to the production of other types of programming.

      If TV Azteca fails to manage effectively the costs of its internally
produced programming or of acquiring exhibition rights for purchased
programming, it is possible that TV Azteca's programming costs will increase at
a rate higher than advertising revenue. If programming costs increase
substantially, TV Azteca's results of operations may be negatively affected.

        From time to time, litigation matters involving the TV Azteca have
        resulted, and may in the future result, in the expenditure of
        significant financial resources and management attention to the
        resolution of such controversies.

      TV Azteca is currently involved in certain disputes and legal proceedings.
See "Item 10. Additional Information--Legal Proceedings--TV Azteca." As the TV
Azteca vigorously defends itself in these disputes,

                                       10

<PAGE>

it incurs significant legal expenses. In addition, these matters may from time
to time divert the attention of TV Azteca's management and staff from their
customary responsibilities. Moreover, an adverse resolution of an existing legal
proceeding involving TV Azteca could have a material adverse effect on TV
Azteca's operating results and financial condition.

        If TV Azteca fails to retain members of its senior management, it may be
        difficult for it to find equally skilled replacements, and its failure
        to do so would adversely affect its ability to conduct its business.

      TV Azteca's success depends in large part upon the abilities and continued
service of its senior management, none of whom have executed employment
agreements with TV Azteca. TV Azteca's senior management is particularly
important to its business because of their experience and knowledge of the media
industry both in Mexico and internationally. The loss or unavailability to TV
Azteca of any of its key management personnel could have significant negative
effects. To the extent that the services of its senior management would be
unavailable to it for any reason, TV Azteca would be required to hire other
personnel to manage and operate its company. There may be a limited number of
persons with the requisite skills to serve in these positions, particularly in
the markets where TV Azteca operates its business. TV Azteca cannot assure you
that it would be able to locate or employ such qualified personnel on acceptable
terms.

        TV Azteca may experience liquidity difficulties.

      TV Azteca may experience liquidity difficulties as a result of a
devaluation of the peso or other future economic crises. In addition, any
significant decline in TV Azteca's advertising revenue or significant increase
in TV Azteca's operating costs could cause TV Azteca to experience further
liquidity difficulties. The same would be true of any significant increase in
the peso cost of debt service on the Company's U.S. dollar-denominated
indebtedness or its subsidiaries' U.S. dollar-denominated indebtedness.

        TV Azteca's business is regulated by the Mexican government and its
        business would be harmed if its broadcast concessions were not renewed
        or were taken away.

      To broadcast commercial television in Mexico, a broadcaster must have a
license from the Secretaria de Comunicaciones y Transportes ("SCT"). The SCT
grants concessions comprised of one or more broadcast licenses. These
concessions may be revoked in very limited circumstances. See "Item 4.
Information on the Company--Regulation--TV Azteca--Concessions." TV Azteca does
not expect any of its concessions to be revoked. TV Azteca's concessions must be
renewed upon expiration and the expiration dates for its broadcast concessions
range from April 2006 to July 2009. However, if the SCT fails to renew one or
more of TV Azteca's concessions, TV Azteca will not be able to operate. TV
Azteca believes, in part based on the government's renewal in 1999 of its
concession for broadcast in Chihuahua, that the government generally will renew
its television concessions upon expiration so long as TV Azteca has operated
them in substantial compliance with the terms and conditions of the concessions
and with applicable law. See "Item 4. Information on the Company--Regulation--TV
Azteca--Concessions." However, the Company cannot assure you that this will
happen in the future or that current Mexican law will not change. If TV Azteca
is unable to renew its concessions prior to expiration, its business would be
significantly harmed.

      RISKS RELATED TO THE AZTECA AMERICA NETWORK

        The Azteca America Network's limited history of operations as a U.S.
        Spanish language television network makes an evaluation of its business
        and financial condition difficult.

      TV Azteca's operations in the U.S. commenced only recently and to date
have not generated significant revenue. The growth of the Azteca America
Network, a new Spanish-language television broadcast network in the U.S.
operated by Azteca International, depends on the appeal of TV Azteca's
programming and content to U.S. television audiences and Azteca International's
ability to establish relationships with broadcast

                                       11

<PAGE>

stations or cable networks in U.S. markets that have a substantial Hispanic
population. Azteca International's ability to establish such relationships will
be affected by several factors, including the willingness of prospective
affiliates to broadcast TV Azteca's programming, the availability of channels on
cable systems to include TV Azteca's programming, the ability of Azteca
International's affiliates to fund their operations and capital expenditures and
the willingness of Azteca International's competitors to offer their programming
on terms with which Azteca International is unable to compete.

      The television broadcasting industry in the U.S. is subject to extensive
governmental regulation, which may adversely affect Azteca International's
business. Among other things, these regulations limit the percentage of a U.S.
broadcast station that may be owned by a foreign-controlled corporation, such as
Azteca International, to 25%.

      Further, the Azteca America Network faces significant competition in the
U.S. Spanish-language television broadcast market from both Univision
Communications, Inc. ("Univision") and Telemundo Group, Inc. ("Telemundo"),
which is owned by NBC. Each of these competitors has a larger network of
affiliates and greater financial resources than Azteca International, and
together they presently have substantially all of the U.S. audience share for
Spanish-language television.

        Azteca International is subject to risks associated with its joint
        ventures with station affiliates.

      Azteca International's future growth strategy focuses upon entering into
station affiliation agreements with existing over-the-air television
broadcasting stations that could complement or expand its business. The
negotiation of additional station affiliation agreements, as well as the
integration of new stations into the Azteca America Network, could require the
stations to incur significant costs and cause diversion of management's time and
resources. Failure to achieve the anticipated benefits of any station
affiliation or to successfully integrate the operations of new station
affiliates could also adversely affect Azteca International's business and
results of operations.

        If Azteca International is unable to renew its station affiliation
        agreements upon termination or enter into new station affiliation
        agreements, revenues from the markets served by such stations may be
        significantly diminished.

      The various station affiliation agreements Azteca International has
entered into either terminate or are terminable after a defined period of time.
If Azteca International is unable to agree upon new terms of continuing
affiliation with a station operator or find a comparable affiliate in the
designated market area served by that station, the revenues generated by the
Azteca America Network in that market may be significantly diminished. Moreover,
if the Echostar Satellite Corporation ("Echostar") lawsuit is adversely
determined against TV Azteca, this could have an adverse effect on the ability
of TV Azteca to provide Azteca International's station affiliates and cable
operators with programming that is also broadcast on the Azteca 13 network (the
"Azteca 13 Programming"). See "Item 10. Additional Information--Legal
Proceedings--TV Azteca--Echostar." This in turn could impact the business and
operations of Azteca International and the station affiliates currently
comprising the Azteca America Network as well as reduce the interest of other
broadcast stations in becoming a part of the Azteca America Network. In certain
circumstances, if Echostar obtains an injunction barring Azteca International
from distributing Azteca 13 Programming to over-the-air broadcasters that
retransmit it to U.S. cable operators, then, subject to certain conditions,
certain of Azteca International's station affiliates would have the right to
cancel their station affiliation agreements. Although Echostar is continuing to
seek a permanent injunction against TV Azteca, the Court denied Echostar's
application for a preliminary injunction on April 3, 2003.

        Azteca International's inability to sell advertising time on its network
        will adversely affect its revenues and its business.

                                       12

<PAGE>

      Azteca International's business depends on its and its station affiliates'
ability to sell advertising time. Azteca International's ability to sell
advertising time will depend, in large part, on audience ratings and on the
overall level of demand for television advertising. A downturn in the U.S.
economy could reduce the overall demand for advertising, and therefore adversely
affect Azteca International's ability to generate advertising revenues. A
decline in audience ratings (as a result of competition, a lack of popular
programming or changes in viewer preferences) would also adversely affect Azteca
International's revenues, as advertising revenues depend on audience ratings.
Also, significant audience ratings for a new television network can take longer
to develop as there are multiple viewing options, both in the English and
Spanish language, that U.S. Hispanics are familiar with. Moreover, even if the
broadcaster has accomplished significant audience levels, such levels could take
longer to be reflected in its ratings when measured using certain rating
measurement methodologies that rely on top-of-mind surveys. In addition, because
Azteca International is focusing its business on the Spanish-language television
audience, its level of audience will depend upon:

..    the desire of Spanish-speaking persons in the U.S. to view Spanish-language
     programming; and

..    the growth of the Spanish-speaking audience by continued immigration and
     the continued use of Spanish among Hispanics in the U.S.

Should either of these factors change, the Azteca America Network could lose
part of its target audience, resulting in a decline in ratings and a loss of
advertising revenues.

      Azteca International's ability to sell advertising time will also depend
on the level of demand for television advertising. Historically, the advertising
industry, relative to other industries, has been particularly sensitive to the
general condition of the economy. As a result, Azteca International believes
that spending on advertising tends to decline disproportionately during an
economic recession or downturn as compared to other types of business spending.
Consequently, a recession or downturn in the U.S. economy would likely
materially adversely affect the advertising revenues and results of operations
of the Azteca America Network and in turn Azteca International.

        Because the U.S. Hispanic population is highly concentrated
        geographically, a regional downturn in economic conditions or other
        negative event in particular markets could have a material adverse
        effect on the operations of the Azteca America Network.

      Approximately 33% of all U.S. Hispanics live in the Los Angeles, New York
and Miami-Fort Lauderdale markets, and the top 10 U.S. Hispanic markets
collectively provide coverage to approximately 56% of the U.S. Hispanic
population. The revenues of Azteca International are similarly concentrated in
these key television markets. As a result, a significant decline in the revenue
from the operations of the stations in these television markets, whether due to
a regional economic downturn, increased competition or otherwise, could have a
material adverse effect on the financial performance of the Azteca America
Network.

      RISKS RELATED TO UNEFON

        Unefon faces intense competition from an increasing number of strong
        competitors that could result in an increase in subscriber churn and a
        decrease in profit margins.

      Unefon has a number of competitors and it expects competition in the
Mexican mobile telecommunications industry to intensify in the future as a
result of new market entrants, consolidation in the industry, the growth of
current operators and new technologies, products and services. Some of these
competitors have greater financial or technological resources and coverage areas
than Unefon.

                                       13

<PAGE>

      In addition, Grupo Elektra, TV Azteca's affiliate and Unefon's primary
distribution channel, has begun marketing and selling mobile telecommunications
services of Telcel and Telefonica in its stores. Unefon believes that this
recent development could have a negative impact on future sales through this
distribution channel. Unefon's competitors have established relationships with
third parties that have access to personnel, capital, equipment and other
resources that may not be available to Unefon. These resources provide Unefon's
competitors with advantages that could negatively affect Unefon's business. New
competitors or alliances among competitors could rapidly acquire significant
market share. Unefon cannot be sure that it will be able to develop similar
relationships or successfully compete against such competitors.

        The coverage of Unefon's cellular network is limited to urban areas,
        while its largest competitor provides national coverage for its
        subscriber base.

      Unefon's business strategy is to develop a significant subscriber base
among the upper-lower and middle income subscribers residing in Mexico's largest
cities. As a result, the breadth of Unefon's network is limited to areas with
dense population. If a Unefon subscriber travels outside of the urban areas in
which Unefon's network has been established, the subscriber will lose his or her
connection to the Unefon network. Alternatively, Telcel has developed a national
cellular network that offers service in many areas where Unefon's coverage is
not available. The lack of national coverage may have an adverse effect on
Unefon's ability to attract and retain subscribers which in turn could adversely
affect Unefon's business and result of operations.

        Unefon may face unforeseen difficulties in the expansion of the capacity
        and coverage of its network.

      Unefon's ability to expand the capacity and coverage of its network is
dependent upon a number of factors, many of which are beyond its control. These
factors include, but are not limited to:

..    the ability to obtain and maintain financing for capital expenditures on
     acceptable terms;

..    the ability to obtain and maintain the necessary concessions, licenses,
     registrations, permits or authorizations for operation and expansion of its
     network and its ability to comply with other regulatory requirements;

..    the ability to obtain compatible telecommunications equipment when needed;

..    identifying new tower locations and switch sites for its network;

..    the ability to secure space and rights of way for its telecommunications
     equipment in municipalities and delays in the construction of additional
     towers and switch sites;

..    unexpected results of operations or strategies in its target markets; and

..    technological and competitive developments, including additional market
     developments and new opportunities.

      In addition, Unefon may not be able to respond quickly, or at all, to new
or unexpected capital requirements, which could impede Unefon's business and
development. Some of the factors that would cause significant unanticipated
capital needs are regulatory changes, engineering design changes, new
technologies, currency fluctuations and significant departures from Unefon's
business plan.

        Unefon's ability to generate revenues depends on its ability to attract
        and retain its prepaid subscribers, and without long-term service
        contracts Unefon's future revenues are unpredictable.

                                       14

<PAGE>

      Unefon's ability to generate revenues depends on its ability to attract
and retain subscribers, which in turn depends on Unefon's ability to maintain
the competitiveness of its prices and to increase the number of subscribers
within its target markets and the quality of its services. In addition, the
development of Unefon's business will depend on a number of factors over which
Unefon has limited or no control, including, but not limited to:

..    changes in pricing policies by its competitors;

..    the introduction of new services and enhanced voice quality by its
     competitors;

..    developments or changes in the regulatory framework for the Mexican
     telecommunications industry;

..    the growth of the Mexican mobile telecommunications market; and

..    general economic conditions prevailing in Mexico.

      In addition, future revenues from Unefon's prepaid subscribers are
unpredictable. Since Unefon does not have contract-based subscribers who provide
payments over the lifetime of a contract, Unefon cannot provide assurances that
its current subscribers will continue to use Unefon's services in the future. As
of December 31, 2002, Unefon had approximately 1.4 million subscribers,
approximately 85% of which use Unefon's network and generate revenue on a
regular basis. The loss of a larger number of subscribers than anticipated could
result in a loss of a significant amount of expected revenues. Since Unefon
incurs capital expenditures based on its expectations of future revenues,
Unefon's failure to accurately predict revenues could negatively affect its
results of operations.

      RISKS RELATED TO DOING BUSINESS IN MEXICO

        If the peso devalues in the future against the U.S. dollar, it will be
        more difficult for the Company and for its subsidiaries to repay debt.

      Declines in the value of the peso relative to the U.S. dollar increase the
interest costs in pesos of the Company's subsidiaries' non-peso-denominated
indebtedness and increase the cost in pesos of the Company's other
dollar-denominated expenditures. Substantially all of the Company's liabilities,
other than the Azteca Holdings Notes, are liabilities of its subsidiaries. A
significant portion of the Company's subsidiaries' operating costs and other
expenditures are also dollar-denominated. These costs include the fees TV Azteca
pays for the exhibition rights for purchased programming, for the leasing of
satellite transponders and for purchases of capital equipment. As of December
31, 2002, substantially all of the Company's indebtedness and all of its
subsidiaries' indebtedness was denominated in U.S. dollars. Since substantially
all of the Company's subsidiaries' revenue is denominated in pesos, the
increased costs are not offset by any exchange-related increase in revenue.

      The value of the peso has been subject to significant fluctuations with
respect to the U.S. dollar in the past and may be subject to significant
fluctuations in the future. For example, in 1994, the value of the peso declined
60.8% against the U.S. dollar. Between January 1, 1995 and December 31, 1996,
the Mexican peso depreciated an additional 57.6% against the U.S. dollar. The
significant devaluation of the peso caused the Company's financial results to
suffer. Between May 2, 2002 and May 2, 2003, the Mexican peso depreciated 7.7%%
against the U.S. dollar, and depreciated a further 0.5% in the month of May
2003. The Company cannot assure you that the peso will not depreciate in value
relative to the U.S. dollar in the future. Any future devaluations of the peso
could adversely affect the Company's assets, liquidity and results of
operations.

                                       15

<PAGE>

      The Company's financial results are dependent on the Mexican economy.

      Declines in growth, high rates of inflation and high interest rates in
Mexico have a generally adverse effect on the Company's business. The slower the
growth of the Mexican economy, the slower the growth of advertising spending. In
the event that inflation in Mexico returns to high levels while economic growth
slows, the Company's subsidiaries' results of operations, the Company's
financial condition and the market price of the Company's subsidiaries'
securities will all be affected. In addition, high interest rates and economic
instability could increase the Company's costs of financing or make it difficult
for the Company to refinance its existing indebtedness or TV Azteca's debt.

        Fluctuations in the U.S. economy or the global economy in general may
        adversely affect Mexico's economy and the Company's business.

      Mexico's economy is vulnerable to market downturns and economic slowdowns
in the U.S. and elsewhere in the world. The recent slowdown in the growth of the
U.S. economy, exacerbated by the September 11 terrorist attacks, has negatively
affected Mexican businesses and limited access to capital for many Mexican
companies. Moreover, the Company is unable to predict the implications of the
war against Iraq on the level of Mexican consumer confidence, and in turn on the
general level of advertising spending in Mexico. In addition, as has happened in
the past, financial problems or an increase in the perceived risks associated
with investing in emerging economies could limit foreign investment in Mexico
and adversely affect the Mexican economy. For example, in October 1997, prices
of Mexican debt securities and equity securities decreased substantially
following a sharp decline in Asian securities markets, and in the second half of
1998, prices of Mexican securities were negatively impacted by economic crises
in Russia and Brazil. The recent fiscal crises in Argentina and Venezuela have
caused instability in Latin American financial markets and could have a negative
impact on the price of Mexican debt and equity securities. Future economic
problems in the U.S. or globally could severely limit the Company's access to
capital and could adversely affect its business.

        The Mexican government exercises significant influence over the economy.

      The Mexican government has exercised, and continues to exercise,
significant influence over the Mexican economy. Economic plans of the Mexican
government in the past often have not fully achieved their objectives, and the
Company cannot assure you that current and future economic plans of the Mexican
government will achieve their stated goals. Similarly, the Company cannot
determine what effect these plans or their implementation will have on the
Mexican economy or on the Company's subsidiaries' businesses. Future Mexican
governmental actions could have a significant effect on Mexican companies,
including the Company, and market conditions.

        Fluctuations in interest rates and inflation may adversely affect the
        Company's business.

      In Mexico, inflation has been high in recent years compared to more
developed economies. Any negative fluctuation in interest rates might have an
adverse effect on the Company because the amount of interest may increase with
regard to its present liabilities and indebtedness or other liabilities and
indebtedness incurred in the future. Annual inflation was 8.9%, 4.4% and 5.7%
for the years ended December 31, 2000, 2001 and 2002, respectively. Any
significant increase in the inflation rate in Mexico could adversely affect the
Company's financial condition and results of operations as inflation can
adversely affect consumer purchasing power, which affects the ability of TV
Azteca's advertisers to purchase advertising time on its networks.

                                       16

<PAGE>

        The political situation in Mexico could negatively affect the Company's
        operating results.

      Mexico has experienced political changes in recent years. This instability
affects Mexico's business and investment climate. As a Mexican company with
substantially all of its assets and operations in Mexico, the political
environment in Mexico has a significant impact on the Company's financial
condition and results of operations.

        If the Mexican government imposes exchange controls and restrictions,
        the Company may not be able to service its debt in U.S. dollars.

      In the past, the Mexican economy has experienced balance of payment
deficits and shortages in foreign exchange reserves. While the Mexican
government does not currently restrict the ability of persons or entities to
convert pesos into U.S. dollars, it has done so in the past (most recently in
1982) and could do so again in the future. The Company cannot assure you that
the Mexican government will not institute a restrictive exchange control policy
in the future. Any such restrictive exchange control policy could prevent or
restrict access to U.S. dollars and limit the Company's ability and its
subsidiaries' ability to service the Company's U.S. dollar-denominated debt and
may also limit TV Azteca's ability to pay dividends on its American Depository
Shares ("ADSs"). Moreover, the Company cannot predict what impact a restrictive
exchange control policy would have on the Mexican economy generally.

        TV Azteca's financial statements do not give you the same information as
        financial statements prepared under U.S. accounting principles and TV
        Azteca publishes U.S. GAAP financial information less frequently than
        U.S. companies.

      TV Azteca prepares its financial statements in accordance with Mexican
GAAP. These principles differ in significant respects from U.S. GAAP. See "Item
5. Operating and Financial Review and Prospects--U.S. GAAP Reconciliation" and
Note 18 to the Consolidated Financial Statements for a description of the
principal differences between Mexican GAAP and U.S. GAAP as they relate to TV
Azteca. TV Azteca cannot assure you that these will be the only differences in
the future. In addition, TV Azteca generally only prepares U.S. GAAP information
on a yearly basis. As a result, there may be less or different publicly
available information about TV Azteca than there is about U.S. issuers.

ITEM 4.    INFORMATION ON THE COMPANY

GENERAL

      The Company is a corporation (sociedad anonima de capital variable)
organized under the laws of Mexico. The Company's deed of incorporation was
executed on June 23, 1992 and the Company was registered in the Public Registry
of Commerce in Mexico City on March 9, 1993 under the number 171099. The term of
the Company is 99 years beginning on the date that the Company's deed of
incorporation was executed. The Company's principal executive offices are
located at Av. Periferico Sur 4121, Col. Fuentes del Pedregal, Mexico D.F.
14141. The Company's telephone number at that location is 011-5255-3099-1333.

      The Company is a Mexican holding company that beneficially owns 55.0% of
the outstanding stock of TV Azteca. TV Azteca is one of the largest producers of
Spanish-language television programming in the world and is the second largest
television broadcasting company in Mexico based on audience and market share.

RECENT DEVELOPMENTS

      10 3/4% NOTES EXCHANGE OFFER AND CONSENT SOLICITATION

                                       17

<PAGE>

      On May 13, 2003, the Company completed an exchange offer in which the
holders of US$80.1 million in principal amount of the 10 1/2% Notes agreed to
exchange their 10 1/2% Notes for an equivalent principal amount of 10 3/4%
Notes. In connection with the exchange offer the Company also received consents
from approximately 53% of the holders of the 10 1/2% Notes authorizing the
execution of a supplemental indenture that removed substantially all of the
restrictive covenants from the 10 1/2% Notes Indenture. The supplemental
indenture became effective on May 12, 2003. In addition, effective May 13, 2003,
the Company reduced the collateral securing the 10 1/2% Notes from 55,246,106 TV
Azteca CPOs and, subject to certain conditions, 147,215,706 Unefon Series A
shares to 12,875,657 TV Azteca CPOs and, subject to certain conditions,
34,310,092 Unefon Series A shares. Following the payment of the principal and
interest on the 10 1/2% Notes at maturity, the remaining collateral securing the
10 1/2% Notes will be pledged as additional collateral to secure the 10 3/4%
Notes.

      12 1/4% Notes Exchange Offer

      On June 12, 2003, the Company launched an offer to exchange its new senior
amortizing notes for any and all outstanding 10 1/2% Notes and 10 3/4% Notes.
Originally, the new senior amortizing notes offered an interest rate of 11 1/2%
and matured on June 15, 2009. On June 26, 2003, the Company amended the proposed
terms of its new senior amortizing notes. As amended these notes bear interest
at an annual rate of 12 1/4% and mature on June 15, 2008 (the "12 1/4% Notes").
Interest on the 12 1/4% Notes will be paid commencing on July 15, 2003, and on
each December 15 and June 15 thereafter. In addition, the Company amended the
amortization schedule of its new senior amortizing notes. As amended, US$250 of
each US$1,000 in principal amount of the 12 1/4% Notes will be amortized on June
15, 2005 and each June 15 thereafter, until maturity. Other than for certain tax
reasons, the Company will not have the right to redeem the 12 1/4% Notes prior
to June 15, 2006. On and after June 15, 2006, the Company will have the option
to redeem the 12 1/4% Notes, in whole or in part, at 100% of the outstanding
principal amount, plus accrued but unpaid interest through the date of
redemption and additional amounts, if any. The 12 1/4% Notes will be senior
unsecured obligations of the Company.

      TV AZTECA'S DISTRIBUTION POLICY/DEBT REDUCTION STRATEGY

      On February 6, 2003, TV Azteca announced that its board of directors had
approved a six-year debt reduction plan pursuant to which TV Azteca intends to
use the free cash generated from its operations to reduce its outstanding
indebtedness, which was US$592.4 million as of December 31, 2002. TV Azteca
also announced the board of directors' intention to make scheduled distributions
of approximately US$500.0 million to its shareholders over the next six years.
On April 30, 2003, TV Azteca's shareholders approved distributions to
shareholders for an aggregate of US$140.0 million to be paid during 2003. A
distribution of US$125.0 million is scheduled to be made on June 30, 2003 and
another distribution of US$15.0 million is scheduled to be made on December 5,
2003.

      NORTEL SETTLEMENT

      On June 16, 2003, Unefon reached a settlement with Nortel pursuant to
which Unefon and Nortel released each other from all obligations arising out of
the procurement agreement, finance agreement or any related agreements and
terminated all actions and proceedings of any kind between the parties or
involving the parties and their counsel, in the U.S. and Mexico. Unefon and
Nortel also terminated the procurement agreement and entered into a new supply
agreement. In connection with the settlement, Unefon paid an aggregate of
US$43.0 million to Nortel to be applied to accounts receivable and to a
reduction in the total amount of debt owed by Unefon to Nortel to US$325.0
million. Concurrently with the settlement, Codisco Investments LLC ("Codisco")
purchased the US$325.0 million debt of Unefon from Nortel. Unefon has announced
that the term of this debt between Unefon and Codisco is to be amended to
provide for, among other things, an extension of the maturity date until
June 15, 2013. See "--Other Operations--Unefon--Nortel Settlement."

TV AZTECA

      TV Azteca was formed in July 1993 in connection with the Mexican
government's privatization of Channels 7 and 13. An investor group led by
Ricardo B. Salinas Pliego, the Chairman of the Board, President and Chief
Executive Officer of Azteca Holdings and the Chairman of the Board of TV Azteca,
paid the

                                       18

<PAGE>

Mexican government the peso equivalent of approximately US$643 million at the
time of privatization for Channels 7 and 13 and certain other assets. TV
Azteca's average weekday, prime-time commercial audience share has increased
from 12% in December 1993 to 37% for the year ended December 31, 2002.

      In addition to its Mexican television broadcast operations, TV Azteca
owns:

..    a 100% interest in Azteca International, a newly formed U.S. company that
     operates the Azteca America Network, a Spanish-language television
     broadcasting network focused on the rapidly growing U.S. Hispanic market;

..    a 46.5% interest in Unefon, a Mexican mobile and fixed wireless
     telecommunications company; and

..    a 50% interest in Todito, a Mexican company that operates a
     Spanish-language Internet portal, Internet connection service and
     e-commerce marketplace.

      TV Azteca provides substantially all of the Company's net revenue and
EBITDA.

      MEXICAN TELEVISION INDUSTRY

      The television industry in Mexico began in the early 1950s when the
Mexican government granted licenses for the operation of three very high
frequency ("VHF") television stations in Mexico City. Since then, the Mexican
government has granted licenses for one ultra high frequency ("UHF") station and
four additional VHF stations in Mexico City, including TV Azteca's Channels 7
and 13, and numerous other licenses for the operation of stations in localities
throughout Mexico. See "--Regulation--TV Azteca--Concessions."

      According to Mexican government estimates, as of December 31, 2000, the
metropolitan area of Mexico City had a population of over 18 million persons and
nearly 4 million television households, representing approximately 18% of
Mexico's population of approximately 97 million and approximately 18% of the 22
million Mexican television households. As a result, the television stations
broadcasting in Mexico City have historically dominated the industry and have
acted as the anchor stations for networks of stations located outside Mexico
City by providing these stations with all or a substantial portion of their
programming.

      Currently, there are seven VHF television stations in Mexico City, six of
which are privately-owned and one of which is government-owned. There are a
large number of television stations elsewhere in Mexico, most of which solely
retransmit programming originated by one of the Mexico City stations. TV Azteca
owns and operates two VHF television stations in Mexico City, Channels 7 and 13,
which rebroadcast their signals throughout Mexico under licenses held by TV
Azteca. See "--TV Azteca's Mexican Television Networks." An investor group led
by Ricardo B. Salinas Pliego, Chairman of the Board, President and Chief
Executive Officer of the Company and Chairman of the Board of TV Azteca, paid
the Mexican government the peso equivalent of approximately US$642.7 million at
the time of privatization for Channels 7 and 13 and certain other assets. In
conjunction with a Mexican government sponsored program, in 1999, TV Azteca
began retransmitting programming from Azteca 13 over a digital television
channel in Mexico City, Channel 53, on an experimental basis. TV Azteca has
submitted an application to renew its authorization to transmit programming on
Channel 53, which authorization would otherwise have expired in February 2002.
TV Azteca has permission to continue to transmit programming on Channel 53 while
its renewal is being reviewed.

      TV Azteca's principal competitor, Televisa, owns and operates four VHF
television stations in Mexico City, Channels 2, 4, 5 and 9. See "--Competition."
The signals from Channels 2 and 5 are rebroadcast throughout Mexico pursuant to
licenses owned by Televisa or its affiliates. Based on information published by
Televisa in 2001, Televisa's Channels 2 and 5 cover 98% and 90%, respectively,
of Mexican television

                                       19

<PAGE>

households. Although Channels 4 and 9 broadcast programming that reaches many of
the largest cities in Mexico, neither channel has full national coverage.
Channel 4's coverage is primarily limited to the Mexico City metropolitan area
and, according to Televisa, Channel 9 covers 73% of Mexican television
households. The Mexican government owns one VHF station and one UHF station in
Mexico City, Channels 11 and 22, respectively, as well as numerous stations
outside Mexico City.

      Due to technical limitations, there is currently no capacity in Mexico
City on the VHF spectrum (Channels 2 through 13) for additional television
channels. In addition to Channel 22, there are a number of stations that
broadcast on the UHF spectrum (Channels 14 through 69), including certain
stations owned by Televisa that broadcast encoded signals for their pay
television channels.

      TV AZTECA'S MEXICAN TELEVISION NETWORKS

      TV Azteca currently owns and operates two national television networks in
Mexico, Azteca 7 and Azteca 13. These networks are comprised of 315 television
stations located throughout Mexico that broadcast programming at least 23.5
hours a day, seven days a week. Two hundred seventy-one of the network's
stations are repeater stations that solely rebroadcast programming and
advertisements received from the Mexico City anchor stations. The remaining 44
network stations broadcast local programming and advertisements in addition to
the programming and advertisements supplied by the anchor stations.

      Azteca 7 Network.

      The Azteca 7 network primarily targets middle and upper income adults
between the ages of 18 and 44. In 2002, TV Azteca produced 47.2% of the Azteca 7
network's weekday prime-time programming hours and 23.3% of its total
programming hours. The network's programming consists primarily of news
programs, game shows, sports broadcasts and major feature films. As of December
31, 2002, the Azteca 7 network reached 95% of all Mexican television households.

      Azteca 13 Network.

      The Azteca 13 network primarily targets middle-income family viewers of
all ages. In 2002, TV Azteca produced 99.8% of the Azteca 13 network's weekday
prime-time programming hours and 72.4% of its total programming hours. The
network's programming consists primarily of telenovelas, reality programs, news
programs, talk shows, musical variety programs and sports broadcasts,
principally soccer.

      Telenovelas are the most popular programming genre in Mexico and are a key
factor in attracting the network's target audience. In 2002, TV Azteca produced
seven telenovelas, two of which were among the top five highest rated, regularly
scheduled, prime-time programs on the Azteca 13 network. As of December 31,
2002, the Azteca 13 network reached 97% of all Mexican television households.

      Local Stations

      Forty-four of TV Azteca's television stations broadcast local programming
and advertisements in addition to programming and advertisements provided by the
anchor stations. As of December 31, 2002, TV Azteca had entered into contracts
with local business partners with respect to 24 of its local stations under
which the local partners may sell advertising time on these stations to local
advertisers. In each case, the local partners are required to provide their own
office facilities and to purchase the necessary equipment to block the national
signal and insert a local signal. TV Azteca controls the time periods during
which the national signals may be blocked and also restricts the sale of local
air time to its national advertisers. TV Azteca permits insertion of local
advertising only during periods when TV Azteca has scheduled local
advertisements on its Mexico City anchor stations. During those periods, TV
Azteca broadcasts a separate

                                       20

<PAGE>

advertisement on its repeater stations. TV Azteca operates the remaining 20
local stations without local partners.

      In addition to the insertion of local advertisements, some of TV Azteca's
local stations broadcast programs that are produced and financed by local
partners. Locally-produced programs include news programs, game shows, sports
events and other entertainment programs. In 2000, 2001 and 2002, TV Azteca's
local television stations produced approximately 2%, 3%, and 2%, respectively,
of the local programming broadcast on those stations.

      Transmission Technology and Quality Control

      Although the stations of the Azteca 7 and 13 networks broadcasting in the
same locality require separate licenses, transmitters and satellite receivers
for the rebroadcast of their signals, they generally utilize the same broadcast
facilities (buildings and transmission towers). Since 1993, TV Azteca has
invested approximately Ps.781 million in transmitters in order to improve signal
quality and expand the broadcast coverage of its two television networks. TV
Azteca has also relocated some transmitters in order to improve broadcast signal
quality and has invested in the improvement of its equipment maintenance
programs. TV Azteca intends to invest in additional transmitters, receivers and
other equipment in order to improve the quality of the broadcast signals of its
networks in certain areas and to increase their overall coverage of Mexican
television households.

      In December 1999, TV Azteca began implementing digital satellite
technology for the transmission of its signals. The digital technology
compresses and encodes the signal, which improves the image and audio quality
and prevents the unauthorized use of TV Azteca's signals. The digital system
requires the capacity of only one transponder for TV Azteca's satellite
transmissions, rather than two transponders as required by the analog system
previously used by TV Azteca. With this technology, TV Azteca can send seven
different broadcast signals to its Mexican and international affiliates. This
technology also allows TV Azteca to tailor its programming and advertising to
the local markets in which it broadcasts. TV Azteca began operating its digital
system in February 2000. See "--Property--TV Azteca--Broadcasting, Production
and Office Facilities -- Satellites."

      In October 1999, TV Azteca received an ISO-9002 certification in
connection with its operation of its television broadcast networks. TV Azteca
was the first broadcast network in Mexico to receive this certification. In
December 1999, TV Azteca implemented its Continuity and Traffic Management
quality system in order to minimize breaks in the signal and to assure the
quality of TV Azteca's broadcast signals. In March 2001, Bureau Veritas Quality
International certified that the Continuity and Traffic Management quality
control system implemented by TV Azteca qualifies under ISO-9002. In November
2001, TV Azteca's accounting department received an ISO-9001 certification. Most
recently, in January 2003, TV Azteca's finance and administration department
received an ISO-9001 certification.

      PROGRAMMING

      TV Azteca is one of the largest producers of Spanish-language programming
in the world. TV Azteca believes that its ability to provide a diverse mix of
quality programming has been, and will continue to be, one of the primary
factors in maintaining and increasing its overall ratings and share of the
Mexican television audience. TV Azteca focuses on producing and acquiring
programming that appeals to the different target audiences of its Azteca 7 and
13 networks. TV Azteca also believes that developing separate identities for its
networks has helped TV Azteca capture an increasing share of the Mexican
television audience and has provided its advertisers with the opportunity to
tailor their advertisements to specific demographic groups.

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<PAGE>

      In order to maintain the high quality of its programming, TV Azteca
convenes focus groups and conducts surveys to evaluate the prospective
popularity of new programming ideas. TV Azteca also uses portions of its unsold
advertising time to market aggressively both its internally produced programming
and purchased programming in order to create and sustain viewer interest.

      Programming Produced by TV Azteca

      TV Azteca produces a variety of programs, including telenovelas, reality
programs, news programs, sports broadcasts, musical programs, game shows and
talk and variety shows. In 2001 and 2002, TV Azteca produced approximately 71%
and 72%, respectively, of the weekday, prime-time programming hours aired on its
networks (excluding programming produced by its local stations), including each
of its networks' 10 most highly rated, regularly scheduled weekday programs
shown during prime-time in both 2001 and 2002.

      TV Azteca's internally produced programming is more expensive on average
to produce than its purchased programming. TV Azteca seeks to offset its
production costs by selling its internally produced programming outside Mexico.
In 2000, 2001 and 2002, TV Azteca sold approximately 17,228, 17,766 and 20,407
hours (including sales to Echostar), respectively, of internally produced
programming, generating sales of Ps.132 million (nominal), Ps.110 million
(nominal) and Ps.133 million (nominal) (US$12.8 million) (nominal),
respectively.

      Since 1996, TV Azteca has produced telenovelas, historically the most
popular programming genre in Mexico and throughout Latin America. Telenovelas
are similar to U.S. soap operas in content, but, unlike U.S. soap operas, they
are generally aired for only six to twelve months. Since 1996, TV Azteca has
invested approximately Ps.178 million (US$17.1 million) in production equipment
devoted primarily to the production of telenovelas. TV Azteca produced nine
telenovelas in 2000, which represented 1,010 hours of programming, seven
telenovelas in 2001, which represented 1,000 hours of programming and seven
telenovelas in 2002, which represented 969 hours of programming. Two of the
telenovelas TV Azteca produced in 2002 were among TV Azteca's 10 highest rated,
regularly scheduled, prime-time programs.

      In 2002, TV Azteca launched its first reality program, La Academia, a
"musical reality" television show. This television show featured Mexican
contestants who are trained by a professional team of "star-makers" and, based
on their performance, eliminated one-by-one by the audience. During the show's
run, live concerts were aired every Sunday. The final concert, which aired on
December 1, 2002, marking the conclusion of La Academia's "first generation"
obtained a 68% share of the commercial audience for its time slot. Immediately
following the end of the first season of La Academia, TV Azteca commenced airing
the "second generation" of La Academia with new contestants.

      TV Azteca's news programming includes nightly prime-time news programs
geared towards the target audiences of its television networks. The Hechos del
Siete news program, broadcast on the Azteca 7 network, features a fast paced
synopsis of the domestic and international news in a format that is attractive
to its young adult viewers. The Azteca 7 network also broadcasts an interview
program that questions leading politicians, businesspersons and journalists on
issues affecting Mexico. The Hechos news program, broadcast on the Azteca 13
network, presents a more in-depth analysis of daily domestic and international
news.

      TV Azteca's internally produced sports programming consists principally of
broadcasts of games of the 20-team First Division of Mexican professional
soccer, as well as sports commentary and highlight shows. Soccer is the most
popular sport in Mexico, and the broadcasts of First Division games generate
ratings at a level comparable to TV Azteca's most highly rated programming. For
the summer and winter 2000 seasons and the summer 2001 season, TV Azteca had the
broadcast rights to the home games of eight First Division teams, including Club
Atletico Morelia, which is owned by the Company. For the winter 2001 and summer
2002 seasons, TV Azteca had the broadcast rights to the home games of seven
First Division teams, including

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<PAGE>

Club Atletico Morelia. For the winter 2002 season, the Company has the broadcast
rights to the home games of eight First Division teams, including Club Atletico
Morelia.

      Purchased Programming

      TV Azteca also obtains programming from approximately 178 different
distributors. TV Azteca obtains a substantial portion of its purchased
programming from a small number of suppliers, including MGM, Paramount, Sony,
Twentieth Century Fox International, Universal Studios and Warner Bros. TV
Azteca's purchased programming includes primarily cartoons and movies.
Non-Spanish-language programs purchased for TV Azteca's networks are dubbed into
Spanish prior to delivery to TV Azteca. TV Azteca pays the distributor an
additional fee for this service. Purchased programming constituted approximately
29% and 28% of the weekday, combined prime-time programming hours broadcast on
TV Azteca's two networks in 2001 and 2002, respectively.

      Purchased programming is licensed from distributors under separately
negotiated agreements, the terms of which vary. In October 2001, TV Azteca
entered into an exclusive three year license agreement with Buena Vista
International, Inc., an affiliate of The Walt Disney Company. See "--Strategic
Alliances--Buena Vista Agreement." The agreement covers the licensing and
broadcast on the Azteca 7 and 13 networks of certain first-run movies,
mini-series and special events, such as the Academy Awards.

      TV Azteca also enters into agreements to broadcast sports programming,
including the Olympic Games, the World Cup, National Basketball Association
("NBA") games, National Football League ("NFL") games, Championship Auto Racing
Teams events and golf tournaments. TV Azteca usually uses its own commentators
for broadcasts of international sports events.

      Both TV Azteca and Televisa obtained broadcast rights to the 1998 World
Cup and the 2000 Summer Olympics through the Organization of Spanish American
Television (Organizacion de Television Iberoamericana)("OTI"), a Latin American
cooperative organization that bids for broadcast rights to international sports
and cultural events. OTI has obtained the broadcast rights to the 2004 and 2008
Summer Olympic Games. Both TV Azteca and Televisa have Mexican broadcast rights
to the 2004 and 2008 Summer Olympics. DirecTV Latin America has obtained the
Mexican broadcast rights to the 2006 World Cup. In February 2002, TV Azteca
entered into an agreement with an affiliate of DirecTV Latin America which gave
TV Azteca the right to broadcast 18 of the 2002 World Cup games, including all
of Mexico's first round games, the semifinals, third place play off and the
final.

      TV Azteca has had the exclusive right to broadcast NBA games in Mexico
since 1993. In August 1995, TV Azteca entered into an agreement with NBA
Entertainment, Inc. This agreement, which has since been extended, gave TV
Azteca the exclusive right to broadcast NBA games in Mexico through the end of
the 2002-2003 season. TV Azteca also has a right of first refusal to renew its
exclusive exhibition rights for the 2003-2004 season. See "--Strategic
Alliances--NBA Agreement." TV Azteca also has the right to broadcast NFL games
through the 2003-2004 season and is in the process of renegotiating an exclusive
right to broadcast Championship Auto Racing Teams races.

      AUDIENCE AND RATINGS SHARE

      TV Azteca focuses its efforts on increasing its audience share of weekday,
prime-time viewers. Although weekday, prime-time represents only approximately
20% of the broadcasting hours on TV Azteca's networks, the total number of
television viewers is highest during that period. As a result, advertising time
during weekday, prime-time is preferred by most advertisers and TV Azteca
charges higher rates for advertising during those hours. As a result of its
efforts TV Azteca has increased its audience share of weekday, prime-time
viewers. Advertising revenue earned during weekday, prime-time contributed

                                       23

<PAGE>

approximately 43%, 47% and 55%of TV Azteca's net advertising revenue in 2000,
2001 and 2002, respectively.

      For the years ended December 31, 2000, 2001 and 2002, TV Azteca's weekday,
prime-time Mexican audience share was 25.1%, 28.3% and 26.3%, respectively.

      Commercial Audience

      In 1998, TV Azteca began tracking its share of the Mexican commercial
audience as derived from ratings information published by IBOPE AGB Mexico. TV
Azteca focuses on the Mexican commercial audience because it believes that the
Mexican commercial audience is comprised of television viewers with the greatest
purchasing power. The Mexican commercial audience is comprised of viewers
classified by IBOPE AGB Mexico as ABC+, C and D+ (based on total household
income) watching one of Mexico's four national television networks (the Azteca 7
and 13 networks and Televisa's channels 2 and 5). In 2002, as shown in the table
below, the Mexican commercial audience represented 63% of the Mexican population
but controlled 92% of the household income.

[GRAPHIC APPEARS HERE]

      Although 94% of Mexican households have television sets, 37% of Mexican
households (the D/E segment) have household incomes of less than US$400 per
month and therefore have limited ability to purchase many of the goods and
services advertised on television. The Company estimates that approximately 50%
of the goods and services advertised on television are beyond the economic reach
of D/E households.

      The following chart depicts the weekday, prime-time commercial audience
share for TV Azteca on a monthly basis from January 2000 through December 2002.

                                       24

<PAGE>

[GRAPHIC APPEARS HERE]

      In 2000, 2001 and 2002, superior demographics and national coverage on
both of its two networks allowed TV Azteca to deliver 36%, 38% and 37%,
respectively, of the Mexican commercial audience in weekday, prime-time, as
compared to 25%, 28% and 26%, respectively, of the weekday, prime-time Mexican
audience share.

      TELEVISION ADVERTISING

      General

      For the year ended December 31, 2002, approximately 97% of TV Azteca's net
revenue was derived from the sale of national and local advertising. TV Azteca
offers two basic advertising payment plans: the "Azteca Plan" and the "Mexican
Plan". Sales under TV Azteca's Azteca and Mexican Plans are made throughout the
year under contracts between TV Azteca and its customers for advertising over a
specific period of time. TV Azteca also offers its customers the option of
purchasing a set amount of advertising time for a given price. In setting
advertising rates, TV Azteca considers, among other factors, the rates offered
by its competition and the likely effect of rate increases on advertising
volume.

      TV Azteca sold an aggregate of 95%, 84% and 83% of the total available
advertising time on its networks during weekday, prime-time in 2000, 2001 and
2002, respectively. TV Azteca uses a variety of means to utilize unsold
advertising time. TV Azteca has entered into advertising contracts with some of
its affiliates under which TV Azteca agreed to make a certain amount of
otherwise unsold advertising time available to these affiliates each year. See
"Item 7. Major Shareholders and Related Party Transactions" and Note 8 to the
Consolidated Financial Statements. In addition, TV Azteca sells a portion of
otherwise unsold advertising time to shared risk advertisers and to companies
that produce infomercials to improve its operating results and cash flow. TV
Azteca also uses the unsold advertising time to broadcast promotional spots for
its programming and to broadcast government and public service announcements.
See "--Regulation--TV Azteca--Supervision of Operations."

      Advertising Advances and Spot Sales

      TV Azteca has two categories of advertising sales: "advertising advances,"
which are commitments to purchase advertisements at least four weeks in advance
of the advertisement's broadcast date, and "spot sales," which are all other
contracts for advertising time (other than contracts entered into with respect
to shared risk advertisements and infomercials).

                                       25

<PAGE>

      A significant component of TV Azteca's advertising advances consists of
pre-sales of advertising time made in the fourth quarter of a calendar year for
advertising that will be aired during the following calendar year. In the fourth
quarter of 2000, TV Azteca generated Ps.4,457 million in pre-sales of its
advertising time, which represented 73% of its net advertising revenue in 2001.
In the fourth quarter of 2001, TV Azteca generated Ps.4,640 million in pre-sales
of its advertising time, which represented 69% of its net advertising revenue in
2002. In the fourth quarter of 2002, TV Azteca generated Ps.4,446 million
(US$427.7 million) in pre-sales of advertising time, substantially all of which
is to be aired in 2003.

      Payment Plans

      Under the Azteca Plan, advertisers generally are required to pay in full
within four months of the date they sign an advertising contract. Alternatively,
the Mexican Plan offers flexibility by allowing advertisers to pay for
advertising by making a cash deposit ranging from 10% to 20% of the advertising
commitment, with the balance payable in installments over the term of the
advertising contract, typically a one-year term. Advertising rates offered to
advertisers are lower under the Azteca Plan than under the Mexican Plan. Until
December 2000, the advertising rates under both plans were fixed for the term of
the contract. Effective January 2001, TV Azteca increased its advertising rates
under its new pricing plan every quarter in the increments set forth in its
contracts with advertisers. No adjustments are made for inflation during the
term of a contract.

      Once deposited, TV Azteca has full use of funds advanced under the Mexican
Plan and the Azteca Plan. At or about the date of the contract, TV Azteca
generally requires advertisers paying under the Mexican Plan to deliver
non-interest bearing, short-term notes in respect of each installment payment.
An advertiser that participates in either the Azteca Plan or the Mexican Plan is
able to choose during which television programs and at what times, based on
availability, its advertisements will appear. Any unused commitments are carried
forward until fully utilized by the advertiser, although, with the exception of
infomercial contracts, no amounts are carried beyond the expiration of the
period covered by the contract.

      The following table sets forth the percentage of TV Azteca's advertising
sales and pre-sales under the Azteca Plan and the Mexican Plan for the years
ended December 31, 2000, 2001 and 2002. See "Item 5. Operating and Financial
Review and Prospects--Liquidity and Capital Resources--Liquidity--Advertising
Advances."

                                 PERCENTAGE OF
                           TOTAL ADVERTISING SALES
                           YEAR ENDED DECEMBER 31,
                          --------------------------
                          2000       2001       2002
                          ----       ----       ----
       Azteca Plan .....    44%        55%        55%
       Mexican Plan ....    56%        45%        45%

                          PERCENTAGE OF TOTAL PRE-SALES
                             YEAR ENDED DECEMBER 31,
                          -----------------------------
                          2000          2001       2002
                          ----          ----       ----
       Azteca Plan .....    47%           64%        64%
       Mexican Plan ....    53%           36%        36%

      Pricing Plans

      To offer additional flexibility to advertisers, TV Azteca offers
"cost-per-rating-point" pricing to the Mexican television advertising market.
Cost-per-rating-point pricing, one of the most widespread methods of pricing
advertising outside Mexico, allows an advertiser to purchase advertising time
based on the ratings of the television programs during which its advertisements
are aired. TV Azteca's principal competitor, Televisa, does not offer its
advertisers the opportunity to purchase advertising time on a cost-per-rating
point

                                       26

<PAGE>

basis, which TV Azteca believes gives it a distinct advantage in attracting and
retaining advertisers to its networks.

      Local Sales

      TV Azteca has entered into agreements with local businesses pursuant to
which local advertising spots are inserted in the local broadcasts of 24 of its
44 local stations in place of the national advertising spots broadcast by the
Mexico City anchor stations. See "--TV Azteca's Mexican Television
Networks--Local Stations." These agreements entitle TV Azteca to receive a
majority of the revenue from any local advertising on these local stations. TV
Azteca permits insertion of local advertising only during periods when TV Azteca
has scheduled local advertisements on its Mexico City anchor stations. During
those periods, TV Azteca broadcasts a separate advertisement on its repeater
stations. TV Azteca operates the remaining 20 local stations without local
partners. Advertising revenue generated by all of TV Azteca's local stations
represented 14%, 8% and 18% of its total advertising sales for the years ended
December 31, 2000, 2001 and 2002, respectively.

      Infomercials, Shared Risk Advertisements and Integrated Advertising

      TV Azteca sells a portion of otherwise unsold advertising time to shared
risk advertisers and to producers of infomercials. With respect to infomercials,
TV Azteca charges a fee for the time slot in which the advertisement runs. TV
Azteca does not, however, receive any proceeds from the sale of the products
shown during the infomercial. Alternatively, with shared risk advertisements TV
Azteca does not receive any advertising fees during the time slot that the
advertisement runs. Instead, TV Azteca receives a percentage of the gross sales
of the offered product or products for a negotiated period of time. For example,
TV Azteca airs advertisements for music recordings at little or no up front
charge, under agreements that entitle TV Azteca to receive a share of the sales
of the recordings for a number of months following the airing of the
advertisements.

      TV Azteca also receives revenue from "integrated advertising" in the form
of product placements during the broadcast of TV Azteca's internally produced
programming. Revenues derived from shared risk advertisements, infomercials and
integrated advertising amounted to Ps.900 million, Ps.1,037 million and Ps.1,230
million (US$118.3 million) in the years ended December 31, 2000, 2001 and 2002,
respectively. These advertising arrangements accounted for 15%, 17% and 18% of
TV Azteca's net revenue in the years ended December 31, 2000, 2001 and 2002,
respectively.

      Barter Sales

      From time to time, TV Azteca enters into barter transactions with third
parties pursuant to which it exchanges advertising time for goods and services,
a substantial portion of which it uses in its operations. These types of
advertising sales accounted for 3%, 1% and 2% of TV Azteca's total advertising
sales for the years ended December 31, 2000, 2001 and 2002, respectively. TV
Azteca has also entered into barter arrangements, particularly with some of its
affiliates, in order to realize value from otherwise unsold advertising time.

      PROGRAM SALES

      TV Azteca generates revenue through the sale of the rights to broadcast
its internally produced programming abroad. In 2000, 2001 and 2002, TV Azteca
exported 9,084, 11,299 and 13,940 hours of programming (excluding U.S. export
sales), generating sales of US$4.8 million (nominal), US$5.9 million (nominal)
and US$10.1 million (nominal), respectively. The sale of the rights to broadcast
its internally produced programming allows TV Azteca to leverage its programming
library, which has already been paid for in Mexico. TV Azteca exports
programming to television broadcasters for viewing in approximately 60

                                       27

<PAGE>

countries. TV Azteca has provided Azteca International with the right to
broadcast certain of its programming in the U.S.

      In 2000, TV Azteca exported 7,461 hours of programming to the U.S.,
generating net sales of US$1.2 million (nominal), including sales to Echostar.
In 2001, TV Azteca exported 6,467 hours of programming to the U.S., generating
net sales of US$2.7 million (nominal), including sales to Echostar. Sales per
hour decreased because the majority of the hours exported by TV Azteca in 2001
were exported for satellite broadcast to paying subscribers as opposed to the
hours exported in 2000, which were exported to over-the-air broadcasters. This
change led to a smaller audience share and less coverage in 2001. In 2002, TV
Azteca exported 6,467 hours of programming to the U.S., generating net sales of
US$2.7 million (nominal), including sales to Echostar, but excluding sales made
through the Azteca America Network.

      Echostar Agreement

      In March 2000, TV Azteca entered into a programming agreement with
Echostar, a U.S. DTH satellite broadcaster. Under this agreement, TV Azteca
delivers to Echostar a satellite signal containing the Azteca 13 Programming.
Pursuant to this agreement, Echostar has the exclusive right in the U.S. to
distribute Azteca 13 Programming via DTH satellite technology. TV Azteca retains
the right to distribute Azteca 13 Programming via any over-the-air broadcast
television station, but only after 30 days have elapsed from the time the Azteca
13 Programming first aired on Echostar. This 30 day delay does not apply to the
Azteca 13 network's news, news-related and sports programs, which may be
broadcast on a simultaneous basis. TV Azteca also retains its rights to certain
programs, the licensing of which will be negotiated in good faith with Echostar.

      The Echostar agreement has an initial term of three years ending March 16,
2003, and may be extended at Echostar's election in one year increments for up
to an additional two years. On December 12, 2002, Echostar notified TV Azteca of
its intention to extend the term for one additional year. Echostar paid TV
Azteca US$2.5 million for the one-year extension, and would be obligated to pay
an additional amount if it extends the agreement for an additional year.

      Under the Echostar agreement, Echostar has the right to offer and sell
subscriptions for satellite programming provided by TV Azteca in the U.S.,
whether by itself or packaged with Echostar's current or future programming.
Echostar also has the right to sell commercial advertisements to be inserted in
the satellite programming and other services offered to its subscribers. TV
Azteca is entitled to receive a percentage of the net advertising revenue
generated by Echostar as a result of these arrangements. In addition, in 2000,
2001 and 2002, Echostar paid TV Azteca the sum of US$1.5 million, US$2.0 million
and US$2.5 million, respectively, under this agreement. In the event the number
of subscribers for TV Azteca's programming exceeds certain levels, TV Azteca
will be entitled to receive additional payments from Echostar.

      The Echostar agreement also contains certain provisions with respect to
the distribution of Azteca 13 Programming to cable operators in the U.S. TV
Azteca and Echostar have differing interpretations of certain of these
provisions, including whether Echostar has exclusive rights to distribute the
Azteca 13 Programming in certain circumstances. Echostar has notified TV Azteca
of its view that these exclusivity provisions prohibit TV Azteca from
distributing Azteca 13 Programming, or any portion thereof, to U.S. cable
operators, either directly (with the exception of cable operators near the
U.S.-Mexico border) or indirectly through over-the-air broadcast stations whose
signals are retransmitted by cable operators pursuant to the exercise by such
stations of statutory "must-carry" or "re-transmission consent" rights. TV
Azteca believes the exclusivity provisions prohibit TV Azteca during the term of
the Echostar agreement only from granting distribution rights directly to U.S.
cable operators (other than near the border), but do not restrict the
retransmission of Azteca 13 Programming by over-the-air broadcast stations to
cable and DTH satellite operators, and that they prohibit only the distribution
of Azteca 13 Programming (other than news, news-related and sports programming,
which may be transmitted without any waiting period) on the Azteca

                                       28

<PAGE>

America Network earlier than 30 days after it is transmitted to Echostar.
Certain of Azteca International's over-the-air station affiliates have exercised
statutory "must-carry" or "re-transmission consent" rights and, accordingly, are
causing Azteca America Programming (which contains portions of Azteca 13
Programming) to be re-transmitted on local cable systems. The "Azteca America
Programming" is comprised of certain of TV Azteca's programming, including
telenovelas, reality programming, sports, news and other general entertainment
programming in the Spanish language distributed through the Azteca America
Network. In addition, certain of Azteca International's over-the-air affiliates
have exercised their "must-carry" rights to require Azteca America Programming
to be re-transmitted by DirecTV, a competing satellite broadcaster.

      On June 25, 2002, Echostar filed a lawsuit against TV Azteca alleging that
TV Azteca is in breach of the exclusivity provisions of the Echostar agreement,
which lawsuit is currently pending. See "Item 10. Additional Information--Legal
Proceedings--TV Azteca--Echostar."

      Alta Empresa

      In December 2001, TV Azteca and Alta Empresa Holdings, B.V. ("Alta
Empresa"), its wholly-owned Dutch subsidiary of TV Azteca, entered into an
agreement for purposes of marketing and selling the TV Azteca's programming in
the U.S. Pursuant to this agreement, TV Azteca agreed to contribute its
programming and Alta Empresa agreed to manage all of the activities involved in
the marketing and selling of TV Azteca's programming throughout the U.S.
Initially, Alta Empresa may only market and sell TV Azteca's programming in the
U.S., which it is currently doing through an agreement with Azteca
International. The agreement between TV Azteca and Alta Empresa has an initial
term of 15 years, which may be terminated at any time by TV Azteca and Alta
Empresa. Based upon their relative contributions, TV Azteca is entitled to 99%
of the net profits derived from the marketing and sale of its programming
throughout the United States and Alta Empresa is entitled to the remaining one
percent.

COST MANAGEMENT

      TV Azteca takes a disciplined approach in managing its operating costs
and, as a result, it has achieved operating profit margins of 29%, 34% and 42%
for the years ended December 31, 2000, 2001 and 2002, respectively. TV Azteca
has implemented, and will continue to maintain, stringent cost-control
initiatives in connection with its internally produced programming and the
acquisition of purchased programming. With respect to its internally produced
programming, these initiatives include establishing clearly defined
profitability targets for each step of the production process, maintaining
strict controls over hiring decisions and controlling talent costs by hiring
cast members from TV Azteca's acting school. Alternatively, with respect to its
purchased programming, TV Azteca focuses on acquiring programs that it believes
will result in significant viewership by its targeted audiences and will
generate significant advertising revenue in relation to the fees paid for the
programming.

OTHER OPERATIONS

      TV Azteca has an investment in the telecommunications industry, through
Unefon, and an investment in the Internet marketplace, through Todito. TV Azteca
also owns a recording company, Azteca Records, S.A. de C.V. ("Azteca Records"),
and Club Atletico Morelia, a professional soccer team in Mexico.

AZTECA INTERNATIONAL

      MARKET OVERVIEW

      According to July 2001 census figures, the U.S. Hispanic population is
estimated to be approximately 37 million people, or approximately 13% of the
U.S. population, making it the largest ethnic minority group in the U.S. The
U.S. Hispanic population is one of the fastest growing segments of the U.S.
population, growing at approximately five times the rate of the non-Hispanic
population. Moreover, according to industry sources,

                                       29

<PAGE>

from 1997 to 2001, advertising expenditures targeting the U.S. Hispanic
community grew at an average compounded growth rate of 9.5% per year compared to
the 4.1% average compounded growth rate for the general advertising market.
Nevertheless, advertising expenditures targeting the U.S. Hispanic community
remains a small fraction of aggregate advertising spending in the U.S. For
example, in 2001, Hispanic purchasing power amounted to 8% of total U.S.
purchasing power, but advertising expenditures targeting the U.S. Hispanic
population represented only 2% of total U.S. advertising expenditures.

      STATION AFFILIATIONS

      In July 2001, TV Azteca launched the Azteca America Network, a new
Spanish-language television broadcast network in the U.S. Through Azteca
International, its wholly-owned subsidiary, TV Azteca establishes affiliate
relationships with television broadcast stations in U.S. markets that have a
significant Hispanic population. In addition, Azteca International may enter
into distribution agreements with cable operators. Through the Azteca America
Network, TV Azteca distributes in the U.S. the Azteca America Programming.

      Azteca International has station affiliation agreements with over-the-air
television broadcast stations in markets that cover approximately 60% of the
U.S. Hispanic population, including stations in the Los Angeles, New York,
Miami, Houston, San Antonio and San Francisco television markets. Pursuant to
these station affiliation agreements, the stations have been granted exclusive
licenses for over-the-air broadcasting of Azteca America Programming in their
respective markets. These agreements have terms ranging up to seven years and
may be automatically renewed for a specified duration. In return for this
programming, Azteca International receives either a percentage of the net
advertising revenue generated by its station affiliates or all of the net
advertising revenue with respect to a percentage of the available advertising
time on its station affiliates.

      PAPPAS STATION AFFILIATIONS

      Background

      In 2001, Azteca International entered into station affiliation agreements
with affiliates of Pappas Telecasting Companies ("Pappas") in the Los Angeles,
San Francisco, Houston and Reno television markets. When Azteca International
entered into station affiliation agreements with Pappas Telecasting of Southern
California LLC ("Pappas Southern California"), operator of its Los Angeles
affiliate, TV Azteca became a party to credit agreements and Azteca
International became a party to an equity option agreement that gave it the
right to acquire an equity interest in Pappas Southern California. Additionally,
in connection with entering into the station affiliation agreements with
affiliates of Pappas in the San Francisco and Houston television markets, Azteca
International acquired a 25% equity interest in each of the television stations
for an aggregate purchase price of US$70.6 million.

      In July 2002, a dispute arose between Azteca International and Pappas
regarding the exercise of the purchase option for the Los Angeles station. In
addition, Pappas alleged that Azteca International was in breach of certain of
its obligations under the station affiliation agreements governing the Los
Angeles, San Francisco, Houston and Reno television stations. On February 13,
2003, TV Azteca announced that a definitive settlement agreement that resolved
all of the outstanding litigation and disputes between TV Azteca and Pappas had
been executed. See "Item 10. Additional Information--Legal Proceedings--TV
Azteca--Pappas Settlement" for a discussion of the Pappas and Azteca
International litigation and the settlement of the pending claims.

      In connection with the settlement agreement, TV Azteca and Pappas entered
into a number of agreements that will govern their future relationship. These
agreements include a new promissory note issued by Pappas in favor of Azteca
International, a local marketing agreement ("LMA") governing, under certain

                                       30

<PAGE>

circumstances, Azteca International's operation of its Los Angeles affiliate and
a purchase option agreement that grants Azteca International the right, subject
to receipt of all necessary approvals and applicable statutory limitations, to
acquire all of the assets of the Los Angeles station. In addition to these
agreements, Pappas and Azteca International modified their existing station
affiliation agreements and entered into new station affiliation agreements.

      The New Pappas Promissory Note

      Pursuant to the settlement agreement and related agreements, Pappas
re-acquired the 25% equity interests owned by Azteca International in its
Houston and San Francisco station affiliates. In addition, the outstanding
secured indebtedness in the amount of US$53.7 million owed to TV Azteca by
Pappas Southern California was cancelled, together with Azteca International's
option to acquire an equity interest in Pappas Southern California.

      As consideration for the re-acquisition of the equity interests in its
affiliates and the cancellation of its indebtedness, Pappas issued Azteca
International a promissory note in the principal amount of $128.0 million that
is secured by the assets of the Los Angeles station (the "New Pappas Promissory
Note"). The initial maturity date of the New Pappas Promissory Note is June 30,
2003. Since Pappas did not repay the New Pappas Promissory Note prior to April
30, 2003, the principal amount has been increased to US$129.0 million. The New
Pappas Promissory Note may be prepaid, in whole or in part, at any time. The New
Pappas Promissory Note will bear interest at an annual rate of 11.6279% from and
after the initial maturity date, except as indicated below.

      If the LMA is terminated pursuant to the occurrence of certain specified
events and Azteca International does not timely exercise the Los Angeles
purchase option following the termination of the LMA, Azteca International will
have the right to require repayment of the New Pappas Promissory Note on the
earlier of the maturity date of the New Pappas Promissory Note and two years
following the third anniversary of the effectiveness of the Los Angeles purchase
option. Alternatively, if the purchase option is not consummated in a timely
manner after its exercise, Azteca International may, under certain
circumstances, require that the New Pappas Promissory Note be repaid two and a
half years after the date the right to exercise the Los Angeles purchase option
expires.

      Local Marketing Agreement

      Azteca International and Pappas also agreed that, if the New Pappas
Promissory Note is not repaid on or prior to its initial maturity date, then
starting on July 1, 2003, the operation of the Los Angeles station will be
subject to the terms and conditions specified in the LMA.

      The LMA will have an initial term of three years, but will continue
thereafter until the New Pappas Promissory Note is paid in full. Under the LMA,
Azteca International will provide programming and services to the Los Angeles
station and will be entitled to retain all advertising and other revenues
generated from the operation of the Los Angeles station. During the initial
three year term of the LMA, Azteca International will pay Pappas Southern
California an annual fee of US$15.0 million which is payable in quarterly
installments. The payment of this fee has been guaranteed by TV Azteca.

      Azteca International's payments under the LMA will be offset on a
dollar-for-dollar basis by the amount of interest payable under the New Pappas
Promissory Note. Accordingly, if during the initial three-year term of the LMA,
Pappas Southern California does not make principal payments under the New Pappas
Promissory Note, then Azteca International will not be required to make any cash
payments under the LMA. Following the expiration of the initial three year term
of the LMA, the annual fee for the LMA will be increased to US$24.6 million, a
portion of which would continue to be subject to offset against Pappas' interest
payment obligation, until the New Pappas Promissory Note is paid in full.

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      In order to resolve any future disputes between Azteca International and
Pappas Southern California arising out of the operation of the Los Angeles
station pursuant to the LMA, the parties have appointed an Federal
Communications Commission ("FCC") expert who, upon request, will arbitrate all
disputes between the parties, including disputes involving FCC matters. The
decisions of the FCC expert will be binding on the parties; however, if the
disputed matter relates to FCC rules or regulations, the parties are permitted
to seek a ruling from the FCC on such matter and the FCC decision will be final
and binding upon the parties.

      The LMA will terminate (i) if the New Pappas Promissory Note is paid in
full prior to the initial maturity date of June 30, 2003, (ii) upon the closing
of the purchase option for the assets of the Los Angeles station or (iii) upon
the filing of a petition for bankruptcy of a party to the LMA. The LMA can also
be terminated following the determination of the FCC expert that a party is in
breach of the LMA.

      Pursuant to the LMA, Azteca International has agreed, subject to receipt
of regulatory approval, to pay up to US$3.0 million for the installation,
construction and acquisition of broadcasting facilities necessary to operate a
digital television channel in the Los Angeles market. However, if the FCC expert
determines that any cost overruns are reasonable, Azteca International's
financial obligations with respect to this project could exceed US$3.0 million.
If by the third anniversary of the date on which the Los Angeles station
purchase option became exercisable, (i) Azteca International has not closed the
purchase option and (ii) Pappas Southern California has not repaid in full the
principal and interest due on the New Pappas Promissory Note, Pappas Southern
California is required to reimburse Azteca International for the costs incurred
in connection with the development of the digital television channel. The
aggregate amount of the reimbursement obligation shall be added to the then
outstanding principal amount of the New Pappas Promissory Note and will be
secured by the assets of the Los Angeles station.

      The Los Angeles Station Purchase Option

      In the event the LMA becomes effective, Azteca International will also
have the option, subject to receipt of all necessary approvals and applicable
statutory limitations, to purchase all of the assets of the Los Angeles station,
including its FCC license. This purchase option must be exercised, subject to
limited exceptions, at least six months prior to the third anniversary of the
effective date of the option agreement (i.e., January 1, 2006). The total
purchase price for the assets is US$250.0 million, plus certain specified
liabilities. The purchase price payable for the assets may be offset against all
amounts then outstanding under the New Pappas Promissory Note. In the event the
LMA is terminated in connection with a governmental challenge to its
effectiveness or Azteca International's breach of the LMA, as determined by the
FCC expert, the period of time in which Azteca International may exercise the
purchase option will be shortened.

      The consummation of the purchase option transaction is subject to certain
governmental filing requirements. Azteca International is permitted to assign
its rights with respect to the purchase option to a qualified third party in
order to obtain any necessary consents. Under applicable FCC rules, Azteca
International has the right to hold up to a 25% equity interest in an entity
that holds a U.S. television broadcasting license.

      Amended Station Affiliation Agreements

      Azteca International's station affiliation agreements with affiliates of
Pappas in the Los Angeles, San Francisco, Houston and Reno markets will continue
to be in effect through 2003 with certain modifications, except for the Los
Angeles station if the LMA becomes effective. As modified, the allocation of
revenue under the station affiliation agreements will change to a 50-50
time-split arrangement, where network advertising time is equally divided.
Azteca International will have the option to extend these modified station
affiliation agreements until June of 2004, after which these station affiliation
agreements will be automatically renewable for additional six-month periods,
subject to the termination provisions contained in

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<PAGE>

the station affiliation agreements. As in the case of the LMA, the FCC expert is
also authorized to settle disputes under the modified station affiliation
agreements.

      Azteca International has agreed to indemnify the Pappas station affiliates
for any damages awarded to Echostar from any Pappas station affiliates, the
costs of defending such actions (including attorney's fees), reasonable out of
pocket expenses incurred in connection with obtaining alternative programming,
and, under certain circumstances, lost profits (see "Item 10. Additional
Information--Legal Proceedings--TV Azteca--Echostar").

      In general, the modified station affiliation agreements can be terminated
by either party, subject to compliance with relevant notice provisions, (i) if a
petition for bankruptcy of a party to the station affiliation agreement is
filed, or (ii) following the determination by the FCC expert that a party is in
breach of the station affiliation agreement. In the event the term of a modified
station affiliation is extended to June 30, 2004, either party may terminate the
agreement on 90 days notice effective as of June 30, 2004, or prior to the
expiration of any renewal term.

      NEW STATIONS

      Affiliates of Pappas and Azteca International have also entered into
station affiliation agreements for several smaller television markets.

UNEFON

      BACKGROUND

      Unefon is a Mexican mobile telecommunications company that provides
low-cost prepaid telecommunications services primarily to upper-lower and middle
income subscribers residing in urban areas of Mexico. At December 31, 2002,
Unefon had approximately 1.4 million subscribers on its personal communications
services ("PCS") wireless network and had extended its wireless mobile network
coverage to 15 cities in Mexico, including all of Mexico City, reaching
approximately 39 million people, or approximately 39% of the current Mexican
population. In 2001, Unefon generated Ps.1,548 million in revenue and had a net
loss of Ps.1,115 million and in 2002, Unefon generated Ps.3,039 million
(US$291.1 million) in revenue and had a net loss of Ps.872 million (US$83.5
million).

      TV Azteca currently owns 46.5% of Unefon's capital stock. In 1999, TV
Azteca acquired its equity interest in Unefon for a purchase price of US$189.8
million in a private transaction with Corporacion RBS, a Mexican company
wholly-owned by Ricardo B. Salinas Pliego, the Chairman of the Board, President
and Chief Executive Officer of the Company and the Chairman of the Board of TV
Azteca. The remaining capital stock of Unefon is owned by Mr. Saba, 46.5%, and
the public market, 7.0%.

      WIRELESS CONCESSIONS

      In 1998, Unefon won a Mexican government auction of nationwide concessions
to use 80 MHz of radio frequencies. These concessions give Unefon the right to
use 30 MHz of bandwidth within the 1.9 GHz PCS frequency band and 50 MHz of
bandwidth in the 3.4 GHz frequency range. The total purchase price, including
accrued interest, that Unefon paid to the Mexican government for its initial
wireless concessions was approximately Ps.3.2 billion (nominal) (US$342.1
million) (nominal). In 1999, Unefon won certain Mexican government auctions of
nationwide concessions to use 112 MHz of bandwidth within the 7.0 GHz frequency
and 112 MHz of bandwidth within the 38.0 GHz frequency. Unefon acquired these
concessions for a total cost of approximately Ps.31 million (nominal) (US$3.3
million) (nominal). Unefon utilizes the 1.9 GHz PCS frequency band concession to
provide its mobile wireless telecommunications services.

                                       33

<PAGE>

      As a part of a series of transactions commenced in November 2000,
Operadora Unefon transferred its 3.4 GHz frequency concession to Operadora de
Comunicaciones, S.A. de C.V. and transferred its 7.0 GHz frequency concession to
Unefrecuencias, S.A. de C.V. As a part of these transactions, Cosmofrecuencias,
a Mexican corporation 50% owned by an affiliate of Mr. Saba and 50% owned by TV
Azteca, acquired all of the capital stock of each of Operadora de Comunicaciones
and Unefrecuencias. In addition, Operadora Unefon transferred to Frecuencia
Movil, S.A. de C.V. the 38.0 GHz frequency concession. 38 GHTZ, S.A. de C.V., a
Mexican corporation 100% owned by Mr. Salinas is expected to acquire all of the
capital stock of Frecuencia Movil in 2003.

      RIGHTS TRANSACTION; SPIN-OFF

      TV Azteca has previously announced plans to sell or spin-off its
investment in Unefon. In October 2000, TV Azteca granted rights to acquire all
of the Unefon Series A shares that it owns pro rata to the holders of all of TV
Azteca's outstanding shares, including the Company, and to certain other of TV
Azteca's securities, for an aggregate exercise price of US$177.0 million. The
grant of these rights remains subject to the filing and effectiveness of a
registration statement with the Securities and Exchange Commission (the "SEC")
that registers the Unefon Series A shares underlying the rights and the receipt
of all applicable regulatory and third-party approvals. The rights to acquire
the Unefon Series A shares were originally only exercisable on December 11,
2002, but in December 2002 TV Azteca approved the change of the exercise date to
December 12, 2003. In addition, in August 2002, TV Azteca announced its
intention to seek the approval of its shareholders to the spin-off of its
investment in Unefon in the form of a distribution of all of the shares of
Unefon that TV Azteca owns pro rata to TV Azteca's shareholders at no monetary
cost. The spin-off was scheduled to become effective before the end of 2002, but
has been postponed by TV Azteca.

      GRUPO ELEKTRA DISTRIBUTION AGREEMENT

      In November 2000, Unefon entered into a 10-year agreement with Grupo
Elektra, an affiliate of the Company, for the marketing, sales and distribution
of its services in Grupo Elektra's national network of stores in Mexico. Grupo
Elektra currently operates over 800 stores in Mexico. Grupo Elektra is the
largest specialty retailing group, in terms of number of stores, in Mexico and
one of the largest, in terms of number of stores, in Latin America, specializing
in the sale of electronic appliances, white goods, furniture and fittings and
casual wear.

      TV AZTECA ADVERTISING AGREEMENT

      In June 1998, Unefon and TV Azteca entered into a 10-year advertising
agreement pursuant to which TV Azteca agreed to supply Unefon with advertising
spots.

      The principal terms and conditions of TV Azteca's agreement with Unefon,
as amended, include:

..     TV Azteca will supply Unefon with advertising spots totaling an aggregate
      of 120,000 gross rating points ("GRPs") over the term of the agreement, up
      to a maximum of 35,000 GRPs per year. For purposes of the agreement, GRPs
      equal the number of total rating points obtained in a 60 second
      transmission of commercial messages. Up to 30% of these GRPs may be used
      during prime-time, which is defined in the agreement as 7:00 p.m. to 11:00
      p.m., Monday through Friday, and 6:00 p.m. to 11:00 p.m., Saturday and
      Sunday. Unefon can only use the GRPs through December 2009;

..     Unefon will pay TV Azteca 3.0% of its gross revenues up to a maximum of
      US$200.0 million. As of December 31, 2002, TV Azteca had broadcast Unefon
      advertisements having an aggregate value of Ps.147 million (US$14.1
      million) pursuant to this agreement. TV Azteca records revenue under the
      terms of the agreement as the GRPs are consumed on a rate schedule set
      forth in the agreement, which provides less expensive GRPs initially and
      more expensive GRPs over the term of the agreement. Pursuant to the

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<PAGE>

      agreement, Unefon has elected to defer payments due in 2000, 2001 and 2002
      and to make these payments in four equal semi-annual installments during
      2003 and 2004, with the first payment maturing in June 2003. The deferred
      payments accrue interest at an annual interest rate of 12%. Starting in
      2003, Unefon's payments to TV Azteca are due on a current basis. At
      December 31, 2002, the aggregate deferred payments equaled US$15.7 million
      (including interest); and

..     TV Azteca's right to payment under the agreement is subject to compliance
      by Unefon with its payment obligations under its finance agreement.

..     Pursuant to the advertising agreement, Unefon's failure to pay advances
      will not be considered a default by Unefon under the agreement. However,
      TV Azteca will be able to suspend the provision of advertising spots to
      Unefon after Unefon's continued failure to pay for one year.

      NORTEL FINANCE AGREEMENT

      In September 1999, Unefon entered into a finance agreement, a letter
agreement, a procurement agreement, and certain other related agreements with
Nortel. The procurement agreement obligated Nortel to supply Unefon with up to
US$448.0 million of equipment, software and related engineering and other
services. Under the finance agreement, Nortel agreed to provide Unefon with a
multi-drawdown credit facility in an aggregate principal amount of up to
US$618.0 million, divided into two separate tranches, to finance Unefon's
payment obligations under the procurement agreement and its working capital
needs. Borrowings made under the finance agreement were denominated in U.S.
dollars and bear interest at a floating rate based on LIBOR. Unefon was required
to repay the principal of the loans beginning in May 2003 and ending in November
2005. In addition, the finance agreement placed financial and operating
restrictions on Unefon, including restrictions on its ability to pay dividends
and enter into transactions with affiliates. Unefon's obligations under the
finance agreement were secured by all of the shares, government concessions and
other assets owned by Operadora Unefon, Unefon's principal operating subsidiary,
and all of the shares of Servicios, Unefon's subsidiary that employs all of
Unefon's employees. Operadora Unefon and Servicios are wholly-owned subsidiaries
of Unefon.

      The first loan tranche under the finance agreement was in the amount of
US$408.0 million, of which US$273.0 million was allocated for payments under the
procurement agreement and US$135.0 million for working capital needs. Through
December 31, 2002, Unefon had drawn down US$383.0 million from the first
tranche. Unefon prepaid US$22.6 million of this amount in December 2000. The
second loan tranche under the finance agreement was for US$210.0 million, of
which US$175.0 million was to be for payments under the procurement agreement
and US$35.0 million for working capital needs. The second tranche was to be made
available on a dollar by dollar basis as Nortel syndicated amounts lent under
the first tranche. An amount equal to US$25.0 million was available under the
second tranche following a one-time optional prepayment of US$25.0 million under
the first tranche, which was made by Unefon in September 2001. Pursuant to the
letter agreement, Nortel was obligated to pursue syndication of the first
tranche in a diligent and timely manner, applying its best efforts consistent
with standards of commercial reasonableness. The second tranche was expected to
be drawn by Unefon from May 2002 to May 2003. As of December 31, 2002, Unefon
had drawn down only US$14.5 million from the second tranche and Nortel had not
syndicated any portion of the first tranche. As of December 31, 2002, there was
US$349.8 million outstanding under the finance agreement.

      Pursuant to certain amendments to the finance agreement, Nortel consented
to and approved Unefon's revised business plan and agreed to allow Unefon to
draw down additional financing under the finance agreement, conditioned upon the
shareholders' undertaking to provide Unefon up to US$35.0 million in the event
Unefon had liquidity shortfalls in 2001 or 2002, as described below. See "--TV
Azteca's Financial Commitments."

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<PAGE>

      As of June 16, 2003, Nortel assigned its rights and obligations under the
finance agreement to Codisco. See "--Nortel Settlement."

      NORTEL PROCUREMENT AGREEMENT

      Under the procurement agreement, Nortel committed to supply Unefon with a
Code Division Multiple Access ("CDMA") technology cellular network that operates
in the 1.9 GHz frequency band within designated urban and suburban areas in
Mexico. Under the agreement, Nortel was required to undertake all work and
supply all goods and engineering services necessary for the manufacture,
procurement, supply, delivery and installation of equipment, and testing,
optimizing and commissioning of the network. The procurement agreement covered
the deployment of a network capable of supporting at least 1.416 million
subscribers. This network was to include switches, signaling transfer points,
base transceiver stations, a transmission network based on microwave radios,
metropolitan fiber optic rings, a national network operation center and regional
operations centers and a call center. The network to be supplied also was to
include all necessary software and other ancillary systems and supporting
services to provide full system functionality in accordance with the network
design plan prepared by Nortel. The network system was to include the capacity
to deploy wireless and value-added and other intelligent network features, which
include caller-ID, call waiting, two-way short messaging service and conference
calling.

      In July 2002, Unefon and Nortel signed an agreement that upon taking
effect was intended to settle disputes that had arisen in connection with
Nortel's performance under the procurement agreement. Among other things, Nortel
agreed to give Unefon US$51.9 million of credits and economic benefits. The
effectiveness of these agreements was pre-conditioned on certain acts to be
taken by Nortel.

      As of June 16, 2003, the procurement agreement between Unefon and Nortel
was terminated and the parties entered into a new supply agreement. See
"--Nortel Settlement."

      NORTEL SETTLEMENT

      Unefon and Nortel became engaged in a dispute over each party's compliance
with the terms and conditions of the finance agreement, the procurement
agreement and other related agreements entered into by the parties, which
resulted in the filing of various legal actions by such parties. See "Item 10.
Additional Information--Legal Proceedings--Unefon." On June 16, 2003, Unefon
reached a settlement with Nortel, pursuant to which Unefon and Nortel released
each other from all obligations arising out of the procurement agreement,
finance agreement or any related agreements and terminated all actions and
proceedings of any kind between the parties or involving the parties and their
counsel, in the U.S. and Mexico. Unefon and Nortel also terminated the
procurement agreement and entered into a new supply agreement. In connection
with the settlement, Unefon paid an aggregate of US$43.0 million to Nortel to be
applied to accounts receivable and to a reduction in the total amount of debt
owed by Unefon to Nortel to US$325.0 million. In addition, Unefon agreed that in
the event a change of control of Unefon occurs on or before December 15, 2005,
it will pay US$25.0 million to Nortel. Change of control, for these purposes
will be deemed to have occurred if Mr. Saba together with Adela Tuachi Michaw de
Saba and/or TV Azteca and/or Mr. Salinas Pliego and/or their respective
affiliates, collectively, shall at any time beneficially own, directly or
indirectly, in the aggregate less than 40% of the issued and outstanding shares
of each class of voting stock of Operadora Unefon and its subsidiaries.
Concurrently with the settlement, Codisco purchased the US$325.0 million debt of
Unefon from Nortel. Nortel and Codisco entered into to an assignment and
assumption agreement pursuant to which Codisco replaced Nortel as lender under
the finance agreement, and Unefon's stock pledges in favor of Nortel were
assigned to Codisco.

      Restructured Note

      In connection with the assignment of the Nortel finance agreement by
Nortel to Codisco, Unefon issued a restructured note, dated June 16, 2003, in
favor of Codisco in the amount of US$325.0 million, with interest due at a
floating rate based on LIBOR plus 2.85%. Unefon is currently obligated to pay
the restructured note in 6 consecutive semi-annual installments as follows: (i)
US$15,919,434.17 on each of May 15 and November 15, 2003, (ii) US$31,513,981.93
on each of May 15 and November 15, 2004, (iii) US$113,710,244.07 on May 15, 2005
and (iv) US$116,309,335.36 on November 15, 2005. Unefon has

                                       36

<PAGE>

announced that the term of this debt between Unefon and Codisco is to be amended
to provide for, among other things, an extension of the maturity date until June
15, 2013.

      Supply Agreement

      In connection with the settlement, Unefon and Nortel entered into a new
supply agreement under which Nortel will provide Unefon with machines,
components, software and services, including, engineering, maintenance,
installation, implementation, design, consulting, business planning, network
planning and analysis. The new supply agreement has a term of five years. The
supply agreement contemplates a US$100.0 million purchase commitment on Unefon's
part, with a US$20.0 million annual minimum purchase requirement (unless Unefon
has already met the US$100.0 million purchase volume commitment), with a target
expenditure of US$40.0 million per year.

      TV AZTECA'S FINANCIAL COMMITMENTS

      In December 2000, in connection with certain modifications of Unefon's
finance agreement with Nortel, the principal shareholders of Unefon, TV Azteca
and Mr. Saba, agreed in a shareholders' undertaking to provide Unefon up to
US$35.0 million in the aggregate by way of either equity or subordinated debt in
the event Unefon had liquidity shortfalls in 2001 or 2002. On December 20, 2002,
Nortel notified TV Azteca and Mr. Saba of its view that Unefon's non-payment of
the August 2002 interest payment under the Nortel finance agreement triggered
their joint and several obligation to make additional funds available to Unefon
up to an aggregate amount of US$35.0 million as provided in the shareholders'
undertaking. TV Azteca and Mr. Saba disputed this assertion. See "Item 10.
Additional Information--Legal Proceedings--Unefon." In connection with the
settlement with Nortel, Nortel has released TV Azteca and Mr. Saba from any
obligation or liability in connection with this undertaking. However, as of May
31, 2003, TV Azteca and Mr. Saba had made loans to or on behalf of Unefon with
an outstanding aggregate principal amount of US$35.8 million, US$19.1 million of
which was paid by TV Azteca to Unefon and certain of its creditors.

      In July 2001, TV Azteca and Mr. Saba announced their intention to provide
credit support to Unefon for up to US$80.0 million each. As of May 31, 2003, TV
Azteca had paid US$17.7 million to Unefon and its creditors pursuant to this
credit support and it had outstanding credit support obligations in the amount
of US$12.1 million. TV Azteca has terminated any further credit support to
Unefon.

      INTERNET BUSINESS

      Todito

      In February 2000, TV Azteca acquired 50% of the capital stock of Todito, a
Mexican company that operates a Spanish-language Internet portal
(www.todito.com) and Internet connection service (www.toditocard.com and
www.toditoilimitado.com) targeting Spanish speakers in the U.S. and Mexico. TV
Azteca also operates a corporate web site (www.tvazteca.com) that is hosted and
managed by Todito and is used to promote TV Azteca's talent and programs.

      Todito was launched in August 1999 by Grupo Dataflux, S.A. de C.V., a
Mexican technology company that operates the largest network of computer
training schools in Mexico. Grupo Dataflux also owns the remaining 50% of
Todito's capital stock and is controlled by Guillermo E. Salinas Pliego, the
brother of Ricardo B. Salinas Pliego, Chairman of the Board, President and Chief
Executive Officer of the Company and Chairman of the Board of TV Azteca. Todito
is one of the most visited sites by Mexican internet users (over 650,000 unique
visitors per day) and also operates Mexico's leading pre-paid internet service
provider, with over 150,000 users.

      In connection with its acquisition of the Todito capital stock, TV Azteca
entered into a five-year service agreement with Todito. The value of the service
agreement was US$100.0 million at the time of the signing.

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<PAGE>

The service agreement consisted of advertising time on TV Azteca's networks, the
exclusive online use of TV Azteca's content by Todito and the use of TV Azteca's
sales force to promote Todito to TV Azteca's advertising clients. The three
components of the service agreement were valued at US$45.0 million, US$50.0
million and US$5.0 million, respectively, at the time of signing of the
agreement. Under the service agreement, TV Azteca agreed to provide Todito with
advertising on its Azteca 7 and Azteca 13 networks totaling an aggregate of
78,000 GRPs. The GRPs contemplated by the agreement equal the number of
commercial rating points obtained in a 60 second transmission of commercial
messages. Todito has the right to use up to 30% of the advertising granted under
the service agreement during the networks' prime-time hours. TV Azteca has also
granted Todito the exclusive right to distribute over the Internet TV Azteca's
internally produced programming during the term of the service agreement.
Finally, the service agreement provides that TV Azteca's sales force will be the
exclusive seller of online advertising on www.todito.com for two years and that
TV Azteca's sales force will facilitate contacts between TV Azteca's television
advertising clients and Todito's online advertising sales force.

      In May 2001, Todito launched its pre-paid Internet access card, which
functions like a pre-paid phone card. The cards range in price from Ps.100 for
15 hours of navigation to Ps.300 for 90 hours of navigation. The cards can be
purchased online or at over 7,000 points of sale throughout Mexico. Since its
introduction, monthly sales have grown from 5,310 cards in May 2001 to 25,537
cards in December 2002.

      Todito reported sales of Ps.103 million and Ps.151 million (US$14.5
million) for the years ended December 31, 2001 and 2002, respectively. Todito's
sales are comprised of the sale of online advertising, the sale of its pre-paid
internet connection cards and commissions from e-commerce transactions. Todito
generated positive cash flow from operations of Ps.34 million and Ps.55 million
(US$5.3 million) for the years ended December 31, 2001 and 2002, respectively.

CHANNEL 40

      In December 1998, TV Azteca entered into a joint venture with Televisora
del Valle de Mexico, S.A. de C.V. ("TVM") and TVM's subsidiary, Corporacion de
Noticias e Informacion, S.A. de C.V. ("CNI"), for the operation of a television
channel that broadcasts throughout the Mexico City metropolitan area on UHF
Channel 40. In July 2000, CNI stopped broadcasting TV Azteca's signal as
required by its contractual obligations under the joint venture agreement. In
response to CNI's actions, TV Azteca filed several lawsuits in Mexico against
TVM, CNI and Mr. Moreno Valle, seeking lost profits and the enforcement of its
purchase option right under the joint venture to acquire up to 51% of the
capital stock of TVM. See "Item 10. Additional Information--Legal
Proceedings--TV Azteca--Channel 40."

      MUSIC

      In May 1996, TV Azteca formed Azteca Records to produce, market and
distribute recorded music. TV Azteca's strategy is to utilize its recording
business to focus on the development and promotion of new Mexican talent and to
take advantage of cross-promotional opportunities. Azteca Records released 33
recordings in 2000 and 48 recordings in 2001, including two soundtracks in 2000
to TV Azteca's internally produced telenovelas. For the year ended December 31,
2002, Azteca Records released 54 recordings. Azteca Records' recordings are
distributed in Mexico, pursuant to agreements between TV Azteca and Sony Music
Entertainment Mexico, S.A. de C.V., BMG Entertainment Mexico, S.A. de C.V. and
Warner Music Mexico, S.A. de C.V., and internationally pursuant to agreements
between TV Azteca and several distributors, which vary depending on the
territory of distribution. In each of the years ended December 31, 2000, 2001
and 2002, TV Azteca's music business accounted for less than 1% of TV Azteca's
total net revenue.

      SOCCER TEAM

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      In May 1996, TV Azteca acquired a majority interest in the Club Atletico
Morelia, a Mexican professional soccer team. The Club Atletico Morelia soccer
team belongs to the 20-team First Division of the Mexican professional soccer
league. Each year, the team plays 38 regular season games, half of which are
home games. In the 2000 winter season, the Club Atletico Morelia won the Mexican
Soccer Championship for the first time in its history. In the 2002 and 2003
winter seasons, Club Atletico Morelia was a finalist in the Mexican Soccer
Championship.

      TELEVISION CHANNEL 12 IN EL SALVADOR

      TV Azteca owns a 75% interest in Canal 12 de Television, S.A., which owns
and operates an over-the-air national television network in El Salvador. In the
years ended December 31, 2000, 2001 and 2002, Canal 12 accounted for 1% of TV
Azteca's net revenue.

STRATEGIC ALLIANCES

      NBA Agreement

      Since 1993, TV Azteca has had the exclusive right to broadcast NBA games
in Mexico. In August 1995, TV Azteca entered into an agreement with NBA
Entertainment, Inc. This agreement, which has since been extended, gave TV
Azteca the exclusive right to broadcast NBA games in Mexico through the end of
the 2002-2003 season. TV Azteca also has a right of first refusal to renew its
exclusive exhibition rights for the 2003-2004 season. In return for the
broadcast rights, NBA Entertainment is entitled to a guaranteed minimum payment
per season if net advertising revenue generated from NBA games is less than or
equal to US$2.3 million. NBA Entertainment is entitled to receive an additional
50% of any net advertising revenue in excess of US$2.3 million.

      Buena Vista Agreement

      In October 2001, TV Azteca entered into an exclusive three year license
agreement with Buena Vista International, Inc., an affiliate of The Walt Disney
Company. The agreement gives TV Azteca the exclusive access to certain first-run
movies, mini-series and special events, such as the Academy Awards.

COMPETITION

      General

      Broadcast television stations compete for advertising revenue and viewers
with other television stations in their markets and other advertising media,
such as radio, newspapers, magazines, outdoor advertising, transit advertising,
yellow page directories, direct mail, the Internet and home entertainment
systems (including videocassette recorders, DVDs and television game devices).
Broadcast television stations also face competition from cable television, MMDS,
and DTH satellite services. These other programming, entertainment and video
distribution systems can increase competition for broadcast television stations
by bringing into its market distant broadcast signals not otherwise available to
a station's audience and also by serving as distribution systems for
non-broadcast programming.

      TV Azteca

      TV Azteca's principal competitor in Mexico is Televisa. Televisa, through
its subsidiaries, is the largest Spanish-language media company in the world.
Televisa owns and operates Channels 2, 4, 5 and 9 in Mexico City, each of which,
to varying degrees of coverage, is broadcast throughout Mexico. Televisa
generated a substantial majority of Mexican television advertising sales in each
of the last three years.

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      According to IBOPE AGB Mexico, Televisa had a combined weekday, prime-time
Mexican commercial audience share of 64%, 62% and 63%, during 2000, 2001 and
2002, respectively.

      Pay television services generally require an initial connection fee, as
well as a periodic subscription fee, but offer both a higher quality picture
than traditional, over-the-air television broadcasts and a larger number of
channels to choose from. Under current Mexican law, cable television services,
but not DTH satellite services or MMDS, are required to include over-the-air
television channels in a basic package of channels offered to subscribers.
DirecTV a DTH service provider, carries the soccer games broadcast by the Azteca
7 and Azteca 13 networks throughout Mexico pursuant to an arrangement with TV
Azteca. Many pay television services are offered by companies that are backed by
large, multinational media conglomerates with substantial resources. Televisa is
a partner in a multinational venture to provide DTH services in Mexico and
elsewhere. According to IBOPE AGB Mexico, the penetration of pay television as
of July 31, 2002 was approximately 14.5% of all television households. The
Company believes that pay television consumers are concentrated in the Mexico
City metropolitan area and along the U.S.-Mexico border.

      Azteca America Network

      Univision and Telemundo are the main competitors of the Azteca America
Network in the U.S. Spanish-language television market. Both Univision and
Telemundo have already established networks in the U.S. television markets that
Azteca International targets or intends to target. According to industry
reports, currently, Univision has an approximate 73% market audience share and
Telemundo has an approximate 27% market audience share. Univision also owns
Galavision, a Spanish-language cable network that, in 2002, according to
Univision, serves approximately 5.7 million Hispanic cable and direct broadcast
system subscribers, and, according to Nielsen Media Research, reaches 90% of all
Hispanic households. In addition, in January 2002, Univision launched the
Telefutura network, a Spanish-language network which can be seen on 42
over-the-air television broadcast stations in addition to cable systems
nationwide. According to Univision, at its launch Telefutura reached
approximately 80% of the U.S. Hispanic population.

      Each of Telemundo and Univision has a larger network of affiliates and
greater financial resources than Azteca International. In addition, each of
these competitors has certain programming advantages over Azteca International.
In 2002, NBC acquired Telemundo. As part of the acquisition, NBC provides
Telemundo with the rights to broadcast NBC's programming in the U.S.
Spanish-language television market. Moreover, Univision has a long-term program
license agreements with Televisa and Corporation Venezolana de Television, C.A.,
another prominent producer of Spanish-language programming. These agreements
provide Univision with a significant amount of quality programming that can be
used to attract and retain U.S. Hispanic viewers.

      The Azteca America Network also competes with English-language
broadcasters that also broadcast Spanish-language programming and simulcast
certain programming in English and Spanish for their U.S. Hispanic viewers.
These competitors include the four principal English-language television
networks, ABC, CBS, NBC and Fox, and, in certain cities, the UPN and WB
networks.

      Unefon

      Unefon faces significant competition from Radiomovil Dipsa, S.A. de C.V.,
commonly known as Telcel, in each region in which it operates. As a former
wholly-owned indirect subsidiary of Telefonos de Mexico, S.A. de C.V.
("Telmex"), Mexico's largest telephone company, Telcel has significantly greater
financial and other resources than those available to Unefon. Telcel has
nationwide cellular and PCS concessions and a nationwide cellular network that
offers broader coverage than Unefon's network. Telcel also has the ability to
use Telmex's installed telecommunications systems. As of December 31, 2002,
according to industry reports, Telcel had approximately 20.1 million
subscribers, representing approximately 75% of the Mexican mobile
telecommunications market. Unefon also competes with cellular service providers
such as Grupo

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<PAGE>

Iusacell, S.A. de C.V. ("Grupo Iusacell"), which is currently controlled by
Verizon Wireless, a U.S. based telecommunications company. However, Movil
Access, S.A. de C.V., a Mexican telecommunications service provider and
subsidiary of Biper, S.A. de C.V. ("Biper"), a paging company controlled by
Ricardo B. Salinas Pliego, announced on June 13, 2003 that it has agreed to make
an offer to acquire 100% of the capital stock of Grupo Iusacell. According to
Iusacell, as of December 31, 2002, it had approximately 2.3 million subscribers
representing approximately 9% of the Mexican mobile telecommunications market.
Unefon also faces competition from Telefonica Moviles Mexico, a company owned by
Telefonica S.A., which also provides mobile services. According to Telefonica,
as of December 31, 2002, Telefonica Moviles Mexico had approximately 2.4 million
subscribers, representing approximately 9% of the Mexican mobile
telecommunications market.

REGULATION

      TV AZTECA

      Concessions

      Under the Ley Federal de Radio y Television ("Mexican Federal Radio and
Television Law"), a television broadcaster must have a concession granted by the
SCT to broadcast over a particular frequency. A concession comprises one or more
licenses, each of which gives the concession holder the right to operate a
television transmitter at a certain location. Each concession specifies, among
other things, the authorized signal strength of the concession holder's
transmitter and the principal populations in its broadcast range. In addition,
the SCT may grant the concession holder separate supplemental authorizations to
operate transmitters within the areas covered by the primary licenses contained
in the concession. Supplemental authorizations are granted in order to allow the
concession holder to broadcast its signal to populations that are inaccessible
to the transmitters located where required by the licenses contained within the
concession. Supplemental authorizations may also be granted in response to a
petition from local residents in an area within the area covered by the
concession.

      TV Azteca has 11 concessions for 179 channels. Nine of these concessions
relate to the Azteca 7 network and together comprise 88 channels for primary
transmission locations throughout Mexico. TV Azteca has also obtained 83
supplemental authorizations related to the Azteca 7 network. For the Azteca 13
network, TV Azteca has a single concession that comprises 90 licenses for
primary transmission locations throughout Mexico, and has 99 related
supplemental licenses. TV Azteca also has a separate concession for a single
primary transmission location related to the network in the state of Chihuahua.
The SCT has authorized, for a two-year period subject to renewal, TV Azteca's
operation for experimental and investigative purposes of Channel 53, a high
definition digital television channel in Mexico City, to retransmit the
programming of Channel 13 in Mexico City. TV Azteca has also obtained the
authorization of the SCT to install and operate equipment to improve broadcast
signal quality and coverage.

      Applications to acquire a concession are submitted to the SCT, which
conducts a formal review process of all competing applications, then publishes a
summary of the selected application (followed by a second publication of such
summary after 10 days). For a 30-day period following the second publication,
third parties may object to the granting of the concession. After the expiration
of a 30-day period, the SCT grants the concession to one applicant. The term of
the concession may be for up to 30 years, with most terms currently being for 15
years.

      The SCT may revoke a concession if the concession holder takes any of the
following actions:

..    changes the location of its transmission equipment without the approval of
     the SCT;

..    broadcasts over a frequency other than the ones assigned without the
     approval of the SCT;

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<PAGE>

..    transfers the concession, the rights derived therefrom, or any of the
     transmission equipment related thereto without the approval of the SCT;

..    suspends transmission from its anchor station for a period greater than 60
     days;

..    takes any action that is in contravention of the terms of its concessions;

..    changes its by-laws in contravention of the Mexican Federal Radio and
     Television Law;

..    transfers, pledges or encumbers to, or for the benefit of, any foreign
     party in any way, in whole or in part, the concession or any of the rights
     arising thereunder or any of the transmission equipment associated
     therewith;

..    provides goods or services associated with the concession to enemies in
     time of war;

..    changes its jurisdiction of incorporation to a jurisdiction outside Mexico;
     or

..    requests protection of a foreign government, entity or individual.

      If a concession is revoked for any of the foregoing reasons, the
concession holder forfeits all of its assets to the Mexican government. If a
concession is revoked for any other reason, the concession holder must remove
all of its broadcast assets from its licensed locations. If this occurs,
however, the Mexican government has the right to purchase those assets for a
fair price determined by an independent appraiser. None of TV Azteca's
concessions has ever been revoked.

      Concessions are renewable by the concession holder upon their expiration
for a term of up to 30 years (with 10 years currently being standard). The SCT
will generally renew the concessions upon expiration, so long as they have been
operated in substantial compliance with applicable law. Seven of the concessions
for the Azteca 7 network expire on April 29, 2006. One of the concessions for
the Azteca 7 network, comprising 22 licenses for primary transmission locations
in the Northwest of Mexico, expires on September 29, 2006. The concession for
the Azteca 13 network expires on May 9, 2008. TV Azteca's Chihuahua concession
was renewed on January 26, 2000 and expires on July 2, 2009.

      Supervision of Operations

      The SCT and the Secretaria de Gobernacion ("Ministry of the Interior")
have the right to conduct inspections of a concession holder's broadcasting
operations.

      Television programming is not subject to judicial or administrative
censorship in Mexico. However, Mexican law and regulations prohibit programs
that:

..    are offensive to the civic culture of national heroes and religious beliefs
     (ofensivo para el culto civico);

..    are racially discriminatory (discriminatorio para las razas);

..    cause corruption of the language (corrupcion del lenguaje);

..    are contrary to public decency (contrarias a las buenas costumbres);

..    glorify violence or criminal acts (apologia de la violencia o del crimen);
     or

..    threaten national safety, public order or cause alarm or panic to the
     audience.

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<PAGE>

      Under Mexican regulations, the Direccion General de Radio, Television y
Cinematografia ("Mexican General Directorate of Radio, Television and
Cinematography"), a department of the Ministry of the Interior, reviews all
television programming (except for live programs) prior to broadcast and
classifies it according to the age group for which the programming is acceptable
for viewing. Unless otherwise authorized by the Ministry of the Interior,
programs classified for adults may be broadcast only after 10:00 p.m.; programs
classified for adults and adolescents may be broadcast only after 9:00 p.m.;
programs classified for all age groups, including children, may be shown at any
time. Violations of these regulations are punishable by fines ranging from an
amount in pesos equivalent to between 500 and 5,000 days' minimum wages in the
Federal District, effective as of the date on which such violation, if any,
occurs. Mexican regulations also require that the retransmission of broadcasts
from outside Mexico or broadcasts in a foreign language be pre-approved by the
Ministry of the Interior. In connection with such broadcasts, the Mexican
government imposes a fee for each hour of retransmitted non-Mexican programming
that is so authorized, an annual fee for each channel in which the majority of
the programming is produced abroad, and, in some circumstances, a fee for each
non-Mexican-produced broadcast event. The effect of these fees on TV Azteca has
not been material in the past.

      Each concession holder is obligated to transmit up to 30 minutes of
government-supplied programming each day containing themes for purposes of
education, culture, and social orientation. Historically, the Mexican government
has not used a significant portion of this time. In addition, during political
campaigns all registered political parties have the right to purchase time to
broadcast political messages at rates not higher than those available for
commercial advertising.

      Restrictions on Advertising

      Mexican law regulates the type and amount of advertising that may be
broadcast on television. Concession holders are prohibited from broadcasting
advertisements that are misleading. Advertisements for alcoholic beverages
(other than beer and wine) may be broadcast only after 10:00 p.m. and
advertisements for tobacco products may be broadcast only after 9:00 p.m.
Advertising for alcoholic beverages must not be excessive in amount, feature
minors or portray actual consumption of alcoholic beverages and must be balanced
by public service announcements promoting good nutrition and hygiene.
Advertisements for certain products and services, including medicine, require
the approval of the Mexican government prior to their broadcast. Moreover, the
Mexican government must approve all advertisements for lotteries and other
similar games of chance.

      Mexican law also regulates the amount of advertising that a concession
holder may broadcast. No more than 18% of broadcast time may be used for
advertisements on any day. Furthermore, from 8:00 p.m. until a concession holder
ceases broadcasting for the day, the amount of broadcast time dedicated to
advertising may not exceed 50% of the concession holder's total permissible
advertising time. Station identification breaks have a maximum duration of two
minutes and may occur once every half hour except during events whose
interruption would inconvenience viewers. During films, telenovelas and other
programs that have dramatic continuity, commercial interruptions may not be more
than six per hour of program transmission and each interruption may not exceed
two minutes in duration. If a program does not have dramatic continuity,
commercial interruptions may not be more than 10 per hour, with each lasting no
longer than one and a half minutes. The Ministry of the Interior may authorize a
concession holder to temporarily increase the duration of commercial breaks. In
the past, TV Azteca has secured such authorizations for broadcasts during the
Christmas season.

      The SCT sets minimum advertising rates. There are no restrictions on
maximum advertising rates.

      Broadcast Tax

      In addition to paying income taxes, all concession holders are subject to
a tax that is payable by granting the Mexican government the right to use up to
12.5% of the concession holder's total daily broadcast time.

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<PAGE>

This government broadcast time is not cumulative; any broadcast time not used by
the Mexican government on any day is forfeited. As with the 30 minute
requirement referred to under "--Supervision of Operations" above, the Mexican
government historically has not used a significant portion of the time available
to it. In any event, the use of the time must be distributed on a proportional
and equitable basis throughout the concession holder's daily programming but
must not have a materially adverse effect on the business of the concession
holder.

      Foreign Ownership

      There are certain restrictions on the ownership by non-Mexicans of shares
of Mexican enterprises in some economic sectors, including broadcast television.
Under Mexico's Ley de Inversion Extranjera ("Foreign Investment Law") and the
Mexican Federal Radio and Television Law, foreign investors (including Mexican
companies with foreign shareholders) may not own the capital stock of Mexican
broadcasting concession holders (other than through "neutral investment" shares
or instruments, such as CPOs).

      Border Stations

      Transmissions from television stations located along the U.S.-Mexican
border are governed by a bilateral treaty signed by the governments of the two
countries. The Agreement for the Assignment and Use of Channels for Television
on the Frequency Range of 470-806 MHz Along the Border of Mexico and the United
States sets criteria that all border stations must meet regarding permissible
transmitter strength, antenna height and distance from the border. TV Azteca
believes that it is in compliance with all aspects of the treaty.

      AZTECA AMERICA NETWORK

      FCC Regulation--General

      The U.S. communications industry, including the operation of broadcast
television networks and stations, is subject to substantial federal regulation,
particularly pursuant to the Communications Act of 1934, as amended, and the
rules and regulations promulgated thereunder by the FCC (the "Act"). This Act
empowers the FCC to, among other things, regulate certain aspects of broadcast
programming and the relationship between broadcast television networks and their
affiliated broadcast television stations.

      Alien Ownership of Broadcast Television Stations

      The Act prohibits the issuance of a broadcast license to, or the holding
of a broadcast license by, an alien corporation, which is any corporation of
which more than 20% of the capital stock is beneficially or nominally owned or
voted by non-U.S. citizens or their representatives or by a foreign government
or a representative thereof, or by any corporation organized under the laws of a
foreign country, or aliens. The Act also authorizes the FCC, if the FCC
determines that it would be in the public interest, to prohibit the issuance of
a broadcast license to, or the holding of a broadcast license by, any
corporation directly or indirectly controlled by any other corporation of which
more than 25% of the capital stock is beneficially or nominally owned or voted
by aliens. The FCC has issued interpretations of existing law under which these
restrictions in modified form apply to ownership in corporations held through
other forms of business organizations, including partnerships.

      Other Broadcast Television Regulation

      The FCC substantially regulates television broadcast stations, which
generally must apply to the FCC for renewal of their licenses every eight years.
Renewal will be granted to the extent that the FCC finds that (i) the station
has served the public interest; (ii) there have been no serious violations by
the licensee under the

                                       44

<PAGE>

Act described above or the FCC rules; and (iii) there have been no other
violations by the licensee of such Act or the FCC rules which, taken together,
indicate a pattern of abuse. The FCC also administers other aspects of broadcast
television regulation, including the following: restrictions on the ownership of
multiple media outlets in one market, or on a national basis; limits on the
amount of commercial advertising during children's programming; requirements
that stations air a certain amount of informational or educational programming
directed at children; restrictions on "indecent" programming; and requirements
affecting the availability and cost of political advertising time. In addition,
FCC rules governing network affiliation agreements mandate that a television
broadcast station licensee retain the right to reject or refuse network
programming in certain circumstances, or substitute programming that the
licensee reasonably believes to be of greater local or national importance.
Violations of FCC rules and regulations can result in substantial monetary
forfeitures, periodic reporting conditions, short-term license renewal and, in
egregious cases, denial of license renewal or revocation of license.

      Other Regulatory Considerations

      The foregoing does not purport to be a complete discussion of all
provisions of the Act referenced or other congressional acts or of the rules,
regulations and policies of the FCC. For further information, reference should
be made to the Act itself, other congressional acts, and rules, regulations and
public notices promulgated from time to time by the FCC. There are additional
regulations and policies of the FCC and other federal agencies that govern
political broadcasts, public affairs programming, broadcast advertising and
other matters affecting TV Azteca's U.S. business and operations.

      UNEFON

      Telecommunications Regulation and Concessions

      The Mexican government instituted a number of policies commencing in the
late 1980s to liberalize and deregulate important sectors of the Mexican
economy, including the telecommunications industry. The Mexican government has
sought to increase competition in the provision of local, domestic long-distance
and international long-distance telephony services, which have historically been
dominated by Telmex.

      Telecommunications systems in Mexico are regulated by the SCT and the
Comision Federal de Telecomunicaciones ("Cofetel"), the Mexican federal
commission for telecommunications, pursuant to the Ley Federal de
Telecomunicaciones ("Mexican Federal Telecommunications Law"), the Reglamento de
Telecomunicaciones ("Telecommunications Regulations") and the Ley de Vias
Generales de Comunicacion ("Mexican General Means of Communications Law"). In
this respect, some of the rules set forth in the General Means of Communications
Law, the Telecommunications Regulations and the rules promulgated thereunder
remain effective if they are not inconsistent with the Federal
Telecommunications Law and the rules promulgated under that law. All of these
laws and regulations, together, complemented by Cofetel's administrative
regulations, define the regulatory structure applicable to the nationwide
telecommunications infrastructure and the supply of telecommunications services
in Mexico. In addition to these laws, telecommunications companies are also
individually bound by the terms and conditions of their respective concessions
or permits granted by the SCT.

      Under the Federal Telecommunications Law and the Foreign Investments Law,
concessions may be granted only to Mexican individuals and to Mexican
corporations whose foreign investment participation does not exceed 49% of the
capital stock or who are not otherwise controlled by non-Mexicans. However,
foreign investment participation may exceed 49% of the capital stock of a
wireless concession holder with the prior approval of the Mexican Foreign
Investment Commission of the Mexican Ministry of Economy. Unefon has received a
conditional approval to allow greater than 49% foreign investment participation
in Unefon.

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<PAGE>

      Under the terms of most concessions, an authorization from the SCT is
required in order for a concession holder to transfer or subscribe more than 10%
of its corporate capital. Any transfer of capital or issuance of shares in
breach of these requirements, including the limits on foreign investment, is
deemed null and void under Mexican law. The transfer of an existing concession
from one operator to another operator also requires the approval of the SCT, as
well as approval of the Mexican Antitrust Commission, if applicable. The
concession holder may not assign its rights during the first three years
following the award of the concession. After this period, assignment is subject
to the prior approval of the SCT.

PROPERTY

      AZTECA HOLDINGS

      The Company does not own or lease any real property.

      TV AZTECA

      Broadcasting, Production and Office Facilities

      The properties of TV Azteca primarily consist of broadcasting, production
and office facilities, all of which are located in Mexico. TV Azteca's principal
offices, comprised of 42,250 square meters, which it owns, are located in Mexico
City.

      TV Azteca owns and operates all of its 323 broadcast facilities (buildings
and transmission towers) and all of the transmission equipment located at those
facilities. Approximately 31% of the sites upon which these broadcast facilities
are located are owned by TV Azteca and the remainder are leased. From the time
of its privatization through December 31, 2002, TV Azteca has invested
approximately Ps.781 million in purchasing new transmitters.

      In February 2000, TV Azteca, together with its subsidiary, Television
Azteca, entered into a 70-year tower project agreement (the "Tower Agreement")
with a Mexican subsidiary of American Tower Corporation ("ATC") regarding space
not used by TV Azteca in its operations. This agreement, which was approved by
the SCT, covers up to 190 of TV Azteca's broadcast transmission towers. In
consideration for the payment of a US$1.5 million annual fee and for a loan of
up to US$119.8 million under the ATC Long-Term Credit Facility (as defined under
"Item 5. Operating and Financial Review and Prospects--Liquidity and Capital
Resources"), TV Azteca granted ATC the right to market and lease TV Azteca's
unused tower space to third parties (including affiliates of TV Azteca) and to
collect for ATC's account all revenue related thereto. TV Azteca retains full
title to the towers and remains responsible for the operation and maintenance
thereof. After the expiration of the initial 20 year term of the ATC Long-Term
Credit Facility, TV Azteca has the right to purchase from ATC at fair market
value all or any portion of the revenues and assets related to ATC's marketing
and leasing rights at any time upon the proportional repayment of the
outstanding principal amount under the ATC Long-Term Credit Facility.

      TV Azteca's television production operations are concentrated in two
production studio facilities owned by TV Azteca and located in Mexico City: the
Ajusco Studios facility and the Azteca Digital facility. Ajusco Studios is
located on the same site as TV Azteca's principal offices.

      TV Azteca acquired an additional office building in Mexico City in 1997,
located adjacent to its principal offices, for approximately US$25.9 million
with a mortgage loan that is scheduled to mature on November 20, 2003. TV Azteca
has relocated part of its programming operations to the new building and rented
a portion to third parties. One of the towers of this building is currently
being leased to Unefon pursuant to a 10 year lease agreement dated May 22, 1998
that is renewable for an additional 10 years upon notice of at least 180 days
prior to expiration. The annual rent under the Unefon lease is approximately

                                       46

<PAGE>

US$2.5 million. See "Item 7. Major Shareholders and Related Party
Transactions--Related Party Transactions--Agreements between TV Azteca and
Unefon."

      In October 2001, TV Azteca acquired additional real estate in Mexico City,
located adjacent to its principal offices, for approximately US$4.0 million. TV
Azteca is building a new parking lot for its employees on this property.

      Satellites

      TV Azteca uses satellite technology to transmit the signals of its two
anchor stations throughout Mexico and to transmit signals from mobile units to
its anchor stations in Mexico City. In January 2000, TV Azteca entered into a 10
year lease of transponder capacity on the satellite SatMex 5 owned by Satelites
Mexicanos, S.A. de C.V. Satellite signals transmitted using SatMex 5 reach
Mexico, the U.S., Central America and South America. The annual rent for the use
of the transponder capacity is approximately US$614,000.

      Insurance

      TV Azteca maintains comprehensive insurance coverage that covers its
offices, equipment and other property, subject to customary deductibles and
limits against damage due to natural disasters or other similar events.

ITEM 5.     OPERATING AND FINANCIAL REVIEW AND PROSPECTS

      The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements, and the related notes to those statements included
elsewhere herein.

      The Company's financial statements have been prepared in accordance with
Mexican GAAP, which differs in some respects from U.S. GAAP. Note 18 to the
Consolidated Financial Statements provides a description of the principal
differences between Mexican GAAP and U.S. GAAP as they relate to the Company and
a reconciliation to U.S. GAAP of its results of operations, stockholders' equity
and certain other selected financial data for the years ended December 31, 2000,
2001 and 2002. Pursuant to Mexican GAAP, financial data for all periods in the
financial statements have been restated in constant pesos as of December 31,
2002. Bulletin B-12 issued by the MIPA requires that the statement of changes in
financial position reflects changes from the restated historical balance sheet
to the current balance sheet.

      The Company is a holding company with no independent business operations
or sources of revenue. The Company's only assets are shares of its subsidiaries
and its only sources of cash are distributions made from those subsidiaries and
sales of the Company's or its subsidiary's assets. Substantially all of the
value of the Company's assets depends on TV Azteca's financial condition and
results of operations. For each of the years ended December 31, 2000, 2001 and
2002, TV Azteca provided substantially all of the Company's net revenue.
Accordingly, the following discussion relates primarily to the financial
condition and results of operations of TV Azteca.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      The Company's Operating and Financial Review and Prospects is based upon
the Consolidated Financial Statements, which have been prepared in accordance
with Mexican GAAP. The use of Mexican GAAP as opposed to U.S. GAAP has an impact
on the Company's Critical Accounting Policies and Estimates. The application of
U.S. GAAP would have affected the determination of consolidated net (loss)
income for all periods in the financial statements and the determination of
consolidated stockholders' equity and consolidated financial position as of
December 31, 2002. Note 18 to the Consolidated Financial

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<PAGE>

Statements provides a reconciliation to U.S. GAAP of the Company's results of
operations, stockholders' equity and certain other selected financial data for
the years ended December 31, 2000, 2001 and 2002.

      The preparation of its financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to bad debts, valuation of long-lived and intangible
assets and goodwill, exhibition rights, reserve for obsolescence, income taxes,
deferred income taxes, labor benefits, and contingencies and litigation. The
Company bases its estimates on historical experience and on various other
assumptions that the Company believes to be reasonable under the circumstances.
These estimates form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.

      The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
Consolidated Financial Statements.

      REVENUE RECOGNITION

      Revenue for TV Azteca is derived primarily from the sale of advertising
time on a national, spot and local basis and is net of commissions. TV Azteca
earned a majority of its advertising revenue in 2000, 2001 and 2002 pursuant to
advertising contracts under its Azteca Plan and Mexican Plan. These contracts
generally require the advertiser to deposit a portion of the purchase price of
the advertising time at the time the advertiser executes a contract. A
significant percentage of these contracts are commitments for advertising over a
period of approximately one year. From time to time, TV Azteca enters into
barter transactions with third parties in which it exchanges advertising time
for goods, services and other assets, a significant portion of which are used in
TV Azteca's operations. With respect to barter transactions, TV Azteca values
these transactions based on the estimated fair market value of the goods,
services or other assets received by TV Azteca. Such transactions accounted for
approximately 2% of TV Azteca's net revenue for the year ended December 31,
2002.

      On the date the advertising contract is signed, TV Azteca records cash or
other assets, as the case may be, as an asset on its balance sheet and the
amounts due and its obligation to deliver advertising as advertising advances,
which are recorded as a liability on its balance sheet. These advertising
advances are recognized as revenue at the time, and to the extent, the
advertisements are shown.

      TV Azteca maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. Each
customer is analyzed on a case by case basis. If the financial condition of TV
Azteca's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.

      EXHIBITION RIGHTS

      The cost of the exhibition rights are amortized on varying bases related
to the license period, usage of the programs and management's estimate of
revenue to be realized from each airing of the programs. The cost of exhibition
rights acquired is amortized as the programming and events are broadcast and on
an accelerated basis when the rights relate to multiple broadcasts. Costs of
internally produced programming, including reality programming, are amortized
when the programs are initially aired. Alternatively, the costs of telenovelas
are amortized on the following schedule: (a) 70% is amortized when the
telenovela is first aired and (b) 30% is amortized over a period of four years
and represents management's estimate of exhibition rights necessary to meet
demand in the U.S., Latin America, Europe, Asia and Africa. TV Azteca bases its
estimates on historical experience and on various other assumptions. If actual
results differ from these estimates, there may be an adverse effect on TV
Azteca's financial results.

                                       48

<PAGE>

      INTANGIBLE ASSETS AND GOODWILL

      In December 2001, the Accounting Principles Commission of the MIPA issued
Statement C-8 "Intangible Assets," ("Statement C-8"), which went into effect
January 1, 2003. On January 1, 2002, TV Azteca adopted Statement C-8. Under
Statement C-8, the intangible assets must be recognized on the balance sheet
when they meet the following characteristics: (a) they are identifiable, (b)
they have the ability to generate future economic benefits and (c) the company
has the ability to control future economic benefits. The amortization of
intangible assets would be allocated on a systematic basis over the assets'
estimated useful lives, unless the intangible assets are determined to have an
indefinite useful life based on their expected future economic benefits. The
intangible assets should be tested for impairment annually and an impairment
loss would be recognized in the event that the carrying amount of the intangible
asset is not recoverable based on estimated cash flow of operating activities.
As a result of the adoption of Statement C-8, TV Azteca determined that its
television concessions qualified as indefinite useful life intangible assets.
Accordingly, TV Azteca no longer amortizes these concessions. Prior to January
1, 2002, TV Azteca's television concessions were amortized by the straight-line
method over the duration of the relevant concession.

      DEFERRED TAXES

      As part of the process of preparing its Consolidated Financial Statements,
the Company is required to estimate its income taxes. This process involves
estimating the Company's actual current tax exposure together with assessing
temporary differences resulting from differing tax and accounting treatment of
items such as advertising advances, exhibitions rights and inventories,
television concessions, property, machinery and equipment and tax loss
carryforwards. These differences result in deferred tax assets and liabilities
which are included within the Company's consolidated balance sheet. The Company
must then assess the likelihood that its deferred tax assets will be recovered
from future taxable income and to the extent the Company believes that recovery
is not likely, it must establish a valuation allowance. To the extent the
Company establishes a valuation allowance or increase this allowance in a
period, it must include an expense within the tax provision in the statement of
operations. Significant management judgment is required in determining the
Company's provision for income taxes, TV Azteca's deferred tax assets and
liabilities and any valuation allowance recorded against the Company's net
deferred tax assets.

      UNEFON INVESTMENT

      In October 2000, TV Azteca granted rights to acquire all of the Unefon
Series A shares that it owns pro rata to the holders of all of TV Azteca's
outstanding shares and to certain of TV Azteca's other securities, for an
aggregate exercise price of US$177.0 million. The grant of the rights to acquire
the Unefon Series A shares was subject to receiving the consent of the holders
of the TV Azteca Notes and the Azteca Holdings 11% Senior Secured Notes due 2002
(the "11% Notes"). On March 27, 2001, TV Azteca and the Company obtained these
consents and paid a fee totaling Ps.121,328 (nominal) to certain holders of the
11% Notes and TV Azteca Notes, of which Ps.109,009 (nominal) was recorded as
part of TV Azteca's total investment in Unefon. The grant of the rights remains
subject to the filing and effectiveness of a registration statement with the SEC
that registers the Unefon Series A shares underlying the rights and the receipt
of all applicable regulatory and third-party approvals. The rights to acquire
the Unefon Series A shares were originally exercisable only on December 11,
2002. However, in December 2002, TV Azteca approved the change of the exercise
date to December 12, 2003. See "Item 7. Major Shareholders and Related Party
Transactions--Related Party Transactions--TV Azteca Rights
Transactions--Unefon."

      As a result of the grant of the rights to acquire the Unefon Series A
shares in October 2000, TV Azteca stopped recognizing its participation in the
losses of Unefon. Accordingly, at December 31, 2002, TV Azteca's investment in
Unefon reflected the net book value of the investment at the date of the
decision to dispose of the investment. In the event that the disposition of the
Unefon Series A shares is not completed or

                                       49

<PAGE>

if the likelihood of the completion of the transaction is deemed too remote, TV
Azteca will be required to record the differences between the book value of the
investment and the value of the investment under the equity method of
accounting, which may result in TV Azteca's recognition of additional losses.
For example, if this adjustment had been made at December 31, 2002, TV Azteca
would have recognized additional losses equal to Ps.405 million (US$39.0
million).

      CONTINGENT LIABILITIES

     TV Azteca is a party to certain legal proceedings. Under Mexican and U.S.
GAAP, liabilities are recognized in the financial statements when a loss is both
estimable and probable. If the loss is neither probable nor estimable or if the
likelihood of a loss is remote, no amounts are recognized in the financial
statements. Based on legal advice TV Azteca has received from its Mexican
counsel and other information available to TV Azteca, it has not recognized any
losses in the financial statements as a result of these proceedings.

EFFECTS OF THE PESO DEVALUATION AND INFLATION

      GENERAL

      The Mexican government's decision in December 1994 to significantly
increase the range within which Mexican pesos would be exchanged for U.S.
dollars and to subsequently permit the peso to float freely against the U.S.
dollar caused a significant devaluation of the peso against the U.S. dollar. The
devaluation produced a number of adverse effects on the Mexican economy that, in
turn, adversely affected the financial condition and results of operations of
the Company. Interest rates in Mexico increased substantially, thus increasing
the cost of borrowing. In addition, in response to the adverse effects of the
devaluation, the Mexican government established an economic recovery program
designed to tighten the money supply, increase domestic savings, discourage
consumption and reduce public spending generally. Foreign investment in Mexico
by private sources declined significantly.

      Economic conditions in Mexico generally improved in 1998, 1999 and 2000,
with gross domestic product ("GDP") increasing by 4.8%, 3.8% and 6.9%,
respectively. However, in 2001, GDP decreased 0.3%. For the year ended December
31, 2002, GDP grew by 0.9%. Interest rates on 28-day Mexican government treasury
securities averaged 24.8%, 21.4% 15.3%, 11.3% and 7.1% in 1998, 1999, 2000, 2001
and 2002, respectively.

      Inflation during 1998, 1999, 2000, 2001 and 2002 was 18.6%, 12.3%, 8.9%,
4.4% and 5.7%, respectively. In 1998, the peso weakened to Ps.8.914 per U.S.
dollar at December 31, 1998, a 10.5% decrease in value from December 31, 1997.
In 1999, the peso weakened to Ps.9.500 per U.S. dollar on December 31, 1999, a
6.6% decrease in value from December 31, 1998. In 2000, the peso weakened to
Ps.9.650 per U.S. dollar at December 31, 2000, a 1.6% decrease in value from
December 31, 1999. In 2001, the peso strengthened to Ps.9.160 per U.S. dollar at
December 31, 2001, a 5.1% increase in value from December 31, 2000. In 2002, the
peso weakened to Ps.10.395 per U.S. dollar at December 31, 2002, a decrease of
13.5% in value from December 31, 2001.

      U.S. DOLLAR-DENOMINATED OPERATING COSTS

      TV Azteca has significant operating costs in U.S. dollars, principally due
to the cost of its purchased programming and the leasing of satellite
transponder capacity. During the years ended December 31, 2000, 2001 and 2002,
the cost of purchased programming and the leasing of satellite transponder
capacity represented 21%, 20% and 22%, respectively, of TV Azteca's total costs
and expenses.

                                       50

<PAGE>

      COMPREHENSIVE FINANCING COST

      Interest expense. Interest on the Company's U.S. dollar-denominated
indebtedness exposes it to exchange rate fluctuations, with the peso cost of
interest payments on such indebtedness increasing as the peso's value declines
against the U.S. dollar and decreasing when the peso's value appreciates against
the U.S. dollar. See "Item 11. Quantitative and Qualitative Disclosures About
Market Risk."

      Interest income. Interest income is positively affected by inflation as
the Company receives higher rates of return on its temporary investments, which
are primarily fixed short-term peso deposits in Mexican banks.

      Exchange (loss) gain. The Company records a foreign exchange gain or loss
with respect to U.S. dollar-denominated monetary assets or liabilities when the
peso appreciates or depreciates in relation to the U.S. dollar. The Company's
U.S. dollar-denominated monetary liabilities, which principally consist of U.S.
dollar-denominated indebtedness and accounts payable with respect to exhibition
rights, substantially exceed its U.S. dollar-denominated monetary assets, which
principally consist of U.S. dollar bank deposits. As a result, the Company has
recorded a foreign exchange loss during each period in which the peso
depreciated in relation to the U.S. dollar and a foreign exchange gain during
each period in which the peso appreciated in relation to the U.S. dollar.

      Other financing expense. TV Azteca has investments in a portfolio of
equity and cash equivalent instruments that from time to time increase or
decrease in value due to market conditions. When there are gains in the value of
TV Azteca's portfolio investments, TV Azteca's other financing expense
decreases, while conversely a decrease in the value of TV Azteca's portfolio
investments results in an increase in TV Azteca's other financing expense. In
addition, other financing expense also reflects annual amortization of
capitalized debt issuance costs.

      Gain or loss on monetary position. The Company records gains or losses
from holding net monetary liabilities or assets due to the effect of inflation.
A gain on monetary position results from holding net monetary liabilities during
periods of inflation, as the purchasing power represented by nominal peso
liabilities declines over time. As of December 31, 2000, 2001 and 2002, the
Company had approximately US$954.3 million, US$994.7 million and US$952.7
million, respectively, of monetary liabilities denominated in U.S. dollars.
Approximately US$616.4 million, US$609.6 million and US$585.8 million of such
monetary liabilities, respectively, represented outstanding indebtedness of TV
Azteca for borrowed money, which constituted all of its outstanding indebtedness
at those dates. TV Azteca's U.S. dollar-denominated monetary assets as of
December 31, 2000, 2001 and 2002 amounted to approximately US$307.6 million,
US$357.2 million and US$491.9 million, respectively. Accordingly, since the
Mexican economy experienced inflation and the Company's monetary liabilities
exceeded its monetary assets in 2000, 2001 and 2002, the Company recorded a gain
on monetary position in each of those periods.

      ADVERTISING ADVANCES

      Advertising advances are non-monetary liabilities because they represent
TV Azteca's obligation to perform services in the future. As a result, the
amount of advertising advances on the balance sheet is restated using the NCPI
in order to reflect the effects of inflation. There is also a restatement of the
corresponding revenue when it is recognized. This effect resulted in increases
of Ps.261 million, Ps.186 million and Ps.220 million (US$21.2 million) in net
revenue for the years ended December 31, 2000, 2001 and 2002, respectively.

PRE-SALES OF ADVERTISING TIME

      For the years ended December 31, 2000, 2001 and 2002, 59%, 73% and 69%,
respectively, of TV Azteca's net revenue was attributable to pre-sales of
advertising time made prior to that year. At December

                                       51

<PAGE>

31, 2000, pre-sales of advertising time for 2001 amounted to Ps.4,457 million,
which represented a 20% increase over pre-sales of advertising time for 2000
recorded in 1999. At December 31, 2001, pre-sales of advertising time for 2002
amounted to Ps.4,640 million, which represented a 4% increase over pre-sales of
advertising time for 2001 recorded in 2000. At December 31, 2002, pre-sales of
advertising time for 2003 amounted to Ps.4,446 million (US$427.7 million),
representing a 4% decrease compared to pre-sales of advertising time for 2002
recorded in 2001. Pre-sales of advertising time recorded in 2002 were lower due
to the expiration of certain multi-year advertising contracts.

2001 PRICE INCREASES

      TV Azteca implemented a new pricing plan in 2001 pursuant to which TV
Azteca achieved a 42% average nominal rate increase over the average nominal
rates charged in 2000. This rate increase was phased in quarterly during 2001.
The rate increases were higher than the inflation rate for each of the quarterly
periods in which rates were raised. TV Azteca believes these rate increases
resulted in a reduction of TV Azteca's total advertising time sold because most
advertisers have a limited advertising budget. TV Azteca sold a portion of
otherwise unsold advertising time to shared risk advertisers and to producers of
infomercials. TV Azteca also used a portion of the unsold advertising time to
aggressively market the programming of its networks. TV Azteca believes that the
use of its unsold advertising time in this manner helped increase its audience
and advertising share. The average price of TV Azteca's pre-sales of advertising
time for 2003 was the same as the price charged for advertising time in 2002.

ADVANCE SALES

      Unefon Advertising Advances

      In October 1999, TV Azteca acquired a 50% equity interest in Unefon, a
Mexican mobile wireless telecommunications company which began operating in
February 2000. TV Azteca currently holds a 46.5% interest in Unefon. TV Azteca
does not consolidate the operations of Unefon.

      In June 1998, TV Azteca and Unefon entered into a 10-year advertising
agreement, as amended, pursuant to which TV Azteca agreed to supply Unefon with
advertising spots totaling an aggregate of 120,000 GRPs over the life of the
agreement, up to a maximum of 35,000 GRPs per year. Unefon agreed to pay TV
Azteca 3.0% of its gross revenues up to a maximum of US$200.0 million. As of
December 31, 2002, TV Azteca had broadcast Unefon advertisements having an
aggregate value of Ps.147 million (US$14.1 million) pursuant to this advertising
agreement. Pursuant to the agreement, Unefon has elected to defer payments due
in 2000, 2001 and 2002 and to make these payments in four equal semi-annual
installments during 2003 and 2004, with the first payment maturing in June 2003.
The deferred payments accrue interest at an annual interest rate of 12%.
Starting in 2003, Unefon's payments to TV Azteca are due on a current basis. At
December 31, 2002, the aggregate deferred payments equaled US$15.7 million
(including interest). Unefon can only use the GRPs through December 2009.
Pursuant to the advertising agreement, Unefon's failure to pay advances will not
be considered a default by Unefon under the agreement. However, TV Azteca will
be able to suspend the provision of advertising spots to Unefon after Unefon's
continued failure to pay for one year.

      Todito Advertising Programming and Services Advance

      In February 2000, TV Azteca acquired a 50% equity interest in Todito, a
Mexican company that operates an Internet portal, Internet connection service
and e-commerce marketplace that targets Spanish speakers in the U.S. and Mexico.
In connection with its investment in Todito, TV Azteca entered into a five-year
advertising, programming and services agreement with Todito, which was initially
recorded as an advertising, programming and services advance in the amount of
US$100.0 million. At December 31, 2002,

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<PAGE>

the unused balance of the Todito advertising, programming and services advance
was Ps.504 million (US$48.5 million).

OTHER SALES

      Barter Sales

      Barter transactions are accounted for in the same manner as other
advertising advances, and the amounts due to TV Azteca are determined based on
the fair market value of the goods, services or other assets received by TV
Azteca. For the years ended December 31, 2000, 2001 and 2002, revenue from
barter transactions accounted for Ps.202 million, Ps.84 million and Ps.146
million (US$14.0 million), respectively, which represented 3.4%, 1.4% and 2.2%
of TV Azteca's net revenue, respectively.

      Infomercials, Shared Risk Advertisements and Integrated Advertising

      TV Azteca sells a portion of otherwise unsold advertising time to shared
risk advertisers and to producers of infomercials. With respect to infomercials,
TV Azteca charges a fee for the time slot in which the advertisement runs. TV
Azteca does not, however, receive any proceeds from the sale of the products
shown during the infomercial. Alternatively, with respect to shared risk
advertisements, TV Azteca does not receive any advertising fees during the time
slot in which the advertisement runs. Instead, TV Azteca receives a percentage
of the gross sales of the offered product or products for a specified period of
time after the advertisement is broadcast. For example, TV Azteca airs
advertisements for music recordings at little or no up front charge, under
agreements that entitle TV Azteca to receive a share of the sales of the
recordings for a number of months following the airing of the advertisements. TV
Azteca also receives revenue from "integrated advertising" in the form of
product placements during the broadcast of TV Azteca's internally produced
programming. Revenues derived from shared risk advertisements, infomercials and
integrated advertising amounted to Ps.900 million, Ps.1,037 million and Ps.1,230
million (US$118.3 million), which accounted for 15%, 17% and 18%, respectively,
of TV Azteca's net revenue, for the years ended December 31, 2000, 2001 and
2002, respectively.

SEASONALITY OF SALES

      TV Azteca's television broadcasting business is seasonal. Advertising
revenue, which is recognized when the advertising is aired, is generally highest
in the fourth quarter due to the high level of advertising aired during the
holiday season.

CYCLICALITY DUE TO MAJOR BROADCAST EVENTS

      TV Azteca's net revenue fluctuates as a result of the frequency with which
TV Azteca broadcasts major events. During 2000, TV Azteca recorded increased
advertising revenues due in part to the advertising by political parties in
connection with the Mexican presidential campaign and election, which accounted
for Ps.201 million. Also, during 2000, TV Azteca broadcast the 2000 Summer
Olympics, which accounted for Ps.182 million, and the Gold Cup Soccer
Championship, which accounted for Ps.18 million. These events collectively
accounted for approximately 6.7% of TV Azteca's net revenue for the year ended
December 31, 2000. During the year ended December 31, 2002, TV Azteca broadcast
the 2002 World Cup which accounted for approximately Ps.260 million (US$25.0
million) in net revenue. TV Azteca did not broadcast any major events in 1999
and 2001. During 2003, there will be a number of local governmental elections
and related campaigns. TV Azteca anticipates receiving additional advertising
revenue in connection with this electoral activity. In addition, TV Azteca has
acquired the Mexican broadcast rights to the 2004 and 2008 Summer Olympics.

                                       53

<PAGE>

      Historically, the broadcast of major events by TV Azteca increased
advertising sales during the periods in which they were shown, reflecting both
the larger audiences drawn to these events relative to TV Azteca's average
audience during the hours that these major events were broadcast, and the fact
that advertisers pay a premium to be associated with such major broadcast events
compared to TV Azteca's regularly scheduled broadcast programs.

SELECTED RESULTS OF OPERATION COMPONENTS AS A PERCENTAGE OF NET REVENUE

      The following table sets forth, for the periods indicated, results of
operations data for the Company as a percentage of the Company's net revenue.

<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                                               ------------------------
                                                                                2000     2001     2002
                                                                               ------   ------   ------
      <S>                                                                         <C>      <C>      <C>
      Net revenue..............................................................   100%     100%     100%
      Programming, production, exhibition and transmission costs...............   (44)%    (40)%    (37)%
      Sales and administrative expenses........................................   (16)%    (16)%    (15)%
      Total costs and expenses.................................................   (60)%    (56)%    (52)%
      Depreciation and amortization............................................   (12)%    (11)%     (7)%
      Operating profit margin..................................................    28%      33%      41%
</TABLE>

OPERATING RESULTS

      YEAR ENDED DECEMBER 31, 2002 VS. YEAR ENDED DECEMBER 31, 2001

      Net revenue for the year ended December 31, 2002 increased by 10% to
Ps.6,743 million (US$648.7 million) from Ps.6,127 million for the year ended
December 31, 2001. The increase in net revenue was due in part to higher ratings
and advertising rates in real terms and the transmission of the 2002 World Cup
and TV Azteca's reality program La Academia. The increase in net revenue also
reflected an increase in local advertising sales, excluding local sales in
Mexico City, which increased by 20% to Ps.576 million (US$55.4 million) for the
year ended December 31, 2002, from Ps.481 million for the year ended December
31, 2001.

      Programming, production, exhibition and transmission costs for the year
ended December 31, 2002 increased by 2% to Ps.2,511 million (US$241.5 million)
from Ps.2,472 million for the year ended December 31, 2001. This increase was
primarily due to an increase in the exhibition and production costs associated
with the broadcast of the 2002 Soccer World Cup and the La Academia reality
program.

      Sales and administrative expenses for the year ended December 31, 2002
increased by 2% to Ps.991 million (US$95.3 million) from Ps.973 million for the
year ended December 31, 2001. This difference resulted from the increase in TV
Azteca's personnel expenses and general administrative expenses due to the
operation of its new local stations.

      Depreciation and amortization for the year ended December 31, 2002
decreased by 34% to Ps.447 million (US$43.0 million) from Ps.676 million for the
year ended December 31, 2001. This decrease reflects the effects of TV Azteca's
adoption of Statement C-8 "Intangible Assets" as described in "Critical
accounting policies--Intangible Assets and Goodwill" and the application of
these rules with respect to the amortization schedule of TV Azteca's television
concessions. Also effective January 1, 2002, TV Azteca changed the annual rate
of depreciation for its transmission towers from 16% to 5%, based on the
remaining useful life of these assets. This resulted in a decrease in
depreciation expense for the year ended December 31, 2002.

      As a result of these factors, operating profit for the year ended December
31, 2002 increased by 39% to Ps.2,794 million (US$268.8 million) from Ps.2,006
million for the year ended December 31, 2001.

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      Other expenses--Net for the year ended December 31, 2002 decreased by 9%
to Ps.202 million (US$19.4 million) from Ps.221 million for the year ended
December 31, 2001. This decrease was primarily due to lower legal and advisory
expenses.

      Net comprehensive financing cost for the year ended December 31, 2002
increased by 297% to Ps.1,728 million (US$166.2 million) from Ps.435 million for
the year ended December 31, 2001. Net comprehensive financing cost includes
interest income and expense, net exchange gains or losses, gain on monetary
position and other financing expense as described below. As of December 31,
2002, substantially all of the Company's indebtedness and all of its
subsidiaries' indebtedness was denominated in US dollars. The increase in net
comprehensive financing cost for the year ended December 31, 2002 was primarily
due to a foreign exchange loss of Ps.697 million (US$67.0 million) which
reflected a 13.5% depreciation of the peso against the U.S. dollar since
December 31, 2001 compared with a foreign exchange gain of Ps.345 million for
the year ended December 31, 2001. Interest income for the year ended December
31, 2002 decreased by 25% to Ps.171 million (US$16.4 million) from Ps.228
million for the year ended December 31, 2001 as a result of a reduction of
interest rates, and interest expense for the year ended December 31, 2002
increased by 1% to Ps.1,080 million (US$103.9 million) from Ps.1,065 million for
the year ended December 31, 2001. Other financing expense for the year ended
December 31, 2002 increased 192% to Ps.187 million (US$18.0 million) from Ps.64
million for the year ended December 31, 2001. This increase was primarily due to
a significant decline in the market value of TV Azteca's portfolio investments.
Gain on monetary position decreased by 46% for the year ended December 31, 2002
to Ps.66 million (US$6.3 million) from Ps.121 million for the year ended
December 31, 2001 as a result of the decrease in the TV Azteca's net monetary
liability position in the year ended December 31, 2002.

      Income before provision for income tax, deferred income tax benefit
(expense) for the year ended December 31, 2002 decreased by 36% to Ps.864
million (US$83.1 million) from Ps.1,349 million for the year ended December 31,
2001.

      Provision for income tax for the year ended December 31, 2002 increased by
37% to Ps.265 million (US$25.4 million) from Ps.211 million for the year ended
December 31, 2001. This increase reflects higher taxable income generated during
the year ended December 31, 2002. Deferred income tax expense for the year ended
December 31, 2002 was Ps.44 million (US$4.2 million) compared with a deferred
income tax benefit of Ps.220 million for the year ended December 31, 2001. As of
December 31, 2002, the Company has recorded a valuation allowance due to
uncertainties related to the Company's ability to utilize some of its deferred
tax assets before they expire, primarily certain net operating losses carried
forward due to the Company's tax loss carryforwards.

      As a result of the foregoing, the Company had net income of Ps.556 million
(US$53.5 million) for the year ended December 31, 2002, as compared with a net
income of Ps.1,358 million for the year ended December 31, 2001. Ps.436 million
(US$41.9 million) of the net income for the year ended December 31, 2002
represented net income of minority stockholders and Ps.120 million (US$12.0
million) represented net income of majority stockholders compared with a Ps.669
million net income of minority stockholders and Ps.688 million net income of
majority stockholders for the year ended December 31, 2001.

      YEAR ENDED DECEMBER 31, 2001 VS. YEAR ENDED DECEMBER 31, 2000

      Net revenue for the year ended December 31, 2001 increased by 2%, or
Ps.134 million, from Ps.5,993 million to Ps.6,127 million for the year ended
December 31, 2000. The increase in net revenue was due in part to local
advertising sales, excluding local sales in Mexico City, which increased by 11%
to Ps.481 million for the year ended December 31, 2001 from Ps.434 million for
the year ended December 31, 2000. The increase in net revenue also reflected an
increase in the prices charged by TV Azteca for its advertising time for the
year ended December 31, 2001 and Ps.69 million in pre-launch non-competition
fees recorded during the year ended December 31, 2001 from the Company's former
joint venture with Pappas compared

                                       55

<PAGE>

with Ps.68 million recorded during the year ended December 31, 2000. The
increase in net revenue was partially offset by the absence of major broadcast
events for the year ended December 31, 2001 compared with the year ended
December 31, 2000, during which period the 2000 Summer Olympics, the Mexican
presidential campaign and election and the Gold Cup Soccer Championship took
place. These major broadcast events contributed, in the aggregate, approximately
Ps.401 million to TV Azteca's net revenue for the year ended December 31, 2000.

      Programming, production, exhibition and transmission costs for the year
ended December 31, 2001 decreased by 8% to Ps.2,472 million from Ps.2,683
million for the year ended December 31, 2000. The decrease in operating costs
was due primarily to the reduction in the amount of internally produced
programming and the absence of production costs associated with TV Azteca's
broadcast of major broadcast events during the year ended December 31, 2000.

      Sales and administrative expenses for the year ended December 31, 2001
increased by 3% to Ps.973 million from Ps.943 million for the year ended
December 31, 2000. This increase resulted from the increase in TV Azteca's
personnel expenses and general administrative expenses.

      Depreciation and amortization for the year ended December 31, 2001
decreased by 3% to Ps.676 million from Ps.697 million for the year ended
December 31, 2000. This decrease was primarily due to the strengthening of the
peso as it relates to TV Azteca's assets purchased outside of Mexico, primarily
in the U.S.

      As a result of these factors, operating profit for the year ended December
31, 2001 increased by 20% to Ps.2,006 million from Ps.1,670 million for the year
ended December 31, 2000.

      Other expense-Net for the year ended December 31, 2001 decreased by 24% to
Ps.221 million from Ps.291 million for the year ended December 31, 2000. The
difference primarily reflected the fact that TV Azteca stopped recognizing its
participation in the losses of Unefon since the fourth quarter of 2000.

      Net comprehensive financing cost for the year ended December 31, 2001
decreased by 46% to Ps.435 million from Ps.805 million for the year ended
December 31, 2000. Net comprehensive financing cost includes interest income and
expense, net exchange gains or losses, gain on monetary position and other
financing expense as described below. The decrease in net comprehensive
financing cost for the year ended December 31, 2001 was primarily due to a
foreign exchange gain of Ps.345 million which reflected a 5.1% appreciation of
the peso against the U.S. dollar since December 31, 2000 compared with a foreign
exchange loss of Ps.176 million for the year ended December 31, 2000. Interest
income for the year ended December 31, 2001 increased by 9% to Ps.228 million
from Ps.209 million for the year ended December 31, 2000, and interest expense
for the year ended December 31, 2001 decreased by 5% to Ps.1,065 million from
Ps.1,127 million for the year ended December 31, 2000. Other financing expense
for the year ended December 31, 2001 decreased by 61% to Ps.64 million from
Ps.165 million for the year ended December 31, 2000. The decrease was primarily
due to a significant decline in the market value of TV Azteca's publicly-traded
shares of El Sitio International Corporation ("El Sitio"), which amounted to
Ps.2 million for the year ended December 31, 2001, compared with a loss on the
investment of Ps.149 million during the year ended December 31, 2000. In August
2001, TV Azteca sold its interest in El Sitio for US$179,163. Gain on monetary
position for the year ended December 31, 2001 decreased by 73% to Ps.121 million
from Ps.454 million for the year ended December 31, 2000 as a result of the
decrease in the inflation rate in the year ended December 31, 2001 to 4.4% from
8.9% for the year ended December 31, 2000.

      Income before provision for income tax, deferred income tax benefit
(expense) and extraordinary items for the year ended December 31, 2001 increased
by 135% to Ps.1,349 million from Ps.574 million for the year ended December 31,
2000. Provision for income tax for the year ended December 31, 2001 increased by
10% to Ps.211 million from Ps.193 million for the year ended December 31, 2000.
The increase was due to

                                       56

<PAGE>

an increase in TV Azteca's taxable profit in the year ended December 31, 2001
compared with the year ended December 31, 2000. During the year ended December
31, 2001, the Company had a deferred income tax benefit of Ps.220 million
compared with a deferred income tax benefit of Ps.252 million for the year ended
December 31, 2000. The change was due to an increase in the TV Azteca's tax loss
carryforwards.

      In April 2000, TV Azteca and NBC and its affiliate, NBC Europe, Inc.
entered into a settlement agreement relating to an outstanding dispute between
the parties. Under the terms of the settlement agreement, TV Azteca paid, from
its operating cash flow, US$46.2 million to NBC. This settlement, which was
approximately Ps.336 million net of income tax, was recorded as an extraordinary
item. See Note 11 to the Consolidated Financial Statements for a description of
this settlement.

      As a result of the foregoing, the Company had net income of Ps.1,358
million for the year ended December 31, 2001, as compared with a net income of
Ps.297 million for the year ended December 31, 2000. Ps.669 million of the net
income for the year ended December 31, 2001 represented net income of minority
stockholders and Ps.688 million represented net income of majority stockholders
compared with a Ps.162 million net income of minority stockholders and Ps.135
million net income of majority stockholders for the year ended December 31,
2000.

LIQUIDITY AND CAPITAL RESOURCES

      Factors that may influence the Company's liquidity and capital resources
as discussed below include:

..     TV Azteca's ability to generate sufficient free cash flow and to make
      distributions in accordance with its recently announced distribution
      policy;

..     TV Azteca's ability to repay the principal and interest of its TV Azteca
      10 1/8% Notes, or to refinance these notes on favorable terms;

..     Factors that affect the results of operations of the Company and TV
      Azteca, including general economic conditions, demand for commercial
      advertising, the competitive environment, the relative popularity of TV
      Azteca's programs, demographic changes in TV Azteca's market areas and
      regulation; and

..     Factors that affect the access of the Company and TV Azteca to bank
      financing and the capital markets, including interest rate fluctuations,
      availability of credit and operational risks of TV Azteca.

      LIQUIDITY

      AZTECA HOLDINGS

      The Company has no independent business or significant sources of revenue.

      Sources of Payment for the 10 3/4% Notes, the 12 1/2% Notes and the 10
1/2% Notes

      In June 1997, the Company issued US$255.0 million in aggregate principal
amount of 11% Notes. In May 2001, holders of US$129.0 million in principal
amount of the 11% Notes agreed to exchange their 11% Notes for an equivalent
principal amount of 12 1/2% Notes.

      In June 2001, the Company used US$14.2 million to pay the semi-annual
interest payments on the 11% Notes and 12 1/2% Notes. In order to make the
interest payments in June 2001, the Company used cash in the amount of
approximately US$5.4 million, which the Company received from Mr. Salinas Pliego
and Ms. Elisa Salinas Gomez for the purchase of the Company's Unefon rights. The
Company also received approximately US$5.5 million from intercompany loans made
to it by certain of its subsidiaries. In addition,

                                       57

<PAGE>

the Company used the proceeds from a subordinated loan in the amount of
approximately US$3.3 million provided by Alternativas Cotsa.

      In December 2001, the Company used US$14.6 million to pay the semi-annual
interest payments on the 11% Notes and 12 1/2% Notes. In order to make the
interest payments in December 2001, the Company used approximately US$400,000 in
cash on hand and sold 14 million TV Azteca CPOs for approximately US$4.6
million. The Company also used the proceeds from a loan in the amount of
approximately US$10.0 million provided by Cine Alternativo, S.A. de C.V. ("Cine
Alternativo"), the Company's wholly owned subsidiary. Immediately after making
the interest payment, Cine Alternativo was merged into the Company and the loan
was cancelled.

      In January 2002, the Company issued the 10 1/2% Notes and raised US$150.0
million in proceeds. The Company used US$41.6 million of the proceeds to finance
a cash tender offer for the 11% Notes and the Company used US$84.3 million of
the proceeds to redeem the remaining principal amount of the 11% Notes then
outstanding.

      In June and December 2002, the Company used an aggregate of US$16.1
million from cash on hand and receivables and dividends payable to the Company
to make the semi-annual interest payments on the 12 1/2% Notes.

      In July 2002 and January 2003, the Company used an aggregate of US$15.0
million from the interest reserve account established for the 10 1/2% Notes to
make the semi-annual interest payments on the 10 1/2% Notes.

      In May 2003, holders of US$80.1 million in principal amount of the 10 1/2%
Notes agreed to exchange their 10 1/2% Notes for an equivalent principal amount
of 10 3/4% Notes.

      In June 2003, the Company used the proceeds of two loans from its
subsidiaries, US$6.0 million from Alternativas Cotsa and Ps.20.0 million from
Inmobiliaria Cotsa, S.A. de C.V., to fund the semi-annual interest payment on
the 12 1/2% Notes.

      The Company will receive in the aggregate approximately US$68.8 million in
connection with TV Azteca's recently announced shareholder distribution in the
amount of US$125.0 million. However approximately US$22.0 million is required to
be pledged as collateral to secure the 12 1/2% Notes. It is not anticipated that
the remaining US$46.8 million in distribution proceeds will be sufficient for
the Company to make its principal and interest payments on the 10 1/2 Notes and
its initial amortization and interest payments on the 10 3/4% Notes in each case
due on July 15, 2003. The Company is actively pursuing additional sources of
funding that will enable the Company to satisfy its payment obligations,
including borrowing funds, selling its equity securities or equity securities of
TV Azteca or selling the assets of its subsidiaries. However, the Company cannot
assure you that that it will be able to obtain a sufficient amount of funding in
a timely manner or on financially advantageous terms.

      TV AZTECA

      TV Azteca's principal sources of liquidity include cash on hand, advance
sales of advertising time and uncommitted sources of short-term financing. TV
Azteca's short term financing sources include a US$130.0 million Euro-commercial
paper program (the "ECP Program"). Under the ECP Program, TV Azteca periodically
issues notes with maturities not exceeding 365 days.

      Cash and cash equivalents were Ps.1,718 million and Ps.1,434 million
(US$138.0 million) for the years ended December 31, 2001 and 2002, respectively.
The decrease in the Company's cash on hand at December 31, 2002 as compared to
December 31, 2001 was primarily due to TV Azteca's payment of US$32.8 million

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<PAGE>

to UBS AG to acquire a secured loan in that amount in connection with the
exercise of the option to purchase an equity interest in Azteca International's
Los Angeles affiliate.

      Resources generated from operating activities were Ps.1,847 million and
Ps.460 million (US$44.3 million) for the years ended December 31, 2001 and 2002,
respectively. The difference in net resources reflected the depreciation of the
peso against the U.S. dollar which affected negatively the Company's
comprehensive financing cost. As a result, the Company's net income decreased to
Ps.556 million (US$53.5 million) in the year ended December 31, 2002, from
Ps.1,358 million for the year ended December 31, 2001. A significant portion of
TV Azteca's cash flows are generated by its television broadcast operations.
Because operating results may fluctuate significantly as a result of a decline
in the advertising environment or pricing structure, TV Azteca's ability to
generate positive cash flow from its television broadcast operations may be
negatively impacted.

      Resources used in investing activities were Ps.1,036 million and Ps.736
million (US$70.8 million) for the years ended December 31, 2001 and 2002,
respectively. The decrease in resources used in investing activities for the
year ended December 31, 2002 was primarily due to Azteca International's
investment of Ps.660 million in certain Pappas affiliates made in the year ended
December 31, 2001 compared with an investment of Ps.456 million (US$43.9
million) for the year ended December 31, 2002, which included US$2.4 million
related to payment for the 25% equity interests in the San Francisco and Houston
stations and US$32.8 million related to the acquisition of a secured loan in
that amount from UBS AG in connection with the exercise of the option to
purchase an equity interest in Azteca International's Los Angeles affiliate.

      Resources used in financing activities were Ps.459 million and Ps.8
million (US$0.8 million) for the years ended December 31, 2001 and 2002,
respectively. Resources provided by (used in) financing activities are affected
by various factors including: (i) indebtedness paid or obtained, (ii) the
appreciation or depreciation of the peso against the U.S. dollar net of
inflation, since a substantial amount of TV Azteca's indebtedness is
dollar-denominated and (iii) increases or decreases in the capital stock of TV
Azteca, the sale of treasury shares, repurchases of capital stock and the
exercise of employee stock options of TV Azteca's subsidiaries. For the year
ended December 31, 2001, there was Ps.210 million of indebtedness compared to
indebtedness paid in the amount of Ps.214 million (US$20.6 million) for the year
ended December 31 2002. Also for the year ended December 31, 2001 the peso
appreciated by 5.1% against the U.S. dollar resulting in Ps.842 million used in
financing activities, as compared to a 13.5% depreciation against the U.S.
dollar during the year ended December 31, 2002, which resulted in Ps.614 million
(US$59.1 million) provided in financing activities. In addition, during the year
ended December 31, 2001, resources in the amount of Ps.201 million were provided
by the sale of treasury shares and the exercise of employee stock options, as
compared with resources used of Ps.183 million (US$17.6 million) for the year
ended December 31, 2002.

      Sources of payment for the 10 1/8% Notes

      On February 15, 2004, the TV Azteca 10 1/8% Notes mature. As of December
31, 2002, the outstanding aggregate principal amount of these notes was US$125.0
million. TV Azteca expects to partially or entirely repay the principal amount
of these notes with its internally generated cash. In the event that TV Azteca
does not have the cash on hand to repay the principal amount of these notes in
full, TV Azteca will evaluate alternative refinancing strategies.

      Advertising Advances

      Under TV Azteca's Azteca Plan, advertisers generally are required to pay
their advertising commitment in full within four months of the date they sign an
advertising contract. TV Azteca's Mexican Plan, on the other hand, generally
allows advertisers to pay for advertising by making a cash deposit ranging from
10% to 20% of their advertising commitment, with the balance payable in
installments over the term of the

                                       59

<PAGE>

advertising contract, typically one year. Advertising rates are generally lower
under the Azteca Plan than under the Mexican Plan.

      Since pre-sales of advertising time are generally made in the last quarter
of the year, TV Azteca's cash and cash equivalents are normally at their highest
level in December, and at their lowest level in the third quarter. Generally, as
the proceeds generated from pre-sales of advertising time are depleted (together
with other sources of cash flow), TV Azteca relies upon sources of short-term
financing, which are subsequently repaid, typically in the fourth quarter of a
calendar year with the proceeds from the pre-sales of advertising time for the
following year.

      At December 31, 2002, TV Azteca had generated Ps.4,446 million (US$427.7
million) in pre-sales of advertising time to be aired in 2003, of which 64% were
made under the Azteca Plan, and the remainder under the Mexican Plan. At
December 31, 2001, TV Azteca had generated Ps.4,640 million in pre-sales of
advertising time to be aired in 2002, of which 64% were made under the Azteca
Plan, and the remainder under the Mexican Plan.

      Non-Recurring Sources of Liquidity

      In April 2000, TV Azteca and NBC, and its affiliate, NBC Europe, Inc.
entered into a binding settlement agreement relating to an outstanding dispute
between them. Under the terms of the settlement agreement, TV Azteca paid, from
its operating cash flow, US$46.2 million to NBC. In addition to the cash
settlement, an affiliate of NBC purchased two million of TV Azteca's ADSs, for
an aggregate price of US$26.2 million.

      INDEBTEDNESS

      The following chart sets forth the Company's consolidated outstanding
principal amount of indebtedness:

<TABLE>
<CAPTION>
      AGREEMENT                                                                          AS OF MAY 31, 2003
      ---------                                                                     ----------------------------
                                                                                    (in millions of U.S. dollars)
      <S>                                                                               <C>
      Banco Bilbao Vizcaya Mortgage Loan..........................................      US$           25.9
      Standard Chartered Bank Long-Term Import Credit Facility....................                     7.8
      ABN-AMRO Bank Euro-Commercial Paper Program.................................                     5.1
      ATC Long-Term Credit Facility...............................................                   119.8
      Banco Inbursa S.A...........................................................                    10.0
      TV Azteca 10 1/8% Guaranteed Senior Notes due 2004..........................                   125.0
      TV Azteca 10 1/2% Guaranteed Senior Notes due 2007..........................                   300.0
      Azteca Holdings 10 1/2% Senior Secured Notes due 2003.......................                    69.9
      Azteca Holdings 12 1/2% Senior Secured Notes due 2005.......................                   129.0
      Azteca Holdings 10 3/4% Senior Secured Amortizing Notes due 2008 ...........                    80.1
                                                                                        ------------------
           Total..................................................................      US$          872.6
                                                                                        ==================
</TABLE>

      On September 18, 1997, TV Azteca obtained a US$25.9 million mortgage loan
from Banco Bilbao Vizcaya, S.A. ("BBV"), for the acquisition of an office
building located adjacent to its principal offices. The mortgage loan accrues
interest at a rate of 8.5% per year, payable on December 31 of each year
beginning December 31, 1997. The principal amount of this mortgage loan matures
on November 30, 2003.

      In March 1999, TV Azteca entered into a US$30.2 million long-term import
credit facility with Standard Chartered Bank, as lender, and the Export-Import
Bank of the United States, as guarantor. Under this credit facility, TV Azteca
was permitted until May 2002 to borrow all or a portion of the US$30.2 million
by delivering promissory notes. The import credit facility was established to
finance TV Azteca's purchase of equipment manufactured in the U.S. In October
1999 and March 2000, TV Azteca issued two promissory notes one in the amount of
US$12.2 million due in October 2004, which accrues interest at a rate of 7.6%
per

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<PAGE>

year, and one in the amount of US$10.5 million due in March 2005, which accrues
interest at a rate of 8.45% per year.

      In May 1999, TV Azteca entered into the US$75.0 million ECP Program, with
ABN-AMRO Bank, N.V., as the principal arranger and dealer. The size of the ECP
Program was increased to US$130.0 million in July 1999. Notes issued under the
ECP Program are issued at a discount, and do not bear interest. There is no
commitment to purchase notes to be issued under the ECP Program, and notes
issued thereunder may not have a maturity exceeding 365 days. The ECP Program
permits TV Azteca to issue and have outstanding up to US$130.0 million in notes
at any time.

      In February 2000, TV Azteca entered into a long-term credit facility for
up to US$119.8 million with a Mexican subsidiary of ATC (the "ATC Long-Term
Credit Facility"). The ATC Long-Term Credit Facility is comprised of a US$91.8
million unsecured term loan and a US$28.0 million term loan secured by certain
of TV Azteca's real estate properties. The interest rate on each of the loans is
12.877% per year. The initial term of the US$91.8 million unsecured term loan is
20 years, which may be extended up to an additional 50 years, so long as the
Tower Agreement remains in effect. The US$28.0 million secured term loan
currently matures in February 2004, but may be renewed annually for successive
one-year periods so long as the Tower Agreement remains in effect.

      In February 2003, TV Azteca obtained a US$10.0 million unsecured credit
line from Banco Inbursa S.A. for working capital purposes. The credit line
accrues interest at a rate of 8.87% per year and matures on November 28, 2003.

      In May 2001, holders of US$129.0 million in principal amount of the 11%
Notes agreed to exchange their 11% Notes for an equivalent principal amount of
12 1/2% Notes. The 12 1/2% Notes mature on June 15, 2005 and have a fixed annual
interest rate of 12 1/2%, to be paid every six months on June 15 and December
15. The 12 1/2% Notes are secured by 536,687,783 TV Azteca CPOs and, under
certain circumstances, will be secured by up to 448,514,700 Unefon Series A
shares. The 12 1/2% Notes will also be secured by any net cash proceeds or
securities received upon a sale of Unefon Series A shares that are part of the
collateral and any securities acquired with the cash proceeds of such a sale. In
addition, any dividends paid by TV Azteca in respect of the 536,687,783 CPOs
will become part of the collateral securing the 12 1/2% Notes. The Company has
the option to redeem the 12 1/2% Notes at any time prior to the maturity date at
100% of the principal amount, plus accrued but unpaid interest on the date the
Company redeems the 12 1/2% Notes through the date of redemption and additional
amounts, if any.

      In January 2002, the Company issued US$150.0 million in principal amount
of the 10 1/2% Notes. The 10 1/2% Notes mature on July 15, 2003 and have a fixed
annual interest rate of 10 1/2%, to be paid every six months on July 15 and
January 15. The 10 1/2% Notes are secured by 12,875,657 TV Azteca CPOs and,
under certain circumstances, will be secured by up to 34,310,092 Unefon Series A
shares. Other than for certain tax reasons, the Company does not have the right
to redeem the notes at its option prior to maturity.

      In May 2003, holders of US$80.1 million in principal amount of the 10 1/2%
Notes agreed to exchange their 10 1/2% Notes for an equivalent principal amount
of 10 3/4% Notes. The 10 3/4% Notes mature on June 15, 2008 and have a fixed
annual interest rate of 10 3/4%, to be paid commencing on July 15, 2003, and on
each December 15 and June 15 thereafter. The 10 3/4% Notes are secured by
42,370,449 TV Azteca CPOs and, under certain circumstances, will be secured by
up to 112,905,614 Unefon Series A shares. Following the payment of the principal
and interest on the 10 1/2% Notes at maturity, the remaining collateral securing
the 10 1/2% Notes will be pledged as additional collateral to secure the 10 3/4%
Notes. Each US$1,000 in principal amount of the 10 3/4% Notes will be amortized
on the following schedule:

July 15, 2003                                 US$    333.00
June 15, 2004                                 US$    133.40

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<PAGE>

June 15, 2005                                 US$    133.40
June 15, 2006                                 US$    133.40
June 15, 2007                                 US$    133.40
June 15, 2008 (maturity date)                 US$    133.40

      Other than for certain tax reasons, the Company will not have the right to
redeem the 10 3/4% Notes prior to June 15, 2004. The Company will have the
option to redeem the 10 3/4% Notes, in whole or in part, at 110.75% of the
principal amount if redeemed on or during the twelve months following June 15,
2004, 108.06% of the principal amount if redeemed on or during the twelve months
following June 15, 2005, 105.38% of the principal amount if redeemed on or
during the twelve months following June 15, 2006 and 102.69% of the principal
amount if redeemed on or during the twelve months following June 15, 2007 plus,
in each case, the accrued but unpaid interest on the date the Company redeems
the 10 3/4% Notes and additional amounts, if any.

      In February 1997, TV Azteca issued US$125.0 million aggregate principal
amount of TV Azteca 10 1/8% Notes, and US$300.0 million aggregate principal
amount of TV Azteca 10 1/2% Notes. The TV Azteca 10 1/8% Notes mature on
February 15, 2004, while the TV Azteca 10 1/2% Notes mature on February 15,
2007. Interest on the TV Azteca Notes is paid semi-annually on February 15 and
August 15. The TV Azteca Notes are jointly and severally guaranteed by each of
TV Azteca's material subsidiaries. TV Azteca has the option to redeem the TV
Azteca 10 1/8% Notes at any time at a redemption price equal to the greater of
(i) 101% of their principal amount and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to the
date of redemption on a semi-annual basis at the treasury rate (as defined in
the TV Azteca Indenture) plus 50 basis points, plus interest accrued but unpaid
on the date TV Azteca redeems the 10 1/8% Notes. TV Azteca has the option to
redeem the TV Azteca 10 1/2% Notes at 103.5% of the principal amount if redeemed
after February 15, 2003, 101.75% of the principal amount if redeemed after
February 15, 2004 and 100% of the principal amount if redeemed after February
15, 2005 plus, in each case, interest that is accrued but unpaid on the date TV
Azteca redeems the TV Azteca 10 1/2% Notes.

      The Company's total debt at May 31, 2003 matures or is amortized as
follows:

      YEAR ENDED DECEMBER 31,                     (IN MILLIONS OF U.S. DOLLARS)
      -----------------------
      2003.......................................             US$         139.5
      2004.......................................                         140.2
      2005.......................................                         141.0
      2006.......................................                          10.7
      2007.......................................                         310.7
      2008 and thereafter........................                         130.5

      Recent Development

      12 1/4% Notes Exchange Offer

      On June 12, 2003, the Company launched an offer to exchange its new senior
amortizing notes for any and all outstanding 10 1/2% Notes and 10 3/4% Notes.
Originally, the new senior amortizing notes offered an interest rate of 11 1/2%
and matured on June 15, 2009. On June 26, 2003, the Company amended the proposed
terms of its new senior amortizing notes. As amended these notes bear interest
at an annual rate of 12 1/4% and mature on June 15, 2008. Interest on the 12
1/4% Notes will be paid commencing on July 15, 2003, and on each December 15 and
June 15 thereafter. In addition, the Company amended the amortization schedule
of its new senior amortizing notes. As amended, US$250 of each US$1,000 in
principal amount of the 12 1/4% Notes will be amortized on June 15, 2005 and
each June 15 thereafter, until maturity. Other than for certain tax reasons, the
Company will not have the right to redeem the 12 1/4% Notes prior to June 15,
2006. On and after June 15, 2006, the Company will have the option to redeem the
12 1/4% Notes, in whole or in part, at 100% of the outstanding principal amount,
plus accrued but unpaid interest through the date of redemption and additional
amounts, if any. The 12 1/4% Notes will be senior unsecured obligations of the
Company.

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<PAGE>

      CAPITAL EXPENDITURES

      For the years ended December 31, 2001 and 2002, capital expenditures were
Ps.185 million and Ps.194 million (US$18.7 million), respectively. These capital
expenditures were primarily related to the expansion of, and improvements to, TV
Azteca's broadcasting and television production facilities. For the years ended
December 31, 2001 and 2002, TV Azteca paid approximately Ps.13 million and Ps.23
million (US$2.2 million), respectively, to acquire transmitters that it used to
expand the national coverage of its networks and to improve the quality and
operation of its transmission signal. For the years ended December 31, 2001 and
2002, TV Azteca made purchases of production equipment and expenditures related
to the refurbishment of its production facilities amounting to Ps.51 million and
Ps.98 million (US$9.4 million), respectively. TV Azteca's capital expenditures
are primarily made in U.S. dollars. For the years ended December 31, 2001 and
2002, TV Azteca made purchases of computer equipment and vehicles amounting to
approximately Ps.44 million and Ps.111 million (US$10.7 million), respectively.
For the years ended December 31, 2001 and 2002, TV Azteca paid approximately
Ps.68 million and Ps.9 million (US$0.9 million), respectively, for the
maintenance, remodeling and refurbishment of its buildings and office
facilities.

      UNEFON

      In December 2000, Unefon's principal shareholders, TV Azteca and Mr. Saba,
agreed in a shareholders' undertaking to provide Unefon up to US$35.0 million in
the aggregate by way of either equity or subordinated debt in the event Unefon
had liquidity shortfalls in 2001 or 2002. In such event, TV Azteca and Mr. Saba
would be jointly and severally obligated to make additional funds available to
Unefon. On December 20, 2002, Nortel notified TV Azteca and Mr. Saba of its view
that Unefon's non-payment of the August 2002 interest payment under the Nortel
finance agreement triggered their joint and several obligation to make
additional funds available to Unefon up to an aggregate amount of US$35.0
million as provided in the shareholders' undertaking. TV Azteca and Mr. Saba
disputed this assertion. In connection with the settlement with Nortel, Nortel
has released TV Azteca and Mr. Saba from any obligation or liability in
connection with this undertaking. See "Item 10. Additional Information--Legal
Proceedings--Unefon." However, as of May 31, 2003, TV Azteca and Mr. Saba had
made loans to or on behalf of Unefon with an outstanding aggregate principal
amount of US$35.8 million, US$19.1 million of which was paid by TV Azteca to
Unefon and certain of its creditors.

      In July 2001, TV Azteca and Mr. Saba announced their intention to provide
credit support to Unefon for up to US$80.0 million each. As of May 31, 2003, TV
Azteca had paid US$17.7 million to Unefon and its creditors pursuant to this
credit support and it had outstanding credit support obligations in the amount
of US$12.1 million. TV Azteca has terminated any further credit support to
Unefon.

      TV AZTECA'S 2003 BUDGETED CAPITAL EXPENDITURES

      TV Azteca has an aggregate of approximately US$26.0 million budgeted for
capital expenditures in 2003, of which US$7.9 million has been expended through
May 31, 2003, primarily to be used for the maintenance and expansion of, and
improvements to, its television production and broadcasting facilities and the
acquisition of equipment and expansion. TV Azteca expects to use cash from its
operations to fund these capital expenditures. As a result of TV Azteca's
operating strategy, TV Azteca will not, for the foreseeable future, make major
capital expenditures outside the scope of its core television broadcasting
business, which would include loans, credit support and capital investments in
Unefon and affiliates in the Azteca America Network.

      TV AZTECA'S DISTRIBUTION POLICY/DEBT REDUCTION STRATEGY

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<PAGE>

      TV Azteca's board of directors has approved a six year debt reduction
strategy pursuant to which TV Azteca will use its annual free cash flow to
reduce its outstanding debt, which as of December 31, 2002, was US$592.4
million, and to make annual distributions to its shareholders. On April 30,
2003, TV Azteca received the approval of its shareholders for the payment of
shareholder distributions in 2003 in an aggregate amount of US$140.0 million. A
distribution of US$125.0 million is scheduled to be made on June 30, 2003 and
another distribution of US$15.0 million is scheduled to be made on December 5,
2003. The Company will use these distributions to make principal and interest
payments on the 12 1/2% notes and 11 1/2% notes and any unexchanged existing
notes. However, there is no assurance that TV Azteca's financial results will
permit it to make such anticipated distributions or that TV Azteca will not
modify or terminate this distribution policy in its entirety. In addition, there
can be no assurance that the distributions will be sufficient to satisfy our
payment obligations with respect to our indebtedness.

      CONTRACTUAL AND OTHER OBLIGATIONS

      The following summarizes the Company's contractual obligations at December
31, 2002, and the effect such obligations are expected to have on its liquidity
and cash flows in future periods (dollars in millions):

<TABLE>
<CAPTION>
                                                  PAYMENTS DUE BY YEAR
                                                  --------------------
                                                                             2007 AND
CONTRACTUAL OBLIGATIONS             TOTAL    2003    2004    2005    2006   THEREAFTER
-----------------------            -------  ------  ------  ------  ------  ----------
<S>                                  <C>     <C>     <C>     <C>         <C>     <C>
Long-term debt...................    679.3       -   129.5   130.0       -       419.8
Short-term debt..................    192.1   192.1       -       -       -           -
Total contractual cash
 obligations.....................    871.4   192.1   129.5   130.0       -       419.8
                                   =======  ======  ======  ======  ======  ==========
</TABLE>

SHARE REPURCHASE

      On an annual basis, TV Azteca's shareholders approve the amount to be
allocated from the reserve in its stockholders' equity account for the
repurchase of its stock, in accordance with rules established by the Comision
Nacional Bancaria y de Valores (the "CNBV"), the Mexican banking and securities
commission. In April 2003, the shareholders approved to increase the reserve for
the repurchase of TV Azteca's shares by Ps.230.0 million, which reserve is
limited to a maximum amount of Ps.1,100 million. TV Azteca may purchase its CPOs
on the Mexican Stock Exchange and its ADSs on The New York Stock Exchange at
prevailing prices up to the amount in this reserve account. As of December 31,
2002, the Company had 26.5 million CPOs in its treasury, acquired through its
repurchase fund and Ps.1,013 million (US$97.5 million) in its reserve.

NEW ACCOUNTING PRONOUNCEMENTS

      Mexican GAAP

      In December 2001, the MIPA issued Statement C-9 "Liabilities, Provisions,
Assets and Contingent Liabilities and Commitments" ("Statement C-9"), which went
into effect January 1, 2003. This statement establishes specific rules for
valuation, presentation and disclosure of liabilities and provisions, as well as
for valuation and disclosure of assets and contingent liabilities, and for
disclosure of commitments contracted. The Company does not expect the adoption
of Statement C-9 to have a material impact on the Company's consolidated
financial statements.

      The MIPA issued Statement C-15, "Impairment of Long-Lived Assets and Their
Disposal," ("Statement C-15"), which will be effective as of January 1, 2004,
although early adoption is recommended. Statement C-15 provides specific
criteria in determining when there is an impairment in the value of long-lived
assets, for both tangible and intangible assets. Furthermore, Statement C-15
establishes a methodology for calculating and recording losses arising from the
impairment of assets and their reversal. Also, Statement C-15 provides

                                       64

<PAGE>

guidance for presentation and disclosure in the case that there is subsequent
reversal of the impairment. In addition, Statement C-15 provided guidance for
the accounting, presentation and disclosure for discontinued operations. The
Company is currently evaluating the impact that the adoption of Statement C-15
will have on the Company's consolidated financial statements.

      U.S. GAAP

      In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," ("SFAS 143"). SFAS 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or the normal operation of a
long-lived assets, except for certain obligations of lessees. SFAS 143 requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company does not expect the adoption of SFAS 143 to have a material impact on
its consolidated financial statements.

      In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4,
44 and 64, Amendment of SFAS 13, and Technical Corrections as of April 2002,"
("SFAS 145"). SFAS 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." As a result, gains and losses from extinguishment of
debt will no longer be classified as extraordinary items unless they meet the
criteria of unusual or infrequent as described in Accounting Principles Board
Opinion 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." In addition, SFAS 145 amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. SFAS 145 is effective for
fiscal years beginning after May 15, 2002. The Company does not expect the
adoption of SFAS 145 to have a significant impact on the Consolidated Financial
Statements.

      In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," ("SFAS 146"). The issuance of SFAS
No. 146 nullifies the former guidance provided by the Emerging Issues Task
Force, or EITF, Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring," or EITF 94-3. SFAS No. 146 requires the
recognition of a liability for costs associated with exit or disposal activity
when the liability is incurred, rather than on the date commitment to an exit or
disposal plan. SFAS No. 146 is effective for liabilities, related to exit or
disposal activities, which are incurred after December 31, 2002, while earlier
application is encouraged. The Company does not expect the adoption of SFAS 146
to have a significant impact on the Consolidated Financial Statements.

      In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure--an amendment of FAS 123,"
("SFAS 148"). SFAS No. 148 continues to permit entities to apply the intrinsic
method of APB 25, "Accounting for Stock Issued to Employees." However, SFAS 148
is intended to encourage companies to adopt the accounting provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," or SFAS 123. SFAS No. 148
provides three transition methods for companies who choose to adopt the
provisions of SFAS 123, the prospective method, the modified prospective method
and the retroactive restatement method. In addition, SFAS No. 148 mandates
certain new disclosures. SFAS 148 is effective for fiscal years ending after
December 15, 2002, with early adoption

                                       65

<PAGE>

permitted. The Company does not expect the adoption of SFAS 148 to have a
significant impact on the Consolidated Financial Statements.

      In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (an interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of Interpretation No. 34)." FIN 45
clarifies the requirements of SFAS No. 5, "Accounting for Contingencies,"
relating to a guarantor's accounting for, and disclosure of, the issuance of
certain types of guarantees. FIN 45 requires that upon issuance of a guarantee,
the guarantor must recognize a liability for the fair value of the obligation it
assumes under that guarantee. FIN 45's provisions for initial recognition and
measurement should be applied on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the guarantor's fiscal
year-end. The guarantor's previous accounting for guarantees that were issued
before the date of FIN 45's initial application may not be revised or restated
to reflect the effect of the recognition and measurement provisions of the
Interpretation. The disclosure requirements are effective for financial
statements of both interim and annual periods that end after December 15, 2002.
The adoption of FIN 45 did not have a material impact on the Consolidated
Financial Statements.

      In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an interpretation of ARB 51." The
primary objectives of FIN 46 are to provide guidance on the identification of
entities for which control is achieved through means other than through voting
rights ("variable interest entities" or "VIEs") and how to determine when and
which business enterprise should consolidate the VIE (the "primary
beneficiary"). This new model for consolidation applies to an entity which
either (1) the equity investors (if any) do not have a controlling financial
interest or (2) the equity investment at risk is insufficient to finance that
entity's activities without receiving additional subordinated financial support
from other parties. In addition, FIN 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. FIN 46 applies to public enterprises as of the
beginning of the applicable interim or annual period, and it applies to
nonpublic enterprises as of the end of the applicable annual period. The Company
is currently evaluating the impact that the adoption of FIN 46 will have on the
consolidated financial statements.

U.S. GAAP RECONCILIATION

      Pursuant to Mexican GAAP, the Company's financial statements recognize
certain effects of inflation in accordance with Statement B-10 and Statement
B-12; these effects have not been reversed in the reconciliation to U.S. GAAP.

      The following chart illustrates how the difference between Mexican GAAP
and U.S. GAAP affects the calculation of financial data for the majority
stockholders.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------
                                                        2000      2001      2002    2002/(1)/
                                                      --------  --------  --------  ---------
<S>                                                   <C>       <C>       <C>       <C>
MEXICAN GAAP
Net income of majority stockholders.................  Ps.  135  Ps.  688  Ps.  120  US$  11.5
Majority stockholders' equity.......................     1,267     1,860     1,946      187.2

U.S. GAAP
Net (loss) income of majority stockholders..........  Ps.  (92) Ps.   77  Ps. (113) US$ (10.9)
Majority stockholders' equity.......................     2,192     2,435     2,219      213.5
</TABLE>

                                       66

<PAGE>

----------
(1)   The U.S. Dollar amounts represent the peso amounts as of December 31, 2002
      expressed as of December 31, 2002 purchasing power, translated at an
      exchange rate of Ps.10.395 per U.S. Dollar, the interbank free market
      exchange rate on December 31, 2002, as reported by the Mexican Central
      Bank.

The principal differences between Mexican GAAP and U.S. GAAP that affect the
Company's net income (loss) and stockholders' equity relate to the treatment of
the following items:

..     accounting for deferred income taxes;

..     goodwill related to the television concessions in 2001 and 2000;

..     stock options;

..     the NBC settlement in 2000;

..     TV Azteca's investment in Unefon;

..     Unefon's advertising agreement;

..     TV Azteca's investment in Todito;

..     the effect of the fifth amendment to Statement B-10;

..     Todito's advertising, programming and services agreement;

..     payment of fees and expenses by TV Azteca and the Company in connection
      with the consent solicitation to obtain the consent of outstanding
      noteholders to the Unefon rights transaction; and

..     reversal of capitalized production costs of internally produced
      programming.

                                       67

<PAGE>

ITEM 6.    Directors, Senior Management and Employees

DIRECTORS AND EXECUTIVE OFFICERS

      The following table lists the directors and executive officers of the
Company, their ages at June 15, 2003, positions and year of appointment. The
selection of the directors was made in accordance with the Company's
shareholders' meeting held on January 7, 2003.

<TABLE>
<CAPTION>
                                                                                                                 DIRECTOR
          NAME                       AGE      POSITION                                                            SINCE
-------------------------            ---     -----------                                                         --------
<S>                                  <C>     <C>                                                                  <C>
Ricardo B. Salinas Pliego            47      Chairman of the Board, President and Chief Executive Officer         1997
Pedro Padilla Longoria               37      Director                                                             2003
Francisco X. Borrego                 38      Director                                                             1999
Diego Foyo Mejia                     53      Chief Financial Officer                                              2003
</TABLE>

      Ricardo B. Salinas Pliego has served as the Company's Chairman of the
Board, President and Chief Executive Officer since 1997. Mr. Salinas Pliego has
been Chairman of the Board of TV Azteca since 1993, Chairman of the Board of
Grupo Elektra since 1993, director of Unefon since 1999 and President of Unefon
since 1998. Mr. Salinas Pliego also serves on the Board of Directors of numerous
other Mexican companies including Azteca Holdings, Dataflux, Biper,
Cosmofrecuencias, Todito and Salinas y Rocha. Mr. Salinas Pliego received a
degree in accounting from the Instituto Tecnologico de Estudios Superiores de
Monterrey and received an MBA from the Freeman School of Business at Tulane
University.

      Pedro Padilla Longoria has served as a director of the Company since 2003.
Mr. Padilla has been Chief Executive Officer of TV Azteca since October 2001.
Mr. Padilla also serves on the board of directors of TV Azteca, Grupo Elektra,
Biper, Unefon, Cosmofrecuencias and Azteca International Corporation. Mr.
Padilla received a degree in law from the Universidad Nacional Autonoma de
Mexico.

      Francisco X. Borrego has served as a director of the Company since 1999.
Mr. Borrego also serves as the General Counsel and Legal Director of TV Azteca,
a position that he has held since August 1993. Mr. Borrego received a bachelor's
degree in law from Escuela Libre de Derecho.

      Diego Foyo Mejia has served as the Company's Chief Financial Officer since
2003. From 2000 to 2002, Mr. Foyo was a partner at Grupo Inversiones Monterrey,
S.A. de C.V. Mr. Foyo also served as an alternate general director of Grupo
Financiero Banorte, S.A. de C.V. from 1996 to 2000. Mr. Foyo received a degree
in accounting from Instituto Tecnologico de Estudios Superiores de Monterrey.

      EMPLOYMENT AGREEMENTS

      None of the directors or officers are party to any agreements with the
Company or any of its subsidiaries providing for benefits upon termination of
employment.

BOARD PRACTICES

      The Company's by-laws provide that the members of the Board of Directors
are appointed for unlimited term. Pursuant to Mexican law, members of the Board
continue in their positions after the expiration of their terms if new members
are not appointed. There is no fixed term for the directors of the Company, but
their designations as directors are renewed on a yearly basis. The Board of
Directors has no committees.

                                       68

<PAGE>

STATUTORY AUDITOR

      In addition to the Board of Directors, the Company's by-laws provide for a
statutory auditor elected at the ordinary general meeting of shareholders and,
if determined at such meeting, an alternate statutory auditor. Under Mexican
law, the duties of statutory auditors include, among other things, the
examination of the operations, books, records and any other documents of a
company and the presentation of a report of such examination at the annual
ordinary general meeting of shareholders. The statutory auditor is required to
attend all Board of Directors and shareholder meetings of the Company. The
Company currently has one statutory auditor, Luis Moiron Llosa, a partner of
PricewaterhouseCoopers.

DIRECTOR AND EXECUTIVE OFFICER COMPENSATION

      For the year ended December 31, 2002, the Company paid no compensation to
its directors while its subsidiaries paid an aggregate of US$2.01 million to
such persons in their capacities as officers of such subsidiaries. No director
of the Company has a service contract with the Company or any of its
subsidiaries that would provide for benefits upon termination of employment.

EMPLOYEES

      AZTECA HOLDINGS

      As of December 31, 2002, the Company did not have any employees.

      TV AZTECA

      As of December 31, 2002, TV Azteca employed 3,947 employees of whom 1,078
were freelance employees. Of TV Azteca's employees, 771 work in production,
1,876 perform administrative functions and 222 were managers or executive
officers. Approximately 27% of TV Azteca's new hires in 2002 were freelance
employees.

      Approximately 20% of TV Azteca's permanent employees are represented by
the television union, with a smaller number of employees represented by the
artists' union or the musicians' union. Under Mexican law, the compensation
terms of the agreements between TV Azteca and its union employees are subject to
renegotiation on an annual basis. All other terms of the agreement are
renegotiated every two years.

      TV Azteca believes that its relations with its employees are good. TV
Azteca has never been subject to a strike by its employees.

SHARE OWNERSHIP

      With the exception of Ricardo B. Salinas Pliego, there are no directors or
officers who beneficially own more than 1% the Company's shares. For information
regarding beneficial ownership of the Company's shares by Mr. Salinas Pliego see
"Item 7. Major Shareholders and Related Party Transactions."

OPTION PLANS

      TV Azteca has reserved for issuance pursuant to employee stock options
approximately 240 million CPOs (after giving effect to the 4-for-1 split of TV
Azteca's stock declared effective on April 22, 1998). In the fourth quarter of
1997, TV Azteca adopted employee stock option plans pursuant to which options
were granted to all current permanent employees who were employed by TV Azteca
as of December 31, 1996, with a more significant number of options being granted
to TV Azteca's senior management and key actors, presenters and creative
personnel. The options, which relate to an aggregate of approximately 76 million
CPOs, generally were granted in equal portions in respect of each employee's
first five years of employment

                                       69

<PAGE>

with TV Azteca (whether prior to or after adoption of the plans). These options
generally may be cancelled in the case of employment years after 1996 if TV
Azteca's operating profit before deducting depreciation and amortization in that
year has not increased by at least 15% (excluding the effect of inflation) as
compared to the previous fiscal year. An employee's options in respect of any
employment year generally become exercisable five years later, unless the
employee is no longer employed by TV Azteca, in which case the options will be
reassigned. The options expire on the fifth anniversary of the date on which
they become exercisable.

      In 1999, options with respect to 43.6 million CPOs were granted to Moises
Saba Masri, in his capacity as Chairman of Unefon, an affiliate of TV Azteca, at
an exercise price of US$0.0802 per CPO. Forty million of these options were
subsequently exercised by Mr. Saba in 1999 and an additional 2.8 million were
exercised in 2000 after March 31. In addition, options previously granted to TV
Azteca's employees for 0.5 million CPOs were exercised in 1999 at an average
exercise price of US$0.2900 per CPO.

      Set forth below are the number of CPOs, the exercise prices and the
expiration dates of all options outstanding (whether or not vested) as of May
31, 2003:

                NUMBER OF CPOS     EXERCISE PRICES       EXPIRATION DATES
                --------------     ---------------       ----------------
                  9,012,017           US$0.1300              2003-2009
                 11,432,574           US$0.2900              2003-2004
                  8,323,173           US$0.2925              2003-2007
                 10,730,800           US$0.3225              2004-2008
                  6,233,600           US$0.3550              2005-2009
                 15,142,400           US$0.3900              2006-2010
                  2,000,000           US$0.5000              2003-2009
                 62,874,564
                 ==========

      Included in these outstanding options, options relating to an aggregate of
approximately 22,515,591 CPOs were held by TV Azteca's directors and executive
officers as a group.

      Under Mexican GAAP, the granting of these options had no effect on TV
Azteca's results of operations, cash flow or financial condition. Under U.S.
GAAP, the granting of these options gave rise to non-cash compensation expense
in 2000, 2001 and 2002 of approximately Ps.114 million, Ps.35 million and Ps.62
million, respectively. See Note 18 to the Consolidated Financial Statements. TV
Azteca expects that the amount of non-cash compensation expense arising in
future periods under U.S. GAAP from the granting of these options (or options
that TV Azteca may grant in the future with exercise prices below the then fair
market value of the CPOs, a possibility TV Azteca is actively considering) also
will be relatively large.

ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

      The Company is a holding company with one class of capital stock with full
voting rights, 90% of which is owned by Comunicaciones Avanzadas, S.A. de C.V.
("CASA"), and the balance of which is owned by Servicios Patrimoniales
Integrados, S.A. de C.V., a company controlled by Ricardo B. Salinas Pliego.
CASA is a holding company of which members of the Salinas family, directly or
indirectly through Grupo Elektra, own approximately 90%, with the remainder held
by the public through Grupo Elektra. Ricardo B. Salinas Pliego controls CASA
through a voting trust established by the Salinas family. Grupo Elektra is
controlled by Ricardo B. Salinas Pliego, who is also Chairman of Grupo Elektra's
Board of Directors. With the exception of Ricardo B. Salinas Pliego, there are
no directors or officers who beneficially own more than 1% of the Company's
shares.

                                       70

<PAGE>

RELATED PARTY TRANSACTIONS

      The Company engages in transactions with its affiliates, including
entities owned or controlled by certain of its principal shareholders. The
Company has agreed in the Azteca Holdings Indentures to certain restrictions on
transactions with its affiliates. In addition, the TV Azteca Indenture restricts
TV Azteca's ability to engage in transactions with affiliates. Moreover, the new
Sarbanes-Oxley Act rules and regulations, together with certain existing and
proposed listing requirements of the New York Stock Exchange, place additional
restrictions on the Company's and TV Azteca's affiliate transactions. See Note 8
to the Consolidated Financial Statements.

      TV AZTECA RIGHTS TRANSACTIONS

      Unefon

      In October 2000, TV Azteca granted rights to acquire all of the Unefon
Series A shares that it owns pro rata to the holders, including Azteca Holdings,
of all of TV Azteca's outstanding shares and to certain of TV Azteca's other
securities. The grant of these rights remains subject to the filing and
effectiveness of a registration statement with the SEC that registers the Unefon
Series A shares underlying the rights and the receipt of all applicable
regulatory and third-party approvals. The rights were granted to:

..     TV Azteca's 8,964,706,897 shares that were outstanding as of October 19,
      2000;

..     the 51,578,430 of TV Azteca's shares underlying TV Azteca's employee stock
      options which were vested and exercisable as of February 1, 2001;

..     the 206,953,428 of TV Azteca's shares reserved for issuance as of October
      19, 2000 under TV Azteca's management stock option plan; and

..     TV Azteca's 119,858,484 repurchase fund shares held in treasury as of
      October 19, 2000.

      The aggregate exercise price for all Unefon Series A shares subject to the
rights is approximately US$177.0 million, all of which would be received by TV
Azteca. The exercise price to be paid for one share of Series A stock of Unefon
is US$0.151280667. Holders of rights attached to TV Azteca's Series A shares are
entitled to acquire 0.125226140 shares of Unefon's Series A stock for each TV
Azteca Series A share they own. Holders of rights attached to TV Azteca's CPOs
(which are comprised of one ordinary, no par value, Series A share, one
preferred Series D-A share and one preferred Series D-L share of TV Azteca) are
entitled to acquire 0.37567819 shares of Unefon's Series A Stock for each CPO
they own. Holders of rights attached to TV Azteca's ADSs (which are comprised of
16 TV Azteca CPOs) are entitled to acquire 6.010854704 shares of Unefon's Series
A Stock for each ADS they own.

      The rights to acquire the Unefon Series A shares do not trade separately
from the TV Azteca shares and were originally only exercisable on December 11,
2002. However, in December 2002, TV Azteca approved the change of the exercise
date to December 12, 2003. Any rights that are not exercised on the exercise
date will expire and TV Azteca will retain ownership of the Unefon Series A
shares underlying the rights. If, prior to December 12, 2003, the board of
directors of TV Azteca approves a merger or consolidation of Unefon, a sale of
all or substantially all of Unefon's assets or a sale (by tender or otherwise)
of at least a majority of Unefon's shares or otherwise determines to accelerate
the exercisability of the rights, each a sale event, TV Azteca will notify its
shareholders that a sale event is anticipated to occur and the rights will be
exercisable in connection therewith for a period of time to be determined by TV
Azteca. Any exercise of the rights in connection with a sale event will be
conditioned on the consummation of the relevant sale event. If such sale

                                       71

<PAGE>

event is consummated, any rights which were not exercised during the period
designated by TV Azteca will expire and TV Azteca will retain ownership of the
Unefon Series A shares underlying the rights.

      The Company directly owns approximately 52.0% of TV Azteca's outstanding
shares and indirectly owns approximately 3.0% of TV Azteca's outstanding shares
through the Company's wholly-owned subsidiary Alternativas Cotsa. Consequently,
upon the grant of the Unefon rights, the Company will directly own approximately
52.0% of the rights, corresponding to 595,730,405 Unefon Series A shares, and
indirectly own approximately 3.0% of the rights, corresponding to 34,731,944
Unefon Series A shares, unless the Company has previously sold any of its TV
Azteca shares.

      Of the 595,730,405 Unefon Series A shares that the Company may acquire
pursuant to the Unefon rights, 511,743,120 shares are subject to a right to
purchase granted in favor of Ricardo B. Salinas Pliego and Elisa Salinas Gomez,
Mr. Salinas Pliego's aunt.

      Cosmofrecuencias

      In October 2000, TV Azteca also granted on a pro-rata basis to its
shareholders to whom the rights to acquire the Unefon Series A shares were
granted, rights to purchase all of TV Azteca's shares of Cosmofrecuencias, a
Mexican corporation owned 50% by TV Azteca and 50% by a Mexican company
wholly-owned by Moises Saba Masri.

      The aggregate exercise price of all of the Cosmofrecuencias shares subject
to the rights is approximately US$32.0 million. The grant of the rights remains
subject to the receipt of all applicable regulatory approvals. In addition,
Cosmofrecuencias intends to register the underlying Cosmofrecuencias shares
under the U.S. securities laws between October 19, 2004 and October 19, 2006.
The rights do not trade separately from the TV Azteca shares and are exercisable
only for a period of time to be determined by TV Azteca following the
effectiveness of the registration of the underlying Cosmofrecuencias shares. Any
rights that are not exercised during the exercise period designated by TV Azteca
will expire, and TV Azteca will retain ownership of the Cosmofrecuencias shares
underlying such rights. If, prior to the designation of the exercise period, the
Board of Directors of TV Azteca approves a merger or consolidation of
Cosmofrecuencias, a sale of all or substantially all of Cosmofrecuencias's
assets or a sale (by tender or otherwise) of at least a majority of
Cosmofrecuencias's outstanding shares or otherwise determines to accelerate the
exercisability of the rights, each a sale event, TV Azteca will notify its
shareholders that a sale event is anticipated to occur and the rights will be
exercisable in connection therewith for a period of time to be determined by TV
Azteca. Any exercise of the rights during the exercise period designated by TV
Azteca in connection with a sale event will be conditioned on the consummation
of the relevant sale event. If such sale event is consummated, any rights which
are not exercised during the exercise period designated by TV Azteca in
connection with a sale event will expire, and TV Azteca will retain ownership of
the shares underlying the rights.

      AGREEMENT BETWEEN AZTECA HOLDINGS AND RICARDO B. SALINAS PLIEGO AND ELISA
SALINAS GOMEZ

      In connection with the TV Azteca rights transaction, on December 13, 2000,
the Company entered into an agreement with Ricardo B. Salinas Pliego and Elisa
Salinas Gomez relating to their right to acquire up to 511,743,120 Unefon Series
A shares that may be acquired by the Company upon exercise of its Unefon rights.
Mr. Salinas Pliego and Mrs. Salinas Gomez paid a US$6.65 million non-refundable
premium to the Company for these purchase rights. However, in order to exercise
these purchase rights, Mr. Salinas Pliego and/or his affiliates must have
directly or indirectly acquired the shares owned by Grupo Elektra of CASA, the
direct owner of approximately 90% of the Company's outstanding shares, or all of
the outstanding capital stock of Grupo Elektra, or Grupo Elektra must have
exercised its right to exchange all of the shares owned by Grupo Elektra of CASA
for 226.5 million TV Azteca CPOs pursuant to the terms of a share exchange
agreement dated March 25, 1996 between Grupo Elektra and the Company. If Mr.
Salinas Pliego and/or his affiliates have not so acquired the CASA shares or the
outstanding capital stock of Grupo Elektra, and Grupo

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Elektra has not exercised its share exchange right, then Grupo Elektra will have
the right, in lieu of Mr. Salinas Pliego and Mrs. Salinas Gomez, to exercise up
to 34% of the Company's rights to acquire Unefon Series A shares. Mr. Salinas
and Mrs. Salinas Gomez also paid a US$350,000 non-refundable premium to
Alternativas Cotsa for the right to purchase the Unefon Series A shares
underlying Alternativas Cotsa's Unefon rights.

      AGREEMENT BETWEEN AZTECA HOLDINGS AND GRUPO ELEKTRA

      Grupo Elektra has the right to exchange the CASA Series N shares that it
owns, in whole or in part, at any time until March 26, 2006 for 226.5 million TV
Azteca CPOs owned by the Company. CASA is the direct owner of approximately 90%
of the Company's capital stock. This exchange right allows Grupo Elektra to
acquire up to approximately 7.6% of the capital stock of TV Azteca from the
Company, which would reduce the Company's direct and indirect ownership of the
capital stock of TV Azteca to approximately 45%, although the Company would
continue to own 62% of the voting power of TV Azteca.

      LOANS BETWEEN AZTECA HOLDINGS AND TV AZTECA

      From time to time the Company receives advances from TV Azteca. In 2001
and 2002, the aggregate amount of these advances equaled Ps.103 million and
Ps.133 million (US$12.8 million), respectively. These advances are repaid
annually, with a nominal amount of interest, from dividends that the Company
receives from TV Azteca. Advances denominated in U.S. dollars accrue interest at
a rate of 12% per annum. Advances denominated in pesos accrue interest at 1.5%
per month plus the daily or monthly interest rates determined by the Mexican
Central Bank and published in the Official Gazette of the Federation of Mexico.

      LOANS BY AZTECA HOLDINGS AND TV AZTECA TO RICARDO B. SALINAS PLIEGO AND
HIS AFFILIATES

      In December 2000, TV Azteca made three unsecured loans to Ricardo B.
Salinas Pliego for an aggregate amount of US$2.7 million, each with a term of
one year and an annual interest rate of 12%. In December 2000, the Company
purchased two of these loans in the aggregate amount of US$1.37 million. In
December 2001, the Company sold these two loans back to TV Azteca. The maturity
date of all three loans has been extended to December 23, 2002. The full amounts
outstanding under these three loans were repaid on December 23, 2002.

      In December 1999, TV Azteca made two one-year unsecured loans in the
aggregate amount of US$286,000 to Corporacion RBS, with an annual interest rate
of 12%. TV Azteca extended the repayment of the principal and accrued interest
amounts of these loans until December 2002. At the time of the extension, the
aggregate amount of the interest and principal owing under the loan was
US$326,125. The full amounts outstanding under these two loans were repaid on
December 27, 2002.

      LOANS BETWEEN AZTECA HOLDINGS AND ALTERNATIVAS COTSA

      In June 2001, Alternativas Cotsa, the Company's wholly-owned subsidiary,
made a subordinated loan to the Company in the amount of US$3.3 million, at an
annual interest rate of 12%. Payment on this loan is subordinated to the
Company's 12 1/2% Notes and consequently does not mature until December 2005.
The Company used this loan to fund a portion of the semi-annual interest
payments on the 11% Notes and 12 1/2% Notes in June 2001.

      In June 2003, Alternativas Cotsa made a loan to the Company in the amount
of US$6.0 million, at an annual interest rate of three month LIBOR plus 2.25%.
This loan matures on December 26, 2003. The Company used this loan to fund the
semi-annual interest payment on the 12 1/2% Notes in June 2003.

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      LOAN BETWEEN AZTECA HOLDINGS AND INMOBILIARIA COTSA

      In June 2003, Inmobiliaria Cotsa, the Company's wholly-owned subsidiary,
made a loan to the Company in the amount of Ps.20.0 million, at an annual
interest rate of 28-day Tasa de Interes Interbancaria de Equilibria (TIIE), a
rate established by the Mexican Central Bank, plus 2.25%. This loan matures on
December 26, 2003. The Company used this loan to fund the semi-annual interest
payment on the 12 1/2% Notes in June 2003.

      LOAN BETWEEN AZTECA HOLDINGS AND CINE ALTERNATIVO

      In December 2001, Cine Alternativo, the Company's wholly-owned subsidiary,
made a loan to the Company in the amount of US$10.0 million. The Company used
this loan to fund a portion of its semi-annual interest payments on the 11%
Notes and 12 1/2% notes in December 2001. Immediately after making the
semi-annual interest payment, Cine Alternativo was merged into the Company and
the loan was cancelled.

      AGREEMENTS BETWEEN TV AZTECA AND UNEFON

      In July 2001, TV Azteca and Mr. Saba announced their intention to provide
credit support to Unefon for up to US$80.0 million each. As of May 31, 2003, TV
Azteca had paid US$17.7 million to Unefon and its creditors pursuant to this
credit support and it had outstanding credit support obligations in the amount
of US$12.1 million. TV Azteca has terminated any further credit support to
Unefon.

      In December 2000, as a condition to the modification of Unefon's finance
agreement with Nortel, the principal shareholders of Unefon, TV Azteca and Mr.
Saba, agreed in a shareholder's undertaking to provide Unefon up to US$35.0
million in the aggregate in the event Unefon had liquidity shortfalls in 2001 or
2002. In such event, TV Azteca and Mr. Saba would be jointly and severally
obligated to make additional funds available to Unefon either (i) by way of
equity contribution to Unefon or (ii) as subordinated indebtedness of Unefon. On
December 20, 2002, Nortel notified TV Azteca and Mr. Saba of its view that
Unefon's non-payment of the August 2002 interest payment under the Nortel
finance agreement triggered their joint and several obligation to make
additional funds available to Unefon up to an aggregate amount of US$35.0
million as provided in the shareholders' undertaking. TV Azteca and Mr. Saba
disputed Nortel's assertion. In connection with the settlement with Nortel,
Nortel has released TV Azteca and Mr. Saba from any obligation or liability in
connection with this undertaking. However, as of May 31, 2003, TV Azteca and Mr.
Saba had made loans to or on behalf of Unefon with an outstanding aggregate
principal amount of US$35.8 million, US$19.1 million of which was paid by TV
Azteca to Unefon and certain of its creditors.

      In June 1998, TV Azteca and Unefon entered into a 10-year advertising
agreement pursuant to which TV Azteca agreed to supply Unefon with advertising
spots.

      The principal terms and conditions of TV Azteca's agreement with Unefon,
as amended, include:

..     TV Azteca will supply Unefon with advertising spots totaling an aggregate
      of 120,000 GRPs over the term of the agreement, up to a maximum of 35,000
      GRPs per year. For purposes of the agreement, GRPs equal the number of
      total rating points obtained in a 60 second transmission of commercial
      messages. Up to 30% of these GRPs may be used during prime-time, which is
      defined in the agreement as 7:00 p.m. to 11:00 p.m., Monday through
      Friday, and 6:00 p.m. to 11:00 p.m., Saturday and Sunday. Unefon can only
      use the GRPs through December 2009;

..     Unefon will pay TV Azteca 3.0% of its gross revenues up to a maximum of
      US$200.0 million. As of December 31, 2002, TV Azteca had broadcast Unefon
      advertisements having an aggregate value of Ps.147 million (US$14.1
      million) pursuant to this agreement. TV Azteca records revenue under the
      terms of the agreement as the GRPs are consumed on a rate schedule set
      forth in the agreement, which provides

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      less expensive GRPs initially and more expensive GRPs over the term of the
      agreement. Pursuant to the agreement, Unefon has elected to defer payments
      due in 2000, 2001 and 2002 and to make these payments in four equal
      semi-annual installments during 2003 and 2004, with the first payment
      maturing in June 2003. The deferred payments accrue interest at an annual
      interest rate of 12%. Starting in 2003, Unefon's payments to TV Azteca are
      due on a current basis. At December 31, 2002, the aggregate deferred
      payments equaled US$15.7 million (including interest); and

..     TV Azteca's right to payment under the agreement is subject to compliance
      by Unefon with its payment obligations under its finance agreement.

..     Pursuant to the advertising agreement, Unefon's failure to pay advances
      will not be considered a default by Unefon under the agreement. However,
      TV Azteca will be able to suspend the provision of television services to
      Unefon after Unefon's continued failure to pay for one year.

      In May 1998, TV Azteca signed a building lease agreement with Unefon. The
lease has a term of 10 years, starting June 1998, with a one-time right to renew
for an additional 10 years upon notice by Unefon at least 180 days prior to
expiration. The rent under the lease is Ps.2.5 million (US$207,900) a month,
payable in advance each month. During the years ended December 31, 2000, 2001
and 2002, the aggregate lease income received by TV Azteca amounted to Ps.23
million, Ps.25 million and Ps.25 million, respectively.

      AGREEMENTS BETWEEN TV AZTECA AND TODITO

      In connection with its acquisition of 50% of the capital stock of Todito,
TV Azteca entered into a five year service agreement with Todito. The service
agreement consists of advertising time on TV Azteca's networks, the use of TV
Azteca's content on Todito's web site and the use of TV Azteca's sales force to
promote Todito. The three components of the service agreement were valued at
US$45.0 million, US$50.0 million and US$5.0 million, respectively, at the time
of signing. Under the service agreement, TV Azteca agreed to provide Todito with
advertising on its Azteca 7 and Azteca 13 networks totaling an aggregate of
78,000 GRPs. The GRPs contemplated by the agreement equal the number of
commercial rating points obtained in a 60 second transmission of commercial
messages. Todito has the right to use up to 30% of the advertising granted under
the service agreement during the network's prime-time hours. TV Azteca also
granted Todito the exclusive right to distribute over the Internet TV Azteca's
internally produced programming during the term of the service agreement.

      TV Azteca has also signed a five-year hosting agreement with Todito, in
February 2000. Under this agreement, TV Azteca has agreed to place a Todito
navigation bar at the top of all pages of TV Azteca's web site,
www.tvazteca.com.mx, which is intended to direct tvazteca.com.mx visitors to
Todito's content and commerce options. TV Azteca has also agreed that
tvazteca.com.mx will be subsumed within Todito, such that all visitors to
tvazteca.com.mx will actually be navigating within Todito. Todito will also have
the right to commercialize advertising space on TV Azteca's website. In exchange
for the placement of its navigation bar on tvazteca.com.mx and the right to sell
tvazteca.com.mx advertising space, Todito has agreed to place TV Azteca's
navigation bar on todito.com and to provide technical support to TV Azteca with
regard to the hosting of tvazteca.com.mx within Todito.

      AGREEMENT BETWEEN TV AZTECA AND GRUPO ELEKTRA

      In March 1996, TV Azteca entered into a television advertising time
agreement with Grupo Elektra under which Grupo Elektra (or any company in which
Grupo Elektra has an equity interest) has the right to not less than 300
advertising spots per week for a period of 10 years, each spot for a 20 second
duration, totaling 5,200 minutes annually, but only in otherwise unsold airtime.
In exchange for the television advertising airtime, TV Azteca receives Ps.14
million (nominal) (US$1.5 million) (nominal) each year. The

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agreement may not be terminated by TV Azteca but may be terminated by Grupo
Elektra, which may also transfer its rights under this agreement to third
parties.

      AGREEMENTS BETWEEN TV AZTECA AND ALTA EMPRESA

      In December 2001, TV Azteca and Alta Empresa entered into an agreement for
purposes of marketing and selling TV Azteca's programming throughout the world,
excluding Mexico. Pursuant to this agreement, TV Azteca agreed to contribute its
programming and Alta Empresa agreed to manage all of the activities involved in
the marketing and selling of TV Azteca's programming outside of Mexico.
Initially, Alta Empresa may only market and sell TV Azteca's programming in the
U.S., which it is currently doing through an agreement with Azteca
International. The agreement between TV Azteca and Alta Empresa has an initial
term of 30 years, which may be terminated at any time by TV Azteca and Alta
Empresa. Based upon their relative contributions, TV Azteca is entitled to 99%
of the net profits derived from the marketing and sale of its programming
outside of Mexico and Alta Empresa is entitled to the remaining one percent.

      AGREEMENT BETWEEN TV AZTECA AND BIPER

      In September 2001, TV Azteca entered into an advertising agreement with
Biper covering the period from January 1, 2002 through December 31, 2002. Under
this agreement, Biper had the right to receive advertising in 2002 on the Azteca
7 or 13 networks. In exchange for the advertising time, Biper paid Ps.20 million
(nominal) (US$2.1 million) (nominal) to TV Azteca.

      AGREEMENT BETWEEN TV AZTECA AND DATAFLUX

      TV Azteca entered into a television advertising time agreement with
Dataflux, effective September 30, 1996. Dataflux is controlled by Guillermo E.
Salinas Pliego, the brother of the Chairman of the Board of the Company, Ricardo
B. Salinas Pliego. Under the terms of this agreement, Dataflux or any of its
subsidiaries has the right to 480 advertising spots per month on the Azteca 7
and 13 networks for a period of 10 years, each spot with 30 seconds average
duration, totaling 2,880 minutes each year, but only in otherwise unsold
airtime. In exchange for the advertising time, Dataflux has agreed to pay TV
Azteca US$830,770 annually, payable in advance each year. The agreement may not
be terminated by TV Azteca; however, it may be terminated by Dataflux at any
time upon at least 90 days' notice.

      In December 1996, TV Azteca entered into stock option agreements with two
of Dataflux's principal shareholders, Alberto Hinojosa Canales and Guillermo E.
Salinas Pliego. Under the terms of the stock option agreements, Mr. Hinojosa
Canales and Mr. Guillermo E. Salinas Pliego together had the option to purchase
all of TV Azteca's Dataflux stock, representing a 20% equity interest in
Dataflux. These options, which expired on November 30, 1998, had an aggregate
exercise price of US$20.0 million if exercised on or before November 30, 1997,
with the exercise price increasing until expiration according to interest
schedules in the stock option agreements. Effective as of April 1, 1997, Mr.
Guillermo E. Salinas Pliego and Mr. Hinojosa Canales, through Datacapital, S.A.
de C.V. ("Datacapital"), a holding company, exercised these options with respect
to approximately 87.5% of the 20% equity interest in Dataflux that was subject
to these options, and agreed to pay to TV Azteca Ps.139.4 million (nominal).
Datacapital agreed to pay amounts owed by it by providing TV Azteca with
computer equipment by December 31, 2000. At December 31, 2002, Ps.79 million of
this amount remained outstanding. The parties are currently in negotiations
regarding the remaining amounts owed to TV Azteca.

      AGREEMENT BETWEEN TV AZTECA AND PRODUCTORA DE MEDIOS

      TV Azteca entered into a television advertising time agreement with
Productora de Medios, a former wholly-owned subsidiary of Grupo COTSA, under
which Grupo COTSA or any of Grupo COTSA's subsidiaries has the right to 42
advertising spots per week on the Azteca 7 or 13 networks for a period of 10

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years commencing September 30, 1996. Each spot has an average duration of 20
seconds, totaling 728 minutes each year, but only in otherwise unsold airtime.
In exchange for the advertising time, Productora de Medios agreed to pay TV
Azteca US$210,000 each year. The agreement may not be terminated by either party
without the consent of the other party.

      On November 15, 2001, Productora de Medios sold the advertising minutes
under the television advertising time agreement to four non-related parties in
return for US$24.0 million, which is to be paid to Cine Alternativo, an
affiliate of Productora de Medios that acts as its depositary for the payments.
Of this amount, approximately US$12.1 million was paid in December 2001, US$5.6
million in June 2002 and US$6.3 million in December 2002.

      In December 2001, Cine Alternativo and Productora de Medios were merged
into the Company.

      AGREEMENTS BETWEEN TV AZTECA AND ATC

      John Michael Gearon Jr., a director of TV Azteca since February 2000,
serves as President and a director of American Tower International Corporation.

      In February 2000, TV Azteca, together with its subsidiary, Television
Azteca, entered into the Tower Agreement with a Mexican subsidiary of ATC
regarding space not used by TV Azteca in its operations. This agreement, which
was approved by the SCT, covers up to 190 of TV Azteca's broadcast transmission
towers. In consideration for the payment of a US$1.5 million annual fee and for
a loan of up to US$119.8 million under the ATC Long-Term Credit Facility, TV
Azteca granted ATC the right to market and lease TV Azteca's unused tower space
to third parties (including affiliates of TV Azteca) and to collect for ATC's
account all revenue related thereto. TV Azteca retains full title to the towers
and remains responsible for the operation and maintenance thereof. After the
expiration of the initial 20 year term of the ATC Long-Term Credit Facility, TV
Azteca has the right to purchase from ATC at fair market value all or any
portion of the revenues and assets related to ATC's marketing and leasing rights
at any time upon the proportional repayment of the outstanding principal amount
under the ATC Long-Term Credit Facility.

      In February 2000, TV Azteca entered into the ATC Long-Term Credit Facility
for up to US$119.8 million. The ATC Long-Term Credit Facility is comprised of a
US$91.8 million unsecured term loan and a US$28.0 million term loan secured by
certain of TV Azteca's real estate properties. The interest rate on each of the
loans is 12.877% per year. The initial term of the US$91.8 million unsecured
term loan is 20 years, which may be extended up to an additional 50 years, so
long as the Tower Agreement remains in effect. The US$28.0 million secured term
loan currently matures in February 2004, but may be renewed annually for
successive one-year periods so long as the Tower Agreement remains in effect.

      ADDITIONAL RELATED PARTY LOANS

      In April 2000, TV Azteca made an unsecured loan in the principal amount of
US$1.4 million with an annual interest rate of 10.63% to Adrian Steckel Pflaum,
who was one of the Company's directors at the time and is Unefon's chief
executive officer. The full amount outstanding under this loan was repaid on
December 31, 2002.

      In June 1998, TV Azteca made an unsecured loan in the principal amount of
US$470,000 with an annual interest rate of 12% to Francisco X. Borrego, one of
TV Azteca's executive officers. This loan was repaid in December 2002.

ITEM 8.   FINANCIAL INFORMATION

See "Item 18. Financial Statements" and the financial statements referred to
therein.

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ITEM 9.    THE OFFER AND LISTING

Not applicable.

ITEM 10.   ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

      Azteca Holdings was formed on June 23, 1992 and its deed of incorporation
was registered in the Public Registry of Commerce in Mexico City on March 9,
1993 under the number 171099. The Company has a term of 99 years commencing from
the date of the execution of its deed of incorporation. Article Two of the
Company's Amended and Restated By-laws (Estatutos Sociales) provides that the
Company's general purpose is to promote, participate as a shareholder or
partner, organize, administrate and supervise any kind of company, and to
receive as well as to render all such services necessary for the attainment of
its purposes. The Company may engage in any activity not reserved to the Mexican
government.

      The Company's share capital is divided into an unlimited number of
ordinary shares. Each ordinary share entitles the holder thereof to one vote and
share in any distributions in proportion to the number of shares that they own.
Holders of the ordinary shares have the right to subscribe for the new shares
that may be issued by the Company from time to time in proportion to the shares
they hold at the time of the increase. The ordinary shares of the Company may
not be held, directly or indirectly, by any foreign investors.

      The management of the Company is vested in the Board of Directors, except
those powers reserved to shareholders by applicable law or the by-laws.

LEGAL PROCEEDINGS

      AZTECA HOLDINGS

      Azteca Holdings is not a party to any legal proceedings.

      TV AZTECA

      Pappas Settlement

      In July 2001, Azteca International and Pappas Southern California entered
into an equity option agreement pursuant to which Azteca International was
granted an option to purchase an equity interest in Pappas Southern California.
The equity option was exercised by Azteca International on May 21, 2002. The
acquisition by Azteca International of an equity interest in Pappas Southern
California was not consummated by the parties on the anticipated closing date.

      In July 2002, Azteca International filed a lawsuit against Pappas Southern
California in Delaware Chancery Court seeking specific performance of the equity
option agreement. Also, in July 2002, Pappas Southern California and its
wholly-owned subsidiary that holds the FCC license to operate the Los Angeles
station (collectively, the "PSC Entities") filed a lawsuit in California state
court against Azteca International and TV Azteca seeking a declaration that
these parties did not have the right to acquire any portion of the equity of
Pappas Southern California pursuant to the equity option agreement. The parties
later agreed to stay the California action. The trial on the Delaware lawsuit
was scheduled for December 2002.

      Pappas also claimed that Azteca International had breached its station
affiliation agreements with its affiliates in the Los Angeles, San Francisco,
Houston and Reno television markets. In response, Azteca International filed a
separate lawsuit in New York state court against Pappas Southern California and
the Pappas affiliates operating the San Francisco, Houston and Reno stations
seeking to prevent the termination

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of the station affiliation agreements. The Pappas-controlled entities filed
counterclaims against Azteca International seeking a declaration that they were
entitled to terminate the station affiliation agreements.

      On November 27, 2002, TV Azteca and Pappas entered into an agreement in
principle to settle all of the pending lawsuits and all related disputes, and on
February 11, 2003, a definitive settlement agreement was executed. In connection
with settling these pending matters, TV Azteca and Pappas also entered into a
number of agreements that will govern their future relationship. These
agreements include a new promissory note issued by Pappas in favor of TV Azteca,
an LMA governing, under certain circumstances, Azteca International's operation
of its Los Angeles affiliate and a purchase option agreement that grants Azteca
International the right, subject to receipt of all necessary approvals, to
acquire all of the assets of its Los Angeles affiliate. In addition to these
agreements, Pappas and TV Azteca have modified their existing station
affiliation agreements and entered into new station affiliation agreements. See
"Item 4. Information on the Company--Other Operations--Azteca
International--Pappas Station Affiliations" for a discussion of each of these
agreements.

      Echostar

      On June 25, 2002, Echostar filed a lawsuit against TV Azteca in the U.S.
District Court for the Southern District of New York. This lawsuit alleges that
TV Azteca is in breach of the exclusivity provisions of the Echostar agreement
because Azteca America Programming (which contains portions of Azteca 13
Programming) is re-transmitted by certain of Azteca International's station
affiliates on local cable systems and other satellite systems. Echostar sought a
preliminary and permanent injunction that, among other things, would enjoin TV
Azteca from directly or indirectly distributing any portion of Azteca 13
Programming to cable and satellite operators (other than Echostar) in the U.S.
On July 9, 2002, TV Azteca entered into a voluntary undertaking, pursuant to
which it represented to the Court that any new U.S. affiliates (signed after
July 1, 2002) would not exercise their "must-carry" or "retransmission consent"
rights to broadcast Azteca America Programming on cable or DTH satellite. This
undertaking ceased to be in effect on April 13, 2003 after the Court denied
Echostar's application for a preliminary injunction on April 3, 2003. On
December 20, 2002, TV Azteca filed an answer, denying the allegations of
Echostar's complaint. TV Azteca also filed counterclaims, alleging that if the
Court were to find that Echostar's interpretation of the agreement is correct,
then the agreement should be rescinded due to a unilateral mistake as to the
understanding of the material terms of the agreement, or because there was no
meeting of the minds as to the material terms. There can be no assurance as to
the outcome of this litigation. However, TV Azteca intends to defend itself
vigorously.

      If the Echostar lawsuit were to be adversely determined for TV Azteca,
this could have an adverse effect on the ability of TV Azteca to provide Azteca
International's station affiliates and cable operators with Azteca America
Programming that contains Azteca 13 Programming and, consequently, on its
ability to expand the Azteca America Network in the U.S. prior to the expiration
of the Echostar agreement on March 17, 2004, or, if extended by Echostar, March
17, 2005. In certain circumstances, if Echostar obtains an injunction barring
Azteca International from distributing Azteca America Programming that contains
portions of Azteca 13 Programming to over-the-air broadcasters that retransmit
it to U.S. cable operators, then, subject to certain conditions, certain of
Azteca International's station affiliates would have the right to cancel their
affiliation agreements. However, in such event TV Azteca believes that it will
be able to provide alternative TV Azteca content and thus continue the broadcast
of Azteca America Programming over such affiliate stations. Although Echostar is
continuing to seek a permanent injunction against TV Azteca, the Court denied
Echostar's application for a preliminary injunction on April 3, 2003. An adverse
outcome in this lawsuit could also subject TV Azteca to the payment of damages
for lost subscribers incurred by Echostar.

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      Channel 40

      In December 1998, TV Azteca entered into a joint venture with TVM and
TVM's subsidiary, CNI, for the operation of a television channel that broadcasts
throughout the Mexico City metropolitan area on UHF Channel 40. For a minimum
term of three years and up to 10 years, TV Azteca agreed to pay to CNI, on a
quarterly basis, 50% of the EBITDA, as defined in the agreement governing the
joint venture, generated by Channel 40. TV Azteca advanced US$15.0 million of
this payment to CNI in a series of installments paid in 1998 and 1999. Under the
terms of the joint venture, TV Azteca agreed to provide substantially all of
Channel 40's programming and to sell all of Channel 40's advertising time. TV
Azteca also established a 10 year credit facility of US$10.0 million for CNI,
secured by stock of TVM, with a three-year grace period for payment of principal
and interest. As security for the loan, 51% of the capital stock of TVM owned by
Mr. Javier Moreno Valle, a major shareholder and the sole administrator of TVM,
was pledged as collateral. TV Azteca was also granted an option to purchase up
to 51% of the capital stock of TVM beginning in November 2002, or upon the
earlier termination of the joint venture by CNI or TVM. Under the option to
purchase, the sale price of TVM's capital stock will be based on a valuation of
100% of the stock of TVM that is equal to the greater of US$100.0 million (which
amount increases gradually over time) or 10 times the EBITDA generated by
Channel 40 for the 12 months preceding the exercise of the purchase option, less
any indebtedness owed by TVM or CNI to TV Azteca at the time the option is
exercised. As of December 31, 2002, TVM's and CNI's indebtedness to TV Azteca
totaled approximately US$34.4 million, comprised of US$10.0 million under the
credit facility, a US$15.0 million payment advance and US$9.4 million comprised
of interest on the credit facility and additional operating expenses forwarded
to CNI.

      In July 2000, CNI stopped broadcasting TV Azteca's signal as required by
its contractual obligations under the joint venture agreement. In response to
CNI's actions, TV Azteca filed several lawsuits in Mexico against TVM, CNI and
Mr. Moreno Valle, seeking lost profits and the enforcement of its purchase
option right under the joint venture to acquire up to 51% of the capital stock
of TVM.

      In July 2001, the 5th Civil Court in Mexico City ordered CNI to pay TV
Azteca US$35.0 million for damages and lost profits. CNI appealed this order,
and, in October 2001, an appeals court decided TV Azteca did not have the right
to receive damages but instructed CNI to return advance payments in the amount
of US$15.0 million. TV Azteca filed an action for relief (amparo) before a
federal circuit court seeking to reverse the appeals court's ruling. Accepting
TV Azteca's action for relief, the federal circuit court instructed the appeals
court to decide whether TV Azteca is entitled to damages arising from TVM's
actions. Following this decision, the appeals court resolved that CNI committed
an illegal act which allows TV Azteca to seek damages, but that such damages
should be pursued pursuant to a different cause of action. TV Azteca filed an
action for relief before the same federal circuit court. This action is pending.

      In July 2002, TV Azteca filed a lawsuit against Mr. Moreno Valle seeking
the foreclosure of the pledge over 51% of the capital stock of TVM. This action,
which is pending before a Mexican court, substituted a legal action that TV
Azteca had commenced to enforce a guaranty trust.

      In November 2002, TV Azteca requested the bankruptcy of CNI before a
Mexican court. In January 2003, CNI submitted its response. This action is
pending before a bankruptcy court.

      In November 2000, TV Azteca filed another action before the International
Court of Arbitration of the International Chamber of Commerce. In this action,
TV Azteca sought to enforce TV Azteca's option to purchase up to 51% of the
capital stock of TVM. TVM and Mr. Moreno Valle filed legal responses to these
claims. In December 2002, an arbitral tribunal issued an award concluding that
the joint venture and the option agreement entered into by TV Azteca and CNI are
valid, in effect and enforceable. TV Azteca believes this arbitral award
confirms TV Azteca's right to operate Channel 40 as contemplated by the joint
venture and to exercise its right to acquire up to 51% of the capital stock of
TVM.

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      In reliance on the arbitral award issued in December 2002 by the arbitral
tribunal of the International Court of Arbitration, TV Azteca took possession of
certain broadcasting facilities of Channel 40 to restore TV Azteca's signal on
Channel 40. Following this event, the SCT took exclusive control of the Channel
40 transmission site and signal.

      In December 2002, CNI filed criminal complaints against individuals who
took possession of the broadcasting facilities of Channel 40. These complaints,
which resulted in criminal judgments, are currently being appealed before a
federal criminal judge. No director or executive officer of TV Azteca or its
parent is a part of these proceedings.

      In January 2003, CNI filed an action for relief (amparo) before a Mexican
federal district court seeking to reverse the SCT's decision to take exclusive
control of the Channel 40 transmission site and signal. The Mexican federal
district court suspended the SCT's decision, but required that TVM place
US$5.0 million bail in respect of such suspension, which TVM placed. On January
27, 2003, CNI regained control of the Channel 40 transmission site and signal.
As of the date of this Annual Report, no TV Azteca signal is being broadcast on
Channel 40.

      On February 10, 2003, the SCT imposed a Ps.210,750 (US$21,000) fine on TV
Azteca for having entered the broadcasting facilities of Channel 40 on December
27, 2002.

      TV Azteca is actively seeking to enforce its rights to operate Channel 40
and believes that it will be successful in its legal actions against CNI and Mr.
Moreno Valle. However, no assurance can be given as to the outcome of these
actions. If the Channel 40 litigation were to be adversely determined against TV
Azteca, TV Azteca could lose the benefit of all or part of its option to
purchase 51% of the capital stock of TVM, the joint venture agreement that
allows TV Azteca to operate Channel 40 and revenues received therefrom could be
terminated. However, in such event, CNI would continue to be indebted to TV
Azteca for approximately US$34.0 million, which indebtedness would continue to
be secured by the pledge of 51% of TVM's capital stock.

      La Academia

      On October 16, 2002, Gestmusic Endemol, S.A., or Endemol, filed an
administrative claim before the Instituto Mexicano de la Propiedad Industrial
("IMPI"), the Mexican trademark agency. Endemol alleges that TV Azteca violated
certain provisions of the Ley de la Propiedad Industrial ("Mexican Industrial
Law") because TV Azteca did not obtain authorization from Endemol to use the
trademark La Academia, and that such unauthorized use caused confusion among the
general public. Endemol seeks that TV Azteca refrain from conducting unfair
practices in the future, which it argues includes the use of La Academia's name
and format, and that IMPI impose a penalty on TV Azteca for its violations. TV
Azteca has denied this allegation, asserting that Endemol's trademark rights do
not extend to television programming and that the name is of such general nature
that it is not appropriate for trademark protections. This administrative action
is still pending final resolution before the IMPI. In addition, TV Azteca has
requested that IMPI declare the trademark La Academia null and void alleging
that such trademark is descriptive in nature and of common public use for the
services it was registered.

      TV Azteca believes that if the administrative claim were to be adversely
determined to TV Azteca, TV Azteca could be subject to a fine of up to
Ps.873,000 (US$83,982).

UNEFON

      Unefon and Nortel recently settled disputes over each party's compliance
with the terms and conditions of the finance agreement, letter agreement,
procurement agreement, and other related agreements entered into by the parties
and certain of their shareholders and affiliates.

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      The dispute began when Unefon asserted that Nortel had not fulfilled its
obligations under the finance agreement, letter agreement and procurement
agreement and, as a result, withheld a US$6.0 million interest payment due to
Nortel in August 2002 and asserted that it was relieved of its payment
obligations under the finance agreement by reason of Nortel's breaches.

      On August 28, 2002, Nortel sent Unefon a notice alleging that Unefon was
in default under the finance agreement due to its non-payment of the August 2002
interest payment. Nortel also alleged that the proposed spin-off by TV Azteca of
its 46.5% stake in Unefon would be deemed to be a change in control under the
terms of the finance agreement, which also would constitute a default under the
finance agreement unless Nortel consented to such action. Nortel notified Unefon
on September 9, 2002 that based on its non-payment of the August 2002 interest
payment, Nortel was accelerating all amounts owed by Unefon under the finance
agreement. Nortel also notified Unefon that it was exercising its right to
terminate the procurement agreement as a result of Unefon's alleged default
under the finance agreement.

      On September 9, 2002, Unefon filed a lawsuit against Nortel in the Supreme
Court of the State of New York seeking damages and lost profits in the amount of
US$900.0 million. On September 23, 2002, Nortel filed an answer and counterclaim
in which Nortel asserted, among other things, that it had not breached the
finance agreement and related letter agreement and that the remedies sought by
Unefon were not available under the finance agreement, the procurement agreement
or applicable law. Nortel's counterclaim was based on Unefon's non-payment of
the August 2002 interest payment and Nortel sought acceleration and immediate
payment of all amounts allegedly due to Nortel under the finance agreement. The
parties filed additional claims and counterclaims before the New York Supreme
Court and the American Arbitration Association in New York City, in addition to,
among other Mexican actions, a petition by Nortel to a Mexican court for the
bankruptcy of Unefon before the parties reached a settlement on June 16, 2003.

      On June 16, 2003, Unefon reached a settlement with Nortel pursuant to
which Unefon and Nortel released each other from all obligations arising out of
the procurement agreement, finance agreement or any related agreements and
terminated all actions and proceedings of any kind between the parties or
involving the parties and their counsel, in the U.S. and Mexico. Unefon and
Nortel also terminated the procurement agreement and entered into a new supply
agreement. In connection with the settlement, Unefon paid an aggregate of
US$43.0 million to Nortel to be applied to accounts receivable and to a
reduction in the total amount of debt owed by Unefon to Nortel to US$325.0
million. Concurrently with the settlement, Codisco purchased the US$325.0
million debt of Unefon from Nortel. Unefon has announced that the term of this
debt between Unefon and Codisco is to be amended to provide for, among other
things, an extension of the maturity date until June 15, 2013. See "Item 4.
Information on the Company--Other Operations--Unefon--Nortel Settlement."

      TV Azteca's Obligations

      On December 20, 2002, Nortel notified TV Azteca and Mr. Saba of its view
that Unefon's non-payment of the August 2002 interest payment under the Nortel
finance agreement triggered their joint and several obligation to make
additional funds available to Unefon up to an aggregate amount of US$35.0
million as provided in the shareholders' undertaking. TV Azteca and Mr. Saba
disputed Nortel's contention that their funding obligation had been triggered,
asserting that Nortel had materially breached the finance agreement and the
procurement agreement, thereby excusing Unefon from performance of its
obligations under these agreements and, therefore, that TV Azteca and Mr. Saba
are excused from performance of their obligations under the shareholders'
undertaking. TV Azteca and Mr. Saba also asserted that, even if their funding
obligation had been triggered, they had satisfied their obligations under the
shareholders' undertaking by making up to US$35.8 million in additional funds
available to or on behalf of Unefon, US$19.1 million of which was paid by TV
Azteca to Unefon and certain of its creditors. In connection with the settlement
with Nortel, Nortel has released TV Azteca and Mr. Saba from any obligation or
liability in connection with this undertaking.

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MATERIAL CONTRACTS

      The Company's agreements with related parties are described in "Related
Party Transactions" under "Item 7. Major Shareholders and Related Party
Transactions."

      Unefon has entered into a new supply agreement with Nortel and has issued
a note to Codisco, to whom Unefon's indebtedness to Nortel was assigned pursuant
to an assignment and assumption agreement between Codisco and Nortel, in
connection with the equipment and working capital needs of its mobile wireless
telecommunications network. See "Item 4. Information on the Company--Other
Operations" for a description of these and related agreements.

      Azteca International has entered into a settlement agreement and related
agreements with Pappas affiliates. See "Item 4. Information on the Company--TV
Azteca--Other Operations" for a description of these agreements.

EXCHANGE CONTROLS

      Since November 11, 1991, Mexico has had a free market for foreign
exchange. Prior to December 21, 1994, the Mexican Central Bank kept the peso
U.S. dollar exchange rate within a range prescribed by the Mexican government
through intervention in the foreign exchange market. On December 21, 1994, the
Mexican government announced its decision to suspend intervention by the Mexican
Central Bank and to allow the peso to float freely against the U.S. dollar.
Factors contributing to the decision included the growing size of Mexico's
current account deficit, the declining level of the Mexican Central Bank's
foreign exchange reserves, rising interest rates for other currencies,
especially the U.S. dollar, and reduced confidence in the Mexican economy on the
part of international investors due to political uncertainty. The Mexican
government's decision caused a significant devaluation of the peso against the
U.S. dollar. The devaluation produced a number of adverse effects on the Mexican
economy that, in turn, adversely affected the financial condition and results of
operations of the Company. Interest rates in Mexico increased substantially,
thus increasing the cost of borrowing. In addition, in response to the adverse
effects of the devaluation, the Mexican government established an economic
recovery program designed to tighten the money supply, increase domestic
savings, discourage consumption and reduce public spending generally. Foreign
investment in Mexico by private sources declined significantly.

      In 2000, the peso weakened to Ps.9.650 per U.S. dollar at December 31,
2000, a 1.6% decrease in value from December 31, 1999. In 2001, the peso
strengthened to Ps.9.160 per U.S. dollar at December 31, 2001, a 5.1% increase
in value from December 31, 2000. In 2002, the peso weakened to Ps.10.395 per
U.S. dollar at December 31, 2002, a decrease of 13.5% in value from December 31,
2001. There can be no assurance that the Mexican government will maintain its
current policies with regard to the peso or that the peso will not further
depreciate or appreciate significantly in the future.

TAXATION

      The following summary contains a description of the principal U.S. federal
and Mexican income tax consequences of the purchase, ownership and disposition
of the Azteca Holdings Notes, but it does not purport to be a comprehensive
description of all of the tax considerations relating thereto. In particular,
this summary deals only with holders that will hold the Azteca Holdings Notes as
capital assets and does not address the tax treatment of a holder that may be
subject to special tax rules, such as banks, tax-exempt organizations, insurance
companies, dealers in securities or currencies, traders in securities that elect
to mark to market, persons that will hold the Azteca Holdings Notes as part of
an integrated investment (including a "straddle") comprised of the Azteca
Holdings Notes and one or more other positions and persons that have a
"functional currency" other than the U.S. dollar, nor does it address the tax
treatment of holders of the Azteca

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Holdings Notes who did not acquire the Azteca Holdings Notes at their issue
price as part of the initial distributions.

      This summary is based on the tax laws of the U.S. and Mexico in force on
the date of this Annual Report, including the provisions of the income tax
treaty between the U.S. and Mexico (the "Tax Treaty"), which are subject to
change (possibly with retroactive effect). Holders of the Azteca Holdings Notes
should consult their own tax advisors as to the U.S. federal, Mexican or other
tax consequences of the purchase, ownership and disposition of the Azteca
Holdings Notes including, in particular, the effect of any foreign, state or
local tax laws.

      As used herein, the term "U.S. Holder" means the beneficial owner of
Azteca Holdings Notes, that is, for U.S. federal income tax purposes: (i) an
individual who is a citizen or resident of the U.S.; (ii) a corporation or other
entity taxable as a corporation created or organized under the laws of the U.S.
or any political subdivision thereof; (iii) an estate the income of which is
subject to U.S. federal income taxation regardless of its source; or (iv) a
trust if (a) a court within the U.S. is able to exercise primary supervision
over the administration of the trust and (b) one or more U.S. persons have the
authority to control all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in the Treasury Regulations, certain
trusts in existence on August 20, 1996, and treated as U.S. persons prior to
such date that elect to continue to be treated as U.S. Holders if they are
beneficial owners of Azteca Holdings Notes. The term "Non-U.S. Holder" shall
mean the beneficial owner of an Azteca Holdings Note other than a U.S. Holder.

      As used herein, the term "Non-Mexican Holder" means a holder of the Azteca
Holdings Notes that is not a resident of Mexico and that will not hold the
Azteca Holdings Notes or a beneficial interest therein in connection with the
conduct of a trade or business through a permanent establishment in Mexico.

      For purposes of Mexican taxation, an individual is a resident of Mexico if
he has established his domicile in Mexico, unless he has resided in another
country for more than 183 calendar days during a calendar year, whether
consecutive or not (except for public officers or governmental employees), and
can demonstrate that he has become a resident of that country for tax purposes,
and a legal entity is a resident of Mexico either if it was established under
Mexican law or if it has its principal place of business or its place of
effective management in Mexico. A Mexican citizen pursuant to Mexican law is
presumed to be a resident of Mexico for tax purposes unless such person or
entity can demonstrate otherwise. If a non-resident has a permanent
establishment in Mexico for tax purposes, all income attributable to such
permanent establishment will be subject to Mexican taxes, in accordance with
relevant tax provisions.

MEXICAN TAX CONSIDERATIONS

      The following summary of certain Mexican federal income tax considerations
is a general summary of the principal consequences under the Mexican Income Tax
Law (Ley del Impuesto Sobre la Renta) and rules and regulations thereunder, as
currently in effect, of the purchase, ownership and disposition of the notes by
a Non-Mexican Holder and does not describe any tax consequences arising under
the laws of any state, locality or taxing jurisdiction other than Mexico. This
summary does not purport to be a comprehensive description of all tax
considerations that may be relevant to a decision to purchase the notes. This
section treats the tax provisions in force as of January 1, 2002. The tax
treatment described herein may be affected by any new rules and regulations
relating to the Mexican Income Tax Law that are issued subsequent to the date of
this Annual Report.

      TAXATION OF INTEREST AND PRINCIPAL

      Under Mexico's Income Tax law and the rules promulgated thereunder in
effect for 2003, payments of interest made by the Company in respect of the
Azteca Holdings Notes to a non-resident holder will generally be subject to a
Mexican withholding tax assessed at a rate of 4.9% if (i) the relevant Azteca
Holdings Notes

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are registered with the Special Section of the RNV maintained by the National
Banking and Securities Commission, (ii) the Azteca Holdings Notes are placed,
through banks or brokerage houses, in a country which has entered into a treaty
to avoid double taxation with Mexico, and (iii) no related party directly or
indirectly, individually or jointly with related parties is the beneficial owner
of more than 5% of interests paid by the Company. Related parties as defined in
the Mexican income tax law are a) persons owning more than 10% of the voting
capital stock of the Company, directly or indirectly, jointly or individually
with related parties or b) entities of which more than 20% of their capital
stock are owned directly or indirectly, individually or jointly by related
parties of the Company.

      Under Rule 3.25.15 of the General Rules issued by the Ministry of Finance
published in the Diario Oficial de la Federacion on March 31, 2003, the 4.9% tax
rate applicable under the Mexican Income Tax Law described in the preceding
paragraph will only apply if (i) the Azteca Holdings Notes continue to be
registered in the Special Section of the RNV, (ii) the Company timely files with
the Ministry of Finance within the first 15 business days of July and October,
2003, and January and April, 2004, information regarding the amount of interests
paid on the Azteca Holdings Notes and the date of such payment, and a statement
representing that no party related to the Company (as such terms are defined in
the Rules (as stated in the preceding paragraph), jointly or individually,
directly or indirectly, is the effective beneficiary of 5.0% or more of the
aggregate amount of each such interest payments, and (iii) the Company maintains
records which evidence compliance with items (i) and (ii) above. The Company
expects that such conditions will be met during the effective time of such Rule.
If the requirements under such rule are not complied with, withholding tax on
the payment of interest on the Azteca Holdings Notes will be assessed at a rate
of 10% for holders other than parties related to the Company as described in
item (ii) above, in which case 34% income tax rate will apply on interest
payments. The Rules, together with other tax regulations, are promulgated on an
annual basis, and therefore, no assurances can be given that the Rules will be
extended or that equivalent Rules will be enacted.

      Under the Mexican tax law, payments of interest made by the Company with
respect to the Azteca Holdings Notes to non-Mexican pension or retirement funds
are exempt from Mexican withholding taxes, provided that the fund (i) is the
effective beneficiary of the interest, (ii) is duly organized pursuant to the
laws of its country of origin (regardless of the type of organization), (iii) is
exempt from income tax in such country and (iv) is duly registered with the
Mexican Ministry of Finance for such purposes.

      The Company has agreed, subject to certain exceptions and limitations, to
pay additional amounts in respect of the above-mentioned Mexican withholding
taxes to holders of the Azteca Holdings Notes.

      Holders or beneficial owners of Azteca Holdings Notes may be requested,
subject to specified exceptions and limitations, to provide certain information
or documentation necessary to enable the Company to establish the appropriate
Mexican withholding tax rate applicable to such holders or beneficial owners in
respect of interest payments under the Azteca Holdings Notes. In the event that
the specified information or documentation concerning the holder or beneficial
owner, if requested, is not provided prior to the payment of any interest to
such holder or beneficial owner, the Company may withhold Mexican tax from such
interest payment to such holder or beneficial owner at the maximum applicable
rate (currently 10.0%), but its obligation to pay additional amounts under the
TV Azteca Indenture in respect of such withholding taxes will be limited.

      Under the Mexican tax law and the Rules thereunder, a Non-Mexican Holder
is not to be subject to any Mexican withholding or similar taxes in connection
with payments of principal made by the Company in connection with the Azteca
Holdings Notes.

      TAXATION OF DISPOSITIONS OF NOTES

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      Capital gains resulting from the sale of other disposition of the TV
Azteca Notes by a Non-Mexican Holder will not be subject to Mexican income or
other taxes.

      OTHER TAXES

      A Non-Mexican Holder will not be liable for Mexican estate, gift,
inheritance or similar taxes with respect to its holding, nor will it be liable
for Mexican stamp, registration or similar taxes.

      RECENT TRANSACTIONS

      On October 19, 2000, TV Azteca granted, on a pro rata basis to certain of
its shareholders, including the Company, rights to acquire all of the shares of
Unefon and Cosmofrecuencias owned by TV Azteca (as described above, the Rights).
The exercise price of the Rights was determined by TV Azteca based on its
valuation of the shares underlying the Rights as of the date the Rights were
granted. There is the possibility, as there is in any transaction involving
valuation, that the Mexican tax authorities may challenge TV Azteca's
determination (although management of TV Azteca believes this possibility is
remote). If TV Azteca's valuation of the Rights is successfully challenged by
the Mexican tax authorities, TV Azteca could be liable for the payment of
corporate and withholding taxes, including penalties and interest. The amount of
any tax liability would likely depend on, among other things, the valuation of
the shares underlying the Rights. If the amount of any tax liability were
substantial, it could harm TV Azteca's business and results of operations TV
Azteca.

      In connection with the grant of Rights, the Company granted Ricardo B.
Salinas Pliego and Elisa Salinas Gomez, his aunt, the right to purchase a
specified number of the Unefon shares acquired by the Company upon exercise of
the Unefon Rights for a non-refundable premium of $6.65 million. The premium
paid for this purchase right was determined by the Company. There is the
possibility, as there is in any transaction involving valuation, that the
Mexican tax authorities may challenge the Company's determination, although the
Company believes this possibility is remote. If the Company's valuation of the
purchase right is successfully challenged by the Mexican tax authorities, the
Company could be liable for the payment of additional income tax, including
penalties and interest. The amount of any tax liability would likely depend on,
among other things, the valuation of the Unefon shares underlying the purchase
right. If the amount of any tax liability were substantial, it could harm the
Company's business and results of operations.

      UNITED STATES TAX CONSIDERATIONS

      The following summary of certain U.S. federal income tax considerations is
a general summary of the principal consequences under the Internal Revenue Code
of 1986, as amended, as well as regulations, published rulings, and court
decisions thereunder, as currently in effect, of the purchase, ownership and
disposition of the Azteca Holdings Notes by a U.S. Holder and does not describe
any tax consequences arising under the laws of any state, locality or taxing
jurisdiction other than the U.S. This summary does not purport to be a
comprehensive description of all tax considerations that may be relevant to a
U.S. Holder of the Azteca Holdings Notes.

      TAXATION OF INTEREST AND ADDITIONAL AMOUNTS

      A U.S. Holder will treat the gross amount of interest and additional
amounts (i.e., without reduction for Mexican withholding taxes) received in
respect of the Azteca Holdings Notes as ordinary income at the time the
interest and additional amounts are received or accrued, in accordance with the
U.S. holder's method of accounting for U.S. federal income tax purposes.

      The 10 1/2% Notes were issued with original issue discount ("OID") for
federal income tax purposes. The Company does not have sufficient information at
this time to determine whether the 10 3/4% Notes were issued with OID for
federal income tax purposes. U.S. Holders should consult their tax advisors with
regard to the amount of OID, if any, on the 10 3/4% Notes. The 12 1/2% Notes
were not issued with OID for federal income tax purposes, and U.S. Holders will
not be subject to the OID rules discussed below with respect to their 12 1/2%
Notes.

      The amount of OID on a note that was issued with OID will equal the
difference between the note's stated redemption price at

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maturity and its issue price. The stated redemption price at maturity of a note
is equal to the sum of all payments under the note other than payments of
qualified stated interest. Qualified stated interest is stated interest that is
unconditionally payable at least annually at a single fixed rate. The issue
price of a note issued for money is equal to the first price at which a
substantial amount of the notes is sold to purchasers other than bond houses,
brokers, or similar persons or organizations acting in the capacity of
underwriters, placement agents, or wholesalers. The issue price of a note not
issued for money that is treated as "publicly traded" under applicable Treasury
Regulations is the fair market value of the note on the issue date. The issue
price of a note not issued for money that is not treated as "publicly traded,"
but that is issued for property that is so treated, is the fair market value of
such property on the issued date.

      A U.S. Holder of a note that was issued with OID will be required to
include OID in income as it accrues, in accordance with a constant yield method
based on a compounding of interest, before the receipt of cash payments
attributable to that income. The amount of OID includible in income for a
taxable year by a U.S. Holder will equal the sum of the daily portions of the
OID on the note for each day during the taxable year on which the U.S. Holder
held the note. The daily portion of OID is determined by allocating to each day
in any accrual period its ratable portion of the OID allocable to that accrual
period. The term accrual period means any interval of time of one year or less,
provided that each scheduled payment of principal or interest occurs on either
the final or first day of an accrual period. The amount of OID allocable to an
accrual period is generally equal to the difference between (i) the product of
the adjusted issue price of the note at the beginning of that accrual period and
its yield to maturity adjusted to reflect the length of the accrual period and
(ii) the amount of any qualified stated interest allocable to the accrual
period. The adjusted issue price of a note at the beginning of an accrual period
will generally equal the issue price of the note plus the amount of OID
allocable to all prior accrual periods (minus, if applicable, any payments
previously made on the note that were not qualified stated interest payments).
The yield to maturity of the note will be computed on the basis of a constant
annual interest rate compounded at the end of each accrual period that results
in the present value of all payments on a note equaling its issue price. Special
rules will apply for calculating OID for initial or final short accrual periods.

      Mexican withholding taxes paid at the appropriate rate applicable to a
U.S. Holder will be treated as foreign income taxes eligible for credit against
the U.S. Holder's U.S. federal income tax liability, subject to generally
applicable limitations and conditions, or, at the election of such U.S. Holder,
for deduction in computing the U.S. Holder's taxable income. Income from OID, as
applicable, interest and additional amounts on the Azteca Holdings Notes will
constitute foreign source income and generally will be treated as "passive
income" or, in the case of certain holders, "financial services income" for U.S.
foreign tax credit purposes. Any such income subject to Mexican withholding tax
at a rate of 5% or more, however, will generally be treated as "high withholding
tax interest" for U.S. foreign tax credit purposes. U.S. Holders that elect to
credit foreign taxes are urged to consider carefully the limitations and
conditions that may affect their ability to credit Mexican withholding taxes
against their U.S. income tax liability. In this regard, for example, U.S.
Holders of notes issued with OID will be required to include in income amounts
treated as OID as it accrues as described above, whereas the related Mexican
withholding tax will be assessed only when such amounts are actually paid. U.S.
Holders should consult their own advisors regarding the availability of foreign
tax credits and the implications of these rules in light of their particular
circumstances. Additionally, U.S. Holders that use an accrual method of
accounting for tax purposes should consult their tax advisors with regard to the
proper accrual of additional amounts.

      Subject to the discussion below concerning backup withholding and
information reporting, a holder or beneficial owner of the Azteca Holdings Notes
that is, with respect to the U.S., a foreign corporation or a nonresident alien
individual (a "Non-U.S. Holder") generally will not be subject to U.S. federal
income or withholding tax on OID, as applicable, interest income or additional
amounts earned in respect of the Azteca Holdings Notes, unless such income is
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business in the U.S.

      TAXATION OF DISPOSITIONS OF THE AZTECA HOLDINGS NOTES

      Upon the sale, exchange, retirement (including a redemption by the
Company) or other disposition of an Azteca Holdings Note, a U.S. Holder
generally will recognize gain or loss equal to the difference between the

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amount realized on the sale, exchange, retirement or other disposition (except
to the extent such amount is attributable to accrued but unpaid interest, which
will be taxable as such) and such U.S. Holder's adjusted tax basis in the Azteca
Holdings Note. A U.S. Holder's adjusted tax basis in an Azteca Holdings Note
generally will equal the issue price (as defined above) of such note to such
holder, increased by the amount of any OID on the note previously includible in
the U.S. Holder's income, and decreased by any payments on the note that were
attributable to accrued OID or principal. Scheduled payments on a note prior to
maturity (other than payments of qualified stated interest), including payments
made in amortization of the principal amount thereof, as applicable, will be
treated first as a payment of OID to the extent of any OID that has accrued as
of the date the payment is due and has not been allocated to prior payments, and
second as a payment of principal. Such gain or loss will be long-term capital
gain or loss if, at the time of the disposition, the U.S. Holder's holding
period in the Azteca Holdings Note is more than one year. Long-term capital gain
realized by a U.S. Holder that is an individual generally is subject to a
maximum federal income tax rate of 15%. Any gain a U.S. Holder realizes on the
sale, exchange or retirement of an Azteca Holdings Note generally will be
treated as a U.S. source for U.S. foreign tax credit purposes. Any loss a U.S.
Holder realizes upon a sale, exchange or retirement of an Azteca Holdings Note
generally will be allocated against U.S. source income for U.S. foreign tax
credit purposes.

      Subject to the discussion below concerning backup withholding and
information reporting, a Non-U.S. Holder of the Azteca Holdings Notes will not
be subject to U.S. federal income or withholding tax on gain realized on the
sale or other disposition of the Azteca Holdings Note unless (i) such gain is
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business in the U.S. or (ii) in the case of gain realized by an individual
Non-U.S. Holder, the Non-U.S. Holder is present in the U.S. for 183 days or more
in the taxable year of the disposition and certain other conditions are met.

      BACKUP WITHHOLDING AND INFORMATION REPORTING

      Payments of Principal, OID and Interest. Information reporting
requirements generally will apply to all payments in respect of the Azteca
Holdings Notes within the U.S. to a non-corporate holder, including payments
made by wire transfer from outside the U.S. to an account maintained with a
fiscal or paying agent in the U.S. Additionally, backup withholding at a current
rate of 28% will apply to such payments if a U.S. Holder: (i) fails to provide
an accurate taxpayer identification number; or (ii) is notified by the Internal
Revenue Service that it has failed to report all interest and dividends required
to be shown on its federal income tax returns. A Non-U.S. Holder is generally
exempt from backup withholding and information reporting requirements with
respect to payments of principal and interest, assuming the income is otherwise
exempt from U.S. federal income tax, provided that the Non-U.S. Holder complies
with certain certification and identification procedures in order to prove its
exemption.

      Proceeds from the Sale of a Note. Payment of the proceeds from the sale of
an Azteca Holdings Note to or through the U.S. office of a broker may be subject
to information reporting and backup withholding. A Non-U.S. Holder will not be
subject to information reporting or backup withholding if it certifies as to its
non-U.S. status or otherwise establishes an exemption. Payment of the proceeds
from the sale of an Azteca Holdings Note made to or through a foreign office of
a broker generally will not be subject to information reporting or backup
withholding. Information reporting, but not backup withholding, may apply to
such payments, however, if the broker is:

      .     a U.S. person;

      .     a controlled foreign corporation for U.S. tax purposes;

      .     a foreign person 50% or more of whose gross income is effectively
            connected with a U.S. trade or business for a specified three-year
            period; or

      .     a foreign partnership if at any time during its tax year:

            .     one or more of its partners are U.S. persons, as defined in
                  U.S. Treasury Regulations, who in the aggregate hold more than
                  50% of the income or capital interest in the partnership; or

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<PAGE>

            .     the foreign partnership is engaged in a U.S. trade or
                  business,

unless the broker has documentary evidence in its records that the holder is a
non-U.S. person and does not have actual knowledge that the holder is a U.S.
person or otherwise establishes an exemption.

DOCUMENTS ON DISPLAY

      The Company files reports and other information with the SEC. You may read
and copy any documents that the Company files at the SEC's public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room.

ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates. From time to time, TV Azteca assesses its
exposure and monitors opportunities to manage these risks. In the past, TV
Azteca has held risk-sensitive instruments for investment purposes, although
there were no such instruments as of December 31, 2002. See Note 4 to the
Consolidated Financial Statements. The Company had no material derivative or
hedging transactions during 2002.

INTEREST RATE RISK

      Interest rate risk exists principally with respect to the Company's
consolidated indebtedness that bears interest at floating rates. At December 31,
2002, the Company had approximately US$871.4 million aggregate principal amount
of outstanding consolidated indebtedness, of which approximately 98% bore
interest at fixed interest rates and approximately 2% bore interest at variable
rates of interest. The interest rate on the Company's variable rate debt is
determined by reference to London inter-bank offer rate ("LIBOR").

      An unfavorable change of 100 basis points in the average interest rate
applicable to floating-rate liabilities held at December 31, 2002 would have
increased the Company's interest expense for the year ended December 31, 2002 by
approximately Ps.1.6 million (US$149,000), or 0.1%.

      The Company generally does not hedge or enter into derivative transactions
with respect to its interest rate-sensitive financial instruments.

FOREIGN CURRENCY EXCHANGE RISK

      The Company's principal foreign currency exchange risk involves changes in
the value of the peso relative to the U.S. dollar. Provided below is a summary
of the Company's net foreign currency exposure. U.S. dollar denominated assets
represent principally accounts receivable and cash investments, and the U.S.
dollar denominated liabilities represent primarily the 10 1/2% Notes, the 12
1/2% Notes, the TV Azteca Notes, the ATC Long-Term Credit Facility, bank debt
and accounts payable.

                                                            AT DECEMBER 31, 2002
                                                            --------------------
                                                               (in millions)

U.S. dollar denominated assets..........................         US$  502.0

U.S. dollar denominated liabilities.....................             (952.7)
                                                                 -----------

Net liability position..................................               450.7
                                                                 ===========

      An unfavorable 10% devaluation in the value of the peso relative to the
dollar would have resulted in an increase in the Company's comprehensive
financing cost of Ps.535 million, reflecting higher interest expense

                                       89

<PAGE>

on U.S. dollar denominated indebtedness and exchange losses based on the
Company's net U.S. dollar liability position at December 31, 2002. A 10%
devaluation during the year ended December 31, 2002 would have resulted in a
Ps.60 million (US$5.8 million) decline in operating profit, as approximately
2.4% of the Company's net revenue and approximately 22% of its costs and
expenses were denominated in U.S. dollars.

      The Company generally does not hedge or enter into derivative transactions
with respect to its foreign currency exchange-sensitive instruments.

      See Note 18d to the Consolidated Financial Statements for a discussion of
the fair value of the Company's financial instruments.

PUT OPTION

      In October 2002, TV Azteca purchased a put option from a Mexican banking
institution pursuant to which such banking institution agreed to purchase up to
6,500,000 shares of Grupo Elektra (ticker: Elektra* on the Mexican Stock
Exchange) from TV Azteca at a strike price of Ps.36.82 per share, subject to
certain adjustments. TV Azteca paid a premium of Ps.25.1 million (US$2.5
million) on February 26, 2003 in connection with the put option. If there is a
governmentally-imposed prohibition on the ability of a U.K. entity, a U.S.
entity or TV Azteca to exchange pesos for U.S. dollars in connection with the
put option, which prohibition is in force for a period of not less than five
consecutive days during the 30-calendar-day period ending on and including the
settlement date of the put option, then the put option shall be deemed to have
expired without value. Settlement of the put option shall be either cash or
shares of Grupo Elektra, as determined by TV Azteca pursuant to a notice to the
banking institution no less than 10 days prior to the expiration date. The put
option expires on the close of trading on October 25, 2003. As of June 16, 2003,
the price per share of Grupo Elektra as quoted on the Mexican Stock Exchange was
Ps.29.73.

ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not required.

                                     PART II

ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
           PROCEEDS

None.

ITEM 15.   CONTROLS AND PROCEDURES

      Within 90 days prior to the filing of this Annual Report, an evaluation
was carried out under the supervision and with the participation of the
Company's management, including its Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls
and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance of achieving their control objectives, and
management necessarily applies its judgment in assessing the costs and benefits
of such controls and procedures. Based upon and as of the date of the
evaluation, the Company's Chief Executive Officer and its Chief Financial
Officer have concluded that the

                                       90

<PAGE>

Company's disclosure controls and procedures were effective in providing
reasonable assurance that information required to be disclosed in the Company's
reports under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to the Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.

      There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date the Company's Chief Executive Officer and its Chief Financial Officer
completed their evaluation, nor were there any significant deficiencies or
material weaknesses in the Company's internal controls requiring corrective
actions.

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

Not required.

ITEM 16B.  CODE OF ETHICS

Not required.

                                    PART III

ITEM 17.   FINANCIAL STATEMENTS

      The Company has responded to Item 18 in lieu of this Item.

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<PAGE>

ITEM 18.   FINANCIAL STATEMENTS

LIST OF FINANCIAL STATEMENTS

     Consolidated Financial Statements for Azteca Holdings, S.A. de C.V. and
                                  Subsidiaries

                                                                           PAGE
                                                                           ----
Report of Independent Auditors.........................................     F-3
Consolidated Balance Sheets as of December 31, 2001 and 2002...........     F-5
Consolidated Statements of Results of Operations
 for the Years Ended December 31, 2000, 2001 and 2002..................     F-6
Consolidated Statements of Stockholders' Equity
 for the Years Ended December 31, 2000, 2001 and 2002..................     F-7
Consolidated Statements of Changes in Financial Position
 for the Years Ended December 31, 2000, 2001 and 2002..................     F-8
Notes to Consolidated Financial Statements.............................     F-9

 Consolidated Financial Statements for TV Azteca, S.A. de C.V. and Subsidiaries

                                                                           PAGE
                                                                           ----
Report of Independent Auditors.........................................    F-77
Consolidated Balance Sheets as of December 31, 2001 and 2002...........    F-79
Consolidated Statements of Results of Operations
 for the Years Ended December 31, 2000, 2001 and 2002..................    F-80
Consolidated Statements of Stockholders' Equity
 for the Years Ended December 31, 2000, 2001 and 2002..................    F-81
Consolidated Statements of Changes in Financial Position
 for the Years Ended December 31, 2000, 2001 and 2002..................    F-82
Notes to Consolidated Financial Statements.............................    F-83

   Consolidated Financial Statements for Unefon, S.A. de C.V. and Subsidiaries

                                                                           PAGE
                                                                           -----
Report of Independent Auditors.........................................    F-147
Consolidated Balance Sheets as of December 31, 2001 and 2002...........    F-149
Consolidated Statements of Results of Operations
 for the Years Ended December 31, 2000, 2001 and 2002..................    F-150
Consolidated Statements of Stockholders' Equity
 for the Years Ended December 31, 2000, 2001 and 2002..................    F-151
Consolidated Statements of Changes in Financial Position
 for the Years Ended December 31, 2000, 2001 and 2002..................    F-152
Notes to Consolidated Financial Statements.............................    F-153

ITEM 19.   EXHIBITS

LIST OF EXHIBITS

1.1   Amended and Restated By-laws of Azteca Holdings, S.A. de C.V., together
      with an English translation (incorporated by reference from Exhibit 3.1 of
      the Company's Registration Statement on Form F-4 (Registration No.
      333-7776)).

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<PAGE>

2.1   Indenture dated as of May 13, 2003 by and between Azteca Holdings, S.A. de
      C.V. and The Bank of New York as Trustee.

2.2   Caucion Bursatil for TVA CPOs, dated May 12, 2003, among Invex Casa de
      Bolsa, S.A. de C.V. and Grupo Financiero Invex as escrow agent and
      executor and Azteca Holdings, S.A. de C.V., together with an English
      translation.

2.3   Indenture dated January 31, 2002 by and between Azteca Holdings, S.A. de
      C.V. and The Bank of New York as Trustee (incorporated by reference to
      Exhibit 2.1 of the Company's Annual Report on Form 20-F for the year ended
      December 31, 2001 (Registration No. 333-7776)).

2.4   Caucion Bursatil for TVA CPOs, dated January 31, 2002, among Invex Casa de
      Bolsa, S.A. de C.V. and Grupo Financiero Invex as escrow agent and
      executor and Azteca Holdings, S.A. de C.V., together with an English
      translation (incorporated by reference to Exhibit 2.2 of the Company's
      Annual Report on Form 20-F for the year ended December 31, 2001
      (Registration No. 333-7776)).

2.5   Supplemental Indenture, dated as of May 12, 2003, among Azteca Holdings,
      S.A. de C.V. and the Bank of New York as Trustee.

2.6   Indenture, dated May 18, 2001, by and between Azteca Holdings, S.A. de
      C.V. and The Bank of New York as Trustee (incorporated by reference to
      Exhibit 2.2 of the Company's Annual Report on Form 20-F for the year ended
      December 31, 2001 (Registration No. 333-7776)).

2.7   Caucion Bursatil for TVA CPOs, dated May 18, 2001, among Banco Invex,
      S.A., Institucion De Banca Multiple, Invex Grupo Financiero, Division
      Fiduciara, as trustee for Trust No. 195, Invex Casa de Bolsa, S.A. de
      C.V., as executor and Azteca Holdings, S.A. de C.V., together with an
      English translation (incorporated by reference to Exhibit 2.2 of the
      Company's Annual Report on Form 20-F for the year ended December 31, 2001
      (Registration No. 333-7776)).

2.8   Indenture, dated as of June 18, 1997, among Azteca Holdings, S.A. de C.V.
      and The Bank of New York as Trustee (incorporated by reference to Exhibit
      4.1 of the Company's Registration Statement on Form F-4 (Registration No.
      333-7776)).

2.9   Supplemental Indenture, dated as of March 27, 2001, among Azteca Holdings,
      S.A. de C.V. and the Bank of New York as Trustee (incorporated by
      reference to Exhibit 2.2 of the Company's Annual Report on Form 20-F for
      the year ended December 31, 2000 (Registration No. 333-7776)).

2.10  Second Supplemental Indenture dated May 18, 2001 by and between Azteca
      Holdings, S.A. de C.V. and The Bank of New York as Trustee (incorporated
      by reference to Exhibit 2.2 of the Company's Annual Report on Form 20-F
      for the year ended December 31, 2001 (Registration No. 333-7776)).

2.11  Irrevocable Payment and Administration Trust Agreement, dated June 18,
      1997, between Azteca Holdings, S.A. de C.V. and Citibank Mexico, S.A.,
      Grupo Financiero Citibank, Division Fiduciaria (incorporated by reference
      to Exhibit 4.3 of the Company's Registration Statement on Form F-4
      (Registration No. 333-7776)).

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<PAGE>

2.12  Indenture, dated as of February 5, 1997, among TV Azteca, S.A. de C.V.,
      the Guarantors named therein, and the Bank of New York, as Trustee
      (incorporated by reference to Exhibit 4.1 to TV Azteca's Registration
      Statement on Form F-4 (Registration No. 333-6988)).

2.13  Supplemental Indenture, dated as of May 30, 1997, among TV Azteca, S.A. de
      C.V., the Guarantors named therein, and the Bank of New York, as Trustee
      (incorporated by reference to Exhibit 4.4 to TV Azteca's Registration
      Statement on Form F-4 (Registration No. 333-6988)).

2.14  Supplemental Indenture No. 2, dated as of May 17, 1999 to the Indenture
      dated as of February 5, 1997 among TV Azteca, S.A. de C.V., the Guarantors
      named therein, and the Bank of New York, as Trustee. (incorporated by
      reference to Exhibit 4.1 to the TV Azteca's Annual Report on Form 20-F for
      the year ended December 31, 1998 (File No. 1-4464)).

2.15  Supplemental Indenture No. 3, dated as of May 22, 2000 to the Indenture
      dated as of February 5, 1997 among TV Azteca, S.A. de C.V., the Guarantors
      named therein, and the Bank of New York, as Trustee (incorporated by
      reference to Exhibit 4.1 to TV Azteca's Annual Report on Form 20-F for the
      year ended December 31, 1999 (File No. 1-4464)).

2.16  Supplemental Indenture No. 4, dated as of March 27, 2001 to the Indenture
      dated as of February 5, 1997 among TV Azteca, S.A. de C.V., the Guarantors
      named therein, and the Bank of New York, as Trustee (incorporated by
      reference to Exhibit 2.9 to TV Azteca's Annual Report on Form 20-F for the
      year ended December 31, 2000 (File No. 1-4464)).

4.1   Share Exchange Agreement, dated March 25, 1996, between Azteca Holdings,
      S.A. de C.V. and Elektra, S.A. de C.V., together with an English
      translation (incorporated by reference to Exhibit 4.1 of the Company's
      Annual Report on Form 20-F for the year ended December 31, 2000
      (Registration No. 333-7776)).

4.2   Unefon Agreement, dated March 27, 2001, among Azteca Holdings, S.A. de
      C.V., Mr. Ricardo Benjamin Salinas Pliego and Mrs. Elisa Salinas Gomez
      (incorporated by reference to Exhibit 4.2 of the Company's Annual Report
      on Form 20-F for the year ended December 31, 2000 (Registration No.
      333-7776)).

4.3   Amendment No. 1 to Unefon Agreement, dated May 18, 2001 among Azteca
      Holdings, S.A. de C.V., Mr. Ricardo Benjamin Salinas Pliego and Mrs. Elisa
      Salinas Gomez and acknowledged by The Bank of New York, as Trustee
      (incorporated by reference to Exhibit 2.2 of the Company's Annual Report
      on Form 20-F for the year ended December 31, 2001 (Registration No.
      333-7776)).

4.4   Irrevocable Administration Trust Agreement, dated December 13, 2000, among
      Azteca Holdings, S.A. de C.V., Alternativas Cotsa, S.A. de C.V., Mr.
      Ricardo Benjamin Salinas Pliego, Mrs. Elisa Salinas Gomez and Banco Invex,
      S.A. Institucion de Banca Multiple, Invex Grupo Financiero, together with
      an English translation (incorporated by reference to Exhibit 4.3 of the
      Company's Annual Report on Form 20-F for the year ended December 31, 2000
      (Registration No. 333-7776)).

4.5   Letter, dated February 8, 2001, from Azteca Holdings, S.A. de C.V. and TV
      Azteca, S.A. de C.V., to Mr. Moises Saba Masri, acknowledged and agreed
      upon by Mr. Moises Saba Masri, together with an English summary
      (incorporated by reference to Exhibit 4.4 of the Company's Annual Report
      on Form 20-F for the year ended December 31, 2000

                                       94

<PAGE>

      (Registration No. 333-7776)).

4.6   Shareholders Agreement, dated May 14, 1999, among TV Azteca, S.A. de C.V.,
      Ricardo B. Salinas Pliego, Corporacion RBS, S.A. de C.V. and Moises Saba
      Masri, together with an English translation (incorporated by reference to
      Exhibit 10.1 to TV Azteca's Annual Report on Form 20-F for the year ended
      December 31, 1999 (File No. 1-4464)).

4.7   Agreement, dated February 8, 2001 by and between Azteca Holdings, S.A. de
      C.V., Mr. Moises Saba Masri, Mr. Ricardo B. Salinas Pliego, Mrs. Elisa
      Salinas Gomez, Grupo Elektra, S.A. de C.V. and T.V. Azteca, S.A. de C.V.,
      which amends the Shareholders Agreement, dated May 14, 1999, among TV
      Azteca, S.A. de C.V., Ricardo B. Salinas Pliego, Corporacion RBS, S.A. de
      C.V. and Moises Saba Masri, together with an English translation
      (incorporated by reference to Exhibit 4.2 to TV Azteca's Annual Report on
      Form 20-F for the year ended December 31, 2000 (File No. 1-4464)).

4.8   Equipment Procurement and Services Agreement, dated as of September 7,
      1999, among Sistemas Profesionales de Comunicacion, S.A. de C.V., Nortel
      Networks Corporation and Nortel Networks de Mexico, S.A. de C.V. Portions
      of this exhibit (indicated by asterisks) have been omitted pursuant to a
      request for confidential treatment pursuant to Rule 24b-2 under the
      Securities Exchange Act of 1934 (incorporated by reference to Exhibit 10.2
      to TV Azteca's Annual Report on Form 20-F for the year ended December 31,
      1999 (File No. 1-4464)).

4.9   Finance Agreement, dated as of September 7, 1999, by and among Sistemas
      Profesionales de Comunicacion, S.A. de C.V., Toronto Dominion (Texas),
      Inc. and Nortel Networks Corporation. Portions of this exhibit (indicated
      by asterisks) have been omitted pursuant to a request for confidential
      treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934
      (incorporated by reference to Exhibit 10.3 to TV Azteca's Annual Report on
      Form 20-F for the year ended December 31, 1999 (File No. 1-4464)).

4.10  First Amendment to Finance Agreement dated as of November 15, 1999 by and
      among Operadora Unefon, S.A. de C.V. (formerly known as Sistemas
      Profesionales de Comunicacion, S.A. de C.V.), Toronto Dominion (Texas),
      Inc. and Nortel Networks Corporation (incorporated by reference to Exhibit
      4.5 to TV Azteca's Annual Report on Form 20-F for the year ended December
      31, 2001 (File No. 1-4464))

4.11  Second Amendment to Finance Agreement dated as of March 1, 2000 by and
      among Operadora Unefon, S.A. de C.V., Toronto Dominion (Texas), Inc. and
      Nortel Networks Corporation (incorporated by reference to Exhibit 4.6 to
      TV Azteca's Annual Report on Form 20-F for the year ended December 31,
      2001 (File No. 1-4464)).

4.12  Third Amendment to Finance Agreement dated as of April 14, 2000 by and
      among Operadora Unefon, S.A. de C.V., Toronto Dominion (Texas), Inc. and
      Nortel Networks Corporation (incorporated by reference to Exhibit 4.7 to
      TV Azteca's Annual Report on Form 20-F for the year ended December 31,
      2001 (File No. 1-4464)).

4.13  Fourth Amendment and Waiver to Finance Agreement dated as of September 18,
      2000 by and among Operadora Unefon, S.A. de C.V., Toronto Dominion
      (Texas), Inc. and Nortel Networks Limited (formerly known as Nortel
      Networks Corporation) (incorporated by reference to Exhibit 4.8 to TV
      Azteca's Annual Report on Form 20-F for the year ended December 31, 2001
      (File No. 1-4464)).

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<PAGE>

4.14  Fifth Amendment, Consent and Waiver to Finance Agreement dated as of
      December 13, 2000 by and among Operadora Unefon, S.A. de C.V., Toronto
      Dominion (Texas), Inc. and Nortel Networks Limited (incorporated by
      reference to Exhibit 4.9 to TV Azteca's Annual Report on Form 20-F for the
      year ended December 31, 2001 (File No. 1-4464)).

4.15  Sixth Amendment to Finance Agreement dated as of September 20, 2001 by and
      among Operadora Unefon, S.A. de C.V., Toronto Dominion (Texas), Inc. and
      Nortel Networks Limited. Portions of this exhibit (indicated by asterisks)
      have been omitted pursuant to a request for confidential treatment
      pursuant to Rule 24b-2 under the Securities Exchange Act of 1934
      (incorporated by reference to Exhibit 4.10 to TV Azteca's Annual Report on
      Form 20-F for the year ended December 31, 2001 (File No. 1-4464)).

4.16  Seventh Amendment to Finance Agreement dated as of January 16, 2002 by and
      among Operadora Unefon, S.A. de C.V., Toronto Dominion (Texas), Inc. and
      Nortel Networks Limited (incorporated by reference to Exhibit 4.11 to TV
      Azteca's Annual Report on Form 20-F for the year ended December 31, 2002
      (File No. 1-4464)).

4.17  Conditional Waiver and Consent to Finance Agreement dated as of August 16,
      2001 by and among Operadora Unefon, S.A. de C.V., Toronto Dominion
      (Texas), Inc. and Nortel Networks Limited (incorporated by reference to
      Exhibit 4.11 to TV Azteca's Annual Report on Form 20-F for the year ended
      December 31, 2001 (File No. 1-4464)).

4.18  Shareholders' Undertaking dated as of December 13, 2000 among Moises Saba
      Masri, TV Azteca, S.A. de C.V., Unefon, S.A. de C.V. and Operadora Unefon,
      S.A. de C.V. (incorporated by reference to Exhibit 4.12 to TV Azteca's
      Annual Report on Form 20-F for the year ended December 31, 2001 (File No.
      1-4464)).

4.19  Supply Agreement, dated June 16, 2003, between Nortel Networks Limited,
      Nortel Networks de Mexico, S.A. de C.V. and Operadora Unefon, S.A. de C.V.
      (incorporated by reference to Exhibit 4.14 to TV Azteca's Annual Report on
      Form 20-F for the year ended December 31, 2002 (File No. 1-4464)).

4.20  Assignment and Assumption Agreement, dated June 16, 2003, between
      Operadora Unefon, S.A. de C.V., Nortel Networks Limited and Codisco
      Investment LLC (incorporated by reference to Exhibit 4.15 to TV Azteca's
      Annual Report on Form 20-F for the year ended December 31, 2002 (File
      No.1-4464)).

4.21  Promissory Note, dated June 16, 2003, between Operadora Unefon, S.A. de
      C.V., Nortel Networks Limited, Nortel Networks de Mexico, S.A. de C.V. and
      Codisco Investments LLC (incorporated by reference to Exhibit 4.15 to TV
      Azteca's Annual Report on Form 20-F for the year ended December 31, 2002
      (File No. 1-4464)).

4.22  Services Agreement, dated October 15, 1999, between Television Azteca,
      S.A. de C.V., TV Azteca, S.A. de C.V. and Operadora Unefon S.A. de C.V.,
      together with English translation (incorporated by reference to Exhibit
      4.5 to TV Azteca's Annual Report on Form 20-F for the year ended December
      31, 2000 (File No. 1-4464)).

4.23  Amendment to Services Agreement, dated December 27, 2000, between TV
      Azteca, S.A. de C.V. and Operadora Unefon, S.A. de C.V., together with
      English translation (incorporated by reference to Exhibit 4.14 to TV
      Azteca's Annual Report on Form 20-F for the year ended December 31, 2001
      (File No. 1-4464)).

4.24  Services Agreement, dated February 14, 2000, between TV Azteca, S.A. de
      C.V. and Todito.com, S.A. de C.V., together with English translation
      (incorporated by reference to Exhibit 4.6 to TV Azteca's Annual Report on
      Form 20-F for the year ended December 31, 2000 (File No. 1-4464)).

4.25  Station Affiliation Agreement, dated as of July 21, 2001, between Azteca
      International Corporation and Pappas Telecasting of Southern California
      LLC (incorporated by reference to Exhibit 4.1 to TV Azteca's report on
      Form 6-K filed November 16, 2001 (File No. 1-4464)).


                                       96

<PAGE>
4.26  Rider A to Station Affiliation Agreement, dated as of July 21, 2001,
      between Azteca International Corporation and Pappas Telecasting of
      Southern California LLC (incorporated by reference to Exhibit 4.2 to TV
      Azteca's report on Form 6-K filed November 16, 2001 (File No. 1-4464)).

4.27  Equity Option Agreement, dated as of July 21, 2001, between Azteca
      International Corporation and Pappas Telecasting of Southern California
      LLC (incorporated by reference to Exhibit 4.3 to TV Azteca's report on
      Form 6-K filed November 16, 2001 (File No. 1-4464)).

4.28  Agreement Not to Compete, dated as of July 21, 2001, among TV Azteca, S.A.
      de C.V., Harry J. Pappas and Pappas Telecasting Companies (incorporated by
      reference to Exhibit 4.4 to TV Azteca's report on Form 6-K filed November
      16, 2001 (File No. 1-4464)).

4.29  Guarantee Agreement, dated as of July 21, 2001, between TV Azteca, S.A. de
      C.V. and Pappas Telecasting of Southern California LLC (incorporated by
      reference to Exhibit 4.5 to TV Azteca's report on Form 6-K filed November
      16, 2001 (File No. 1-4464)).

4.30  Credit Agreement, dated as of July 21, 2001, between TV Azteca, S.A. de
      C.V. and Pappas Telecasting of Southern California LLC (incorporated by
      reference to Exhibit 4.6 to TV Azteca's report on Form 6-K filed November
      16, 2001 (File No. 1-4464)).

4.31  First Amended and Restated Credit Agreement, amended and restated as of
      July 30, 2001, among Pappas Telecasting of Arizona LLC, Pappas Telecasting
      of Southern California LLC, TV Azteca, S.A. de C.V., the lenders named
      therein, UBS Warburg LLC and UBS AG, Stamford Branch (incorporated by
      reference to Exhibit 4.7 to TV Azteca's report on Form 6-K filed November
      16, 2001 (File No. 1-4464)).

4.32  Intercreditor Agreement, dated as of July 30, 2001, among UBS, AG,
      Stamford Branch, as lender and as collateral agent, TV Azteca, S.A. de
      C.V., Azteca International Corporation, Pappas Telecasting of Arizona LLC,
      Pappas Telecasting of Southern California LLC, Pappas Southern California
      License LLC, Pappas Telecasting Companies, Harry J. Pappas, Dennis J.
      Davis and Lebon G. Abercrombie (incorporated by reference to Exhibit 4.8
      to TV Azteca's report on Form 6-K filed November 16, 2001 (File No.
      1-4464)).

4.33  First Amended and Restated Security Agreement, amended and restated as of
      July 30, 2001, among Pappas Telecasting of Arizona LLC and Pappas
      Telecasting of Southern California LLC, the Guarantors Party thereto and
      UBS AG, Stamford Branch (incorporated by reference to Exhibit 4.9 to TV
      Azteca's report on Form 6-K filed November 16, 2001 (File No. 1-4464)).

4.34  First Amended and Restated Securities Pledge Agreement, amended and
      restated as of July 30, 2001, among Pappas Telecasting Companies, Harry J.
      Pappas, Dennis J. Davis, Lebon G. Abercrombie and Azteca International
      Corporation, and UBS AG, Stamford Branch (incorporated by reference to
      Exhibit 4.10 to TV Azteca's report on Form 6-K filed November 16, 2001
      (File No. 1-4464)).

4.35  Amended and Restated Subordination Agreement, amended and restated as of
      July 30, 2001, among UBS AG, Stamford Branch, as administrative and
      collateral agent, and Pappas Telecasting of Sioux City, Pappas Telecasting
      Inc., Pappas Telecasting of Concord, Hispanic America Network, LLC and
      Harry J. Pappas as subordinated lenders (incorporated by reference to
      Exhibit 4.11 to TV Azteca's report on Form 6-K filed November 16, 2001
      (File No. 1-4464)).

4.36  First Amended and Restated Subsidiary Guarantee Agreement, amended and
      restated as of July 30, 2001, among Pappas Telecasting of Arizona LLC,
      Pappas Telecasting of Southern

                                       97

<PAGE>

      California LLC, TV Azteca, S.A. de C.V., each of the subsidiaries of the
      above companies listed in Schedule 1 and 2 and UBS AG, Stamford Branch
      (incorporated by reference to Exhibit 4.12 to TV Azteca's report on Form
      6-K filed November 16, 2001 (File No. 1-4464)).

4.37  Amended and Restated Station Affiliation Agreement amended and restated as
      of December 31, 2001 between Azteca International Corporation and Pappas
      Telecasting of Southern California LLC (incorporated by reference to
      Exhibit 4.28 to TV Azteca's Annual Report on Form 20-F for the year ended
      December 31, 2001 (File No. 1-4464)).

4.38  Amended and Restated Equity Option Agreement amended as of December 31,
      2001, between Azteca International Corporation and Pappas Telecasting of
      Southern California LLC (incorporated by reference to Exhibit 4.29 to TV
      Azteca's Annual Report on Form 20-F for the year ended December 31, 2001
      (File No. 1-4464)).

4.39  Station Affiliation Agreement dated October 31, 2001, between Azteca
      International Corporation and Pappas Telecasting of Nevada LLC
      (incorporated by reference to Exhibit 4.30 to TV Azteca's Annual Report on
      Form 20-F for the year ended December 31, 2001 (File No. 1-4464)).

4.40  Station Affiliation Agreement dated December 31, 2001 between Azteca
      International Corporation and Hispanic America of San Francisco, LLC
      (incorporated by reference to Exhibit 4.31 to TV Azteca's Annual Report on
      Form 20-F for the year ended December 31, 2001 (File No. 1-4464)).

4.41  Guaranty Agreement dated December 31, 2001 between TV Azteca, S.A. de C.V.
      and Hispanic America of San Francisco, LLC (incorporated by reference to
      Exhibit 4.32 to TV Azteca's Annual Report on Form 20-F for the year ended
      December 31, 2001 (File No. 1-4464))

4.42  Agreement Not to Compete dated December 31, 2001 among Hispanic America of
      San Francisco, LLC, Pappas Telecasting of Concord, Pappas Telecasting
      Companies, Harry J. Pappas and TV Azteca, S.A. de C.V. (incorporated by
      reference to Exhibit 4.33 to TV Azteca's Annual Report on Form 20-F for
      the year ended December 31, 2001 (File No. 1-4464)).

4.43  Station Affiliation Agreement dated December 31, 2001 between Azteca
      International Corporation and Hispanic America of Houston, LLC
      (incorporated by reference to Exhibit 4.34 to TV Azteca's Annual Report on
      Form 20-F for the year ended December 31, 2001 (File No. 1-4464)).

4.44  Guaranty Agreement dated December 31, 2001 between TV Azteca, S.A. de C.V.
      and Hispanic America of Houston, LLC (incorporated by reference to Exhibit
      4.35 to TV Azteca's Annual Report on Form 20-F for the year ended December
      31, 2001 (File No. 1-4464)).

4.45  Agreement Not to Compete dated December 31, 2001 among Hispanic America of
      Houston, LLC, Pappas Telecasting of Houston, Pappas Telecasting Companies,
      Harry J. Pappas and TV Azteca, S.A. de C.V. (incorporated by reference to
      Exhibit 4.36 to TV Azteca's Annual Report on Form 20-F for the year ended
      December 31, 2001 (File No. 1-4464)).

                                       98

<PAGE>

4.46  Subscription Agreement dated December 31, 2001 among Hispanic America of
      San Francisco, LLC, Hispanic America of Houston, LLC, Pappas Telecasting
      of Concord, Pappas Telecasting of Houston, Azteca International
      Corporation and TV Azteca, S.A. de C.V. (incorporated by reference to
      Exhibit 4.37 to TV Azteca's Annual Report on Form 20-F for the year ended
      December 31, 2001 (File No. 1-4464)).

4.47  Settlement Agreement among TV Azteca, S.A. de C.V., Azteca International
      Corporation, Pappas Telecasting Companies, Pappas Telecasting of Southern
      California LLC, Pappas Southern California License, LLC, Pappas
      Telecasting of Houston, Hispanic America of Houston, LLC, Pappas
      Telecasting of Concord, Hispanic America of San Francisco, LLC Pappas
      Telecasting of Nevada, Pappas Telecasting of Arizona, LLC, and Pappas
      Arizona License, LLC, dated as of February 11, 2003 (incorporated by
      reference to Exhibit 4.1 to the Company's report on Form 6-K filed March
      5, 2003 (File No. 1-4464)).

4.48  Purchase and Sale Agreement among Pappas Telecasting of Southern
      California LLC, Pappas Telecasting of Houston, Pappas Telecasting of
      Concord, Hispanic America of Houston, LLC, Hispanic America of San
      Francisco, LLC and Azteca International Corporation, dated as of February
      11, 2003 (incorporated by reference to Exhibit 4.2 to the Company's report
      on Form 6-K filed March 5, 2003 (File No. 1-4464)).

4.49  Option Agreement by and between Pappas Telecasting of Southern California
      LLC, and Azteca International Corporation, dated as of February 11, 2003
      (incorporated by reference to Exhibit 4.3 to the Company's report on Form
      6-K filed March 5, 2003 (File No. 1-4464)).

4.50  Local Marketing Agreement among Pappas Telecasting of Southern California
      LLC, and Pappas Southern California License LLC, and Azteca International
      Corporation and TV Azteca, S.A. de C.V. as guarantor, dated as of February
      11, 2003 (incorporated by reference to Exhibit 4.4 to the Company's report
      on Form 6-K filed March 5, 2003 (File No. 1-4464)).

4.51  Guarantee Agreement by TV Azteca, S.A. de C.V. in favor of Pappas
      Telecasting of Southern California LLC, dated as of February 11, 2003
      (incorporated by reference to Exhibit 4.5 to the Company's report on Form
      6-K filed March 5, 2003 (File No. 1-4464)).

4.52  Amended and Restated Credit Agreement between Pappas Telecasting of
      Southern California LLC as debtor and Azteca International Corporation,
      dated as of February 11, 2003 (incorporated by reference to Exhibit 4.6 to
      the Company's report on Form 6-K filed March 5, 2003 (File No. 1-4464)).

4.53  Amended and Restated Note by Pappas Telecasting of Southern California LLC
      to Azteca International Corporation for US$128 million, dated as of
      February 11, 2003 (incorporated by reference to Exhibit 4.7 to the
      Company's report on Form 6-K filed March 5, 2003 (File No. 1-4464)).

8.1   Significant Subsidiaries.

12.1  Chief Executive Officer Section 906 Certification

12.2  Chief Financial Officer Section 906 Certification

                                       99

<PAGE>

AGREEMENT REGARDING CERTAIN DEBT INSTRUMENTS

      The Company agrees to furnish to the Securities and Exchange Commission,
upon request, copies of any instruments that define the rights of holders of
long-term debt of the Company that are not filed as exhibits to this annual
report.

                                       100

<PAGE>

                                    SIGNATURE

         The registrant certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on its behalf.

                                              AZTECA HOLDINGS, S.A. DE C.V.


Date: June 30, 2003                           By: /s/ Ricardo B. Salinas Pliego
                                                  -----------------------------
                                                  Ricardo B. Salinas Pliego
                                                  Chief Executive Officer


Date: June 30, 2003                           By: /s/ Diego Foyo Mejia
                                                  -----------------------------
                                                  Diego Foyo Mejia
                                                  Chief Financial Officer

                SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATIONS

I, Ricardo B. Salinas Pliego, certify that:

1.   I have reviewed this annual report on Form 20-F of Azteca Holdings, S.A. de
     C.V.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

                                       101

<PAGE>

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b)   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: June 30, 2003                               /s/ Ricardo B. Salinas Pliego
                                                  -----------------------------
                                                  Ricardo B. Salinas Pliego
                                                  Chief Executive Officer
                                                  (principal executive officer)

                SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATIONS

I, Diego Foyo Mejia, certify that:

1.   I have reviewed this annual report on Form 20-F of Azteca Holdings, S.A. de
     C.V.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

                                       102

<PAGE>

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b)   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: June 30, 2003                               /s/ Diego Foyo Mejia
                                                  -----------------------------
                                                  Diego Foyo Mejia
                                                  Chief Financial Officer
                                                  (principal financial officer)

                                       103

<PAGE>

                         AZTECA HOLDINGS, S. A. DE C. V.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 2001 AND 2002

                                       F-1

<PAGE>

                AZTECA HOLDINGS, S. A. DE C. V. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 2001 AND 2002

                                      INDEX

Contents:                                                                 Page
--------                                                                  ----

Report of Independent Auditors                                             F-3

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2001 and 2002               F-5

Consolidated Statements of Results of Operations for the years
ended December 31, 2000, 2001 and 2002                                     F-6

Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 2000, 2001 and 2002                       F-7

Consolidated Statements of Changes in Financial Position
for the years ended December 31, 2000, 2001 and 2002                       F-8

Notes to the Consolidated Financial Statements                             F-9

                                       F-2

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Mexico City, February 7, 2003, except for the Pappas Group recent developments
in Note 7, which is as of February 11, 2003, and the subsequent events included
in Note 17, which is as of June 10, 2003

To the Stockholders and Board of Directors
of Azteca Holdings, S. A. de C. V. and subsidiaries

We have audited the consolidated balance sheets of Azteca Holdings, S. A. de C.
V. and its subsidiaries (the "Company") as of December 31, 2001 and 2002, and
the related consolidated statements of results of operations, of changes in
stockholders' equity and of changes in financial position for each of the three
years in the period ended December 31, 2002 all expressed in constant pesos of
December 31, 2002 purchasing power. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Mexico and in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and that they were
prepared in accordance with accounting principles generally accepted in Mexico.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of Azteca
Holdings, S. A. de C. V. and its subsidiaries as of December 31, 2001 and 2002,
and the consolidated results of their operations, and the changes in
stockholders' equity and in their financial position for each of the three years
in the period ended December 31, 2002 in conformity with accounting principles
generally accepted in Mexico.

                                       F-3

<PAGE>

Accounting principles generally accepted in Mexico differ in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
consolidated net income (loss), expressed in pesos of December 31, 2002
purchasing power, for each of the three years in the period ended December 31,
2002 and the determination of consolidated stockholders' equity and consolidated
financial position as of December 31, 2000, 2001 and 2002 also expressed in
pesos of December 31, 2002 purchasing power to the extent summarized in Note 18
to the consolidated financial statements.

PricewaterhouseCoopers

Manuel Leyva Vega
Audit Partner

                                       F-4

<PAGE>

                AZTECA HOLDINGS, S. A. DE C. V. AND SUBSIDIARIES
                                    (Note 1)

                           CONSOLIDATED BALANCE SHEETS

                Thousands of Mexican pesos of December 31, 2002,
                                purchasing power

<TABLE>
<CAPTION>
                                                                                At December 31,
                                                         ---------------------------------------------------------
                                                             2001                           2002
                                                         -------------       -------------------------------------
                                                                                                    Thousands of
                                                                                                  U.S. dollars (*)
                                                                                                  -----------------
<S>                                                      <C>                 <C>                  <C>
ASSETS
Current assets:
Cash and marketable securities (Note 4)                  Ps  1,717,761       Ps  1,434,499        US$      137,999
Pledged securities (Note 9)                                                         85,964                   8,270
Accounts receivable (Note 5)                                 5,047,619           4,948,822                 476,076
Due from related parties (Note 8)                              128,104             347,887                  33,467
Exhibition rights                                              545,151             309,597                  29,783
Inventories                                                    136,395             134,269                  12,917
                                                         -------------       -------------        ----------------

Total current assets                                         7,575,030           7,261,038                 698,512

Investment in Unefon, S. A. de C. V. ("Unefon") (Note 7)     1,848,485           1,755,942                 168,922
Accounts receivable from Unefon (Note 8)                     1,931,139           2,009,067                 193,272
Exhibition rights                                            1,043,068           1,379,583                 132,716
Property, machinery and equipment - Net (Note 6)             2,449,535           2,327,615                 223,917
Television concessions - Net (Note 2l.)                      3,742,945           3,741,702                 359,952
Other assets  (Note 7)                                       1,306,619           1,306,429                 125,679
Investment in Todito.com, S. A. de C. V. ("Todito")
 (Note 7)                                                      397,883             319,986                  30,783
Advance payments to Pappas Telecasting Companies,
 through Azteca America (Note 7)                               660,031           1,154,479                 111,061
Goodwill - Net (Notes 2j. and 7)                             1,587,868           1,491,758                 143,507
Deferred income tax asset (Note 12)                            214,459             159,221                  15,317
                                                         -------------       -------------        ----------------

Total assets                                             Ps 22,757,062       Ps 22,906,820        US$    2,203,638
                                                         =============       =============        ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term bank loans (Note 9)         Ps     38,418       Ps     47,179        US$        4,539
Current portion of senior secured notes (Note 9)                                 1,559,250                 150,000
Short-term debt (Note 9)                                       528,454             389,997                  37,518
Interest payable                                               210,076             288,634                  27,767
Exhibition rights payable                                      671,534             598,878                  57,612
Accounts payable and accrued expenses                          884,850             722,425                  69,498
Due to related parties (Note 8)                                190,242             196,530                  18,905
                                                         -------------       -------------        ----------------

Total current liabilities                                    2,523,574           3,802,893                 365,839
                                                         -------------       -------------        ----------------

Long-term liabilities:
Senior secured notes (Note 9)                                6,583,842           5,758,518                 553,970
Bank loans (Note 9)                                          1,507,826           1,302,915                 125,341
Advertising advances (Notes 2q. and 8)                       4,850,290           4,608,719                 443,358
Unefon advertising advance (Note 8)                          2,258,381           2,167,340                 208,498
Todito advertising, programming and services advance
 (Note 8)                                                      715,446             504,418                  48,525
Exhibition rights payable                                      206,079             246,096                  23,674
                                                         -------------       -------------        ----------------

Total long-term liabilities                                 16,121,864          14,588,006               1,403,366
                                                         -------------       -------------        ----------------

Total liabilities                                           18,645,438          18,390,899               1,769,205
                                                         -------------       -------------        ----------------

Commitments and contingencies (Note 13)
Subsequent events (Note 17)

Stockholders' equity (Note 11):

Capital stock                                                2,903,331           2,903,331                 279,301
Premium on the issuance of capital stock                       169,622             169,622                  16,318
Accumulated deficit                                           (513,086)           (392,835)                (37,791)
Insufficiency in the restatement of capital                   (699,936)           (734,193)                (70,629)
                                                         -------------       -------------        ----------------

Majority stockholders' equity                                1,859,931           1,945,925                 187,199
Minority stockholders' equity                                2,251,693           2,569,996                 247,234
                                                         -------------       -------------        ----------------

Total stockholders' equity                                   4,111,624           4,515,921                 434,433
                                                         -------------       -------------        ----------------

Total liabilities and stockholders' equity               Ps 22,757,062       Ps 22,906,820        US$    2,203,638
                                                         =============       =============        ================
</TABLE>

(*) The U.S. dollar figures represent the Mexican peso amounts as of December
    31, 2002 expressed as of December 31, 2002 purchasing power translated at
    the exchange rate of Ps10.395 per U.S. dollar and are not covered by the
    Report of Independent Accountants.

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-5

<PAGE>

                AZTECA HOLDINGS, S. A. DE C. V. AND SUBSIDIARIES
                                    (Note 1)

                CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS

                Thousands of Mexican pesos of December 31, 2002,
                   purchasing power (except per share amounts)

<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                                    --------------------------------------------------------------
                                                         2000            2001                   2002
                                                    ------------    ------------    ------------------------------
                                                                                                     Thousands of
                                                                                                   U.S. dollars (*)
<S>                                                 <C>             <C>             <C>            <C>
Net revenue                                         Ps 5,992,691    Ps 6,127,048    Ps 6,743,048   US$      648,682
                                                    ------------    ------------    ------------   ----------------

Programming, production, exhibition and
 transmission costs                                    2,683,049       2,472,174       2,510,898            241,549
Selling and administrative expenses                      943,036         972,832         990,709             95,306
                                                    ------------    ------------    ------------   ----------------

Total costs and expenses                               3,626,085       3,445,006       3,501,607            336,855
                                                    ------------    ------------    ------------   ----------------

Depreciation and amortization (Notes 2h. and 2l.)        697,022         676,264         447,467             43,046
                                                    ------------    ------------    ------------   ----------------

Operating profit                                       1,669,584       2,005,778       2,793,974            268,781
                                                    ------------    ------------    ------------   ----------------

Other expenses - Net (Note 14)                          (291,152)       (221,420)       (202,097)           (19,442)
                                                    ------------    ------------    ------------   ----------------

Comprehensive financing cost:
Interest expenses                                     (1,126,800)     (1,065,203)     (1,080,112)          (103,907)
Other financing expense (Note 4)                        (165,166)        (64,035)       (186,953)           (17,985)
Interest income                                          208,962         227,935         170,565             16,408
Exchange (loss) income - Net (Note 3)                   (175,804)        344,774        (696,719)           (67,025)
Gain on monetary position                                454,285         121,215          65,561              6,307
                                                    ------------    ------------    ------------   ----------------

Net comprehensive financing cost                        (804,523)       (435,314)     (1,727,658)          (166,202)
                                                    ------------    ------------    ------------   ----------------

Income before provision for income tax,
 deferred income tax and extraordinary item              573,909       1,349,044         864,219             83,137

Provisions for (Note 12):
Income tax                                              (192,730)       (211,416)       (264,505)           (25,446)
Deferred income tax benefit (expense)                    252,112         220,046         (43,674)            (4,199)
                                                    ------------    ------------    ------------   ----------------

Income before extraordinary item                         633,291       1,357,674         556,040             53,492

Extraordinary item:
NBC settlement agreement - net of income tax
 (Note 11)                                              (335,929)
                                                    ------------    ------------    ------------   ----------------

Net income                                          Ps   297,362    Ps 1,357,674    Ps   556,040   US$       53,492
                                                    ============    ============    ============   ================

Net income of minority stockholders                 Ps   161,871    Ps   669,295    Ps   435,789   US$       41,923
                                                    ============    ============    ============   ================

Net income of majority stockholders                 Ps   135,491    Ps   688,379    Ps   120,251   US$       11,569
                                                    ============    ============    ============   ================

Net income per share applicable to majority
 stockholders (Note 2r.)                            Ps      0.17    Ps      0.86    Ps      0.15   US$         0.01
                                                    ============    ============    ============   ================
</TABLE>

(*) The U.S. dollar figures represent the Mexican peso amounts as of December
    31, 2002 expressed as of December 31, 2002 purchasing power translated at
    the exchange rate of Ps10.395 per U.S. dollar and are not covered by the
    Report of Independent Accountants.

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-6

<PAGE>

                AZTECA HOLDINGS, S. A. DE C. V. AND SUBSIDIARIES
                               (Notes 1, 4 and 11)

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
           FOR THE THREE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

                 Thousands of Mexican pesos of December 31, 2002
                   purchasing power (except per share amounts)

<TABLE>
<CAPTION>
                                            Number of                                                       Insufficiency
                                          common shares                        Premium                         in the
                                           outstanding       Capital      on the issuance    Accumulated     restatement
                                           (thousands)        stock       of capital stock     deficit       of capital
                                          -------------   ------------    ----------------  ------------    -------------
<S>                                             <C>       <C>             <C>               <C>             <C>
Balances at January 1, 2000                     800,817   Ps 2,903,331    Ps       169,622  Ps (1,111,747)  Ps   (418,738)
                                          -------------   ------------    ----------------  -------------   -------------

Variations in 2000:

Net income                                                                                        135,491
Cumulative effect of change in method of
 accounting for income taxes                                                                     (225,209)         32,854
Loss from holding non-monetary assets                                                                            (136,978)
Adjustment from repurchase valuation and
 options shares of TV Azteca,
 S. A. de C. V. (TVA), subsidiary                                                                                (164,054)
Effect relating to capital stock increase
 and premium on issuance of capital
 stock of subsidiaries                                                                                             81,937
                                          -------------   ------------    ----------------  -------------   -------------

Comprehensive loss                                    -              -                   -        (89,718)       (186,241)
                                          -------------   ------------    ----------------  -------------   -------------

Dividends paid to minority stockholders
                                          -------------   ------------    ----------------  -------------   -------------

Balances at December 31, 2000                   800,817      2,903,331             169,622     (1,201,465)       (604,979)
                                          -------------   ------------    ----------------  -------------   -------------

Variations in 2001:

Net income                                                                                        688,379
Loss from holding non-monetary assets                                                                            (154,146)
Adjustments from repurchase, valuation
 and options shares of TVA                                                                                         59,189
                                          -------------   ------------    ----------------  -------------   -------------

Comprehensive income (loss)                           -              -                   -        688,379         (94,957)
                                          -------------   ------------    ----------------  -------------   -------------

Dividends paid to minority stockholders
                                          -------------   ------------    ----------------  -------------   -------------

Balances at December 31, 2001                   800,817      2,903,331             169,622       (513,086)       (699,936)
                                          -------------   ------------    ----------------  -------------   -------------

Variations in 2002:

Net income                                                                                        120,251
Gain from holding non-monetary assets                                                                              29,715
Adjustment from repurchase, valuation and
 options shares of TVA                                                                                            (63,972)
                                          -------------   ------------    ----------------  -------------   -------------

Comprehensive income (loss)                           -              -                   -        120,251         (34,257)
                                          -------------   ------------    ----------------  -------------   -------------

Dividends paid to minority stockholders
                                          -------------   ------------    ----------------  -------------   -------------

Balances at December 31, 2002                   800,817   Ps 2,903,331    Ps       169,622  Ps   (392,835)       (734,193)
                                          =============   ============    ================  =============   =============

<CAPTION>
                                                                                Total
                                              Majority        Minority      stockholders'
                                            stockholders    stockholders       equity
                                            ------------    ------------    -------------
<S>                                         <C>             <C>             <C>
Balances at January 1, 2000                 Ps 1,542,468    Ps 2,296,089    Ps  3,838,557
                                            ------------    ------------    -------------

Variations in 2000:

Net income                                       135,491         161,871          297,362
Cumulative effect of change in method of
 accounting for income taxes                    (192,355)       (274,674)        (467,029)
Loss from holding non-monetary assets           (136,978)       (104,300)        (241,278)
Adjustment from repurchase valuation and
 options shares of TV Azteca,
 S. A. de C. V. (TVA), subsidiary               (164,054)       (124,824)        (288,878)
Effect relating to capital stock increase
 and premium on issuance of capital stock
 of subsidiaries                                  81,937        (340,158)        (258,221)
                                            ------------    ------------    -------------

Comprehensive loss                              (275,959)       (682,085)        (958,044)
                                            ------------    ------------    -------------

Dividends paid to minority stockholders                          (28,434)         (28,434)
                                            ------------    ------------    -------------

Balances at December 31, 2000                  1,266,509       1,585,570        2,852,079
                                            ------------    ------------    -------------

Variations in 2001:

Net income                                       688,379         669,295        1,357,674
Loss from holding non-monetary assets           (154,146)       (123,044)        (277,190)
Adjustments from repurchase, valuation
 and options shares of TVA                        59,189         146,794          205,983
                                            ------------    ------------    -------------

Comprehensive income (loss)                      593,422         693,045        1,286,467
                                            ------------    ------------    -------------

Dividends paid to minority stockholders                          (26,922)         (26,922)
                                            ------------    ------------    -------------

Balances at December 31, 2001                  1,859,931       2,251,693        4,111,624
                                            ------------    ------------    -------------

Variations in 2002:

Net income                                       120,251         435,789          556,040
Gain from holding non-monetary assets             29,715          23,011           52,726
Adjustment from repurchase, valuation and
 options shares of TVA                           (63,972)       (115,208)        (179,180)
                                            ------------    ------------    -------------

Comprehensive income (loss)                       85,994         343,592          429,586
                                            ------------    ------------    -------------

Dividends paid to minority stockholders                          (25,289)         (25,289)
                                            ------------    ------------    -------------

Balances at December 31, 2002               Ps 1,945,925    Ps 2,569,996    Ps  4,515,921
                                            ============    ============    =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-7

<PAGE>

                AZTECA HOLDINGS, S. A. DE C. V. AND SUBSIDIARIES
                                    (Note 1)

            CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

                 Thousands of Mexican pesos of December 31, 2002
                                purchasing power

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                 ------------------------------------------------------------------
                                                     2000              2001                    2002
                                                 ------------     ------------     --------------------------------
                                                                                                     Thousands of
                                                                                                    U.S. dollars(*)
<S>                                              <C>              <C>              <C>              <C>
Operations:

Net income before extraordinary item             Ps   633,291     Ps 1,357,674     Ps   556,040     US$      53,492
Charges (credits) to results of operations not
 affecting resources:
Amortization of concessions and goodwill              212,739          221,838          101,858               9,798
Depreciation                                          484,283          454,426          345,609              33,248
Equity in loss of affiliates                          107,088           67,894          111,160              10,697
Deferred income tax (benefit) expense                (252,112)        (220,046)          43,674               4,199
Gain on sale of subsidiaries                          (17,797)

Net change in accounts receivable, inventories,
 exhibition rights, related parties, accounts
 payable and accrued expenses                        (517,756)        (176,426)        (154,240)            (14,841)
Advertising advances                                  753,445          392,786         (241,571)            (23,239)
Unefon advertising advance                             39,826          (54,541)         (91,041)             (8,758)
Todito advertising, programming and services
 advance                                              911,654         (196,208)        (211,028)            (20,300)
                                                 ------------     ------------     ------------     ---------------

Resources provided by operations before
 extraordinary item                                 2,354,661        1,847,397          460,461              44,296
NBC settlement agreement - net of income tax         (335,929)
                                                 ------------     ------------     ------------     ---------------

Resources provided by operations activities         2,018,732        1,847,397          460,461              44,296
                                                 ------------     ------------     ------------     ---------------

Investment:

Restricted cash, cash equivalents and pledged
 securities                                           164,367                           (85,964)             (8,270)
Acquisition of property, machinery and
 equipment - Net                                     (201,894)        (185,158)        (194,030)            (18,666)
Advance payments to Pappas Telecasting Companies,
 through Azteca America                                               (660,031)        (455,867)            (43,854)
Account receivable from Pappas Telecasting of
 Southern California, LLC                                             (191,124)
Investment in Todito                               (1,092,120)
Investment in shares                                   13,260
Effect in cash relating to the sale of a
 subsidiary                                            (5,399)
                                                 ------------     ------------     ------------     ---------------

Resources used in investing activities             (1,121,786)      (1,036,313)        (735,861)            (70,790)
                                                 ------------     ------------     ------------     ---------------

Financing:

Promissory notes - Net                                (12,679)         (12,301)
Senior secured notes                                 (525,456)        (657,378)         733,926              70,604
Bank loans - Net                                     (166,661)          36,965         (334,607)            (32,189)
Loan granted to related party                                                          (199,044)            (19,148)
Effect relating to capital stock increase and
 premium on issuance of capital stock of TV
 Azteca, S. A. de C. V. (TVA)                         285,563
Adjustment from repurchase, valuation
 and options of shares of TVA                        (288,878)         200,638         (182,848)            (17,590)
Dividends of subsidiaries paid to minority
 stockholders                                         (28,434)         (26,922)         (25,289)             (2,433)
                                                 ------------     ------------     ------------     ---------------

Resources used in financing activities               (736,545)        (458,998)          (7,862)               (756)
                                                 ------------     ------------     ------------     ---------------

Net increase (decrease) in cash and marketable
 securities                                           160,401          352,086         (283,262)            (27,250)
Cash and marketable securities at beginning of
 year                                               1,205,274        1,365,675        1,717,761             165,249
                                                 ------------     ------------     ------------     ---------------

Cash and marketable securities at end of year    Ps 1,365,675     Ps 1,717,761     Ps 1,434,499     US$     137,999
                                                 ============     ============     ============     ===============
</TABLE>

(*) The U.S. dollar figures represent the Mexican peso amounts as of December
    31, 2002 expressed as of December 31, 2002 purchasing power translated at
    the exchange rate of Ps10.395 per U.S. dollar and are not covered by the
    Report of Independent Accountants.

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-8

<PAGE>

                AZTECA HOLDINGS, S. A. DE C. V. AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 2001 AND 2002

        (monetary amounts expressed in thousands of Mexican pesos (Ps) of
     December 31, 2002 purchasing power and thousands of U.S. dollars (US$),
                  except exchange rates and per share amounts)

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION:

During 1993, Azteca Holdings, S. A. de C. V. (the "Company"), a subsidiary of
Comunicaciones Avanzadas, S. A. de C. V. ("CASA"), acquired interests in various
subsidiaries in connection with the Mexican government's privatization of
certain television stations, movie theaters and related assets. The subsidiaries
which comprised the consolidated group as of December 31, 2002 included
RTC-Cines, S. A. de C. V. ("RTC-Cines"), TV Azteca, S. A. de C. V. ("TV Azteca")
and Grupo Cotsa, S. A. de C. V. ("COTSA"). The Company now owns, directly and
indirectly, 55.5% of the outstanding capital stock of TV Azteca and, directly or
indirectly through RTC-Cines, 99% of the capital stock of COTSA.

The consolidated subsidiaries of the Company as of December 31, 2002 were:

TV Azteca, S. A. de C. V.
Television Azteca, S. A. de C. V.
Grupo TV Azteca, S. A. de C. V.
Azteca Records, S. A. de C. V.
Alta Empresa, S. A. de C. V.
Azteca Entertainment, S. A. de C. V.
Eventos Deportivos Azteca, S. A. de C. V.
Servicios Especializados Taz, S. A. de C. V.
Producciones Especializadas, S. A. de C. V.
Producciones Exclusivas, S. A. de C. V.
Grupo Promotora Empresarial, S. A. de C. V.
Producciones Azteca Digital, S. A. de C. V.
Azteca Digital, S. A. de C. V.
Corporacion de Asesoria Tecnica y de Produccion, S. A. de C. V.
Operadora Mexicana de Television, S. A. de C. V.
Azteca Publishing, S. A. de C. V.
Inversora Mexicana de Produccion, S. A. de C. V.
TV Azteca Latinoamerica, S. A. de C. V.
Servicios Aereos Noticiosos, S. A. de C. V.

                                       F-9

<PAGE>

SCI de Mexico, S. A. de C. V.
Canal 12 de Television, S. A. de C. V.
Grupo TV Azteca, S. A. de C. V. (El Salvador)
Servicios Locales de Produccion, S. A. de C. V.
Servicios Foraneos de Administracion, S. A. de C. V.
Desarrollo de Comunicacion Azteca, S. A. de C. V.
Azteca Telecasting, L. P.
Alta Empresa Holdings, B. V.
Alta Empresa International, B. V.
Red Azteca Internacional, S. A. de C. V.
Azteca International Corporation
RTC-Cines, S. A. de C. V.
Grupo Cotsa, S. A. de C. V.
Servicios Corporativos Cinematograficos, S. A. de C. V.
Remodelacion y Construccion, S. A. de C. V.
Alternativas Cotsa, S. A. de C. V.
Inmobiliaria Cotsa, S. A. de C. V.

The Company and its subsidiaries are engaged principally in the broadcasting and
production of television programs, the sale of advertising time and the
operation of production studios. COTSA operated a chain of motion picture
theaters in Mexico and has shifted its business to the leasing of commercial
properties.

On February 24, 2000, TV Azteca sold its interest in Tele America, S. A. for
US$2,625 and recognized a gain of US$1,609 (Ps17,797).

The financial statements of the subsidiaries incorporated abroad included in the
consolidation are translated in conformity with the requirements of Statement
B-15 issued by the Accounting Principles Commission of the Mexican Institute of
Public Accountants ("MIPA"). The translation effect was not significant.

The Company consolidates all of its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

Unless the context otherwise requires, references in these notes to the Company
are to Azteca Holdings, S. A. de C. V. and its direct and indirect subsidiaries.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The significant accounting policies used in the preparation of the consolidated
financial statements including the concepts, methods and criteria related to the
recognition of the effects of inflation on the financial statements, are
summarized as shown below.

                                      F-10

<PAGE>

a.   Accounting for effects of inflation

     The consolidated financial statements and notes are expressed in thousands
     of Mexican pesos. They have been prepared in accordance with generally
     accepted accounting principles as promulgated by the MIPA. The recognition
     of the effects of inflation on the financial information is in accordance
     with the following rules and includes the guidelines of the Fifth Amendment
     to Statement B-10:

     .    Inventories, property, machinery and equipment of Mexican origin,
          television concessions, exhibition rights of Mexican origin, deferred
          charges and other non-monetary assets and liabilities are restated by
          applying factors derived from the National Consumer Price Index
          ("NCPI"), issued by the Banco de Mexico.

     .    Exhibition rights and machinery and equipment of foreign origin
          (mainly from the United States of America and Japan) are restated on
          the basis of the devaluation of the Mexican peso against the foreign
          currencies, and by applying inflation factors of the countries in
          which they originate.

     .    The components of stockholders' equity are restated using factors
          derived from the NCPI.

     .    The cumulative gain or loss from holding non-monetary assets which are
          not restated using factors derived from the NCPI is included in
          stockholders' equity under the caption "Insufficiency in the
          restatement of capital".

     .    The purchasing power gain or loss from holding monetary liabilities
          and assets is included in net comprehensive financing income (cost).

     All consolidated financial statements presented are expressed in constant
     pesos of purchasing power as of December 31, 2002.

     The NCPI used to recognize the effects of inflation in the financial
     statements were 93.248, 97.354 and 102.904 as of December 31, 2000, 2001
     and 2002, respectively.

b.   Foreign currency transactions

     Transactions in foreign currencies are recorded at the rates of exchange
     prevailing on the dates they are entered into and/or settled. Assets and
     liabilities denominated in these currencies are stated at the Mexican peso
     equivalents resulting from applying exchange rates at the balance sheet
     dates. Exchange differences arising from fluctuations in the exchange rates
     between the dates on which transactions are entered into and those on which
     they are settled, or the balance sheet dates, are charged or credited to
     income.

                                      F-11

<PAGE>

c.   Cash and cash equivalents

     The Company considers all highly liquid investments to be cash equivalents.

d.   Financial instruments

     The Company recognizes on its balance sheet, as assets or liabilities, at
     fair value all of its contractual rights and obligations under financial
     instruments to which the Company is a party. See Note 4.

e.   Barter transactions

     Barter transactions represent non-cash transactions in which TV Azteca
     sells advertising time to a third party or related party in return for
     assets or services. These transactions are accounted for on the basis of
     the fair market value of the assets or services provided in the barter
     contracts. During the years ended December 31, 2000, 2001 and 2002, net
     revenue derived from barter transactions amounted to Ps202,308, Ps84,470
     and Ps146,243, respectively.

f.   Exhibition rights

     Exhibition rights represent primarily the acquired rights to the
     transmission of programming and events under license agreements and the
     cost of internally produced programming. The rights acquired and the
     obligations incurred are recorded as an asset and liability, respectively,
     when the license agreements are signed. The cost of exhibition rights
     acquired is amortized as the programming and events are broadcast.

     At December 31, 2001 and 2002, the allowance for unused exhibition rights
     amounted to Ps161,580 and Ps229,466, respectively, which represents
     management's estimate of exhibition rights which were not expected to be
     used prior to their expiration.

     Exhibition rights at December 31, 2001 and 2002 also include Ps369,632 and
     Ps329,255, respectively, associated with internally produced programming.
     Costs of internally produced programming are expensed when the programs are
     initially aired, except in the case of telenovelas, where the costs are
     amortized over a maximum of a four-year period.

g.   Inventories and costs

     Inventories of merchandise, materials and spare parts, and their related
     costs, are stated at average cost and are restated by using factors derived
     from the NCPI.

                                      F-12

<PAGE>

h.   Property, machinery and equipment

     Property, machinery and equipment acquired through December 31, 1996, and
     the related depreciation, were stated at net replacement cost determined on
     the basis of appraisals performed by independent appraisers registered with
     the National Banking and Securities Commission. Property, machinery and
     equipment acquired on or after January 1, 1997 are initially stated at
     cost. Both the replacement costs of assets of Mexican origin acquired
     through December 31, 1996 and the costs of assets of Mexican origin
     acquired on or after January 1, 1997 are restated by applying factors
     derived from the NCPI. Assets of non-Mexican origin acquired through
     December 31, 1996 and thereafter are restated on the basis of the
     devaluation of the Mexican peso against the foreign currency and by
     applying inflation factors of the countries in which they originate.

     Depreciation was calculated by the straight-line method, based on the
     estimated useful lives of the net fixed assets as estimated by the Company.

     The annual depreciation rates are the following:

     Buildings                                         5%
     Machinery and operating equipment           4%, 5% and 16%
     Furniture and office equipment                7% and 10%
     Transportation equipment                          20%
     Other fixed assets                            18% and 25%

     Effective January 1, 2002, TV Azteca changed the annual depreciation rate
     of the transmission towers, from 16% to 5%, based on the remaining useful
     life of these assets. This resulted in a decrease in depreciation expense
     of Ps42,080 for the year ended December 31, 2002.

i.   Investment in affiliates

     Investment in affiliates is recorded by the equity method and is included
     in the balance sheet as other assets. The investment in Unefon reflects the
     net book value at the date of the decision to sell this investment. See
     Note 7.

     The investments in Unefon and Todito are presented in the balance sheet as
     "Investment in Unefon, S. A. de C. V." and "Investment in Todito.com, S. A.
     de C. V.", respectively. See Note 7.

j.   Goodwill

     The excess of cost over the book value of subsidiaries acquired is
     amortized using the straight-line method over 20 years and restated by
     applying factors derived from the NCPI to its historical cost. Amortization
     expense for the years ended December 31, 2000, 2001 and 2002 amounted to
     Ps93,447, Ps100,716 and Ps111,858, respectively. The Company periodically

                                      F-13

<PAGE>

     reviews the realization of its intangible assets based on estimated gross
     future cash flows from its operations. To date there has been no indication
     that such recorded amounts will not be realized from future operations.

k.   Deferred costs

     Deferred costs relate primarily to the issuance of TV Azteca Notes (as
     defined in Note 9) and Senior Secured Notes 2002, 2003 and 2005 (each as
     defined in Note 9) and are amortized over the life of the notes. See Note
     9.

l.   Television concessions

     The aggregate value of the television concessions was determined based on
     the excess of the purchase price paid for the assets of TV Azteca over
     their book value at the time of privatization.

     On January 1, 2002, TV Azteca adopted Statement C-8, "Intangible Assets"
     ("Statement C-8"), issued by the MIPA. Under Statement C-8, intangible
     assets must be recognized on the balance sheet when they meet the following
     characteristics: (a) they are identifiable, (b) they have the ability to
     generate future economic benefit and (c) there is the ability to control
     such future economic benefits. The intangible asset amortization would be
     allocated on a systematic basis over the estimated useful lives of the
     assets, unless the intangible assets are determinated to have an indefinite
     useful life based on their expected future economic benefits. The
     intangible assets should be tested for impairment annually and an
     impairment loss would be recognized in the event that its carrying amount
     of the intangible assets is not recoverable based on estimated cash flow of
     operating activities. As a result of the adoption of Statement C-8, TV
     Azteca determined that its television concessions qualified as indefinite
     useful life intangible assets. TV Azteca and no longer amortizes its
     concessions.

     Prior to January 1, 2002, TV Azteca's television concessions were amortized
     by the straight-line method over the relevant concession periods then in
     existence. Amortization expense for the years ended December 31, 2000 and
     2001 amounted to Ps119,292 and Ps121,122, respectively.

m.   Labor benefits

     Seniority premiums to which employees are entitled upon termination of
     employment after seven years of service are expensed in the years in which
     the services are rendered. The related obligation is determined in
     accordance with Statement D-3, "Labor Obligations", issued by the MIPA
     based on actuarial studies. See Note 10.

     Other compensation based on length of service, to which employees may be
     entitled in the event of dismissal or death, in accordance with the Mexican
     Federal Labor Law, is charged to income in the year in which it becomes
     payable.

                                      F-14

<PAGE>

n.   Income tax and employees' statutory profit sharing

     Effective January 1, 2000, the Company adopted the guidelines of Revised
     Statement D-4, "Accounting Treatment of Income Tax, Asset Tax and
     Employees' Statutory Profit Sharing" ("Revised Statement D-4"), issued by
     the MIPA. As a result of the foregoing, the Company switched from the
     partial liability method to the comprehensive assets and liability method
     for recognition of deferred income tax, which consists of calculating
     deferred income tax by applying the respective income tax rate to the
     temporary differences between the accounting and tax values of assets and
     liabilities at the date of the financial statements. The cumulative effect
     of this change on the consolidated balance sheet as of January 1, 2000 was
     to increase deferred tax liabilities by Ps524,879, reduce minority
     stockholders' equity by Ps299,670 and reduce majority stockholders' equity
     by Ps225,209. See Note 12.

     In 2000, TV Azteca adjusted its investment in Unefon by Ps57,854 as a
     result of Unefon's adoption of Revised Statement D-4. The increase was
     reflected in TV Azteca stockholders' equity entitled "Insufficiency in the
     restatement of capital", for the year ended December 31, 2000, which was
     reflected by the Company as a credit in the insufficiency in the
     restatement of capital account by Ps32,854 and the difference was credited
     to minority stockholders' equity.

o.   Comprehensive (loss) income

     As of January 1, 2001, Statement B-4 "Comprehensive Income", issued by the
     MIPA, became effective. This statement requires that the various items
     making up the capital gains (losses) during the year be shown in the
     statement of stockholders' equity under the heading of comprehensive (loss)
     income. Therefore, in order that the various lines of the statement of
     stockholders' equity could be comparable, this statement was restructured.

p.   Revenue recognition

     Revenues from advertising contracts are recognized as the contracted
     advertising is aired. Net revenue includes revenue from advertisers less
     sales commissions paid and lease revenue from movie theaters generated by
     COTSA. During the years ended December 31, 2000, 2001 and 2002, sales
     commissions paid amounted to Ps318,044, Ps356,659 and Ps364,874,
     respectively.

q.   Advertising advances

     TV Azteca enters into two principal types of advance advertising agreements
     with clients. The Azteca plan generally requires advertisers to pay in full
     within four months of the date in which they sign the advertising
     agreement. The Mexican plan allows clients to pay for advertising by making
     cash deposits from 10% to 20% of the advertising commitment, with the
     balance payable in installments, which are generally supported by
     promissory notes, over the period during which the advertising is aired. TV
     Azteca records cash or other assets

                                      F-15

<PAGE>

     received and the amounts due and its obligation to deliver advertising
     under both types of advance advertising agreements when the contracts are
     signed. The amounts represented by such advertising advances are credited
     to net revenue as the contracted advertising is aired. Such obligations
     with respect to advertising advances are considered non-monetary
     liabilities and are restated applying factors derived from the NCPI.

r.   Net income per share applicable to majority stockholders

     Net income per share is calculated based on the net income attributable to
     the majority stockholders divided by the weighted average number of shares
     outstanding during each of the years ended December 31, 2000, 2001 and
     2002. See Note 11. The weighted average number of common shares outstanding
     during each of the years ended December 31, 2000, 2001 and 2002 was
     800,817.

     As required by Statement B-14, "Earning per share", issued by the MIPA, net
     income per share before and after extraordinary item is provided as
     follows:

<TABLE>
<CAPTION>
                                                            Year ended December 31,
                                                        -----------------------------
                                                          2000        2001      2002
                                                        ---------   -------   -------
<S>                                                     <C>         <C>       <C>
     Net income before extraordinary item per share:    Ps   0.59   Ps 0.86   Ps 0.15

     Extraordinary item - NBC settlement agreement -
      net of income tax (see Note 11d.)                     (0.42)
                                                        ---------   -------   -------

     Net income per ordinary share
      applicable to majority stockholders                Ps  0.17   Ps 0.86   Ps 0.15
                                                        =========   =======   =======
</TABLE>

s.   Stock option plans for employees

     Stock options granted to TV Azteca employees are given effect when the
     options are exercised by crediting paid-in capital stock for the amount of
     cash received.

t.   Use of estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the amounts reported in the financial statements.
     Actual results could differ from those estimates.

NOTE 3 - FOREIGN CURRENCY POSITION:

Monetary amounts in this note are expressed in U.S. dollars (US$), except
exchange rates, since this is the currency in which most of the Company's
foreign currency transactions are carried out.

                                      F-16

<PAGE>

In December 1994, the Mexican government devalued the peso and allowed it to
float freely in the foreign exchange market. Since that time the fluctuations in
the foreign exchange market have continued and at December 31, 2002, the
exchange rate used by the Company for financial reporting purposes was Ps10.395
per dollar (Ps9.65 and Ps9.16 at December 31, 2000 and 2001, respectively). As a
result, the Company had net exchange (losses) income of (Ps175,804), Ps344,774
and (Ps696,719) during the years ended December 31, 2000, 2001 and 2002,
respectively, which are shown in the statement of results of operations as a
component of comprehensive financing cost.

At February 7, 2003, the date of issuance of the audited financial statements,
the exchange rate was Ps10.96 per dollar.

At December 31, 2001 and 2002, the Company had monetary assets and liabilities
in foreign currencies as shown below:

                                          At December 31,
                               ---------------------------------
                                     2001              2002
                               ----------------   --------------

Assets                         US$      362,892   US$    502,012
Liabilities                            (994,704)        (952,736)
                               ----------------   --------------

Net short position             US$     (631,812)  US$   (450,724)
                               ================   ==============

At December 31, 2001 and 2002, the Company had no hedge contracts for protection
against foreign exchange risks.

NOTE 4 - OPERATIONS WITH FINANCIAL INSTRUMENTS:

a.   Marketable securities

During 2002, TV Azteca purchased Ps295,988 (nominal) of Grupo Elektra, S. A. de
C. V. ("Grupo Elektra") Ordinary Participation Certificates ("CPOs"). During
2002, TV Azteca recorded a loss against the comprehensive financing cost for
Ps56,658 to reflect the decline in the market value of the investment.

In October 2002, TV Azteca entered into a put option agreement with its CPOs in
Grupo Elektra. Pursuant to the option agreement, TV Azteca is required to pay a
premium of 10.5% of the number of options valued at the strike price.

                                      F-17

<PAGE>

b.   Financial instruments

In January 2002, TV Azteca entered into a monthly certificate of deposit with a
rate of return based on the market value of TV Azteca's CPOs, which was recorded
against TV Azteca's stockholders' equity. TV Azteca has periodically renewed the
certificate of deposit upon expiration. During 2002, as a result of the decline
in market value of the CPOs, TV Azteca recognized a loss of Ps34,097 against TV
Azteca's stockholders' equity. At December 31, 2002, the outstanding balance of
the certificate of deposit was Ps139,276.

NOTE 5 - ACCOUNTS RECEIVABLE:

                                                        At December 31,
                                              -------------------------------
                                                   2001             2002
                                              --------------    -------------

Amounts due from advertisers                  Ps   4,529,303    Ps  4,422,690
Accounts receivable from Unefon advertising
agreement (see Note 8)                                                 80,649
Taxes recoverable                                    199,821          139,065
Prepaid expenses                                      60,910           66,731
Other accounts receivable                            340,988          329,541
                                              --------------    -------------

                                                   5,131,022        5,038,676
Allowance for bad debts                              (83,403)         (89,854)
                                              --------------    -------------

                                              Ps   5,047,619    Ps  4,948,822
                                              ==============    =============

Amounts due from barter transactions included in amounts due from advertisers
amounted to Ps345,627 and Ps352,655 as of December 31, 2001 and 2002,
respectively.

NOTE 6 - PROPERTY, MACHINERY AND EQUIPMENT:

                                                        At December 31,
                                              -------------------------------
                                                   2001              2002
                                              --------------    -------------

Buildings                                     Ps   1,435,767    Ps  1,438,200
Machinery and operating equipment                  1,985,774        2,312,350
Furniture and office equipment                       223,154          223,154
Transportation equipment                             301,264          346,819
Other fixed assets                                   379,432          530,330
                                              --------------    -------------

                                                   4,325,391        4,850,853
Accumulated depreciation                          (2,560,468)      (3,171,876)
                                              --------------    -------------

                                                   1,764,923        1,678,977
Land                                                 678,324          645,077
Construction in progress                               6,288            3,561
                                              --------------    -------------

                                              Ps   2,449,535    Ps  2,327,615
                                              ==============    =============

                                      F-18

<PAGE>

At December 31, 2001 and 2002, property, machinery and equipment amounting to
Ps816,431 and Ps795,865, respectively, have been pledged to guarantee bank loans
taken by TV Azteca. See Note 9.

NOTE 7 - OTHER ASSETS:

<TABLE>
<CAPTION>
                                                                                      At December 31,
                                                                           ------------------------------------
                                                                                 2001                 2002
                                                                           ---------------       --------------
<S>                                                                        <C>                   <C>
Investment in affiliates                                                   Ps      183,010       Ps     136,820
Advances to Corporacion de Noticias e Informacion,
 S. A. de C. V.                                                                    200,773              298,000
Deferred costs related to the issuance of the TV Azteca
Notes and Senior Secured Notes 2003 and 2005 - Net                                 155,083              131,103
Account receivable from an affiliate which represents
 a reduction in Unefon contributed capital.  This amount
 was contributed to incorporate Cosmofrecuencias,
 S. A. de C. V. ("Cosmofrecuencias") (see Unefon below)                            354,964
Investment in 50% equity interest in Cosmofrecuencias
 (see Unefon below)                                                                                     354,746
Account receivable from Pappas Telecasting of Southern
 California, LLC (see Azteca America below)                                        191,124              235,565
Other assets                                                                       221,665              150,195
                                                                           ---------------       --------------

                                                                           Ps    1,306,619       Ps   1,306,429
                                                                           ===============       ==============

Investment in Unefon                                                       Ps    1,848,485       Ps   1,755,942
                                                                           ===============       ==============

Investment in Todito                                                       Ps      397,883       Ps     319,986
                                                                           ===============       ==============

Advance payments to Pappas Telecasting Companies,
 through Azteca America (see Azteca America below)                         Ps      660,031       Ps   1,154,479
                                                                           ===============       ==============
</TABLE>

Corporacion de Noticias e Informacion, S. A. de C. V. ("CNI")

On December 10, 1998, TV entered into a Joint Venture Agreement with Televisora
del Valle de Mexico, S. A. de C. V. ("TVM"), the owner of the concession for UHF
Channel 40 in Mexico City, and its subsidiary CNI.

                                      F-19

<PAGE>

The original contract was established with the following terms:

1.   TV Azteca agreed to provide advisory services to TVM and CNI regarding the
     television operations of Channel 40 for a period of ten years or until the
     expiration of TVM's television concession, whichever is shorter.

2.   Under a Programming, Promotion and Commercialization Agreement with TVM,
     CNI agreed to cede to TV Azteca the rights and obligations, originally
     established in favor of CNI, to program and operate Channel 40. TV Azteca
     agreed to pay to CNI 50% of the joint venture's Earnings Before Interest,
     Taxes, Depreciation and Amortization ("EBITDA") on a quarterly basis, with
     an advance payment of US$15,000 to be applied against future EBITDA
     generated from the operation of Channel 40, over a maximum period of ten
     years. At December 31, 1999, TV Azteca had made advances of US$15,000.

3.   TV Azteca has provided a US$10,000 credit facility in favor of CNI for a
     period of ten years with a grace period for the payment of principal and
     interest of three years. The interest accrues at an annual interest rate
     based on the maximum interest rate paid by TV Azteca plus 25 basis points.
     As security for the loan, 51% of the capital stock of TVM owned by Mr.
     Javier Moreno Valle was pledged as collateral. At December 31, 2001 and
     2002, CNI had drawn down US$10,000 under this credit facility.

4.   Under a purchase option contract, TV Azteca has the right to acquire up to
     51% of the capital stock of TVM beginning in November 2002. The sale price
     of the capital stock is based on a valuation of 100% of the capital stock
     of TVM equal to the greater of US$100,000 (which increases gradually over
     time) and ten times the EBITDA generated by Channel 40 for the 12 months
     preceding the exercise of the purchase option. This contract also gives Mr.
     Javier Moreno Valle and Mr. Hernan Cabalceta Vara the right to put their
     CNI capital stock to TV Azteca for the same purchase price per share under
     certain circumstances.

5.   Under the terms of this agreement, TV Azteca has the right to determine all
     Channel 40 programming except for 16 and one-half hours per week that is to
     be made up of CNI-determined programming. In return for the transmission
     rights of this CNI-determined programming through Channel 40, TV Azteca
     agreed to pay CNI, during the first year, US$5.0 for each 60 minute program
     or its equivalent broadcast and, after the second year, US$1.65 for each
     rating point generated by the broadcast of CNI-determined programming on
     Channel 40. During the year ended December 31, 2000, US$3,292 (Ps37,167),
     was paid for these services.

6.   To improve the efficiency of Channel 40's operations, TV Azteca has agreed
     to provide accounting, administrative, computer, technical or any other
     advice that will improve the operations and administration of Channel 40.

                                      F-20

<PAGE>

In July 2000, CNI stopped broadcasting TV Azteca's signal as required by its
contractual obligation under the joint venture agreement and TV Azteca's signal
has not been broadcast on Channel 40 since this date. In response to CNI's
actions, TV Azteca filed several lawsuits against TVM and CNI. At February 7,
2003, the date of these financial statements, this matter is in litigation. TV
Azteca is seeking lost profits and the enforcement of its purchase option right
under the joint venture agreement to acquire up to 51% of the capital stock of
TVM. At December 31, 2001 and 2002, TV Azteca had advanced an aggregate amount
of US$34,000 to CNI, which includes US$9,000 comprised of interest on the credit
facility an additional operating expenses forwarded to CNI, in connection with
the joint venture that may be recovered based on future earnings of the joint
venture.

In December 2002, an Arbitral Tribunal of the International Court of Arbitration
of the International Chamber of Commerce issued an award concluding that the
joint venture and the purchase option agreement entered into by TV Azteca and
CNI are valid, in effect and enforceable. As a consequence of this conclusion,
TV Azteca believes that the terms of the arbitral award confirms TV Azteca's
right to operate Channel 40 as contemplated by the joint venture and to exercise
its right to acquire up to 51% of the capital stock of TVM. In reliance on the
arbitral award issued in December, 2002, TV Azteca took possession of certain
broadcasting facilities of Channel 40 to restore TV Azteca's signal on Channel
40. Following this event, the Ministry of Communications and Transportation
(Secretaria de Comunicaciones y Transportes, or SCT) took exclusive control of
the Channel 40 transmission site and signal. In January 2003, CNI filed an
action for relief (amparo) before a federal court seeking to reverse SCT's
decision to take exclusive control of the Channel 40 transmission site and
signal. On January 27, 2003, CNI regained control of the Channel 40 transmission
site and signal. On that same day, TV Azteca appealed the decision. Although no
assurance can be given, management of TV Azteca believes TV Azteca will prevail
in the litigation, and accordingly, no reserve has been established with respect
to these proceedings.

Unefon

On May 14, 1999, TV Azteca signed an agreement (the "Stockholders' Agreement")
with Corporacion RBS, S. A. de C. V. ("CRBS"), a Mexican company wholly-owned by
Ricardo B. Salinas Pliego and Moises Saba Masri to invest in Unefon and its
subsidiaries. Unefon is a personal telecommunications services wireless network
that is a provider of wireless mobile telephone services in Mexico. The
Stockholders' Agreement establishes that Unefon must be operated and managed as
a joint venture, initially between CRBS and Moises Saba Masri. The Stockholders'
Agreement required each of CRBS and Moises Saba Masri to contribute US$186,500
to Unefon's capital, for a total of US$373,000 in capital stock. These capital
contributions to Unefon were completed on June 15, 1999.

Before signing the Stockholders' Agreement, CRBS made a contribution to Unefon's
capital of approximately US$88,600, which was used to make an advance payment to
the Mexican government for the acquisition of wireless concessions and for
pre-operating expenses. CRBS made the balance of the contribution required by
the Stockholders' Agreement with funds

                                      F-21

<PAGE>

borrowed from the Company. The Company obtained part of the funds for this loan
from the sale of 218 million of the CPOs of TV Azteca owned by the Company to a
group of private Mexican investors. The Company obtained the remaining funds for
the loan from the sale by the Company of 44 million TV Azteca CPOs to the
Company's wholly-owned subsidiary, Compania Operadora de Teatros, S. A. de C. V.
("Teatros").

On October 28, 1999, TV Azteca acquired the interest in Unefon held by CRBS at a
cost (including financial costs) of US$189,793 which was funded through: (i)
proceeds from the issuance of shares; (ii) the payment of US$35,108 in cash and
(iii) the cancellation of debts of US$43,067 owed to TV Azteca by CRBS.

In February 2000, Unefon commenced operations.

At the extraordinary stockholders' meeting held on October 2, 2000, the Unefon
stockholders agreed to reduce the Unefon capital stock by Ps611 million
(nominal). At December 31, 2001, this reduction had not yet been made, and is
shown in the financial statements of the affiliate as an account payable to the
stockholders, bearing interest at an annual rate of 8%. The stockholders will
use the proceeds of said capital reduction to capitalize a newly formed company
owned 50% by TV Azteca and 50% by Moises Saba Masri, Cosmofrecuencias, for which
purpose, TV Azteca will contribute Ps354,964 at December 31, 2001, equal to 50%
of the Cosmofrecuencias capital stock. In June 2002, TV Azteca contributed to
Cosmofrecuencias as a capital contribution its receivable from Unefon, including
the cumulative interests, equivalent to 50% of Cosmofrecuencias capital stock.

On October 19, 2000, the Board of Directors of TV Azteca approved the grant to
its stockholders of the rights to acquire TV Azteca's investment in Unefon and
Cosmofrecuencias shares, a decision which was ratified at TV Azteca's ordinary
stockholders' meeting held on December 4, 2000.

As determined by TV Azteca's Board of Directors, TV Azteca's stockholders will
also have the right to purchase shares in Cosmofrecuencias from October 19, 2001
to October 19, 2006. The total exercise price for this option is approximately
US$32,000.

The grant of the rights ("Rights") to acquire the Unefon shares was subject to
receiving the requisite consent of the holders of the TV Azteca Notes and Azteca
Holdings Senior Secured Notes 2002 (each defined in Note 9). On March 27, 2001,
TV Azteca obtained the consents and paid a fee totaling Ps115,223 to certain
holders of the TV Azteca Notes, which was recorded as part of its total
investment in Unefon. The grant of the Rights is also subject to receiving
applicable regulatory approvals, third party approvals, including the approval
of Nortel Networks Corporation ("Nortel"), Unefon's major lender and equipment
supplier, and the filing and effectiveness of a registration statement with the
U.S. Securities and Exchange Commission that registers the Unefon shares
underlying the Rights.

                                      F-22

<PAGE>

The Rights were exercisable only on December 11, 2002, unless the time of
exercise was extended by TV Azteca or an acceleration event occurred. In
December 2002, TV Azteca's Board of Directors approved the change of the
exercise date to December 11, 2003. Any Rights that are not exercised on the
exercise date will expire and TV Azteca will retain ownership of the shares
underlying the Rights. The Rights may become exercisable prior to December 11,
2003 if the Board of Directors of TV Azteca approves a merger or consolidation
of Unefon, a sale of all or substantially all of Unefon's assets or a sale (by
tender or otherwise) of at least a majority of Unefon's shares or otherwise
determines to accelerate the exercisability of the Rights.

At December 31, 2001 and 2002, the Company owned, directly and indirectly, 55.6%
and 55.5% respectively, of TV Azteca's outstanding capital stock. The Unefon
Rights granted to the Company represent approximately 26% of the outstanding
shares of Unefon on a fully diluted basis.

In connection with the TV Azteca rights transaction, on December 13, 2000, the
Company entered into an agreement with Ricardo B. Salinas Pliego and Elisa
Salinas Gomez relating to their right to acquire up to 511,743,120 Unefon shares
that may be acquired by the Company upon exercise of the Company's Unefon
rights. Mr. Salinas Pliego and Mrs. Salinas Gomez paid a US$7,000 non-refundable
premium to the Company for these purchase rights. However, in order to exercise
these purchase rights, Mr. Salinas Pliego and/or his affiliates must have
directly or indirectly acquired the shares owned by Grupo Elektra of CASA, the
direct owner of approximately 90% of the Company's outstanding shares, or all of
the outstanding capital stock of Grupo Elektra, or Grupo Elektra must have
exercised its right to exchange all of the shares owned by Grupo Elektra of CASA
for 226.5 million CPOs of TV Azteca pursuant to the terms of a share exchange
agreement dated March 25, 1996 between Grupo Elektra and the Company. If Mr.
Salinas Pliego and/or his affiliates have not so acquired the CASA shares or the
outstanding capital stock of Grupo Elektra, and Grupo Elektra has not exercised
its share exchange right, then Grupo Elektra will have the right, in lieu of Mr.
Salinas Pliego and Mrs. Salinas Gomez, to exercise up to 34% of the Company's
rights to acquire Unefon shares.

Grupo Elektra has the right to exchange the CASA Series N shares that it owns,
in whole or in part, at any time until March 26, 2006 for 226.5 million TV
Azteca CPOs owned by the Company. This exchange right allows Grupo Elektra to
acquire up to approximately 7.6% of the capital stock of TV Azteca from the
Company, which would reduce the Company's direct and indirect ownership of the
capital stock of TV Azteca to approximately 49%, although the Company would
continue to own 65% of the voting power of TV Azteca.

With respect to TV Azteca's investment in Unefon (46.5% at December 31, 2001 and
2002), TV Azteca's stockholders have the right to acquire those shares subject
to the occurrence of certain conditions, at a price of US$0.15128 per Unefon
share owned by TV Azteca, for a total amount of US$176,998. At December 31, 2001
and 2002, TV Azteca's investment in Unefon reflects the net book value of the
investment at the date of the decision to sell Unefon. TV Azteca will record any
differences between the net book value of the investment and the ultimate sales
price once the stockholders exercise the purchase option and all the legal
requirements of the transaction have been complied with.

                                      F-23

<PAGE>

In July 2002, TV Azteca announced that its Board of Directors had approved of
seeking the approval of TV Azteca's shareholders in order to authorize the
spin-off of its investment in Unefon in the form of a distribution of all of the
shares of Unefon that TV Azteca owns to TV Azteca's shareholders at no monetary
cost before the end of 2002. However, as a consequence of a dispute between
Unefon and Nortel, TV Azteca's Board of Directors postponed submitting the
proposal to TV Azteca's shareholders.

In December 2000, in connection with certain modifications of Unefon's finance
agreement with Nortel, TV Azteca and Mr. Saba, agreed, jointly and severally, in
a shareholder's undertaking to provide Unefon up to US$35,000 in the aggregate
by way of either equity or subordinated debt in the event Unefon had liquidity
shortfalls in 2001 or 2002.

In July 2001, TV Azteca and Moises Saba Masri announced their intention to
provide credit support to Unefon for up to US$80,000 each. TV Azteca has
suspended any further credit support to Unefon in light of Unefon's dispute with
Nortel. At December 31, 2002, TV Azteca had provided US$48,000 of credit
guarantees on behalf of Unefon, of which US$19,100 had become due and had been
paid by TV Azteca. See Note 8.

In September 1999, Unefon entered into a finance agreement and a procurement
agreement with Nortel pursuant to which Nortel agreed to assist Unefon in the
design and construction of its telecommunications network.

Unefon and Nortel are currently engaged in disputes over each party's compliance
with the terms and conditions of the finance agreement, letter agreement,
procurement agreement, and other related agreements entered into by the parties
and certain of their shareholders and affiliates.

Unefon asserts that Nortel has not fulfilled its obligations under the finance
agreement, letter agreement and procurement agreement. With respect to the
finance and letter agreements, Unefon has asserted, among other things, that
Nortel breached its obligation to make available to Unefon the second loan
tranche under the finance agreement in the amount of US$210,000. Unefon contends
that Nortel's failure to advance this additional financing has limited Unefon's
ability to build out its network, to grow its business in accordance with its
business plan and to realize the revenues and profits related to such growth and
needed to repay the first loan tranche under the finance agreement. With respect
to the procurement agreement, Unefon asserts, among other things, that Nortel
failed to properly design and construct the network and failed to provide
required and appropriate maintenance and support. Unefon also contends that the
settlement agreement signed in July 2002 never became effective because Nortel
failed to perform the pre-conditions to its effectiveness. Even to the extent
that the settlement agreement became effective, Unefon contends that Nortel
failed to perform its obligations thereunder.

As s result of Nortel's alleged breaches, Unefon withheld a US$6,000 interest
payment due to Nortel in August 2002 and has asserted that it is relieved of its
payment obligations under the finance agreement by reason of Nortel's breaches.

                                      F-24

<PAGE>

On August 28, 2002, Nortel sent Unefon a notice alleging that Unefon was in
default under the finance agreement due to its failure to make the foregoing
interest payment. Nortel also alleged that the proposed spin-off by TV Azteca of
its 46.5% stake in Unefon would be deemed to be a change in control under the
terms of the finance agreement, which also would constitute a default under the
finance agreement unless Nortel consented to such action.

On September 9, 2002, Unefon filed a lawsuit against Nortel in the Supreme Court
of the State of New York seeking damages and lost profits in the amount of
US$900,000. Unefon alleged that Nortel had breached the finance agreement and
related letter agreement by failing to advance the second loan tranche of
US$210,000. Unefon also alleged that Nortel had failed to comply with its
obligation to pursue syndication of the first loan tranche in a diligent and
timely manner, applying its best efforts consistent with standards of commercial
reasonableness. Unefon alleged that Nortel's breach had caused Unefon damages,
including, among other, lost profits and a diminution in equity value of Unefon
and had relieved Unefon of its payment obligations under the finance agreement.
As an alternative remedy, Unefon sought specific performance of Nortel's
obligation to lend Unefon up to US$210,000 from the second loan tranche under
the finance agreement.

Nortel notified Unefon on September 9, 2002 that based on its non-payment of the
August 2002 interest payment, Nortel was accelerating all amounts owed by Unefon
under the finance agreement. As of December 31, 2002, the outstanding principal
amount under the finance agreement was US$349,800. Nortel also notified Unefon
that it was exercising its right to terminate the procurement agreement as a
result of Unefon's alleged default under the finance agreement.

On September 23, 2002, Nortel filed an answer and counterclaim in the New York
Supreme Court action commenced by Unefon in which Nortel asserted, among other
things, that it had not breached the finance agreement and related letter
agreement and that the remedies sought by Unefon were not available under the
finance agreement, the procurement agreement or applicable law. Nortel's
counterclaim was based on Unefon's non-payment of the August 2002 interest
payment, and Nortel sought acceleration and immediate payment of all amounts
allegedly due to Nortel under the finance agreement. On October 10, 2002, Unefon
answered Nortel's counterclaim and denied the allegations offered in support
thereof.

On November 11, 2002, Unefon filed a demand for arbitration under the
procurement agreement, as well as the July 2002 settlement agreement, before the
American Arbitration Association in New York City. In its demand, Unefon
asserted numerous breaches by Nortel of its obligations under these agreements,
including design and construction flaws, failure to fulfill software
obligations, maintenance failures, failure to provide financing and other
economic benefits and refusal to deliver equipment for which Unefon has paid.
Unefon seeks damages and an order directing Nortel to deliver immediately all
equipment for which Unefon has paid. On December 24, 2002, Nortel filed an
answer denying liability and asserting counterclaims based on alleged breaches
by Unefon of its payment obligations under the procurement agreement and
requested the arbitration tribunal to award damages in the amount of at least
US$47,000.

                                      F-25

<PAGE>

On November 11, 2002, Nortel moved for summary judgment on its counterclaim
relating to the non-payment of interest, on December 10, 2002, Unefon moved for
partial summary judgment on its claim that Nortel breached the finance
agreement, and moved to amend its complaint to assert claims for fraud and
intentional misrepresentation relating to Nortel's willingness to lend the
second loan tranche, including Nortel's willingness to seek syndication of the
first loan tranche, and to assert two affirmative defenses: (i) that Nortel's
fraudulent inducement bars Nortel from any relief under the finance agreement of
procurement agreement and (ii) that Unefon is excused from performance under the
finance agreement by virtue of Nortel's breaches of the finance agreement and
procurement agreement. Unefon also sought a stay of the action pending
resolution of the arbitration commenced by Unefon against Nortel, as described
above. On January 14, 2003, Nortel filed papers opposing Unefon's motions.

On November 29, 2002, Unefon and certain of its affiliates commenced an action
against Nortel and others in civil court in Mexico City seeking a declaration of
the parties' rights under pledged agreements pursuant to which Unefon's and the
affiliates' stock had been pledged to Nortel as security to the loans made under
the finance agreement. Unefon and its affiliates seek, among other things,
declarations that Nortel is disproportionately collateralized and that certain
provisions of the stock pledge agreements are void under Article 198 of the
Mexican General Commercial Companies Law (which voids any agreement which
restricts the free exercise of shareholder voting rights).

On December 16, 2002, Nortel filed a second, separate lawsuit in the Supreme
Court of the State of New York seeking authorization from the Court, pursuant to
the stock pledge agreement, to sell the shares of Operadora Unefon, S. A. de C.
V. and Servicios SPC, S. A. de C. V. (each wholly-owned subsidiaries of Unefon)
that were pledged to secure its indebtedness, or, in the alternative,
authorization to take appropriate steps to obtain control over the management
and business of Unefon. Unefon filed a motion to dismiss this action or
jurisdictional grounds and on the basis of the prior Mexican action commenced by
it against Nortel in regard to the pledge agreements. The parties have
stipulated that Nortel will not take any further action to foreclose on the
shares until such motion is decided.

On December 20, 2002, Nortel notified TV Azteca and Mr. Saba of its view that
Unefon's non-payment of the August 2002 interest payment triggered their joint
and several obligation to make additional funds available to Unefon up to an
aggregate amount of US$35,000 as provided in the shareholders' undertaking. TV
Azteca and Mr. Saba dispute Nortel's contention that their funding obligation
has been triggered, asserting that Nortel has materially breached the finance
agreement and the procurement agreement, thereby excusing Unefon from
performance of its obligations under these agreements and, therefore, that TV
Azteca and Mr. Saba are excused from performance of their obligations under the
shareholders' undertaking. TV Azteca and Mr. Saba also assert that, even if
their funding obligation has been triggered, they have satisfied their
obligations under the shareholders' undertaking by making up to US$35,800 in
additional funds available to or on befhalf of Unefon.

                                      F-26

<PAGE>

In January 2003, Nortel petitioned for the bankruptcy of Unefon before a Mexican
court. In response, Unefon filed an action for relief (amparo) before a federal
district court challenging Nortel's request. Unefon believes that Nortel's
bankruptcy petition is insufficient under Mexican law and that it will therefore
prevail in this proceeding. The federal district court suspended Nortel's
bankruptcy claim pending its analysis of the sufficiency of Nortel's petition.

If Unefon losses control over its assets or Unefon is unable to procure
additional equipment from Nortel as it builds out its network, its business and
results of operations would be significantly and adversely affected. Although no
assurance can be given, Unefon's management believes Unefon will prevail in the
litigation, and accordingly, no reserve has been established by Unefon or TV
Azteca with respect to these proceedings.

Todito

In its meeting held on February 9, 2000, TV Azteca's Board of Directors approved
a US$100,000 investment in Todito. The investment was made on February 14, 2000
through an advertising, programming and services agreement (see Note 8), in
exchange for 50% of the capital stock of Todito. TV Azteca has the ability to
exercise significant influence, but not control, over the operations of Todito.
This investment is accounted for by the equity method and is presented in the
balance sheet as "Investment in Todito". This acquisition resulted in goodwill
of Ps543,370. The amortization of goodwill for the years ended December 31,
2000, 2001 and 2002 was Ps22,643, Ps27,260 and Ps27,260, respectively.

Todito operates a Spanish-language Internet portal and internet connection
service located at "www.todito.com" that was launched in August 1999 by
Dataflux, S. A. de C. V. ("Dataflux"), a company controlled by the brother of
Mr. Salinas Pliego. Todito's website provides e-commerce and other services to
Mexico and the Hispanic population in the United States.

Azteca America

In September 2000, TV Azteca and Pappas Telecasting Companies ("Pappas Group"),
a broadcasting company based in the United States, entered into a joint venture
("Azteca America JV"), with the purpose of creating a new television broadcast
network. Azteca America JV was engaged in the developing a new television
broadcast network focused on the Hispanic market in the United States.

In accordance with the original Azteca America JV, Azteca America JV was owned
80% by Pappas Group and 20% by TV Azteca. In connection with the creation of
Azteca America JV, TV Azteca also entered into a program license agreement (the
"License") with Azteca America JV in September 2000 for an initial term of 20
years with a renewal for one additional ten-year term at the option of TV
Azteca. The License granted exclusive rights from the date of the agreement to
Azteca America JV and its subsidiaries for the broadcast of Spanish language
programs within the United States. Additionally, TV Azteca agreed to make all
its programming available to Azteca America JV and must make available at least
3,000 hours of new programming in each calendar year.

                                      F-27

<PAGE>

Prior to the launch date, Pappas Group agreed to pay TV Azteca a monthly fee of
approximately US$1,500. During the years ended December 31, 2000 and 2001, TV
Azteca received US$6,436 and US$6,731, respectively, under the terms of this
agreement which was recorded as net revenue in TV Azteca's results of
operations. After the launch date, Azteca America JV was scheduled to receive an
annual fee equal to the greater of US$15,000 or 10% of the annual net revenues
of Azteca America JV which increased 1% every year to a maximum of 15% of net
revenues. Until TV Azteca's subscription obligation was paid, Azteca America JV
agreed to apply the payment of the License fee to the outstanding subscription
obligation. TV Azteca had no outstanding subscription obligation at December 31,
2000 since Pappas Group had not made its initial capital contribution.

In June 2001, TV Azteca and Pappas Group agreed to change their strategy, and as
a result of this, the Azteca America JV was terminated as well as the
corresponding license agreement. Also, TV Azteca, through Azteca International
Corporation ("Azteca America"), a wholly-owned subsidiary of TV Azteca, has
entered into station affiliation agreements with television broadcast stations,
including those owned by Pappas Group.

In July 2001, TV Azteca launched the Azteca America Network, a new
Spanish-language television broadcast network in the U.S. Through Azteca
America, its wholly-owned subsidiary, TV Azteca establishes affiliate
relationships with television broadcast stations in U.S. markets that have a
significant Hispanic population. In addition, Azteca America may enter into
distribution agreements with cable operators. Through the Azteca America
Network, TV Azteca distributes in the U.S. certain of its programming including
telenovelas, reality programming, sports, news and other general entertainment
programming in the Spanish language, which TV Azteca refers to as the Azteca
America Programming.

As of December 31, 2002, Azteca America has entered into station affiliation
agreements with the following broadcast television stations, which are
affiliates of Pappas Group:

Los Angeles Station

In July 2001, Azteca America and Pappas Southern California, LLC ("Pappas
California") entered into a station affiliation agreement with respect to
KAZA-TV, NTSC Channel 54, which serves the Los Angeles, California Designated
Market Area (DMA). Pursuant to this agreement, Azteca America granted Pappas
California an exclusive license for over-the-air broadcasting of the Azteca
America programming in the Los Angeles market. The station affiliation
agreement, which was amended in December 2001, has a term of four years,
commencing in July 2001. This agreement automatically renews for an additional
four-year term, unless terminated by either party. Azteca America has the right
to receive 50% of the net local and national spot advertising revenue generated
by the station.

In connection with entering into the Los Angeles station affiliation agreement,
TV Azteca agreed to become a joint and several obligor under a credit agreement
among Pappas Telecasting of Arizona, LLC ("Pappas Arizona") and Pappas
California, as borrowers, and UBS AG, as lender. Pursuant to this credit
agreement, UBS AG loaned a total of US$31,000 to the borrowers. All loans made
under this credit agreement were repaid by November 2, 2002. UBS AG was

                                      F-28

<PAGE>

granted a first priority lien on the collateral securing the loans, which
included the entire equity interest in the two Pappas affiliates that hold the
U.S. Federal Communications Commission licenses for the Pappas Arizona and
Pappas California television stations.

TV Azteca and Pappas California also entered into a credit agreement under which
TV Azteca agreed to loan Pappas California up to US$60,000 for, among other
things, repayment of indebtedness, working capital and payment of the principal
and unpaid interest under the UBS credit agreement, as described above. The loan
was required to be repaid by November 2, 2002 and was subordinate to the loans
made under the UBS credit agreement. TV Azteca was granted a second priority
lien on the collateral securing the loans, subordinate to the liens securing the
UBS credit agreement. However, TV Azteca's ability to acquire the collateral in
the event of foreclosure under the TV Azteca credit agreement was limited by the
United States laws limiting foreign ownership of United States television
stations. At December 31, 2001 and 2002, US$18,216 and US$19,667, respectively,
were outstanding under the TV Azteca credit agreement.

In July 2001, Azteca America and Pappas California also entered into an equity
option agreement pursuant to which Azteca America was granted an option to
purchase an equity interest in Pappas California. The equity option was to be
exercised by Azteca America on one occasion, in whole or in part, prior to July
27, 2002. Under the terms of the agreement, Azteca America had the right to
acquire up to a 25% equity interest in Pappas California. However, in the event
that Pappas California and Pappas Arizona have outstanding debt obligations
under their respective credit agreements with TV Azteca and affiliates of UBS
AG, Azteca America had the right to acquire a percentage of Pappas California
equal to the greater of 25% or the percentage obtained by dividing: (i) the
amounts then owed under these credit agreements by (ii) US$136,000, the value of
the Los Angeles affiliate agreed upon by Azteca America and Pappas California.
If Azteca America was not permitted to acquire an equity interest in Pappas
California greater than 25% as a result of the United States laws limiting
foreign ownership of United States television stations, Azteca America was
permitted to transfer the right to acquire the excess equity interest to an
unaffiliated third party. If Azteca America acquired an equity interest in
Pappas California and, thereafter, the term of the station affiliation agreement
was not renewed by Pappas California following the expiration of the initial
four-year term, Azteca America would have the right to acquire 100% of the
equity interests in Pappas California for a cash price equal to the fair market
value of such interests (or to transfer the right to acquire such additional
equity interests to an unaffiliated third party). If the station affiliation
agreement was not renewed by Azteca America, Pappas California would have the
right to acquire all of Azteca America's equity interest in Pappas California
for a cash price equal to its fair market value. Pappas California would also
have the right to acquire Azteca America's interest, and Azteca America would
have the right to cause Pappas California to acquire Azteca America's interest,
in certain other circumstances.

                                      F-29

<PAGE>

The equity option was exercised by Azteca America on May 21, 2002. In connection
with its effort to exercise the option, TV Azteca paid US$32.8 million to
acquire the UBS AG credit agreement that is secured by the Los Angeles station,
which increased TV Azteca's secured loan to Pappas California to US$53.7
million.

Reno Station

In October 2001, Azteca America and Pappas Telecasting of Nevada ("Pappas
Nevada"), entered into a station affiliation agreement with respect to KUVR-LP,
NTSC, Channels 47 and 68, which serves the Reno-Sparks-Carson City, Nevada DMA.
Pursuant to this agreement, Azteca America granted Pappas Nevada an exclusive
license for over-the-air broadcasting of the Azteca America programming in such
market. This agreement has a term of two years, commencing in November 2001.
This agreement automatically renews for an additional two-year term, unless
terminated by either party. Azteca America has the right to receive 50% of the
net local and national spot advertising revenue generated by the station.

San Francisco and Houston Stations

In December 2001, Azteca America and Hispanic America of San Francisco, LLC
("Pappas San Francisco") entered into a station affiliation agreement with
respect to KTNC-TV, NTSC Channel 42 and DTV Channel 63, which serves the San
Francisco-Oakland-San Jose, California DMA. Also in December 2001, Azteca
America and Hispanic America of Houston, LLC ("Pappas Houston") entered into a
station affiliation agreement with respect to KAZH-TV, NTSC Channel 57 and DTV
Channel 41, and KVVV-LP, NTSC Channel 53, which serves the Houston, Texas DMA.
Pursuant to these station affiliation agreements, Azteca America granted Pappas
San Francisco and Pappas Houston an exclusive license for over-the-air
broadcasting of the Azteca America programming in their respectives markets.
These agreements expire on July 21, 2005, and automatically renew for a
four-year term, unless terminated by either party. Azteca America has the right
to receive 50% of the net local and national spot advertising revenue generated
by the stations.

In connection with the San Francisco station affiliation agreement, Azteca
America acquired a 25% equity interest in Pappas San Francisco for a purchase
price of US$57,250, of which US$55,250 was paid in December 2001 and the
difference was paid in January 2002 and in connection with the Houston station
affiliation agreement, Azteca America acquired a 25% equity interest in Pappas
Houston for a purchase price of US$13,404, of which US$13,000 was paid in
December 2001 and the difference was paid in January 2002. The remaining equity
interests in these stations are owned by Pappas affiliates. If the term of the
station affiliation agreement is not renewed by Pappas San Francisco or Pappas
Houston, as applicable, following the expiration of the initial term, Azteca
America will have the right to acquire 100% of the equity interests therein for
a cash price equal to the fair market value of such interests (or to transfer
the right to acquire such additional equity interests to an unaffiliated third
party). If the station affiliation agreement is not renewed by Azteca America,
Pappas San Francisco or Pappas Houston, as applicable, will have the right to
acquire all of Azteca America's equity interest

                                      F-30

<PAGE>

therein for a cash price equal to its fair market value. Pappas San Francisco or
Pappas Houston, as applicable, will also have the right to acquire Azteca
America's interests, and Azteca America will have the right to cause Pappas San
Francisco or Pappas Houston, as applicable, to acquire Azteca America's
interest, in certain other circumstances.

Following the exercise of the option by Azteca America to purchase an equity
interest in the Los Angeles station, Pappas Group refused to permit Azteca
America to complete the purchase, claiming that Azteca America had not satisfied
certain conditions to the purchase. Consequently, in July 2002, Azteca America
filed a lawsuit against Pappas Group in Delaware seeking specific performance of
the equity option agreement. In addition, Pappas Group claimed that Azteca
America had breached the affiliation agreements for the Los Angeles, San
Francisco and Houston stations, as well as an additional affiliation agreement
covering the Reno, Nevada DMA and sought to terminate such agreements. Azteca
America filed a separate lawsuit in New York state court to prevent the
termination of the affiliation agreements. A trial on the Delaware lawsuit was
scheduled for December 2002.

Other affiliation agreements

In addition to Azteca America's arrangements with Pappas Group affiliates,
Azteca America has also entered into station affiliation agreements with
television broadcast companies covering approximately 53% of the U.S. Hispanic
population.

Pursuant to these station affiliation agreements, the stations have been granted
exclusive licenses for over-the-air broadcasting of Azteca America programming
in their respective markets. These agreements have terms ranging from two to
seven years which may be automatically renewed for a specified duration, also
ranging from two to seven years. Azteca America has the right to receive all of
the net advertising revenue that it generates on each of the broadcast stations
other than in the Las Vegas and Orlando markets, where they are only entitled to
50% of the net advertising revenue.

Pappas Group recent developments

On November 27, 2002, TV Azteca and Pappas Group entered into an agreement in
principle to settle all of the pending lawsuits and all related disputes, and on
February 11, 2003, a definitive settlement agreement was signed. In connection
with settling these pending matters, TV Azteca and Pappas Group also entered
into a number of agreements that will govern their future relationship. These
agreements include a new promissory note issued by Pappas Group in favor of TV
Azteca for US$128,000, a local marketing agreement governing, under certain
circumstances, Azteca America's operation of its Los Angeles affiliate and a
purchase option agreement that grants Azteca America the right, subject to
receipt of all necessary approvals, to acquire all of the assets of its Los
Angeles affiliate. In addition to these agreements, Pappas Group and TV Azteca
have modified their existing station affiliation agreements and entered into new
station affiliation agreements.

                                      F-31

<PAGE>

NOTE 8 - BALANCES AND TRANSACTIONS WITH RELATED PARTIES:

The Company had the following amounts due from and payable to related parties:

<TABLE>
<CAPTION>
                                                                 At December 31,
                                                        --------------------------------
                                                             2001                2002
                                                        -------------       ------------
<S>                                                     <C>                 <C>
Accounts receivable:
Operadora Unefon, S. A. de C. V. ("Operadora Unefon")   Ps     19,823       Ps   258,917
Biper, S. A. de C. V.                                           2,535             32,368
Corporacion de Comunicacion, S. A. de C. V.                    45,688
Radiocel, S. A. de C. V.                                        9,463
Corporacion RBS, S. A. de C. V.                                 3,628
Teleactivos, S. A. de C. V.                                                       16,389
Club Atletico Morelia, S. A. de C. V.                                             29,494
Others                                                         46,967             10,719
                                                        -------------       ------------

                                                        Ps    128,104       Ps   347,887
                                                        =============       ============

Accounts payable:
Grupo Elektra                                           Ps     31,486       Ps    68,539
Todito                                                         24,307             56,355
Corporacion RBS, S. A. de C. V.                                43,401             40,579
Servicios Patrimoniales Integrados, S. A. de C. V.             11,819             11,182
Comunicaciones Avanzadas, S. A. de C. V.                       10,570             12,408
Teleactivos, S. A. de C. V.                                     5,552
Club Atletico Morelia, S. A. de C. V.                           2,814
Others                                                         60,293              7,467
                                                        -------------       ------------

                                                        Ps    190,242       Ps   196,530
                                                        =============       ============
</TABLE>

Additionally, TV Azteca has an account receivable with Pappas Southern
California, LLC, related party, which is described in Note 7.

The principal transactions with related parties are as follows:

Advertising revenue

Revenue from airing advertising for related parties amounted to Ps199,485,
Ps268,980 and Ps220,568 during the years ended December 31, 2000, 2001 and 2002,
respectively.

                                      F-32

<PAGE>

Advertising contracts

In March 1996, TV Azteca entered into a Television Advertising Time Agreement
with Grupo Elektra under which Grupo Elektra (or any company in which Grupo
Elektra has an equity interest) has the right to receive at least 300
advertising spots per week for a period of 10 years. Each spot has a duration of
20 seconds, and the aggregate amount of airtime is not to exceed 5,200 minutes
annually. The spots are to run only in otherwise unsold airtime. In exchange for
the television advertising airtime, TV Azteca will receive US$1,500 per year.
The agreement may not be terminated by TV Azteca but may be terminated by Grupo
Elektra, which may also transfer its rights under this agreement to third
parties.

On May 2, 2001, TV Azteca entered into another advertising agreement with Grupo
Elektra for Ps54,500 (nominal). Pursuant to the agreement, Grupo Elektra has the
right to air advertising spots on Channels 7 and 13 and their national networks
from May 2, 2001 through December 31, 2001. At the end of the period, any
remaining advertising balance will be forfeited and TV Azteca will have no
further obligations to Grupo Elektra.

Effective September 30, 1996, TV Azteca entered into a Television Advertising
Time Agreement with Productora de Medios, S. A. de C. V. ("Productora") a former
wholly-owned subsidiary of COTSA (the "COTSA Advertising Agreement"), under
which COTSA or any of COTSA's subsidiaries had the right to 42 advertising spots
per week on Channel 7 or 13 for a period of 10 years. Each spot for an average
duration of 20 seconds, totaling 728 minutes annually, but only in otherwise
unsold airtime. In exchange for the advertising time, COTSA has agreed to pay TV
Azteca US$210 each year. The agreement may not be terminated by either party
without the consent of the other party.

On November 15, 2001, Productora signed a number of agreements with third
parties, by which Productora ceded its right to use the 7,280 airtime minutes
pertaining to the COTSA Advertising Agreement for airing commercials spots on
Channel 7 or 13 from the date on which these agreements were entered into to
September 29, 2006. In return, COTSA is to receive US$24,000, which is to be
paid to Cine Alternativo, S. A. de C. V. ("Cine"), an affiliate of Productora
that acts as its depositary for the payments. Of this amount, US$12,174 was paid
in December 2001 as an advance payment, US$5,565 in June 2002 and US$6,261 in
December 2002. On December 12, 2001, Productora and Cine were merged into the
Company, and the Company acquired the rights and obligations of Productora from
the advertising agreement signed with TV Azteca, as well as the rights and
obligations arising from the agreements entered into by Productora with third
parties. These agreements cannot be terminated early by either of the parties.

The additional value of the advertising agreement originally entered into
amounts to Ps210,471 and is shown on the balance sheet as advertising advances.

                                      F-33

<PAGE>

Effective September 30, 1996, TV Azteca entered into a Television Advertising
Time Agreement with Dataflux (the "Dataflux Advertising Agreement") under which
Dataflux or any of its subsidiaries has the right to 480 advertising spots per
month on Channel 7 or 13 for a period of 10 years. Each spot is to have a
duration of 30 seconds. The aggregate amount of airtime provided by TV Azteca
under this agreement is not to exceed 2,880 minutes annually, and the
advertising spots shall run only in otherwise unsold airtime. In exchange for
the advertising time, Dataflux has agreed to pay TV Azteca US$831 annually,
payable in advance each year. The Dataflux Advertising Agreement may not be
terminated by TV Azteca; however, it may be terminated by Dataflux at any time
upon at least 90 days' notice.

On June, 1998, TV Azteca signed an advertising agreement with Unefon ("Unefon
Advertising Agreement"), as amended. Under the terms of the Unefon Advertising
Agreement, Unefon has the right to advertising spots on the Channels 7 and 13
networks, as well as any other open television channel operated or
commercialized by TV Azteca, either directly or indirectly through its
affiliates or subsidiaries. The advertising spots that are the subject of the
Unefon advertising agreement will total 120,000 GRPs (a GRP is a Gross Rating
Point, which is the number of rating points for the broadcast of a 60-second
commercial or proportional fraction thereof) over a ten-year period.

Each year during the term of the agreement, Unefon will be able to make use of
up to 35,000 GRPs. Unefon must submit a request for air time, specifying dates
and hours of show-time, to TV Azteca in advance.

Unefon is obligated to make use of 100% of the GRPs over a period of ten years.
Any balance remaining after ten years will be automatically cancelled and TV
Azteca will have no further obligations to Unefon. Unefon will pay TV Azteca 3%
of its gross revenues up to a maximum of US$200,000 for the advertising services
in installments as advertising is aired. TV Azteca records revenue under the
terms of this agreement as the GRPs are consumed based on a rate schedule
established in the agreement, which provides less expensive GRPs initially and
more expensive GRPs over the term of the agreement. The original agreement
provided that Unefon may defer making payments until the third year of the
agreement, and Unefon must pay interest on any unpaid advertising aired, at the
rate per annum of the average annual Costo Porcentual Promedio de Captacion,
plus three basis points. However, during 2001 Unefon and TV Azteca agreed to
defer payments due in 2000, 2001 and 2002 and to make these payments in four
equal semi-annual installments during 2003 and 2004 with the first payment due
in June 2003. The deferred payments accrue interest at an annual rate of 12%.
Beginning in 2003, Unefon's payments to TV Azteca are due on a current basis. At
December 31, 2002, the aggregate deferred payments equaled US$15,707 (including
interest).

TV Azteca's right to payment under the agreement is subject to compliance by
Unefon with its payment obligations under the finance agreement with Nortel.
Unefon's failure to pay advances will not be considered a default by Unefon
under the agreement. However, TV Azteca will be able to suspend provision of
television services to Unefon after a year of Unefon's failure to pay.

                                      F-34

<PAGE>

On February 14, 2000, TV Azteca, together with its subsidiary Grupo TV Azteca,
S. A. de C. V., signed an advertising, programming and services agreement with
Todito. The total amount of the five-year agreement was US$100,000 and consisted
of US$45,000 for advertising services, US$50,000 for programming content and
US$5,000 corresponding to sales services. Under the terms of this agreement, the
Todito web site has the right to transmit announcements and advertising messages
relating to the Todito Internet web page on the Azteca 13 and 7 networks, as
well as on the satellite signal sent to other countries by TV Azteca, during
advertising spots that do not exceed an aggregate of 78,000 GRPs.

Todito is required to use the GRPs over a five year period and TV Azteca must
provide a minimum of 14,000 GRPs per year. For the years ended December 31,
2000, 2001 and 2002, the income from advertising services provided under this
agreement amounted to Ps95,530, Ps69,654 and Ps68,409, respectively.

Todito also has the right to display on its web site news programs, telenovelas,
sporting events, and other programming material displayed by TV Azteca on its
web sites ("tvazteca.com.mx" and "tvazteca.com").

TV Azteca currently records of the content provided to Todito on a straight line
basis over the life of the agreement. For the years ended December 31, 2000,
2001 and 2002, TV Azteca recognized income of Ps81,786, Ps114,778 and Ps115,240,
respectively, relating to programming content provided to Todito. Under the
terms of the agreement, TV Azteca cannot reassign the right to use and exploit
the content obtained from TV Azteca through other web pages on the internet to
third parties.

TV Azteca has also agreed to lend assistance, through its sales department, in
promoting to its clients and to advertising agencies the advertising services
that Todito will provide through its web site. For the years ended December 31,
2000, 2001 and 2002, the income from sales services provided under this
agreement amounted to Ps5,356, Ps8,242 and Ps12,053, respectively.

Interest income

During the years ended December 31, 2000, 2001 and 2002, the Company extended
short-term loans to certain related parties. Interest income under these
arrangements amounted to Ps24,080, Ps93,344 and Ps95,689, respectively.

Interest expense

During the year ended December 31, 2002, the Company received short-term loans
from certain related parties. Interest expense under these arrangements amounted
to Ps2,047. No loans were received in the years 2000 or 2002.

                                      F-35

<PAGE>

Donations

In the years ended December 31, 2000, 2001 and 2002, TV Azteca made donations to
a non-profit organization managed by a related party in the amounts of
Ps113,093, Ps102,880 and Ps108,118, respectively. The related party has
permission from tax authorities to collect donations and issue the corresponding
receipts.

Loans granted to stockholder

On December 21, 2001, TV Azteca made three loans to Mr. Ricardo Salinas Pliego
for an aggregate amount of US$3,067 with terms of one year. The loans granted in
2000 and in 2001 bore interest at the rate of 12% per year. These loans were
repaid during 2002.

Building lease income

In May 1998, TV Azteca signed a building lease agreement with Operadora Unefon,
a wholly-owned subsidiary of Unefon. The lease has a term of ten years, starting
June 1998, with a one-time right to renew for an additional ten years upon
notice of at least 180 days prior to expiration. The rent under the lease is
Ps2,072 a month, payable in advance each month. During the years ended December
31, 2000, 2001 and 2002, the aggregate lease income received by TV Azteca
amounted to Ps23,424, Ps25,400 and Ps25,536, respectively.

Recoverability of accounts receivable from related parties

The Company evaluates periodically, on an arm-length basis, the recoverability
of accounts receivable. When it is determined that such accounts are not
recoverable, they are charged to other expenses.

NOTE 9 - SHORT-TERM AND LONG-TERM BANK LOANS:

At December 31, 2001 and 2002, short-term loans for equipment financing amounted
to Ps528,454 and Ps389,997, respectively, representing unsecured loans in U.S.
dollars with Mexican and foreign banks, with an average annual interest rate of
9.12% and 7.41% at December 31, 2001 and 2002, respectively.

                                      F-36

<PAGE>

Long-term loans and senior notes at December 31, 2001 and 2002, are summarized
as follows:

                                                        At December 31,
                                               --------------------------------
                                                     2001             2002
                                               ---------------  ---------------

Building and equipment financing               Ps      386,792  Ps      105,274
Loans from American Tower Corporation ("ATC")        1,159,452        1,244,820
Less-current portion                                   (38,418)         (47,179)
                                               ---------------  ---------------

Long-term bank loans                           Ps    1,507,826  Ps    1,302,915
                                               ===============  ===============

TV Azteca Notes                                Ps    4,114,901  Ps    4,417,875
Senior Secured Notes                                 2,468,941        2,899,893
Less current portion                                                 (1,559,250)
                                               ---------------  ---------------

Total senior notes                             Ps    6,583,842  Ps    5,758,518
                                               ===============  ===============

Total long term bank loans and senior notes    Ps    8,091,668  Ps    7,061,433
                                               ===============  ===============

TV Azteca Notes

On February 5, 1997, TV Azteca issued unsecured Series A and Series B Guaranteed
Senior Notes (collectively, the "TV Azteca Notes") in the international markets
in an amount of US$125,000, payable in the year 2004, at an interest rate of
10.125% per year and of US$300,000, payable in the year 2007, bearing an
interest rate of 10.50% per year, respectively.

Interest on the TV Azteca Notes is payable semi-annually on February 15 and
August 15 each year, commencing August 15, 1997. Substantially all of TV
Azteca's subsidiaries have fully and unconditionally guaranteed the TV Azteca
Notes on a joint and several basis.

Senior Secured Notes 2002

In June 1997, the Company issued senior secured notes ("Senior Secured Notes
2002") in the international capital markets in an amount of US$255,000, payable
in the year 2002, at an interest rate of 11% per annum. Interest on the Senior
Secured Notes 2002 was payable semi-annually on June 15 and December 15 each
year, commencing December 15, 1997. The Senior Secured Notes 2002 were secured
initially by: (i) a portfolio of US government obligations purchased with
approximately US$80,000 of the net proceeds of the offering (the "Pledged
Securities") and, (ii) all of the Series "N" shares of TV Azteca owned by the
Company except for the Elektra reserved shares, representing 41% of the capital
stock of TV Azteca. At December 31, 2000, 224 million TV Azteca CPOs were
pledged to secure the Senior Secured Notes 2002. At December 31, 2001, after
giving effect to the transactions completed by the exchange offer and consent
solicitation consummated by the Company in May 2001 described below, the
unexchanged Senior Secured Notes 2002 were secured by 55,246,106 TV Azteca CPOs
and upon the occurrence of certain circumstances, up to 147,215,706 Unefon
Series A shares.

                                      F-37

<PAGE>

The Senior Secured Notes 2002 were redeemable at the option of the Company, in
whole or in part, at the redemption prices set forth in the Senior Secured Notes
2002, plus accrued but unpaid interest to the date of redemption. Upon the
occurrence of a change of control, the Company was required to make an offer to
purchase the Senior Secured Notes 2002 at a purchase price equal to 101% of the
principal amount thereof plus accrued interest to the date of repurchase. In the
event of certain changes affecting the Mexican taxation of the Senior Secured
Notes 2002, the Senior Secured Notes 2002 were redeemable at any time in whole,
but not in part, at the option of the Company at 100% of the principal amount
thereof plus accrued interest to the date of redemption. During 2001, US$128,970
of the Senior Secured Notes 2002 were exchanged (see Senior Secured Notes 2005
below). During 2002, the remaining outstanding balance of the Senior Secured
Notes 2002 were repaid.

Senior Secured Notes 2005

During April 2001, the Company offered to holders of its Senior Secured Notes
2002 the right to exchange their notes for the Company's 12.50% Senior Secured
Notes due in 2005 ("Senior Secured Notes 2005"). As a result of this offer, on
May 18, 2001, the Company exchanged US$128,970 of the Senior Secured Notes 2002
for an equal principal amount of Senior Secured Notes 2005. The Senior Secured
Notes 2005 are payable in the year 2005, at an interest rate of 12.50% payable
semi-annually on June 15 and December 15 each year, commencing on June 15, 2001.
The Senior Secured Notes 2005 are secured initially by: (i) 591,933,887 CPOs of
TV Azteca owned by the Company and (ii) upon the occurrence of certain events,
301,299,413 Series A Unefon shares or any cash proceeds received upon the sales
of Series A shares of Unefon that are part of the collateral and any securities
acquired with the cash proceeds of such a sale. In this exchange offer and
consent solicitation, the Company paid a fee totaling Ps13,357 to obtain
consents from certain holders of Senior Secured Notes 2002 to eliminate certain
restrictive covenants and to release certain collateral securing the Senior
Secured Notes 2002.

The Senior Secured Notes 2005 are redeemable at the option of the Company, in
whole or in part, at any time prior to the maturity date at 106.25% of the
principal amount if redeemed prior to June 15, 2002 and 100% of the principal
amount if redeemed after June 15, 2002, plus, in either case, interest that is
accrued and unpaid on the redemption date. Upon the occurrence of certain
changes in or amendments to Mexican tax law requiring the grossing up of
payments in excess of those attributable to a Mexican withholding tax rate of
15%, the Company may redeem the Senior Secured Notes 2005 at 100% of their
principal amount plus accrued and unpaid interest.

Senior Secured Notes 2003

On January 31, 2002, the Company issued, in the international capital markets,
senior secured notes amounting to US$150,000, payable in the year 2003, at an
annual interest rate of 10.50% ("Senior Secured Notes 2003"). Interest on the
Senior Secured Notes 2003 is payable semi-annually on July 15 and January 15
each year, commencing July 15, 2002. The Senior Secured Notes 2003 are secured
initially by: (i) a portfolio of US government obligations purchased with

                                      F-38

<PAGE>

approximately US$16,300 of the net proceeds of the offering (the "restricted
cash and pledged securities"), and (ii) 55,246,106 TV Azteca CPOs owned by the
Company and, upon the occurrence of certain events, up to 147,215,706 Unefon
Series A shares. At December 31, 2002, the outstanding value of the pledged
securities was Ps85,964.

The Senior Secured Notes 2003 cannot be redeemed at the option of the Company,
in whole or in part, prior to the date of redemption. Upon the occurrence of
changes of control of the Company or of TV Azteca, the Company will be required
to make an offer to purchase the Senior Secured Notes 2003 at a purchase price
equal to 101% of the principal amount thereof plus accrued interest at the date
of redemption. Upon the occurrence of certain changes in or amendments to
Mexican tax law requiring the grossing up of payments in excess of those
attributable to a Mexican withholding tax rate of 10%, the Company may redeem
the Senior Secured Notes 2003 at 100% of their principal amount plus accrued and
unpaid interest.

Since the proceeds raised from the offering of the Senior Secured Notes 2003
were used to repay the Senior Secured Notes 2002, the Senior Secured Notes 2002
were classified as long-term at December 31, 2001.

Building and equipment financing

In 1995, TV Azteca borrowed US$28,000 to finance the acquisition of equipment,
of which approximately US$24,000 was guaranteed by the Export-Import Bank of the
United States of America ("Exim Bank") on January 31, 1996. The Exim Bank
guaranteed funds were comprised of two separate loans for approximately
US$21,500 at an annual interest rate of LIBOR plus 2.25% and approximately
US$2,700 at an annual interest rate of LIBOR plus 4.25% (6.17% and 4.19% during
2002). Both Exim Bank-guaranteed loans were payable in 14 semi-annual payments
beginning in June 1996. At December 31, 2001, TV Azteca had made payments
totaling to US$18,400 and US$2,300, respectively. During 2002, the outstanding
balance of both loans was repaid.

On September 18, 1997, TV Azteca obtained a mortgage loan for the acquisition of
an office building amounting to US$25,854 from Banco Bilbao Vizcaya, S. A.
("BBV"). TV Azteca is required to pay BBV annual interest of 8.5%, payable on
December 31 of each year beginning on December 31, 1997. Payment of the
principal matures on November 30, 2003.

In March 1999, TV Azteca entered into a US$30,200 long-term import credit
facility with Standard Chartered Bank, as lender, and the Exim Bank, as
guarantor. Under this credit facility, TV Azteca was permitted to borrow until
May 2002 all or a portion of the US$30,200 by delivering promissory notes. The
import credit facility was established to finance TV Azteca's purchase of
equipment manufactured in the U.S. In October 1999 and March 2000, TV Azteca
issued two promissory notes, one in the amount of US$12,200 due in October 2004,
which accrues interest at a rate of 7.6% per year, and one in the amount of
US$10,500 due in March 2005, which accrues interest at a rate of 8.45% per year,
respectively. At December 31, 2001 and 2002, the aggregate outstanding amounts
due under the outstanding promissory notes were US$14,095 and US$10,128,
respectively.

                                      F-39

<PAGE>

Loans from ATC

On February 11, 2000, TV Azteca entered into a long-term credit facility for up
to US$119,800 with a Mexican subsidiary of ATC (the "ATC Long-Term Facility").
The ATC Long-Term Facility is comprised of a US$91,800 unsecured term loan and a
US$28,000 working capital loan secured by certain of TV Azteca's real estate
properties. The interest rate on each of the loans is 12.877%. TV Azteca's
payment obligations under the ATC Long-Term Facility are guaranteed by three
principal subsidiaries of TV Azteca that also guarantee TV Azteca's payment
obligations under the TV Azteca Notes. The initial term of the unsecured term
loan under the ATC Long-Term Facility is 20 years, which term may be extended,
so long as the Global Tower Project Agreement remains outstanding, for up to an
additional 50 years. The term of the working capital loan matures in February
2004, but may be renewed annually for successive one-year periods so long as the
Global Tower Project Agreement remains outstanding.

On February 11, 2000, TV Azteca drew down US$71,800 of the unsecured term loan
and the full US$28,000 under the working capital loan, and in June 2000, TV
Azteca drew down the remainder of the unsecured term loan. A portion of the
proceeds under the ATC Long-Term Facility was used to repay the ATC Interim
Facility in its entirety. The balance of the proceeds from the ATC Long-Term
Facility was used for general corporate purposes of TV Azteca and its
subsidiaries. At December 31, 2001 and 2002, US$119,800 was outstanding under
the ATC Long-Term Facility.

In February 2000, TV Azteca, together with its subsidiary Television Azteca, S.
A. de C. V., entered into a 70-year Global Tower Project Agreement with a
Mexican subsidiary of ATC regarding space not used by TV Azteca in its
operations on up to 190 of TV Azteca's broadcast transmission towers. In
consideration for the payment of a US$1,500 annual fee and for a loan of up to
US$119,800 provided to TV Azteca under the ATC Long-Term Facility, TV Azteca
granted ATC the right to market and lease TV Azteca's unused tower space to
third parties as well as to TV Azteca's affiliates and to collect for ATC's
account all revenue related thereto. TV Azteca retains full title to the towers
and remains responsible for the operation and maintenance thereof. The SCT
approved the parties' agreement on February 10, 2000. After the expiration of
the initial 20-year term of the ATC Long-Term Facility, TV Azteca has the right
to purchase from ATC at fair market value all or any portion of the revenues and
assets related to the commercialization rights at any time upon the proportional
repayment of the outstanding principal amount under the ATC Long-Term Facility.

Euro-Commercial Paper Program

On May 14, 1999, TV Azteca entered into a US$75,000 Euro-Commercial Paper
Program (the "ECP Program") with ABN-AMRO Bank, N.V., as the principal arranger
and dealer. The size of the ECP Program was increased to US$130,000 in July
1999. Notes issued under the ECP Program are issued at a discount. TV Azteca's
payment obligations under the ECP Program are guaranteed by three principal
subsidiaries of TV Azteca that also guarantee TV Azteca's payment obligations
under the TV Azteca Notes. The maturity of the notes issued under the ECP
Program may not be more than 365 days. At December 31, 2001, the aggregate
principal

                                      F-40

<PAGE>

amount of the notes outstanding under the ECP Program was US$20,063,
which was paid in a series of installments ending in January 2002. At December
31, 2002, the amount of the notes outstanding under the ECP Program was
US$5,094, which is payable in a series of installments ending in June 2003.

Commercial paper with Scotia Inverlat, S. A. ("Scotia")

On December 13, 2001, TV Azteca issued two Ps158,550 commercial paper promissory
notes to Scotia expiring on June 13, 2002 and December 6, 2002. These promissory
notes, issued under the commercial paper program, were issued at a discount
bearing interest rates of 12.20% and 12.40%, respectively. At December 31, 2001,
TV Azteca has utilized the entire commercial paper, which amounted to Ps287,770,
net of the respective discount. The commercial paper promissory notes were
repaid in 2002.

Maturity of long-term bank loans and senior notes

The maturities of the Company's loans and senior notes are as follows:

            Year ending at December 31,                     Amount
            ---------------------------                ---------------
                    2004                               Ps    1,346,555
                    2005                                     1,351,558
                    2007                                     3,118,500
                    2008 and thereafter                      1,244,820
                                                       ---------------

            Total long-term bank loans and
             senior notes                              Ps    7,061,433
                                                       ===============

NOTE 10 - LABOR OBLIGATIONS:

Below is a summary of the main financial data of the Company's seniority premium
plan:

                                               At December 31,
                                          -------------------------
                                             2001            2002
                                          ----------      ---------
Accumulated benefit obligation (same as
 accumulated liabilities)                 Ps   3,391      Ps  3,407
Net projected liability                        2,665          2,669
                                          ----------      ---------

Intangible asset                          Ps     726      Ps    738
                                          ==========      =========

Net cost for the year                     Ps     643      Ps  1,612
                                          ==========      =========

                                      F-41

<PAGE>

NOTE 11 - STOCKHOLDERS' EQUITY:

a.   Capital stock

     The Company's capital stock is variable with a fixed minimum of Ps50
     (nominal) and an unlimited maximum. The stated value per share is Ps1
     (nominal).

     At December 31, 2001 and 2002, the capital stock of the Company was
     represented by 800,817 shares, as shown below:

<TABLE>
<CAPTION>
        Number of                                                          Nominal
         shares                          Description                        amount
        ---------  --------------------------------------------------  ---------------
         <S>       <C>                                                 <C>
              50   Representing the fixed portion of capital stock     Ps           50
         800,767   Representing the variable portion of capital stock          800,767
       ---------                                                       ---------------

         800,817                                                               800,817
       =========
                   Restatement of capital                                    2,102,514
                                                                       ---------------
                   Capital stock in pesos of purchasing power as of
                    December 31, 2002                                  Ps    2,903,331
                                                                       ===============
</TABLE>

b.   Retained earnings

     1.   Legal reserve - The net income for the year is subject to the legal
          provision that requires that 5% of the profit of each year be applied
          to increase the legal reserve, until the latter equals a fifth of
          paid-in capital stock.

     2.   Tax regime for dividends - Dividends paid are not subject to income
          tax, provided they are paid out from the After Tax Earnings Account
          ("CUFIN"). The excess is subject to 34% income tax on the amount
          arrived at from multiplying the dividend paid by a factor of 1.5151
          payable by the Company, which can be offset against the Company's tax
          liability of the three immediately following periods. Dividends paid
          are not subject to income tax withholding.

     In 2000, net gains in the amounts of Ps81,937, was generated by the Company
     from both the capital stock increase and the corresponding premium
     resulting from the issuance of capital stock of subsidiaries. This gain was
     recorded in the majority stockholders' equity. The effect in minority
     interest for 2000 was (Ps340,198).

     In the years ended December 31, 2000, 2001 and 2002, there were various
     premiums paid on stock repurchases, repurchases of shares, sale of treasury
     shares, valuation of shares and stock options exercised amounting to
     (Ps164,054), Ps59,189 and (Ps63,972), respectively, in TV Azteca, which
     were reflected by the Company as a (charge) credit in the insufficiency in
     the restatement of capital account. The effect on minority interest for
     2000, 2001 and 2002 was (Ps124,824), Ps146,794 and (Ps115,208),
     respectively.

                                      F-42

<PAGE>

c.   Employee stock option plan

     In the fourth quarter of 1997, TV Azteca adopted an employee stock option
     plan pursuant to which options were granted to all current permanent
     employees who were employed by TV Azteca as of December 31, 1996. The
     exercise prices assigned to these options from 1997 to 2002 range from
     US$0.29 to US$0.39 per CPO with a more significant number of options being
     granted to TV Azteca's senior management and key actors, presenters and
     creative personnel.

     The options, which relate to an aggregate of 76 million CPOs, were granted
     in equal portions in respect of each employee's first five years of
     employment with TV Azteca (whether prior to or after adoption of the
     plans), but these options may be cancelled, in the case employment years
     after 1996, if TV Azteca's operating profit before deducting depreciation
     and amortization expenses in that year has not increased by at least 15% as
     compared to the previous fiscal year. An employee's options in respect of
     any employment year become exercisable five years later, unless the
     employee is no longer employed by TV Azteca, in which case those options
     will be reassigned.

     The options expire on the fifth anniversary of the date on which they
     become exercisable.

     During each of 2000 and 2001, options with respect to 10 million CPOs and
     during 2002 options with respect to 15 million CPOs were exercised,
     respectively, under the general option plan, at a price of US$0.29, US$0.29
     and US$0.29 per CPO, respectively.

     Under the top executive plan, no options were granted or executed during
     2000, 2001 and 2002.

     The activity of employee stock option plans was as follows:

                                     At December 31,
                               --------------------------
     Options                   2001                  2002
     ----------------------    ----                  ----

                                    Millions of CPOs
                               --------------------------

     Granted (cumulative)       116                   116
     Exercised (cumulative)     (71)                  (86)
                               ----                  ----

     Outstanding                 45                    30
                               ====                  ====

     Available to grant         124                   124
                               ====                  ====

     Total authorized           240                   240
                               ====                  ====

                                      F-43

<PAGE>

d.   National Broadcasting Company ("NBC") warrants

     In May 1994, TV Azteca and Radiotelevisora del Centro, S. A. entered into
     an agreement with NBC, in which the companies agreed to pay NBC, for the
     license of specific programs and advisory and other services, a total of
     US$7,000 over a three-year period ended June 30, 1997.

     As additional consideration for the advisory and other services related to
     NBC's association, TV Azteca provided NBC with the right to purchase Series
     "N-6" shares (non-voting) of TV Azteca equal to up to 10% of all then fully
     diluted outstanding shares of TV Azteca post-exercise (the "Warrants"). The
     total Warrant exercise price was US$120,000 before June 30, 1994, and
     accreted at 2.75% compounded quarterly thereafter until it reached
     US$160,000 at expiration of the Warrants. The Warrants were to be
     exercised, in whole or in part, from time to time until May 6, 1997. To the
     extent not exercised during that period, NBC had the right, during the
     sixty-day period after the expiration of the option period, to require TV
     Azteca to purchase any unexercised portion of the Warrants for up to
     US$25,000 and had the right to collect the Warrant put price at any time
     during the option period if it was determined that the Warrants could not,
     as a legal matter, be exercised.

     On April 3, 1997 NBC notified TV Azteca that it would exercise its rights
     under the Warrants to purchase Series "N-6" shares of TV Azteca, equivalent
     to 1% of its total right to purchase 10% of all the fully diluted
     outstanding shares of TV Azteca for an amount of US$16,000 which was
     required to be paid on May 5, 1997. Subsequently, NBC advised TV Azteca
     that TV Azteca was required to purchase the unexercised portion of the
     warrant for US$22,500 and owed an additional US$5,552, the balance of the
     US$7,000 owed by TV Azteca for unpaid programming as of May 6, 1997, plus
     accrued interest.

     The agreement with NBC also provided that TV Azteca was required to issue
     to NBC Series "N-6" shares in an amount equal to 1.5% of all the then fully
     diluted outstanding capital stock of TV Azteca upon the first to occur of
     various events relating to the achievement of specific market share and
     capitalization levels through May 6, 2002.

     On April 29, 1997, TV Azteca filed a request for arbitration with the
     International Chamber of Commerce ("ICC") in Paris pursuant to the
     arbitration clauses in its agreements with NBC and NBC Europe. In its
     request, TV Azteca sought the rescission of all of its agreements with NBC,
     including the cancellation of its outstanding programming purchase
     obligations, the cancellation of the warrants granted to NBC Europe, NBC's
     right to require TV Azteca to repurchase the unexercised portion of the
     warrants, and the return of all amounts previously paid to NBC, on the
     grounds that NBC did not fulfill its obligations under its agreements with
     TV Azteca.

                                      F-44

<PAGE>

     On July 29, 1997, NBC and NBC Europe filed an amended answer and
     counterclaim to TV Azteca's request for arbitration. NBC's principal new
     claim was that, notwithstanding the expiration of NBC Europe's warrant, NBC
     Europe should be given the right to exercise the entire unexercised portion
     of the warrant (representing the right to purchase 9% of the fully-diluted
     outstanding capital stock of TV Azteca as of May 6, 1997) or, at NBC
     Europe's election, to recover lost profits based on the difference between
     the fair market value and the aggregate exercise price in respect of the
     unexercised portion of NBC Europe's warrant. NBC based this claim on the
     allegation that TV Azteca misled NBC in order to dissuade NBC Europe from
     exercising its warrant in full. NBC also claimed that NBC Europe has been
     deprived of the value of an additional equity bonus of 0.5% of the
     fully-diluted outstanding capital stock of TV Azteca to which NBC Europe
     would have been entitled had it exercised its warrants for more than 5% of
     TV Azteca's outstanding stock, rather than for only 1%.

     In February 2000, TV Azteca and NBC commenced discussions regarding the
     possible settlement of all claims raised in the ICC arbitration proceeding.
     Based on the progress of those discussions, on March 21, 2000, TV Azteca
     and NBC jointly notified the ICC tribunal that settlement discussions were
     taking place and requested that the ICC tribunal withhold any decision in
     the matter for a period of 30 days, unless the ICC tribunal was informed by
     either party within that 30-day period that settlement discussions had been
     abandoned. This 30-day period was extended through April 28, 2000.

     On April 28, 2000, TV Azteca and NBC entered into a binding settlement
     agreement. Pursuant to the settlement agreement, the arbitration proceeding
     before the ICC tribunal was terminated and all claims by TV Azteca against
     NBC and NBC Europe, and all claims by NBC and NBC Europe against TV Azteca,
     have been fully released and discharged. Under the terms of the settlement
     agreement, TV Azteca paid NBC the sum of US$46,170 (Ps510,732) in cash.
     This settlement was recorded in TV Azteca as an extraordinary item, net of
     income tax.

NOTE 12 - TAX MATTERS:

During the years ended December 31, 2000, 2001 and 2002, the Company, TV Azteca
and various of TV Azteca's subsidiaries had taxable income, which was partially
offset against tax loss carryforwards. The benefit of the utilization of these
tax loss carryforwards amounted to Ps68,996, Ps470,956 and Ps359,781 during the
years ended December 31, 2000, 2001 and 2002, respectively.

                                      F-45

<PAGE>

An analysis of the principal differences between the income tax computed at the
statutory rate and the Company's income tax provision for the years ended
December 31, 2000, 2001 and 2002 is shown as follows:

<TABLE>
<CAPTION>
                                                          Year ended December 31,
                                              ----------------------------------------------

                                                   2000             2001             2002
                                              -------------   ---------------   ------------
<S>                                           <C>             <C>               <C>
Income before provision for income tax and
 extraordinary item                           Ps    573,909   Ps    1,349,044   Ps   864,219
                                              =============   ===============   ============

Income tax expense at statutory rate          Ps    200,868   Ps      472,165   Ps   302,477
Effects of B-10 and inflationary components         142,511            40,847         84,622
Amortization of television concessions and
 goodwill                                           (79,113)          (84,383)      (110,520)
Advertising advances                                 61,016           384,517        178,681
Estimated cost point rating revenues                (38,443)          (86,244)       (72,237)
Non-deductible stock dividends                       22,946
Exhibition rights                                    88,051           (53,033)       (64,194)
Depreciation                                         28,557            46,223          7,994
Utilization of tax loss carryforwards               (68,996)         (470,956)      (359,781)
Benefit on tax consolidation                       (106,634)
Other                                               (58,033)          (37,720)       297,463
                                              -------------   ---------------   ------------

Income tax expense - Net                      Ps    192,730   Ps      211,416   Ps   264,505
                                              =============   ===============   ============
</TABLE>

As a result of the changes to the Income Tax Law approved on January 1, 2002,
the income tax rate will be reduced by 1% annually beginning in 2003 until it
reaches a nominal rate of 32% in 2005. The effect of this gradual reduction in
the tax rate will be to reduce the deferred income tax of each year.

                                      F-46

<PAGE>

The principal temporary items that gave rise to the recording of deferred tax
liabilities (assets) are summarized as follows:

<TABLE>
<CAPTION>
                                                                  At December 31,
                                                       -------------------------------------
                                                             2001                  2002
                                                       ---------------        --------------
<S>                                                    <C>                    <C>
Exhibition rights and inventories                      Ps    1,051,138        Ps   1,267,703
Property, machinery and equipment - Net                        384,403               374,179
Allowance for bad debts                                        (83,403)              (89,854)
Cost related to the issuance of TV Azteca Notes and
 Senior Secured Notes 2002                                     109,194                78,895
Payment to Corporacion de Noticias e Informacion,
 S. A. de C. V.                                                200,773               200,773
Television concessions                                       1,000,928             1,490,324
Advertising advances                                          (872,624)           (1,314,741)
Tax loss carryforwards                                      (2,954,930)           (2,809,091)
Other                                                         (298,720)              (31,448)
                                                       ---------------        --------------

Tax base before valuation reserve                           (1,463,241)             (833,260)

Applicable income tax rate                                          35%                   34%
                                                       ---------------        --------------

                                                              (512,134)             (283,308)

Valuation reserve for tax loss carryforwards                   497,805               124,087
Deferred income tax asset recorded from the
 purchase of subsidiary                                       (200,130)
                                                       ---------------        --------------

Deferred income tax asset                              Ps     (214,459)       Ps    (159,221)
                                                       ===============        ==============

Deferred income tax applicable to majority
 stockholders                                          Ps     (219,390)       Ps    (209,037)
                                                       ===============        ==============
</TABLE>

At December 31, 2001 and 2002, deferred income tax (recoverable) payable was
analyzed as follows:

<TABLE>
<CAPTION>
                                                                       At December 31,
                                                                 ---------------------------

                                                                     2001            2002
                                                                 ------------   ------------
<S>                                                              <C>            <C>
Deferred income tax payable (recoverable) at beginning of year   Ps   214,765   Ps  (214,459)
Less:
Deferred income tax asset recorded from the purchase
 of subsidiary                                                       (200,129)
Deferred income tax (benefit) expense for the year                   (220,046)        43,674
Monetary gain related to deferred income tax liabilities
 for the year                                                          (9,049)        11,564
                                                                 ------------   ------------

Deferred income tax recoverable at end of year                   Ps  (214,459)  Ps  (159,221)
                                                                 ============   ============
</TABLE>

                                      F-47

<PAGE>

At December 31, 2001, TV Azteca incorporated a new wholly-owned subsidiary with
tax loss carryforwards. Cumulative tax losses at December 31, 2002, and their
expiration dates are as follows:

<TABLE>
<CAPTION>
      The Company      TV Azteca        COTSA          Total        Year of expiration
     ------------   ---------------   ---------   ---------------   ------------------
     <S>            <C>               <C>         <C>                      <C>
                    Ps      405,252               Ps      405,252          2005
                            147,101                       147,101          2006
     Ps    28,077           228,148   Ps  2,496           258,721          2007
          350,149           735,649                     1,085,798          2008
                             40,361                        40,361          2009
                            139,963                       139,963          2010
                             16,920                        16,920          2011
          585,700           129,275                       714,975          2012
     ------------   ---------------   ---------   ---------------

     Ps   963,926   Ps    1,842,669   Ps  2,496   Ps    2,809,091
     ============   ===============   =========   ===============
</TABLE>

Tax loss carryforwards can be restated by applying factors derived from the NCPI
from the year in which they arise to the first-half of the year in which they
are amortized.

These tax loss carryforwards may only be amortized by the company that generates
them.

NOTE 13 - COMMITMENTS AND CONTINGENCIES:

Leases

TV Azteca leases the use of satellite transponders. Total rent expense under
such leases included in operating costs and expenses was Ps25,382, Ps26,288 and
Ps41,236 during the years ended December 31, 2000, 2001 and 2002, respectively.
Combined rental obligations under these agreements are US$200 per month. Each
lease agreement expires in May 2005 but can be terminated by the supplier at any
time for justified cause upon 30 days' notice.

Other

The Company and its subsidiaries are parties to various legal actions and other
claims in the ordinary course of their business. Management does not believe
that any pending litigation against the Company will, individually or in the
aggregate, have a material adverse effect on its results of operations or
financial condition.

                                      F-48

<PAGE>

NOTE 14 - OTHER (EXPENSE) INCOME:

Below is a summary of the main items of other (expense) income:

<TABLE>
<CAPTION>
                                                          Year ended December 31,
                                                -------------------------------------------

                                                    2000           2001           2002
                                                ------------   ------------   -------------
<S>                                             <C>            <C>            <C>
Donations (see Note 8)                          Ps  (113,093)  Ps  (102,880)  Ps   (108,118)
Equity in loss of affiliates                        (107,088)       (67,894)       (111,160)
Miscellaneous expenses non-deductible for
 tax purposes                                        (29,886)        (6,527)        (17,754)
Legal advisory services (litigation expenses)        (69,137)       (79,747)        (31,998)
Gain (loss) on sale of shares of a subsidiary         75,444         22,187            (435)
Amortization of installation charges                                                (19,513)
Write-off of other accounts receivable                                              (45,788)
Write-off of investments                                                            (32,152)
Others                                               (47,392)        13,441         164,821
                                                ------------   ------------   -------------

                                                Ps  (291,152)  Ps  (221,420)  Ps   (202,097)
                                                ============   ============   =============
</TABLE>

NOTA 15 - BUSINESS SEGMENTS:
---------------------------

Effective December 31, 1998, the Company adopted SFAS 131 "Disclosures about
Segments of an Enterprise and Related Information". The Company classifies its
business in two principal business segments, television and movie theaters.
Substantially all of the Company's activities are in Mexico.

Relevant information on these business segments are as follows:

                                      Year ended December 31,
                   -------------------------------------------------------------
                          2000                  2001                   2002
                   ----------------      ----------------       ----------------
Net revenue:

Television         Ps     5,986,790      Ps     6,122,805       Ps     6,739,875
Movie theaters                5,901                 4,243                  3,173
                   ----------------      ----------------       ----------------

                   Ps     5,992,691      Ps     6,127,048       Ps     6,743,048
                   ================      ================       ================

                                      F-49

<PAGE>

<TABLE>
<CAPTION>
                                                    Year ended December 31,
                                     ------------------------------------------------------

                                            2000              2001               2002
                                     ----------------   ----------------   ----------------
<S>                                  <C>                <C>                <C>
Operating (loss) profit:

Television                           Ps     1,748,067   Ps     2,099,791   Ps     2,827,356
Less elimination entries and other            (68,365)           (71,370)           (24,521)
                                     ----------------   ----------------   ----------------

                                            1,679,702          2,028,421          2,802,835
Movie theaters                                (10,118)           (22,643)            (8,861)
                                     ----------------   ----------------   ----------------

                                     Ps     1,669,584   Ps     2,005,778   Ps     2,793,974
                                     ================   ================   ================

Capital expenditures:

Television                           Ps       201,894   Ps       176,965   Ps       240,761
Movie theaters                                                     8,193            (46,731)
                                     ----------------   ----------------   ----------------

                                     Ps       201,894   Ps       185,158   Ps       194,030
                                     ================   ================   ================

Total assets (at year end):

Television                           Ps    20,544,698   Ps    21,495,281   Ps    21,659,825
Less elimination entries and other            895,321            554,871            445,385
                                     ----------------   ----------------   ----------------

                                           21,440,019         22,050,152         22,105,210
Movie theaters                                267,341            706,910            801,610
                                     ----------------   ----------------   ----------------

                                     Ps    21,707,360   Ps    22,757,062   Ps    22,906,820
                                     ================   ================   ================
</TABLE>

NOTE 16 - NEW ACCOUNTING PRONOUNCEMENTS:

The MIPA issued Statement C-9, "Liabilities, Provisions, Assets and Contingent
Liabilities and Commitments" ("Statement C-9"), which went into effect January
1, 2003. Statement C-9 establishes specific rules for valuation, presentation
and disclosure of liabilities and provisions, as well as for valuation and
disclosure of assets and contingent liabilities, and for disclosure of
commitments contracted. The Company does not expect the adoption of this
statement will have a material impact on its consolidated financial statements.

The MIPA issued Statement C-15, "Impairment of Long-Lived Assets and Their
Disposal", ("Statement C-15"), which will be effective as of January 1, 2004,
although early adoption is recommended. Statement C-15 provides specific
criteria in determining when there is an impairment in the value of long-lived
assets, for both tangible and intangible assets. Furthermore, Statement C-15
establishes a methodology for calculating and recording losses arising from the
impairment of assets and their reversal. Also, Statement C-15 provides

                                      F-50

<PAGE>

presentation and disclosure in the case that there is subsequent reversal of the
impairment. In addition Statement C-15 provided guidance for the accounting,
presentation and disclosure for discontinued operations. The Company is
currently evaluating the impact that adoption of this statement will have on its
consolidated financial statements.

NOTE 17 - SUBSEQUENT EVENTS:

At June 10, 2003, the following subsequent events had occurred in connection
with Azteca Holdings, S. A. de C. V.'s operations:

Dispute between Unefon and Nortel

In January 2003, Nortel petitioned for the bankruptcy of Unefon before a Mexican
court. In response, Unefon filed an action for relief (amparo) before a federal
district court challenging Nortel's request. In April 2003, a Mexican federal
district court ruled against Unefon with regard to its action for relief.
However, in May 2003, Unefon appealed the Mexican court's decision. Unefon
believes that Nortel's bankruptcy petition is insufficient under Mexican law and
that it will therefore prevail in this proceeding. Upon the filing of Unefon's
initial action for relief, the federal district court suspended Nortel's
bankruptcy claim pending its analysis of the sufficiency of Nortel's petition,
which suspension is still in effect.

10 3/4% notes exchange offer and consent solicitation

On May 13, 2003, the Company completed an exchange offer in which the holders of
US$80.1 million in principal amount of the Company's 10 1/2% Senior Secured
Notes due in July 2003 ("Senior Secured Notes 2003"), agreed to exchange their
Senior Secured Notes 2003 for an equivalent principal amount of 10 3/4% Senior
Secured Amortizing Notes due in June 2008 ("Senior Secured Notes 2008"). The
Senior Secured Notes 2008, are secured by (i) 42,370,449 CPOs of TV Azteca and
(ii) in the event the Company's right to acquire Series A shares of Unefon
becomes exercisable and is exercised, 112,905,614 Unefon Series A shares. The
Senior Secured Notes 2008 have a fixed annual interest rate of 103.4% and will
be amortized, with approximately 33% of the total principal amount due July 15,
2003. The remaining balance is due in five annual installments, commencing on
June 15, 2004. In connection with the exchange offer, the Company received
consents from holders of the Senior Secured Notes 2003 authorizing the execution
of a supplemental indenture that removed substantially all of the restrictive
covenants from the indenture governing the Senior Secured Notes 2003. The
Company also reduced the collateral, securing the Senior Secured Notes 2003 from
55,246,106 TV Azteca CPOs and, subject to certain conditions, 147,215,706 Unefon
Series A shares to 12,875,657 TV Azteca CPOs and, subject to certain conditions,
34,310,092 Unefon Series A shares.

                                      F-51

<PAGE>

NOTE 18 - RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
MEXICO (MEXICAN GAAP) AND UNITED STATES OF AMERICA (US GAAP):

The Company's consolidated financial statements are prepared in accordance with
Mexican GAAP, which differ in certain significant respects from US GAAP. The
Mexican GAAP consolidated financial statements include the effects of inflation
as provided for under Statement B-10, "Recognition of the Effects of Inflation
on Financial Information", issued by the MIPA. The application of this statement
represents a comprehensive measure of the effects of price level changes in the
Mexican economy, and is considered to result in a more meaningful presentation
for both Mexican and U.S. accounting purposes. Therefore, the following
reconciliation to US GAAP does not include the reversal of such inflationary
effects.

The principal differences between Mexican GAAP and US GAAP are summarized in the
following pages with an explanation, where appropriate, of the effects on
consolidated results of operations and stockholders' equity. The various
reconciling items are presented net of any price level gain (loss).

a.   Reconciliation of consolidated results of operations:

<TABLE>
<CAPTION>
                                                                                   Year ended December 31,
                                                                         ------------------------------------------
                                                              Sub note
                                                              reference     2000            2001           2002
                                                              ---------  -----------    -----------     -----------
     <S>                                                        <C>      <C>            <C>             <C>
     Net income applicable to majority stockholders
      under Mexican GAAP                                                 Ps  135,491    Ps  688,379     Ps  120,251
     Amortization of goodwill                                     i         (197,394)      (197,394)         69,989
     NBC warrant                                                 ii           10,841
     NBC settlement agreement                                    ii          299,884
     Unefon advertising                                          iii         416,093        385,657         (99,588)
     Equity in loss of Unefon                                    iv         (235,172)      (546,546)       (358,418)
     Reversal of capitalized consent fee for Unefon rights
      and other expenses                                          v                        (115,223)         (6,037)
     Todito advertising, programming and services agreement      vi         (175,146)      (192,674)       (197,492)
     Equity in earnings of Todito                                vi           63,947         91,594          91,852
     Amortization of Todito goodwill                             vi           22,643         27,260          27,260
     Effect of fifth amendment to B-10                           vii        (273,441)      (192,386)        (67,160)
     Compensation expense from stock options                    viii        (113,964)       (35,296)        (61,733)
     Compensation expense for Unefon stock option plan           ix                         (54,413)         (3,352)
     Deferred income taxes                                        x         (210,357)        20,397         178,256
     Reversal of capitalized internally produced programming     xii                       (226,375)        (26,202)
     Exchange offer debt issuance cost                          xiii                        (37,106)         10,839
     Financial instrument indexed to TV Azteca's own stock       xxi                                        (34,097)
     Effect of minority interest in US GAAP adjustments                      164,968        461,418         242,244
                                                                         -----------    -----------     -----------

     Net (loss) income under US GAAP                                     Ps  (91,607)   Ps   77,292     Ps (113,388)
                                                                         ===========    ===========     ===========

     Basic and diluted (loss) income per share                           Ps    (0.11)   Ps     0.10     Ps    (0.14)
                                                                         ===========    ===========     ===========

     Basic weighted average number of common shares
      outstanding                                                            800,817        800,817         800,817
                                                                         ===========    ===========     ===========
</TABLE>

                                      F-52

<PAGE>

b.   Reconciliation of stockholders' equity:

<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                                         --------------------------------------------
                                                              Sub note
                                                              reference      2000           2001             2002
                                                              ---------  ------------   ------------    -------------
     <S>                                                        <C>      <C>            <C>             <C>
     Majority stockholders' under Mexican GAAP                           Ps 1,266,508   Ps 1,859,931    Ps  1,945,925
     Goodwill                                                     i           888,276        690,882          760,871
     Unefon advertising                                          iii          416,093        801,750          702,162
     Unefon investment                                           iv           192,306       (353,268)        (598,789)
     Todito advertising, programming and services agreement      vi          (175,146)      (367,820)        (565,312)
     Amortization of Todito goodwill                             vi            22,643         49,903           77,163
     Equity in earnings of Todito                                vi            63,947        155,541          247,393
     Effect of fifth amendment to B-10                           vii          308,322        316,834           97,261
     Deferred income taxes                                        x          (331,993)      (311,596)        (133,343)
     Reversal of capitalized internally produced programming     xii                        (226,375)        (252,577)
     Exchange offer debt issuance cost                          xiii                         (37,106)         (26,267)
     Financial instrument indexed to TV Azteca's own stock       xxi                                          139,276
     Effect of minority interest in US GAAP adjustments                      (458,802)      (143,183)        (174,667)
                                                                         ------------   ------------    -------------

     Balance under US GAAP                                               Ps 2,192,154   Ps 2,435,493    Ps  2,219,096
                                                                         ============   ============    =============
</TABLE>

c.   An analysis of the changes in stockholders' equity under US GAAP is as
     follows:

<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                                         --------------------------------------------
                                                              Sub note
                                                              reference       2000          2001            2002
                                                              ---------  ------------   ------------    -------------
     <S>                                                         <C>     <C>            <C>             <C>
     Balance at beginning of year                                        Ps 2,399,108   Ps 2,192,154    Ps  2,435,493
     Net (loss) income                                                        (91,607)        77,292         (113,388)
     (Loss) gain from holding
      non-monetary assets                                                    (232,392)        54,040          (40,914)
     Effect relating to capital stock increase of Unefon,
      net of the loss from dilution                              vi           199,164
     Paid-in capital for Unefon stock option plan                ix                           22,346
     Compensation expense for Unefon stock option plan           ix                           30,471            1,877
     Effects from repurchase, valuation, option shares
      and increase of capital of subsidiaries                                 (82,119)        59,190          (63,972)
                                                                         ------------   ------------    -------------

     Balance at end of year                                              Ps 2,192,154   Ps 2,435,493    Ps  2,219,096
                                                                         ============   ============    =============
</TABLE>

d.   Significant differences between US GAAP and Mexican GAAP:

i.   Goodwill

     At the effective date of the privatization in 1993 in connection with which
     TV Azteca was formed, additional goodwill of Ps2,368,737 was recorded due
     to the deferred net income tax liability, relating primarily to the
     non-deductibility of the television concessions, required under US GAAP.
     Until December 31, 2001, the additional goodwill was being amortized over
     12 years.

     For Mexican GAAP purposes, goodwill is being amortized under the
     straight-line method over a period of 20 years. For US GAAP purposes, until
     December 31, 2001, goodwill was being amortized over its estimated useful
     life, not to exceed twenty years. Effective January 1, 2002, the Company
     adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"),
     where upon the Company no longer amortizes goodwill and other intangible
     assets with an indefinite life, such as television concessions. SFAS 142
     requires the Company to test for goodwill and indefinite live intangibles
     annually, or more frequently if circumstances indicate a possible
     impairment exists.

                                      F-53

<PAGE>

     The Company performed goodwill impairment tests at the reporting unit
     level. The fair value of each reporting unit exceeded its carrying amount
     and goodwill related to each reporting unit is considered not impaired. The
     Company's impairment tests for the television concessions compared the
     carrying amounts of those assets to their fair values. The fair values of
     the television concessions exceeded their carrying amounts.

     The following table adjusts previously reported net (loss) income to
     exclude amortization expense recognized from goodwill and television
     concessions as if SFAS 142 had taken effect in 2000:

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                      ---------------------------------
                                                                          2000                  2001
                                                                      ------------         ------------
     <S>                                                              <C>                  <C>
     Reported net (loss) income applicable to majority stockholders   Ps   (91,607)        Ps    77,292
     Goodwill amortization                                                 268,198              270,850
     Television concessions                                                119,292              121,122
     Effect of minority interest in US GAAP adjustments                   (138,000)            (144,161)
                                                                      ------------         ------------

     Adjusted net income applicable to majority stockholders          Ps   157,883         Ps   325,103
                                                                      ============         ============
</TABLE>

     Under US GAAP, the Company reversed Ps69,989 of goodwill amortization
     recognized under Mexican GAAP.

ii.  NBC warrant and bonus right

     Under US GAAP, the NBC warrant, discussed in Note 11d., would have been
     initially recorded at its estimated fair value, at the date of the initial
     agreement, of Ps242,601, as determined based on the present value of US$25
     million payment that TV Azteca would be required to pay NBC in the event
     NBC elected not to exercise the warrant, with a corresponding amount
     established as deferred operating costs representing the value of the
     technical advisory services to be provided by NBC at the date of the
     agreement. Under US GAAP, TV Azteca would have amortized the deferred
     operating costs over the agreement period. However, at December 31, 1995,
     TV Azteca wrote-off the unamortized deferred operating costs associated
     with the agreement, based on management's opinion that there were no future
     benefits to be derived under the terms of the agreement.

     Due to the nature of TV Azteca's obligations with respect to the warrant,
     it would be considered a monetary liability under US GAAP. The foreign
     exchange losses, the accretion of the warrant obligation and monetary gains
     related to the warrant would be reflected in results of operations.

                                      F-54

<PAGE>

     The terms of the warrant agreement with NBC as discussed in Note 11d.
     required TV Azteca to issue 1% of its outstanding shares to NBC upon
     attainment of the performance goals consisting of specified market share
     levels or the market capitalization of TV Azteca of at least US$1,400 if a
     public offering of the TV Azteca's stock occurred prior to 1998 and
     US$1,800 if a public offering occurred after 1998. As a result of the
     initial public offering, TV Azteca achieved a market capitalization in
     excess of US$2,000.

     As part of the arbitration proceedings with NBC, TV Azteca requested the
     rescission of all its agreements with NBC including cancellation of
     warrants granted to NBC Europe and NBC's rights to require TV Azteca to
     repurchase the unexercised portion of the warrants on the grounds that NBC
     did not fulfill its obligations under its agreements with TV Azteca.

     An analysis of the changes in TV Azteca's temporary equity under US GAAP is
     as follows:

                                                   Year ended December 31, 2000
                                                   ----------------------------

     Balance at beginning of year                                  Ps   310,725
     Foreign exchange loss, net of monetary gain
      of NBC warrant                                                    (10,841)
     NBC settlement agreement                                          (299,884)
                                                                   ------------

     Balance at end of year                                        Ps         -
                                                                   ============

     As a result of the settlement reached with NBC in April 2000, as described
     in Note 11d., TV Azteca paid NBC US$46,170 (Ps510,732) in cash as
     settlement for claims relating to the NBC warrants and bonus right.

     Under Mexican GAAP, the settlement paid to NBC was charged against results
     of operations of TV Azteca as an extraordinary item. The excess over the
     amount recorded as temporary equity in TV Azteca (Ps210,848) would be
     charged against results of operations during the year ended December 31,
     2000. Under US GAAP, however, the net charge would not be reflected as an
     extraordinary item.

iii. Unefon advertising advance

     TV Azteca recorded the advertising contract signed with Unefon (see Note 8)
     in a manner similar to other advertising contracts that TV Azteca has
     entered into with related and third parties. See Note 2q.

                                      F-55

<PAGE>

     The Unefon advertising contract is a long-term contract which originated a
     long-term account receivable and an advertising advance for the same amount
     at inception. At December 31, 2001 and 2002, the long-term unbilled
     accounts receivable from Unefon was Ps2,258,381 and Ps2,167,340,
     respectively. For US GAAP purposes, this long-term contract represents an
     obligation to provide services in the future that would not be recorded on
     the balance sheet, and consequently both the receivable (except for amounts
     relating to services provided) and the advertising advance would not be
     recorded under US GAAP. Under Mexican inflation accounting rules, the
     accounts receivable are a US dollar denominated items that expose TV Azteca
     to exchange gains and losses as well as to monetary losses. The advertising
     advances related to the Unefon advertising contract are considered
     non-monetary items under Mexican GAAP and are restated for the effects of
     inflation.

     Revenues recognized under Mexican GAAP are based on the indexed value of
     the advances recorded as the GRPs are consumed based on a rate schedule
     established in the contract. For US GAAP purposes, revenues would be
     recognized based on the average cost per GRPs as the GRPs are consumed.

     The following tables illustrate the differences between Mexican and US GAAP
     in the method of accounting for the advertising contract with Unefon:

<TABLE>
<CAPTION>
                                                Year ended December 31, 2000
                                        -------------------------------------------
                                           Mexican           US
                                            GAAP            GAAP        Difference
                                        -------------   -----------   -------------
     <S>                                <C>             <C>           <C>
     Long term receivable from Unefon   Ps  2,123,149   Ps  226,321   Ps (1,896,828)
     Unefon advertising advance            (2,312,921)                    2,312,921
                                        -------------   -----------   -------------

     Net (liabilities) assets           Ps   (189,772)  Ps  226,321   Ps    416,093
                                        =============   ===========   =============

     Revenues                           Ps      9,521   Ps  237,576   Ps    228,055
     Exchange (loss) gain                     (12,725)       (2,117)         10,608
     Monetary (loss) gain                    (186,568)       (9,138)        177,430
                                        -------------   -----------   -------------

     Total                              Ps   (189,772)  Ps  226,321   Ps    416,093
                                        =============   ===========   =============
</TABLE>

<TABLE>
<CAPTION>
                                                Year ended December 31, 2001
                                        -------------------------------------------
                                           Mexican          US
                                            GAAP           GAAP         Difference
                                        -------------   -----------   -------------
     <S>                                <C>             <C>           <C>
     Long term receivable from Unefon   Ps  1,931,139   Ps  474,508   Ps (1,456,631)
     Unefon advertising advance            (2,258,381)                    2,258,381
                                        -------------   -----------   -------------

     Net (liabilities) assets           Ps   (327,242)  Ps  474,508   Ps    801,750
                                        =============   ===========   =============

     Cumulative:
     Revenues                           Ps     75,844   Ps  528,926   Ps    453,082
     Exchange (loss) gain                    (121,555)      (29,869)         91,686
     Monetary (loss) gain                    (281,531)      (24,549)        256,982
                                        -------------   -----------   -------------

     Total                              Ps   (327,242)  Ps  474,508   Ps    801,750
                                        =============   ===========   =============
</TABLE>

                                      F-56

<PAGE>

<TABLE>
<CAPTION>
                                                Year ended December 31, 2002
                                        -------------------------------------------
                                           Mexican          US
                                            GAAP           GAAP         Difference
                                        -------------   -----------   -------------
     <S>                                <C>             <C>           <C>
     Long term receivable from Unefon   Ps  2,076,000   Ps  610,822   Ps (1,465,178)
     Unefon advertising advance            (2,167,340)                    2,167,340
                                        -------------   -----------   -------------

     Net (liabilities) assets           Ps    (91,340)  Ps  610,822   Ps    702,162
                                        =============   ===========   =============

     Cumulative:
     Revenues                           Ps    167,542   Ps  626,800   Ps    459,258
     Exchange gain (loss)                     132,841        39,427         (93,414)
     Monetary (loss) gain                    (391,723)      (55,405)        336,318
                                        -------------   -----------   -------------

     Total                              Ps    (91,340)  Ps  610,822   Ps    702,162
                                        =============   ===========   =============
</TABLE>

iv.  Unefon investment

     TV Azteca acquired a 50% interest in Unefon on October 28, 1999. Unefon
     commenced operations in February 2000. TV Azteca's share of the
     stockholders' equity of Unefon at the date of acquisition under US GAAP was
     Ps105,991 greater than the amount recorded under Mexican GAAP due to the
     capitalized monetary gain net of the pre-operating expenses. This excess
     would result in an increase in TV Azteca's stockholders' equity under US
     GAAP since this was an acquisition of an entity under common control and
     the difference between the book value acquired and the amount paid would be
     considered as an additional contribution from the stockholder.

     As a result of the Rights granted to TV Azteca's stockholders in October
     2000, TV Azteca stopped recognizing its participation in the losses of
     Unefon. Under US GAAP, TV Azteca would continue to recognize its
     participation in the losses of Unefon until such Rights are exercised.

     TV Azteca's share of Unefon's net loss for years ended December 31, 2000,
     2001 and 2002 under US GAAP were Ps329,630, Ps546,546 and Ps358,418
     compared to Ps94,458, zero and zero under Mexican GAAP, respectively. The
     principal differences were due to pre-operating expenses, advertising
     expenses, revenue recognition, recognition of the participation in the
     losses mentioned in the preceding paragraph and capitalized interest and
     monetary gain.

     During 2000, Unefon completed an initial public offering. Net proceeds
     received from the offering amounted to Ps991,900. As a result of the
     offering, TV Azteca's participation in Unefon decreased from 50% to 46.5%.
     The increase in Unefon's stockholders' equity would increase TV Azteca's
     investment in Unefon with a corresponding increase in TV Azteca's
     stockholders' equity under US GAAP of Ps350,700, which was reflected by the
     Company as a credit to the majority stockholders' equity of Ps199,162 and
     the difference was credited to minority stockholders' equity.

                                      F-57

<PAGE>

     The following table illustrates the differences between Mexican and US GAAP
     in the method of accounting for TV Azteca's investment in Unefon:

<TABLE>
<CAPTION>
                                                                        At December 31,
                                                             -----------------------------------
                                                                   2001                2002
                                                             ---------------      --------------
     <S>                                                     <C>                  <C>
     Investment in Unefon under Mexican GAAP                 Ps    1,848,485      Ps   1,755,942
                                                             ---------------      --------------

     Equity in loss                                                 (789,446)         (1,147,864)
     Acquisition - Excess basis                                      105,991             105,991
     Reversal of capitalized consent fee for Unefon rights
      and other expenses                                            (115,223)           (121,260)
     Paid-in capital for Unefon stock option plan                     39,902              57,245
     Effect relating to capital stock increase of Unefon,
      net of the loss from the dilution                              350,700             350,700
     Reversal of loss from holding non-monetary
      assets for Unefon investment                                    54,808             156,399
                                                             ---------------      --------------

                                                                    (353,268)           (598,789)
                                                             ---------------      --------------

     Investment in Unefon under US GAAP                      Ps    1,495,217      Ps   1,157,153
                                                             ===============      ==============
</TABLE>

     Summarized financial information at December 31, 2000, 2001 and 2002 and
     the years then ended for Unefon, stated in Mexican pesos, is as follows:

<TABLE>
<CAPTION>
                                                      At and for the year ended December, 31,
                               --------------------------------------------------------------------------------------

                                           Under Mexican GAAP                             Under US GAAP
                               ------------------------------------------   -----------------------------------------
                                   2000           2001           2002           2000          2001           2002
                               ------------  -------------   ------------   -----------  -------------   ------------
     <S>                       <C>           <C>             <C>            <C>          <C>             <C>
     Current assets                          Ps    715,975   Ps   987,066                Ps  1,125,736   Ps 1,024,460
     Non-current assets                          8,452,660      8,042,853                    8,773,292      8,525,591
     Current liabilities                         1,555,126      2,297,461                    1,852,820      2,525,850
     Non-current liabilities                     4,284,194      4,268,920                    4,830,687      4,535,699
     Stockholders' equity                        3,329,315      2,463,538                    3,215,521      2,488,502

     Revenues                  Ps   317,822      1,748,788      3,038,749   Ps  216,330      1,560,156      3,067,633
     Gross margin                  (311,415)      (859,769)       (73,665)     (802,017)    (1,024,916)        (7,889)
     Net loss                      (339,462)    (1,112,668)      (871,762)     (659,259)    (1,175,368)      (770,792)
</TABLE>

v.   Reversal of capitalized consent fee for Unefon rights and other expenses

     As discussed in Note 7, TV Azteca's Board of Directors granted rights to
     certain stockholders of TV Azteca to acquire a pro-rata share of the Unefon
     shares currently owned by TV Azteca. The Rights to acquire the Unefon
     shares were subject to the receipt of consents from the Holders of the TV
     Azteca Notes and Azteca Holdings Senior Secured Notes 2002, which were
     obtained on March 27, 2001, the receipt of regulatory approvals and third
     parties approvals, including the approval of Nortel. In addition, the
     Rights are subject to the filing and effectiveness of a registration
     statement with the U.S. Securities and Exchange Commission that registers
     the Unefon shares underlying the Rights.

                                      F-58

<PAGE>

     On March 27, 2001, TV Azteca paid a fee totaling Ps115,223 to certain
     holders of the TV Azteca Notes to obtain the required consent for the grant
     of the rights to acquire a pro-rata share of the Unefon shares owned by TV
     Azteca. Under Mexican GAAP, TV Azteca capitalized the consent fee as a part
     of its total investment in Unefon. Under US GAAP, this consent fee would be
     recognized in earnings during the year.

     During 2002 for Mexican GAAP, TV Azteca capitalized expenses for an amount
     of Ps6,037 related to a proposed spin-off of its investment in Unefon
     mentioned in Note 7. For US GAAP purposes, this amount was recognized in
     earnings during the year.

vi.  Todito investment

     For Mexican GAAP purposes, TV Azteca's investment in Todito (see Note 7)
     was accounted for as a purchase and generated goodwill of Ps543,370.
     Goodwill amortization recorded under Mexican GAAP during the years ended
     December 31, 2000, 2001 and 2002 amounted to Ps22,643, Ps27,260 and
     Ps27,260, respectively. Prior to TV Azteca's investment, Todito was a
     wholly-owned subsidiary of Dataflux, S. A. de C. V., a company controlled
     by the brother of Mr. Salinas Pliego. Under US GAAP, TV Azteca's investment
     in Todito would be accounted for as a transaction between companies under
     common control and would be recorded based on the historical cost of the
     advertising, programming and sales services provided to Todito when such
     services are provided. Under US GAAP, there was no cost to TV Azteca
     associated with providing the programming to Todito for the years ended
     December 31, 2000, 2001 and 2002. The cost of providing advertising and the
     sales services were Ps2,170 and Ps5,356 during the years ended December 31,
     2000 and 2001, respectively. Furthermore, there was no cost to TV Azteca
     associated with providing the advertising and sales services during the
     years ended December 31, 2001 and 2002.

     Revenues related to the advertising provided to Todito under the terms of
     the agreement are recognized under Mexican GAAP when the advertising is
     utilized based on the peso equivalent amount of the advertising at the date
     of the agreement, indexed for the effects of inflation. Revenues related to
     the content and sales services provided to Todito under the terms of the
     agreement are recognized under Mexican GAAP on a straight line basis over
     the life of the agreement based on the peso equivalent amount of the
     programming and services at the date of the agreement indexed for the
     effects of inflation.

     The following table illustrates the differences between Mexican and US GAAP
     in the method of accounting for TV Azteca's investment in Todito:

<TABLE>
<CAPTION>
                                       At December 31, 2000       At December 31, 2001       At December 31, 2002
                                    -------------------------  -------------------------  -------------------------

                                      Investment    Goodwill    Investment   Goodwill in   Investment   Goodwill in
                                       in Todito    in Todito    in Todito     Todito       in Todito     Todito
                                    ------------  -----------  -----------  ------------  -----------  ------------
     <S>                            <C>           <C>          <C>          <C>           <C>          <C>
     Amounts under Mexican GAAP     Ps   482,491  Ps  520,727  Ps  397,883  Ps   493,467  Ps  319,986  Ps   466,207
     Reverse investment in Todito       (543,430)    (543,370)    (539,901)     (543,370)    (538,103)     (543,370)
     Equity in earnings                   63,947                   155,541                    247,393
     Amortization of goodwill                          22,643                     49,903                     77,163
                                    ------------  -----------  -----------  ------------  -----------  ------------

     Amounts under US GAAP          Ps     3,008  Ps        -  Ps   13,523  Ps         -  Ps   29,276  Ps         -
                                    ============  ===========  ===========  ============  ===========  ============
</TABLE>

                                      F-59

<PAGE>

     TV Azteca's share of Todito's net (loss) gain for the years ended December
     31, 2000, 2001 and 2002 under US GAAP were (Ps53), Ps6,051 and Ps14,003,
     respectively, compared to a net loss of Ps64,000, Ps85,543 and Ps77,849,
     respectively, under Mexican GAAP. The difference is due to the
     pre-operating expenses and the cost of advertising and programming services
     provided by TV Azteca that have been capitalized and expensed for Mexican
     GAAP purposes, respectively.

     Revenues recognized in connection with the Todito agreement under Mexican
     and US GAAP were as follows:

<TABLE>
<CAPTION>
                                                     Year ended December 31, 2000
                                          -------------------------------------------------

                                              Mexican             US
                                               GAAP              GAAP            Difference
                                          ------------        ---------        ------------
     <S>                                  <C>                 <C>              <C>
     Revenues recognized for:
     Advertising                          Ps    95,530        Ps  2,170        Ps   (93,360)
     Programming                                81,786                              (81,786)
     Services                                    5,356            5,356
                                          ------------        ---------        ------------

                                          Ps   182,672        Ps  7,526        Ps  (175,146)
                                          ============        =========        ============

<CAPTION>
                                                     Year ended December 31, 2001
                                          -------------------------------------------------

                                             Mexican              US
                                              GAAP               GAAP           Difference
                                          ------------        ---------        ------------
     <S>                                  <C>                 <C>              <C>
     Cumulative revenues recognized for:
     Advertising                          Ps   165,184        Ps  2,170        Ps  (163,014)
     Programming                               196,564                             (196,564)
     Services                                   13,598            5,356              (8,242)
                                          ------------        ---------        ------------

                                          Ps   375,346        Ps  7,526        Ps  (367,820)
                                          ============        =========        ============

<CAPTION>
                                                     Year ended December 31, 2002
                                          -------------------------------------------------

                                             Mexican              US
                                              GAAP               GAAP           Difference
                                          ------------        ---------        ------------
     <S>                                  <C>                 <C>              <C>
     Cumulative revenues recognized for:
     Advertising                          Ps   233,593        Ps  2,170        Ps  (231,423)
     Programming                               313,594                             (313,594)
     Services                                   25,651            5,356             (20,295)
                                          ------------        ---------        ------------

                                          Ps   572,838        Ps  7,526        Ps  (565,312)
                                          ============        =========        ============
</TABLE>

                                      F-60

<PAGE>

vii. Effects of fifth amendment to Statement B-10

     As mentioned in Note 2a., the Company restates its exhibition rights and
     equipment of foreign origin based on the devaluation of the Mexican peso
     against the foreign currencies of, and by applying inflation factors of the
     countries in which they originate. This methodology does not comply with
     Rule 3-20 of the SEC's Regulation S-X for presenting price level financial
     statements, and consequently the Company has determined the effects on
     exhibition rights and equipment of foreign origin and current year
     depreciation and amortization and reflected them in its results of
     operations and financial position under US GAAP.

viii. Employee stock option plans

     The granting of stock options in the fourth quarter of 1997 by TV Azteca at
     exercise prices below the then current market prices of CPOs would result
     in non-cash compensation cost under US GAAP of approximately Ps113,964,
     Ps35,296 and Ps61,733 for 2000, 2001 and 2002, respectively, as determined
     under Accounting Principles Board Opinion No. 25 "Accounting for Stock
     Issued to Employees". The majority of the options granted were pursuant to
     plans which would be considered variable plans under US GAAP, since the
     number of shares exercisable is contingent upon TV Azteca achieving
     specified financial goals and employees' performance. TV Azteca expects to
     record non-cash compensation expense in future periods in connection with
     these plans.

     Had compensation cost for TV Azteca's employees stock option plans been
     determined based on the fair value at the grant dates for awards under
     those plans consistent with Statement of Financial Accounting Standard
     ("SFAS") No. 123 "Accounting for Stock Based Compensation", TV Azteca's
     compensation expense would have been Ps40,510, Ps17,869 and Ps7,550 for
     2000, 2001 and 2002, respectively, and the net (loss) income and net (loss)
     income per share would have been reduced to the pro forma amounts indicated
     below:

<TABLE>
<CAPTION>
                                                            Year ended December 31,
                                                ----------------------------------------------

                                                   2000               2001             2002
                                                ----------        -----------      -----------
     <S>                                        <C>               <C>              <C>
     Net (loss) income as reported              Ps (91,607)       Ps   77,292      Ps (113,388)
                                                ==========        ===========      ===========

     Net (loss) income pro forma                Ps (18,153)       Ps   94,719      Ps   (9,205)
                                                ==========        ===========      ===========

     Net (loss) income per share  as reported   Ps   (0.11)       Ps     0.10      Ps    (0.14)
                                                ==========        ===========      ============

     Net (loss) income per share pro forma      Ps   (0.02)       Ps     0.12      Ps    (0.07)
                                                ==========        ===========      ============
</TABLE>

                                      F-61

<PAGE>

     The effect on net (loss) income and net (loss) income per share is not
     expected to be indicative of the effects in future years. The fair value of
     each option granted is estimated on the date of grant using the weighted
     average of the Black-Scholes option pricing model and simple binomial model
     with the following assumptions:

                                              Year ended December 31,
                                             ------------------------

                                             2000      2001      2002
                                             ----      ----      ----
     Expected volatility                     .353      .391      .423
     Risk-free interest rate                   18%       10%        8%
     Expected life of options (in years)        5         5         5
     Expected dividend yield                   10%       10%       10%

     The Black-Scholes option valuation model and simple binomial model were
     developed for use in estimating the fair value of traded options. In
     addition, option valuation models require the input of highly subjective
     assumptions including the expected stock price volatility. The following
     table summarizes activity under TV Azteca's stock option plans during the
     years ended December 31, 2000, 2001 and 2002:

                                           Number of options   Weighted-average
                                          (thousands of CPOs)   exercise price
                                          -------------------  ----------------

     Outstanding at January 1, 2000                    68,712              0.32

     Granted                                            1,886              0.29
     Exercised                                        (15,652)             0.31
                                          -------------------

     Outstanding at December 31, 2000                  54,946

     Granted                                                -              0.29
     Exercised                                        (10,405)             0.29
                                          -------------------

     Outstanding at December 31, 2001                  44,541

     Granted                                                -              0.29
     Exercised                                        (15,340)             0.29
                                          -------------------

     Outstanding at December 31, 2002                  29,201
                                          ===================

     Outstanding options exercisable at
     December 31,

     2000                                              14,000              0.32
                                          ===================

     2001                                              18,651              0.32
                                          ===================

     2002                                              18,297              0.32
                                          ===================

                                      F-62

<PAGE>

ix.  Compensation expense for Unefon stock plan

     On November 15, 2000, the Board of Directors of Unefon initiated a stock
     option plan (the "Unefon Stock Option Plan") for its employees and
     stockholders. Pursuant to the Unefon Stock Option Plan, TV Azteca has the
     right to receive or designate the beneficiaries of the option to purchase
     120,152,229 shares at US$0.1507 per share. The Unefon Stock Option Plan has
     a vesting period of five years as follows: 10% during 2001, 10% during
     2002, 20% during 2003, 30% during 2004, and 30% during 2005. TV Azteca
     designated certain employees as the sole beneficiaries of the Unefon Stock
     Option Plan.

     Under US GAAP, TV Azteca would recognize as compensation expense the vested
     options since TV Azteca is designating certain employees as the sole
     beneficiaries of the Unefon Stock Option Plan. At December 31, 2001 and
     2002, TV Azteca recognized Ps54,413 and Ps3,352, respectively, as
     compensation expense related to the Unefon Stock Option Plan.

x.   Deferred income tax

     Effective January 1, 2000, the Company adopted the provisions of Revised
     Statement D-4 "Accounting Treatment of Income Tax, Asset Tax and Employees'
     Profit Sharing". Under this method, deferred tax assets or liabilities are
     recognized for all differences between the book value and the tax value of
     assets and liabilities. The cumulative effect of adopting Statement D-4 as
     of January 1, 2000 was to increase deferred tax liabilities by Ps524,879,
     reduce minority stockholders' equity by Ps299,670 and reduce majority
     stockholders' equity by Ps225,209.

     There would be no effect of adoption Revised Statement D-4 under US GAAP
     relating to TV Azteca's investment in Unefon.

     Under US GAAP, the Company follows Statement of SFAS No. 109, "Accounting
     for Income Taxes" ("SFAS 109"). This statement requires an asset and
     liability approach for financial accounting and reporting for income tax
     under the following basic principles: (a) a current tax liability or asset
     is recognized for the estimated taxes payable or refundable on tax returns
     for the current year, (b) a deferred tax liability or asset is recognized
     for the estimated future tax effects attributable to temporary differences
     and tax loss and tax credit carryforwards, (c) the measurement of current
     and deferred tax liabilities and assets is based on provisions of the
     enacted tax law and the effects of future changes in tax laws or rates are
     not anticipated, and (d) the measurement of deferred tax assets is reduced,
     if necessary, by the amount of any tax benefits that, based on available
     evidence, are not expected to be realized. Under this method, deferred tax
     is recognized with respect to all temporary differences, and the benefit
     from utilizing tax loss carryforwards and asset tax credits is recognized
     in the year in which the loss or credits arise (subject to a valuation
     allowance with respect to any tax benefits not expected to be realized).
     The subsequent realization of this benefit does not affect income.

                                      F-63

<PAGE>

     The temporary differences under SFAS 109 are determined based on the
     difference between the indexed tax basis amount of the asset or liability
     and the related stated amount reported in the financial statements. Except
     as indicated in the following paragraph the deferred tax expense or benefit
     should be calculated as the difference between: (a) deferred tax assets and
     liabilities reported at the end of the current year determined as indicated
     above, and (b) deferred tax assets and liabilities reported at the end of
     the prior year, remeasured to units of current general purchasing power at
     the end of the current period.

     Gains and losses from holding non-monetary assets are recorded in
     stockholders' equity. It is the Company's policy to reflect in results of
     operations the deferred income taxes that arise as a result of such gains
     (losses) from holding non-monetary assets. The significant components of
     income tax expense (benefit) under US GAAP were as follows:

                                  Year ended December 31,
                     --------------------------------------------------

                         2000               2001               2002
                     -----------        ------------       ------------

     Current         Ps   17,927        Ps   211,416       Ps   264,505
     Deferred            (99,755)           (249,492)          (123,017)
                     -----------        ------------       ------------

     Total benefit   Ps  (81,828)       Ps   (38,076)      Ps   141,488
                     ===========        ============       ============

     The following items represent the principal differences between income tax
     computed under US GAAP at the statutory rate and the Company's provision
     for income tax in each period:

<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                                 --------------------------------------------------

                                                     2000               2001               2002
                                                 ------------       ------------      -------------

     <S>                                         <C>                <C>               <C>
     (Loss) income before income tax (benefit)
      expense                                    Ps  (176,537)      Ps   247,083      Ps    221,646
                                                 ============       ============      =============

     Income tax (benefit) expense at
      statutory rate                             Ps   (61,788)      Ps    86,480      Ps     77,576
     Non-deductible stock dividends                    22,946
     Effects of inflationary components               145,710             11,003             44,800
     Miscellaneous expenses non-deductible
      for tax purposes                                 24,805             14,810             66,982
     Benefit of tax consolidation                    (106,634)          (120,284)          (147,597)
     Other                                           (106,867)           (30,085)            99,727
                                                 ------------       ------------      -------------

     Net income tax benefit                      Ps   (81,828)      Ps   (38,076)     Ps    141,488
                                                 ============       ============      =============
</TABLE>

                                      F-64

<PAGE>

     During 1999, TV Azteca and its external legal and tax advisers evaluated
     the deductibility of the concession rights and concluded that such rights
     are deductible for tax purposes, over the period granted by such
     concessions. Based on this conclusion and a confirmation received from the
     Mexican tax authorities in March 2000, TV Azteca adjusted the previously
     recorded deferred tax liability.

     The income tax effects of significant items comprising the Company's net
     deferred tax assets and liabilities under US GAAP are as follows:

<TABLE>
<CAPTION>
                                                                       Year ended December 31,
                                                             --------------------------------------------

                                                                  2000            2001           2002
                                                             -------------   -------------   ------------
     <S>                                                     <C>             <C>             <C>
     Deferred income tax assets:
     Current
     Advertising advances and other                          Ps    212,163   Ps    172,285   Ps   358,005
                                                             -------------   -------------   ------------

     Non-current
     Tax loss carryforwards and other                              349,547       1,034,226        755,104
     Deferred income tax asset recorded from the
      purchase of subsidiary                                                       200,129
     Valuation reserve for tax loss carryforwards                                 (497,805)
                                                             -------------   -------------   ------------
                                                                   349,547         736,550        755,104
                                                             -------------   -------------   ------------
                                                                   561,710         908,835      1,113,109
                                                             -------------   -------------   ------------
     Deferred income tax liability:
     Current
     Inventories and provisions                                   (488,959)       (306,054)      (201,053)
                                                             -------------   -------------   ------------
     Non-current
     Television concessions                                       (210,548)       (350,325)      (506,710)
     Property, machinery and equipment and other                  (408,962)       (349,593)      (379,468)
                                                             -------------   -------------   ------------

                                                                  (619,510)       (699,918)      (886,178)
                                                             -------------   -------------   ------------

                                                                (1,108,469)     (1,005,972)    (1,087,231)
                                                             -------------   -------------   ------------

     Net deferred tax liabilities under US GAAP                   (546,759)        (97,137)        25,878
     Net deferred tax (liabilities) assets under Mexican
      GAAP                                                        (214,766)        214,459        159,221
                                                             -------------   -------------   ------------

     US GAAP adjustment                                      Ps   (331,993)  Ps   (311,596)  Ps  (133,343)
                                                             =============   =============   ============
</TABLE>

The difference between net deferred tax (liabilities) assets under Mexican and
US GAAP at December 31, 2000, 2001 and 2002, relates primarily to the effects of
the Fifth Amendment to Statement B-10 and the cancellation of the deferred tax
asset related to the option for sale of an affiliate.

                                      F-65

<PAGE>

During the year ended December 31, 2001, TV Azteca acquired a company with tax
loss carryforwards. Under Mexican and US GAAP, TV Azteca recorded a tax asset of
Ps939,616 and an income tax benefit of Ps328,866.

xi.  Exhibition rights

     A license agreement for program material is reported as an asset and a
     liability, under US GAAP, when the license period begins and all of the
     following conditions are met: the cost of each program is known or
     reasonably determinable, the program material has been accepted by the
     license and the program is available for its first showing or telecast.
     Under Mexican GAAP, the rights acquired and obligations incurred are
     recorded when the license agreements are signed. At December 31, 2000, 2001
     and 2002, Ps195,413, Ps382,332 and Ps363,341, respectively, of deferred
     exhibition rights would not be recorded under US GAAP, since the related
     program material was not yet available to the Company. Since the Company's
     obligations under the license agreements and the deferred exhibition rights
     are considered monetary and non-monetary items, respectively, under the
     Mexican inflation accounting rules, the early recognition of the Company's
     obligations, prior to the period in which the program material is available
     for its first showing, overstates the monetary gain and exchange losses
     related to these obligations under US GAAP. However, since the obligations
     are US dollar denominated, the net effect of the related exchange losses
     and monetary gains, under US GAAP, are immaterial during the periods
     presented.

xii. Production costs of internally produced programming

     Under Mexican GAAP, TV Azteca expensed production costs of internally
     produced programming when the programs are initially aired, except in the
     case of telenovelas, where some of the production costs are amortized over
     a period of four-years based on estimates of secondary market revenue.

     Under US GAAP, on January 1, 2001, TV Azteca adopted the American Institute
     of Certified Public Accountants Statement of Position No. 00-2, "Accounting
     by Producers and Distributors of Films", which replaced SFAS No. 53
     "Financial Reporting by Producers and Distributors of Motion Picture Films"
     ("SOP 00-2"). SOP 00-2, provides that film costs should be accounted for
     under an inventory model and discusses various topics such as revenue
     recognition and accounting for exploitation costs and impairment
     assessment. In addition, SOP 00-2 establishes criteria for which revenues
     should be included in TV Azteca's ultimate revenue projections. As
     discussed in Note 7, during 2001, TV Azteca renegotiated its contract with
     Azteca America. Pursuant to SOP 00-2, given its limited experience with
     Azteca America, at December 31, 2001 and 2002, TV Azteca reversed
     capitalized production costs of internally produced programming totaling
     Ps226,375 and Ps252,577, respectively.

                                      F-66

<PAGE>

xiii. Exchange offer debt issuance cost

     As discussed in Note 9, the Company exchanged US$128,970 of its Senior
     Secured Notes 2002 for Senior Secured Notes 2005. Under Mexican GAAP, the
     Company capitalized Ps48,219 of debt issuance cost incurred in the exchange
     offer. In addition, the Company wrote-off Ps11,113, representing the
     unamortized debt issuance cost of the original debt. Under US GAAP, the
     debt issuance cost relating to the exchange offer would be expensed in
     accordance with EITF 96-19, "Debtor's Accounting for a Modification or
     Exchange of Debt Instruments" since the terms of the Senior Secured Notes
     2005 are not considered to be substantially different. Furthermore, the
     unamortized portion of the Senior Secured Notes 2002 would be amortized
     over the new term of the Senior Secured Notes 2005.

xiv. Cash and marketable securities

     Under Mexican GAAP, temporary investments and marketable securities,
     expected to be held less than one year, are considered to be cash
     equivalents. Under US GAAP, temporary investments and marketable securities
     with original maturities greater than 90 days are considered to be
     short-term investments and, accordingly, are shown separately from cash in
     the balance sheet and cash flow statement. As of December 31, 2002, the
     Company reclassified Ps307,814 as short-term investments.

xv.  Revenue recognition

     Under Mexican GAAP revenues from advertisers are presented net of sales
     commissions paid. Under US GAAP, revenues are presented based on the gross
     amount billed to the customers and sales commission paid are presented as
     cost of sales.

xvi. Comprehensive income

     Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
     Comprehensive Income" ("SFAS 130"). During the periods presented, the
     Company had no change in equity from transactions or other events and
     circumstances from non-owner sources under US GAAP. Accordingly, a
     statement of comprehensive income (loss) has not been provided as
     comprehensive income (loss) equals net income (loss) for all periods
     presented.

xvii. Fair value information

     The following disclosure of the estimated fair value of financial
     instruments is made in accordance with the requirements of SFAS No. 107,
     "Disclosures about Fair Value of Financial Instruments". The estimated fair
     value amounts have been determined by the Company, using available market
     information and appropriate valuation methodologies. However, considerable
     judgment is required in interpreting market data to develop estimates of
     fair value.

                                      F-67

<PAGE>

     Cash and cash equivalents, accounts receivable, and accounts payable. The
     carrying value of these items is a reasonable estimate of their fair value.

     Bank loans and documents payable. The Company's bank loans and documents
     payable bear interest at variable rates and their terms are generally
     representative of those which are currently available to the Company at
     December 31, 2001 and 2002 for the issuance of debt with similar terms and
     remaining maturities, and therefore the carrying values of these loans are
     a reasonable estimate of their fair value.

     TV Azteca Notes, Senior Secures Notes 2003 and Senior Secured Notes 2005.
     The carrying value of TV Azteca Notes, Senior Secured Notes 2003 and Senior
     Secured Notes 2005 and the related fair value based on the quoted market
     prices for the same or similar issues at December 31, 2002 were
     Ps4,417,875, Ps1,559,250 and Ps1,340,643, respectively, and Ps4,069,643,
     Ps1,450,103 and Ps1,219,988, respectively. At December 31, 2001, the
     carrying value of the TV Azteca Notes. Senior Secured Notes 2002 and 2005
     and the related fair value were Ps4,114,901, Ps1,220,238 and Ps1,248,703,
     respectively, and Ps4,066,190, Ps1,240,067 and Ps1,248,703, respectively.

xviii. Property, machinery and equipment

     Under US GAAP, advances for the acquisition of machinery and equipment
     would be classified as prepayments. As of December 31, 2001 and 2002, the
     Company had advances of Ps74,568 and Ps125,716, respectively.

xix. Other employee benefits

     The Company has no post-retirement health care insurance or other benefit
     plans. Therefore, SFAS No. 106, "Employers' Accounting for Post-retirement
     Benefits other than Pensions", SFAS No. 112, "Employers' Accounting for
     Post-employment Benefits" and SFAS No. 132, "Employers' Disclosure about
     Pension and other Post-retirement Benefits", would have no effect on the
     Company's financial position.

     For Mexican GAAP purposes, goodwill is being amortized under the
     straight-line method over a period of 20 years. Effective January 1, 2002,
     the Company adopted Statement of Financial Accounting Standard No. 142,
     "Goodwill and Other Intangible Assets" ("SFAS 142"), where upon TV Azteca
     no longer amortizes goodwill, but instead evaluates if for impairment
     annually. In addition, the Company evaluates impairment of its intangible
     assets not subject to amortization, such as the television concessions. The
     Company completed initial impairment tests in the second quarter of 2002
     with the effective measurement date of January 1, 2002 in accordance with
     SFAS 142.

                                      F-68

<PAGE>

xx.  Effect of recently issued accounting standards

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
     Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial
     accounting and reporting for obligations associated with the retirement of
     tangible long-lived assets and the associated asset retirement costs. It
     applies to legal obligations associated with the retirement of long-lived
     assets that result from the acquisition, construction, development and/or
     the normal operation of a long-lived asset, except for certain obligations
     of lessees. SFAS 143 requires that the fair value of a liability for an
     asset retirement obligation be recognized in the period in which it is
     incurred if a reasonable estimate of fair value can be made. The associated
     asset retirement costs are capitalized as part of the carrying amount of
     the long-lived asset. SFAS 143 is effective for financial statements issued
     for fiscal years beginning after June 15, 2002. The Company does not expect
     the adoption of SFAS 143 will have a material impact on the consolidated
     financial statements.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4,
     44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of April
     2002" ("SFAS 145"), SFAS 145 rescinds SFAS No. 4, "Reporting Gains and
     Losses from Extinguishment of Debt," SFAS No. 44, "Accounting for
     Intangible Assets of Motor Carriers," and SFAS No. 64, "Extinguishments of
     Debt Made to Satisfy Sinking-Fund Requirements." As a result, gains and
     losses from extinguishment of debt will no longer be classified as
     extraordinary items unless they meet the criteria of unusual or infrequent
     as described in Accounting Principles Boards Opinion 30, "Reporting the
     Results of Operations -Reporting the Effects of Disposal of a Segment of a
     Business, and Extraordinary, Unusual and Infrequently Occurring Events and
     Transactions." In addition, SFAS 145 amends SFAS No. 13, "Accounting for
     Leases," to eliminate an inconsistency between the required accounting for
     sale-leaseback transactions and the required accounting for certain lease
     modifications that have economic effects that are similar to sale-leaseback
     transactions. SFAS 145 also amends other existing authoritative
     pronouncements to make various technical corrections, clarify meanings, or
     describe their applicability under changed conditions. SFAS 145 is
     effective for fiscal years beginning after May 15, 2002. The Company does
     not expect the adoption of SFAS 145 will have a significant impact on the
     consolidated financial statements.

     In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
     Associated with Exit or Disposal Activities" ("SFAS 146"). The issuance of
     SFAS 146 nullifies the former guidance provided by the Emerging Issues Task
     Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
     Termination Benefits and Other Costs to Exit an Activity (including Certain
     Costs Incurred in a Restructuring" ("EITF 94-3"). SFAS 146 requires the
     recognition of a liability for costs associated with exit or disposal
     activity when the liability is incurred, rather than on the date commitment
     to an exit or disposal plan. SFAS 146 is effective for liabilities, related
     to exit or disposal activities, which are incurred after December 31, 2002,
     while earlier application is encouraged. The Company does not expect the
     adoption of SFAS 146 will have a significant impact on the consolidated
     financial statements.

                                      F-69

<PAGE>

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
     Compensation - Transition and Disclosure - an amendment of SFAS 123" ("SFAS
     148"). SFAS 148 continues to permit entities to apply the intrinsic method
     of APB 25, "Accounting for Stock Issued to Employees", however, SFAS 148 is
     intended to encourage companies to adopt the accounting provisions of SFAS
     123, "Accounting for Stock-Based Compensation". SFAS 148 provides three
     transition methods for companies who choose to adopt the provisions of SFAS
     123, the prospective method, the modified prospective method and the
     retroactive restatement method. In addition, SFAS 148 mandates certain new
     disclosures. SFAS 148 is effective for fiscal years ending after December
     15, 2002, with early adoption permitted. The Company does not expect the
     adoption of SFAS 148 will have a significant impact on the consolidated
     financial statements.

     In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
     "Guarantor's Accounting and Disclosure Requirements for Guarantees,
     Including Indirect Guarantees of Indebtedness of Others (an interpretation
     of FASB Statements No. 5, 57, and 107 and rescission of Interpretation No.
     34)." FIN 45 clarifies the requirements of SFAS No. 5, "Accounting for
     Contingencies, relating to a guarantor's accounting for, and disclosure of,
     the issuance of certain types of guarantees. FIN 45 requires that upon
     issuance of a guarantee, the guarantor must recognize a liability for the
     fair value of the obligation it assumes under that guarantee. FIN 45's
     provisions for initial recognition and measurement should be applied on a
     prospective basis to guarantees issued or modified after December 31, 2002,
     irrespective of the guarantor's fiscal year-end. The guarantor's previous
     accounting for guarantees that were issued before the date of FIN 45's
     initial application may not be revised or restated to reflect the effect of
     the recognition and measurement provisions of the Interpretation. The
     disclosure requirements are effective for financial statements of both
     interim and annual periods that end after December 15, 2002. The adoption
     of FIN 45 did not have a material impact on the consolidated financial
     statements.

     In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
     "Consolidation of Variable Interest Entities, an interpretation of ARB 51."
     The primary objectives of FIN 46 are to provide guidance on the
     identification of entities for which control is achieved through means
     other than through voting rights ("variable interest entities" or "VIEs")
     and how to determine when and which business enterprise should consolidate
     the VIE (the "primary beneficiary"). This new model for consolidation
     applies to an entity which either (1) the equity investors (if any) do not
     have a controlling financial interest or (2) the equity investment at risk
     is insufficient to finance that entity's activities without receiving
     additional subordinated financial support from other parties. In addition,
     FIN 46 requires that both the primary beneficiary and all other enterprises
     with a significant variable interest in a VIE make additional disclosures.
     FIN 46 applies immediately to variable interest entities created after
     January 31, 2003, and to variable interest entities in which an enterprise
     obtains an interest after that date. It applies in the first fiscal year or
     interim period beginning after June 15, 2003, to variable interest entities
     in which an enterprise holds a variable interest that it acquired before
     February 1, 2003. FIN 46 applies to public enterprises as of the beginning
     of the applicable interim or annual period, and it applies to nonpublic
     enterprises as of the end of the applicable annual period. The Company is
     currently evaluating the impact that the adoption of FIN 46 will have on
     the consolidated financial statements.

                                      F-70

<PAGE>

xxi. Financial instrument indexed to the Company's own stock

     As stated in Note 4b., TV Azteca entered into a monthly certificate of
     deposit with a rate of return based on the market value of TV Azteca's
     CPOs. For Mexican GAAP purposes, the principal amount of the certificate of
     deposit and the loss derived of the decline in market value of TV Azteca's
     CPOs were recorded against stockholders' equity. For US GAAP purposes, the
     certificate of deposit would be accounted as a short-term investment and
     its return based on TV Azteca's CPO would be recorded against earnings for
     the year.

xxii. Cash flow information

     Under US GAAP, a statement of cash flows is prepared based on provisions of
     SFAS 95, "Statement of Cash Flows". This statement does not provide
     specific guidance for the preparation of cash flow statements for price
     level adjusted financial statements. Cash flows from operating, investing
     and financing activities have been adjusted for the effects of inflation on
     monetary items.

     The Company has further segregated the effects of exchange rate changes and
     inflationary effect on cash from other cash flow activities as provided in
     the following condensed cash flow statement.

                                      F-71

<PAGE>

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                             --------------------------------------------------

                                                                   2000            2001                2002
                                                             -------------     -------------       ------------
     <S>                                                     <C>               <C>                 <C>
     Cash flows from operating activities:

     Net (loss) income                                       Ps    (91,607)    Ps     77,292       Ps  (113,388)
     Adjustments:
     Gain on sale of subsidiary                                    (17,797)
     Minority interest                                              (3,102)          207,868            193,546
     Compensation expense from stock options                       113,964            35,296             61,733
     Amortization and depreciation                                 948,923           943,292            429,852
     NBC settlement agreement                                      210,848
     Deferred income tax                                           (99,755)         (249,492)          (123,017)
     Equity in loss of affiliates                                  278,312           519,756            376,644
     Unefon stock option plan                                                         54,413              3,352
     Foreign exchange loss, net of monetary gain on NBC
      warrant                                                      (10,841)
     Unrealized  foreign  exchange  loss,  net of  monetary
      gain  relating  to financing activities                      144,570          (425,876)           846,990
     Monetary gain on financing activities                        (585,765)         (184,276)          (159,837)
     Net changes in working capital                                179,893           611,176            379,253
     Acquisition of shares, net                                     13,260
                                                             -------------     -------------       ------------

     Net cash provided by operating activities                   1,080,903         1,589,449          1,895,128
                                                             -------------     -------------       ------------

     Cash flows from investing activities:

     Acquisition of machinery and equipment                       (170,018)         (178,474)          (147,511)
     Exhibition rights purchased                                  (413,699)         (648,594)          (884,736)
     Short-term investments                                                                            (307,814)
     Investment in affiliates of Pappas Telecasting
      Companies,  through Azteca America                                            (660,031)          (455,867)
     Account receivable from Pappas Southern California, LLC                        (191,124)
     Effect in cash relating to the sale of a subsidiary            (5,399)
     Pledged securities                                            150,864
                                                             -------------     -------------       ------------

     Net cash used in investing activities                        (438,252)       (1,678,223)        (1,795,928)
                                                             -------------     -------------       ------------

     Cash flows from financing activities:

     Debt received                                                 650,864           337,422            326,115
     Debt paid                                                    (689,645)         (127,836)          (761,609)
     Effect  relating  to capital  stock  increase  and
      premium on issuance of capital stock of subsidiaries         285,563
     Effects from repurchase, and valuation of capital of
      subsidiary                                                  (288,878)          200,638           (182,849)
     Dividends paid to minority interest                           (28,434)          (26,922)           (25,289)
     Payment to NBC as settlement for warrant and bonus
      right                                                       (510,730)
                                                             -------------     -------------       ------------

     Net cash (used in) provided by financing activities          (581,260)          383,302           (643,632)
                                                             -------------     -------------       ------------

     Effect of inflation and exchange rate changes on cash          99,011            57,558             92,632
                                                             -------------     -------------       ------------

     Increase in cash and cash equivalents                         160,402           352,086           (451,800)
     Cash and cash equivalents at beginning of year              1,205,273         1,365,675          1,717,761
                                                             -------------     -------------       ------------

     Cash and cash equivalents at end of year                Ps  1,365,675     Ps  1,717,761       Ps 1,265,961
                                                             =============     =============       ============
     Supplemental disclosure:
     Cash paid during the period for:
     Interest                                                Ps  1,050,664     Ps    957,213       Ps   901,977
                                                             =============     =============       ============

     Income tax                                               Ps   252,664     Ps     81,142       Ps   145,497
                                                             =============     =============       ============
</TABLE>

                                      F-72

<PAGE>

e.   Condensed balance sheets and results of operations:

     The following condensed balance sheets and results of operations reflect
     the effects of the principal differences between Mexican GAAP and US GAAP:

                             CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                At December 31,

                                                      -----------------------------------
                                                            2001               2002
                                                      ----------------   ----------------
     <S>                                              <C>                <C>
     Current assets                                   Ps     7,796,995   Ps     7,697,866
     Property, machinery and equipment - Net                 2,642,110          2,359,750
     Television concessions - Net                            3,742,945          3,741,702
     Investment in Unefon                                    1,495,216          1,157,153
     Investment in affiliates of Pappas Telecasting
      Companies, through Azteca America                        660,031          1,154,479
     Goodwill - Net                                          1,785,282          1,782,760
     Other assets                                            2,266,490          2,742,705
     Deferred income tax assets                                736,550            755,104
                                                      ----------------   ----------------

     Total assets                                     Ps    21,125,619   Ps    21,391,519
                                                      ================   ================

     Short-term debt                                  Ps       566,872   Ps     2,285,060
     Advertising advances                                    4,850,290          4,593,316
     Deferred income tax payable                               306,054            201,053
     Other current liabilities                               1,574,370          1,154,491
                                                      ----------------   ----------------

     Total current liabilities                               7,297,586          8,233,920
                                                      ----------------   ----------------

     Guaranteed senior notes and senior
      secured notes                                          6,583,842          5,758,518
     Long-term debt                                          1,507,826          1,302,915
     Exhibition rights payable                                 206,079            246,096
     Deferred income tax payable                               699,918            886,178
                                                      ----------------   ----------------

     Total long-term liabilities                             8,997,665          8,193,707
                                                      ----------------   ----------------

     Minority interest                                       2,394,876          2,744,664
                                                      ----------------   ----------------

     Stockholders' equity                                    2,435,492          2,219,228
                                                      ----------------   ----------------

     Total liabilities and stockholders' equity       Ps    21,125,619   Ps    21,391,519
                                                      ================   ================
</TABLE>

                                      F-73

<PAGE>

                         CONDENSED RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                                                 -----------------------------------------------
                                                                      2000             2001             2002
                                                                 -------------    -------------    -------------
<S>                                                              <C>              <C>              <C>
Net revenue                                                      Ps  6,363,642    Ps  6,526,790    Ps  6,924,600

Costs and expenses:
Programming, production, exhibition and transmission costs           2,879,342        2,794,043        2,524,475
Selling and administrative expenses                                  1,375,045        1,419,200        1,420,668
Depreciation and amortization                                          948,924          943,292          429,852
NBC settlement agreement                                               210,848
Other expense - Net                                                    462,377          791,595          474,831
                                                                 -------------    -------------    -------------

Operating income                                                       487,106          578,660        2,074,774
                                                                 -------------    -------------    -------------

Comprehensive financing cost:
Interest expense                                                    (1,291,966)      (1,166,345)      (1,290,323)
Interest income                                                        208,962          227,935          170,565
Exchange (loss) income - Net                                          (166,404)         422,557         (893,207)
Gain on monetary position                                              585,765          184,276          159,837
                                                                 -------------    -------------    -------------

Net comprehensive financing cost                                      (663,643)        (331,577)      (1,853,128)
                                                                 -------------    -------------    -------------

(Loss) income before income tax benefit                               (176,537)         247,083          221,646
Income tax benefit (expense)                                            81,828           38,076         (141,488)
                                                                 -------------    -------------    -------------

Net (loss) income before minority interest                             (94,709)         285,159           80,158
Minority interest                                                        3,102         (207,867)        (193,546)
                                                                 -------------    -------------    -------------

Net (loss) income                                                Ps    (91,607)   Ps     77,292    Ps   (113,388)
                                                                 =============    =============    =============
</TABLE>

                                      F-74

<PAGE>

                            TV AZTECA, S.A. DE C.V.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 2001 AND 2002

                                      F-75

<PAGE>

                    TV AZTECA, S.A. DE C.V. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 2001 AND 2002

                                      INDEX

                                                                           Page
                                                                           ----

Report of Independent Auditors                                              F-77

Consolidated Balance Sheets as of December 31, 2001 and 2002                F-79

Consolidated Statements of Results of Operations
for the Years Ended December 31, 2000, 2001 and 2002                        F-80

Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 2000, 2001 and 2002                        F-81

Consolidated Statements of Changes in Financial Position
for the Years Ended December 31, 2000, 2001 and 2002                        F-82

Notes to Consolidated Financial Statements                                  F-83

                                      F-76

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Mexico City, February 7, 2003, except for the Pappas Group recent developments
in Note 7, which is as of February 11, 2003, and the subsequent events included
in Note 16, which is as of June 10, 2003

To the Stockholders and Board of Directors
of TV Azteca, S.A. de C.V. and subsidiaries:

We have audited the consolidated balance sheets of TV Azteca, S.A. de C.V. and
its subsidiaries (the "Company") as of December 31, 2001 and 2002, and the
related consolidated statements of results of operations, of changes in
stockholders' equity and of changes in financial position for each of the three
years in the period ended December 31, 2002 all expressed in constant pesos of
December 31, 2002 purchasing power. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Mexico and in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and that they were
prepared in accordance with accounting principles generally accepted in Mexico.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of TV
Azteca, S.A. de C.V. and its subsidiaries as of December 31, 2001 and 2002,
and the consolidated results of their operations, and the changes in
stockholders' equity and in their financial position for each of the three years
in the period ended December 31, 2002 in conformity with accounting principles
generally accepted in Mexico.

                                      F-77

<PAGE>

Accounting principles generally accepted in Mexico differ in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
consolidated net income, expressed in pesos of December 31, 2002 purchasing
power, for each of the three years in the period ended December 31, 2002 and the
determination of consolidated stockholders' equity and consolidated financial
position as of December 31, 2000, 2001 and 2002 also expressed in pesos of
December 31, 2002 purchasing power to the extent summarized in Note 17 to the
consolidated financial statements.

PricewaterhouseCoopers

Manuel Leyva Vega
Audit Partner

                                      F-78

<PAGE>

                    TV AZTECA, S.A. DE C.V. AND SUBSIDIARIES
                                    (Note 1)

                           CONSOLIDATED BALANCE SHEETS

                         (thousands of Mexican pesos of
                       December 31, 2002 purchasing power)

<TABLE>
<CAPTION>
                                                                                      At December 31,
                                                                   -----------------------------------------------

                                                                        2001                    2002
                                                                   -------------    ------------------------------
                                                                                                      Thousands of
                                                                                                     US dollars (*)
<S>                                                                <C>              <C>              <C>
ASSETS
Current assets:
Cash and marketable securities (Note 4)                            Ps  1,650,871    Ps  1,393,273    US$   134,033
Accounts receivable (Note 5)                                           4,927,444        4,921,200          473,421
Due from related parties (Note 8)                                        426,794          484,682           46,626
Exhibition rights                                                        545,151          309,597           29,783
Inventories                                                              136,395          134,269           12,917
                                                                   -------------    -------------    -------------

Total current assets                                                   7,686,655        7,243,021          696,780

Investment in Unefon, S.A. de C.V. ("Unefon") (Note 7)                 1,848,485        1,755,942          168,922
Accounts receivable from Unefon (Note 8)                               1,931,139        2,009,067          193,272
Exhibition rights                                                      1,043,068        1,379,583          132,716
Property, machinery and equipment - Net (Note 6)                       2,304,077        2,231,443          214,665
Television concessions - Net (Note 2l.)                                3,742,945        3,741,702          359,953
Other assets (Note 7)                                                  1,201,752        1,182,999          113,804
Investment in Todito.com, S.A. de C.V. ("Todito") (Note 7)               397,883          319,986           30,783
Advance payments to Pappas Telecasting Companies,
through Azteca America (Note 7)                                          660,031        1,154,479          111,061
Goodwill - Net (Note 7)                                                  679,246          641,603           61,722
                                                                   -------------    -------------    -------------

Total assets                                                       Ps 21,495,281    Ps 21,659,825    US$ 2,083,678
                                                                   =============    =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term bank loans (Note 9)                   Ps     38,418    Ps     47,179    US$     4,539
Short-term debt (Note 9)                                                 528,455          389,997           37,518
Interest payable                                                         197,979          206,613           19,876
Exhibition rights payable                                                671,534          598,878           57,612
Accounts payable and accrued expenses                                    777,150          633,031           60,898
Due to related parties (Note 8)                                           61,657           81,281            7,819
                                                                   -------------    -------------    -------------

Total current liabilities                                              2,275,193        1,956,979          188,262
                                                                   -------------    -------------    -------------

Long-term liabilities:
Guaranteed senior notes (Note 9)                                       4,114,901        4,417,875          425,000
Bank loans (Note 9)                                                    1,507,825        1,302,915          125,341
Advertising advances (Note 2q.)                                        4,639,819        4,446,264          427,731
Unefon advertising advance (Note 8)                                    2,258,381        2,167,340          208,498
Todito advertising, programming and services advance (Note 8)            715,446          504,418           48,525
Exhibition rights payable                                                206,079          246,096           23,674
Deferred income tax payable (Note 12)                                                      25,534            2,456
                                                                   -------------    -------------    -------------

Total long-term liabilities                                           13,442,451       13,110,442        1,261,225
                                                                   -------------    -------------    -------------

Total liabilities                                                     15,717,644       15,067,421        1,449,487
                                                                   -------------    -------------    -------------

Commitments and contingencies (Note 13)
Subsequent events (Note 16)

Stockholders' equity (Note 11):
Capital stock                                                          2,737,188        2,740,130          263,601
Premium on the issuance of capital stock                               1,920,032        1,762,781          169,580
Legal reserve                                                             97,564          172,964           16,639
Reserve for the repurchase of shares                                   1,041,662        1,013,123           97,463
Retained earnings                                                      1,325,727        2,194,872          211,147
Insufficiency in the restatement of capital                           (1,352,907)      (1,300,183)        (125,078)
                                                                   -------------    -------------    -------------

Majority stockholders' equity                                          5,769,266        6,583,687          633,352
Minority stockholders' equity (Note 1)                                     8,371            8,717              839
                                                                   -------------    -------------    -------------

Total stockholders' equity                                             5,777,637        6,592,404          634,191
                                                                   -------------    -------------    -------------

Total liabilities and stockholders' equity                         Ps 21,495,281    Ps 21,659,825    US$ 2,083,678
                                                                   =============    =============    =============
</TABLE>

(*)  The US dollar figures represent the Mexican peso amounts as of December 31,
     2002 expressed as of December 31, 2002 purchasing power translated at the
     exchange rate of Ps10.395 per US dollar and are not covered by the Report
     of Independent Accountants.

The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-79

<PAGE>

                   TV AZTECA, S.A. DE C.V. AND SUBSIDIARIES
                                    (Note 1)

                CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS

                   (thousands of Mexican pesos of December 31,
                2002 purchasing power, except per share amounts)

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                      -------------------------------------------------------------

                                                           2000           2001                   2002
                                                      ------------    ------------   ------------------------------

                                                                                                      Thousands of
                                                                                                     US dollars (*)
<S>                                                   <C>             <C>            <C>            <C>
Net revenue                                           Ps 5,986,790    Ps 6,122,805   Ps 6,689,957   US$     643,575
                                                      ------------    ------------   ------------   ---------------

Programming, production and transmission costs           2,680,067       2,470,020      2,510,898           241,549
Selling and administrative expenses                        939,709         956,657        974,282            93,726
                                                      ------------    ------------   ------------   ---------------

Total costs and expenses                                 3,619,776       3,426,677      3,485,180           335,275
                                                      ------------    ------------   ------------   ---------------

Profit before depreciation and amortization              2,367,014       2,696,128      3,204,777           308,300

Depreciation and amortization (Notes 2h. and 2l.)          626,851         604,239        385,325            37,068
                                                      ------------    ------------   ------------   ---------------

Operating profit                                         1,740,163       2,091,889      2,819,452           271,232
                                                      ------------    ------------   ------------   ---------------

Other expenses - Net (Note 14)                            (376,217)       (243,851)      (441,588)          (42,481)
                                                      ------------    ------------   ------------   ---------------

Comprehensive financing cost:
Interest expense                                          (791,033)       (743,485)      (725,270)          (69,771)
Other financing expense (Note 4)                          (143,456)        (27,400)      (135,708)          (13,055)
Interest income                                            188,271         239,927        191,950            18,466
Exchange (loss) income - Net (Note 3)                     (127,912)        197,676       (353,139)          (33,973)
Gain (loss) on monetary position                           208,910           2,387        (81,729)           (7,863)
                                                      ------------    ------------   ------------   ---------------

Net comprehensive financing cost                          (665,220)       (330,895)    (1,103,896)         (106,196)
                                                      ------------    ------------   ------------   ---------------

Income before provision for income tax, deferred
income tax and extraordinary item                          698,726       1,517,143      1,273,968           122,555

Provisions for (Note 12):
Income tax                                                (184,479)       (209,934)      (264,158)          (25,412)
Deferred income tax benefit (expense)                      204,451         198,905        (25,534)           (2,456)
                                                      ------------    ------------   ------------   ---------------

Income before extraordinary item                           718,698       1,506,114        984,276            94,687

Extraordinary item - NBC settlement agreement - net
 of income tax (Note 11)                                  (335,929)
                                                      ------------    ------------   ------------   ---------------

Net income                                            Ps   382,769    Ps 1,506,114   Ps   984,276   US$      94,687
                                                      ============    ============   ============   ===============

Net loss of minority stockholders                     Ps    (6,114)   Ps    (1,892)  Ps      (235)  US$         (23)
                                                      ============    ============   ============   ===============

Net income of majority stockholders                   Ps   388,883    Ps 1,508,006   Ps   984,511   US$      94,710
                                                      ============    ============   ============   ===============

Net income per share of majority stockholders
 (Note 2r.)                                           Ps     0.043    Ps     0.167   Ps     0.109   US$       0.010
                                                      ============    ============   ============   ===============
</TABLE>

(*)  The US dollar figures represent the Mexican peso amounts as of December 31,
     2002 expressed as of December 31, 2002 purchasing power translated at the
     exchange rate of Ps10.395 per US dollar and are not covered by the Report
     of Independent Accountants.

The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-80

<PAGE>

                    TV AZTECA, S.A. DE C.V. AND SUBSIDIARIES
                               (Notes 1, 4 and 11)

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
           FOR THE THREE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

                         (thousands of Mexican pesos of
          December 31, 2002 purchasing power, except per share amounts)

<TABLE>
<CAPTION>
                                           Number of                           Premium
                                         common shares                          on the                            Reserve for
                                          outstanding        Capital          issuance of          Legal        the repurchase
                                          (thousands)         stock          capital stock        reserve         of shares
                                         --------------   --------------   -----------------   -------------   -----------------
<S>                                           <C>         <C>              <C>                 <C>             <C>
Balances at January 1, 2000                   8,930,573   Ps   2,715,347   Ps      1,555,439   Ps     97,564   Ps      1,230,772
                                         --------------   --------------   -----------------   -------------   -----------------

Variations in 2000:

Net income (loss)
Cumulative effect of change in method
of accounting for income taxes
Loss from holding non-monetary assets
Minority interest from the sale of
subsidiary
                                         --------------   --------------   -----------------   -------------   -----------------

Comprehensive loss
                                         --------------   --------------   -----------------   -------------   -----------------

Preferred dividend
Repurchase of shares                           (107,370)         (20,066)                                               (296,028)
Exercise of stock options                        30,497            5,799              21,417
Capital stock increase                           96,000           18,217             267,347
                                         --------------   --------------   -----------------   -------------   -----------------

Balances at December 31, 2000                 8,949,700        2,719,297           1,844,203          97,564             934,744
                                         --------------   --------------   -----------------   -------------   -----------------

Variations in 2001:

Net income (loss)
Loss from holding non-monetary assets

Minority interest
                                         --------------   --------------   -----------------   -------------   -----------------

Comprehensive income (loss)
                                         --------------   --------------   -----------------   -------------   -----------------

Preferred dividend
Repurchase of shares                            (38,674)          (6,717)                            (36,455)
Exercise of stock options                        31,215            5,542              75,829
Sale of treasury shares                         107,804           19,066                             143,373
                                         --------------   --------------   -----------------   -------------   -----------------

Balances at December 31, 2001                 9,050,045        2,737,188           1,920,032          97,564           1,041,662
                                         --------------   --------------   -----------------   -------------   -----------------

Variations in 2002:

Net income (loss)
Increase legal reserve                                                                75,400
Gain from holding non-monetary assets

Minority interest
                                         --------------   --------------   -----------------   -------------   -----------------

Comprehensive income                                                                  75,400
                                         --------------   --------------   -----------------   -------------   -----------------

Preferred dividend
Repurchase of shares                           (111,349)         (18,883)                           (150,996)
Exercise of stock options                        46,020            7,759              16,122
Sale of treasury shares                          82,749           14,066                             122,457
Financial instruments (Note 4)                                  (173,373)
                                         --------------   --------------   -----------------   -------------   -----------------

Balances at December 31, 2002                 9,067,465   Ps   2,740,130   Ps      1,762,781   Ps    172,964   Ps      1,013,123
                                         ==============   ==============   =================   =============   =================


                                                          (Insufficiency)
                                            Retained       excess in the                                             Total
                                            earnings        restatement         Majority          Minority       stockholders'
                                            (deficit)       of capital        stockholders      stockholders        equity
                                         --------------   --------------   -----------------   -------------   -----------------

Balances at January 1, 2000              Ps     209,402   Ps    (892,293)  Ps      4,916,231   Ps     39,027   Ps      4,955,258
                                         --------------   --------------   -----------------   -------------   -----------------

Variations in 2000:

Net income (loss)                               388,883                              388,883          (6,114)            382,769
Cumulative effect of change in method
of accounting for income taxes                 (693,526)          57,854            (635,672)                           (635,672)
Loss from holding non-monetary assets                           (241,278)           (241,278)                           (241,278)
Minority interest from the sale of
subsidiary                                                                                           (19,708)            (19,708)
                                         --------------   --------------   -----------------   -------------   -----------------

Comprehensive loss                             (304,643)        (183,424)           (488,067)        (25,822)           (513,889)
                                         --------------   --------------   -----------------   -------------   -----------------

Preferred dividend                              (44,908)                             (44,908)                            (44,908)
Repurchase of shares                                                                (316,094)                           (316,094)
Exercise of stock options                                                             27,216                              27,216
Capital stock increase                                                               285,564                             285,564
                                         --------------   --------------   -----------------   -------------   -----------------

Balances at December 31, 2000                  (140,149)      (1,075,717)          4,379,942          13,205           4,393,147
                                         --------------   --------------   -----------------   -------------   -----------------

Variations in 2001:

Net income (loss)                             1,508,006                            1,508,006          (1,892)          1,506,114
Loss from holding non-monetary assets                           (277,190)           (277,190)                           (277,190)

Minority interest                                                                                     (2,942)             (2,942)
                                         --------------   --------------   -----------------   -------------   -----------------

Comprehensive income (loss)                   1,508,006         (277,190)          1,230,816          (4,834)          1,225,982
                                         --------------   --------------   -----------------   -------------   -----------------

Preferred dividend                              (42,130)                             (42,130)                            (42,130)
Repurchase of shares                                                                 (43,172)                            (43,172)
Exercise of stock options                                                             81,371                              81,371
Sale of treasury shares                                                              162,439                             162,439
                                         --------------   --------------   -----------------   -------------   -----------------

Balances at December 31, 2001                 1,325,727       (1,352,907)          5,769,266           8,371           5,777,637
                                         --------------   --------------   -----------------   -------------   -----------------

Variations in 2002:

Net income (loss)                               984,511                              984,511            (235)            984,276
Increase legal reserve                          (75,400)
Gain from holding non-monetary assets                             52,724              52,724                              52,724

Minority interest                                                                                        581                 581
                                         --------------   --------------   -----------------   -------------   -----------------

Comprehensive income                            909,111           52,724           1,037,235             346           1,037,581
                                         --------------   --------------   -----------------   -------------   -----------------

Preferred dividend                              (39,966)                             (39,966)                            (39,966)
Repurchase of shares                                                                (169,879)                           (169,879)
Exercise of stock options                                                             23,881                              23,881
Sale of treasury shares                                                              136,523                             136,523
Financial instruments (Note 4)                                                      (173,373)                           (173,373)
                                         --------------   --------------   -----------------   -------------   -----------------

Balances at December 31, 2002            Ps   2,194,872   Ps (1,300,183)   Ps      6,583,687   Ps      8,717   Ps      6,592,404
                                         ==============   ==============   =================   =============   =================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-81

<PAGE>

                    TV AZTECA, S.A. DE C.V. AND SUBSIDIARIES
                                    (Note 1)

            CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

                         (thousands of Mexican pesos of
                       December 31, 2002 purchasing power)

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                           ------------------------------------------------------------

                                                                2000           2001               2002
                                                           ------------   ------------  -------------------------------
                                                                                                          Thousands of
                                                                                                         US dollars (*)
<S>                                                        <C>            <C>            <C>             <C>
Operations:

Net income before extraordinary item                       Ps   718,698   Ps 1,506,114   Ps   984,276    US$     94,687
Charges (credits) to results of operations not affecting
 resources:
Amortization of concessions and goodwill                        154,081        162,454         37,643             3,621
Depreciation                                                    472,770        441,785        347,682            33,447
Equity in loss of affiliates                                    107,088         67,893        111,160            10,694
Deferred income tax (benefit) expense                          (204,451)      (198,905)        25,534             2,456
Gain on sale of subsidiaries                                    (17,797)

Net change in accounts receivable, inventories, exhibition
 rights,
related parties, accounts payable and accrued expenses         (642,564)      (283,024)      (118,731)          (11,422)
Advertising advances                                            753,445        182,316       (193,555)          (18,620)
Unefon advertising advance                                       39,826        (54,541)       (91,041)           (8,758)
Todito advertising, programming and services advance            911,654       (196,208)      (211,028)          (20,300)
                                                           ------------   ------------   ------------    --------------

Resources provided by operations before extraordinary item    2,292,750      1,627,884        891,940            85,805
NBC settlement agreement - net of income tax                   (335,929)
                                                           ------------   ------------   ------------    --------------

Resources provided by operations activities                   1,956,821      1,627,884        891,940            85,805
                                                           ------------   ------------   ------------    --------------

Investment:

Acquisition of property, machinery and equipment - Net         (201,894)      (176,965)      (240,761)          (23,161)
Investment in Unefon                                         (1,092,120)
Advance payments to Pappas Telecasting Companies, through
 Azteca America                                                               (660,031)      (455,867)          (43,854)
Account receivable from Pappas Telecasting of Southern
 California, LLC                                                              (191,124)
Minority interest                                               (19,708)        (2,942)           581                55
                                                           ------------   ------------   ------------    --------------

Resources used in investing activities                       (1,313,722)    (1,031,062)      (696,047)          (66,960)
                                                           ------------   ------------   ------------    --------------

Financing:

Bank loans - Net                                               (166,661)        36,965       (334,607)          (32,189)
Guaranteed senior notes                                        (328,410)      (410,861)       302,974            29,146
Loan granted to related party                                                                (199,044)          (19,148)
Preferred dividend paid                                         (44,908)       (42,130)       (39,966)           (3,845)
Stock options exercised                                          27,216         81,371         23,881             2,297
Sale of treasury shares                                                        162,439        136,523            13,134
Repurchase of shares                                           (316,094)       (43,172)      (169,879)          (16,343)
Financial instruments                                                                        (173,373)          (16,678)
Capital stock increase                                           18,217
Premium on issuance of capital stock                            267,347
                                                           ------------   ------------   ------------    --------------

Resources used in financing activities                         (543,293)      (215,388)      (453,491)          (43,626)
                                                           ------------   ------------   ------------    --------------

Net increase (decrease) in cash and marketable securities        99,806        381,434       (257,598)          (24,781)
Cash and marketable securities at beginning of year           1,169,631      1,269,437      1,650,871           158,814
                                                           ------------   ------------   ------------    --------------

Cash and marketable securities at end of year              Ps 1,269,437   Ps 1,650,871   Ps 1,393,273    US$    134,033
                                                           ============   ============   ============    ==============
</TABLE>

(*)  The US dollar figures represent the Mexican peso amounts as of December 31,
     2002 expressed as of December 31, 2002 purchasing power translated at the
     exchange rate of Ps10.395 per US dollar and are not covered by the Report
     of Independent Accountants.

The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-82

<PAGE>

                    TV AZTECA, S.A. DE C.V. AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 2001 AND 2002

         (monetary amounts expressed in thousands of Mexican pesos (Ps)
             of December 31, 2002 purchasing power and thousands of
        U.S. dollars (US$), except exchange rates and per share amounts)

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION:

In July 1993, TV Azteca, S.A. de C.V. (the "Company"), was acquired by the
stockholders for Ps2,000,050 nominal (equivalent to US$642,700 at the date of
acquisition) in connection with the Mexican government's privatization of
certain television stations and related assets. The Company and its subsidiaries
are engaged principally in the broadcasting and production of television
programs, and the sale of advertising time.

The consolidated subsidiaries of the Company as of December 31, 2002 were:

..  Television Azteca, S.A. de C.V.
..  Grupo TV Azteca, S.A. de C.V.
..  Azteca Records, S.A. de C.V.
..  Alta Empresa, S.A. de C.V.
..  Azteca Entertainment, S.A. de C.V.
..  Eventos Deportivos Azteca, S.A. de C.V.
..  Servicios Especializados Taz, S.A. de C.V.
..  Producciones Especializadas, S.A. de C.V.
..  Producciones Exclusivas, S.A. de C.V.
..  Grupo Promotora Empresarial, S.A. de C.V.
..  Producciones Azteca Digital, S.A. de C.V.
..  Azteca Digital, S.A. de C.V.
..  Corporacion de Asesoria Tecnica y de Produccion, S.A. de C.V.
..  Operadora Mexicana de Television, S.A. de C.V.
..  Azteca Publishing, S.A. de C.V.
..  Inversora Mexicana de Produccion, S.A. de C.V.
..  TV Azteca Latinoamerica, S.A. de C.V.
..  Servicios Aereos Noticiosos, S.A. de C.V.
..  SCI de Mexico, S.A. de C.V.
..  Canal 12 de Television, S.A. de C.V.
..  Grupo TV Azteca, S.A. de C.V. (El Salvador)

                                      F-83

<PAGE>

..  Servicios Locales de Produccion, S.A. de C.V.
..  Servicios Foraneos de Administracion, S.A. de C.V.
..  Desarrollo de Comunicacion Azteca, S.A. de C.V.
..  Azteca Telecasting, L. P.
..  Alta Empresa Holdings, B. V.
..  Alta Empresa International, B. V.
..  Red Azteca Internacional, S.A. de C.V.
..  Azteca International Corporation

The consolidation of the net assets of Canal 12 de Television, S.A. de C.V.
(acquired in 1997) resulted in minority interest of Ps8,717 (Ps8,371 in 2001).

On February 24, 2000, the Company sold its interest in Tele America, S.A.
(acquired in 1998) for US$2,625 and recognized a gain of US$1,609 (Ps17,797).

The financial statements of the subsidiaries incorporated abroad included in the
consolidation are translated in conformity with the requirements of Statement
B-15 issued by the Accounting Principles Commission of the Mexican Institute of
Public Accountants ("MIPA"). The translation effect was not significant.

All intercompany balances and transactions have been eliminated in
consolidation. The Company consolidates all of its majority-owned subsidiaries.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The significant accounting policies used in the preparation of the consolidated
financial statements including the concepts, methods and criteria related to the
recognition of the effects of inflation on the financial statements, are
summarized as shown below:

a. Accounting for effects of inflation

The consolidated financial statements and notes are expressed in thousands of
Mexican pesos. They have been prepared in accordance with generally accepted
accounting principles as promulgated by the MIPA. The recognition of the effects
of inflation on the financial information is in accordance with the following
rules and includes the guidelines of the Fifth Amendment to Statement B-10:

..  Inventories, property, machinery and equipment of Mexican origin, television
   concessions, exhibition rights of Mexican origin, deferred charges and other
   non-monetary assets and liabilities are restated by applying factors derived
   from the National Consumer Price Index ("NCPI"), issued by the Banco de
   Mexico.

                                      F-84

<PAGE>

..  Exhibition rights and machinery and equipment of foreign origin (mainly from
   the United States of America and Japan) are restated on the basis of the
   devaluation of the Mexican peso against the foreign currencies, and by
   applying inflation factors of the countries in which they originate.

..  The components of stockholders' equity are restated using factors derived
   from the NCPI.

..  The cumulative gain or loss from holding non-monetary assets which are not
   restated using factors derived from the NCPI is included in stockholders'
   equity under the caption "Insufficiency in the restatement of capital".

..  The purchasing power gain or loss from holding monetary liabilities and
   assets is included in net comprehensive financing income (cost).

All consolidated financial statements presented are expressed in constant pesos
of purchasing power of December 31, 2002.

The NCPI used to recognize the effects of inflation in the financial statements
were 93.248, 97.354 and 102.904 as of December 31, 2000, 2001 and 2002,
respectively.

b. Foreign currency transactions

Transactions in foreign currencies are recorded at the rates of exchange
prevailing on the dates they are entered into and/or settled. Assets and
liabilities denominated in these currencies are stated at the Mexican peso
equivalents resulting from applying exchange rates at the balance sheet dates.
Exchange differences arising from fluctuations in the exchange rates between the
dates on which transactions are entered into and those on which they are
settled, or the balance sheet dates, are charged or credited to income.

c. Cash and cash equivalents

The Company considers all highly liquid investments to be cash equivalents.

d. Financial instruments

The Company recognizes on its balance sheet as assets or liabilities at fair
value all of its contractual rights and obligations under financial instruments
to which the Company is a party. See Note 4.

e. Barter transactions

Barter transactions represent non-cash transactions in which the Company sells
advertising time to a third party or related party in return for assets or
services. These transactions are accounted for on the basis of the fair market
value of the assets or services provided in the barter contracts. During the
years ended December 31, 2000, 2001 and 2002, net revenue derived from barter
transactions amounted to Ps202,308, Ps84,470 and Ps146,243, respectively.

                                      F-85

<PAGE>

f. Exhibition rights

Exhibition rights represent primarily the acquired rights to the transmission of
programming and events under license agreements and the cost of internally
produced programming. The rights acquired and the obligations incurred are
recorded as an asset and liability, respectively, when the license agreements
are signed. The cost of exhibition rights acquired is amortized as the
programming and events are broadcast.

At December 31, 2001 and 2002, the allowance for unused exhibition rights
amounted to Ps161,580 and Ps229,466, respectively, which represents management's
estimate of exhibition rights which were not expected to be used prior to their
expiration.

Exhibition rights at December 31, 2001 and 2002 also include Ps369,632 and
Ps329,255, respectively, associated with internally produced programming. Costs
of internally produced programming are expensed when the programs are initially
aired, except in the case of telenovelas, where the costs are amortized over a
maximum of a four-year period.

g. Inventories and costs

Inventories of merchandise, materials and spare parts, and their related costs,
are stated at average cost and are restated by using factors derived from the
NCPI.

h. Property, machinery and equipment

Property, machinery and equipment acquired through December 31, 1996, and the
related depreciation, were stated at net replacement cost determined on the
basis of appraisals performed by independent appraisers registered with the
National Banking and Securities Commission. Property, machinery and equipment
acquired on or after January 1, 1997 are initially stated at cost. Both the
replacement costs of assets of Mexican origin acquired through December 31, 1996
and the costs of assets of Mexican origin acquired on or after January 1, 1997
are restated by applying factors derived from the NCPI. Assets of non-Mexican
origin acquired through December 31, 1996 and thereafter are restated on the
basis of the devaluation of the Mexican peso against the foreign currency and by
applying inflation factors of the countries in which they originate.

Depreciation was calculated by the straight-line method, based on the estimated
useful lives of the net fixed assets as estimated by the Company.

The annual depreciation rates are the following:

Buildings                                               5%
Machinery and operating equipment                   5% and 16%
Furniture and office equipment                          10%
Transportation equipment                                20%
Other fixed assets                                      25%

                                      F-86

<PAGE>

Effective January 1, 2002, the Company changed the annual depreciation rate of
the transmission towers, from 16% to 5%, based on the remaining useful life of
these assets. This resulted in a decrease in depreciation expense of Ps42,080
for the year ended December 31, 2002.

i.  Investment in affiliates

Investment in affiliates is recorded by the equity method and is included in the
balance sheet as other assets. The investment in Unefon reflects the net book
value at the date of the decision to sell this investment. See Note 7.

The investments in Unefon and Todito are presented in the balance sheet as
"Investment in Unefon, S.A. de C.V." and "Investment in Todito.com, S.A. de
C.V.", respectively. See Note 7.

j. Goodwill

The excess of cost over the book value of subsidiaries acquired is amortized
using the straight-line method over 20 years and restated by applying factors
derived from the NCPI to its historical cost. Amortization expense for the years
ended December 31, 2000, 2001 and 2002 amounted to Ps34,789, Ps41,333 and
Ps37,643, respectively. The Company periodically reviews the realization of its
intangible assets based on estimated gross future cash flows from its
operations. To date there has been no indication that such recorded amounts will
not be realized from future operations.

k. Deferred costs

Deferred costs relate primarily to the issuance of guaranteed senior notes (as
defined in Note 9) and are amortized over the life of the notes. See Note 9.

l. Television concessions

The aggregate value of the television concessions was determined based on the
excess of the purchase price paid for the assets of the Company over their book
value at the time of privatization.

On January 1, 2002, the Company adopted Statement C-8, "Intangible Assets",
("Statement C-8"), issued by the MIPA. Under statement C-8, intangible assets
must be recognized on the balance sheet when they meet the following
characteristics: (a) they are identifiable, (b) they have the ability to
generate future economics benefits and (c) there is the ability to control such
future economic benefits. The intangible asset amortization would be allocated
on a systematic basis over the estimated useful lives of the assets, unless the
intangible assets are determinated to have an indefinite useful life based on
their expected future economic benefits. The intangible assets should be tested
for impairment annually and an impairment loss would be recognized in the event
that the carrying amount of the intangible assets is not recoverable based on
estimated cash flows of operating activities. As a result of the adoption of
Statement C-8, the Company determined that its television concessions qualified
as indefinite useful life intangible assets. The Company no longer amortizes its
concessions.

                                      F-87

<PAGE>

Prior to January 1, 2002, the Company's television concessions were amortized by
the straight-line method over the relevant concession periods then in existence.
Amortization expense for the years ended December 31, 2000 and 2001 amounted to
Ps119,292 and Ps121,122, respectively.

m. Labor benefits

Seniority premiums to which employees are entitled upon termination of
employment after seven years of service are expensed in the years in which the
services are rendered. The related obligation is determined in accordance with
Statement D-3, "Labor Obligations", issued by the MIPA, based on actuarial
studies. See Note 10.

Other compensation based on length of service, to which employees may be
entitled in the event of dismissal or death, in accordance with the Mexican
Federal Labor Law, is charged to income in the year in which it becomes payable.

n. Income tax and employees' statutory profit sharing

Effective January 1, 2000, the Company adopted the guidelines of Revised
Statement D-4, "Accounting Treatment of Income Tax, Tax on Assets and Employees'
Statutory Profit Sharing" ("Revised Statement D-4"), issued by the MIPA. As a
result of the foregoing, the Company switched from the partial liability method
to the comprehensive assets and liability method for recognition of deferred
income tax, which consists of calculating deferred income tax by applying the
respective income tax rate to the temporary differences between the accounting
and tax values of assets and liabilities at the date of the financial
statements. The cumulative effect of this change on the consolidated balance
sheet as of January 1, 2000 was to increase deferred tax liabilities by
Ps693,526 and reduce stockholders' equity by the same amount.

In 2000, the Company adjusted its investment in Unefon by Ps57,854 as a result
of Unefon's adoption of Revised Statement D-4. The increase was reflected in the
component in stockholders' equity entitled "Insufficiency in the restatement of
capital" for the year ended December 31, 2000.

o. Comprehensive income (loss)

As of January 1, 2001, Statement B-4, "Comprehensive Income", issued by the
MIPA, became effective. This statement requires that the various items making up
the capital gains (losses) during the year be shown in the statements of
stockholders' equity under the heading of comprehensive income (loss).
Therefore, in order that the various lines of the statement of stockholders'
equity could be comparable, this statement was restructured.

p. Revenue recognition

Revenues from advertising contracts are recognized as the contracted advertising
is aired. Net revenue includes revenue from advertisers less sales commissions
paid. During the years ended December 31, 2000, 2001 and 2002 sales commissions
paid amounted to Ps318,044, Ps356,659 and Ps364,874, respectively.

                                      F-88

<PAGE>

q. Advertising advances

The Company enters into two principal types of advance advertising agreements
with clients. The Azteca plan generally requires advertisers to pay in full
within four months of the date in which they sign the advertising agreement. The
Mexican plan allows clients to pay for advertising by making cash deposits from
10% to 20% of the advertising commitment, with the balance payable in
installments, which are generally supported by promissory notes, over the period
during which the advertising is aired. The Company records cash or other assets
received and the amounts due and its obligation to deliver advertising under
both types of advance advertising agreements when the contracts are signed. The
amounts represented by such advertising advances are credited to net revenue as
the contracted advertising is aired. Such obligations with respect to
advertising advances are considered non-monetary liabilities and are restated by
applying factors derived from the NCPI.

r. Net income per share applicable to majority stockholders

Net income per share is calculated based on the net income attributable to the
majority stockholders divided by the weighted average number of shares
outstanding during each of the years ended December 31, 2000, 2001 and 2002. See
Note 11. The weighted average number of common shares outstanding during each of
the years ended December 31, 2000, 2001 and 2002 were 8,967 million, 9,025
million and 9,057 million, respectively.

As required by Statement B-14, "Earning per share", issued by the MIPA, net
income per share before and after extraordinary item is provided as follows:

<TABLE>
<CAPTION>
                                                                                 Year ended December 31,
                                                                      ---------------------------------------------

                                                                         2000             2001             2002
                                                                      --------         ---------         ----------
<S>                                                                   <C>              <C>               <C>
Net income before extraordinary item per preferred
and common shares (1):                                                Ps 0.080         Ps  0.167         Ps   0.109
Extraordinary item - NBC settlement agreement
- net of income tax (see Note 11d.)                                     (0.037)
                                                                      --------         ---------         ----------

Net income per preferred and common shares                            Ps 0.043         Ps  0.167         Ps   0.109
                                                                      ========         =========         ==========

(1) Dividend per preferred shares                                     Ps 0.042         Ps  0.042         Ps   0.042
                                                                      ========         =========         ==========
</TABLE>

s. Stock option plans for employees

Stock options granted to employees are given effect when the options are
exercised by crediting paid-in capital stock for the amount of cash received.

                                      F-89

<PAGE>

t. Use of estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ from those estimates.

NOTE 3 - FOREIGN CURRENCY POSITION:

Monetary amounts in this note are expressed in U.S. dollars (US$) except
exchange rates, since this is the currency in which most of the Company's
foreign currency transactions are carried out.

In December 1994, the Mexican government devalued the peso and allowed it to
float freely in the foreign exchange market. Since that time the fluctuations in
the foreign exchange market have continued and at December 31, 2002, the
exchange rate used by the Company for financial reporting purposes was Ps10.395
per dollar (Ps9.65 and Ps9.16 at December 31, 2000 and 2001, respectively). As a
result, the Company had net exchange (losses) income of (Ps127,912), Ps197,676
and (Ps353,139) during the years ended December 31, 2000, 2001 and 2002,
respectively, which are shown in the statement of results of operations as a
component of comprehensive financing cost.

At February 7, 2003, date of issuance of the audited financial statements, the
exchange rate was Ps10.96 per dollar.

At December 31, 2001 and 2002, the Company had monetary assets and liabilities
in foreign currencies as shown below:

                                                    At December 31,
                                         -------------------------------------

                                               2001                 2002
                                         ---------------       ---------------

Assets                                    US$    357,222       US$    491,936
Liabilities                                     (705,822)            (674,511)
                                         ---------------       ---------------

Net short position                       (US$    348,600)     (US$    182,575)
                                         ===============       ===============

At December 31, 2001 and 2002, the Company had no hedge contracts for protection
against foreign exchange risks.

                                      F-90

<PAGE>

NOTE 4 - OPERATIONS WITH FINANCIAL INSTRUMENTS:

a. Marketable securities

During 2002, the Company purchased Ps295,988 (nominal) Grupo Elektra, S.A. de
C.V. ("Grupo Elektra") Ordinary Participation Certificate ("CPOs"). During 2002,
the Company recorded a loss against comprehensive financing cost for Ps56,658 to
reflect the decline in the market value of the investment.

In October 2002, the Company entered into a put option agreement with its CPOs
in Grupo Elektra. Pursuant to the option agreement, the Company is required to
pay a premium of 10.5% of the number of options valued at the strike price.

b. Financial instruments

In January 2002, the Company entered into a monthly certificate of deposit with
a rate of return based on the market value of the CPOs, which was recorded
against stockholders' equity. The Company has periodically renewed the
certificate of deposit upon expiration. During 2002, as a result of the decline
in market value of the CPOs, the Company recognized a loss of Ps34,097 against
stockholders' equity. At December 31, 2002, the outstanding balance of the
certificate of deposit was Ps139,276.

NOTE 5 - ACCOUNTS RECEIVABLE:

                                                       At December 31,
                                           ------------------------------------

                                                 2001                 2002
                                           ---------------      ---------------

Amounts due from advertisers               Ps    4,417,170      Ps    4,421,686
Accounts receivable from Unefon
advertising agreement (see Note 8)                                       80,649
Taxes recoverable                                  191,842              116,007
Prepaid expenses                                    60,910               66,731
Other accounts receivable                          340,925              325,981
                                           ---------------      ---------------

                                                 5,010,847            5,011,054
Allowance for bad debts                            (83,403)             (89,854)
                                           ---------------      ---------------

                                           Ps    4,927,444      Ps    4,921,200
                                           ===============      ===============

Amounts due from barter transactions included in amounts due from advertisers
amounted to Ps345,627 and Ps352,655 as of December 31, 2001 and 2002,
respectively.

                                      F-91

<PAGE>

NOTE 6 - PROPERTY, MACHINERY AND EQUIPMENT:

                                                       At December 31,
                                              --------------------------------

                                                  2001                2002
                                              -------------      -------------

Buildings                                     Ps  1,115,490      Ps  1,118,258
Machinery and operating equipment                 1,985,774          2,312,350
Furniture and office equipment                      223,154            223,154
Transportation equipment                            301,264            346,819
Other fixed assets                                  379,432            530,330
                                              -------------      -------------

                                                  4,005,114          4,530,911
Accumulated depreciation                         (2,252,393)        (2,857,912)
                                              -------------      -------------

                                                  1,752,721          1,672,999
Land                                                545,068            554,883
Construction in progress                              6,288              3,561
                                              -------------      -------------

                                              Ps  2,304,077      Ps  2,231,443
                                              =============      =============

At December 31, 2001 and 2002, property, machinery and equipment amounting to
Ps816,431 and Ps795,865, respectively, have been pledged to guarantee bank
loans. See Note 9.

NOTE 7 - OTHER ASSETS:

<TABLE>
<CAPTION>
                                                                                        At December 31,
                                                                              ----------------------------------

                                                                                    2001                2002
                                                                              ---------------      -------------
<S>                                                                           <C>                  <C>
Investment in affiliates                                                      Ps      135,037      Ps     65,598
Advances to Corporacion de Noticias e Informacion,
 S.A. de C.V.                                                                         200,773            298,000
Deferred costs related to the issuance of guaranteed
 senior notes - Net                                                                    98,189             78,895
Account receivable from an affiliate which represents
 a reduction in Unefon contributed capital.  This amount
 was contributed to incorporate Cosmofrecuencias,
 S.A. de C.V. ("Cosmofrecuencias") (see Unefon below)                                 354,964
Investment in 50% equity interest in Cosmofrecuencias
 (see Unefon below)                                                                                       354,746
Account receivable from Pappas Telecasting of Southern
 California, LLC (see Azteca America below)                                           191,124            235,565
Other assets                                                                          221,665            150,195
                                                                              ---------------      -------------

                                                                              Ps    1,201,752      Ps  1,182,999
                                                                              ===============      =============

Investment in Unefon                                                          Ps    1,848,485      Ps  1,755,942
                                                                              ===============      =============

Investment in Todito                                                          Ps      397,883      Ps    319,986
                                                                              ===============      =============

Advance payments to Pappas Telecasting Companies,
through Azteca America (see Azteca America below)                             Ps      660,031      Ps  1,154,479
                                                                              ===============      =============
</TABLE>

                                      F-92

<PAGE>

Corporacion de Noticias e Informacion, S.A. de C.V. ("CNI")

On December 10, 1998, the Company entered into a Joint Venture Agreement with
Televisora del Valle de Mexico, S.A. de C.V. ("TVM"), the owner of the
concession for UHF Channel 40 in Mexico City, and its subsidiary CNI.

The original contract was established with the following terms:

1. The Company agreed to provide advisory services to TVM and CNI regarding the
   television operations of Channel 40 for a period of 10 years or until the
   expiration of TVM's television concession, whichever is shorter.

2. Under a Programming, Promotion and Commercialization Agreement with TVM, CNI
   agreed to cede to the Company the rights and obligations, originally
   established in favor of CNI, to program and operate Channel 40. The Company
   agreed to pay to CNI 50% of the joint venture's earnings before interest,
   taxes, depreciation and amortization ("EBITDA") on a quarterly basis, with an
   advance payment of US$15,000 to be applied against future EBITDA generated
   from the operation of Channel 40, over a maximum period of ten years. At
   December 31, 1999, the Company had made advances of US$15,000.

3. The Company has provided a US$10,000 credit facility in favor of CNI for a
   period of ten years with a grace period for the payment of principal and
   interest of three years. The interest accrues at an annual interest rate
   based on the maximum interest rate paid by the Company plus 25 basis points.
   As security for the loan, 51% of the capital stock of TVM owned by Mr. Javier
   Moreno Valle was pledged as collateral. At December 31, 2001 and 2002, CNI
   had drawn down US$10,000 under this credit facility.

4. Under a purchase option contract, the Company has the right to acquire up to
   51% of the capital stock of TVM beginning in November 2002. The sale price of
   the capital stock is based on a valuation of 100% of the capital stock of TVM
   equal to the greater of US$100,000 (which increases gradually over time) and
   ten times the EBITDA generated by Channel 40 for the 12 months preceding the
   exercise of the purchase option. This contract also gives Mr. Javier Moreno
   Valle and Mr. Hernan Cabalceta Vara the right to put their CNI capital stock
   to the Company for the same purchase price per share under certain
   circumstances.

5. Under the terms of this agreement, the Company has the right to determine all
   Channel 40 programming except for 16 and one-half hours per week that is to
   be made up of CNI-determined programming. In return for the transmission
   rights of this CNI-determined programming through Channel 40, the Company
   agreed to pay CNI, during the first year, US$5.0 for each 60 minute program
   or its equivalent broadcast and, after the second year, US$1.65 for each
   rating point generated by the broadcast of CNI-determined programming on
   Channel 40. During the year ended December 31, 2000, US$3,292 (Ps37,167) were
   paid for these services.

                                      F-93

<PAGE>

6. To improve the efficiency of Channel 40's operations, the Company has agreed
   to provide accounting, administrative, computer, technical or any other
   advice that will improve the operations and administration of Channel 40.

In July 2000, CNI stopped broadcasting the Company's signal as required by its
contractual obligation under the joint venture agreement and the Company's
signal has not been broadcast on Channel 40 since this date. In response to
CNI's actions, the Company filed several lawsuits against CNI. At February 7,
2003, date of these financial statements, this matter is in litigation. The
Company is seeking lost profits and the enforcement of its purchase option right
under the joint venture agreement to acquire up to 51% of the capital stock of
TVM. As of December 31, 2001 and 2002, the Company had advanced an aggregate
amount of US$34,000 to CNI, which includes US$9,000 comprised of interest on the
credit facility and additional operating expenses forwarded to CNI in connection
with the joint venture that may be recovered based on future earnings of the
joint venture.

In December 2002, an Arbitral Tribunal of the International Court of Arbitration
of the International Chamber of Commerce issued an award concluding that the
joint venture and the purchase option agreement entered into by the Company and
CNI are valid, in effect and enforceable. As a consequence of this conclusion,
the Company believes that the terms of the arbitral award confirms the Company's
right to operate Channel 40 as contemplated by the joint venture and to exercise
its right to acquired up to 51% of the capital stock of TVM. In reliance on the
arbitral award issued in December 2002, the Company took possession of certain
broadcasting facilities of Channel 40 to restore TV Azteca's signal on Channel
40. Following this event, the Ministry of Communications and Transportation
(Secretaria de Comunicaciones y Transportes, or SCT) took exclusive control of
the Channel 40 transmission site and signal. In January 2003, CNI filed an
action for relief (amparo) before a federal court seeking to reverse SCT's
decision to take exclusive control of the Channel 40 transmission site and
signal. On January 27, 2003, CNI regained control of the Channel 40 transmission
site and signal. On that same day, the Company appealed the decision. Although
no assurance can be given, management of the Company believes it will prevail in
the litigation, and accordingly, no reserve has been established with respect to
these proceedings.

Unefon

On May 14, 1999, the Company signed an agreement (the "Stockholders Agreement")
with Corporacion RBS, S.A. de C.V. ("CRBS"), a Mexican company wholly-owned by
Ricardo B. Salinas Pliego, and Moises Saba Masri to invest in Unefon and its
subsidiaries. Unefon is a personal telecommunications services wireless network
that is a provider of wireless mobile telephone services in Mexico. The
Stockholders' Agreement establishes that Unefon must be operated and managed as
a joint venture, initially between CRBS and Moises Saba Masri. The Stockholders'
Agreement required each of CRBS and Moises Saba Masri to contribute US$186,500
to Unefon's capital, for a total of US$373,000 in capital stock. These capital
contributions to Unefon were completed on June 15, 1999.

                                      F-94

<PAGE>

Before signing the Stockholders' Agreement, CRBS made a contribution to Unefon's
capital of approximately US$88,600, which was used to make an advance payment to
the Mexican government for the acquisition of wireless concessions and for
pre-operating expenses. CRBS made the balance of the contribution required by
the Stockholders' Agreement with funds borrowed from Azteca Holdings, S.A. de
C.V. ("AH"), a holding company controlled by Mr. Salinas Pliego. AH obtained
part of the funds for this loan from the sale of 218 million of the CPOs of the
Company owned by AH to a group of private Mexican investors. AH obtained the
remaining funds for the loan from the sale by AH of 44 million TV Azteca CPOs to
AH's wholly-owned subsidiary, Compania Operadora de Teatros, S.A. de C.V.

On October 28, 1999, the Company acquired the interest in Unefon held by CRBS at
a cost (including financial costs) of US$189,793 which was funded through: (i)
proceeds from the issuance of shares; (ii) the payment of US$35,108 in cash and
(iii) the cancellation of debts of US$43,067 owed to the Company by CRBS.

In February 2000, Unefon commenced operations.

At the extraordinary stockholders' meeting held on October 2, 2000, the Unefon
stockholders agreed to reduce the Unefon capital stock by Ps611 million
(nominal). At December 31, 2001, this reduction had not yet been made, and is
shown in the financial statements of the affiliate as an account payable to the
stockholders, bearing interest at an annual rate of 8%. The stockholders will
use the proceeds of said capital reduction to capitalize a newly formed company
owned 50% by the Company and 50% by Moises Saba Masri, Cosmofrecuencias, S.A. de
C.V. ("Cosmofrecuencias"), for which purpose, the Company will contribute
Ps354,964 at December 31, 2001. In June 2002, the Company contributed to
Cosmofrecuencias as a capital contribution its receivable from Unefon, including
the cumulative interests, equivalent to 50% of Cosmofrecuencias' capital stock.

On October 19, 2000, the Board of Directors approved the grant to its
stockholders of the rights to acquire the Company's investment in Unefon and
Cosmofrecuencias shares, a decision which was ratified at the ordinary
stockholders' meeting held on December 4, 2000.

As determined by the Company's Board of Directors, the Company's stockholders
will also have a right to purchase shares in Cosmofrecuencias from October 19,
2001 to October 19, 2006. The total exercise price for this option is
approximately US$32,000.

The grant of the rights ("Rights") to acquire the Unefon shares was subject to
receiving the requisite consent of the holders of the Company and AH Senior
Notes. On March 27, 2001, the Company obtained the consents and paid a fee
totaling Ps115,223 to certain holders of the TV Azteca Notes (as defined in Note
9), which was recorded as part of its total investment in Unefon. The grant of
the Rights is also subject to receiving applicable regulatory approvals, third
party approvals, including the approval of Nortel Networks Corporation
("Nortel"), Unefon's major lender and equipment supplier, and the filing and
effectiveness of a registration statement with the U.S. Securities and Exchange
Commission that registers the Unefon shares underlying the Rights.

                                      F-95

<PAGE>

The Rights were exercisable only on December 11, 2002, unless the time of
exercise was extended by the Company or an acceleration event occurred. In
December 2002, the Company's Board of Directors approved the change of the
exercise date to December 11, 2003. Any Rights that are not exercised on the
exercise date will expire and the Company will retain ownership of the shares
underlying the Rights. The Rights may become exercisable prior to December 11,
2003 if the Board of Directors of the Company approves a merger or consolidation
of Unefon, a sale of all or substantially all of Unefon's assets or a sale (by
tender or otherwise) of at least a majority of Unefon's shares or otherwise
determines to accelerate the exercisability of the Rights.

With respect to the Company's investment in Unefon, the Company's stockholders
have the right to acquire those shares subject to the occurrence of certain
conditions, at a price of US$0.15128 per Unefon share owned by the Company, for
a total amount of US$176,998. At December 31, 2001 and 2002, the Company's
investment in Unefon reflects the net book value of the investment at the date
of the decision to sell Unefon. The Company will record any differences between
the book value of the investment and the ultimate sales price once the
stockholders exercise the purchase option and all the legal requirements of the
transaction have been complied with.

In July 2002, the Company announced that its Board of Directors had approved of
seeking the approval of the Company's shareholders in order to authorize the
spin-off of its investment in Unefon in the form of a distribution of all of the
shares of Unefon that the Company owns to the Company's shareholders at no
monetary cost before the end of 2002. However, as a consequence of a dispute
between Unefon and Nortel, the Company's Board of Directors postponed submitting
the proposal to the Company's shareholders.

In December 2000, in connection with certain modifications of Unefon's finance
agreement with Nortel, the Company and Mr. Saba, agreed, jointly and severally,
in a shareholder's undertaking to provide Unefon up to US$35,000 in the
aggregate by way of eaither equity or subordinated debt in the event Unefon had
liquidity shortfalls in 2001 or 2002.

In July 2001, the Company and Moises Saba Masri announced their intention to
provide credit support to Unefon for up to US$80,000 each. The Company has
suspended any further credit support to Unefon in light of Unefon's dispute with
Nortel. At December 31, 2002, the Company had provided US$48,000 of credit
guarantees on behalf of Unefon, of which US$19,100 had become due and had been
paid by the Company. See Note 8.

In September 1999, Unefon entered into a finance agreement and a procurement
agreement with Nortel pursuant to which Nortel agreed to assist Unefon in the
design and construction of its telecommunications network. Unefon and Nortel are
currently engaged in disputes over each party's compliance with the terms and
conditions of the finance agreement, letter agreement, procurement agreement,
and other related agreements entered into by the parties and certain of their
shareholders and affiliates.

                                      F-96

<PAGE>

Unefon asserts that Nortel has not fulfilled its obligations under the finance
agreement, letter agreement and procurement agreement. With respect to the
finance and letter agreements, Unefon has asserted, among other things, that
Nortel breached its obligation to make available to Unefon the second loan
tranche under the finance agreement in the amount of US$210,000. Unefon contends
that Nortel's failure to advance this additional financing has limited Unefon's
ability to build out its network, to grow its business in accordance with its
business plan and to realize the revenues and profits related to such growth and
needed to repay the first loan tranche under the finance agreement. With respect
to the procurement agreement, Unefon asserts, among other things, that Nortel
failed to properly design and construct the network and failed to provide
required and appropriate maintenance and support. Unefon also contends that the
settlement agreement signed in July 2002 never became effective because Nortel
failed to perform the pre-conditions to its effectiveness. Even to the extent
that the settlement agreement became effective, Unefon contends that Nortel
failed to perform its obligations thereunder.

As a result of Nortel's alleged breaches, Unefon withheld a US$6,000 interest
payment due to Nortel in August 2002 and has asserted that it is relieved of its
payment obligations under the finance agreement by reason of Nortel's breaches.

On August 28, 2002, Nortel sent Unefon a notice alleging that Unefon was in
default under the finance agreement due to its failure to make the foregoing
interest payment. Nortel also alleged that the proposed spin-off by the Company
of its 46.5% stake in Unefon would be deemed to be a change in control under the
terms of the finance agreement, which also would constitute a default under the
finance agreement unless Nortel consented to such action.

On September 9, 2002, Unefon filed a lawsuit against Nortel in the Supreme Court
of the State of New York seeking damages and lost profits in the amount of
US$900,000. Unefon alleged that Nortel had breached the finance agreement and
related letter agreement by failing to advance the second loan tranche of
US$210,000. Unefon also alleged that Nortel had failed to comply with its
obligation to pursue syndication of the first loan tranche in a diligent and
timely manner, applying its best efforts consistent with standards of commercial
reasonableness. Unefon alleged that Nortel's breach had caused Unefon damages,
including, among others, lost profits and a diminution in equity value of Unefon
and had relieved Unefon of its payment obligations under the finance agreement.
As an alternative remedy, Unefon sought specific performance of Nortel's
obligation to lend Unefon up to US$210,000 from the second loan tranche under
the finance agreement.

Nortel notified Unefon on September 9, 2002 that based on its non-payment of the
August 2002 interest payment, Nortel was accelerating all amounts owed by Unefon
under the finance agreement. As of December 31, 2002, the outstanding principal
amount under the finance agreement was US$349,800. Nortel also notified Unefon
that it was exercising its right to terminate the procurement agreement as a
result of Unefon's alleged default under the finance agreement.

                                      F-97

<PAGE>

On September 23, 2002, Nortel filed an answer and counterclaim in the New York
Supreme Court action commenced by Unefon in which Nortel asserted, among other
things, that it had not breached the finance agreement and related letter
agreeement and that the remedies sought by Unefon were not available under the
finance agreement, the procurement agreement or applicable law. Nortel's
counterclaim was based on Unefon's non-payment of the August 2002 interest
payment and Nortel sought acceleration and immediate payment of all amounts
allegedly due to Nortel under the finance agreement. On October 10, 2002, Unefon
answered Nortel's counterclaim and denied the allegations offered in support
thereof.

On November 11, 2002, Unefon filed a demand for arbitration under the
procurement agreement, as well as the July 2002 settlement agreement, before the
American Arbitration Association in New York City. In its demand, Unefon
asserted numerous breaches by Nortel of its obligations under these agreements,
including design and construction flaws, failure to fulfill software
obligations, maintenance failures, failure to provide financing and other
economic benefits and refusal to deliver equipment for which Unefon has paid.
Unefon seeks damages and an order directing Nortel to deliver immediately all
equipment for which Unefon has paid. On December 24, 2002, Nortel filed an
answer denying liability and asserting counterclaims based on alleged breaches
by Unefon of its payment obligations under the procurement agreement and
requested the arbitration tribunal to award damages in the amount of at least
US$47,000.

On November 11, 2002, Nortel moved for summary judgment on its counterclaim
relating to the non-payment of interest. On December 10, 2002, Unefon moved for
partial summary judgment on its claim that Nortel breached the finance
agreement, and moved to amend its complaint to assert claims for fraud and
intentional misrepresentation relating to Nortel's willingness to lend the
second loan tranche, including Nortel's willingness to seek syndication of the
first loan tranche, and to assert two affirmative defenses: (i) that Nortel's
fraudulent inducement bars Nortel from any relief under the finance agreement or
procurement agreement and (ii) that Unefon is excused from performance under the
finance agreement by virtue of Nortel's breaches of the finance agreement and
procurement agreement. Unefon also sought a stay of the action pending
resolution of the arbitration commenced by Unefon against Nortel, as described
above. On January 14, 2003, Nortel filed papers opposing Unefon's motions.

On November 29, 2002, Unefon and certain of its affiliates commenced an action
against Nortel and others in civil court in Mexico City seeking a declaration of
the parties' rights under pledge agreements pursuant to which Unefon's and the
affiliates' stock had been pledged to Nortel as security to the loans made under
the finance agreement. Unefon and its affiliates seek, among other things,
declarations that Nortel is disproportionately collateralized and that certain
provisions of the stock pledge agreements are void under Article 198 of the
Mexican General Commercial Companies Law (which voids any agreement which
restricts the free exercise of shareholders voting rights).

On December 16, 2002, Nortel filed a second, separate lawsuit in the Supreme
Court of the State of New York seeking authorization from the Court, pursuant to
the stock pledge agreement, to sell the shares of Operadora Unefon, S.A. de C.V.
and Servicios SPC, S. A. de C.V. (each wholly-owned subsidiaries of Unefon) that
were pledged to secure its indebtedness, or, in the

                                      F-98

<PAGE>

alternative, authorization to take appropriate steps to obtain control over the
management and business of Unefon. Unefon filed a motion to dismiss this action
on jurisdictional grounds and on the basis of the prior Mexican action commenced
by it against Nortel in regard to the pledge agreements. The parties have
stipulated that Nortel will not take any further action to foreclose on the
shares until such motion is decided.

On December 20, 2002, Nortel notified the Company and Mr. Saba of its view that
Unefon's non-payment of the August 2002 interest payment triggered their joint
and several obligation to make additional funds available to Unefon up to an
aggregate amount of US$35,000 as provided in the shareholders' undertaking. The
Company and Mr. Saba dispute Nortel's contention that their funding obligation
has been triggered, asserting that Nortel has materially breached the finance
agreement and the procurement agreement, thereby excusing Unefon from
performance of its obligations under these agreements and, therefore, that the
Company and Mr. Saba are excused from performance of their obligations under the
shareholders' undertaking. The Company and Mr. Saba also assert that, even if
their funding obligation has been triggered, they have satisfied their
obligations under the shareholders' undertaking by making up to US$35,800 in
additional funds available to or on behalf of Unefon.

In January 2003, Nortel petitioned for the bankruptcy of Unefon before a Mexican
court. In response, Unefon filed an action for relief (amparo) before a federal
district court challenging Nortel's request. Unefon believes that Nortel's
bankruptcy petition is insufficient under Mexican law and that it will therefore
prevail in this proceeding. The federal district court suspended Nortel's
bankruptcy claim pending its analysis of the sufficiency of Nortel's petition.

If Unefon losses control over its assets or Unefon is unable to procure
additional equipment from Nortel as it builds-out its network, its business and
results of operations would be significantly and adversely affected. Although no
assurance can be given, Unefon's management believes Unefon will prevail in the
litigation, and accordingly, no reserve has been established by Unefon or the
Company with respect to these proceedings.

Todito

In its meeting held on February 9, 2000, the Company's Board of Directors
approved a US$100,000 investment in Todito. The investment was made on February
14, 2000 through an advertising, programming and services agreement (see Note
8), in exchange for 50% of the capital stock of Todito. The Company has the
ability to exercise significant influence, but not control, over the operations
of Todito. This investment is accounted for by the equity method and is
presented on the balance sheet as "Investment in Todito". This acquisition
resulted in goodwill of Ps543,370. The amortization of goodwill for the years
ended December 31, 2000, 2001 and 2002 was Ps22,643, Ps27,260 and Ps27,260,
respectively.

Todito operates a Spanish-language Internet portal and internet connection
service located at "www.todito.com" that was launched in August 1999 by
Dataflux, S.A. de C.V. ("Dataflux"), a company controlled by the brother of Mr.
Salinas Pliego. Todito's website provides e-commerce and other services to
Mexico and the Hispanic population in the United States.

                                      F-99

<PAGE>

Azteca America

In September 2000, the Company and Pappas Telecasting Companies ("Pappas
Group"), a broadcasting company based in the United States, entered into a joint
venture ("Azteca America JV"), with the purpose of creating a new television
broadcast network. Azteca America JV was engaged in the developing a new
television broadcast network focused on the Hispanic market in the United
States.

In accordance with the original Azteca America JV, Azteca America JV was owned
80% by Pappas Group and 20% by the Company. In connection with the creation of
Azteca America JV, the Company also entered into a program license agreement
(the "License") with Azteca America JV in September 2000 for an initial term of
20 years with a renewal for one additional ten-year term at the option of the
Company. The License granted exclusive rights from the date of the agreement to
Azteca America JV and its subsidiaries for the broadcast of Spanish language
programs within the United States. Additionally, the Company agreed to make all
its programming available to Azteca America JV and to make available at least
3000 hours of new programming in each calendar year.

Prior to the launch date, Pappas Group agreed to pay the Company a monthly fee
of approximately US$1,500. During the years ended December 31, 2000 and 2001,
the Company received US$6,436 and US$6,731, respectively, under the terms of
this agreement which was recorded as net revenue in the Company's results of
operations. After the launch date, Azteca America JV was scheduled to receive an
annual fee equal to the greater of US$15,000 or 10% of the annual net revenues
of Azteca America JV which increased 1% every year to a maximum of 15% of net
revenues. Until the Company's subscription obligation was paid, Azteca America
JV agreed to apply the payment of the License fee to the outstanding
subscription obligation. The Company had no outstanding subscription obligation
at December 31, 2000 since Pappas Group had not made its initial capital
contribution.

In June 2001, the Company and Pappas Group agreed to change their strategy, and
as a result of this, the Azteca America JV was terminated as well as the
corresponding license agreement. Also, the Company, through Azteca International
Corporation ("Azteca America"), a wholly-owned subsidiary of the Company, has
entered into station affiliation agreements with various television broadcast
stations, including those owned by the Pappas Group.

In July 2001, the Company launched the Azteca America Network, a new
Spanish-language television broadcast network in the U.S. Through Azteca
America, its wholly-owned subsidiary, the Company establishes affiliate
relationships with television broadcast stations in U.S. markets that have a
significant Hispanic population. In addition, Azteca America may enter into
distribution agreements with cable operators. Through the Azteca America
Network, the Company distributes in the U.S. certain of its programming
including telenovelas, reality programming, sports, news and other general
entertainment programming in the Spanish language, which the Company refers to
as the Azteca America Programming.

                                     F-100

<PAGE>

As of December 31, 2002, Azteca America has entered into station affiliation
agreements with the following broadcast television stations, which are
affiliates of Pappas Group:

Los Angeles Station

In July 2001, Azteca America and Pappas Southern California, LLC ("Pappas
California") entered into a station affiliation agreement with respect to
KAZA-TV, NTSC Channel 54, which serves the Los Angeles, California Designated
Market Area (DMA). Pursuant to this agreement, Azteca America granted Pappas
California an exclusive license for over-the-air broadcasting of the Azteca
America Programming in the Los Angeles market. The station affiliation
agreement, which was amended in December 2001, has a term of four years,
commencing in July 2001. This agreement automatically renews for an additional
four-year term, unless terminated by either party. Azteca America has the right
to receive 50% of the net local and national spot advertising revenue generated
by the station.

In connection with entering into the Los Angeles station affiliation agreement,
the Company agreed to become a joint and several obligor under a credit
agreement among Pappas Telecasting of Arizona, LLC ("Pappas Arizona") and Pappas
California, as borrowers, and UBS AG, as lender. Pursuant to this credit
agreement, UBS AG loaned a total of US$31,000 to the borrowers. All loans made
under this credit agreement were repaid by November 2, 2002. UBS AG was granted
a first priority lien on the collateral securing the loans, which included the
entire equity interest in the two Pappas affiliates that hold the U.S. Federal
Communications Commission licenses for the Pappas Arizona and Pappas California
television stations.

The Company and Pappas California also entered into a credit agreement under
which the Company agreed to loan Pappas California up to US$60,000 for, among
other things, repayment of indebtedness, working capital and payment of the
principal and unpaid interest under the UBS credit agreement, as describe above.
The loan was required to be repaid by November 2, 2002 and was subordinate to
the loans made under the UBS credit agreement. The Company was granted a second
priority lien on the collateral securing the loans, subordinate to the liens
securing the UBS credit agreement. However, the Company's ability to acquire the
collateral in the event of foreclosure under the Company credit agreement was
limited by the United States laws limiting foreign ownership of United States
television stations. At December 31, 2001 and 2002, US$18,216 and US$19,667,
respectively, were outstanding under the Company credit agreement.

In July 2001, Azteca America and Pappas California also entered into an equity
option agreement pursuant to which Azteca America was granted an option to
purchase an equity interest in Pappas California. The equity option was to be
exercised by Azteca America on one occasion, in whole or in part, prior to July
27, 2002. Under the terms of the agreement, Azteca America had the right to
acquire up to a 25% equity interest in Pappas California. However, in the event
that Pappas California and Pappas Arizona have outstanding debt obligations
under their respective credit agreements with the Company and affiliates of UBS
AG, Azteca America had the right to acquire a percentage of Pappas California
equal to the greater of 25% or the percentage obtained by dividing: (i) the
amounts then owed under these credit agreements by (ii)

                                      F-101

<PAGE>

US$136,000, the value of the Los Angeles affiliate agreed upon by Azteca America
and Pappas California. If Azteca America was not permitted to acquire an equity
interest in Pappas California greater than 25% as a result of the United States
laws limiting foreign ownership of United States television stations, Azteca
America was permitted to transfer the right to acquire the excess equity
interest to an unaffiliated third party. If Azteca America acquired an equity
interest in Pappas California and, thereafter, the term of the station
affiliation agreement was not renewed by Pappas California following the
expiration of the initial four-year term, Azteca America would have the right to
acquire 100% of the equity interests in Pappas California for a cash price equal
to the fair market value of such interests (or to transfer the right to acquire
such additional equity interests to an unaffiliated third party). If the station
affiliation agreement was not renewed by Azteca America, Pappas California would
have the right to acquire all of Azteca America's equity interest in Pappas
California for a cash price equal to its fair market value. Pappas California
would also have the right to acquire Azteca America's interest, and Azteca
America would have the right to cause Pappas California to acquire Azteca
America's interest, in certain other circumstances.

The equity option was exercised by Azteca America on May 21, 2002. In connection
with its effort to exercise the option, the Company paid US$32.8 million to
acquire the UBS AG credit agreement that is secured by the Los Angeles station,
which increased TV Azteca's secured loan to Pappas California to US$53.7
million.

Reno Station

In October 2001, Azteca America and Pappas Telecasting of Nevada ("Pappas
Nevada"), entered into a station affiliation agreement with respect to KUVR-LP,
NTSC, Channels 47 and 68, which serves the Reno-Sparks-Carson City, Nevada DMA.
Pursuant to this agreement, Azteca America granted Pappas Nevada an exclusive
license for over-the-air broadcasting of the Azteca America Programming in such
market. This agreement has a term of two years, commencing in November 2001.
This agreement automatically renews for an additional two-year term, unless
terminated by either party. Azteca America has the right to receive 50% of the
net local and national spot advertising revenue generated by the station.

San Francisco and Houston Stations

In December 2001, Azteca America and Hispanic America of San Francisco, LLC
("Pappas San Francisco") entered into a station affiliation agreement with
respect to KTNC-TV, NTSC Channel 42 and DTV Channel 63, which serves the San
Francisco-Oakland-San Jose, California DMA. Also in December 2001, Azteca
America and Hispanic America of Houston, LLC ("Pappas Houston") entered into a
station affiliation agreement with respect to KAZH-TV, NTSC Channel 57 and DTV
Channel 41, and KVVV-LP, NTSC Channel 53, which serves the Houston, Texas DMA.
Pursuant to these station affiliation agreements, Azteca America granted Pappas
San Francisco and Pappas Houston an exclusive license for over-the-air
broadcasting of the Azteca America Programming in their respectives markets.
These agreements expire on July 21, 2005, and automatically renew for a
four-year term, unless terminated by either party. Azteca America has the right
to receive 50% of the net local and national spot advertising revenue generated
by the stations.

                                      F-102

<PAGE>

In connection with the San Francisco station affiliation agreement, Azteca
America acquired a 25% equity interest in Pappas San Francisco for a purchase
price of US$57,250, of which US$55,250 was paid in December 2001 and the
difference was paid in January 2002 and in connection with the Houston station
affiliation agreement, Azteca America acquired a 25% equity interest in Pappas
Houston for a purchase price of US$13,404, of which US$13,000 was paid in
December 2001 and the difference was paid in January 2002. The remaining equity
interests in these stations are owned by Pappas affiliates. If the term of the
station affiliation agreement is not renewed by Pappas San Francisco or Pappas
Houston, as applicable, following the expiration of the initial term, Azteca
America will have the right to acquire 100% of the equity interests therein for
a cash price equal to the fair market value of such interests (or to transfer
the right to acquire such additional equity interests to an unaffiliated third
party). If the station affiliation agreement is not renewed by Azteca America,
Pappas San Francisco or Pappas Houston, as applicable, will have the right to
acquire all of Azteca America's equity interest therein for a cash price equal
to its fair market value. Pappas San Francisco or Pappas Houston, as applicable,
will also have the right to acquire Azteca America's interests, and Azteca
America will have the right to cause Pappas San Francisco or Pappas Houston, as
applicable, to acquire Azteca America's interest, in certain other
circumstances.

Following the exercise of the option by Azteca America to purchase an equity
interest in the Los Angeles station, Pappas Group refused to permit Azteca
America to complete the purchase, claiming that Azteca America had not satisfied
certain conditions to the purchase. Consequently, in July, 2002, Azteca America
filed a lawsuit against Pappas Group in Delaware seeking specific performance of
the equity option agreement. In addition, Pappas Group claimed that Azteca
America had breached the affiliation agreements for the Los Angeles, San
Francisco and Houston stations, as well as an additional affiliation agreement
covering the Reno, Nevada DMA and sought to terminate such agreements. Azteca
America filed a separate lawsuit in New York state court to prevent the
termination of the affiliation agreements. A trial on the Delaware lawsuit was
scheduled for December 2002.

Other affiliation agreements

In addition to Azteca America's arrangements with Pappas Group affiliates,
Azteca America has also entered into station affiliation agreements with
television broadcast companies covering approximately 53% of the U.S. Hispanic
population.

Pursuant to these station affiliation agreements, the stations have been granted
exclusive licenses for over-the-air broadcasting of Azteca America programming
in their respective markets. These agreements have terms ranging from two to
seven years which may be automatically renewed for a specified duration, also
ranging from two to seven years. Azteca America has the right to receive all of
the net advertising revenue that it generates on each of the broadcast stations
other than in the Las Vegas and Orlando markets, where they are only entitled to
50% of the net advertising revenue.

                                      F-103

<PAGE>

Pappas Group recent developments

On November 27, 2002, the Company and Pappas Group entered into an agreement in
principle to settle all of the pending lawsuits and all related disputes, and on
February 11, 2003, a definitive settlement agreement was signed. In connection
with settling these pending matters, the Company and Pappas Group also entered
into a number of agreements that will govern their future relationship. These
agreements include a new promissory note issued by Pappas Group in favor of the
Company for US$128,000, a local marketing agreement governing, under certain
circumstances, Azteca America's operation of its Los Angeles affiliate and a
purchase option agreement that grants Azteca America the right, subject to
receipt of all necessary approvals, to acquire all of the assets of its Los
Angeles affiliate. In addition to these agreements, Pappas Group and the Company
have modified their existing station affiliation agreements and entered into new
station affiliation agreements.

NOTE 8 - BALANCES AND TRANSACTIONS WITH RELATED PARTIES:

The Company had the following amounts due from and payable to related parties:

<TABLE>
<CAPTION>
                                                                                         At December 31,
                                                                                --------------------------------

                                                                                    2001               2002
                                                                                -------------      -------------
<S>                                                                             <C>                <C>
Accounts receivable:

Operadora Unefon                                                                Ps     19,823      Ps    258,917
Grupo Cotsa                                                                           119,696
Azteca Holdings, S.A. de C.V.                                                         103,473            133,109
Biper, S.A. de C.V.                                                                     2,536             32,368
Corporacion RBS, S.A. de C.V.                                                           3,628              4,437
Compania Operadora de Teatros, S.A. de C.V. ("COTSA")                                  63,161
Radio Cel, S.A. de C.V.                                                                 9,463
RTC-Cines, S.A. de C.V.                                                                11,281
Corporacion de Comunicacion, S.A. de C.V.                                              45,688
Aerotaxis Metropolitanos, S.A. de C.V.                                                  5,050
Teleactivos, S.A. de C.V.                                                                                 16,389
Club Atletico Morelia, S.A. de C.V.                                                                       29,494
Others                                                                                 42,995              9,968
                                                                                -------------      -------------

                                                                                Ps    426,794      Ps    484,682
                                                                                =============      =============

Accounts payable:

Todito                                                                          Ps     24,307      Ps     56,355
Grupo Elektra                                                                          20,027             17,475
TV Cuscatleca                                                                           6,739              7,166
Teleactivos, S.A. de C.V.                                                               5,552
Club Atletico Morelia, S.A. de C.V.                                                     2,814
Others                                                                                  2,218                285
                                                                                -------------      -------------

                                                                                Ps     61,657      Ps     81,281
                                                                                =============      =============
</TABLE>

                                      F-104

<PAGE>

Additionally, the Company has an account receivable with Pappas Southern
California, LLC, related party, which is described in Note 7.

The principal transactions with related parties are as follows:

Advertising revenue

Revenue from airing advertising for related parties amounted to Ps199,485,
Ps268,980 and Ps220,568 during the years ended December 31, 2000, 2001 and 2002,
respectively.

Advertising contracts

In March 1996, the Company entered into a Television Advertising Time Agreement
with Grupo Elektra under which Grupo Elektra (or any company in which Grupo
Elektra has an equity interest) has the right to receive at least 300
advertising spots per week for a period of 10 years. Each spot has a duration of
20 seconds, and the aggregate amount of airtime is not to exceed 5,200 minutes
annually. The spots are to run only in otherwise unsold airtime. In exchange for
the television advertising airtime, the Company will receive US$1,500 per year.
The agreement may not be terminated by the Company but may be terminated by
Grupo Elektra, which may also transfer its rights under this agreement to third
parties.

On May 2, 2001, the Company entered into another advertising agreement with
Grupo Elektra for Ps54,500 (nominal). Pursuant to the agreement, Grupo Elektra
had the right to air advertising spots on Channels 7 and 13 and their national
networks from May 2, 2001 through December 31, 2001. At December 31, 2001 Grupo
Elektra had fully utilized the right to air advertising spots under this
agreement.

Effective September 30, 1996, the Company entered into a Television Advertising
Time Agreement with Productora de Medios, S. A. de C. V. ("Productora") a former
wholly-owned subsidiary of COTSA (the "COTSA Advertising Agreement"), under
which COTSA or any of COTSA's subsidiaries had the right to 42 advertising spots
per week on Channel 7 or 13 for a period of 10 years. Each spot for an average
duration of 20 seconds, totaling 728 minutes annually, but only in otherwise
unsold airtime. In exchange for the advertising time, COTSA agreed to pay the
Company US$210 each year. The agreement may not be terminated by either party
without the consent of the other party.

On November 15, 2001, Productora signed a number of agreements with third
parties, by which Productora ceded its right to use the 7,280 airtime minutes
pertaining to the COTSA Advertising Agreement.

Effective September 30, 1996, the Company entered into a Television Advertising
Time Agreement with Dataflux (the "Dataflux Advertising Agreement") under which
Dataflux or any of its subsidiaries has the right to 480 advertising spots per
month on Channel 7 or 13 for a period of 10 years. Each spot is to have a
duration of 30 seconds. The aggregate amount of airtime provided by the Company
under this agreement is not to exceed 2,880 minutes annually,

                                      F-105

<PAGE>

and the advertising spots shall run only in otherwise unsold airtime. In
exchange for the advertising time, Dataflux has agreed to pay the Company US$831
annually, payable in advance each year. The Dataflux Advertising Agreement may
not be terminated by the Company; however, it may be terminated by Dataflux at
any time upon at least 90 days' notice.

In June 1998, the Company signed an advertising agreement with Unefon ("Unefon
Advertising Agreement"), as amended. Under the terms of the Unefon Advertising
Agreement, Unefon has the right to advertising spots on the Channels 13 and 7
networks, as well as any other open television channel operated or
commercialized by the Company, either directly or indirectly through its
affiliates or subsidiaries. The advertising spots that are the subject of the
Unefon Advertising Agreement will total 120,000 GRPs (a GRP is a Gross Rating
Point, which is the number of rating points for the broadcast of a 60-second
commercial or proportional fraction thereof) over a ten-year period.

Each year during the term of the agreement, Unefon will be able to make use of
up to 35,000 GRPs. Unefon must submit a request for air time, specifying dates
and hours of show-time, to the Company in advance.

Unefon is obligated to make use of 100% of the GRPs over a period of ten years.
Any balance remaining after ten years will be automatically cancelled and the
Company will have no further obligations to Unefon. Unefon will pay the Company
3% of its gross revenues up to a maximum of US$200,000 for the advertising
services in installments as advertising is aired. The Company records revenue
under the terms of this agreement as the GRPs are consumed based on a rate
schedule established in the agreement, which provides less expensive GRPs
initially and more expensive GRPs over the term of the agreement. The original
agreement provided that Unefon may defer making payments until the third year of
the agreement, and Unefon must pay interest on any unpaid advertising aired, at
the rate per annum of the average annual Costo Porcentual Promedio de Captacion,
plus three basis points. However, during 2001 Unefon and the Company agreed to
defer payments due in 2000, 2001 and 2002 and to make these payments in four
equal semi-annual installments during 2003 and 2004, with the first payment due
in June 2003. The deferred payments accrue interest at an annual rate of 12%.
Beginning in 2003, Unefon's payments to the Company are due on a current basis.
At December 31, 2002, the aggregate deferred payments equaled US$15,707
(including interest).

The Company's right to payment under the agreement is subject to compliance by
Unefon with its payment obligations under the finance agreement with Nortel.
Unefon's failure to pay advances will not be considered a default by Unefon
under the agreement. However, the Company will be able to suspend provision of
television services to Unefon after a year of Unefon's continued failure to pay.

On February 14, 2000, the Company, together with its subsidiary Grupo TV Azteca,
S. A. de C. V., signed an advertising, programming and services agreement with
Todito. The total amount of the five-year agreement was US$100,000 and consisted
of US$45,000 for advertising services, US$50,000 for programming content and
US$5,000 corresponding to sales services.

                                      F-106

<PAGE>

Under the terms of this agreement, the Todito web site has the right to transmit
announcements and advertising messages relating to the Todito Internet web page
on the Azteca 13 and 7 networks, as well as on the satellite signal sent to
other countries by the Company, during advertising spots that do not exceed an
aggregate of 78,000 GRPs.

Todito is required to use the GRPs over a five year period and the Company must
provide a minimum of 14,000 GRPs per year. For the years ended December 31,
2000, 2001 and 2002, the income from advertising services provided under this
agreement amounted to Ps95,530, Ps69,654 and Ps68,409, respectively.

Todito also has the right to display on its web site news programs, telenovelas,
sporting events, and other programming material displayed by the Company on its
web sites ("tvazteca.com.mx" and "tvazteca.com").

The Company currently records the value of the content provided to Todito on a
straight line basis over the life of the agreement. For the years ended December
31, 2000, 2001 and 2002, the Company recognized income of Ps81,786, Ps114,778
and Ps115,240, respectively, relating to programming content provided to Todito.
Under the terms of the agreement, the Company cannot reassign the right to use
and exploit the content obtained from the Company through other web pages on the
internet to third parties.

The Company has also agreed to lend assistance, through its sales department, in
promoting to its clients and to advertising agencies the advertising services
that Todito will provide through its web site. For the years ended December 31,
2000, 2001 and 2002, the income from sales services provided under this
agreement amounted to Ps5,356, Ps8,242 and Ps12,053, respectively.

Interest income

During the years ended December 31, 2000, 2001 and 2002, the Company extended
short-term loans to certain related parties. Interest income under these
arrangements amounted to Ps50,551, Ps117,847 and Ps97,767, respectively.

Donations

In the years ended December 31, 2000, 2001 and 2002, the Company made donations
to a non-profit organization managed by a related party in the amounts of
Ps113,093, Ps102,880 and Ps108,118, respectively. The related party has
permission from tax authorities to collect donations and issue the corresponding
receipts.

Loans granted to stockholder

On December 21, 2001, three loans were granted to Mr. Ricardo Salinas Pliego for
an aggregate amount of US$3,067 with terms of one year. The loans granted in
2000 and in 2001 bore interest at the rate of 12%. per year These loans were
repaid during 2002.

                                      F-107

<PAGE>

Building lease income

In May 1998, the Company signed a building lease agreement with Operadora
Unefon, a wholly-owned subsidiary of Unefon. The lease has a term of ten years,
starting June 1998, with a one-time right to renew for an additional ten years
upon notice of at least 180 days prior to expiration. The rent under the lease
is Ps2,072 a month, payable in advance each month. During the years ended
December 31, 2000, 2001 and 2002, the aggregate lease income received by the
Company amounted to Ps23,424, Ps25,400 and Ps25,536, respectively.

Recoverability of accounts receivable from related parties

The Company evaluates periodically, on an arm-length basis, the recoverability
of accounts receivable. When it is determined that such accounts are not
recoverable, they are charged to other expenses.

NOTE 9 - SHORT-TERM AND LONG-TERM BANK LOANS:

At December 31, 2001 and 2002, short-term loans for equipment financing amounted
to Ps528,455 and Ps389,997, respectively, representing unsecured loans in U.S.
dollars with Mexican and foreign banks, with an average annual interest rate of
9.12% and 7.41% at December 31, 2001 and 2002, respectively.

Long-term loans and senior notes at December 31, 2001 and 2002 are summarized as
follows:

<TABLE>
<CAPTION>
                                                               At December 31,
                                                     ------------------------------------
                                                          2001                  2002
                                                     --------------        --------------
<S>                                                  <C>                   <C>
Building and equipment financing                     Ps     386,791        Ps     105,274
Loans from American Tower Corporation ("ATC")             1,159,452             1,244,820
Less-current portion                                        (38,418)              (47,179)
                                                     --------------        --------------

Long-term bank loans                                 Ps   1,507,825        Ps   1,302,915
                                                     ==============        ==============

Guaranteed senior notes                              Ps   4,114,901        Ps   4,417,875
                                                     ==============        ==============

Total long-term bank loans and senior notes          Ps   5,622,726        Ps   5,720,790
                                                     ==============        ==============
</TABLE>

Guaranteed Senior Notes

On February 5, 1997, the Company issued unsecured Series A and Series B
Guaranteed Senior Notes (collectively, the "Notes") in the international markets
in an amount of US$125,000, payable in the year 2004, at an interest rate of
10.125% per year and of US$300,000, payable in the year 2007, bearing an
interest rate of 10.50% per year, respectively.

                                      F-108

<PAGE>

Interest on the Notes is payable semi-annually on February 15 and August 15 each
year, commencing on August 15, 1997. Substantially all of the Company's
subsidiaries have fully and unconditionally guaranteed the Notes on a joint and
several basis. The guarantor subsidiaries are all wholly-owned subsidiaries of
the Company. The direct and indirect non-guarantor subsidiaries of the Company
are individually and in the aggregate inconsequential. The parent company is a
non-operating holding company with no assets, liabilities or operations other
than its investments in its subsidiaries.

Building and equipment financing

In 1995, the Company borrowed US$28,000 to finance the acquisition of equipment,
of which approximately US$24,000 was guaranteed by the Export-Import Bank of the
United States of America ("Exim Bank") on January 31, 1996. The Exim Bank
guaranteed funds were comprised of two separate loans for approximately
US$21,500 at an annual interest rate of LIBOR plus 2.25% and approximately
US$2,700 at an annual interest rate of LIBOR plus 4.25% (6.17% and 4.19% during
2002). Both Exim Bank-guaranteed loans were payable in 14 semi-annual payments
beginning in June 1996. At December 31, 2001 the Company had made payments
totaling to US$18,400 and US$2,300, respectively. During 2002, the outstanding
balance of both loans was repaid.

On September 18, 1997, the Company obtained a mortgage loan for the acquisition
of an office building amounting to US$25,854 from Banco Bilbao Vizcaya, S. A.
("BBV"). The Company is required to pay BBV annual interest of 8.5%, payable on
December 31 of each year beginning on December 31, 1997. Payment of the
principal matures on November 30, 2003.

In March 1999, the Company entered into a US$30,200 long-term import credit
facility with Standard Chartered Bank, as lender, and the Exim Bank, as
guarantor. Under this credit facility, TV Azteca was permitted to borrow until
May 2002 all or a portion of the US$30,200 by delivering promissory notes. The
import credit facility was established to finance the Company's purchase of
equipment manufactured in the U.S. In October 1999 and March 2000, the Company
issued two promissory notes, one in the amount of US$12,200 due in October 2004,
which accrues interest at a rate of 7.6% per year, and one in the amount of
US$10,500 due in March 2005, which accrues interest at a rate of 8.45% per year.
At December 31, 2001 and 2002, the aggregate outstanding amounts due under the
outstanding promissory notes were US$14,095 and US$10,128, respectively.

Loans from ATC

On February 11, 2000, the Company entered into a long-term credit facility for
up to US$119,800 with a Mexican subsidiary of ATC (the "ATC Long-Term
Facility"). The ATC Long-Term Facility is comprised of a US$91,800 unsecured
term loan and a US$28,000 working capital loan secured by certain of the
Company's real estate properties. The interest rate on each of the loans is
12.877%. The Company's payment obligations under the ATC Long-Term Facility are
guaranteed by three principal subsidiaries of the Company that also guarantee
the Company's payment obligations under the Guaranteed Senior Notes. The initial
term of the

                                      F-109

<PAGE>

unsecured term loan under the ATC Long-Term Facility is 20 years, which term may
be extended, so long as the Global Tower Project Agreement remains outstanding,
for up to an additional 50 years. The term of the working capital loan matures
in February 2004, but may be renewed annually for successive one-year periods so
long as the Global Tower Project Agreement remains outstanding.

On February 11, 2000, the Company drew down US$71,800 of the unsecured term loan
and the full US$28,000 under the working capital loan, and in June 2000, the
Company drew down the remainder of the unsecured term loan. A portion of the
proceeds under the ATC Long-Term Facility was used to repay the ATC Interim
Facility in its entirety. The balance of the proceeds from the ATC Long-Term
Facility was used for general corporate purposes of the Company and its
subsidiaries. At December 31, 2001 and 2002, US$119,800 was outstanding under
the ATC Long-Term Facility.

In February 2000, the Company, together with its subsidiary Television Azteca,
S. A. de C. V., entered into a 70-year Global Tower Project Agreement with a
Mexican subsidiary of ATC regarding space not used by the Company in its
operations on up to 190 of the Company's broadcast transmission towers. In
consideration for the payment of a US$1,500 annual fee and for a loan of up to
US$119,800 provided to the Company under the ATC Long-Term Facility, the Company
granted ATC the right to market and lease the Company's unused tower space to
third parties as well as to the Company's affiliates and to collect for ATC's
account all revenue related thereto. The Company retains full title to the
towers and remains responsible for the operation and maintenance thereof. The
SCT approved the parties' agreement on February 10, 2000. After the expiration
of the initial 20-year term of the ATC Long-Term Facility, the Company has the
right to purchase from ATC at fair market value all or any portion of the
revenues and assets related to the commercialization rights at any time upon the
proportional repayment of the outstanding principal amount under the ATC
Long-Term Facility.

Euro-Commercial Paper Program

On May 14, 1999, the Company entered into a US$75,000 Euro-Commercial Paper
Program (the "ECP Program") with ABN-AMRO Bank, N.V., as the principal arranger
and dealer. The size of the ECP Program was increased to US$130,000 in July
1999. Notes issued under the ECP Program are issued at a discount. The Company's
payment obligations under the ECP Program are guaranteed by the principal
subsidiaries of the Company that also guarantee the Company's payment
obligations under the guaranteed senior notes. The maturity of the notes issued
under the ECP Program may not be more than 365 days. At December 31, 2001, the
aggregate principal amount of the notes outstanding under the ECP Program was
US$20,063, which was paid in a series of installments ending in January 2002. At
December 31, 2002, the amount of the notes outstanding under the ECP Program was
US$5,094, which is payable in a series of installments ending in June 2003.

                                      F-110

<PAGE>

Commercial paper with Scotia Inverlat, S. A. ("Scotia")

On December 13, 2001, the Company issued two Ps158,550 commercial paper
promissory notes to Scotia expiring on June 13, 2002 and December 6, 2002. These
promissory notes, issued under the commercial paper program, were issued at a
discount bearing interest rates of 12.20% and 12.40%, respectively. At December
31, 2001, the Company has utilized the entire commercial paper, which amounted
to Ps287,770, net of the respective discount. The commercial paper promissory
notes were repaid in 2002.

Maturity of long-term bank loans and senior notes is as follows:

            Year ending at December 31,                       Amount
            ---------------------------                  ---------------
                    2004                                 Ps    1,346,555
                    2005                                          10,915
                    2007                                       3,118,500
                    2008 and thereafter                        1,244,820
                                                         ---------------
            Total long-term bank loans
             and senior notes                            Ps    5,720,790
                                                         ===============

NOTE 10 - LABOR OBLIGATIONS:

Below is a summary of the main financial data of the Company's seniority premium
plan:

<TABLE>
<CAPTION>
                                                                           At December 31,
                                                                     --------------------------
                                                                        2001            2002
                                                                     ----------      ----------
<S>                                                                  <C>             <C>
Accumulated benefit obligation (same as accumulated liabilities)     Ps   3,391      Ps   3,407
Net projected liability                                                   2,665           2,669
                                                                     ----------      ----------

Intangible asset                                                     Ps     726      Ps     738
                                                                     ==========      ==========

Net cost for the year                                                Ps     643      Ps   1,612
                                                                     ==========      ==========
</TABLE>

NOTE 11 - STOCKHOLDERS' EQUITY:

a. Capital stock

The capital stock of the Company was comprised of Series "A" shares, Series
"D-A" shares and Series "D-L" shares. Holders of Series "A" shares are entitled
to vote at general meetings of stockholders of the Company. Holders of the
Series "D-A" shares and Series "D-L" shares are entitled to vote only in limited
circumstances. Holders of Series "D-A" shares and Series "D-L" shares are
entitled to a dividend premium and liquidation preference. The rights of holders
of all

                                      F-111

<PAGE>

series of capital stock are otherwise identical except for limitations on
ownership of Series "A" shares and Series "D-A" shares by persons other than
eligible Mexican holders. The Series "A" shares are not exchangeable for shares
of any class or equity securities of the Company. The Series "D-A" shares will
be converted for Series "A" shares upon the tenth anniversary of the creation of
the CPO Trust and shall have the same characteristics as the currently
outstanding Series "A" shares of the Company. The Series "D-L" shares will be
converted into Series "L" shares upon the tenth anniversary of their original
issuance. The Series "L" shares that shall be exchanged for Series "D-L" shares
shall entitle its holders to vote only in limited circumstances.

The issued and outstanding capital stock of the Company as of January 1, 2000
consisted of 10,815,834 thousand shares of which 5,408,078 thousand were Series
"A" shares, 2,703,878 thousand were Series "D-A" shares and 2,703,878 thousand
were Series "D-L" shares. The number of authorized shares at January 1, 2000
consisted of 8,930,573 thousand shares of which 4,623,419 thousand were Series
"A" shares, 2,153,577 thousand were Series "D-A" shares and 2,153,577 thousand
were Series "D-L" shares.

As part of the Company's employee stock option plan, during 2000, 2001 and 2002,
the employees exercised their right to buy shares through said plan. As a
result, the Company issued 30,497 thousand shares, 31,215 thousand shares and
46,020 thousand shares, respectively, with a nominal value of Ps5,799, Ps5,542
and Ps7,759, respectively, which resulted in a premium on the issuance of shares
of Ps21,417, Ps75,829 and Ps16,122, respectively.

During 2000, 2001 and 2002, the Company decreased its capital stock by Ps20,066,
Ps6,717 and Ps18,883, respectively, through the repurchase of 107,370 thousand
shares, 38,674 thousand shares and 111,349 thousand shares for Ps316,094,
Ps43,172 and Ps169,879, respectively. In these years, the nominal value of the
repurchased shares was charged to the capital stock and the difference to the
reserve for the repurchase of shares.

During 2001 and 2002, the Company increased its capital stock by Ps19,066 and
Ps14,066, respectively, for the sale of treasury shares of 107,804 thousand
shares and 82,749 thousand shares, respectively. During 2001 and 2002, these
shares had a replacement value of Ps162,439 and Ps136,523, respectively, which
were credited to the capital stock at nominal value, and the difference was
applied to the reserve for the repurchase of shares.

In an ordinary stockholders' meeting held on April 27, 2000, the stockholders
agreed to pay a preferential dividend of Ps44,908 to the Series "D-A" and "D-L"
stockholders. The dividend was paid in September 2000.

In April 2000, the Company and NBC-TVA Holding, Inc., a subsidiary of National
Broadcasting Company ("NBC") ("NBC-TVA") entered into a subscription agreement
pursuant to which NBC-TVA agreed to purchase from the Company 2 million ADSs (96
million shares) for

                                      F-112

<PAGE>

Ps285,564. As a result of this purchase, the Company increased the fixed portion
of the capital stock by Ps18,217 plus Ps267,347 for a premium on share
subscription. This increase was made by issuing the following shares:

                   Type of shares                         Number
                   --------------                         -------
                   Series "A"                             32,000
                   Series "D-A"                           32,000
                   Series "D-L"                           32,000

In an ordinary stockholders' meeting held on April 26, 2001, the stockholders
agreed to pay a preferential dividend of Ps42,130 to the Series "D-A" and "D-L"
stockholders. The dividend was paid in October 2001.

At the ordinary stockholders' meeting held on April 25, 2002, the stockholders
agreed to apply the Company's income for 2001 amounting to Ps1,508,006 as
follows:

..  Set aside Ps75,400 for the legal reserve, in accordance with the Mexican
   Corporations Law.

..  Set aside Ps39,966 for the payment of a preferential dividend to the Series
   "D-A" and "D-L" stockholders, which was paid in October 2002.

..  Transfer the reminder of the account of retained earnings.

The authorized, issued and paid-in capital stock of the Company at December 31,
2002 is as follows:

<TABLE>
<CAPTION>
                           Authorized        Paid-in           Nominal          Restatement
Type of shares              shares           shares            amount            adjustment            Total
--------------           -------------    ------------     ---------------    ---------------     ---------------
                          (thousands)      (thousands)
<S>                         <C>              <C>           <C>                <C>                 <C>
Series "A"                   5,408,078       4,669,049     Ps      764,802    Ps      748,690     Ps    1,513,492
Series "D-A"                 2,703,878       2,199,208             360,235            253,084             613,319
Series "D-L"                 2,703,878       2,199,208             360,235            253,084             613,319
                         -------------    ------------     ---------------    ---------------     ---------------

                            10,815,834       9,067,465     Ps    1,485,272    Ps    1,254,858     Ps    2,740,130
                         =============    ============     ===============    ===============     ===============
</TABLE>

b. Retained earnings

1. Legal reserve - The net income for the year is subject to the legal provision
   that requires that 5% of the profit of each year be applied to increase the
   legal reserve, until the latter equals a fifth of paid-in capital stock.

                                      F-113

<PAGE>

2. Tax regime for dividends - Dividends paid are not subject to income tax,
   provided they are paid out from the After Tax Earnings Account ("CUFIN"). The
   excess is subject to 34% income tax on the amount arrived at from multiplying
   the dividend paid by a factor of 1.5151 payable by the Company, which can be
   offset against the Company's tax liability of the three immediately following
   periods. Dividends paid are not subject to income tax withholding.

c. Employee stock option plan

In the fourth quarter of 1997, the Company adopted an employee stock option plan
pursuant to which options were granted to all current permanent employees who
were employed by the Company as of December 31, 1996. The exercise prices
assigned to these options from 1997 to 2002 range from US$0.29 to US$0.39 per
CPO with a more significant number of options being granted to the Company's
senior management and key actors, presenters and creative personnel.

The options, which relate to an aggregate of 76 million CPOs, were granted in
equal portions in respect of each employee's first five years of employment with
the Company (whether prior to or after adoption of the plans), but these options
may be cancelled, in the case employment years after 1996, if the Company's
operating profit before deducting depreciation and amortization expenses in that
year has not increased by at least 15% as compared to the previous fiscal year.
An employee's options in respect of any employment year become exercisable five
years later, unless the employee is no longer employed by the Company, in which
case those options will be reassigned.

The options expire on the fifth anniversary of the date on which they become
exercisable.

During each of 2000 and 2001, options with respect to 10 million CPOs and during
2002 options with respect to 15 million CPOs were exercised, respectively, under
the general option plan, at a price of US$0.29, US$0.29 and US$0.29 per CPO,
respectively.

The activity of employee stock option plans was as follows:

                                                          At December 31,
                                                        -------------------
Options                                                 2001          2002
-------                                                 -----         -----
                                                        (Millions of CPOs)
Granted (cumulative)                                      116           116
Exercised (cumulative)                                    (71)          (86)
                                                        -----         -----

Outstanding                                                45            30
                                                        =====         =====

Available to grant                                        124           124
                                                        =====         =====

Total authorized                                          240           240
                                                        =====         =====

                                      F-114

<PAGE>

d. NBC warrants

In May 1994, the Company and Radiotelevisora del Centro, S. A. entered into an
agreement with NBC, in which the companies agreed to pay NBC, for the license of
specific programs and advisory and other services, a total of US$7,000 over a
three-year period ended June 30, 1997.

As additional consideration for the advisory and other services related to NBC's
association, the Company provided NBC with the right to purchase Series "N-6"
shares (non-voting) of the Company equal to up to 10% of all then fully diluted
outstanding shares of the Company post-exercise (the "Warrants"). The total
Warrant exercise price was US$120,000 before June 30, 1994, and accreted at
2.75% compounded quarterly thereafter until it reached US$160,000 at expiration
of the Warrants. The Warrants were to be exercised, in whole or in part, from
time to time until May 6, 1997. To the extent not exercised during that period,
NBC had the right, during the sixty-day period after the expiration of the
option period, to require the Company to purchase any unexercised portion of the
Warrants for up to US$25,000 and had the right to collect the Warrant put price
at any time during the option period if it was determined that the Warrants
could not, as a legal matter, be exercised.

On April 3, 1997 NBC notified the Company that it would exercise its rights
under the Warrants to purchase Series "N-6" shares of the Company, equivalent to
1% of its total right to purchase 10% of all the fully diluted outstanding
shares of the Company for an amount of US$16,000 which was required to be paid
on May 5, 1997. Subsequently, NBC advised the Company that the Company was
required to purchase the unexercised portion of the warrant for US$22,500 and
owed an additional US$5,552, the balance of the US$7,000 owed by the Company for
unpaid programming as of May 6, 1997, plus accrued interest.

The agreement with NBC also provided that the Company was required to issue to
NBC Series "N-6" shares in an amount equal to 1.5% of all the then fully diluted
outstanding capital stock of the Company upon the first to occur of various
events relating to the achievement of specific market share and capitalization
levels through May 6, 2002.

On April 29, 1997, the Company filed a request for arbitration with the
International Chamber of Commerce ("ICC") in Paris pursuant to the arbitration
clauses in its agreements with NBC and NBC Europe. In its request, the Company
sought the rescission of all of its agreements with NBC, including the
cancellation of its outstanding programming purchase obligations, the
cancellation of the warrants granted to NBC Europe, NBC's right to require the
Company to repurchase the unexercised portion of the warrants, and the return of
all amounts previously paid to NBC, on the grounds that NBC did not fulfill its
obligations under its agreements with the Company.

On July 29, 1997, NBC and NBC Europe filed an amended answer and counterclaim to
the Company's request for arbitration. NBC's principal new claim was that,
notwithstanding the expiration of NBC Europe's warrant, NBC Europe should be
given the right to exercise the entire unexercised portion of the warrant
(representing the right to purchase 9% of the fully-diluted outstanding capital
stock of the Company as of May 6, 1997) or, at NBC Europe's election, to recover
lost profits based on the difference between the fair market value and the
aggregate exercise price in respect of the unexercised portion of NBC Europe's
warrant. NBC

                                      F-115

<PAGE>

based this claim on the allegation that the Company misled NBC in order to
dissuade NBC Europe from exercising its warrant in full. NBC also claimed that
NBC Europe has been deprived of the value of an additional equity bonus of 0.5%
of the fully-diluted outstanding capital stock of the Company to which NBC
Europe would have been entitled had it exercised its warrants for more than 5%
of the Company's outstanding stock, rather than for only 1%.

In February 2000, the Company and NBC commenced discussions regarding the
possible settlement of all claims raised in the ICC arbitration proceeding.
Based on the progress of those discussions, on March 21, 2000, the Company and
NBC jointly notified the ICC tribunal that settlement discussions were taking
place and requested that the ICC tribunal withhold any decision in the matter
for a period of 30 days, unless the ICC tribunal was informed by either party
within that 30-day period that settlement discussions had been abandoned. This
30-day period was extended through April 28, 2000.

On April 28, 2000, the Company and NBC entered into a binding settlement
agreement. Pursuant to the settlement agreement, the arbitration proceeding
before the ICC tribunal was terminated and all claims by the Company against NBC
and NBC Europe, and all claims by NBC and NBC Europe against the Company, have
been fully released and discharged. Under the terms of the settlement agreement,
the Company paid NBC the sum of US$46,170 (Ps510,732) in cash. This settlement
was recorded as an extraordinary item net of income tax.

NOTE 12 - TAX MATTERS:

During 2000, the Company commenced consolidating for tax purposes.

During the years ended December 31, 2000, 2001 and 2002, the Company and various
subsidiaries had taxable income, which was partially offset against tax loss
carryforwards. The benefit of the utilization of these tax loss carryforwards
amounted to Ps68,997, Ps414,082 and Ps359,781 during the years ended December
31, 2000, 2001 and 2002, respectively.

                                      F-116

<PAGE>

An analysis of the principal differences between the income tax computed at the
statutory rate and the Company's income tax provision for the years ended
December 31, 2000, 2001 and 2002 is shown as follows:

<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                               ---------------------------------------------------
                                                                   2000              2001               2002
                                                               ------------     ---------------    ---------------
<S>                                                            <C>              <C>                <C>
Income before provision for income tax and
 extraordinary item                                            Ps   698,726     Ps    1,517,143    Ps    1,273,968
                                                               ============     ===============    ===============

Income tax expense at statutory rate                           Ps   244,554     Ps      531,000    Ps      445,889
Effects of B-10 and inflationary components                         114,517              40,015             84,622
Amortization of TV concessions and goodwill                         (98,632)           (108,005)          (148,447)
Advertising advances                                                 61,015             303,788            195,178
Estimated cost point rating revenues                                (38,443)            (86,244)           (72,237)
Non-deductible stock dividends                                       22,946
Exhibition rights                                                    88,051             (53,033)           (64,194)
Depreciation                                                         28,557              46,223              7,994
Benefit on tax consolidation                                       (106,634)
Other                                                               (62,455)            (49,728)           175,134
Utilization of tax loss carryforwards                               (68,997)           (414,082)          (359,781)
                                                               ------------     ---------------    ---------------

Income tax expense - Net                                       Ps   184,479     Ps      209,934    Ps      264,158
                                                               ============     ===============    ===============
</TABLE>

As a result of the amendments to the Income Tax Law approved on January 1, 2002,
the income tax rate (35% in 2002) will be reduced by 1% annually beginning in
2003 until it reaches a nominal rate of 32% in 2005. This gradual decrease in
the income tax will be taken into the deferred income tax of each year.

The principal temporary items that gave rise to the recording of deferred tax
(assets) liabilities are summarized as follows:

<TABLE>
<CAPTION>
                                                                           At December 31,
                                                               ---------------------------------------
                                                                     2001                   2002
                                                               ----------------        ---------------
<S>                                                            <C>                     <C>
Allowance for bad debts                                        Ps       (83,403)       Ps      (89,854)
Exhibition rights and inventories                                     1,051,138              1,267,703
Property, machinery and equipment - Net                                 361,044                352,079
Television concessions                                                1,000,928              1,490,324
Payment to Corporacion de Noticias e Informacion,
 S. A. de C. V.                                                         200,773                200,773
Cost related to the issuance of guaranteed senior notes                  98,189                 78,895
Advertising advances                                                   (576,218)            (1,090,081)
Tax loss carryforwards                                               (2,574,032)            (1,842,669)
Other                                                                  (328,919)              (292,070)
                                                               ----------------        ---------------

Tax base before valuation reserve                                      (850,500)                75,100

Applicable income tax rate                                                   35%                    34%
                                                               ----------------        ---------------

                                                                       (297,675)                25,534
Valuation reserve for tax loss carryforwards                            497,805
Deferred income tax asset recorded from the purchase
 of subsidiary                                                         (200,130)
                                                               ----------------        ---------------

Deferred income tax payable                                    Ps             -        Ps       25,534
                                                               ================        ===============
</TABLE>

                                      F-117

<PAGE>

At December 31, 2001 and 2002, deferred income tax payable was analyzed as
follows:

<TABLE>
<CAPTION>
                                                                           At December 31,
                                                               ---------------------------------------
                                                                     2001                   2002
                                                               ----------------        ---------------
<S>                                                            <C>                     <C>
Deferred income tax payable at beginning of year               Ps       416,593        Ps            -
Less:
Deferred income tax asset recorded from the
 purchase of subsidiary                                                (200,130)
Deferred income tax (benefit) expense for the year                     (198,905)                25,534
Monetary gain related to deferred income tax
 liabilities for the year                                               (17,558)
                                                               ----------------        ---------------

Deferred income tax payable at end of year                     Ps             -        Ps       25,534
                                                               ================        ===============
</TABLE>

At December 31, 2001, the Company incorporated a new wholly-owned subsidiary
with tax loss carryforwards. Cumulative tax losses of the Company at December
31, 2002, and their expiration dates are as follows:

                     Expiration                       Tax
                        date                         losses
                     ----------                  --------------

                        2005                     Ps     405,252
                        2006                            147,101
                        2007                            228,148
                        2008                            735,649
                        2009                             40,361
                        2010                            139,963
                        2011                             16,920
                        2012                            129,275
                                                 --------------

                                                 Ps   1,842,669
                                                 ==============

Tax loss carryforwards can be restated by applying factors derived from NCPI
from the year in which they arise to the first-half of the year in which they
are amortized.

NOTE 13 - COMMITMENTS AND CONTINGENCIES:

Leases

The Company leases the use of satellite transponders. Total rent expense under
such leases included in operating costs and expenses was Ps25,382, Ps26,288 and
Ps41,236 during the years ended December 31, 2000, 2001 and 2002, respectively.
Combined rental obligations under these agreements are US$200 per month. Each
lease agreement expires in May 2005 but can be terminated by the supplier any
time for justified cause upon 30 days' notice.

                                      F-118

<PAGE>

Other

The Company and its subsidiaries are parties to various legal actions and other
claims in the ordinary course of their business. Management does not believe
that any pending litigation against the Company will, individually or in the
aggregate, have a material adverse effect on its results of operations or
financial condition.

NOTE 14 - OTHER (EXPENSES) INCOME:

Below is a summary of the main items of other (expenses) income:

<TABLE>
<CAPTION>
                                                                Year ended December 31,
                                                 -----------------------------------------------------
                                                      2000              2001                2002
                                                 --------------     ------------       ---------------
<S>                                              <C>                <C>                <C>
Equity in loss of affiliates                     Ps    (107,088)    Ps   (67,894)      Ps     (111,160)
Donations (See Note 8)                                 (113,093)        (102,880)             (108,118)
Miscellaneous expenses non-deductible for
 tax purposes                                           (29,886)          (6,527)              (17,754)
Legal advisory services (litigation expenses)           (69,137)         (79,747)              (31,998)
Amortization of installation charges                                                           (19,513)
Write-off of other accounts receivable                                                         (45,788)
Write-off of investments                                                                       (32,152)
Others                                                  (57,013)          13,197               (75,105)
                                                 --------------     -------------      ---------------

                                                 Ps    (376,217)    Ps  (243,851)      Ps     (441,588)
                                                 ==============     =============      ================
</TABLE>

NOTE 15 - NEW ACCOUNTING PRONOUNCEMENTS:

The MIPA issued Statement C-9, "Liabilities, Provisions, Assets and Contingent
Liabilities and Commitments" ("Statement C-9"), which went into effect of
January 1, 2003. Statement C-9 establishes specific rules for valuation,
presentation and disclosure of liabilities and provisions, as well as for
valuation and disclosure of assets and contingent liabilities, and for
disclosure of commitments contracted. The Company does not expect the adoption
of this statement will have a material impact on its consolidated financial
statements.

The MIPA issued Statement C-15, "Impairment of Long-Lived Assets and Their
Disposal" ("Statement C-15"), which will be effective as of January 1, 2004,
although early adoption is recommended. Statement C-15 provides specific
criteria in determining when there is an impairment in the value of long-lived
assets, for both tangible and intangible assets. Furthermore, Statement C-15
established a methodology for calculating and recording losses arising from the
impairment of assets and their reversal. Also, Statement C-15 provides
presentation and disclosure requirements for assets whose value has been
impaired and the disclosure in the case that there is subsequent reversal of the
impairment. In addition, Statement C-15 provided guidance for the accounting,
presentation and disclosure for discontinued operations. The Company is
currently evaluating the impact that adoption of this statement will have on its
consolidated financial statements.

                                      F-119

<PAGE>

NOTE 16 - SUBSEQUENT EVENTS:

Dispute between Unefon and Nortel

In January 2003, Nortel petitioned for the bankruptcy of Unefon before a Mexican
court. In response, Unefon filed an action for relief (amparo) before a federal
district court challenging Nortel's request. In April 2003, a Mexican federal
district court ruled against Unefon with regard to its action for relief.
However, in May 2003, Unefon appealed the Mexican court's decision. Unefon
believes that Nortel's bankruptcy petition is insufficient under Mexican law and
that it will therefore prevail in this proceeding. Note that the suspension
granted by the federal district Court is and will be effective until this
dispute is fully resolved. Upon the filing of Unefon's initial action for
relief, the federal district court suspended Nortel's bankruptcy claim pending
its analysis of the sufficiency of Nortel's petition, which suspension is still
in effect.

Stockholder meeting

In an ordinary stockholders' meeting held on April 30, 2003, the Company's
stockholders approved the following:

a. Application of the Company's income for 2002, which amounted to Ps984,511, as
   follows:

   . Setting aside 5% of the income for 2002 in order to increase the Company's
     legal reserve, as required by the Mexican Corporations Law.

   . Setting aside Ps36,023 for the payment of a preferential dividend to the
     Series "D-A" and "D-L" stockholders.

   . Transferring the remainder of the Company's income to the account of
     accumulated earnings.

b. Decreasing the variable portion of the capital stock by approximately
   US$140,000 through a pro rata distribution of the capital. Of this amount,
   US$125,000 will be paid on June 30, 2003 and the remaining US$15,000 will be
   paid on December 5, 2003.

c. Increasing the reserve for the repurchase of the Company's shares by
   Ps230,000, which reserve is limited to a maximum amount of Ps1,100,000.

                                      F-120

<PAGE>

NOTE 17 - RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
MEXICO (MEXICAN GAAP) AND UNITED STATES OF AMERICA (US GAAP):

The Company's consolidated financial statements are prepared in accordance with
Mexican GAAP, which differ in certain significant respects from US GAAP. The
Mexican GAAP consolidated financial statements include the effects of inflation
as provided for under Statement B-10, "Recognition of the Effects of Inflation
on Financial Information" issued by the MIPA. The application of this statement
represents a comprehensive measure of the effects of price level changes in the
Mexican economy, and is considered to result in a more meaningful presentation
for both Mexican and U.S. accounting purposes. Therefore, the following
reconciliation to US GAAP does not include the reversal of such inflationary
effects.

The principal differences between Mexican GAAP and US GAAP are summarized in the
following pages with an explanation, where appropriate, of the effects on
consolidated results of operations and stockholders' equity. The various
reconciling items are presented net of any price level gain (loss).

a. Reconciliation of consolidated results of operations:

<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                                      --------------------------------------------
                                                          Sub note
                                                          reference      2000            2001              2002
                                                          ---------   ----------     -------------      ----------
   <S>                                                       <C>      <C>            <C>                <C>
   Majority net income under Mexican GAAP                             Ps 388,883     Ps  1,508,006      Ps 984,511
   Amortization of goodwill                                  i          (197,395)         (197,395)          2,499
   NBC warrant                                               ii           10,841
   NBC settlement agreement                                  ii          299,884
   Unefon advertising                                        iii         416,093           385,657         (99,588)
   Equity in loss of Unefon                                  iv         (235,172)         (546,546)       (358,418)
   Reversal of capitalized consent fee for Unefon rights
    and other expenses                                       v                            (115,223)         (6,037)
   Todito advertising, programming and services agreement    vi         (175,146)         (192,674)       (197,492)
   Equity in earnings of Todito                              vi           63,947            91,594          91,852
   Amortization of Todito goodwill                           vi           22,643            27,260          27,260
   Amortization of goodwill from Azteca Digital
    acquisition                                              vii           7,904             7,904           7,904
   Effect of fifth amendment to B-10                         viii       (273,441)         (192,386)        (67,160)
   Compensation expense from stock options                   ix         (113,964)          (35,296)        (61,733)
   Compensation expense for Unefon stock option plan         x                             (54,413)         (3,352)
   Deferred income tax                                       xi         (208,384)            4,593         261,106
   Reversal of capitalized internally produced
    programming                                              xiii                         (226,375)        (26,202)
   Financial instrument indexed to the Company's own
    stock                                                    xxii                                          (34,097)
                                                                      ----------     -------------      ----------

   Net income under US GAAP                                           Ps   6,693     Ps    464,706      Ps 521,053
                                                                      ==========     =============      ==========

   Basic and diluted (loss) income per share                 xx       Ps  (0.004)    Ps      0.047      Ps   0.053
                                                                      ==========     =============      ==========

   Basic weighted average number of common shares
    outstanding (in thousands)                                         8,966,752         9,025,274       9,057,444
                                                                      ==========     =============      ==========
</TABLE>

                                      F-121

<PAGE>

b. Reconciliation of stockholders' equity:

<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                                      ----------------------------------------------
                                                          Sub note
                                                          reference       2000            2001              2002
                                                          ---------   ------------   -------------      ------------
   <S>                                                       <C>      <C>            <C>                <C>
   Balance under Mexican GAAP                                         Ps 4,379,942   Ps  5,769,266      Ps 6,583,687
   Goodwill                                                  i             888,277         690,882           693,381
   NBC warrant                                               ii           (299,884)
   NBC settlement agreement                                  ii            299,884
   Unefon advertising                                        iii           416,093         801,750           702,162
   Unefon investment                                         iv            192,306        (353,268)         (598,789)
   Todito advertising, programming and services agreement    vi           (175,146)       (367,820)         (565,312)
   Amortization of Todito goodwill                           vi             22,643          49,903            77,163
   Equity in earnings of Todito                              vi             63,947         155,541           247,393
   Stockholders' equity of Azteca Digital reflecting
    effect of combination of companies under common
    control                                                  vii          (134,383)       (126,479)         (118,575)
   Effect of fifth amendment to B-10                         viii          308,323         316,834            97,261
   Deferred income taxes                                     xi           (340,297)       (335,704)          (74,598)
   Reversal of capitalized internally produced
    programming                                              xiii                         (226,375)         (252,577)
   Financial instrument indexed to the Company's own
    stock                                                    xxii                                            139,276
                                                                      ------------   -------------      ------------
   Balance under US GAAP                                              Ps 5,621,705   Ps  6,374,530      Ps 6,930,472
                                                                      ============   =============      ============
</TABLE>

c. An analysis of the changes in stockholders' equity under US GAAP is as
   follows:

<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                                      ----------------------------------------------
                                                          Sub note
                                                          reference       2000           2001               2002
                                                          ---------   ------------   -------------      ------------
   <S>                                                       <C>      <C>            <C>                <C>
   Balance at beginning of the year                                   Ps 5,198,570   Ps  5,621,705      Ps 6,374,530
   Net income                                                                6,693         464,706           521,053
   Preferred dividend                                                      (44,908)        (42,130)          (39,966)
   Paid-in capital for Unefon stock option plan              iv                             39,902           (35,168)
   Exercise of stock options                                                27,216          81,371            23,881
   Repurchase of shares                                                   (316,094)        (43,172)         (169,879)
   Sale of treasury shares                                                                 162,439           136,523
   Issuance of common stock                                                 18,217
   Premium on issuance of capital                                          267,347
   Effect relating to capital stock increase
    of Unefon, net of the loss from dilution                 iv            350,700
   Effects of fifth amendment to B-10                        vii           241,278         277,190            52,724
   Loss from holding non-monetary assets                     viii         (241,278)       (277,190)          (52,724)
   Compensation expense from stock options                   ix            113,964          35,296            61,733
   Compensation expense for Unefon stock option plan         x                              54,413            57,765
                                                                      ------------   -------------      ------------

   Balance at end of year                                             Ps 5,621,705   Ps  6,374,530      Ps 6,930,472
                                                                      ============   =============      ============
</TABLE>

                                      F-122

<PAGE>

d. Significant differences between US GAAP and Mexican GAAP:

   i.    Goodwill

         At the effective date of the privatization in 1993 in connection with
         which the Company was formed, additional goodwill of Ps2,368,737 was
         recorded due to the deferred net income tax liability, relating
         primarily to the non-deductibility of the television concessions,
         required under US GAAP. Until December 31, 2001, the additional
         goodwill was being amortized over 12 years.

         For Mexican GAAP purposes, goodwill is being amortized under the
         straight-line method over a period of 20 years. For US GAAP purposes,
         until December 31, 2001, goodwill was being amortized over its
         estimated useful life, not to exceed twenty years. Effective January 1,
         2002, the Company adopted SFAS 142, "Goodwill and Other Intangible
         Assets" ("SFAS 142"), where upon the Company no longer amortizes
         goodwill and other intangible assets with an indefinite life, such as
         television concessions. SFAS 142 requires the Company to test for
         goodwill and indefinite live intangibles annually, or more frequently
         if circumstances indicate a possible impairment exists.

         The Company performed goodwill impairment tests at the reporting unit
         level. The fair value of each reporting unit exceeded its carrying
         amount and goodwill related to each reporting unit is considered not
         impaired. The Company's impairment tests for the television concessions
         compared the carrying amounts of those assets to their fair values. The
         fair values of the television concessions exceeded their carrying
         amounts.

         The following table adjusts previously reported net income to exclude
         amortization expense recognized from goodwill and television
         concessions as if SFAS 142 had taken effect in 2000:

<TABLE>
<CAPTION>
                                                                Year ended December 31,
                                                          ----------------------------------
                                                              2000                  2001

                                                          ------------         -------------
         <S>                                              <C>                 <C>
         Reported net income                              Ps     6,693         Ps    464,706
         Goodwill amortization                                 201,636               203,564
         Television concessions                                119,292               121,122
                                                          ------------         -------------

         Adjusted net income                              Ps   327,621         Ps    789,392
                                                          ============         =============

         Basic and diluted earnings per share:
         Reported net (loss) income                       Ps    (0.004)        Ps      0.047
         Goodwill amortization                                   0.022                 0.022
         Television concessions                                  0.013                 0.013
                                                          -------------        -------------

         Adjusted net income                              Ps     0.031         Ps      0.082
                                                          ============         =============
</TABLE>

         Under US GAAP, the Company reversed Ps2,499 of goodwill amortization
         recognized under Mexican GAAP.

                                      F-123

<PAGE>

  ii.    Mandatory redeemable securities

         NBC warrant and bonus right

         Under US GAAP, the NBC warrant, discussed in Note 11d., would be
         considered a mandatory redeemable security and would have been
         initially recorded as temporary equity at its estimated fair value, at
         the date of the initial agreement, of Ps242,601, based on the present
         value of US$25 million payment that the Company would be required to
         pay NBC in the event NBC elected not to exercise the warrant, with a
         corresponding amount established as deferred operating costs
         representing the value of the technical advisory services to be
         provided by NBC at the date of the agreement. Under US GAAP, the
         Company would have amortized the deferred operating costs over the
         agreement period. However, at December 31, 1995, the Company wrote-off
         the unamortized deferred operating costs associated with the agreement,
         based on management's opinion that there were no future benefits to be
         derived under the terms of the agreement.

         Due to the nature of the Company's obligations with respect to the
         warrant, the related temporary equity would be considered a monetary
         liability under US GAAP. The foreign exchange losses, the accretion of
         the warrant obligation and monetary gains related to the warrant would
         be reflected in results of operations.

         The following table summarizes the accumulated deferred costs,
         accretion, exchange loss and gain on monetary position related to the
         NBC warrant:

                                              At December 31, 2000
                                              --------------------

         Deferred operating costs             Ps          (242,601)
         Accretion                                        (116,010)
         Exchange loss                                    (365,089)
         Gain on monetary position                         423,816
                                              --------------------

         Accumulated at end of year           Ps          (299,884)
                                              ====================

         The terms of the warrant agreement with NBC as discussed in Note 11d.
         required the Company to issue 1% of its outstanding shares to NBC upon
         attainment of the performance goals consisting of specified market
         share levels or the market capitalization of the Company of at least
         US$1,400 if a public offering of the Company's stock occurred prior to
         1998 and US$1,800 if a public offering occurred after 1998. As a result
         of the initial public offering, the Company achieved a market
         capitalization in excess of US$2,000.

         As part of the arbitration proceedings with NBC, the Company requested
         the rescission of all its agreements with NBC including cancellation of
         warrants granted to NBC Europe and NBC's rights to require the Company
         to repurchase the unexercised portion of the warrants on the grounds
         that NBC did not fulfill its obligations under its agreements with the
         Company.

                                      F-124

<PAGE>

         Temporary equity

         An analysis of the changes in the temporary equity under US GAAP is as
         follows:

                                              Year ended December 31, 2000
                                              ----------------------------

         Balance at beginning of year         Ps                   310,725
         Foreign exchange loss, net of
          monetary gain of NBC warrant                             (10,841)
         NBC settlement agreement                                 (299,884)
                                              ----------------------------

         Balance at end of year               Ps                         -
                                              ============================

         As a result of the settlement reached with NBC in April 2000, as
         described in Note 11d., the Company paid NBC US$46,170 (Ps510,732) in
         cash as settlement for claims relating to the NBC warrants and bonus
         right.

         Under Mexican GAAP, the settlement paid to NBC was charged against
         results of operations as an extraordinary item. The excess over the
         amount recorded as temporary equity (Ps210,848) would be charged
         against results of operations during the year ended December 31, 2000.
         Under US GAAP, however, the net charge would not be reflected as an
         extraordinary item.

  iii.   Unefon advertising advance

         The Company recorded the advertising contract signed with Unefon (see
         Note 8) in a manner similar to other advertising contracts that the
         Company has entered into with related and third parties. See Note 2q.

         The Unefon advertising contract is a long-term contract which
         originated a long-term account receivable and an advertising advance
         for the same amount at inception. At December 31, 2001 and 2002, the
         long-term unbilled accounts receivable from Unefon was Ps2,258,381 and
         Ps2,167,340, respectively. For US GAAP purposes, this long-term
         contract represents an obligation to provide services in the future
         that would not be recorded on the balance sheet, and consequently, both
         the receivable (except for amounts relating to services provided) and
         the advertising advance would not be recorded under US GAAP. Under
         Mexican inflation accounting rules, the accounts receivable are US
         dollar denominated items that expose the Company to exchange gains and
         losses as well as to monetary losses. The advertising advances related
         to the Unefon advertising contract are considered non-monetary items
         under Mexican GAAP and are restated for the effects of inflation.

                                      F-125

<PAGE>

         Revenues recognized under Mexican GAAP are based on the indexed value
         of the advances recorded as the GRPs are consumed based on a rate
         schedule established in the contract. For US GAAP purposes, revenues
         would be recognized based on the average cost per GRPs as the GRPs are
         consumed.

         The following tables illustrate the differences between Mexican and US
         GAAP in the method of accounting for the advertising contract with
         Unefon:

<TABLE>
<CAPTION>
                                                        Year ended December 31, 2000
                                            -----------------------------------------------------

                                                Mexican               US
                                                 GAAP                GAAP            Difference
                                            ----------------    ---------------    --------------
         <S>                                <C>                 <C>                <C>
         Long term receivable from Unefon   Ps     2,123,149    Ps      226,321    Ps  (1,896,828)
         Unefon advertising advance               (2,312,921)                           2,312,921
                                            ----------------    ---------------    --------------

         Net (liabilities) assets           Ps      (189,772)   Ps      226,321    Ps     416,093
                                            ================    ===============    ==============

         Revenues                           Ps         9,521    Ps      237,576    Ps     228,055
         Exchange (loss) gain                        (12,725)            (2,117)           10,608
         Monetary (loss) gain                       (186,568)            (9,138)          177,430
                                            ----------------    ---------------    --------------

         Total                              Ps      (189,772)   Ps      226,321    Ps     416,093
                                            ================    ===============    ==============

<CAPTION>
                                                         Year ended December 31, 2001
                                            -----------------------------------------------------

                                                 Mexican              US
                                                  GAAP               GAAP           Difference
                                             ----------------    ---------------    --------------
         <S>                                <C>                 <C>                <C>
         Long term receivable from Unefon   Ps     1,931,139    Ps      474,508    Ps  (1,456,631)
         Unefon advertising advance               (2,258,381)                           2,258,381
                                            ----------------    ---------------    --------------

         Net (liabilities) assets           Ps      (327,242)   Ps      474,508    Ps     801,750
                                            ================    ===============    ==============

         Cumulative:
         Revenues                           Ps        75,844    Ps      528,926    Ps     453,082
         Exchange (loss) gain                       (121,555)           (29,869)           91,686
         Monetary (loss) gain                       (281,531)           (24,549)          256,982
                                            ----------------    ---------------    --------------

         Total                              Ps      (327,242)   Ps      474,508    Ps     801,750
                                            ================    ===============    ==============
</TABLE>

                                      F-126

<PAGE>

<TABLE>
<CAPTION>
                                                         Year ended December 31, 2002
                                            -----------------------------------------------------

                                                Mexican               US
                                                 GAAP                GAAP           Difference
                                            ----------------    ---------------    --------------
         <S>                                <C>                 <C>                <C>
         Long term receivable from Unefon   Ps     2,076,000    Ps      610,822    Ps  (1,465,178)
         Unefon advertising advance               (2,167,340)                           2,167,340
                                            ----------------    ---------------    --------------

         Net (liabilities) assets           Ps       (91,340)   Ps      610,822    Ps     702,162
                                            ================    ===============    ==============

         Cumulative:
         Revenues                           Ps       167,542    Ps      626,800    Ps     459,258
         Exchange gain (loss)                        132,841             39,427           (93,414)
         Monetary (loss) gain                       (391,723)           (55,405)          336,318
                                            ----------------    ---------------    --------------

         Total                              Ps       (91,340)   Ps      610,822    Ps     702,162
                                            ================    ===============    ==============
</TABLE>

  iv.    Unefon investment

         The Company acquired a 50% interest in Unefon on October 28, 1999.
         Unefon commenced operations in February 2000. The Company's share of
         the stockholders' equity of Unefon at the date of acquisition under US
         GAAP was Ps105,991 greater than the amount recorded under Mexican GAAP
         due to the capitalized monetary gain net of the pre-operating expenses.
         This excess would result in an increase in the Company's stockholders'
         equity under US GAAP since this was an acquisition of an entity under
         common control and the difference between the book value acquired and
         the amount paid would be considered as an additional contribution from
         the stockholder.

         As a result of the Rights granted to the Company's stockholders in
         October 2000, the Company stopped recognizing its participation in the
         losses of Unefon. Under US GAAP, the Company would continue to
         recognize its participation in the losses of Unefon until such Rights
         are exercised.

         The Company's share of Unefon's net loss for the years ended December
         31, 2000, 2001 and 2002 under US GAAP were Ps329,630, Ps546,546 and
         Ps358,418 compared to Ps94,458, zero and zero under Mexican GAAP,
         respectively. The principal differences were due to pre-operating
         expenses, advertising expenses, revenue recognition, recognition of the
         participation in the losses mentioned in the preceding paragraph and
         capitalized interest and monetary gain.

         During 2000, Unefon completed an initial public offering. Net proceeds
         received from the offering amounted to Ps991,900. As a result of the
         offering, the Company's participation in Unefon decreased from 50% to
         46.5%. The increase in Unefon's stockholders' equity would increase the
         Company's investment in Unefon with a corresponding increase in
         stockholders' equity under US GAAP of Ps350,700.

                                      F-127

<PAGE>

         The following table illustrates the differences between Mexican and US
         GAAP in the method of accounting for the Company's investment in
         Unefon.

<TABLE>
<CAPTION>
                                                                                       At December 31,
                                                                            ------------------------------------
                                                                                  2001                 2002
                                                                            ----------------      --------------
         <S>                                                                <C>                   <C>
         Investment in Unefon under Mexican GAAP                            Ps     1,848,485      Ps   1,755,942
                                                                            ----------------      --------------

         Equity in loss                                                             (789,446)         (1,147,864)
         Acquisition - excess basis                                                  105,991             105,991
         Reversal of capitalized consent fee for Unefon rights
          and other expenses                                                        (115,223)           (121,260)
         Paid-in capital for Unefon stock option plan                                 39,902              57,245
         Effect relating to capital stock increase of Unefon,
          net of the loss from the dilution                                          350,700             350,700
         Reversal of loss from holding non-monetary
          assets for Unefon investment                                                54,808             156,399
                                                                            ----------------      --------------

                                                                                    (353,268)           (598,789)
                                                                            ----------------      --------------

         Investment in Unefon under US GAAP                                 Ps     1,495,217      Ps   1,157,153
                                                                            ================      ==============
</TABLE>

         Summarized financial information at December 31, 2000, 2001 and 2002
         and the years then ended for Unefon, stated in Mexican pesos, is as
         follows:

<TABLE>
<CAPTION>
                                                          At and for the year ended December 31,
                                 -----------------------------------------------------------------------------------------

                                            Under Mexican GAAP                               Under US GAAP
                                 ------------------------------------------   --------------------------------------------

                                     2000          2001           2002            2000            2001            2002
                                 -----------   ------------   -------------   ------------   -------------   -------------
         <S>                     <C>           <C>            <C>             <C>            <C>             <C>
         Current assets                        Ps   715,975   Ps    987,066                  Ps  1,125,736   Ps  1,024,460
         Non-current assets                       8,452,660       8,042,853                      8,773,292       8,525,591
         Current liabilities                      1,555,127       2,297,461                      1,852,819       2,525,850
         Non-current liabilities                  4,284,193       4,268,920                      4,830,688       4,535,699
         Stockholders' equity                     3,329,315       2,463,538                      3,215,521       2,488,502

         Net revenues            Ps  317,822      1,748,787       3,038,749   Ps   216,330       1,560,156       3,067,633
         Gross margin               (311,415)      (859,768)        (73,665)       802,017      (1,024,916)         (7,889)
         Net loss                   (339,462)    (1,112,668)       (871,762)      (659,259)     (1,175,368)       (770,792)
</TABLE>

  v.     Reversal of capitalized consent fee for Unefon rights and other
         expenses

         As discussed in Note 7, the Company's Board of Directors granted rights
         to certain stockholders of the Company to acquire a pro-rata share of
         the Unefon shares currently owned by the Company. The Rights to acquire
         the Unefon shares were subject to the receipt of consents from the
         Holders of the TV Azteca Notes and Azteca Holdings Senior Secured Notes
         2002, which were obtained on March 27, 2001, the receipt of regulatory
         approvals and third parties approvals, including the approval of
         Nortel. In addition, the Rights are subject to the filing and
         effectiveness of a registration statement with the U.S. Securities and
         Exchange Commission that registers the Unefon shares underlying the
         Rights.

                                      F-128

<PAGE>

         On March 27, 2001, the Company paid a fee totaling Ps115,223 to certain
         holders of the TV Azteca Notes to obtain the required consent for the
         grant of the rights to acquire a pro-rata share of the Unefon shares
         owned by the Company. Under Mexican GAAP, the Company capitalized the
         consent fee as part of its total investment in Unefon. Under US GAAP,
         this consent fee would be recognized in earnings during the year.

         During 2002, for Mexican GAAP purposes, the Company capitalized
         expenses for an amount of Ps6,037 related to a proposed spin-off of its
         investment in Unefon mentioned in Note 7. For US GAAP purposes, this
         amount was recognized in earnings during the year.

  vi.    Todito investment

         For Mexican GAAP purposes, the investment in Todito (see Note 7) was
         accounted for as a purchase and generated goodwill of Ps543,370.
         Goodwill amortization recorded under Mexican GAAP during the years
         ended December 31, 2000, 2001 and 2002 amounted to Ps22,643, Ps27,260
         and Ps27,260, respectively. Prior to the Company's investment, Todito
         was a wholly-owned subsidiary of Dataflux, S. A. de C. V., a company
         controlled by the brother of Mr. Salinas Pliego. Under US GAAP, the
         Company's investment in Todito would be accounted for as a transaction
         between companies under common control and would be recorded based on
         the historical cost of the advertising, programming and sales services
         provided to Todito when such services are provided. Under US GAAP,
         there was no cost to the Company associated with providing the
         programming to Todito for the years ended December 31, 2000, 2001 and
         2002. The cost of providing advertising and sales services were Ps2,170
         and Ps5,356 during the year ended December 31, 2000, respectively.
         Furthermore, there was no cost to the Company associated with providing
         the advertising and sales services during the years ended December 31,
         2001 and 2002.

         Revenues related to the advertising provided to Todito under the terms
         of the agreement are recognized under Mexican GAAP when the advertising
         is utilized based on the peso equivalent amount of the advertising at
         the date of the agreement, indexed for the effects of inflation.
         Revenues related to the content and sales services provided to Todito
         under the terms of the agreement are recognized under Mexican GAAP on a
         straight line basis over the life of the agreement based on the peso
         equivalent amount of the programming and services at the date of the
         agreement indexed for the effects of inflation.

         Revenues recognized in connection with the Todito agreement under
         Mexican and US GAAP were as follows:

<TABLE>
<CAPTION>
                                                                         Year ended December 31, 2000
                                                               ----------------------------------------------

                                                                   Mexican           US
                                                                    GAAP            GAAP         Difference
                                                               ---------------  -------------  --------------
         <S>                                                   <C>              <C>            <C>
         Revenues recognized for:
         Advertising                                           Ps       95,530  Ps      2,170  Ps     (93,360)
         Programming                                                    81,786                        (81,786)
         Services                                                        5,356          5,356               -
                                                               ---------------  -------------  --------------

                                                               Ps      182,672  Ps      7,526  Ps    (175,146)
                                                               ===============  =============  ==============
</TABLE>

                                      F-129

<PAGE>

<TABLE>
<CAPTION>
                                                                        Year ended December 31, 2001
                                                               ----------------------------------------------

                                                                   Mexican            US
                                                                    GAAP             GAAP        Difference
                                                               ---------------  -------------  --------------
         <S>                                                   <C>              <C>            <C>
         Cumulative revenues recognized for:
         Advertising                                           Ps      165,184  Ps      2,170  Ps    (163,014)
         Programming                                                   196,564                       (196,564)
         Services                                                       13,598          5,356          (8,242)
                                                               ---------------  -------------  --------------

                                                               Ps      375,346  Ps      7,526  Ps    (367,820)
                                                               ===============  =============  ==============

<CAPTION>
                                                                        Year ended December 31, 2002
                                                               ----------------------------------------------

                                                                   Mexican            US
                                                                    GAAP             GAAP        Difference
                                                               ---------------  -------------  --------------
         <S>                                                   <C>              <C>            <C>
         Cumulative revenues recognized for:
         Advertising                                           Ps      233,593  Ps      2,170  Ps    (231,423)
         Programming                                                   313,594                       (313,594)
         Services                                                       25,651          5,356         (20,295)
                                                               ---------------  -------------  --------------

                                                               Ps      572,838  Ps      7,526  Ps    (565,312)
                                                               ===============  =============  ==============
</TABLE>

         The following table illustrates the differences between Mexican and US
         GAAP in the method of accounting for the Company's investment in
         Todito:

<TABLE>
<CAPTION>
                                          At December 31, 2000      At December 31, 2001      At December 31, 2002
                                       -------------------------  ------------------------  ------------------------

                                        Investment    Goodwill     Investment   Goodwill     Investment   Goodwill
                                         in Todito    in Todito    in Todito    in Todito    in Todito    in Todito
                                       ------------  -----------  -----------  -----------  -----------  -----------
         <S>                           <C>           <C>          <C>          <C>          <C>          <C>
         Amounts under Mexican GAAP    Ps   482,491  Ps  520,727  Ps  397,883  Ps  493,467  Ps  319,986  Ps  466,207
         Reverse investment in Todito      (543,430)    (543,370)    (539,901)    (543,370)    (538,103)    (543,370)
         Equity in earnings                  63,947                   155,541                   247,393
         Amortization of goodwill                         22,643                    49,903                    77,163
                                       ------------  -----------  -----------  -----------  -----------  -----------

         Amounts under US GAAP         Ps     3,008  Ps        -  Ps   13,523  Ps        -  Ps   29,276  Ps        -
                                       ============  ===========  ===========  ===========  ===========  ===========
</TABLE>

         Under US GAAP, the Company's share of Todito's net (loss) earnings for
         the years ended December 31, 2000, 2001 and 2002 were (Ps53), Ps6,051
         and Ps14,003, respectively, compared to a net loss of Ps64,000,
         Ps85,543 and Ps77,849, respectively, under Mexican GAAP. The difference
         is due to the pre-operating expenses and the cost of advertising and
         programming services provided by the Company that have been capitalized
         and expensed for Mexican GAAP purposes, respectively.

  vii.   Acquisition of Azteca Digital

         The Company acquired Azteca Digital, S. A. de C. V. on December 31,
         1997. Under Mexican GAAP, this acquisition was accounted by the
         purchase method; however, under US GAAP, this acquisition is considered
         to be of a company under common control and accordingly, it would have
         been accounted for retroactively in a manner having a similar effect as
         a pooling of interests. The annual goodwill amortization relating to
         the Azteca Digital acquisition under Mexican GAAP in 2000, 2001 and
         2002 amounted to Ps7,904.

                                      F-130

<PAGE>

  viii.  Effects of fifth amendment to Statement B-10

         As mentioned in Note 2a., the Company restates its exhibition rights
         and equipment of foreign origin based on the devaluation of the Mexican
         peso against the foreign currencies of, and by applying inflation
         factors of the countries in which they originate. This methodology does
         not comply with Rule 3-20 of the SEC's Regulation S-X for presenting
         price level financial statements, and consequently the Company has
         determined the effects on exhibition rights and equipment of foreign
         origin and current year depreciation and amortization and reflected
         them in its results of operations and financial position under US GAAP.

  ix.    Employee stock option plans

         The granting of stock options in the fourth quarter of 1997 by the
         Company at exercise prices below the then current market prices of CPOs
         would result in non-cash compensation cost under US GAAP of
         approximately Ps113,964, Ps35,296 and Ps61,733 for 2000, 2001 and 2002,
         respectively, as determined under Accounting Principles Board Opinion
         No. 25 "Accounting for Stock Issued to Employees". The majority of the
         options granted were pursuant to plans which would be considered
         variable plans under US GAAP, since the number of shares exercisable is
         contingent upon the Company achieving specified financial goals and
         employees' performance. The Company expects to record non-cash
         compensation expense in future periods in connection with these plans.

         Had compensation cost for the Company's employees stock option plans
         been determined based on the fair value at the grant dates for awards
         under those plans consistent with Statement of Financial Accounting
         Standard ("SFAS") No. 123, "Accounting for Stock Based Compensation",
         the Company's compensation expense would have been Ps40,510, Ps17,869
         and Ps7,550 for 2000, 2001 and 2002, respectively, and the net income
         and net income per share would have been reduced to the pro forma
         amounts indicated as follows:

<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                                -------------------------------------------------

                                                   2000               2001               2002
                                                -----------       ------------       ------------
         <S>                                    <C>               <C>                <C>
         Net income as reported                 Ps    6,693       Ps   464,706       Ps   521,053
                                                ===========       ============       ============

         Net income pro forma                   Ps   80,147       Ps   482,133       Ps   575,236
                                                ===========       ============       ============

         Net income per share as reported       Ps    0.001       Ps     0.051       Ps     0.057
                                                ===========       ============       ============

         Net income per share pro forma         Ps    0.008       Ps     0.053       Ps     0.063
                                                ===========       ============       ============
</TABLE>

                                      F-131

<PAGE>

         The effect on net income and net income per share is not expected to be
         indicative of the effects in future years. The fair value of each
         option granted is estimated on the date of grant using the weighted
         average of the Black-Scholes option pricing model and simple binomial
         model with the following assumptions:

<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                                   -------------------------------

                                                     2000      2001          2002
                                                   -------     -------     -------
         <S>                                         <C>         <C>         <C>
         Expected volatility                         0.353       0.391       0.423
         Risk-free interest rate                        18%         10%          8%
         Expected life of options (in years)             5           5           5
         Expected dividend yield                        10%         10%         10%
</TABLE>

         The Black-Scholes option valuation model and simple binomial model were
         developed for use in estimating the fair value of traded options. In
         addition, option valuation models require the input of highly
         subjective assumptions including the expected stock price volatility.
         The following table summarizes activity under the Company's stock
         option plans during the years ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                                                  Number of options    Weighted-average
                                                 (thousands of CPOs)    exercise price
                                                 -------------------   ----------------
         <S>                                                 <C>                   <C>
         Outstanding at January 1, 2000                       68,712               0.32

         Granted                                               1,886               0.29
         Exercised                                           (15,652)              0.29
                                                 -------------------

         Outstanding at December 31, 2000                     54,946               0.32

         Granted                                                                   0.29
         Exercised                                           (10,405)              0.29
                                                 -------------------

         Outstanding at December 31, 2001                     44,541

         Granted                                                   -               0.29
         Exercised                                           (15,340)              0.29
                                                 -------------------

         Outstanding at December 31, 2002                     29,201
                                                 ===================

         Outstanding options exercisable at
         December 31,

         2000                                                 14,000               0.32
                                                 ===================

         2001                                                 18,651               0.32
                                                 ===================

         2002                                                 18,297               0.32
                                                 ===================
</TABLE>

                                      F-132

<PAGE>

  x.     Compensation expense for Unefon stock option plan

         On November 15, 2000, the Board of Directors of Unefon initiated a
         stock option plan (the "Unefon Stock Option Plan") for its employees
         and stockholders. Pursuant to the Unefon Stock Option Plan, the Company
         has the right to receive or designate the beneficiaries of the option
         to purchase 120,152,229 shares at US$0.1507 per share. The Unefon Stock
         Option Plan has a vesting period of five years as follows: 10% during
         2001, 10% during 2002, 20% during 2003, 30% during 2004, and 30% during
         2005. The Company designated certain employees as the sole
         beneficiaries of the Unefon Stock Option Plan.

         Under US GAAP, the Company would recognize as compensation expense the
         vested options since the Company is designating certain employees as
         the sole beneficiaries of the Unefon Stock Option Plan. At December 31,
         2001 and 2002, the Company recognized Ps54,413 and Ps3,352,
         respectively, as compensation expense related to the Stock Option Plan.

  xi.    Deferred income tax

         As stated in Note 2n., income tax expense was recorded under Mexican
         GAAP through December 31, 1999 following inter-period allocation
         procedures under the partial liability method. Under this method,
         deferred income tax is recognized only in respect of identifiable,
         non-recurring timing differences between taxable and book income. This
         substantially eliminated all deferred taxes under Mexican GAAP. Also,
         under Mexican GAAP through December 31, 1999 the benefit from utilizing
         tax loss carry-forwards and asset tax credits was not recognized until
         utilized, at which time it was presented as an extraordinary item. This
         substantially eliminated all deferred taxes under Mexican GAAP.
         Effective January 1, 2000, the Company adopted the provisions of
         Revised Statement D-4 "Accounting Treatment of Income Tax, Assets Tax
         and Employees' Profit Sharing". Under this method, deferred tax assets
         or liabilities are recognized for all differences between the book
         value and the tax value of assets and liabilities. The cumulative
         effect of adopting Statement D-4 as of January 1, 2000 was a net
         deferred tax liability of Ps693,526, which was charged directly to
         stockholders' equity.

         There would be no effect of adoption Revised Statement D-4 under US
         GAAP relating to the Company's investment in Unefon.

         Under US GAAP, the Company follows SFAS No. 109 "Accounting for Income
         Taxes" ("SFAS 109"). This statement requires an asset and liability
         approach for financial accounting and reporting for income tax under
         the following basic principles: (a) a current tax liability or asset is
         recognized for the estimated taxes payable or refundable on tax returns
         for the current year, (b) a deferred tax liability or asset is
         recognized for the estimated future tax effects attributable to
         temporary differences and tax loss and tax credit carry-forwards, (c)
         the measurement of current and deferred tax liabilities and assets is
         based on provisions of the enacted tax law and the effects of future
         changes in tax laws or rates are not anticipated, (d)

                                      F-133

<PAGE>

         the measurement of deferred tax assets is reduced, if necessary, by the
         amount of any tax benefits that, based on available evidence, are not
         expected to be realized. Under this method, deferred tax is recognized
         with respect to all temporary differences, and the benefit from
         utilizing tax loss carry-forwards and asset tax credits is recognized
         in the year in which the loss or credits arise (subject to a valuation
         allowance with respect to any tax benefits not expected to be
         realized). The subsequent realization of this benefit does not affect
         income.

         The temporary differences under SFAS 109 are determined based on the
         difference between the indexed tax basis amount of the asset or
         liability and the related stated amount reported in the financial
         statements. Except as indicated in the following paragraph the deferred
         tax expense or benefit should be calculated as the difference between:
         (a) deferred tax assets and liabilities reported at the end of the
         current year determined as indicated above, and (b) deferred tax assets
         and liabilities reported at the end of the prior year, remeasured to
         units of current general purchasing power at the end of the current
         period.

         Gains and losses from holding non-monetary assets are recorded in
         stockholders' equity. It is the Company's policy to reflect in results
         of operations the deferred income taxes that arise as a result of such
         gains (losses) from holding non-monetary assets. The significant
         components of income tax expense (benefit) under US GAAP were as
         follows:

<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                         --------------------------------------------------

                                             2000               2001               2002
                                         ------------       ------------       ------------
         <S>                             <C>                <C>                <C>
         Current                         Ps     9,677       Ps   209,934       Ps   264,158
         Deferred                             (68,549)          (221,058)          (235,572)
                                         ------------       ------------       ------------

         Total (benefit) expense         Ps   (58,872)      Ps   (11,124)      Ps    28,586
                                         ============       ============       ============
</TABLE>

         The following items represent the principal differences between income
         tax computed under US GAAP at the statutory rate and the Company's
         provision for income tax in each period:

<TABLE>
<CAPTION>
                                                                                Year ended December 31,
                                                                 --------------------------------------------------

                                                                       2000            2001               2002
                                                                 -------------      ------------      -------------
         <S>                                                     <C>                <C>               <C>
         (Loss) income before income tax
         benefit                                                 Ps    (52,179)     Ps   453,582      Ps    549,639
                                                                 =============      ============      =============

         Income tax (benefit) expense at statutory rate          Ps    (18,263)     Ps   158,754      Ps    192,374
         Non-deductible stock dividends                                 22,946
         Effects of inflationary components                            117,716            10,149             44,800
         Miscellaneous expenses non-deductible
          for tax purposes                                              24,805            14,811             66,697
         Benefit of tax consolidation                                 (106,634)         (120,284)          (147,597)
         Other                                                         (99,442)          (74,554)          (127,688)
                                                                 -------------      ------------      -------------

         Net income tax benefit                                  Ps    (58,872)     Ps   (11,124)     Ps     28,586
                                                                 =============      ============      =============
</TABLE>

                                      F-134

<PAGE>

         During 1999, the Company and its external legal and tax advisers
         evaluated the deductibility of the concession rights and concluded that
         such rights are deductible for tax purposes, over the period granted by
         such concessions. Based on this conclusion and a confirmation received
         from the Mexican tax authorities in March 2000, the Company adjusted
         the previously recorded deferred tax liability.

         The income tax effects of significant items comprising the Company's
         net deferred tax assets and liabilities under US GAAP are as follows:

<TABLE>
<CAPTION>
                                                                               At December 31,
                                                           --------------------------------------------------------

                                                                2000                  2001                 2002
                                                           --------------        --------------       -------------
         <S>                                               <C>                   <C>                  <C>
         Deferred income tax assets:
         ---------------------------

         Current
         Advertising advances and other                    Ps     212,183        Ps      68,531       Ps    245,028
                                                           --------------        --------------       -------------

         Non-current
         Tax loss carryforwards and other                         143,767               900,910             626,507
         Deferred income tax asset recorded
          from the purchase of subsidiary                                               200,130
         Valuation reserve for tax loss
          carryforwards                                                                (497,805)
                                                           --------------        --------------       -------------

         Total non-current                                        143,767               603,235             626,507
                                                           --------------        --------------       -------------

                                                                  355,950               671,766             871,535
                                                           --------------        --------------       -------------
         Deferred income tax liability:
         ------------------------------

         Current
         Inventories and provisions                              (513,588)             (306,054)           (201,053)
                                                           --------------        --------------       -------------

         Non-current
         Television concessions                                  (210,547)             (350,325)           (506,710)
         Property, machinery and equipment
          and other                                              (388,705)             (351,091)           (263,904)
                                                           --------------        --------------       -------------

         Total non-current                                       (599,252)             (701,416)           (770,614)
                                                           --------------        --------------       -------------

                                                               (1,112,840)           (1,007,470)           (971,667)
                                                           --------------        --------------       -------------
         Net deferred tax liabilities:
         Under US GAAP                                           (756,890)             (335,704)           (100,132)
         Under Mexican GAAP                                      (416,593)                                  (25,534)
                                                           --------------        --------------       -------------

         US GAAP adjustment                                Ps    (340,297)       Ps    (335,704)      Ps    (74,598)
                                                           ==============        ==============       =============
</TABLE>

         The difference between net deferred tax liabilities under Mexican and
         US GAAP at December 31, 2002, 2001 and 2002, relates primarily to the
         effects of the Fifth Amendment to Statement B-10, the cancellations of
         the deferred tax asset related to the option for sale of an affiliate
         and the amortization of the goodwill of Azteca Digital.

                                      F-135

<PAGE>

         During the year ended December 31, 2001, the Company acquired a company
         with tax loss carryforwards. Under Mexican and US GAAP, the Company
         recorded a tax asset of Ps939,616 and an income tax benefit of
         Ps328,865.

  xii.   Exhibition rights

         Under US GAAP, a license agreement for program material is reported as
         an asset and a liability, when the license period begins and all of the
         following conditions are met: the cost of each program is known or
         reasonably determinable, the program material has been accepted by the
         license and the program is available for its first showing or telecast.
         Under Mexican GAAP, the rights acquired and obligations incurred are
         recorded when the license agreements are signed. At December 31, 2000,
         2001 and 2002, Ps195,413, Ps382,332 and Ps363,341, respectively, of
         deferred exhibition rights would not be recorded under US GAAP, since
         the related program material was not yet available to the Company.
         Since the Company's obligations under the license agreements and the
         deferred exhibition rights are considered monetary and non-monetary
         items, respectively, under the Mexican inflation accounting rules, the
         early recognition of the Company's obligations, prior to the period in
         which the program material is available for its first showing,
         overstates the monetary gain and exchange losses related to these
         obligations under US GAAP. However, since the obligations are US dollar
         denominated, the net effect of the related exchange losses and monetary
         gains, under US GAAP, are immaterial during the periods presented.

  xiii.  Production costs of internally produced programming

         Under Mexican GAAP, the Company expensed production costs of internally
         produced programming when the programs are initially aired, except in
         the case of telenovelas, where some of the production costs are
         amortized over a period of four-years based on estimates of secondary
         market revenue.

         Under US GAAP, on January 1, 2001, the Company adopted the American
         Institute of Certified Public Accountants Statement of Position No.
         00-2, "Accounting by Producers and Distributors of Films" ("SOP 00-2"),
         which replaced SFAS No. 53, "Financial Reporting by Producers and
         Distributors of Motion Picture Films". SOP 00-2 provides that film
         costs should be accounted for under an inventory model and discusses
         various topics such as revenue recognition and accounting for
         exploitation costs and impairment assessment. In addition, SOP 00-2
         establishes criteria for which revenues should be included in the
         Company's ultimate revenue projections. As discussed in Note 7, during
         2001 and 2002, the Company renegotiated its contract with Azteca
         America. Pursuant to SOP 00-2, given its limited experience with Azteca
         America, at December 31, 2001 and 2002, the Company reversed
         capitalized production costs of internally produced programming
         totaling Ps226,375 and Ps252,577, respectively.

                                      F-136

<PAGE>

  xiv.   Cash and marketable securities

         Under Mexican GAAP, temporary investments and marketable securities,
         expected to be held less than one year, are considered to be cash
         equivalents. Under US GAAP, temporary investments and marketable
         securities with original maturities greater than 90 days but less than
         one year are considered to be short-term investments and, accordingly,
         are shown separately from cash in the balance sheet and cash flow
         statement. As of December 31, 2002, the Company reclassified Ps307,814
         as short-term investments.

  xv.    Revenue recognition

         Under Mexican GAAP revenues from advertisers are presented net of sales
         commissions paid. Under US GAAP, revenues are presented based on the
         gross amount billed to the customers and sales commission paid are
         presented as cost of sales.

  xvi.   Comprehensive income

         Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
         Comprehensive Income" ("SFAS 130"). During the periods presented, the
         Company had no change in equity from transactions or other events and
         circumstances from non-owner sources under US GAAP. Accordingly, a
         statement of comprehensive income (loss) has not been provided as
         comprehensive income (loss) equals net income (loss) for all periods
         presented.

  xvii.  Fair value information

         The following disclosure of the estimated fair value of financial
         instruments is made in accordance with the requirements of SFAS No.
         107, "Disclosures about Fair Value of Financial Instruments". The
         estimated fair value amounts have been determined by the Company, using
         available market information and appropriate valuation methodologies.
         However, considerable judgment is required in interpreting market data
         to develop estimates of fair value.

         Cash and cash equivalents, accounts receivable, and accounts payable.
         The carrying value of these items is a reasonable estimate of their
         fair value.

         Bank loans. The Company's bank loans bear interest at variable rates
         and their terms are generally representative of those which are
         currently available to the Company at December 31, 2001 and 2002 for
         the issuance of debt with similar terms and remaining maturities, and
         therefore the carrying values of these loans are a reasonable estimate
         of their fair value.

         Guaranteed senior notes. The carrying value of the Company's guaranteed
         senior notes and the related fair value base on the quoted market
         prices for the same or similar issues at December 31, 2002 were
         Ps4,417,875 and Ps4,069,643, respectively, (Ps4,114,901 and
         Ps4,066,190, respectively, in 2001).

                                      F-137

<PAGE>

  xviii. Property, machinery and equipment

         Under US GAAP, advances for the acquisition of machinery and equipment
         would be classified as prepayments. As of December 31, 2001 and 2002,
         the Company had advances of Ps74,568 and Ps125,716, respectively.

  xix.   Other employee benefits

         The Company has no post-retirement health care insurance or other
         benefit plans. Therefore, SFAS No. 106, "Employers' Accounting for
         Post-retirement Benefits other than Pensions", SFAS No. 112,
         "Employers' Accounting for Post-employment Benefits" and SFAS No. 132,
         "Employers' Disclosure about Pension and other Post-retirement
         Benefits", would have no effect on the Company's financial position.

  xx.    Earnings per share ("EPS")

         For US GAAP purposes, the Company applies SFAS No. 128, "Earnings per
         Share". This statement simplifies the method of computing earnings per
         share by replacing the primary earnings per share computation with a
         basic earnings per share computation. The basic earnings per share
         excludes dilution and is computed by dividing net income available to
         common stockholders by the weighted average number of common shares
         outstanding for the period. The diluted earnings per share will reflect
         the potential dilution that could occur if securities or other
         contracts to issue common stock were exercised or converted into common
         stock or resulted in the issuance of common stock that then share in
         the earnings of the entity.

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                           ----------------------------------------------------

                                                                2000             2001                2002
                                                           --------------    --------------    ----------------
         <S>                                               <C>               <C>               <C>
         Net income                                        Ps       6,693    Ps     464,706    Ps       521,053
         Preferred stock dividends                                (44,908)          (42,130)            (39,966)
                                                           --------------    --------------    ----------------

         (Loss) income corresponding to
           common stockholders                             Ps     (38,215)   Ps     422,576    Ps       481,087
                                                           ==============    ==============    ================

         Basic weighted average number
          of common shares outstanding                          8,966,752         9,025,274           9,057,444

         Effect of dilutive securities:
         Stock options pending to exercise                         42,215            56,169              55,105
                                                           --------------    --------------    ----------------

         Diluted number of common shares                        9,008,967         9,081,443           9,112,549
                                                           ==============    ==============    ================

         Basic (loss) income per share                     Ps      (0.004)   Ps       0.047    Ps         0.053
                                                           ==============    ==============    ================

         Diluted (loss) income per share                   Ps      (0.004)   Ps       0.047    Ps         0.053
                                                           ==============    ==============    ================
</TABLE>

                                      F-138

<PAGE>

  xxi.   Effect of recently issued accounting standards

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
         Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial
         accounting and reporting for obligations associated with the retirement
         of tangible long-lived assets and the associated asset retirement
         costs. It applies to legal obligations associated with the retirement
         of long-lived assets that result from the acquisition, construction,
         development and/or the normal operation of a long-lived asset, except
         for certain obligations of lessees. SFAS 143 requires that the fair
         value of a liability for an asset retirement obligation be recognized
         in the period in which it is incurred if a reasonable estimate of fair
         value can be made. The associated asset retirement costs are
         capitalized as part of the carrying amount of the long-lived asset.
         SFAS 143 is effective for financial statements issued for fiscal years
         beginning after June 15, 2002. The Company does not expect the adoption
         of SFAS 143 will have a material impact on the consolidated financial
         statements.

         In April 2002, the FASB issued SFAS 145, "Rescission of SFAS Nos. 4,
         44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of
         April 2002" ("SFAS 145"), SFAS 145 rescinds SFAS No. 4, "Reporting
         Gains and Losses from Extinguishment of Debt," SFAS 44, "Accounting for
         Intangible Assets of Motor Carriers," and SFAS 64, "Extinguishments of
         Debt Made to Satisfy Sinking-Fund Requirements." As a result, gains and
         losses from extinguishment of debt will no longer be classified as
         extraordinary items unless they meet the criteria of unusual or
         infrequent as described in Accounting Principles Boards Opinion 30,
         "Reporting the Results of Operations -Reporting the Effects of Disposal
         of a Segment of a Business, and Extraordinary, Unusual and Infrequently
         Occurring Events and Transactions." In addition, SFAS 145 amends SFAS
         No. 13, "Accounting for Leases," to eliminate an inconsistency between
         the required accounting for sale-leaseback transactions and the
         required accounting for certain lease modifications that have economic
         effects that are similar to sale-leaseback transactions. SFAS 145 also
         amends other existing authoritative pronouncements to make various
         technical corrections, clarify meanings, or describe their
         applicability under changed conditions. SFAS 145 is effective for
         fiscal years beginning after May 15, 2002. The Company does not expect
         the adoption of SFAS 145 will have a significant impact on the
         consolidated financial statements.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities" ("SFAS 146"). The issuance
         of SFAS 146 nullifies the former guidance provided by the Emerging
         Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
         Certain Employee Termination Benefits and Other Costs to Exit an
         Activity (including Certain Costs Incurred in a Restructuring" ("EITF
         94-3"). SFAS 146 requires the recognition of a liability for costs
         associated with exit or disposal activity when the liability is
         incurred, rather than on the date commitment to an exit or disposal
         plan. SFAS 146 is effective for liabilities, related to exit or
         disposal activities, which are incurred after December 31, 2002, while
         earlier application is encouraged. The Company does not expect the
         adoption of SFAS 146 will have a significant impact on the consolidated
         financial statements.

                                      F-139

<PAGE>

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
         Stock-Based Compensation - Transition and Disclosure - an amendment of
         SFAS 123" ("SFAS 148"). SFAS 148 continues to permit entities to apply
         the intrinsic method of APB 25, "Accounting for Stock Issued to
         Employees", however, SFAS 148 is intended to encourage companies to
         adopt the accounting provisions of SFAS 123, "Accounting for
         Stock-Based Compensation". SFAS 148 provides three transition methods
         for companies who choose to adopt the provisions of SFAS 123, the
         prospective method, the modified prospective method and the retroactive
         restatement method. In addition, SFAS 148 mandates certain new
         disclosures. SFAS 148 is effective for fiscal years ending after
         December 15, 2002, with early adoption permitted. The Company does not
         expect the adoption of SFAS 148 will have a significant impact on the
         consolidated financial statements.

         In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
         "Guarantor's Accounting and Disclosure Requirements for Guarantees,
         Including Indirect Guarantees of Indebtedness of Others (an
         interpretation of FASB Statements No. 5, 57, and 107 and rescission of
         Interpretation No. 34)." FIN 45 clarifies the requirements of SFAS 5,
         "Accounting for Contingencies, relating to a guarantor's accounting
         for, and disclosure of, the issuance of certain types of guarantees.
         FIN 45 requires that upon issuance of a guarantee, the guarantor must
         recognize a liability for the fair value of the obligation it assumes
         under that guarantee. FIN 45's provisions for initial recognition and
         measurement should be applied on a prospective basis to guarantees
         issued or modified after December 31, 2002, irrespective of the
         guarantor's fiscal year-end. The guarantor's previous accounting for
         guarantees that were issued before the date of FIN 45's initial
         application may not be revised or restated to reflect the effect of the
         recognition and measurement provisions of the Interpretation. The
         disclosure requirements are effective for financial statements of both
         interim and annual periods that end after December 15, 2002. The
         adoption of FIN 45 did not have a material impact on the consolidated
         financial statements.

         In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
         "Consolidation of Variable Interest Entities, an interpretation of ARB
         51." The primary objectives of FIN 46 are to provide guidance on the
         identification of entities for which control is achieved through means
         other than through voting rights ("variable interest entities" or
         "VIEs") and how to determine when and which business enterprise should
         consolidate the VIE (the "primary beneficiary"). This new model for
         consolidation applies to an entity which either (1) the equity
         investors (if any) do not have a controlling financial interest or (2)
         the equity investment at risk is insufficient to finance that entity's
         activities without receiving additional subordinated financial support
         from other parties. In addition, FIN 46 requires that both the primary
         beneficiary and all other enterprises with a significant variable
         interest in a VIE make additional disclosures. FIN 46 applies
         immediately to variable interest entities created after January 31,
         2003, and to variable interest entities in which an enterprise obtains
         an

                                      F-140

<PAGE>

         interest after that date. It applies in the first fiscal year or
         interim period beginning after June 15, 2003, to variable interest
         entities in which an enterprise holds a variable interest that it
         acquired before February 1, 2003. FIN 46 applies to public enterprises
         as of the beginning of the applicable interim or annual period, and it
         applies to nonpublic enterprises as of the end of the applicable annual
         period. The Company is currently evaluating the impact that the
         adoption of FIN 46 will have on the consolidated financial statements.

  xxii.  Financial instrument indexed to the Company's own stock

         As stated in Note 4b., the Company entered into a monthly certificate
         of deposit with a rate of return based on the market value of the
         Company's CPOs. For Mexican GAAP purposes, the principal amount of the
         certificate of deposit and the loss derived of the decline in market
         value of the Company's CPOs were recorded against stockholders' equity.
         For US GAAP purposes, the certificate of deposit would be accounted as
         a short-term investment and its return based on the Company's CPO would
         be recorded against earnings for the year.

  xxiii. Cash flow information

         Under US GAAP, a statement of cash flows is prepared based on
         provisions of SFAS 95, "Statement of Cash Flows". This statement does
         not provide specific guidance for the preparation of cash flow
         statements for price level adjusted financial statements. Cash flows
         from operating, investing and financing activities have been adjusted
         for the effects of inflation on monetary items.

         The Company has further segregated the effects of exchange rate changes
         and inflationary effect on cash from other cash flow activities as
         provided in the following condensed cash flow statement:

                                      F-141

<PAGE>

<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                                      ---------------------------------------------

                                                                          2000            2001             2002
                                                                      ------------    ------------     ------------
         <S>                                                          <C>             <C>              <C>
         Cash flows from operating activities:

         Net income                                                   Ps     6,693    Ps   464,706     Ps   521,053
         Adjustments:
         Gain on sale of subsidiary                                        (17,797)
         Minority interest                                                 (25,825)         (1,892)             346
         Compensation expense from stock options                           113,964          35,296           61,733
         Amortization and depreciation                                     870,846         863,362          427,295
         NBC settlement agreement                                          210,848
         Equity in loss of affiliates                                      278,312         522,845          376,644
         Unefon stock option plan                                                           54,413            3,352
         Deferred income tax                                               (68,549)       (221,058)        (235,572)
         Foreign exchange loss, net of monetary gain
          on NBC warrant                                                   (10,841)
         Unrealized foreign exchange loss                                  101,920        (294,411)         547,511
         Monetary gain on financing activities                            (325,907)        (56,947)            (982)
         Net changes in working capital                                     34,693         252,217          310,097
                                                                      ------------    ------------     ------------

         Net cash provided by operating activities                       1,168,357       1,618,531        2,011,477
                                                                      ------------    ------------     ------------

         Cash flows from investing activities:

         Acquisition of machinery and equipment                           (169,740)       (170,185)        (194,242)
         Exhibition rights purchased                                      (413,700)       (648,594)        (884,736)
         Short-term investments                                                                            (307,814)
         Investment in affiliates of Pappas Telecasting Companies,
          through Azteca America                                                          (660,031)        (455,867)
         Loan granted to Pappas Southern California, LLC                                  (191,124)
                                                                      ------------    ------------     ------------

         Net cash used in investing activities                            (583,440)     (1,669,934)      (1,842,659)
                                                                      ------------    ------------     ------------

         Cash flows from financing activities:

         Debt received                                                     650,864         337,422          326,115
         Debt paid                                                        (668,009)       (116,594)        (761,609)
         Loan granted to a related party                                                                   (199,044)
         Preferred dividend paid                                           (44,908)        (42,130)         (39,966)
         Proceeds from stock options exercised                              27,216          81,371           23,881
         Sale of treasury shares                                                           162,439          136,523
         Repurchase of shares                                             (316,094)        (43,172)        (169,879)
         Proceeds from capital stock increase                               18,217
         Premium on issuance of capital stock                              267,347
         Payment to NBC as settlement for warrant and bonus right         (510,732)
                                                                      ------------    ------------     ------------

         Net cash (used in) provided by financing activities              (576,099)        379,336         (683,979)
                                                                      ------------    ------------     ------------

         Effects of inflation and exchange rate changes on cash             90,988          53,501           89,025
                                                                      ------------    ------------     ------------

         Increase (decrease) in cash and cash equivalents                   99,806         381,434         (426,136)
                                                                      ------------    ------------     ------------

         Cash and cash equivalents at beginning of period                1,169,631       1,269,437        1,650,871
                                                                      ------------    ------------     ------------

         Cash and cash equivalents at end of period                   Ps 1,269,437    Ps 1,650,871     Ps 1,224,735
                                                                      ============    ============     ============

         Supplemental disclosure:

         Cash paid during the period for:
         Interest                                                     Ps   731,025    Ps   669,426     Ps   640,441
                                                                      ============    ============     ============

         Income tax                                                   Ps   252,664    Ps    81,142     Ps   145,497
                                                                      ============    ============     ============
</TABLE>

                                      F-142

<PAGE>

  e.     Condensed balance sheets and results of operations:

         The following condensed balance sheets and results of operations
         reflect the effects of the principal differences between Mexican GAAP
         and US GAAP:

<TABLE>
<CAPTION>
                                                                         CONDENSED BALANCE SHEET
                                                                  ---------------------------------------
                                                                              At December 31,
                                                                  ---------------------------------------

                                                                        2001                   2002
                                                                  -----------------      ----------------
         <S>                                                      <C>                    <C>
         Current assets                                           Ps      7,755,187      Ps     7,627,325
         Property, machinery and equipment - Net                          2,496,652             2,263,578
         Television concessions - Net                                     3,742,945             3,741,702
         Investment in Unefon                                             1,495,216             1,157,153
         Investment in affiliates of Pappas Telecasting
          Companies, through Azteca America                                 660,031             1,154,479
         Goodwill - Net                                                     750,182               746,540
         Other assets                                                     2,248,407             2,585,091
         Deferred income tax assets                                         603,235               626,507
                                                                  -----------------      ----------------

              Total assets                                        Ps     19,751,855      Ps    19,902,375
                                                                  =================      ================

         Short-term debt                                          Ps        566,872      Ps       643,789
         Advertising advances                                             4,639,819             4,430,861
         Deferred income tax payable                                        306,054               201,053
         Other current liabilities                                        1,325,988               949,983
                                                                  -----------------      ----------------

              Total current liabilities                                   6,838,733             6,225,686
                                                                  -----------------      ----------------

         Long-term debt                                                   5,622,726             5,720,790
         Exhibition rights payable                                          206,079               246,096
         Deferred income tax payable                                        701,416               770,614
                                                                  -----------------      ----------------

              Total long-term liabilities                                 6,530,221             6,737,500
                                                                  -----------------      ----------------

         Minority interest                                                    8,371                 8,717
         Stockholders' equity                                             6,374,530             6,930,472
                                                                  -----------------      ----------------

              Total liabilities and stockholders' equity          Ps     19,751,855      Ps    19,902,375
                                                                  =================      ================
</TABLE>

                                      F-143

<PAGE>

<TABLE>
<CAPTION>
                                                                              CONDENSED RESULTS OF OPERATIONS
                                                                   ----------------------------------------------------
                                                                                 Year ended December 31,
                                                                   ----------------------------------------------------
                                                                        2000                2001              2002
                                                                   --------------      -------------     --------------
         <S>                                                       <C>                 <C>               <C>
         Net revenue                                               Ps   6,357,743      Ps  6,522,546     Ps   6,871,509

         Costs and expenses:
         Programming and transmission costs                             3,194,404          3,148,548          2,524,476
         Selling and administrative expenses                            1,053,674          1,046,367          1,404,241
         Depreciation and amortization                                    870,846            863,362            427,295
         NBC settlement agreement                                         210,848
         Other expense - Net                                              547,442            814,027            714,323
                                                                   --------------      -------------     --------------

         Operating income                                                 480,529            650,242          1,801,174
                                                                   --------------      -------------     --------------

         Comprehensive financing cost:
         Interest expense                                                (934,488)          (770,885)          (942,910)
         Interest income                                                  188,271            239,927            191,950
         Exchange (loss) income - Net                                    (118,511)           275,458           (501,792)
         Gain on monetary position                                        325,906             56,948                982
                                                                   --------------      -------------     --------------

         Net comprehensive financing cost                                (538,822)          (198,552)        (1,251,770)
                                                                   --------------      -------------     --------------

         (Loss) income before minority interest and
          income tax benefit                                              (58,293)           451,690            549,404
         Minority interest                                                  6,114              1,892                235
         Income tax benefit (expense)                                      58,872             11,124            (28,586)
                                                                   --------------      -------------     --------------

         Net income                                                Ps       6,693      Ps    464,706     Ps     521,053
                                                                   ==============      =============     ==============
</TABLE>

                                      F-144

<PAGE>

                     UNEFON, S. A. DE C. V. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 2001 AND 2002

                                      F-145

<PAGE>

                     UNEFON, S. A. DE C. V. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 2001 AND 2002

                                      INDEX

Contents                                                                Page
--------                                                                ----
Report of Independent Auditors                                         F-147

Consolidated Balance Sheets as of December 31, 2001 and 2002           F-149

Consolidated Statements of Results of Operations
for the Years Ended December 31, 2000, 2001 and 2002                   F-150

Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 2000, 2001 and 2002                   F-151

Consolidated Statements of Changes in Financial Position
for the Years Ended December 31, 2000, 2001 and 2002                   F-152

Notes to Consolidated Financial Statements                             F-153

                                      F-146

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Mexico City, February 24, 2003, except for the subsequent event included in Note
17 which is as of June 10, 2003

To the Stockholders of
Unefon, S. A. de C. V. and subsidiaries

We have audited the accompanying consolidated balance sheets of Unefon, S. A. de
C. V. and its subsidiaries as of December 31, 2001 and 2002, and the related
consolidated statements of results of operations for the period from February 1,
2000 (commencement of operations) through December 31, 2000 and for the years
ended December 31, 2001 and 2002, of changes in stockholders' equity and of
changes in financial position for the years ended December 31, 2000, 2001 and
2002, expressed in constant pesos of December 31, 2002 purchasing power. These
consolidated financial statements are the responsibility of the Company's
Management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Mexico and in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and that they were
prepared in accordance with accounting principles generally accepted in Mexico.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures contained in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
these consolidated financial statements, the Company is currently engaged in
several legal disputes with its main technology supplier and financial creditor
which could significantly affect the Company's operations and its ability to
repay its debt, and therefore raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

                                      F-147

<PAGE>

In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of Unefon,
S. A. de C. V. and its subsidiaries as of December 31, 2000, 2001 and 2002, and
the consolidated results of their operations for the period from February 1,
2000 (commencement of operations) through December 31, 2000 and for the years
ended December 31, 2001 and 2002, and the changes in consolidated stockholders'
equity and in their consolidated financial position for the years ended December
31, 2000, 2001 and 2002, in conformity with accounting principles generally
accepted in Mexico.

Accounting principles generally accepted in Mexico differ in certain important
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
the consolidated net loss, expressed in pesos of December 31, 2002 purchasing
power, for the years ended December 31, 2000, 2001 and 2002 and the
determination of the consolidated stockholders' equity and consolidated
financial position as of December 31, 2000, 2001 and 2002, also expressed in
pesos of December 31, 2002 purchasing power, to the extent summarized in Note 17
to the consolidated financial statements.

PricewaterhouseCoopers

Alberto Del Castillo V. Vilchis
Audit Partner

                                      F-148

<PAGE>

                     UNEFON, S.A. DE C. V. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

       (Thousands of Mexican pesos of December 31, 2002 purchasing power)

<TABLE>
<CAPTION>
                                                                           December 31,
                                                          ----------------------------------------------
                                                               2001                    2002
                                                          -------------   ------------------------------
                                                                                            Thousands of
                                                                                           US dollars (*)
<S>                                                       <C>             <C>             <C>
Assets

Current:
Cash and cash equivalents                                 Ps    130,955   Ps    203,869   US$     19,529
Restricted cash (Note 10)                                       164,613         159,492           15,278
Accounts receivable                                             155,111         250,218           23,969
Recoverable value added tax                                      87,441          12,604            1,207
Related parties (Note 9)                                          6,651         206,054           19,738
Handset inventories                                             133,760         149,204           14,293
Other assets (Note 7)                                            38,757           5,625              539
                                                          -------------   -------------   --------------

Total current assets                                            717,288         987,066           94,553

Property and equipment - Net (Note 4)                         3,584,539       3,406,730          326,337
Concession rights - Net (Note 5)                              4,038,578       3,881,338          371,801
Pre-operating expenses - Net (Note 6)                           656,684         580,405           55,598
Other assets - Net (Note 7)                                     188,368         174,380           16,704
                                                          -------------   -------------   --------------

Total assets                                              Ps  9,185,457   Ps  9,029,919   US$    864,993
                                                          =============   =============   ==============
Liabilities:

Bank loans (Note 8)                                       Ps    465,281   Ps    217,962   US$     20,879
Nortel Networks Corporation (Note 10)                            67,333         357,859           34,280
Deferred revenue                                                 80,277         222,205           21,285
Accounts payable and accrued expenses                           628,580         701,628           67,210
Related parties (Note 9)                                        316,630         797,807           76,423
                                                          -------------   -------------   --------------

Total current liabilities                                     1,558,101       2,297,461          220,077

Long-term bank loans (Note 8)                                                   100,327            9,611
Capital reduction payable to stockholders (Note 12)             707,299         695,648           66,637
Long-term financing from Nortel Networks
 Corporation (Note 10)                                        3,396,494       3,293,759          315,518
Related parties (Note 9)                                        130,506         158,868           15,218
Other non-current liabilities                                    57,757          20,318            1,946
                                                          -------------   -------------   --------------

Total liabilities                                             5,850,157       6,566,381          629,007
                                                          -------------   -------------   --------------

Stockholders' equity (Notes 1 and 12):

Capital stock authorized                                      3,769,091       3,769,091          361,048
Capital stock authorized but unpaid                            (538,040)       (538,040)         (51,540)
                                                          -------------   -------------   --------------

                                                              3,231,051       3,231,051          309,508

Premium on share subscription                                 1,561,096       1,561,096          149,540
Deficit                                                      (1,456,847)     (2,328,609)        (223,062)
                                                          -------------   -------------   --------------

Total stockholders' equity                                    3,335,300       2,463,538          235,986
                                                          -------------   -------------   --------------

Contingencies and subsequent event (Notes 10, 14
 and 16)
                                                          -------------   -------------   --------------

Total liabilities and stockholders' equity                Ps  9,185,457   Ps  9,029,919   US$    864,993
                                                          =============   =============   ==============
</TABLE>

(*)  The US dollar figures represent the Mexican peso amounts as of December 31,
     2002 expressed in pesos of December 31, 2002 purchasing power translated at
     the exchange rate of Ps10.4393 per US dollar and are not covered by the
     Report of Independent Accountants.

The accompanying seventeen notes are an integral part of these consolidated
financial statements.

                                      F-149

<PAGE>

                      UNEFON, S. A. DE C. V. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS
                                 (Notes 1 and 9)

       (Thousands of Mexican pesos of December 31, 2002 purchasing power,
                            except per share amounts)

<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                               -------------------------------------------------------------------
                                                                                                    Thousands of
                                                  2000 (*)           2001             2002         US dollars (**)
                                               -------------    --------------    -------------    ---------------
<S>                                            <C>              <C>               <C>              <C>
Revenue:
Sale of handsets                               Ps    303,110    Ps     603,910    Ps    597,900    US$      57,274
Service revenue                                       34,094           607,766        1,525,517            146,132
Interconnection revenue                               32,779           486,718          986,596             94,508
Other revenue                                          5,577            53,602           99,835              9,563
                                               -------------    --------------    -------------    ---------------

Total gross revenue                                  375,560         1,751,996        3,209,848            307,477

Less discounts on handsets                           (55,173)         (203,808)        (171,099)           (16,390)
                                               -------------    --------------    -------------    ---------------

Total net revenue                                    320,387         1,548,188        3,038,749            291,087
                                               -------------    --------------    -------------    ---------------
Costs and expenses:
Cost of handsets                                     324,313           874,405          891,171             85,367
Cost of interconnection and resale of long
 distance                                             28,636           218,652          367,984             35,250
                                               -------------    --------------    -------------    ---------------

Total costs                                          352,949         1,093,057        1,259,155            120,617
                                               -------------    --------------    -------------    ---------------

General and administrative expenses                   66,832           289,929          579,970             55,555
Rentals                                               53,157           236,695          296,903             28,442
Other operating expenses                              59,505           316,675          267,459             25,620
                                               -------------    --------------    -------------    ---------------

Total expenses                                       179,494           843,299        1,144,332            109,617
                                               -------------    --------------    -------------    ---------------
(Loss) income before depreciation and
 amortization                                       (212,056)         (388,168)         635,262             60,853

Depreciation and amortization                        101,863           473,178          708,927             67,909
                                               -------------    --------------    -------------    ---------------

Loss from operations                                (313,919)         (861,346)         (73,665)            (7,056)
                                               -------------    --------------    -------------    ---------------

Other income - Net (Notes 9 and 11)                   41,649            22,049           44,770              4,288
                                               -------------    --------------    -------------    ---------------
Comprehensive financing result:
Interest income                                       (6,359)          (21,752)          (5,453)              (522)
Interest expense (include US$8,111 of
 interest accrued since August, 16 to
 December, 31 2002 of Nortel Networks
 Corporation debt, see Note 10)                       53,023           596,350          554,848             53,150
Amortization of debt fees and political risk
 insurance (Note 10)                                  19,659            40,749           33,154              3,176
Exchange loss (gain) - Net                            26,217          (132,953)         565,464             54,167
Gain on monetary position                            (22,673)         (206,981)        (305,146)           (29,231)
                                               -------------    --------------    -------------    ---------------

                                                      69,867           275,413          842,867             80,740
                                               -------------    --------------    -------------    ---------------

Net loss for the period                        Ps   (342,137)   Ps  (1,114,710)   Ps   (871,762)   US$     (83,508)
                                               =============    ==============    =============    ===============

Net loss for the period per share (Note 2p.)   Ps     (0.146)   Ps      (0.443)   Ps     (0.346)   US$      (0.032)
                                               =============    ==============    =============    ===============
</TABLE>

(*)  The Company commenced operations on February 1, 2000 and all income, costs
     and expenses incurred during the period prior to February 1, 2000 were
     capitalized.

(**) The US dollar figures represent the Mexican peso amounts as of December 31,
     2002 expressed in pesos of December 31, 2002 purchasing power translated at
     the exchange rate of Ps10.4393 per US dollar and are not covered by the
     Report of Independent Accountants.

The accompanying seventeen notes are an integral part of these consolidated
financial statements.

                                      F-150

<PAGE>

                     UNEFON, S. A. DE C. V. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
                                    (Note 12)

       (Thousands of Mexican pesos of December 31, 2002 purchasing power,
                            except per share amounts)

<TABLE>
<CAPTION>
                                   Number of           Capital stock                  Premium
                                 common shares   ------------------------------      on share
                                 outstanding *     Authorized        Unpaid        subscription       Deficit            Total
                                 -------------   -------------    -------------    -------------   --------------    -------------
                                  (thousands)
<S>                                  <C>         <C>              <C>              <C>             <C>               <C>
Balances at December 31, 1999        2,340,000   Ps  4,309,012    Ps   (582,647)   Ps    755,622                     Ps  4,481,987

Capital stock decrease of
 October 2, 2000                                      (582,647)         582,647

Capital stock reduction of
 October 2, 2000                                      (689,858)                                                           (689,858)

Capital stock increase of
 November 15, 2000                                     538,040         (538,040)

Issuance of capital stock
 for initial public offering           176,129         194,544                           805,474                         1,000,018

Comprehensive loss for the
 period                                                                                            Ps    (342,137)        (342,137)
                                 -------------   -------------    -------------    -------------   --------------    -------------

Balances at December 31, 2000        2,516,129       3,769,091         (538,040)       1,561,096         (342,137)       4,450,010

Comprehensive loss for the
 period                                                                                                (1,114,710)      (1,114,710)
                                 -------------   -------------    -------------    -------------   --------------    -------------

Balances at December 31, 2001        2,516,129       3,769,091         (538,040)       1,561,096       (1,456,847)       3,335,300

Comprehensive loss for the
 period                                                                                                  (871,762)        (871,762)
                                 -------------   -------------    -------------    -------------   --------------    -------------

Balances at December 31, 2002        2,516,129   Ps  3,769,091    Ps   (538,040)   Ps  1,561,096   Ps  (2,328,609)   Ps  2,463,538
                                 =============   =============    =============    =============   ==============    =============
</TABLE>

*    The number of shares has been retroactively adjusted for a 6,500 for one
     stock split which occurred on November 15, 2000 (see Note 12).

The accompanying seventeen notes are an integral part of these consolidated
financial statements.

                                      F-151

<PAGE>

                     UNEFON, S. A. DE C. V. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

       (Thousands of Mexican pesos of December 31, 2002 purchasing power)

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                 -----------------------------------------------------------------------
                                                       2000               2001                        2002
                                                 ---------------    -----------------    -------------------------------
                                                                                                           Thousands of
                                                                                                          US dollars (*)
<S>                                              <C>                <C>                  <C>              <C>
Operation:

Net loss for the period                          Ps     (342,137)   Ps     (1,114,710)   Ps   (871,762)   US$    (83,508)
Charges to results of operations not
 requiring the use of resources:
Depreciation and amortization                            101,863              473,178          708,927            67,909
Interest accrued since August 1 to December
 31, 2002 of Nortel Networks Corporation
 debt (see Note 10)                                                                             84,673             8,111
Net changes in restricted cash, accounts
 receivable, pre-operating expenses, other
 assets, accounts payable and accrued expenses          (200,209)             172,804          460,396            44,102
                                                 ---------------    -----------------    -------------    --------------

Resources (used in) provided by operating
 activities                                             (440,483)            (468,728)         382,234            36,614
                                                 ---------------    -----------------    -------------    --------------

Financing:

Bank loans obtained (paid)                                                    465,281         (146,992)          (14,081)
Capital stock reduction                                 (689,858)
Capital stock increase                                   194,544
Premium on share subscription                            805,474
Debt to related parties                                   13,207              461,119          310,137            29,709
Financing from Nortel - Net                            2,191,959              158,557          187,792            17,988
Capital stock reduction payable to
 shareholders                                            692,607               14,692          (11,650)           (1,116)
                                                 ---------------    -----------------    -------------    --------------

Resources provided by financing activities             3,207,933            1,099,649          339,287            32,500
                                                 ---------------    -----------------    -------------    --------------
Investment:

Acquisition of property and equipment - Net           (2,030,329)          (1,079,038)        (648,607)          (62,130)
Comprehensive financing cost capitalized                 (32,865)
Pre-operating expenses                                  (310,434)             (11,063)
                                                 ---------------    -----------------    -------------    --------------

Resources used in investment activities               (2,373,628)          (1,090,101)        (648,607)          (62,130)
                                                 ---------------    -----------------    -------------    --------------

Increase (decrease) in cash and cash
 equivalents                                             393,822             (459,180)          72,914             6,984

Cash and cash equivalents at beginning of the
 year                                                    196,313              590,135          130,955            12,545
                                                 ---------------    -----------------    -------------    --------------

Cash and cash equivalents at end of the year     Ps      590,135    Ps        130,955    Ps    203,869    US$     19,529
                                                 ===============    =================    =============    ==============
</TABLE>

(*)  The US dollar figures represent the Mexican peso amounts as of December 31,
     2002 expressed in pesos of December 31, 2002 purchasing power translated at
     the exchange rate of Ps10.4393 per US dollar and are not covered by the
     Report of Independent Accountants.

The accompanying seventeen notes are an integral part of these consolidated
financial statements.

                                      F-152

<PAGE>

                     UNEFON, S. A. DE C. V. AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

                (Thousands of Mexican pesos of December 31, 2002
                   purchasing power, except exchange rates and
                                number of shares)

NOTE 1 - THE COMPANY:

Unefon, S. A. de C. V. ("Unefon" or "Company") was incorporated under the laws
of Mexico on January 19, 1998.

The Company is mainly engaged in the installation, operation and exploitation of
a public, wireless, digital network of telecommunications services under
concession rights granted by the Ministry of Communications and Transport
("SCT") (see Note 5).

At an Extraordinary Stockholder's Meeting held on August 16, 2001, the
stockholders agreed to spin-off part of the assets and liabilities pertaining to
the 3.4 GHz, 7.1-7.7 GHz and 37.0-38.6 GHz frequencies, with the authorization
of the SCT and consent from Nortel Networks Corporation ("Nortel"), from
Operadora Unefon, S. A. de C. V., to three newly incorporated wholly owned
subsidiaries of Unefon, S. A. de C. V.: Operadora de Comunicaciones, S. A. de C.
V., Unefrecuencias, S. A. de C. V. and Frecuencia Movil, S. A. de C. V.,
respectively.

Unefon is a holding company, with no material assets or operations other than
its investment in its subsidiaries described below:

<TABLE>
<CAPTION>
                                                                                             % of participation
                                                                                             ------------------
                   Company                                  Operating activity                Direct   Indirect
-----------------------------------------------   ----------------------------------------   -------   --------
<S>                                               <C>                                           <C>
Operadora Unefon, S. A. de C. V. ("Operadora"),   Concessionaire for radio-electric
formerly Sistemas Profesionales de                frequency bands for fixed or mobile
Comunicacion, S. A. de C. V.                      wireless access services                      99.9%

Servicios SPC, S. A. de C. V. ("Servicios")       Personal service company                      99.9%

Operadora SPC, S. A. de C. V. ("Operadora SPC")   Administrative personal service company
                                                  (in pre-operating stage)                      99.9%

Operadora de Comunicaciones, S. A. de C. V.       Concessionaire for radio-electric             99.9%
("Operadora de Comunicaciones")                   frequency band
</TABLE>

                                      F-153

<PAGE>

<TABLE>
<CAPTION>
                                                                                             % of participation
                                                                                             ------------------
                   Company                                  Operating activity                Direct   Indirect
-----------------------------------------------   ----------------------------------------   -------   --------
<S>                                               <C>                                           <C>
Unefrecuencias, S. A. de C. V.                    Concessionaire for radio-electric             99.9%
("Unefrecuencias")                                frequency band (in pre-operating stage)

Frecuencia Movil, S. A. de C. V.                  Concessionaire for radio-electric             99.9%
                                                  frequency band (in pre-operating stage)

Torres y Comunicaciones, S. A. de  C. V.          In pre-operating stage                                   99.9%
("Torres") (a wholly-owned subsidiary of
Operadora)
</TABLE>

On February 1, 2000, the Company began operations in the city of Toluca. At
December 31, 2002 the Company had operations in fifteen cities (Toluca, Torreon,
San Luis Potosi, Aguascalientes, Puebla, Leon, Guadalajara, Monterrey,
Queretaro, Acapulco, Mexico City, Morelia, Tampico, Saltillo and Tuxtla
Gutierrez).

The Company 's revenues are dependent on providing reliable service to customers
at competitive rates, the general economic conditions in the geographic regions
served and the ability to effectively compete against alternative forms of
telecommunications services, such as cellular and fixed line services.

The Company is highly leveraged and may, depending on the outcome of the
litigation with Nortel need to generate significant cash flows from operations
to meet its obligations on its indebtedness to Nortel (see Note 10).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company's consolidated financial statements have been prepared in accordance
with Accounting Principles Generally Accepted in Mexico ("Mexican GAAP"), which
differ in certain material respects from those under Accounting Principles
Generally Accepted in the United States of America ("US GAAP") (see Note 17).
Mexican GAAP requires that the financial statements be expressed in constant
pesos of purchasing power as of the date of the most recent balance sheet
presented, in this case, December 31, 2002, based on factors derived from the
National Consumer Price Index ("NCPI") issued by the Banco de Mexico.

Following is a summary of the most significant accounting policies followed by
the Company in preparing its consolidated financial statements:

a. Consolidation basis

The Company consolidates all of its subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.

                                      F-154

<PAGE>

b. Cash and cash equivalents

Cash and cash equivalents represent highly liquid interest-bearing deposits and
investments with an original maturity of less than three months. Cash and cash
equivalents are stated at cost, plus interest earned during the period.

c. Handset inventories

Inventories are stated at net replacement cost. Values so determined do not
exceed market value.

d. Property and equipment

Property and equipment are expressed at restated value determined by applying
factors derived from the NCPI to acquisition costs, which include capitalized
comprehensive financing costs. Depreciation is calculated using the
straight-line method, based on the estimated useful lives of the assets (see
Note 4). Property and equipment includes Ps87,497, Ps19,876 and Ps22,011 of
comprehensive financing cost capitalized in 2000, 2001 and 2002, respectively.

e. Concession rights

Concession rights are expressed at restated value determined by applying factors
derived from the NCPI to acquisition costs, which include capitalized
comprehensive financing costs. Amortization is calculated using the
straight-line method over the term of the concession rights (20 years), starting
from the date on which wireless telephone services commence in the cities in
which the Company operates.

Concession rights include Ps32,865 of capitalized comprehensive financing costs
in 2000 (see Note 5).

f. Pre-operating expenses

Pre-operating expenses include costs and expenses associated with the
commencement of operations in the cities in which the Company will provide
services, and are expressed at restated value determined by applying factors
derived from the NCPI to original cost. Amortization is calculated using the
straight-line method over a period of 10 years, starting from the date on which
operations commence (see Note 6).

g. Income tax and employees' statutory profit sharing

Income tax is recorded by the comprehensive assets and liability method, which
consists of recognizing deferred income tax on all temporary differences between
the book and tax values of assets and liabilities at the date of the financial
statements (see Note 13).

                                      F-155

<PAGE>

Deferred employees' statutory profit sharing is recorded only in respect of
those temporary differences between book income and income adjusted for profit
sharing purposes which it may reasonably be presumed will result in a future
liability or benefit.

h. Comprehensive income

As of January 1, 2001, Statement B-4 "Comprehensive Income", entered into
effect, this statement requires that the various items making up the capital
gains (losses) during the year be shown in the statement of stockholders' equity
under the item of comprehensive income. Therefore, in order that the various
lines of the statement of stockholders' equity could be comparable, said
statement was restructured. Comprehensive loss is represented by the net loss
plus the gain or loss from holding non-monetary assets, the translation
adjustment arising in connection with foreign subsidiaries, and items required
by specific accounting standards to be reflected in stockholders' equity but
which do not constitute capital contributions, reductions or distributions. It
is restated on the basis of NCPI factors. As of December 31, 2001 and 2002,
comprehensive loss is integrated by the net loss for the period.

i. Labor benefits

Seniority premiums to which employees are entitled upon termination of
employment after 15 years of service are recognized as cost for the years in
which their services are rendered. At December 31, 2001 and 2002, these labor
liabilities were not significant, as most employees had not accumulated much
seniority.

Other compensations based on length of service to which employees may be
entitled in the event of dismissal or death, in accordance with the Mexican
Federal Labor Law, are charged to results of operations in the year in which
they become payable.

j. Foreign currency transactions

Transactions in foreign currencies are recorded at the rates of exchange
prevailing on the dates they are entered into and/or settled. Assets and
liabilities denominated in these currencies are stated at the Mexican peso
equivalents resulting from applying exchange rates at the balance sheet date.
Exchange differences arising from fluctuations in the exchange rate between the
dates on which transactions are entered into and those on which they are
settled, or the balance sheet date, are charged or credited to results of
operations.

k. Capital stock, premium on share subscription and result on monetary position

Capital stock is stated in terms of year-end purchasing power, and is determined
by applying factors derived from the NCPI to the historical amounts.

The premium on share subscription represents the difference between the payment
for the shares subscribed and the nominal value of those shares, and is restated
by applying NCPI factors.

                                      F-156

<PAGE>

The result on monetary position shown in concession rights, property, furniture
and equipment, pre-operating expenses and results of operations represents the
effects of inflation, measured in terms of the NCPI, on net monthly monetary
assets and liabilities.

l. Revenue recognition

The Company sells wireless telephone services through pre-paid phone cards.

Revenue from the sale of handsets and accessories is recognized when the
equipment is delivered to distributors. No revenue is recorded for the free
minutes of wireless service provided to customers upon acquisition of handsets.
Clients do not pay any activation fees.

Pre-paid wireless telephone services must be used in a maximum period of 30 days
after prepayment, after which the right expires, except when prior to the
expiration date, the client purchases at least Ps150 of additional services, at
which time the latest purchase is accumulated to the unused balance, and the
term is renewed for an additional 30 days.

Service revenue (including revenue recorded from pre-paid phone cards),
interconnections revenue, resale of long distance, and other revenue are
recognized when the related services are provided or when unused wireless
services (minutes) expire.

m. Advertising costs

Advertising expenses are recorded as they accrued.

n. Stock option plan

Stock options granted to participants are given effect when the options are
exercised by crediting paid-in capital stock, based on the cash received.

o. Intangible and long-lived assets

Intangible and long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.

p. Net loss per share

Net loss per share is calculated based on the weighted average number of shares
outstanding during the period. The weighted average number of shares has been
retroactively adjusted for 6,500 for a stock split that occurred on November 15,
2000 (see Note 12). The weighted average number of shares outstanding for the
period from February 1, 2000 (commencement of operations) through December 31,
2000 was 2,347,339 (thousands). As of December 2001 and 2002, the weighted
average number of shares outstanding was 2,516,129 (thousands).

                                      F-157

<PAGE>

q. Fair value of financial instruments

The market value of cash and cash equivalents, accounts receivable, short-term
debt and accounts payable is not substantially different from their book value
due to the variable interest rates and short-term maturity of the financial
instruments.

The Company's long-term debt financing from Nortel is subject to interest at
variable rates, and the terms are generally representative of those to which the
Company had access at December 31, 2001 and 2002 for debt issuances under
similar conditions and maturities (see Note 10).

r. Use of estimates

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires Management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements. Actual results could differ from those estimates.

s. New accounting principles

In 2001, the Mexican Institute of Public Accountants (MIPA) issued new Statement
C-9 "Liabilities, Provisions, Contingent Assets and Liabilities and
Commitments", which replaces original Statements C-9 and C-12, both dating back
to 1974, and supersedes Circulars 46, 47 and 48. Statement C-9 is compulsory for
periods beginning after January 1, 2003. However, early adoption is recommended.
The purposes of the statement is to establish particular rules for valuation,
presentation and disclosure of liabilities, as well as provisions to determine
special rules for valuation, as well as disclosure of contingent assets and
liabilities and provide rules for the disclosure of commitments acquired by the
Company as part of its daily operations.

In January 2002, the MIPA issued new Statement C-8 "Intangible Assets", which
replaces original Statement C-8, in effect from 1976. The provisions of this
statement are compulsory for financial statements for years beginning after
January 1, 2003. However, early adoption is recommended. The most relevant
aspects of this statement are that: i) specific guidelines and criteria are
established for accounting treatment of research and development costs; ii)
preoperating expenses fully identifiable as research must be recorded as
expenses for the period, and iii) valuation rules are based on a logical
sequence of the life cycle of the asset, considering the initial recognition and
valuation of the intangible assets, recognition of an expense, subsequent
disbursements and valuation following initial recognition.

Additionally, the MIPA issued Statement C-15 "Deterioration in the Value of
Long-Lasting Assets and Their Disposal", which will be effective as of January
1, 2004, although early adoption is recommended. This statement: a) provides
criteria that allow the identification of situations showing evidence of
deterioration in the value of long-lasting assets, both tangible and intangible;
b) defines the rule for calculating and recording of losses arising from the
deterioration of assets and their reversion; c) establishes the rules for
presentation and disclosure of assets whose value has deteriorated of whose
deterioration has reversed, and d) rules are provided for the presentation and
disclosure applicable to the discontinuation of operations.

                                      F-158

<PAGE>

Management is currently evaluating the impact that the adoption of these
statements will have on its consolidated financial statements.

t. Reclassifications

Some 2000 and 2001 figures were reclassified to conform to 2002 classifications.

NOTE 3 - FOREIGN CURRENCY POSITION:

At December 31, 2001 and 2002, the Company had the following monetary assets and
liabilities denominated in thousands of US dollars, valued at the exchange rates
of Ps9.17 and Ps10.439 per US dollar, respectively:

                                                  December 31,
                                      ----------------------------------
                                            2001              2002
                                      ---------------    ---------------

Assets                                US$      16,779    US$      24,903
Liabilities                                  (468,935)          (629,005)
                                      ---------------    ---------------

Net short position                    US$    (452,156)   US$    (604,102)
                                      ===============    ===============

At February 24, 2003, date of issuance of these consolidated financial
statements, the exchange rate was Ps10.98 per US dollar.

Below is a summary of the Company's principal foreign currency transactions,
expressed in thousands of US dollars:

<TABLE>
<CAPTION>
                                                        For the year ended
                                                           December 31,
                                       ---------------------------------------------------
                                             2000              2001              2002
                                       ---------------    -------------    ---------------

<S>                                    <C>                <C>              <C>
Fees                                   US$         920    US$     1,367    US$         395
                                       ===============    =============    ===============

Interest expense                       US$      27,064    US$    46,693    US$      19,442
                                       ===============    =============    ===============

Inventory purchases                    US$     271,766    US$    85,697    US$      64,103
                                       ===============    =============    ===============

Property and equipment acquisitions    US$     198,794    US$    70,232    US$     151,664
                                       ===============    =============    ===============
</TABLE>

                                      F-159

<PAGE>

NOTE 4 - PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
                                                    December 31,
                                          --------------------------------
                                                                               Estimated
                                               2001              2002         useful life
                                          --------------    --------------    -----------
                                                                                (years)

<S>                                       <C>               <C>                        <C>
Buildings                                 Ps     254,034    Ps     254,036             20
Leasehold improvements                            90,543            95,850             10
Communication equipment                           83,367           102,245              3
Office furniture and equipment                    73,153            75,038             10
Transportation equipment                          19,151            17,962              4
Computer equipment and software                  265,653           373,776              3
Transmission equipment                         1,952,629         2,973,164             10
Machinery and equipment                           84,357            94,925             10
                                          --------------    --------------

                                               2,822,887         3,986,996
Accumulated depreciation                        (339,620)         (810,418)
                                          --------------    --------------

                                               2,483,267         3,176,578
Land                                              39,691            39,598
Transmission equipment on installation
process - Nortel                                 923,428
Construction in progress others                  138,153           190,554
                                          --------------    --------------

                                          Ps   3,584,539    Ps   3,406,730
                                          ==============    ==============
</TABLE>

On September 7, 1999, the Company signed a procurement agreement, a finance
agreement, a letter agreement, and certain other related agreements with Nortel
(see Note 10). Under the terms of the procurement agreement, 15% of the purchase
price was due at the time the purchase orders were issued, 55% when the goods
were shipped, 20% at the time of provisional acceptance, and the remaining 10%
when the final written acceptance was issued. Title of equipment was to be
transferred upon receipt of the final written acceptance.

Under the terms of the financing and other related agreements, which are under
dispute and may or may not be in force, Nortel has a first priority security
interest in all property of the Company and its subsidiaries and a pledge on
Unefon's shares in Operadora de Comunicaciones, Unefrecuencias and Torres (see
Note 10).

NOTE 5 - CONCESSION RIGHTS:

On May 18, 1998, the Company received formal notification from the Federal
Telecommunications Commission ("COFETEL") granting the Company national
concessions for the use of 80 MHz of radio frequencies. These concessions give
the Company the right to use a bandwidth of 30 MHz within the 1.9 GHz frequency
range, and two bandwidths of 25 MHz within the 3.4 GHz frequency range in each
of the nine regions of Mexico (jointly referred to as "wireless concessions").
Additionally, on June 23, 1998, the SCT issued the Company a concession for the
installation, operation and exploitation of a public telecommunications network
(the "network concession").

                                      F-160

<PAGE>

Wireless concessions allow the Company to exclusively use bandwidth blocks for
which it is licensed to provide mobile or fixed telephone services. The network
concession allows the Company to operate a public telephone network. The Company
may provide specific services indicated in the network concession and the
wireless concessions, which include i) local telephone services; ii) marketing,
reception and transmission of any kind of information, and iii) access to
videoconferencing, audio, video and information networks.

The Company paid the equivalent of 20% of the concession value on June 30, 1998,
and was given an extension to June 15, 1999 to pay the remaining 80%. On June
14, 1999, the Company paid the Mexican Government the remaining 80% of the
concession cost plus interest accruing through that date.

In April 1999 and October 1999, the Company acquired concessions for the use of
a bandwidth of 112 MHz within the 37.0-38.6 GHz frequencies and the 7.1-7.7 GHz
frequencies, amounting to Ps39,373 (Ps30,573 historical).

The Company's concessions were granted for a period of twenty years and are
renewable if certain requirements are complied with.

Under the provisions of the 1995 Federal Telecommunications Law and the Foreign
Investments Law, telecommunications concessions may only be granted to Mexican
individuals or entities, in which foreign investment may not exceed 49% of the
capital stock, or which are not controlled by foreign entities, except, in the
case of concessions for cellular communication services, where foreign
investment may exceed 49% of the capital stock, and there is approval from the
National Foreign Investments Commission.

Under the 1995 Federal Telecommunications Law, a concession may be terminated in
the following cases: i) when the term expires; ii) when the concessionaire
cancels the concession; iii) when the concession is terminated due to
noncompliance with the terms of the concessions and applicable law; iv)
expropriation, or v) when there is dissolution or bankruptcy of the concession
holder.

                                      F-161

<PAGE>

Below is a breakdown of the concession rights:

                                                        December 31,
                                                ------------------------------
                                                    2001              2002
                                                -------------    -------------
Concession for 1.9 GHz frequency                Ps  2,302,780    Ps  2,302,780
Capitalized interest net of result on
 monetary position                                    158,097          158,097
Effect of restatement                               1,033,442        1,033,442
                                                -------------    -------------

                                                    3,494,319        3,494,319
Less - accrued amortization:
Concession for 1.9 GHz frequency                     (172,265)        (329,505)
                                                -------------    -------------

                                                    3,322,054        3,164,814
                                                -------------    -------------

Concession for 3.4 GHz frequency                      450,482          450,482
Capitalized interest net of result on
 monetary position                                     24,857           24,857
Effect of restatement                                 201,810          201,810
                                                -------------    -------------

                                                      677,149          677,149
                                                -------------    -------------

Concessions for 37.0-38.6 GHz frequencies              16,639           16,639
Capitalized interest net of result on
 monetary position                                        477              477
Effect of restatement                                   3,561            3,561
                                                -------------    -------------

                                                       20,677           20,677
                                                -------------    -------------

Concessions for 7.1-7.7 GHz frequencies                15,478           15,478
Capitalized interest net of result on
 monetary position                                        431              431
Effect of restatement                                   2,789            2,789
                                                -------------    -------------

                                                       18,698           18,698
                                                -------------    -------------

                                                Ps  4,038,578    Ps  3,881,338
                                                =============    =============

Under the concessions rights, the Company is subject to certain coverage
commitments (mainly the provision of services in all 9 regions into which the
concession titles are divided into). The coverage commitments are divided into
five phases, all of which must be completed during a term of three through five
years. As of December 31, 2002, the Company had not met the coverage
commitments, however it is in process of obtaining an extension.

In September 2000, the SCT awarded the Company a concession (at no cost) to
install, operate and exploit the public telecommunications network to provide
national and international long distance telephone service. Until the public
telecommunications network is in operation, the Company is able to provide
national long distance services through agreements with other service providers.
This concession is for a 30 years period and can be extended for an additional
30 year period at the SCT's discretion, and assuming compliance by the Company
with the conditions of the concession.

                                      F-162

<PAGE>

During December 1999, Radiocel, S. A. de C. V. ("Radiocel") made an advance
payment of Ps19,285 to purchase the 37.0-38.6 GHz concessions. In November 2000
Radiocel transferred its right to acquire the concessions to 38 GHTZ, S. A. de
C. V. ("38 GHTZ"). Both Radiocel and 38 GHTZ are related parties.

In October 2000 and November 2000, the Company entered into: i) promissory sale
agreements with Telefrecuencias, S. A. de C. V. ("Telefrecuencias") and
Transmisiones y Frecuencias, S. A. de C. V. ("Transmisiones y Frecuencias")
(related parties), for the transfer of the concessions relating to Operadora's
right to use the 3.4 GHz and 7.1-7.7 GHz frequencies, respectively; (ii)
operations agreements with Telefrecuencias and Transmisiones y Frecuencias; and
(iii) distribution agreements with 38 GHTZ. Each of these agreements will be
terminated when the final transfers mentioned in the promissory sale agreement
are realized.

During the year ended December 31, 2000, the Company recognized Ps13,678 as
revenue for the operating and distribution agreements described above. This
revenue was canceled in 2001.

During 2001, the Company and Telefrecuencias, Transmisiones y Frecuencias and 38
GHTZ, decided to terminate the promissory sale and operation agreements without
obligation or penalty for any of them.

NOTE 6 - PRE-OPERATING EXPENSES:

                                                    December 31,
                                           -----------------------------
                                               2001             2002
                                           -------------    ------------
Administrative expenses                    Ps    239,027    Ps   239,027
Leasing                                           66,444          66,444
Fees                                             195,015         195,015
Advertising expenses                              32,051          32,051
Depreciation                                      28,941          28,941
Political risk insurance                          33,177          33,177
Exchange loss - Net                               21,259          21,259
Interest expense - Net                           157,858         157,858
Commissions                                       54,808          54,808
Gain on monetary position                        (68,441)        (68,441)
Other expenses (income) - Net                    (14,441)        (14,441)
                                           -------------    ------------

                                                 745,698         745,698
Less - Accumulated amortization                  (89,014)       (165,293)
                                           -------------   -------------
                                           Ps    656,684    Ps   580,405
                                           =============    ============

                                      F-163

<PAGE>

NOTE 7 - OTHER ASSETS:

                                                         December 31,
                                               ------------------------------
                                                   2001             2002
                                               ------------    --------------
Current balances:

Pre-paid political risk insurance (Note 10)    Ps    19,504    Ps           -
Advance payments                                     17,479               788
Other accounts receivable                             1,774             4,837
                                               ------------    --------------
                                               Ps    38,757    Ps       5,625
                                               ============    ==============
Long-term balances:

Arrangement fee (Note 10)                      Ps    90,306    Ps      63,150
Prepaid expenses                                     45,542            50,099
SCT fees for assigned telephone numbers              23,660            21,030
Guarantee deposits                                    4,807            17,330
Other                                                24,053            22,771
                                               ------------    --------------
                                               Ps   188,368    Ps     174,380
                                               ============    ==============

NOTE 8 - BANK LOANS:

At December 31, 2002 the Company had the following direct bank loans:

Bank                             Amount         Interest rate        Due date
--------------------         -------------      -------------     --------------
                              (thousands)

Short term
Banco Inbursa, S. A.         US$     3,921           11%          June, 2003
Banco Inbursa, S. A.                 8,180           11%          June, 2003
STC Capital Corp.                    8,778           20%          February, 2003
                             -------------
                                    20,879
                             -------------

Long term
STC Capital Corp.                    8,000           20%          August, 2004
Others                               1,611
                             -------------
                                     9,611
                             -------------
Total                        US$    30,490
                             =============

In December 2000, Unefon's principal shareholders, TV Azteca and Mr. Saba,
agreed in a shareholders' undertaking to provide Unefon up to US$35.0 million in
the aggregate by way of either equity or subordinated debt in the event Unefon
had liquidity shortfalls in 2001 or 2002. In such event, TV Azteca and Mr. Saba
would be jointly and severally obligated to make additional funds available to
Unefon. On December 20, 2002, Nortel notified TV Azteca and Mr. Saba of its view
that Unefon's non-payment of the August 2002 interest payment triggered their
joint and several obligations to make additional funds available to Unefon up to
an

                                      F-164

<PAGE>

aggregate amount of US$35.0 million as provided in the shareholders'
undertaking. TV Azteca and Mr. Saba dispute Nortel's contention that their
funding obligation has been triggered, asserting that Nortel has materially
breached the finance agreement and the procurement agreement, thereby excusing
Unefon from performance of its obligations under these agreements and,
therefore, that TV Azteca and Mr. Saba are excused from performance of their
obligations under the shareholders' undertaking. TV Azteca and Mr. Saba also
assert that, even if their funding obligation has been triggered, they have
satisfied their obligations under the shareholders' undertaking by making up to
US$35.8 million in additional funds available to or on behalf of Unefon.

In July 2001, TV Azteca and Mr. Saba announced their intention to provide credit
support to Unefon for up to US$80.0 million cash. As of January 31, 2003, TV
Azteca had paid US$17.7 million to certain creditors of Unefon pursuant to this
credit support and it had outstanding credit support obligations in the amount
of US$12.1 million. TV Azteca has suspended any further credit support to Unefon
in light of Unefon's dispute with Nortel (see Note 10).

NOTE 9 - RELATED PARTY BALANCES AND TRANSACTIONS:

<TABLE>
<CAPTION>
                                                                       December 31,
                                                           -------------------------------
                                                               2001                2002
                                                           ------------       ------------
<S>                                                        <C>                <C>
Short-term balances:

Accounts receivable:

Elektra, S. A. de C. V. ("Elektra")                                           Ps   109,102
Grupo Hecali, S. A. de C. V.                               Ps     6,553
TV Azteca                                                                           78,198
Grupo Telecosmos                                                                    18,754
Others                                                               98
                                                           ------------       ------------
                                                           Ps     6,651       Ps   206,054
                                                           ============       ============
Accounts payable:

Stockholders                                                                  Ps   384,166
Grupo Alsavision, S. A. de C. V. ("Grupo Alsavision")      Ps   175,533            143,060
Elektra                                                         116,895            240,095
TV Azteca                                                        21,484             16,692
Others                                                            2,718             13,794
                                                           ------------       ------------
                                                           Ps   316,630       Ps   797,807
                                                           ============       ============

Long-term balances:

Accounts payable:

Elektra                                                    Ps    21,970       Ps    65,429
TV Azteca                                                        88,114             74,154
38 GHTZ (Note 5)                                                 20,422             19,285
                                                           ------------       ------------
                                                           Ps   130,506       Ps   158,868
                                                           ============       ============
</TABLE>

                                      F-165

<PAGE>

The most important transactions with related parties are summarized as follows:

<TABLE>
<CAPTION>
                                                                For the year ended
                                                                   December 31,
                                              --------------------------------------------------
                                                   2000              2001               2002
                                              -------------      -------------     -------------
<S>                                           <C>                <C>               <C>
Sales of handsets and accessories             Ps    187,746      Ps    140,477     Ps    281,532
                                              =============      =============     =============

Other income - Net (Note 5)                   Ps     13,678
                                              =============

Administrative expenses                       Ps     11,908
                                              =============

Rental expense                                Ps     21,900      Ps     23,165     Ps     24,865
                                              =============      =============     =============

Interest expense (*)                          Ps      8,411      Ps     16,884     Ps     79,547
                                              =============      =============     =============

Advertising expenses                          Ps     11,125      Ps     65,100     Ps     65,742
                                              =============      =============     =============

Commissions on prepaid cards                  Ps      2,162      Ps     14,815     Ps     55,357
                                              =============      =============     =============

Purchases of telephone handsets               Ps     89,100      Ps    127,627     Ps    244,267
                                              =============      =============     =============

Sale of handsets commission                                      Ps     52,080     Ps     57,034
                                                                 =============     =============
</TABLE>

(*)  This interest was accrued during 2000, 2001 and Ps48,843 in 2002 in
     connection with the capital reduction payable to stockholders (see Note
     12).

Marketing, Distribution and Lease agreements - Grupo Elektra:

In June 1998, the Company entered into a 10 year agreement with Elektra
Comercial, S. A. de C. V., T.H.E.O.N.E, S. A. de C. V., Salinas y Rocha, S. A.
de C. V. and Grupo Hecali, S. A. de C. V. (collectively "Grupo Elektra") for the
marketing and distribution of Unefon's services in Grupo Elektra's national
network of stores in Mexico. This agreement was amended in October 1999,
November 2000 and December 2000. The current agreement with Grupo Elektra
compensates Grupo Elektra based on the percentage of revenues generated from the
sales of handsets, airtime sold in its stores and net interconnection from
customers acquires by Unefon through Grupo Elektra.

As compensation for Grupo Elektra services, the Company has agreed to pay Grupo
Elektra:

..    The greatest of a 20% discount of the value of the handset or 150 pesos
     discount per handset (indexed annually by the NCPI).

                                      F-166

<PAGE>

..    5.8% of airtime sold at Grupo Elektra stores for use on Unefon's network
     through prepaid cards. During the year ended December 31, 2000, 2001 and
     2002, the Company accrued commissions of Ps2,162, Ps14,815 and Ps19,196,
     respectively.

..    5.8% of the net interconnection revenue from "calling party pays"
     subscribers signed-up through Grupo Elektra stores. Net interconnection
     revenue is defined as interconnection revenue minus cost of
     interconnection. During 2000, 2001 and 2002, the Company accrued
     commissions of Ps28, Ps6,040 and Ps8,830, respectively.

In accordance with a ten-year lease agreement dated November 3, 2000, Grupo
Elektra receives an annual fee payment of US$3,000 for each of the Grupo Elektra
stores at which the Company installs a transmission base or any other equipment.
The Company recorded Ps246, Ps265 and Ps282 for fees of this nature during the
year ended December 31, 2000, 2001 and 2002, respectively.

Under the terms of the agreements, the Company will defer payment of amounts
related to airtime, interconnection and lease space accrued in 2000, 2001 and
2002 until the end of 2004. Amounts accrued in 2003 and 2004 will be payable in
2005. All amounts deferred under these agreements accrue interest at a rate
equivalent to Grupo Elektra's average annual interest rate on its peso
denominated debt. Starting in 2005, these payments will be made as they accrue.

"Credito Plus":

In November 1, 2000 the Company entered a 5 year agreement with Grupo Elektra,
as alternative to promote and sell handsets and airtime through "Credito Plus",
these agreement do not imply novation, switch, modification or cancellation of
the Grupo Elektra agreement mentioned above.

Unefon will pay a 16.5% commission on prepaid airtime sold inside Elektra
stores, to use it on Unefon's Network. The commissions will pay on an accrued
basis. During 2000 the amount was no significant, in 2001 and 2002 Operadora
paid Ps9,096 and Ps17,263, respectively.

Advertising Agreement - TV Azteca:

In June 1998, the Company entered into a 10 year agreement with TV Azteca under
which TV Azteca is to provide the Company with airtime on its two national
television channels, Azteca 7 and Azteca 13, in Mexico for Unefon's advertising
campaigns. The agreement with TV Azteca was amended in October 1999 and in March
2001.

The principal terms and conditions of the TV Azteca agreement include:

..    TV Azteca will supply Unefon with advertising spots totaling an aggregate
     of 120,000 Gross Rating Points ("GRPs") over the term of the agreement, up
     to a maximum of 35,000 GRPs per year. For purposes of the agreement, GRPs
     equal the number of total rating points obtained in 60 second transmission
     of commercial messages. Up to 30% of these GRPs may be used

                                      F-167

<PAGE>

     during prime-time, which is defined in the agreement as 7:00 p.m. to 11:00
     p.m., Monday through Friday, and 6:00 p.m. to 11:00 p.m., Saturday and
     Sunday. Unefon can only use the GRPs through December 2009;

..    Unefon will pay TV Azteca 3.0% of its gross revenues up to maximum of
     US$200.0 million. GRPs used by the Company are billed by TV Azteca in
     accordance with the terms of the agreement as the GRPs are consumed on a
     rate schedule set forth in the agreement, which provides less expensive
     GRPs initially and more expensive GRPs over the term of the agreement.
     Pursuant to the agreement, Unefon has elected to defer payments due in
     2000, 2001 and 2002 and to make these payments in four equal semi-annual
     installments during 2003 and 2004, with the first payment due in June 2003.
     The deferred payments accrued interest at an annual interest rate of 12%.
     Starting in 2003, Unefon's payments to TV Azteca are due on a current
     basis. At December 31, 2002, the aggregate deferred payments equaled
     US$15.7 million (including interest);

..    TV Azteca's right to payment under the agreement is subject to compliance
     by Unefon with its payment obligations under the finance agreement with
     Nortel; and

..    Pursuant to the advertising agreement, Unefon's failure to pay advances
     will not be considered a default by Unefon under the agreement. However, TV
     Azteca will be able to suspend the provision of television services to
     Unefon after Unefon's continued failure to pay for one year.

During the year ended December 31, 2000, 2001 and 2002, the Company received
Ps11,009 Ps70,010 and Ps80,357, respectively, in advertising under the terms of
this agreement. Of the 2000 amount Ps4,530 was recorded as preoperating expenses
and Ps6,479 in results of operations. The amounts for 2001 and 2002 were
recorded in results of operations.

TV Azteca lease agreement:

On May 22, 1998, the Company signed a building lease agreement with TV Azteca
for its headquarters in Mexico City for a term of ten years with a one-time
right to renew for an additional ten year term. The lease building consists of
8,607, square meters of office space and 300 parking spaces, for which the
Company pays Ps2,072 plus value added tax monthly. The lease payment is adjusted
monthly by applying NCPI factors.

Alsavision loan

During 2001 and 2002, the Company entered into promissory notes payable to Grupo
Alsavision. As of December 31, 2001 and 2002, the Company had outstanding
balances of US$19.0 million and US$13.0 million, respectively.

                                      F-168

<PAGE>

Stockholder loans

As of December 31, 2002 the Company had received short-term stockholder loans in
an aggregate amount of US$36.8 million.

NOTE 10 - LONG-TERM FINANCING FROM NORTEL:

Operadora signed a finance agreement with Nortel for a total of up to US$618.0
million, available in two tranches. Tranche "A" was for US$408 million (of which
US$135.0 million was to finance working capital requirements) and was available
from November 15, 1999 through May 15, 2002. Tranche "B" was for US$210.0
million (of which US$35 million was to finance working capital requirements) and
was suppose to be available from May 15, 2002 through May 15, 2003, or earlier
in the event that Tranche "A" had been utilized. Tranche "B" was available, on a
dollar-by-dollar basis as Tranche "A" was syndicated.

As of December 31, 2002, Operadora drew down US$382.9 million from Tranche "A"
and US$14.5 million of Tranche "B", totaling US$397.4 million. On December 27,
2000, Operadora made a mandatory prepayment amounting to US$22.6 million. The
prepayment was required as a result of the proceeds received from the Company's
initial public offering (see Note 12).

On September 21, 2001, Operadora made another prepayment amounting to US$25.0
million, in order to make available Tranche "B".

At December 31, 2001 and 2002, long-term debt related to this agreement was
Ps3,396,494 and Ps3,293,759, respectively (US$349.8 million and US$315.5
million, respectively).

The interest rate on this agreement is defined as LIBOR plus a sovereign spread,
plus an applicable margin. In general terms, the sovereign spread is the
difference between the interest rate paid on the sovereign debt issued by the
Mexican Government and the debt issued by the US Treasury Department. At
December 31, 2001 and 2002, the interest rate was 7.8% and 6.8%, respectively.

Given the legal dispute between Unefon and Nortel, the Company has decided to
record an interest provision amounted to US$8.1 million equivalent to the
interest that would have accrued from August 15 to December 31, 2002. Such
provision has been created due to the possibility that exists of Unefon becoming
obligated to pay such amounts, in the event that a judicial ruling relative to
the aforementioned dispute is issued by a competent authority.

The agreement required Operadora to refrain from: i) incurring any debt not
expressly permitted in the terms of the agreement; ii) disposing of assets
outside the ordinary course of business; iii) granting liens without the
previous consent of the creditors; iv) making restricted payments dividend and
other payments; v) merging or investing in other companies without the previous
consent of Nortel, and vi) entering into certain operations with related
parties, unless previously authorized by Nortel.

                                      F-169

<PAGE>

Under the financing agreement, an event of default would occur and the financing
agreement would become due in the event of the occurrence of any of the
following events: a) failure to pay the principal within a grace period of five
calendar days; b) failure to pay any other amount within a period of grace of
ten calendar days; c) any statement made by Unefon which is not corrected or
false or which is not corrected within a period of 30 calendar days; d) any
event of noncompliance with the obligations for investment of capital; e)
noncompliance with the requirement to keep certain amounts of money in the "debt
service reserve account"; f) when the political risk insurance ceases to be in
effect; g) noncompliance with any of the requirements, and failure to resolve
said noncompliance in a period of 30 calendar days; h) when any concession is
revoked, suspended, etc.; i) noncompliance in connection with any other debt in
an amount exceeding US$10 million dollars; j) any change in shareholding
control, and k) advance termination of the TV Azteca or Grupo Elektra
agreements.

On November 14, 2000, Operadora obtained the consent of Nortel with respect to
the capital reduction of the 25,000 Series "A" and 25,000 Series "B" shares
approved by the Operadora's shareholders in October 2, 2000 (see Note 12), and
the timing of the Company's proposed initial public offering (see Note 12).

An arrangement fee of US$11,700 payable on May 15, 2001 was required for
obtaining the Tranche "A" loan. The arrangement fee accrues interest at the
LIBOR plus 200 base points. The arrangement fee plus interest accrued was paid
on June 2001. The arrangement fee on the Tranche "B" was payable wherever the
facility became available.

Operadora was also required to pay a commitment fee: i) on the unutilized
amounts of Tranche "A", and ii) on Tranche "B" as from the date on which the
amounts in question become available. At December 31, 2002 Operadora paid
US$355,000 related to Tranche "A" (US$545,000 related to Tranche "A" at December
31, 2001 and US$3.6 million at December 31, 2000).

The financing agreement required the Company to pay on behalf of Nortel the
costs incurred by Nortel in the acquisition of political risk insurance.
Payments were due on a semi-annually basis. Those amounts are amortized using
the straight-line method over the term specified in the insurance contract.

The financing agreement requires the Company to make quarterly deposits
beginning from December 31, 1999 into a debt service reserve account in order to
guarantee principal and interest payments. At December 31, 2001 and 2002, the
balance of such account was Ps164,613 and Ps159,492, respectively, and is
presented as restricted cash in the balance sheet.

                                      F-170

<PAGE>

According to the financing agreement the future maturities of the long-term
financing from Nortel at December 31, 2001 and 2002 are as follows:

                                         December 31,
                             ------------------------------------
                                  2001                  2002
                             ---------------       --------------
    2003                     Ps      332,856
    2004                             658,920       Ps     708,414
    2005                           2,404,718            2,585,345
                             ---------------       --------------

                             Ps    3,396,494       Ps   3,293,759
                             ===============       ==============

The balance of the long term financing with Nortel as of December 31, 2002 has
been included as a long-term liability in the consolidated balance sheet based
on the original repayment terms of the financing agreement. It is possible,
however, that as part of the resolution of the legal disputes with Nortel
described below, these amounts might have to be repaid within a year from the
balance sheet date. Management is not in a position to anticipate the final
outcome of this litigation.

At December 31, 2001 and 2002, the Company had no financial derivative
instruments to protect itself against exchange and interest rate fluctuations.

The Nortel financing agreement includes certain affirmative and negative
covenants and maintenance of certain financial conditions, with which Operadora
and its subsidiaries were in compliance until December 31, 2001.

Legal dispute

Unefon and Nortel are currently engaged in disputes over each party's compliance
with the terms and conditions of the finance agreement, letter agreement,
procurement agreement, and other related agreements entered into by the parties
and certain of their shareholders and affiliates.

Unefon asserts that Nortel has not fulfilled its obligations under the finance
agreement, letter agreement and procurement agreement. With respect to the
finance and letter agreements, Unefon has asserted, among other things, that
Nortel breached its obligation to make available to Unefon the second loan
tranche under the finance agreement in the amount of US$210.0 million. Unefon
contends that Nortel's failure to advance this additional financing has limited
Unefon's ability to build out its network, to grow its business in accordance
with its business plan and to realize the revenues and profits related to such
growth and needed to repay the first loan tranche under the finance agreement.
With respect to the procurement agreement, Unefon asserts, among other things,
that Nortel failed to properly design and construct the network and failed to
provide required and appropriate maintenance and support. Unefon also contends
that the settlement agreement signed in July 2002 never became effective because
Nortel failed to perform the pre-conditions to its effectiveness. Even to the
extent that the settlement agreement became effective, Unefon contends that
Nortel failed to perform its obligations thereunder.

                                      F-171

<PAGE>

As a result of Nortel's alleged breaches, Unefon withheld a US$6.0 million
interest payment due to Nortel in August 2002 and has asserted that it is
relieved of its payment obligations under the finance agreement by reason of
Nortel's breaches.

On August 28, 2002, Nortel sent Unefon a notice alleging that Unefon was in
default under the finance agreement due to its failure to make the foregoing
interest payment. Nortel also alleged that the proposed spin-off by TV Azteca of
its 46.5% stake in Unefon would be deemed to be a change in control under the
terms of the finance agreement, which also would constitute a default under the
finance agreement unless Nortel consented to such action.

On September 9, 2002, Unefon filed a lawsuit against Nortel in the Supreme Court
of the State of New York seeking damages and lost profits in the amount of
US$900.0 million. Unefon alleged that Nortel had breached the finance agreement
and related letter agreement by failing to advance the second loan tranche of
$210.0 million. Unefon also alleged that Nortel had failed to comply with its
obligation to pursue syndication of the first loan tranche in a diligent and
timely manner, applying its best efforts consistent with standards of commercial
reasonableness. Unefon alleged that Nortel's breach had caused Unefon damages,
including, among others, lost profits and a diminution in equity value of Unefon
and had relieved Unefon of its payment obligations under the finance agreement.
As an alternative remedy, Unefon sought specific performance of Nortel's
obligation to lend Unefon up to US$210.0 million from the second loan tranche
under the finance agreement.

On September 9, 2002, Nortel notified Unefon that based on Unefon's alleged
default, Nortel was accelerating all amounts owed by Unefon under the finance
agreement, which as of the date of the letter were US$356.0 million in principal
and interest. In addition, Nortel informed Unefon that it was terminating the
procurement agreement as a result of Unefon's alleged default under the finance
agreement.

On September 20, 2002, Nortel filed an answer and counterclaim in the New York
Supreme Court action commenced by Unefon in which Nortel asserted, among other
things, that it had not breached the finance agreement and related letter
agreement and that the remedies sought by Unefon were not available under the
finance agreement, the procurement agreement or applicable law. Nortel's
counterclaim was based on Unefon's non-payment of the August 2002 interest
payment and Nortel sought acceleration and immediate payment of all amounts
allegedly due to Nortel under the finance agreement. On October 1, 2002, Unefon
answered Nortel's counterclaim and denied the allegations offered in support
thereof.

On November 11, 2002, Unefon filed a demand for arbitration under the
procurement agreement, as well as the July 2002 settlement agreement, before the
American Arbitration Association in New York City. In its demand, Unefon
asserted numerous breaches by Nortel of its obligations under these agreements,
including design and construction flaws, failure to fulfill software
obligations, maintenance failures, failure to provide financing and other
economic benefits and refusal to deliver equipment for which Unefon has paid.
Unefon seeks damages and an order

                                      F-172

<PAGE>

directing Nortel to deliver immediately all equipment for which Unefon has paid.
On December 24, 2002, Nortel filed an answer denying liability and asserting
counterclaims based on alleged breaches by Unefon of its payment obligations
under the procurement agreement and requested the arbitration tribunal to award
damages in the amount of at least US$47.0 million.

On November 11, 2002, Nortel moved for summary judgment on its counterclaim
relating to the non-payment of interest. On December 11, 2002, Unefon moved for
partial summary judgment on its claim that Nortel breached the finance
agreement, and moved to amend its complaint to assert claims for fraud and
intentional misrepresentation relating to Nortel's willingness to lend the
second loan tranche, including Nortel's willingness to seek syndication of the
first loan tranche, and to assert two affirmative defenses: i) that Nortel's
fraudulent inducement bars Nortel from any relief under the finance agreement or
procurement agreement, and ii) that Unefon is excused from performance under the
finance agreement by virtue of Nortel's breaches of the finance agreement and
procurement agreement. Unefon also sought a stay of the action pending
resolution of the arbitration commenced by Unefon against Nortel, as described
above. On January 14, 2003, Nortel filed papers opposing Unefon's motions.
Unefon's reply on its cross motions was presented on February 24, 2003.

On November 29, 2002, Unefon and certain of its affiliates commenced an action
against Nortel and others in civil court in Mexico City seeking a declaration of
the parties' rights under pledge agreements pursuant to which Unefon's and the
affiliates' stock had been pledged to Nortel as security to the loans made under
the finance agreement. Unefon and its affiliates seek, among other things,
declarations that Nortel is disproportionately collateralized and that certain
provisions of the stock pledge agreements are void under Article 198 of the
Mexican General Commercial Companies Law (which voids any agreement which
restricts the free exercise of shareholder voting rights).

On December 12, 2002, Nortel filed a second, separate lawsuit in the Supreme
Court of the State of New York seeking authorization from the Court, pursuant to
the stock pledge agreement, to sell the shares of Operadora Unefon and Servicios
that were pledged to secure its indebtedness, or, in the alternative,
authorization to take appropriate steps to obtain control over the management
and business of Unefon. On January 3, 2003 Unefon filed a motion to dismiss this
action on jurisdictional grounds and on the basis of the prior Mexican action
commenced by it against Nortel in regard to the pledge agreements. The parties
have stipulated that Nortel will not take any further action to foreclose on the
shares until such motion is decided.

In January 2003, Nortel requested the bankruptcy of Unefon before a Mexican
court. Unefon has challenged this request and Nortel's bankruptcy claim has been
suspended pending resolution of this dispute.

                                      F-173

<PAGE>

NOTE 11 - AGREEMENTS WITH MATC DIGITAL:

In October 1999, Torres and MATC Digital, S. de R. L. de C. V. ("MATC") entered
into a construction agreement with Operadora in which Operadora agreed to build
a certain number of communication towers.

In May 2000, Unefon, Operadora and Torres entered into the following agreements
with MATC and American Tower Corporation ("ATC"), the parent company of MATC:

..  Build-to-Suit agreement between MATC and Operadora. Pursuant to this
   agreement, the parties agreed that MATC would find and/or build tower sites
   for Operadora in specifically designated locations in Mexico.

..  Master Lease agreement between Torres and Operadora. Pursuant to this
   agreement, the parties agreed that Operadora would lease space from MATC
   within tower sites built (under the terms of the Build-to-Suit agreement) or
   owned or managed by MATC.

..  Co-ownership agreement between MATC and Torres. Pursuant to this agreement,
   the parties agreed to co-own, on an equal 50%-50% basis, tower sites built by
   MATC and requested by Operadora under the terms of the Build-to-Suit
   agreement.

In December 2000 the Company and MATC entered into amended and restated
Build-to-Suit and Master Lease agreements and into a Termination agreement to
terminate and unwind the Co-ownership agreement.

Termination agreement:

In connection with the termination and unwinding of the Co-ownership agreement
the parties agreed to treat all build-to-suit sites and single tenant rooftop
sites constructed pursuant to the original Build to Suit agreement as if they
had originally been designated as excluded build to Suit sites. As a result MATC
became the sole owner of all rights, title and interest in and to the
Co-ownership rights and the Co-ownership assets.

The consummation of the termination of the Co-ownership agreement and the
Amended and Restated Build-to-Suit and Master Lease agreements was scheduled to
occur in two closings. At the initial closing on December 8, 2000, MATC paid
US$10.4 million to the Operadora which consisted of the termination fee of
US$4.5 million plus US$7.0 million representing Unefons' good faith estimate of
the reimbursable costs less US$1.1 million representing MATC's good faith
estimate of the aggregate prior rent. The termination fee received was recorded
as other income in the results of operations.

At the final closing, the parties will deliver any amounts due relating to the
reimbursable cost adjustment and the aggregate prior rent adjustment.

                                      F-174

<PAGE>

Through December 31, 2001 and 2002, the Company had incurred costs of
approximately Ps206 million and Ps173 million in connection with the
construction of the communications towers. The amount received from MATC as
payment for reimbursable costs plus accrued rents (Ps238 million and Ps201
million) has been offset against the amount incurred by the Company in its
balance sheet included in accounts payable and accrued expenses at December 31,
2001 and 2002, respectively.

Amended and Restated Build-to-Suit and Master Lease Agreements:

The Amended and Restated Build-to-Suit agreement states that MATC: a) will
acquire, develop and/or build within search rings identified by the Company all
new build-to-suit sites during the term of the agreement and that the Company
shall lease certain space from MATC pursuant to terms provided in the Amended
and Restated Master Lease agreement; b) identify space on third party existing
sites within the search rings identified by the Company; c) identify,
investigate and develop space on MATC existing sites within search rings
identified by the Company and if such site is selected lease certain space from
MATC, and d) perform the searches as set forth in the agreement, as applicable
to each site.

The Company is obligated to request at least 400 build-to-suit sites during the
term of the agreement. Under the terms of the Amended and Restated Build-to-Suit
agreement the Company, ATC and MATC agreed to increase the maximum obligation,
as defined in the agreement, to 600 build-to-suit sites.

MATC has the exclusive right to perform services for the Company and its
subsidiaries until the earlier of the expiration of the agreement (December 31,
2005) or the date upon which the Company has requested from MATC the 1000th
Build-to-Suit site that will be credited toward the maximum obligation.

Under the Amended and Restated Master Lease agreement, the Company agreed to
lease space from MATC within equipment shelters constructed and owned by MATC in
accordance with the Amended and Restated Build-to-Suit agreement, ground space
for the installation of the Company's equipment and space on MATC towers. Each
of the site leases is governed by the Amended and Restated Master Lease
agreement.

The initial term of each site lease begins on the commencement date of such site
lease and will continue for eleven years and may be extended automatically
beyond its initial term unless the Company notifies MATC in writing at least 90
days before the renewal period that it does not wish to extend the term. The
rent payable to MATC by the Company under each site lease is equal to the base
rent plus any additional rent as provided under the terms of the agreement.

At December 31, 2001 and 2002 the Company had leased 467 and 556 sites,
respectively. These leases are accounted for as operating leases. The lease
expense during the period ended December 31, 2001 and 2002 amounted to Ps154
million and Ps203 million, respectively. The total future minimum lease
obligations based on the base rent of 556 sites, under the terms of the contract
is approximately US$90.0 million as shown on the following page.

                                      F-175

<PAGE>

                   Year ended                         Millions of
                  December 31,                        US dollars
                  -----------                         ----------

                     2003                               US$ 11
                     2004                                   11
                     2005                                   11
                     2006                                   11
                     2007                                   11
                     2008 and next year                     35

NOTE 12 - STOCKHOLDERS' EQUITY:

At the Extraordinary Stockholders' Meeting held on October 2, 2000, the
Company's stockholders agreed to:

..  Decrease the capital stock by Ps582,647 through canceling the 25,000 Series
   "A" and 25,000 Series "B" subscribed but unpaid shares owned by TV Azteca and
   Mr. Moises Saba, respectively, and

..  Reduce the capital stock by Ps689,858 through recording liabilities in favor
   of Mr. Moises Saba and TV Azteca. This account payable to stockholders
   accrues interest at the rate of 8% annually.

At an extraordinary stockholders' meeting held on November 15, 2000 the
stockholders agreed to:

Approve a new capital structure consisting only of Series "A" shares. As a
result of this new structure, the Company effected a 6,500 for one stock split
and converted its 180,000 Series "A" and 180,000 Series "B" shares into one
class of 2,340,000,000 new Series "A" shares, which were divided equally between
Mr. Moises Saba and TV Azteca, and

Increase the number of authorized capital stock by Ps538,040 through the
issuance of 487,111,272 Series "A" ordinary shares without par value of which:

..  176,129,032 shares will be sold through a public offering in the Mexican
   stock market, and

..  310,982,240 shares will be sold through a stock options plan.

On December 19, 2000, the Company completed its initial public offering in the
Mexican stock market and issued 176,129,032 Series "A" shares at Ps5.67 per
share. Net proceeds amounted to approximately Ps1,000 million, of which Ps805
million was recorded as a premium on share subscription.

                                      F-176

<PAGE>

After giving effect to the transactions described above, the capital stock is
variable with a fixed minimum of Ps2,807,128 (historical) and unlimited maximum.
The capital stock is composed of Series "A" common shares, ordinary, without par
value, as shown below:

                                                    December 31, 2002
                                                    -----------------

                                               Number of
Stockholder                                     shares             Amount
-----------                                     ------             ------
                                              (thousands)

TV Azteca                                       1,170,000        Ps 1,161,730
Moises Saba Masri                               1,170,000           1,161,730
Various (public)                                  176,129             174,884
Stock options plan                                310,983             308,784
                                                ---------        ------------

Total authorized                                2,827,112           2,807,128
Capital stock authorized but not paid            (310,983)           (308,784)
                                                ---------        ------------

Total outstanding                               2,516,129           2,498,344
                                                =========

Restatement increment                                                 732,707
                                                                 ------------
                                                                 Ps 3,231,051
                                                                 ============

In the event of a capital reduction, income tax will be payable by the Company
equivalent to 53.85% of the excess of stockholders' equity over the sum of the
capital contributions account, as per the procedures established in the Mexican
Income Tax Law.

Stock option plan

On November 17, 2000, the Company established a stock option plan that provides
for the issuance of stock options to: a) the persons designated by TV Azteca; b)
Mr. Moises Saba or his designee, and c) certain current employees of the Company
who will be designated by the Board of Directors.

The stock option plan, which relates to an aggregate of 310,982,240 Series "A"
shares, authorizes the issuance of options to acquire capital stock of the
Company as follows:

..  4.25% of the Company's fully diluted capital stock, or 120,152,229 Series "A"
   shares, to persons designated by TV Azteca (at an exercise price of US$0.1507
   per share).

                                      F-177

<PAGE>

..  4.25% of the Company's fully diluted capital stock, or 120,152,229 Series "A"
   shares, to Mr. Moises Saba or to persons whom he will designate (at an
   exercise price of US$0.1507 per share).

..  0.5% of the Company's fully diluted capital stock, or 14,135,556 Series "A"
   shares, to Mr. Moises Saba or to persons whom he will designate (at an
   exercise price of US$0.3537 per share).

..  2.0% of the Company's fully diluted capital stock, or 56,542,226 Series "A"
   shares, to the employees designated by the Board of Directors (at an exercise
   price of US$0.3537 per share).

A trust has been created to administer the stock option plan. The trust is
managed by a committee consisting of two members. The duties of the trust
include maintaining a record of:

..  Participants in the stock option plan, trustees and their beneficiaries;

..  The number of option shares granted to each;

..  The exercise price of the option, and

..  The governing terms and conditions of the plan.

Under the terms of plan the options will be granted on specified anniversary
dates as provided below:

                                                   % of options
                  Anniversary date                 to be granted
                  ----------------                 -------------

                   January 1, 2001                       10
                              2002                       10
                              2003                       20
                              2004                       30
                              2005                       30

These grants are contingent on the achievement of specific goals determined by
the Technical Committee. The options will be considered granted once they are
approved by the Technical Committee. If the Technical Committee does not take
action, the options will be considered granted 90 days after the anniversary
dates of the conditional assignment. Once the options have been granted there is
a one year vesting period after which the participants have up to five years in
which to exercise the options.

The Technical Committee has the authority to accelerate all or part of the
options granted to any participant in the plan, provided that the right to
accelerate is extended proportionally to the rest of the participants in the
plan. Upon termination participants may retain options vested through the date
of their termination.

                                      F-178

<PAGE>

Beneficiaries of the participants will automatically acquire the right to
exercise the vested options in the case of death or permanent disability of any
of the participants.

In 2001, the Technical Committee completed the final assignment of the options
to be awarded under the plan and had notified the participants of the number of
options that they would be eligible to be granted at the various anniversary
dates.

At December 31, 2001 and 2002, the total number of shares formally assigned were
54,895,508 and 54,826,383, respectively.

Principal shareholder

In October 2000, TV Azteca granted rights to acquire all of the shares of Unefon
that it owns on a pro-rata basis to the holders of all of TV Azteca's
outstanding shares and to certain other of TV Azteca's securities. The grant of
the rights to acquire the Unefon Series "A" shares was subject to receiving the
consent of the holders of the TV Azteca notes and Azteca Holdings' 11% Senior
Secured Notes due 2002, or Azteca Holdings' 11% notes. On March 27, 2001, TV
Azteca and Azteca Holdings obtained these consents and paid a fee totaling
Ps121,328 (nominal) to certain holders of the Azteca Holdings 11% notes and TV
Azteca notes. The grant of the rights remains subject to the filing and
effectiveness of a registration statement with the SEC that registers the Unefon
Series "A" shares underlying the rights and the receipt of all applicable
regulatory and third-party approvals, including the consent of Nortel (see Note
10). The rights to acquire the Unefon Series "A" shares were originally only
exercisable on December 11, 2002. However, in December 2002, TV Azteca approved
the change of the exercise date to December 12, 2003.

NOTE 13 - TAX MATTERS:

Income tax ("IT")

Unefon and its subsidiaries do not consolidate for tax purposes.

For the year ended December 31, 2000, 2001 and 2002, Unefon determined combined
losses for IT purposes of Ps566,710, Ps729,484 and Ps207,121, respectively,
which can be amortized against future income, and restated by applying factors
derived from the NCPI.

The difference between book and tax results is mainly due to effects of
inflation; non-deductible expenses; the difference between book and tax
depreciation and amortization; capitalization of certain expenses, interest and
exchange losses for book purposes and timing differences for certain items that
are reported in different periods for financial reporting and IT purposes.

                                      F-179

<PAGE>

The components of deferred tax assets and (liabilities) are comprised of the
following:

                                                         December 31,
                                                         ------------

                                                  2001               2002
                                                  ----               ----

Deferred revenue                            Ps       72,487    Ps      224,607
Inventories                                        (128,157)          (149,204)
Property, furniture and equipment - Net             (54,475)            (1,855)
Pre-operating expenses                             (286,554)          (179,046)
Advance payments                                   (243,035)          (112,921)
Accrued expenses                                    143,839            277,853
Concession rights                                (3,999,245)        (3,450,456)
Tax loss carryforwards                            5,177,165          5,542,659
Capitalization of comprehensive financing
 cost                                                   (19)                 -
                                            ---------------    ---------------

                                                    682,006          2,151,637

Statutory IT rate                                        35%                34%
                                            ---------------    ---------------

Deferred IT asset                                   238,702            731,557
Valuation reserve                                  (238,702)          (731,557)
                                            ---------------    ---------------

Net deferred IT                             Ps            -    Ps            -
                                            ===============    ===============

At December 31, 2002, the Company had the following combined tax loss
carryforwards, which under the Mexican Income Tax Law (IT Law) are
inflation-indexed through the date of utilization:

                 Year of expiration                            Amount
                 ------------------                            ------

                        2008                              Ps    1,517,621
                        2009                                    2,521,723
                        2010                                      566,710
                        2011                                      729,484
                        2012                                      207,121
                                                          ---------------

                                                          Ps    5,542,659
                                                          ===============

Asset tax

The Asset Tax Law establishes a tax of 1.8% on the average of assets, less
certain liabilities, which is payable when it exceeds the IT due.

                                      F-180

<PAGE>

In 2001 and 2002, the Company and its subsidiaries were not subject to asset
tax, under current tax provisions.

Employees' statutory profit sharing

Employees' statutory profit sharing is determined by Servicios SPC at the rate
of 10% on taxable income, adjusted as prescribed by the Mexican IT Law. For the
year ended December 31, 2000, 2001 and 2002 Servicios determined an employee'
statutory profit sharing of Ps41, Ps133 and Ps99, respectively.

NOTE 14 - CONTINGENCIES:

Midicel, a Mexican wireless telecommunication company' has commenced legal
proceedings ("amparo") in the Mexican Federal Ninth District Court for
Administrative Matters in order to nullify the granting (in general) of the
concessions for the use and exploitation of the bandwidths of frequencies of the
radio-electric spectrum, of seven telecommunication companies including Unefon.
Although the Company has been successful in defending itself in similar disputes
and litigation, the Company cannot assure that it will be successful in
defending claims of this nature in the future. Management believes that
Midicel's claims lack a legal basis for annulment of Unefon concessions.

NOTE 15 - SEGMENT INFORMATION:

The Company evaluates and assesses its performance on a city-by-city basis. All
of the cities provide substantially the same services to their customers.
Summarized financial information concerning the Company's reportable segments is
shown in the following table (figures in this note are in millions of Mexican
pesos of December 31, 2002 purchasing power).

<TABLE>
<CAPTION>
Period from February 1, 2000
(commencement of operations)                                         Others
to December 31, 2000                    Toluca   Acapulco   Mexico     (2)    Total
--------------------                    ------   --------   ------     ---    -----

<S>                                       <C>       <C>      <C>       <C>      <C>
Total net revenue                         Ps 28     Ps 42    Ps  139   Ps  111   Ps  320
                                          -----     -----    -------   -------   -------
Segment costs and expenses (1)              (32)      (44)      (159)     (297)     (532)
                                          -----     -----    -------    ------   -------

Segment loss                              Ps (4)    Ps (2)   Ps  (20)  Ps (186)     (212)
                                          =====     =====    =======   =======   -------

Unalocated costs, expenses and income                                               (130)
                                                                                 -------

Net loss for the period                                                          Ps (342)
                                                                                 =======
</TABLE>

                                      F-181

<PAGE>

<TABLE>
<CAPTION>
Period from January 1, 2001                                          Others
to December 31, 2001                    Toluca   Acapulco   Mexico     (2)    Total
--------------------                    ------   --------   ------     ---    -----
<S>                                       <C>      <C>      <C>      <C>      <C>
Total net revenue                       Ps  90     Ps 113   Ps 757   Ps 588   Ps 1,548
Segment costs and expenses (1)             (70)       (84)    (686)  (1,096)    (1,936)
                                        ------     ------   ------   ------   --------

Segment income (loss)                   Ps  20     Ps  29   Ps  71   Ps (508)     (388)
                                        ======     ======   ======   ======

Unallocated costs, expenses and income                                            (727)
                                                                              --------

Net loss for the period                                                       Ps (1,115)
                                                                              ========

Period from January 1, 2002
to December 31, 2002

Total net revenue                       Ps 147     Ps 177  Ps1,542  Ps1,173   Ps 3,039
Segment costs and expenses (1)             (68)       (79)    (721)  (1,536)    (2,404)
                                        ------     ------  -------  -------   --------

Segment income (loss)                   Ps  79     Ps  98  Ps  821  Ps (363)       635
                                        ======     ======  =======  =======

Unallocated costs, expenses and income                                          (1,507)
                                                                              --------

Net loss for the period                                                       Ps  (872)
                                                                              ========
</TABLE>

(1) Do not include depreciation and amortization.

(2) Includes the cities of Torreon, San Luis Potosi, Aguascalientes, Puebla,
    Leon, Guadalajara, Monterrey, Queretaro, Morelia, Tampico, Saltillo and
    Tuxtla Gutierrez.

The Company does not report assets by segments.

NOTE 16 - SUBSEQUENT EVENT:

Dispute between Unefon and Nortel

In January 2003, Nortel petitioned for the bankruptcy of Unefon before a Mexican
court. In response, Unefon filed an action for relief (amparo) before a federal
district court challenging Nortel's request. In April 2003, a Mexican federal
district court ruled against Unefon with regard to its action for relief.
However, in May 2003, Unefon appealed the Mexican court's decision. Unefon
believes that Nortel's bankruptcy petition is insufficient under Mexican Law and
that it will therefore prevail in this proceeding. Upon the filing of Unefon's
initial action for relief, the federal district court suspended Nortel's
bankruptcy claim pending its analysis of the sufficiency of Nortel's petition,
which suspension is still in effect.

NOTE 17 - RECONCILIATION OF DIFFERENCES BETWEEN MEXICAN GAAP AND US GAAP:

The Company's consolidated financial statements are prepared in accordance with
Mexican GAAP, which differ in certain significant respects from US GAAP. The
Mexican GAAP consolidated financial statements include the effects of inflation
as provided for under Statement B-10 "Recognition of the Effects of Inflation on
Financial Information". The application of this

                                      F-182

<PAGE>

statement represents a comprehensive measure of the effects of price level
changes in the Mexican economy, and is considered to result in a more meaningful
presentation for both Mexican and US accounting purposes. Therefore, the
following reconciliation to US GAAP does not include the reversal of such
inflationary effects.

The principal differences between Mexican GAAP and US GAAP are summarized in the
following pages with an explanation, where appropriate, of the effects on
consolidated results of operations and stockholders' equity. The various
reconciling items are presented net of any price level gain (loss).

a.  Reconciliation of consolidated results of operations:

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                            -----------------------
                                                      Sub-note
                                                      reference        2000          2001             2002
                                                      ---------        ----          ----             ----
    <S>                                                 <C>       <C>            <C>             <C>
    Net loss under Mexican GAAP                                   Ps ( 342,137)  Ps (1,114,710)  Ps ( 871,762)
    Revenue recognition:
    - Sales of handsets and service revenue             i.             (20,781)          8,591         (3,389)
    - Operating and distribution fee                                   (13,898)         13,898              -
    Capitalized comprehensive financing cost - Net      ii.            255,977         111,036         80,060
    Advertising costs                                   iii.          (218,095)       (204,501)       (13,982)
    Pre-operating expenses                              iv.           (299,974)         67,490         76,279
    Deferred income taxes                               v.             (25,616)      -                      -
    Stock option plan                                   vi.          -                 (59,329)             -
                                                                  ------------   -------------   ------------
    Net loss under US GAAP                                        Ps  (664,524)  Ps (1,177,525)  Ps  (732,794)
                                                                  ============   =============   ============
    Basic and diluted net loss per share                          Ps    (0.283)  Ps     (0.467)  Ps     (.291)
                                                                  ============   =============   ============
    Weighted average number of shares outstanding
     (thousands)                                                     2,347,339       2,516,129      2,516,129
                                                                  ============   =============   ============
</TABLE>

b.  Reconciliation of stockholders' equity:

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                            -----------------------
                                                      Sub-note
                                                      reference        2000          2001             2002
                                                      ---------        ----          ----             ----
    <S>                                                 <C>        <C>             <C>            <C>
    Balance under Mexican GAAP                                     Ps4,450,010     Ps3,335,300    Ps2,463,538
    Revenue recognition:
    - Sales of handsets and service revenue             i.             (20,781)        (12,190)       (15,579)
    - Operating and distribution fee                                   (13,898)              -              -
    Capitalized comprehensive financing cost - Net      ii.            866,421         977,457      1,057,517
    Advertising costs                                   iii.          (218,095)       (422,596)      (436,578)
    Pre-operating expenses                              iv.           (724,165)       (656,675)      (580,396)
                                                                  ------------   -------------   ------------
    Balance under US GAAP                                         Ps 4,339,492   Ps  3,221,296   Ps 2,488,502
                                                                  ============   =============   ============
</TABLE>

                                      F-183

<PAGE>

c.  An analysis of the changes in stockholders' equity under US GAAP is as
follows:

<TABLE>
<CAPTION>
                                                        2000           2001           2002
                                                        ----           ----           ----
    <S>                                               <C>           <C>             <C>
    Balance at beginning of the year                 Ps 4,693,856  Ps 4,339,492    Ps 3,221,296
    Capital stock cancelled                              (689,858)            -               -
    Capital stock increase                              1,000,018             -               -
    Net loss                                             (664,524)   (1,177,525)       (732,794)
    Stock option plan                                           -       120,516          30,083
    Stock option plan dividends                                 -       (61,187)        (30,083)
                                                     ------------  ------------    ------------
    Balance at end of the year                       Ps 4,339,492  Ps 3,221,296    Ps 2,488,502
                                                     ============  ============    ============
</TABLE>

d.  Significant differences between US GAAP and Mexican GAAP:

    i.  Revenue recognition

        Sales of handsets and service revenue -

        Under Mexican GAAP, revenue from the sale of handsets is recognized when
        the equipment is delivered to distributors and when the legal title to
        handsets passes. Since the Company has effective control over the
        pricing and marketing of the handsets sold to the ultimate customers and
        provides the distributors with a guaranteed margin on the sale of the
        handsets, revenue, for US GAAP purposes, is recognized upon the sale of
        the handsets to the ultimate customer and customer activation. Based on
        interpretations of Staff Accounting Statement No. 101 provided by the
        SEC staff the Company considers that the sale of handsets and free
        wireless service offered on customer service activation represents a
        multiple-element arrangement that involves product sale and a future
        service contract for US GAAP purposes.

        Since the handsets have value apart from the future service contract,
        proceeds from the sale of handsets to the distributors are recognized
        under US GAAP as revenue from the sale of handsets and deferred revenue
        to be derived from future wireless service base on the relative fair
        value of the handsets and future services. Revenue allocated to the sale
        of handsets is recognized when the handsets are sold to the final
        customers, the deferred revenue allocated to wireless service is
        recognized as the services are provided.

                                      F-184

<PAGE>

        Provided below is a summary of deferred costs/deferred revenue, revenue
        on the sale of handsets, service revenue and cost of handsets under
        Mexican and US GAAP as of and for the years ended December 31, 2000,
        2001 and 2002.

<TABLE>
<CAPTION>
                                                            December 31, 2000
                                              ------------------------------------------
                                              Mexican GAAP     US GAAP        Difference
                                              ------------     -------        ----------
        <S>                                    <C>           <C>              <C>
        Balance sheet:

        Deferred cost                         Ps         -   Ps     81,531   Ps   81,531
        Deferred revenue                                 -        (102,312)     (102,312)
                                              ------------   -------------   -----------

        Net amounts                                      -   Ps    (20,781)  Ps  (20,781)
                                              ============   =============   ===========

        Results of operations:

        Revenue on sale of handsets - Net     Ps   247,935   Ps    113,103   Ps (134,832)
        Service revenue                             34,094          66,613        32,519
        Cost of handsets                          (324,313)       (242,781)       81,532
                                              ------------   -------------   -----------

        Net loss                              Ps   (42,284)  Ps    (63,065)  Ps  (20,781)
                                              ============   =============   ===========

<CAPTION>
                                                             December 31, 2000
                                              ------------------------------------------
                                              Mexican GAAP      US GAAP      Difference
                                              ------------      -------      ----------
        <S>                                    <C>           <C>             <C>
        Balance sheet:

        Deferred cost                         Ps         -   Ps      6,239   Ps    6,239
        Deferred revenue                                 -         (14,830)      (14,830)
                                              ------------   -------------   -----------

        Net amounts                           Ps         -   Ps     (8,591)  Ps   (8,591)
                                              ============   =============   ===========

        Results of operations:
        Revenue on sale of handsets - Net     Ps   400,102   Ps    371,470   Ps  (28,632)
        Service revenue                            607,766         651,231        43,465
        Cost of handsets                          (874,405)       (880,647)       (6,242)
                                              ------------   -------------   -----------

        Net income                            Ps   133,463   Ps    142,054   Ps    8,591
                                              ============   =============   ===========
</TABLE>

                                      F-185

<PAGE>

<TABLE>
<CAPTION>
                                                           December 31, 2002
                                              ------------------------------------------
                                              Mexican GAAP      US GAAP      Difference
                                              ------------      -------      ----------
        <S>                                    <C>           <C>             <C>
        Balance sheet:

        Deferred cost                         Ps         -   Ps     32,273   Ps   32,273
        Deferred revenue                                 -         (28,884)      (28,884)
                                              ------------   -------------   -----------

        Net amounts                           Ps         -   Ps      3,389   Ps    3,389
                                              ============   =============   ===========

        Results of operations:
        Revenue on sale of handsets - Net     Ps   426,801   Ps    441,450   Ps   14,649
        Service revenue                          1,525,517       1,539,752        14,235
        Cost of handsets                          (891,171)       (923,444)      (32,273)
                                              ------------   -------------   -----------

        Net income                            Ps 1,061,147   Ps  1,057,758   Ps   (3,389)
                                              ============   =============   ===========
</TABLE>

    ii. Comprehensive financing cost - net

        Capitalized interest -

        In 1999, under Mexican GAAP the Company did not elect to capitalize
        interest expense associated with its long-term debt, while under US
        GAAP, the Company capitalized interest. Beginning in 2000, the Company
        began to capitalize interest under Mexican GAAP, which is permitted but
        not required. The difference in the amount of interest capitalized under
        Mexican and US GAAP is due to the determination of eligible assets and
        qualifying interest.

        Net monetary gain -

        Under Mexican GAAP, the Company capitalized gain on monetary position
        related to the indebtedness used to finance the concession rights and
        equipment acquired from Nortel. Under US GAAP, the gain on monetary
        position may not be capitalized, and consequently under US GAAP the
        Company must recognize an additional depreciation and amortization
        expense.

        Exchange loss -

        For Mexican GAAP purposes, the Company capitalized currency exchange
        fluctuations from the loan used to acquire equipment from Nortel. Under
        US GAAP, exchange gains and losses may not be capitalized, and
        consequently the Company recognized on additional depreciation and
        amortization expense.

                                      F-186

<PAGE>

        Provided below is a summary of capitalized  comprehensive financing cost
        - net under Mexican and US GAAP:

<TABLE>
<CAPTION>
                                                                         At December 31,
                                                                         ---------------
                                                            2000            2001               2002
                                                            ----            ----               ----
        <S>                                            <C>               <C>                <C>
        Mexican GAAP:

        Capitalized interest on fixed assets and
         concessions                                   Ps     224,270    Ps     260,686     Ps    282,697
        Capitalized exchange loss on fixed assets              30,362            19,651            53,567
        Capitalized net monetary gain on fixed
         assets and concessions                              (738,053)         (743,880)         (758,575)
                                                      ---------------   ---------------   ---------------

                                                             (483,421)         (463,543)         (422,311)
        Accumulated depreciation and amortization               5,672            17,289            22,965
                                                      ---------------   ---------------   ---------------

        Net capitalized comprehensive financing
         costs under Mexican GAAP                            (477,749)         (446,254)         (399,346)
                                                      ---------------   ---------------   ---------------

        US GAAP:

        Capitalized interest on fixed assets and
         concessions                                          406,141           576,285           690,711
        Accumulated depreciation and amortization             (17,469)          (45,082)          (32,540)
                                                      ---------------   ---------------   ---------------

        Net capitalized interest under US GAAP                388,672           531,203           658,171
                                                      ---------------   ---------------   ---------------

        Net adjustment                                Ps     (866,421)  Ps     (977,457)   Ps  (1,057,517)
                                                      ===============   ===============   ===============
</TABLE>

   iii. Advertising costs

        Under both Mexican and US GAAP, television advertising costs related to
        TV Azteca agreement are expensed when the airtime is used. Under Mexican
        GAAP, television advertising costs are expensed in accordance with the
        rates established in the advertising agreement, while under US GAAP
        advertising costs are accrued in such a manner so to result in a
        constant periodic rate per gross rating point.

<TABLE>
<CAPTION>
                                                                       December 31,
                                                                       ------------
                                                           2000             2001              2002
                                                           ----             ----              ----
        <S>                                           <C>               <C>              <C>
        Advertising cost under Mexican GAAP           $     11,009      $     70,010     $    80,357
        Advertising cost under US GAAP                    (229,104)         (274,511)        (94,339)
                                                      -------------     -------------     -----------

        Net adjustment                                $   (218,095)     $   (204,501)    $   (13,982)
                                                      =============     =============     ===========
</TABLE>

                                      F-187

<PAGE>

    iv. Pre-operating expenses

        According to Mexican GAAP, expenses incurred during the pre-operating
        stage are capitalized, while under US GAAP, they are expensed when
        incurred.

    v.  Deferred income tax

        Under Mexican GAAP income tax is recorded by the comprehensive assets
        and liability method, which consists of recognizing deferred income tax
        on all differences between the book value and tax value of assets and
        liabilities.

        The Company follows Statement of Financial Accounting Standards ("FAS")
        No. 109 for US GAAP reconciliation purposes. This statement requires an
        asset and liability approach to financial accounting and reporting
        income tax under the following basic principles: a) a current tax
        liability or asset is recognized for the estimated taxes payable or
        refundable on tax returns for the current year; b) a deferred tax
        liability or asset is recognized for the estimated future tax effects
        attributable to temporary differences and tax loss and tax credit
        carryforwards; c) the measurement of current and deferred tax
        liabilities and assets is based on provisions of the enacted tax law and
        the effects of future changes in tax laws or rates are not anticipated,
        and d) the measurement of deferred asset tax is reduced, if necessary,
        by the amount of any tax benefits that, based on available evidence, are
        not expected to be realized. Under this method, deferred tax is
        recognized with respect to all temporary differences, and the benefit
        from utilizing tax loss carryforwards and asset tax credits is
        recognized in the year in which the loss or credits arise (subject to a
        valuation reserve with respect to any tax benefits not expected to be
        realized). The subsequent realization of this benefit does not affect
        income. Consequently, there are no extraordinary items of this nature
        for US GAAP purposes.

        The temporary differences under FAS No. 109 are determined based on the
        difference between the indexed tax basis amount of the asset or
        liability and the related stated amount reported in the consolidated
        financial statements.

        Deferred tax expense or benefit is calculated as the difference between:
        a) deferred assets and liabilities reported at the end of the current
        year, and b) deferred tax assets and liabilities reported at the end of
        the prior year, remeasured to units of current general purchasing power
        at the end of the current period.

        For financial statement purposes, based on the weight of available
        evidence as of the balance sheet dates, valuation allowances were
        recognized for the amount of the net deferred income tax asset as of
        December 31, 2000, 2001 and 2002, that more likely than not will be
        realized.

                                      F-188

<PAGE>

        The income tax effects of significant items comprising the Company's net
        deferred tax assets and liabilities under US GAAP are as shown:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                        ------------
                                                         2000               2001             2002
                                                         ----               ----             ----
        <S>                                           <C>               <C>             <C>
        Deferred income tax assets:
        Current:
        Deferred cost/revenue - Net                   Ps        7,273   Ps      2,921   Ps      1,152
        Accrued expenses                                       88,421          60,587         154,283
                                                      ---------------   -------------   -------------

                                                               95,694          63,508         155,435
                                                      ---------------   -------------   -------------

        Non current:
        Pre-operating expenses                        Ps      212,614
        Property, furniture and equipment                      17,233   Ps    160,585   Ps    148,425
        Tax loss carryforwards                                392,693       1,787,992       1,884,504
                                                      ---------------   -------------   -------------

                                                              622,540       1,948,577       2,032,929
                                                      ---------------   -------------   -------------
        Deferred income tax liabilities:

        Current:
        Inventories                                   Ps      (52,657)  Ps    (46,814)  Ps    (50,729)
        Advance payments                                       (8,941)        (60,679)        (20,396)
                                                      ---------------   -------------   -------------

                                                              (61,598)       (107,493)        (71,125)
                                                      ---------------   -------------   -------------
        Non current:
        Concessions and capitalized interest                 (390,465)     (1,762,511)     (2,018,571)
                                                      ---------------   -------------   -------------

                                                             (390,465)     (1,762,511)     (2,018,571)
                                                      ---------------   -------------   -------------

        Net deferred IT assets before valuation
         reserve                                              266,171         142,081          98,668
        Valuation reserve                                    (266,171)       (143,616)        (98,668)
                                                      ---------------   -------------   -------------

        Net deferred tax                              Ps            -   Ps          -   Ps          -
                                                      ===============   =============   =============
</TABLE>

                                      F-189

<PAGE>

        The following provides an analysis of the principal difference between
        IT computed at the statutory rate and the Company's IT provision for the
        year ended December 31, 2000, 2001 and 2002.

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                                     -----------------------
                                                            2000             2001              2002
                                                            ----             ----              ----
         <S>                                          <C>              <C>                 <C>
         Loss before deferred IT                       Ps  (638,908)    Ps   (1,177,525)    Ps   (770,792)
                                                       ============     ===============     =============

         IT benefit at statutory rate                  Ps   223,618     Ps      412,133     Ps    262,069
         Add (deduct):
         Differences between comprehensive
         financing cost - Net of inflationary gains
          or losses                                          17,554            (239,676)         (319,841)
         Non deductible expenses                               (639)             (2,500)           (3,786)
         Others                                             (15,766)            (47,402)           87,736
         Change in valuation reserve                       (250,383)           (122,555)          (26,178)
                                                       ------------     ---------------     -------------

         Income tax expense                            Ps   (25,616)    Ps            -     Ps          -
                                                       ============     ===============     =============
</TABLE>

    vi. Stock option plan

        Under Mexican GAAP, stock options granted are given effect only when the
        options are exercised by crediting capital stock for cash received. For
        US GAAP purposes, options granted to employees at exercise prices below
        the market price at the measurement date will result in non-cash
        compensation cost under US GAAP over the vesting period as determined
        under Accounting Principles Board Opinion No. 25. Options granted to
        non-employees of the Company, but employees of the Company within the
        some controlling group will be accounted as dividends to the controlling
        entity under US GAAP based on the fair value of the options at the date
        of grant as determined under SFAS No. 123 "Accounting for Stock-based
        Compensation". No options were granted in 2000, the Company recorded
        compensation expense for Ps59,329 and dividends to the controlling
        entities for Ps61,187 in the year ended December 31, 2001. In 2002, the
        quoted market price of the stock at the measurement date was lower than
        the exercise price accordingly the Company did not recognize
        compensation cost for the options granted to employees. In 2002 the
        Company recorded dividends to the controlling entities for Ps30,083.

   vii. Earnings per share ("EPS")

        Under Mexican GAAP, diluted EPS is not required for companies with
        operating and net losses. Under US GAAP, fully diluted EPS will reflect
        the potential dilution that could occur if securities or other contracts
        to issue common stock were exercised or converted into common stock or
        resulted in the issuance of common stock that then share in the earnings
        of the entity. At December 31, 2000, 2001 and 2002 there were no
        outstanding dilutive securities.

                                      F-190

<PAGE>

  viii. Comprehensive loss

        Comprehensive loss determined in accordance with SFAS No. 130 "Reporting
        Comprehensive Income" includes certain changes to stockholder' equity
        not affecting net income (loss) and not related to capital payments,
        dividend payments or similar transactions with the shareholders. The
        comprehensive loss for the Company is equal to the net loss, as there
        are no items of comprehensive loss for the years presented under US GAAP
        other than the net loss.

    ix. Effect of recently issued accounting standards as they relate to the
        Company

        On August 15, 2001, the FASB issued Statement of Financial Accounting
        Standards No. 143 "Accounting for Asset Retirement Obligations" ("SFAS
        143"). This statement addresses financial accounting and reporting for
        obligations associated with the retirement of tangible long-lived assets
        and the associated asset retirement costs. It applies to legal
        obligations associated with the retirement of long-lived assets that
        result from the acquisition, construction, development and/or the normal
        operation of a long-lived asset, except for certain obligations of
        lessees.

        This statement requires that the fair value of a liability for an asset
        retirement obligation be recognized in the period in which it is
        incurred if a reasonable estimate of fair value can be made; the
        associated asset retirement costs are capitalized as part of the
        carrying amount of the long-lived asset. This statement is effective for
        financial statements issued for fiscal years beginning after June 15,
        2002. The Company does not expect the adoption of SFAS 143 to have a
        material impact on its financial condition and results of operations.

        In April 2002, the FASB issued SFAS No. 145 "Rescission of SFAS Nos. 4,
        44 and 64, Amendment of SFAS No. 13, and Technical Corrections as of
        April 2002". SFAS No. 145 rescinds SFAS No. 4 "Reporting Gains and
        Losses from Extinguishment of Debt", SFAS No. 44 "Accounting for
        Intangible Assets of Motor Carriers", and SFAS No. 64 "Extinguishments
        of Debt Made to Satisfy Sinking-Fund Requirements". As a result, gains
        and losses from extinguishment of debt will no longer be classified as
        extraordinary items unless they meet the criteria of unusual or
        infrequent as described in APB Opinion No. 30 "Reporting the Results of
        Operations -Reporting the Effects of Disposal of a Segment of a
        Business, and Extraordinary, Unusual and Infrequently Occurring Events
        and Transactions". In addition, SFAS No. 145 amends SFAS No. 13
        "Accounting for Leases", to eliminate an inconsistency between the
        required accounting for sale-leaseback transactions and the required
        accounting for certain lease modifications that have economic effects
        that are similar to sale-leaseback transactions. SFAS No. 145 also
        amends other existing authoritative pronouncements to make various
        technical corrections, clarify meanings, or describe their applicability
        under changed conditions. SFAS No. 145 is effective for fiscal years
        beginning after May 15, 2002. Management is currently evaluating the
        impact that the adoption of SFAS No. 145 will have on the consolidated
        financial statements.

                                      F-191

<PAGE>

        In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
        Associated with Exit or Disposal Activities", or SFAS 146. The issuance
        of SFAS No. 146 nullifies the former guidance provided by the Emerging
        Issues Task Force, or EITF, Issued No. 94-3, "Liability Recognition for
        Certain Employee Termination Benefits and Other Costs to Exit an
        Activity (Including Certain Costs Incurred in a Restructuring", or EITF
        94-3). SFAS No. 146 requires the recognition of a liability for costs
        associated with exit or disposal activity when the liability is
        incurred, rather than on the date commitment to an exit or disposal
        plan. SFAS No. 146 is effective for liabilities, related to exit or
        disposal activities, which are incurred after December 31, 2002, while
        earlier application is encouraged.

        In December 2002, the FASB issued SFAS No. 148 "Accounting for
        Stock-Based Compensation -Transition and Disclosure- an amendment of FAS
        123," or SFAS 148. SFAS No. 148 continues to permit entities to apply
        the intrinsic method of APB 25 "Accounting for Stock Issued to
        Employees". However, SFAS 148 is intended to encourage companies to
        adopt the accounting provisions of SFAS No. 123 "Accounting for
        Stock-Based Compensation", or SFAS 123. SFAS No. 148 provides three
        transition methods for companies who choose to adopt the provisions of
        SFAS 123, the prospective method, the modified prospective method and
        the retroactive restatement method. In addition, SFAS No. 148 mandates
        certain new disclosures. SFAS 148 is effective for fiscal years ending
        after December 15, 2002, with early adoption permitted.

        In November 2002, the FASB issued Interpretation No. 45 or FIN 45
        "Guarantor's Accounting and Disclosure Requirements for Guarantees,
        Including Indirect Guarantees of Indebtedness of Others". FIN 45
        clarifies the requirements of SFAS No. 5 "Accounting for Contingencies,
        relating to a guarantor's accounting for, and disclosure of, the
        issuance of certain types of guarantees". FIN 45 requires that upon
        issuance of a guarantee, the guarantor must recognize a liability for
        the fair value of the obligation it assumes under that guarantee. FIN
        45's provisions for initial recognition and measurement should be
        applied on a prospective basis to guarantees issued or modified after
        December 31, 2002, irrespective of the guarantor's fiscal year-end. The
        guarantor's previous accounting for guarantees that were issued before
        the date of FIN 45's initial application may not be revised or restated
        to reflect the effect of the recognition and measurement provisions of
        the Interpretation. The disclosure requirements are effective for
        financial statements of both interim and annual periods that end after
        December 15, 2002.

        In January 2003, the FASB issued Interpretation No. 46, or FIN 46
        "Consolidation of Variable Interest Entities, an interpretation of ARB
        51". The primary objectives of FIN 46 are to provide guidance on the
        identification of entities for which control is achieved through means
        other than through voting rights ("variable interest entities" or
        "VIEs") and how to determine when and which business enterprise should
        consolidate the VIE (the "primary beneficiary"). This new model for
        consolidation applies to an entity which either: 1) the equity investors
        (if any) do not have a controlling financial interest or

                                      F-192

<PAGE>

        2) the equity investment at risk is insufficient to finance that
        entity's activities without receiving additional subordinated financial
        support from other parties. In addition, FIN 46 requires that both
        primary beneficiary and all other enterprises with a significant
        variable interest in a VIE make additional disclosures. FIN 46 applies
        immediately to variable interest entities created after January 31,
        2003, and to variable interest entities in which an enterprise obtains
        an interest after that date. It applies in the first fiscal year or
        interim period beginning after June 15, 2003, to variable interest
        entities in which enterprise holds a variable interest that it acquired
        before February 1, 2003. FIN 46 applies to public enterprises as of the
        beginning of the applicable interim or annual period, and it applies to
        nonpublic enterprises as of the end of the applicable annual period.

    x.  Long term financing from Nortel

        As mentioned in Note 10, for Mexican GAAP purposes the balance of the
        long term financing with Nortel as of December 31, 2002 has been
        included as a long-term liability in the consolidated balance sheet. For
        US GAAP purposes, current classification is required when the debtor is
        in violation of a provision of a debt agreement at the balance sheet
        date and the violation makes the obligation callable within one year
        from the balance sheet date. Thus, at December 31, 2002, the total
        indebtedness to Nortel for $3,293,759 is considered as current for US
        GAAP purposes.

    xi. Cash flow information

        Under US GAAP, a statement of cash flows is prepared based on the
        provisions of FAS No. 95 "Statement of Cash Flows" in lieu of a
        statement of changes in financial position under Mexican GAAP. FAS No.
        95 establishes specific presentation requirements and requires
        additional disclosures, such as the amount of interest and income taxes
        paid and non-cash items. This statement does not provide specific
        guidance for the preparation of cash flows statements for price level
        adjusted financial statements. Cash flows from operating, investing and
        financing activities have been adjusted for the effects of inflation on
        monetary items.

                                      F-193

<PAGE>

        The condensed  consolidated  statement of cash flows  prepared  under US
        GAAP is as follows:

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                                   ---------------------
        Cash flows from operating activities:                2000            2001           2002
                                                             ----            ----           ----
        <S>                                                <C>             <C>              <C>
        Net loss                                        Ps   (664,524)  Ps (1,177,525)  Ps   (732,794)
        Adjustments to reconcile net loss to net
         cash (used in) provided by operating
         activities:
        Interest accrued since August 16 to December
         31, 2002 of Nortel Networks Corporation debt                                          84,673
        Stock option plan                                                      59,329
        Deferred income taxes                                  25,616
        Depreciation and amortization                         140,462         433,108         697,937
        Unrealized exchange loss on debt                       42,133
        Monetary gain relating to financing activities       (167,676)       (167,970)       (200,186)
        Changes in assets and liabilities:
        Restricted cash                                      (165,048)        (16,952)          5,121
        Accounts receivable                                   (50,474)       (104,636)        (95,107)
        Recoverable value added tax                           (61,680)        (48,433)         76,612
        Related parties                                       194,915         377,210         324,118
        Handset inventories                                  (161,820)         28,061         (15,444)
        Net changes in other assets, accounts
         payable and accrued expenses                         182,486         798,311         385,977
                                                        -------------   -------------   -------------

        Net cash flows (used in) provided by
         operating activities                                (685,610)        180,503         530,907
                                                        -------------   -------------   -------------

        Cash flows from investing activities:

        Acquisition of property furniture and equipment      (735,945)     (1,183,033)       (410,561)
        Capitalized interest in concession rights            (252,347)        (45,119)        (31,937)
                                                        -------------   -------------   -------------

        Net cash flows used in investing activities          (988,292)     (1,228,152)       (442,498)
                                                        -------------   -------------   -------------
        Cash flows from financing activities:

        Bank loans                                                            465,281        (146,992)
        Proceeds from long-term financing from Nortel       1,186,046         149,661         131,497
        Payments under long-term financing from Nortel       (240,971)        (26,473)
        Proceed from short-term vendor financing              106,897
        Premium on share subscription                         805,474
        Capital stock increase                                194,544
                                                        -------------   -------------   -------------


        Net cash flows provided by (used in)
         financing activities                               2,051,990         588,469         (15,495)
                                                        -------------   -------------   -------------
        Effects of inflation in cash                           15,734          28,370           7,289
                                                        -------------   -------------   -------------

        Increase (decrease) in cash and cash
         equivalents                                         393,822        (430,810)         80,203

        Cash and cash equivalents at beginning of
         period                                              196,313         561,765         123,666
                                                        -------------   -------------   -------------
        Cash and cash equivalents at end of period      Ps    590,135   Ps   130,955    Ps    203,869
                                                        =============   =============   =============

        Supplemental cash flows disclosure:

        Cash paid during the year for interest          Ps    317,942   Ps   387,361    Ps    159,795
                                                        =============   =============   =============
        Other non-cash activities:

        Capital reduction payable to stockholders       Ps    692,607   Ps         -    Ps          -
                                                        =============   =============   =============

        Construction in process - Nortel                Ps  1,372,422   Ps    693,142   Ps          -
                                                        =============   =============   =============

        Pre-paid political risk insurance               Ps     25,549   Ps     19,504   Ps     32,290
                                                        =============   =============   =============
</TABLE>

                                      F-194

<PAGE>

e.  Condensed consolidated balance sheets and consolidated results of operations

    The following condensed consolidated balance sheets and consolidated results
    of  operations  reflect the  effects of the  principal  differences  between
    Mexican GAAP and US GAAP:

    CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      December 31,
                                                                      ------------
                                                           2000              2001             2002
                                                           ----              ----             ----
    <S>                                               <C>               <C>               <C>
    Total current assets                              Ps    1,397,320   Ps    1,127,801   Ps    1,024,460
    Property, furniture and equipment - Net                 2,845,225         3,751,426         3,658,767
    Concession rights - Net                                 4,960,503         4,849,597         4,686,817
    Others non-current assets                                  19,866           188,368           180,007
                                                      ---------------   ---------------   ---------------

    Total assets                                      Ps    9,222,914         9,917,192   Ps    9,550,051
                                                      ===============   ===============   ===============

    Total current liabilities                         Ps      680,406   Ps    1,856,343   Ps    5,819,609
    Capital reduction payable to stockholders                 692,607           707,299           695,648
    Long-term financing from Nortel                         3,255,803         3,396,494
    Long-term payables to related parties                     254,606           735,760           546,292
                                                      ---------------   ---------------   ---------------

    Total liabilities                                       4,883,422         6,695,896         7,061,549
                                                      ---------------   ---------------   ---------------

    Capital stock                                           3,231,051         3,231,051         3,231,051
    Premium on share subscription                           1,561,096         1,561,096         1,561,096
    Deficit                                                  (452,655)       (1,630,180)       (2,362,974)
    Stock option plan                                                            59,329            59,329
                                                      ---------------   ---------------   ---------------

    Total stockholders' equity                              4,339,492         3,221,296         2,488,502
                                                      ---------------   ---------------   ---------------

    Total liabilities and stockholders' equity        Ps    9,222,914   Ps    9,917,192   Ps    9,550,051
                                                      ===============   ===============   ===============
</TABLE>

    CONDENSED CONSOLIDATED RESULTS OF
    OPERATIONS

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                                   -----------------------
                                                           2000              2001             2002
                                                           ----              ----             ----
    <S>                                               <C>               <C>               <C>
    Net revenue                                       Ps      218,068   Ps    1,563,019   Ps    3,067,633
    Total costs and expenses                               (1,026,560)       (2,649,145)       (3,075,522)
                                                      ---------------   ---------------   ---------------

    Loss from operations                                     (808,492)       (1,086,126)           (7,889)
                                                      ---------------   ---------------   ---------------

    Other income - Net                                         58,779            34,493            44,770
                                                      ---------------   ---------------   ---------------

    Interest income                                            14,377            21,752             5,453
    Interest expense                                                           (463,367)         (462,434)
    Amortization of political risk insurance                  (21,616)          (40,749)          (33,155)
    Exchange (loss) gain - Net                                (54,149)          143,664          (599,380)
    Gain on monetary position                                 172,193           212,808           319,841
                                                      ---------------   ---------------   ---------------

    Net comprehensive financing income (cost)                 110,805          (125,892)         (769,675)
                                                      ---------------   ---------------   ---------------

    Loss before IT                                           (638,908)       (1,177,525)         (732,794)
    IT expense                                                (25,616)
                                                      ---------------   ---------------   ---------------

    Net loss                                          Ps     (664,524)  Ps   (1,177,525)  Ps     (732,794)
                                                      ===============   ===============   ===============
</TABLE>

                                     F-195