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, 1998
                                            OR
   |_|             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                            THE SECURITIES EXCHANGE ACT OF 1934
           for the transition period from                   to
                                 -----------
                         Commission file number: 1-13200
                           GRUPO ELEKTRA, S.A. de C.V.
             (Exact name of Registrant as specified in its charter)
3                                       N/A
                 (Translation of registrant's name into English)
                              UNITED MEXICAN STATES
                 (Jurisdiction of Incorporation or Organization)


     Commission file number: 333-5392-01    Commission file number: 333-5392-02
     ELEKTRA, S.A. de C.V.                  ELEKTRAFIN, S.A. de C.V.
(Exact name of Registrant as            (Exact name of Registrant as
    specified in its charter)               specified in its charter)
            N/A                                     N/A
  (Translation of registrant's             (Translation of registrant's
    name into English)                       name into English)
      UNITED MEXICAN STATES                    UNITED MEXICAN STATES
  (Jurisdiction of Incorporation           (Jurisdiction of Incorporation
    or Organization)                         or Organization)
                      Edificio Parque Cuicuilco (Esmeralda)
                            Insurgentes Sur, No. 3579
                              Col. Tlalpan La Joya
                               14000 Mexico, D.F.
                    (Address of principal executive offices)

              Securities registered or to be registered pursuant to
                            Section 12(b) of the Act:
<TABLE>
<CAPTION>
                                 Title of Each Class                                       Name of Each Exchange on Which
                                 -------------------                                       ------------------------------
                                                                                                      Registered
                                                                                                      ----------

Grupo Elektra, S.A. de C.V.:
----------------------------
<S>                                                                                            <C>
Global Depositary Shares evidenced by Global Depositary Receipts, each Global
Depositary Share representing two Certificados de Participacion Ordinarios No                  New York Stock Exchange
Amortizables, each of which represents financial interests in and limited voting
rights with respect to two Series B Shares, without par value, and one Series L
Share, without par value, of Grupo Elektra, S.A. de C.V.

Certificados de Participacion Ordinarios No Amortizables (Ordinary Participation
Certificates ("CPOs")), each of which represents financial interests and limited               New York Stock Exchange*
voting rights with respect to two Series B Shares, without par value, and one
Series L Share, without par value, of Grupo Elektra, S.A. de C.V.

Series B Shares without par value                                                              New York Stock Exchange*

Series L Shares without par value                                                              New York Stock Exchange*
</TABLE>
------------------
     *    Not for  trading,  but only in  connection  with the  registration  of
          Global  Depositary  Shares,   pursuant  to  the  requirements  of  the
          Securities and Exchange Commission.
Elektra, S.A. de C.V.:                None

Elektrafin, S.A. de C.V.:             None
                               -------------------
 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:

                               Title of Each Class
                    12-3/4% Guaranteed Senior Notes Due 2001

================================================================================
<PAGE>

     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.


Grupo Elektra, S.A. de C.V.:


         Series A Shares without par value                        1,249,127,610

         Series B Shares without par value                        1,953,234,140

         Series L Shares without par value                          358,302,980

Elektra, S.A. de C.V.:

         Series A Shares without par value                            8,982,569

         Series B Shares without par value                            8,989,757

Elektrafin, S.A. de C.V.:


         Series A Shares without par value                           10,735,500

         Series B Shares without par value                           62,325,733
                                            --------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark which financial statement item the registrant has elected
to follow. Item 17  |_|     Item 18  |X|


                                      ii
<PAGE>


================================================================================
<TABLE>
<CAPTION>

                                TABLE OF CONTENTS
<S>                                                                                                            <C>
                                                                                                               PAGE
PART I
   Item 1.  Description of Business...............................................................................3
   Item 2.  Description of Property..............................................................................43
   Item 3.  Legal Proceedings....................................................................................44
   Item 4.  Control of Registrant................................................................................45
   Item 5.  Nature of Trading Market.............................................................................46
   Item 6.  Exchange Controls and Other Limitations Affecting Security Holders...................................49
   Item 7.  Taxation.............................................................................................52
   Item 8.  Selected Financial Data..............................................................................57
   Item 9.  Management's Discussion and Analysis of Financial Condition and Results of Operations................61
   Item 9A. Qualitative and Quantitative Disclosure about Market Risks...........................................73
   Item 10.  Directors and Executive Officers....................................................................74
   Item 11.  Compensation of Directors and Officers..............................................................75
   Item 12.  Options to Purchase Securities from Registrant or Subsidiaries......................................76
   Item 13.  Interest of Management in Certain Transactions......................................................77
PART II
   *Item 14.  Description of Securities to be Registered.........................................................77
PART III
   *Item 15.  Defaults upon Senior Securities....................................................................78
   *Item 16.  Changes in Securities and Changes in Security for Registered Securities............................78
PART IV
   **Item 17.  Financial Statements..............................................................................78
   Item 18.  Financial Statements................................................................................78
   Item 19.  Financial Statements and Exhibits...................................................................78
</TABLE>

------------
*    Omitted because the item is inapplicable or the answer is negative.

**   The Registrant has responded to Item 18 in lieu of this Item.

Presentation of Financial and Other Information


     Grupo Elektra,  S.A. de C.V. ("Grupo  Elektra" or the "Company"),  Elektra,
S.A. de C.V. ("Elektra") and Elektrafin,  S.A. de C.V. ("Elektrafin") are each a
corporation  (sociedad anonima de capital variable)  organized under the laws of
the United Mexican States. Grupo Elektra was formed in 1950 as a manufacturer of
radios and became involved in retailing in 1957 when it opened its first Elektra
store.

     In this Annual  Report on Form 20-F (this "Annual  Report"),  references to
"US$," "$," "Dollars" and "U.S.  Dollars," are to United States dollars. In this
Annual Report,  all references to pesos are to the legal Mexican  currency,  and
references to "P$," "Ps" or "Pesos" are to Mexican pesos.

     The  Company  maintains  its books and  records in Pesos and  prepares  its
consolidated  financial  statements  in Pesos.  The Mexican  Institute of Public
Accountants has issued  Bulletin B-10,  "Recognition of the Effects of Inflation
on Financial Information," and Bulletin B-12, "Statement of Changes in Financial
Position."  These  bulletins  outline  the  inflation   accounting   methodology
mandatory  for  all  Mexican  companies   reporting  under  generally   accepted
accounting  principles  in Mexico  ("Mexican  GAAP").  Pursuant to Mexican GAAP,
financial data for all periods in the financial  statements  included in Item 18
(the  "Consolidated  Financial  Statements") and


                                        1
<PAGE>


for all periods throughout this Annual Report, unless otherwise noted, have been
restated in constant Pesos as of December 31, 1998.

     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
Consolidated  Financial  Statements.  See Note 16 of the Company's  Consolidated
Financial  Statements.  This Annual Report contains translations of certain Peso
amounts  into  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 Dollar amounts or could be converted into
Dollars at the rates indicated or at any other rate. Unless otherwise indicated,
U.S.  Dollar amounts have been translated from Mexican pesos at an exchange rate
of Ps. 9.901 to US$1.00,  the noon buying rate for pesos on December 31, 1998 as
published by the Federal  Reserve Bank of New York (the "Noon Buying Rate").  On
June 22, 1999, the Noon Buying Rate was Ps. 9.358 to US$1.00.

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

Forward-looking Statements

     This  Annual  Report  contains  words,  such  as  "believe,"  "expect"  and
"anticipate" and similar expressions,  that identify forward-looking  statements
within the meaning of Section 21E of the  Securities  Exchange  Act of 1934,  as
amended.  These  statements  reflect the Company's views about future events and
financial  performance.  Actual  results  could  differ  materially  from  those
projected in such forward-looking statements as a result of various factors that
may be beyond the Company's control, including but not limited to effects on the
Company from  competition,  limitations  on the  Company's  access to sources of
financing on competitive terms,  significant economic or political  developments
in Mexico,  and changes in the Company's  regulatory  environment,  particularly
developments   affecting   the   regulation  of  consumer   installment   sales.
Accordingly,  readers  are  cautioned  not to  place  undue  reliance  on  these
forward-looking  statements.  In any event,  these  statements  speak only as of
their dates, and the Company undertakes no obligation to update or revise any of
them, whether as a result of new information, future events or otherwise.



                                        2
<PAGE>

                                     PART I

Item 1.  Description of Business

OVERVIEW

General

     Grupo Elektra, S.A. de C.V. ("Grupo Elektra" or the "Company") operates one
of the largest  retailing  groups in Latin  America with 819 retail stores as of
December 31, 1998, of which 83 are located outside Mexico.

     The Company's  retail  operators sell a wide variety of name brand consumer
electronics,  major appliances,  household furniture and clothing in Mexico, and
in five other countries in Latin America: Guatemala, El Salvador,  Honduras, the
Dominican  Republic,  and Peru. The Company operates its electronics,  appliance
and  furniture  retail  operations  in  Mexico  through  Elektra,  S.A.  de C.V.
("Elektra"),  an indirect  subsidiary  of the Company.  With 581 Elektra  stores
located throughout Mexico, the Company believes it has the largest  distribution
network in the Mexican  electronics,  home  appliances  and household  furniture
market,  measured  by  number  of  retail  stores.  The  Company's  electronics,
appliance and furniture  retail  operations  outside Mexico are operated through
corporations  established  and organized under the laws of each country where it
has  operations.  The Company  operates its retail clothing  operations  through
stores  acquired in the Company's  September  1996  acquisition of Grupo Hecali,
S.A. de C.V. ("Hecali").

     The Mexican  retail  sector is  fragmented  and  consumers  are served by a
number of formats,  including  traditional  formats such as  independent  retail
stores, modern formats such as retail chains and department stores, and informal
outlets such as street vendors and markets.  The Company  believes that consumer
preferences are shifting from smaller,  traditional and informal  outlets toward
larger,  standardized  retail chains that offer consumers superior value through
greater  merchandise  selection and  convenience,  and better prices through the
chains'  greater   purchasing   power.   The  Company  believes  that  there  is
considerable  potential for growth as the Mexican  retail sector  continues this
trend towards  modernization.  The Company also believes that similar trends are
underway in many other  Latin  American  countries.  The  Company's  strategy is
designed to capitalize on these trends. Additionally,  the Company believes that
the increasing  purchasing  power of the middle class in Mexico and elsewhere in
Latin America -- will benefit the retail sector in the short and long terms.

     Elektrafin,  S.A. de C.V.  ("Elektrafin"),  an indirect  subsidiary  of the
Company, finances purchases of consumer merchandise at Elektra and Hecali stores
and  collects  receivables  arising  from such  purchases.  Neither  Elektra nor
Elektrafin  have  any  employees.  A more  detailed  description  of the  retail
operations of Elektra and Hecali and the  financing  operations of Elektrafin is
provided below.

     The Company believes that it has certain distinguishing characteristics and
strengths, which include:

         o    Leading Market Share.  The Company  believes it has  established a
              leading market share position in Mexico City, its major market, as
              well as in other regions of the country. The Company also believes
              that for most of its customers, its stores are the most convenient
              source of many household  goods and that its pricing and terms are
              consistent  with such  consumers'  income  levels and  consumption
              patterns.  Outside Mexico the Company,  through its  international
              Elektra store  network,  competes  successfully  against local and
              international  retailers  in  the  five  countries  where  it  has
              established operations.

         o    Advanced  Distribution  and  Technology.  With point of sale (POS)
              scanners at every  check-out and real-time  inventory  control and
              sales  monitoring  systems at most of its stores  both  within and
              outside Mexico,  and through the use of satellite  systems linking
              all of its stores with Company  headquarters  in Mexico City,  the
              Company utilizes advanced retail technology  comparable to that

                                        3
<PAGE>

              of  leading  retailers  worldwide.   The  Company's  distribution
              network  incorporates   up-to-date  technology  and  distribution
              logistics that enable it to effectively  manage its large network
              of stores.

         o    Experienced Management. The Company's management has demonstrated
              an ability to implement  successfully the Company's  strategy and
              to manage the Company's expansion,  both in Mexico and throughout
              Latin America.

         o    Diversified Product Lines. The Company's focus on the middle-class
              customer  has  allowed  it to  offer a wide  range  of  innovative
              products. The Company has capitalized on its multinational network
              of retail  stores to offer new  products  and services in order to
              increase  store  traffic  and  generate  additional  revenue.  The
              Company  offers  electronic  money  transfer  services  and  other
              financial   services  in  its  stores  as  well  as   photographic
              development services.

Objective and Strategy

     The  Company   seeks  to  further   expand  its  sales  and   increase  its
profitability by capitalizing on its position as a leading  distributor of basic
household  goods and  services in Mexico and  elsewhere  in Latin  America.  Key
elements of the Company's strategy include:

         o    Local and  International  Growth:  Increase  the  number of stores
              throughout  Mexico and  certain  other  Latin  America  countries,
              including  El  Salvador,   Guatemala,   Honduras,   the  Dominican
              Republic,  Peru  and  Chile.  The  Company's  growth  strategy  is
              intended to take advantage of the fragmented nature of the Mexican
              and Latin American  retail markets and to strengthen the Company's
              market penetration.

         o    Technology:   Continue  to  develop  information  and  merchandise
              management  systems  that will allow the  Company to achieve  even
              more  efficient  management of its  high-volume  operations and to
              take full advantage of the satellite  communications  network that
              links all of the Company's stores.

         o    Emphasis  on  Employees:  Continue  to  emphasize  the  individual
              responsibility  of the Company's  employees  while  providing them
              with extensive training and corporate standards of excellence. The
              Company firmly believes that its workforce is an essential element
              in the future success of its business.

         o    Investment  in  Advertising  and  Publicity:  Invest  heavily  in
              advertising and publicity to achieve further consumer recognition
              and deeper market penetration, in particular,  through television
              advertising  on  TV  Azteca,  S.A.  de  C.V.  ("TV  Azteca"),  an
              affiliate of the Company. See Item 13, "Interest of Management in
              Certain Transactions--TV Azteca Advertising Agreement."

         o    Enhancement of Credit Opportunities: Further emphasize installment
              sales to increase the number of its  potential  customers  and the
              purchasing  power of those customers,  and effectively  manage its
              installment  sales  program  to  maintain  the  profitability  and
              quality of the Company's credit portfolio.

Target Market

         The  Company's  target  market is the  middle  class of  Mexico  and of
certain Central American and Andean Pact countries of South America.  In Mexico,
the middle  class is defined by the  Company as the 88% of the  population  that
controls  76% of  Mexico's  household  income.  The  Company  believes  that its
"typical"  customer  is a person  who is  employed,  owns his own home and has a
family  income  of  approximately  US$6,000  a year,


                                        4
<PAGE>


but does not own a car and therefore  shops in his  neighborhood or at locations
served by public transportation.  The Company believes that these customers have
been  under-served  by other large retailers and represent a market segment that
will continue to grow in size and in purchasing power.

     The  Company's  target  customer has not  typically  had access to consumer
credit.  Company management estimates that only a small percentage of its target
market  utilizes  banking  services and that a low  percentage  of the Company's
customers  possess  credit  cards.  Customers who might not otherwise be able to
purchase the Company's products for a single cash payment are nevertheless able,
through the Company's  installment  sales program,  to purchase products through
affordable  fixed weekly  payments.  The Company  believes that its  installment
sales  program  increases the number of potential  customers and the  purchasing
power of those customers,  and thereby  increases  overall sales. See "--Elektra
Operations in  Mexico--Installment  Sales  Program," and "Elektra  Operations in
Latin America-Installment Sales Program."

     The Mexican population is young. According to figures from the 1990 Mexican
census,  approximately  32% of the Mexican  population is between the ages of 20
and  40,  the  age  when  marriages   occur  and  households  are  formed,   and
approximately  46% of the Mexican  population is less than 20 years of age. With
over 700,000 marriages a year and the maturing of Mexico's young population, the
Company  anticipates  continued  demand  for the basic  household  products  and
services it offers.

     The population in the other Latin America  countries,  in which the Company
currently operates --Guatemala,  El Salvador,  Honduras, the Dominican Republic,
and  Peru--  are  also  young.  According  to  the  Latin  American  Center  for
Demographic  Studies (CELADE),  approximately 50% of the population is less than
24 years of age in these countries.  The Company estimates that more than 70% of
the population of these  countries  falls within the middle class, as defined by
the Company.

ELEKTRA OPERATIONS IN MEXICO

Merchandising and Marketing

     Merchandise Selection

     The  Company,  through  Elektra's  (i)  "traditional"  Elektra  stores that
average approximately 4,900 square feet and (ii) "MegaElektra"  superstores that
average   approximately   9,300   square   feet,   offers   a  broad   range  of
internationally-recognized   brand-name  consumer  electronics  products,  major
appliances and household  furniture.  The Company offers its products at several
different price points with greatest  inventory depth at the middle to low price
levels, and also operates certain outlet centers. In addition, the Company sells
its  Elektra-brand  products  at  prices  that  are  generally  lower  than  the
internationally-recognized  brand-name  products  that the Company  sells in the
same product category.

     The following  table sets forth the  approximate  percentages  of Elektra's
total  revenue  for  retail   merchandise  in  Mexico  (excluding   mark-up  for
installment  sales)  from  its  principal  product  categories  for the  periods
indicated:

                                              Year Ended December 31,
                                              -----------------------

                                           1996            1997           1998
                                           ----            ----           ----

Consumer electronics....................   41.4%            43.1%          41.8%
Major appliances........................   30.5             30.9           31.4
Household furniture.....................   16.4             15.8           15.7
Other products..........................   11.7             10.2           11.1
                                         ------           ------           ----
         Total revenues............       100.0%           100.0%         100.0%
                                          =====            =====          =====


                                        5
<PAGE>

     Consumer electronics,  which consist of video and audio equipment,  as well
as pagers,  constitutes the Company's leading product category.  Video equipment
includes  televisions  and  videocassette  recorders.   Audio  products  include
stereos,  portable  stereos and radios.  The Company  sells brand name  consumer
electronics such as Sony, Daewoo, Panasonic,  Hitachi and Aiwa. The Company also
sells the pagers of a wide variety of vendors,  including Motorola, and collects
the pager service (airtime) of Biper, S.A. de C.V.

     The Company also sells  consumer  electronics  and certain  other  products
manufactured  by GoldStar,  Samsung,  Daewoo and Zenith under the Elektra  brand
name.  Elektra brand  products  represented  8.3%,  6.5% and 5.8% of merchandise
revenues  (excluding  mark-up on  installment  sales)  for 1996,  1997 and 1998,
respectively.  The Company  attributes the decrease in percentage of total sales
represented  by Elektra  brand  products to the increased  availability  of, and
consumer demand for, imported brand name products.

     The Company's major appliances  category includes microwave ovens,  washing
machines, dryers,  refrigerators,  freezers, ranges, stoves and complete kitchen
units.  Brand names in this  category  include  Whirlpool,  Supermatic,  General
Electric, Mabe, IEM and Acros.

     Household  furniture  consists  of  bedroom,  living  room and dining  room
furniture.  Bedroom furniture includes  mattresses,  box springs, bed frames and
dressers.  Living room and dining room furniture includes sofas, tables, chairs,
dinettes,  end  tables  and  coffee  tables.   Products  in  this  category  are
manufactured  under local brand  names such as Mimo,  Disa,  Simmons and Literas
Lala.

     The Company's other products category includes  blenders,  mixers,  toaster
ovens,  typewriters,   irons,  fans,  vacuum  cleaners,   telephones,   personal
computers, electronic games and bicycles.

     The  following  table sets forth the  Company's  estimate of the store area
devoted to its  principal  product  categories  in its  traditional  Elektra and
MegaElektra stores in Mexico:

                                    Traditional Stores        MegaElektra Stores
                                    ------------------        ------------------

Consumer electronics..............        16%                       12%

Major appliances...................       20                        20

Household furniture................       58                        64

Other products.....................        6                         4
                                        ----                      ----

         Total.....................      100%                      100%
                                        ====                      ====


     The Company has devoted  significantly  greater  selling  area to household
furniture  in Elektra  and  MegaElektra  stores  because  of the higher  margins
obtained on household  furniture sales as compared to other product  categories,
and because the Company believes that household  furniture is traditionally less
subject to comparison shopping and pricing pressures than other merchandise.

     Pricing Policy

     The  Company's  pricing  policy  for its  Elektra  operations  is to  offer
products  at cash  prices  that are the  lowest or among  the  lowest in a given
market.  In addition,  the Company designs the installment  sales program at its
Elektra  stores to provide its customers  with  financing for its products at an
affordable weekly cost. The Company's  marketing  department  monitors prices at
competing stores and adjusts its cash and installment  sales prices as necessary
to adhere to a lowest  price  policy.  The  Company's  practice  is to match its
competitors'  lowest  advertised  prices on all products.  The Company typically
does not engage in promotional  advertising that emphasizes "sale" pricing,  but
rather  emphasizes  its  policy  of  consistent  everyday  low  prices.  Pricing
decisions


                                        6
<PAGE>


are generally made  centrally by the Company's  marketing  department,  but each
store manager has the authority,  within certain guidelines, to adjust prices to
meet local  market  conditions.  Due to the  Company's  strategy of everyday low
prices,  the Company  believes  that it relies on  markdowns  of  inventory to a
lesser  extent  than many  other  Mexican  retailers.  Ordinarily,  only a small
percentage of Company  merchandise  is determined to be obsolete and marked down
below the Company's normal margin.

     Customer Service

     The Company believes that the commitment to customer service in its Elektra
operations  is a  significant  factor in providing it with a loyal and expanding
customer  base.  Included  among these  services is a guaranteed  30-day  repair
service for consumer electronics and appliances sold by the Company.  Under this
program,  if a product is not repaired within 30 days, the Company  provides the
customer  with a  replacement  product  until  the  original  product  has  been
repaired.  During the period of repair, payments and interest on the product are
suspended.  The Company also  supplements  the  manufacturer's  warranty  with a
limited  warranty that  provides a minimum of 12 months of warranty  coverage on
all of its products  other than furniture  (which  carries a 90-day  warranty on
materials  and  workmanship)  and  18  months  of  warranty   coverage  on  most
televisions  and major  appliances.  The Company also offers a 30-day refund and
exchange  policy  on all of its  products  and  has  established  a  centralized
customer satisfaction office with a toll-free number.

     Advertising

     The  Company's  marketing  strategy for its Elektra  operations  emphasizes
eight  factors  in  attracting  and  retaining   customers:   quality   service,
merchandise variety, convenient store locations, installment sales availability,
low prices, product availability,  customer satisfaction, and functional display
formats.  The Company  reinforces its marketing  strategy  through an aggressive
advertising program utilizing radio, television,  pre-printed newspaper inserts,
direct mail,  newspapers and in-store  promotional  circulars,  all of which are
designed and prepared by the  Company's  in-house  advertising  department.  The
Company varies the volume and specific media of its advertising efforts to match
the size  and  customer  profiles  of its  markets.  The  Company's  advertising
programs are designed to (i) highlight the Company's broad selection of quality,
name-brand  merchandise and its low price policies,  (ii) introduce new products
and (iii) publicize special  promotions and events. The Company has supplemented
its  advertising  strategy  through  the  implementation  of a direct  marketing
program using the Company's database of customers.

     The Company believes that its in-house advertising  department provides the
Company with valuable  cost  savings.  The  Company's  annual  expenditures  for
advertising  were 2.1%, 2.0% and 2.1% of total revenues  during 1996,  1997, and
1998,   respectively.   Approximately   13.8%  of  the   Company's   advertising
expenditures  in 1998 was spent on  television  advertising,  21.8% was spent on
radio  advertising,  41.1% was spent on direct mail,  including  the printing of
promotional circulars,  and the remainder was spent on newspaper advertising and
various other forms of  advertising.  The Company  traditionally  offers certain
seasonal  promotions,  on predetermined dates each year, including Christmas and
Mother's Day.

     In July 1993, the  Controlling  Shareholders  of the Company (as defined in
Item 4, "Control of Registrant," together with an investor group,  completed the
acquisition  of a package of media  assets  including  two  national  television
networks, a chain of movie theater properties and a production studio. TV Azteca
serves as one of two national television  broadcasters in Mexico. In March 1996,
the Company  acquired  35.8% of the capital stock of  Comunicaciones  Avanzadas,
S.A. de C.V. ("Casa"),  the indirect  controlling  shareholder of TV Azteca, and
the Company and TV Azteca  entered  into a 10-year  agreement  pursuant to which
Television  Azteca,  S.A.  de  C.V.   ("Television  Azteca")  and  Impulsora  de
Television del Centro, S.A. de C.V., the two network  subsidiaries of TV Azteca,
agreed to air at least 300 commercial  spots for the Company per week,  totaling
100 minutes per week or 5,200 minutes per year, during otherwise unsold airtime.
The Company pays US$1.5 million annually for such advertising  time. The Company
believes  that this  relationship  enhances its ability to effect its  promotion
strategy  relative to other  national  and  regional  specialty  retailers.  See
"--Investment in


                                        7
<PAGE>


Comunicaciones  Avanzadas, S.A. de C.V." and Item 13, "Interest of Management in
Certain  Transactions--Purchase of Casa `N' Shares" and "--TV Azteca Advertising
Agreement."

Installment Sales Program

     This  section  describes  the  Company's  installment  sales  policies  and
procedures for the electronics, appliance and furniture retail operations of its
Elektra stores,  as in effect on December 31, 1998.  Although these policies and
procedures are generally  applied  throughout the Company's Elektra retail sales
network,  store  managers and credit  managers  have the  discretion to deviate,
within certain limits, from these policies when they find it is appropriate. The
Company finances purchases of consumer merchandise at its Elektra stores through
Elektrafin.

     Operations

     The Company has provided  in-store  credit to its  customers in its Elektra
stores since 1957.  Between the mid-1980s and 1991, during a period of financial
instability  in Mexico,  the Company  suspended  its  installment  sales program
because  commercial  credit was generally not available in Mexico to fund such a
program.  In 1991,  as the  Mexican  economy  improved  and credit  became  more
available to the Company,  it reintroduced an installment  sales program for its
Elektra  customers.  Since  the  Company's  target  customers  for  its  Elektra
operations are the segment of the Mexican  population that typically has not had
access  to  consumer  credit,  the  Company  has found  the  availability  of an
installment  sales program to be an important  factor in  customers'  purchasing
decisions.  The Company believes that the  availability of an installment  sales
program also strengthens customer loyalty and increases overall revenues.

     The  following  table  sets  forth  certain   information   concerning  the
consolidated  installment  sales  program,  including  Elektra stores outside of
Mexico :

<TABLE>
<CAPTION>
                                                                                  As of and for the Year
                                                                                    Ended December 31,
                                                                           ------------------------------------
                                                                           1996            1997            1998
                                                                           ----            ----            ----
                                                                        (in millions of Ps. as of December 31, 1998)
<S>                                                                      <C>             <C>                 <C>
Accounts receivable retail customers-net (at period end)(1) ...........  P$ 2,163.1       P$ 1,531.9         P$1,196.9
Installment sales as a percentage of merchandise revenues(2) ..........        68.8%            65.9%             66.9%
Total number of open accounts (at period-end)(1) ......................     889,921          948,054           682,163
Average balance per retail customer (at period-end) ...................  P$ 2,430.7       P$ 1,615.8         P$1,754.5
Write-offs as a percentage of gross retail receivables(1) before
    write-offs ........................................................         9.4%            15.9%             21.6%
Reserve for doubtful accounts after reduction for write-offs as a
    percentage of gross retail receivables after write-offs ...........         2.5%             3.2%              6.4%
Weighted average cost of receivables financing(3) .....................        30.9%            23.4%             16.7%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Net of  receivables  securitization  and  net  of  allowance  for  doubtful
     accounts.

(2)  Includes mark-up on installment sales

(3)  Includes factoring and unsecured bank debt used to finance the receivables.



                                        8
<PAGE>


     The following table sets forth certain  information  concerning the Elektra
installment sales program in Mexico:

<TABLE>
<CAPTION>
                                                                               As of and for the Year
                                                                                    Ended December 31,
                                                                           ------------------------------------
                                                                           1996            1997            1998
                                                                           ----            ----            ----
                                                                       (in millions of Ps. as of December 31, 1998)
<S>                                                                     <C>             <C>              <C>
Accounts receivable retail customers-net (at period end)(1)......       P$ 2,163.1      P$ 1,427.5       P$   849.0
Installment sales as a percentage of merchandise revenues(2).....             71.0%           68.7%            68.3%
Total number of open accounts (at period-end)(1).................          889,921         850,765          376,030
Average balance per retail customer (at period-end)..............       P$ 2,430.7      P$ 1,678.0       P$ 2,257.7
Write-offs as a percentage of gross retail receivables(1) before
    write-offs...................................................             9.4%            16.5%            26.0%
Reserve for doubtful accounts after reduction for write-offs as a
    percentage of gross retail receivables after write-offs......             2.5%             3.1%             6.2%
Weighted average cost of receivables financing(3)................            30.9%            23.4%            16.7%
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Net of  receivables  securitization  and  net  of  allowance  for  doubtful
     accounts.

(2)  Includes mark-up on installment sales.

(3)  Includes factoring and unsecured bank debt used to finance the receivables.

     The following table sets forth certain  information  concerning the Elektra
installment sales program in Latin America, excluding Mexico:

<TABLE>
<CAPTION>
                                                                                  As of and for the Year
                                                                                    Ended December 31,
                                                                           ------------------------------------
                                                                           1996            1997            1998
                                                                           ----            ----            ----
                                                                       (in millions of Ps. as of December 31, 1998)

<S>                                                                            <C>         <C>             <C>
Accounts receivable retail customers-net (at period end)(1)......              N/A         P$ 72.0         P$ 276.0
Installment sales as a percentage of merchandise revenues(2).....              N/A            49.7%            75.5%
Total number of open accounts (at period-end)(1).................              N/A          33,026          124,813
Average balance per retail customer (at period-end)..............              N/A      P$ 2,181.3       P$ 2,211.5
Write-offs as a percentage of gross retail receivables(1) before
    write-offs...................................................              N/A              0%              2.2%
Reserve for doubtful accounts after reduction for write-offs as a
    percentage of gross retail receivables after write-offs......              N/A            4.7%              7.3%
Weighted average cost of receivables financing(3)................              N/A           18.6%             19.5%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Net of allowance for doubtful accounts.

(2)  Includes mark-up on installment sales.

(3) Includes factoring and unsecured bank debt used to finance the receivables.

     Since the fourth  quarter of 1996, the Company's  accounting  policy on its
Elektra  operations  has been to record  five  percent  of the value of the cash
price of the  merchandise  sold  pursuant  to the  Company's  installment  sales
program,  plus the mark-up,  less the down  payment,  if any, as a provision for
doubtful  accounts.  During the first three  quarters of 1996, the provision was
calculated  on the basis of cash price only.  Write-offs  increased  in 1997 and
1998  primarily  due  to  the  Company's  accounts   receivable   securitization
transactions, which involved


                                        9
<PAGE>

the  securitization of some of the Company's  receivables,  generally those with
the highest credit quality. See "--Portfolio Securitization Program."

     The Company's  accounting policy on its Elektra  operations is to write off
accounts  receivable  for accounts  once the amount past due becomes equal to 13
weekly  payments.  The Company  continues  collection  efforts after writing off
accounts  receivable.  See Item 9,  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations."

     The profitability of the Company's installment sales operations is affected
by many  factors,  including  its  cost of  funds,  the  credit  quality  of its
receivables,  the  availability to consumers of alternate  credit  sources,  the
impact of  inflation  on  receivables  balances  and  borrowings  to fund  those
balances,  and the cost of administering the installment  sales operations.  See
Item 9, "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

     Credit Sales

     The  Company's  pricing  strategy for its Elektra  operations is to provide
customers  with a choice of a cash price or an  alternative  weekly  installment
purchase price.  Elektra customers can choose to pay for merchandise on a weekly
basis for a period  ranging from 13 to 53 weeks.  The Company  believes that the
weekly payments charged to its Elektra  customers are generally lower than those
of  competitors  who offer  similar  programs.  No  statement  of the  effective
interest  rate  included  in the  installment  sales  price is  provided  to the
customer.

     Elektra's total credit sales in 1998  represented  68.3% of the total sales
of the Company in Mexico.  Currently,  the 39-week installment sales plan is the
most popular term chosen by  customers of Elektra,  and the Company  expects the
39-week  plan to remain  constant as a percentage  of the  customer  receivables
portfolio until interest rates decline  substantially in Mexico.  As of December
31,  1998,   53-week  plan  sales  represented  7.3%,  the  39-week  plan  sales
represented 62.3%, the 26-week plan sales represented 26.4% and the 13-week term
plan sales represented 4.0% of the total amount of Elektra's installment sales.

     As of December 31, 1998, 39-week and 53-week receivables  represented 66.5%
and 9.8% of the  customer  receivable  portfolio,  respectively,  while  26-week
receivables   represented  21.2%  of  the  portfolio  and  13-week   receivables
represented 2.5% of such portfolio.

     The Ley Federal de  Proteccion  al  Consumidor  (the  "Consumer  Protection
Act"),  that  became  effective  on  December  25,  1992,   regulates   consumer
installment  sales.  The  Consumer  Protection  Act  imposes  no  ceiling on the
interest rate a merchant may charge a consumer in an  installment  sale. It does
not require disclosure of the effective rate of interest charged.  The effective
interest rate charged by the Company for  electronics,  appliances and furniture
is fixed at the time of the installment purchase. There can be no assurance that
limitations or additional disclosure with respect to such rates of interest will
not be imposed by the Mexican  Government in the future.  Due to the substantial
portion of the  Company's  revenues  and  operating  cash flow  generated by its
installment sales program, any limitations or additional disclosure with respect
to the rates of interest  charged by the Company  could have a material  adverse
effect on the Company's financial performance.  Furthermore, any material change
in the regulations governing the Company's collection practices and repossession
procedures   could  also  have  a  material  adverse  effect  on  its  financial
performance.

     Credit Approval

     Approval  for  an  installment  purchase  of  electronics,   appliances  or
furniture  requires  the  customer to complete an  application  form,  execute a
credit  contract  and a  promissory  note,  and  provide  an  official  form  of
identification containing a photograph, a recent payroll receipt and evidence of
home ownership such as a receipt for property taxes. In addition, a second party
is normally  required to guarantee the promissory  note if the customer does not
meet  the  applicable  financial  requirements  or  does  not  own a  home.  The
customer's and


                                       10
<PAGE>


second  party's  credit is  investigated  prior to delivery of the  merchandise.
Generally,  the customer will not be granted credit if the weekly payments would
be in excess of 20% of the customer's  weekly gross income.  A regional  manager
must approve  installment  sales where the amount being financed is in excess of
P$5,500 and an area  manager  must  approve  installment  sales where the amount
being financed is in excess of P$9,000. The verification period can take several
hours or several days, depending on a number of factors including store location
and  customer  availability.  Since  there is no credit  bureau  in Mexico  that
reports on consumer  credit (other than on more affluent  consumers  with credit
cards), an employee  personally  visits the customer's  residence to confirm the
accuracy of the credit  application.  If approved for credit, the customer makes
weekly payments in cash at the Elektra store where he made the purchase.  Due to
the lack of widespread  telephone  service among the  Company's  customers,  the
Company must give personal  attention to its credit  customers.  The Company has
processed  and  carried  out   investigations   on  over  five  million   credit
applications  since  1993,   creating  a  valuable   computerized   database  of
information on its customers.

     Installment sales on products sold through Elektra stores are documented by
credit contracts and fixed-term  promissory notes with fixed weekly payments and
stated interest,  if any. These promissory notes provide that a penalty interest
rate be assessed in the event that  payments are not made when due. Such penalty
interest is  computed  daily on the past due  payments  until the  payments  are
current.

     Collection

     The collection  practices and  repossession  procedures used by the Company
operations  in Mexico are  regulated  under the  Mexican  Commercial  Code,  the
Consumer  Protection  Act and the Mexican Civil Code.  The Company's  collection
operations  are  implemented  and monitored at the individual  store level.  The
Company  currently has  approximately  3,700 employees  dedicated to installment
sales collections and investigations for purchases of merchandise at its Elektra
stores.  Each Elektra  store has an  installment  sales  manager who,  under the
regional  manager's  supervision,   is  responsible  for  extending  credit  and
collecting  that  store's  outstanding  accounts in  accordance  with  corporate
guidelines.  Customers make their weekly  installment  payments in person at the
Elektra stores, which are open seven days a week. In the event that the customer
falls into arrearages  greater than two weekly installment  payments,  a Company
collector  will begin to visit the  customer in person at least once a week.  If
total arrearages  exceed eight weekly payments,  an installment sales supervisor
will visit the customer weekly. When the customer's  arrearages exceed 12 weekly
payments,  the matter is referred to the Company's legal department,  which will
send an  attorney  to the  customer's  house or place of  business to attempt to
settle the collection  matter.  In the event that a customer's  total arrearages
exceed 16 weekly  payments,  the Company may  institute  judicial  procedures to
settle the claim by  obtaining a court order for  attachment  of the  customer's
assets.  However, the Company's policy is to attempt first to reach an agreement
with the customer  whereby the customer  resumes  payment or the  merchandise is
repossessed.  Repossessed merchandise is reconditioned and transferred, together
with floor models  withdrawn  from display,  to Company  outlet  stores  created
especially for this purpose.

     Portfolio Securitization Program

     The  Company  utilizes  Elektrafin,  a  subsidiary  of  Grupo  Elektra,  to
securitize  its  receivables.  In July 1997,  the Company  completed its initial
securitization of Ps. 625 million (nominal),  and on December 1997,  completed a
second  offering  of  Ps.  241  million  (nominal)  in  Ordinary   Participation
Certificates  ("CPO's") on the Mexican Stock  Exchange.  These two programs have
been fully paid. In April 1998, the Company issued a Ps. 793.3 million four-year
revolving securitization program, the first of its kind in Mexico. The spread on
the yield is based on  28-day-cetes  rate plus 225 bps.  In December  1998,  the
Company again issued its second two-year revolving securitization of receivables
in an offering of Ps. 200 million with a spread of Tasa de Interes Interbancaria
y de Equilibrio  ("TIIE") plus 125 bps.  Nacional  Financiera  S.N.C,  Fiduciary
division, acted as the fiduciary issuer of the CPO's. Operadora de Bolsa Serfin,
S.A., Casa de Bolsa, executed the placement. The high quality and performance of
the Company's two revolving  securitizations programs have enabled Grupo Elektra
to maintain a strong  monthly "AA" rating by Duff and Phelps and "MAA" rating by
Fitch Investors Service. Thus, there has


                                       11
<PAGE>


been a strong demand for both active issuances  providing  attractive  financing
alternatives for Elektra where the proceeds are used primarily to pay short-term
debt  and  to  finance  the  Company's  international  expansion.  See  Item  9,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Liquidity and Capital Resources."

Stores

     At December 31, 1998, the Company operated a total of 581 Elektra stores in
Mexico, including 346 MegaElektra superstores.  The number of Elektra stores the
Company  operates has grown at a 13.62%  compound  annual rate since 1992. As of
December  31,  1998,  the total store area of the  Company's  Elektra  stores in
Mexico was 408,009 square meters  (approximately  4,392,000 square feet),  which
reflects an 11.1% compound  annual growth rate since 1992. At December 31, 1998,
the Company owned 52 Elektra stores and leased 529 Elektra stores under mid-term
leases that typically  contain terms from five to ten years.  Historically,  the
Company has not had difficulty in either renewing its expiring leases or finding
alternate  locations on comparable  terms.  The Company  intends to continue its
policy of primarily  leasing  sites for store  locations,  attempting  to secure
ten-year  leases  whenever  possible.  However,  the Company may face  increased
competition for suitable store sites in the future.

     The following table sets forth certain operating statistics for traditional
Elektra and MegaElektra stores in Mexico as of, and for the year ended, December
31, 1998:
<TABLE>
<CAPTION>
                                                                Traditional
                                                                   Elektra           MegaElektra           Total
                                                                -----------          -----------           -----

<S>                                                              <C>                 <C>                <C>
Sales (millions)(1)....................................           P$2,014.8           P$3,781.0          P$5,795.8

Number of stores.......................................                 235                 346                581

Aggregate store area (m2)..............................             107,552             301,309            408,860

Number of store employees(2)...........................               3,474               6,121              9,595
</TABLE>
-------------------
(1)  Excluding mark-up on installment sales.

(2)  Does not include Grupo Elektra corporate or collections staff. Elektra does
     not  have  any  employees.   Personnel   services  are  provided  by  other
     subsidiaries of the Company.

     Store Format

     The Company's  traditional  Elektra stores range in size from 517 to 20,451
square  feet,  with an  average  of 4,927  square  feet.  In 1992,  the  Company
introduced its MegaElektra  superstore format. The Company's  MegaElektra stores
range in size from  2,045 to 27,179  square  feet,  with a target  size of 8,611
square  feet  and an  average  size of  approximately  9,373  square  feet.  The
MegaElektra  format allows the Company to increase its on-site inventory levels,
increase  the amount of floor space  dedicated  to its higher  margin  furniture
products  line,  take  advantage  of  certain  economies  of scale and lower the
Company's  out-of-stock position. The Company has expanded the size of its newer
traditional stores in order to increase the number of items (Stock Keeping Units
or "SKUs") and the amount of furniture in those  stores.  Each of the  Company's
MegaElektra stores offers  approximately 410 SKUs, while each of its traditional
Elektra stores typically offers approximately 190 SKUs.


                                       12
<PAGE>


     Location

     The Company operates Elektra stores in 247 cities in all 31 Mexican states.
The following table sets forth  information  with respect to the distribution of
the Company's  traditional and  MegaElektra  stores in Mexico as of December 31,
1998:

<TABLE>
<CAPTION>
                                    Number of Stores                                Store Area(m2)(1)
                       ------------------------------------------     --------------------------------------------
                                                         % of all                                       % of Total
        Zone           Traditional      MegaElektra       Stores      Traditional     MegaElektra      Sales Areas
------------------     -----------      -----------       ------      -----------     -----------      -----------

<S>                         <C>            <C>             <C>          <C>             <C>               <C>
Mexico City(2)....          69              91             27.5%         31,686.5        79,139.5          27.1%

Center............          33              47             13.8          17,767.3        37,820.0          13.6

Northeast.........          27              53             13.8          11,220.6        51,487.0          15.3

Pacific...........          22              33              9.5          10,047.0        29,245.0           9.6

Guadalajara.......          29              28              9.8          12,237.9        25,072.0           9.1

South.............          23              51             12.7          11,109.5        42,252.0          13.0

Southeast.........          32              43             12.9          13,483.0        36,293.1          12.2
                           ---             ---            -----         ---------       ---------         -----
Total.............         235             346            100.0%        107,551.7       301,308.6         100.0%
                           ===             ===            =====         =========       =========         =====
</TABLE>

---------------------
(1)  Based on total area of each store. The Company does not maintain records of
     selling  space,  but estimates  that the selling space in its stores ranges
     from 85% to 95% of total store area.

(2) Includes the metropolitan area.

     Expansion Plan

     The Company  anticipates  opening  approximately 15 additional  MegaElektra
stores  and four  additional  outlet  stores in  Mexico by the end of 1999.  The
Company also expects to continue its expansion strategy in Latin America in 1999
by opening 20 new MegaElektra stores in five countries: El Salvador,  Guatemala,
Honduras,  the Dominican Republic and Peru. In addition,  the Company intends to
evaluate  which of its  existing  traditional  Elektra  stores in  Mexico  could
benefit  from a  conversion  to the  MegaElektra  superstore  format  either  by
renovation  or  relocation.  As of  December  31,  1998,  the  Company  had  not
specifically identified any such stores for conversion.

     The  average  cost  of  opening  a  new  MegaElektra  store  in  Mexico  is
approximately  P$2.9  million,  excluding the cost of inventory and real estate,
while the cost of converting a traditional  existing store into the  MegaElektra
format varies depending upon available space and required  renovation and has in
the past averaged  approximately P$1.4 million. The average time required to set
up a new store is approximately three months. The Company's  traditional Elektra
stores and  MegaElektra  stores utilize  standardized  modular  racking,  tiles,
lighting and equipment.  The modular design of the Company's stores allows it to
quickly and inexpensively close under-performing  stores and move the furniture,
fixtures and inventory from such stores to new locations.

     Elektra stores are typically  located in  neighborhoods  of Mexico's middle
class. Criteria for the location of an Elektra store usually includes pedestrian
traffic of at least 200 persons  per hour  during  peak hours for a  traditional
Elektra  store and 250  persons  per hour  during  peak hours for a  MegaElektra
store. The Company also considers  automobile  traffic in selecting store sites,
although the Company believes that the majority of Elektra consumers walk to its
stores or travel to the store by public  transportation.  The Company has in the
past located its new stores primarily in the major metropolitan areas of Mexico.
However,  as  the  Mexican  population  outside  the  major  metropolitan  areas
continues  to  increase  rapidly,  the  Company  believes  that it  will  become
increasingly  important to locate  stores in  small-to-medium  sized  population
areas of the country.


                                       13
<PAGE>


     The Company  evaluates its Elektra stores on a continuous  basis and closes
those  stores  that do not  meet  performance  targets.  The  Company  generally
negotiates  provisions in its leases for Elektra store locations that permit the
Company to terminate its leases on three months' notice.

     The following  table  provides a history of the Company's  traditional  and
MegaElektra stores in Mexico since 1996:

<TABLE>
<CAPTION>
                                                                                 Year ended December 31,
                                                                              -----------------------------
                                                                              1996         1997       1998
                                                                              ----         ----       ----

Traditional Stores:

<S>                                                                            <C>          <C>         <C>
    Number of stores open at beginning of period....................           296          261         254
    Number of new stores opened.....................................            10           19           2
    Number of stores converted to MegaElektra stores................           (39)         (25)         (2)
    Number of stores closed.........................................            (6)          (1)        (19)
                                                                              ----         ----       -----
    Number of Traditional stores open at end of period..............           261          254         235

MegaElektra Stores:
    Number of stores open at beginning of period....................           104          197         272
    Number of new stores opened.....................................            54           50          56
    Number of stores opened by conversion of Traditional stores.....            39           25          19
    Number of stores closed.........................................             0            0          (1)
                                                                             -----        -----       -----
    Number of MegaElektra stores open at end of period..............           197          272         346

Traditional Stores and MegaElektra Stores:
    Number of stores open at beginning of period....................           400          458         526
    Total number of stores open at end of period....................           458          526         581
</TABLE>

Store Operations

     The Company has developed a  standardized  system for operating its Elektra
stores.  The system includes  procedures for inventory  management,  transaction
processing,  customer relations,  store administration,  merchandise display and
installment sales policies. As part of this effort the Company has developed and
maintains operating manuals outlining the Company's  procedures relating to, for
instance,  maintenance,  security and accounting. The Company's store operations
in Mexico are organized into nine operating  areas.  The operating areas contain
four to five  geographical  regions,  with each region  consisting of nine to 15
stores.  The  Company's   management  structure  provides  that  store  managers
generally report to regional  managers who report to area managers who, in turn,
report to management at the Company's headquarters in Mexico City.

     The  Company's  Elektra  stores in Mexico  are open  every day of the year,
except New Year's Day, usually from 9:00 a.m. to 9:00 p.m. A typical traditional
Elektra store is staffed by a full-time manager,  one installment sales manager,
one credit  investigator  and two  collectors  and, on  average,  five sales and
support  personnel.  A typical  MegaElektra store has the same staff composition
except  that the  number of sales  and  support  employees  ranges  from  15-20,
depending on the size of the store.  The Company  centralizes the  investigation
and collection  functions of its Elektra  operations within a city when doing so
is more efficient than handling such function at the individual  store level. In
Mexico  City  and  Guadalajara,  the  credit  investigation  function  has  been
centralized   and  is  performed  by  a  staff  of  51  and  11   investigators,
respectively. The Company's sales personnel operate on a sales commission basis,
and  store  managers   typically   receive   quarterly   bonuses  based  on  the
profitability of the stores.

     Training and Standardization

         The  Company  considers  the  training  of its  staff  at  its  Elektra
operations a high priority to ensure the highest levels of customer service. The
Company recognizes that the success of a retail operation  ultimately


                                       14
<PAGE>


depends  in large  measure on the level of service  provided  by its  personnel.
Every  employee from a cashier to a division  manager  receives a description of
his or her  responsibilities  and  on-going  training  to help them  develop the
professional  and  personal  characteristics   necessary  to  provide  Elektra's
customers with the highest level of service.  Employees are regularly briefed on
the  performance  of  their  store  and of the  Company  as a  whole.  In  1998,
approximately  20,500 Company employees  received training at Elektra University
temporary education sites set up throughout the country.  The Company's in-house
school of excellence,  which includes model Elektra and Hecali stores and offers
over 1,156 educational programs. Elektra University also provides employees with
skills  training  designed to train new employees and to keep current  employees
informed of changes and modifications to the Company's  operating  procedures as
well as to demonstrate new products.  New store employees  generally receive two
weeks of training at Elektra University prior to assuming responsibilities,  and
new store managers and credit managers, as well as new sales and credit regional
managers,  receive one month on average of training  at Elektra  University.  In
addition,  the Company  offers  continuing  education  programs to its  existing
employees.  During 1998, there were 12 of these programs, known as "Diplomados",
that consisted of 230-hour-long  courses designed to develop  management  skills
for the Company's store, regional and administrative managers. These courses are
taught at the Centro de  Desarrollo  Empresarial  y Ejecutivo  of the  Instituto
Tecnologico y de Estudios  Superiores de Monterrey,  one of the most prestigious
business schools in Mexico.

     The Company  operates  quality  assurance  laboratories at its distribution
centers in order to conduct  random testing of products and approve new products
as part of the Company's  on-going efforts to ensure the quality of the products
it sells.

     Information Systems

     The  Company  employs  180  computer  professionals  and  has  developed  a
computerized  management  information system for its Elektra operations in order
to improve the efficiency of its  accounting,  control and financial  management
operations.  The system operates a proprietary software package on an IBM AS/400
System. The system permits the Company's  management across the Company's entire
store network to generate daily information on sales,  gross margins,  shrinkage
and inventory  levels by store and by SKU. The system also allows the Company to
compare  current  performance  against  historical  performance  and the current
year's budget and goals.  The  Company's  system not only permits the Company to
track  inventory  levels and  replacement  requirements,  but also  permits  the
Company's  management to make  projections of the expected sales  performance by
store and by SKU,  considering  among other variables their seasonal index,  the
economic  cycle  and sales  trends.  These  projections  allow  the  Company  to
determine more efficiently the stock and mix of merchandise in each store.

     The  Company  has  implemented  a system  to  provide  real-time  satellite
communications   between  the  individual   Elektra  stores  and  the  Company's
headquarters.  This system  utilizes  point-of-sale  technology from which sales
information is collected on a real-time basis. This system  facilitates the flow
of information between the Company's stores and from the Company's stores to its
headquarters, thereby improving distribution of merchandise and facilitating the
expansion of the  Company's  installment  sales  operations.  In  addition,  the
Company is  continuing  to design new systems  and  modifies  existing  systems,
particularly  in the  distribution  areas.  The  Company  has  also  established
electronic  data  interchanges  with all of its major  suppliers  to  facilitate
replenishment of inventory.

     Capital  expenditures for information  systems were P$90.1 million in 1996,
P$262.3 million in 1997 and P$104.4 million in 1998.

     Purchasing and Distribution

     An important element of the Company's  marketing strategy is its ability to
offer a wide  selection  of name brand  products to its  customers.  The Company
currently has a network of approximately 170 suppliers for its


                                       15
<PAGE>


electronics,   appliances   and   furniture   products  and   directly   imports
approximately  10.5% of these products.  The Company typically does not maintain
long-term  purchase  contracts  with  suppliers  and  principally  operates on a
purchase order basis.  Although certain vendors are significant to the Company's
business  because of their name  recognition,  the Company does not believe that
its business is dependent  upon any one vendor or  particular  group of vendors.
The Company's  operations  have not been  materially  adversely  affected by any
limitation  on,  or  loss  of the  supply  of any  merchandise.  However,  world
political and economic events,  such as export-import  controls and the value of
the Peso  relative to other  currencies,  over which the Company has no control,
affect the Company's cost of goods sold. Changes in any of these variables could
negatively affect the Company and its results of operations.

     The  Company's  centralized  merchandising  and  buying  group  for  Mexico
consists of a staff of seven buyers who purchase  substantially  all merchandise
for the  Company's  Elektra  stores.  Buyers  are  assisted  by a  sophisticated
management  information system that provides them with current inventory,  price
and unit sales information by SKU, thus allowing the Company to react quickly to
market  changes  and to avoid  inventory  shortages  or  surpluses.  The Company
believes that its  centralized  purchasing  system enhances its buying power and
increases its ability to obtain  favorable  pricing and delivery  terms from its
suppliers.

     The Company  currently  distributes  products to its Elektra  stores from a
215,278 square foot warehouse and  distribution  facility located in Mexico City
with satellite  distribution  centers in Guadalajara (50,590 sq. ft.), Monterrey
(39,826 sq. ft.),  Tijuana (24,219 sq. ft.), and Chihuahua (21,527 sq. ft.), and
a support facility in Laredo, Texas.  Deliveries to the Company's Elektra stores
are made  primarily by contract  trucking  carriers,  although the Company has a
nominal number of trucks at each distribution center for movement of merchandise
between stores and for special delivery  requirements.  Management believes that
the Company's  distribution centers and support facilities  significantly reduce
freight costs and delivery time by providing warehouse space relatively close to
the Company's stores.

     Competition

     The  Company's  electronics,  appliance and  furniture  retail  business is
highly  competitive  in all  product  categories  and is  characterized  by high
inventory  turnover and low profit  margins  (profit as a percentage  of sales).
Earnings  primarily depend upon the maintenance of high per-store sales volumes,
efficient  product   purchasing  and  distribution  and   cost-effective   store
operations.  The Mexican retail sector is fragmented and consumers are served by
a number of formats,  including  traditional  formats such as independent retail
stores, modern formats such as retail chains and department stores, and informal
outlets such as street vendors and markets.  Management believes,  however, that
no  competing  business  has the  combination  of a  specialization  in consumer
electronics,  major  appliances  and  household  furniture,  national  coverage,
availability  of an  installment  sales  program and  experience  selling to the
middle class that the Company  possesses.  Also,  department stores and discount
clubs that carry the same merchandise  lines as the Company generally offer less
product variety than the Company.

     Certain major U.S.  retailers have established  joint ventures with Mexican
retailers and have opened stores in Mexico.  The Company expects that other U.S.
retailers will do so in the future.  Moreover,  the Company believes that NAFTA,
which  established a North American  "free trade" zone and generally  eliminates
import duties,  tariffs and barriers among Mexico, the United States and Canada,
will facilitate the entry of U.S. retailers into the Mexican market. The Company
also competes against a significant  informal or "black" market for the products
it carries.  The Company believes that its extended  warranties,  repair service
and  credit  availability  provide  it with a  competitive  advantage  over  the
lower-priced  goods sold in this  informal  market.  Although  the  Company is a
leading specialty retailer that is well positioned to effect its strategy, there
can be no  assurance  that  the  Company's  performance  will  not be  adversely
affected by increased competition from these and other sources.

     The Company acquired its most significant  competitor in Mexico,  Salinas y
Rocha,  S.A. ("SyR") on March 10, 1999. See "Description of  Business-Salinas  y
Rocha." The Company continues to face strong


                                       16
<PAGE>

competition  from  Singer,  Muebleria  Nueva and Famsa.  The Company  also faces
competition from several regional chains. The following table sets forth certain
information  concerning what the Company believes are its primary competitors in
Mexico.

<TABLE>
<CAPTION>

Competitor                    Estimated Primary Region of Operations         Number of Stores(1)
----------                    --------------------------------------         ------------------
<S>                           <C>                                                        <C>
Singer                        National                                                   176
Famsa                         Central and Northeast Mexico                               110

Electro Muebles               Central and Western Mexico                                 110

Salinas y Rocha(2)            Central and Northeast Mexico                                96
Coppel                        Northwestern Mexico                                         42
La Curacao                    Southeast                                                   34
Viana                         Mexico City and Metropolitan Area                           34
Ahorra$I                      Mexico City and Metropolitan Area                           22
Distribuidora Rodriguez       Northeast                                                   14
Muebleria America             Guadalajara                                                 13
Ekar de Gas                   Western                                                     11
</TABLE>
---------------
(1) Estimates of the Company, as of December 31, 1998.

(2) The  Company  acquired  Salinas y Rocha on March 10,  1999.  See  "Salinas y
Rocha."

     The Company,  with 162 Elektra stores in the Mexico City metropolitan area,
believes  it is a leading  specialty  retailer of  consumer  electronics,  major
appliances  and home  furniture  in that  region.  In Mexico  City,  the Company
considers its major  competitor to be Singer in the  electronics,  appliance and
furniture  retail market.  Except for Singer,  in regions of the country outside
Mexico City,  most of the Company's  formal  competitors  are regional and local
department and specialty stores.  The Company believes that, through its Elektra
operations, it is well positioned to compete in all of its markets in Mexico.

Money Transfer Business

     General

     Through its Elektra operations in Mexico,  the Company  participates in two
separate  sectors of the money transfer  business.  Through "Dinero en Minutos,"
the Company is involved in a business  association  with Western Union Financial
Services,  Inc. to transfer  funds  electronically  from abroad,  primarily  the
United States, to Mexico. Through the Company's wholly-owned  subsidiary "Dinero
Express,"  Elektra stores offer  customers  electronic  money transfer  services
within Mexico.  During 1998,  Elektra  generated P$306.5 million in revenue from
Dinero en Minutos and Dinero Express.

     Dinero en Minutos

     In October  1993,  Elektra  entered into certain  joint  arrangements  (the
"Joint  Venture  Arrangement")  with  Western  Union  Financial  Services,  Inc.
("Western Union") to provide electronic money transfer services in Mexico. These
arrangements provided the Company with the benefit of increased customer traffic
in its stores and also generated U.S. Dollar revenue for the Company.  Under the
Joint  Venture   Arrangement,   Western  Union's  worldwide  network  of  agents
originated  electronic money transfers to Mexico, and Elektra's domestic network
of stores,  as well as certain  banks and other  retailers  that do not  compete
directly with the retail  operations  of Elektra,  distributed  such  electronic
money  transfers as agents in Mexico.  Western  Union's Will Call Money Transfer
Service  (the  "Will Call  Service")  was  marketed  through  the Joint  Venture
Arrangement in Mexico under the trade name "Dinero en Minutos."


                                       17
<PAGE>


     Western Union is a  wholly-owned  subsidiary of First Data  Corporation,  a
leading provider of non-bank money transfer and bill payment services throughout
the  world,  with a network of over  50,000  agents in over 160  countries.  The
Company  believes that Western Union is the largest provider of electronic money
transfer services to Mexico, with over 50% of the total market, transferring the
equivalent  of over  US$1.5  billion  per year into  Mexico  (the  total  amount
transferred into Mexico was U$2.9 billion for 1998).

     In January  1996,  Elektra sold its  interests in the entities  established
pursuant to the Joint Venture  Arrangement to American Rapid Corporation Inc., a
wholly-owned  subsidiary of Western Union ("American Rapid"),  for US$20 million
and  received  its  share  of all  undistributed  net  profits  in the form of a
dividend.  In  addition,  Elektra and Western  Union  entered  into an Exclusive
Services Agreement dated January 11, 1996 (the "Exclusive Services  Agreement"),
which  provided the framework  for the continued  service by Elektra as an agent
for Western  Union's  Will Call  Service in Mexico.  Pursuant  to the  Exclusive
Services  Agreement,  Elektra  received US$142  million,  which was deposited in
escrow  with  First  Bank,   National   Association  (the  "Escrow  Agent"),  in
consideration  for  (i) the  services  to be  rendered  pursuant  to the  agency
agreements  described below,  (ii)  terminating the prior agreement  relating to
foreign exchange gains and (iii) agreeing to certain noncompete  covenants.  The
Company  has caused the money  deposited  in escrow to be  invested in 2% of the
capital  stock of each of Elektra,  Elektrafin  and  Importaciones  Electronicas
Ribesa,  S.A. de C.V., each a subsidiary of the Company.  These  subsidiaries in
turn  applied  the  funds to repay  short-term  debt of the  Company,  to reduce
accounts  payable  to  suppliers  of the  Company,  to pay a portion of the cash
consideration  of the  Company's  investment  in Casa and for general  corporate
purposes.

     Under the Inbound  Agency  Agreement,  dated January 11, 1996 (the "Inbound
Agency Agreement"), between Elektra and American Rapid (entered into pursuant to
the Exclusive  Services  Agreement  between Elektra and Western Union),  Elektra
acts as one of the  authorized  agents used by Western  Union to  implement  and
provide the Will Call Service in Mexico.  This service  consists of the transfer
of money originating outside Mexico by persons who pay Western Union's agents an
amount in U.S. Dollars (or an appropriate  local currency) to be sent to persons
in Mexico  who  receive  such  amount  in Pesos.  The  Company  transferred  the
equivalent of US$532.8 million in 1997 and US$570.7 million in 1998. The Company
believes that, based on its 1998 volume, it is the third-largest  money transfer
agent in Mexico.  Elektra  receives an agency fee in U.S.  Dollars in respect of
the transactions completed during each month.

     Western Union and Elektra entered into a Foreign Exchange Agreement,  dated
January 11, 1996 (the "F/X Agreement"), whereby Elektra receives a percentage of
the net foreign  exchange gain with respect to the portion of the money transfer
business for which Elektra  provides  services.  Under the F/X Agreement,  until
January 11, 2000 Elektra will  receive a reduced  percentage  of the net foreign
exchange  gain on monies  transferred  into Mexico for which Elektra acts as the
agent  and  thereafter  such  percentage  shall be  increased.  The net  foreign
exchange gain for each month is paid in U.S. Dollars.

     Competition

     The Company  believes  that  Western  Union,  through  the  Inbound  Agency
Agreement  and,  pursuant  to  a  separate   agreement,   through  Telecomm,   a
decentralized  agency of the Ministry of  Communications  and  Transportation of
Mexico,  accounted for over 50.7% of the electronic money transfer business into
Mexico  in 1998.  Western  Union's  major  competitor  in the  electronic  money
transfer business to Mexico is MoneyGram.  MoneyGram has an agreement with Banco
Nacional de Mexico,  S.A.,  and the Company  believes that  MoneyGram  transacts
approximately  20.4% of the  electronic  money  transfers to Mexico.  First Data
Corporation,  which in 1996 owned a  controlling  interest in both Western Union
and  MoneyGram,  disposed of its interest in MoneyGram in December 1996 pursuant
to a consent  decree.  The Company  believes  that the  remainder  of the market
consists  primarily of relatively small,  often family-run,  operations and some
smaller money  transfer  chains,  primarily  located in California  and Florida,
which generally have less than 50 agents each.


                                       18
<PAGE>

     Dinero Express

     The  Company  believes  that  Dinero  Express  is  the  first  standardized
intra-Mexico money transfer service offered to Elektra's customer demographic by
a large  company.  From the startup of Dinero  Express's  operations in February
1996 through December 31, 1998, the number of money transfers  handled by Dinero
Express grew at a compounded  average  monthly rate of 9.2%. The number of money
transfers  grew 38% during 1998.  The Company  believes that Dinero  Express has
brought an increase in store traffic, and that television advertising through TV
Azteca has been a large factor in the success of this business.


New Products

     Savings Accounts Services

     In August 1997, the Company  launched in Mexico its savings account service
as part of a strategic alliance with Grupo Financiero Serfin ("Serfin"). Through
this  alliance the Company  promotes  savings by Elektra's  low to middle income
customer base. This savings account service enables Elektra's  customers to open
Serfin Bank  savings  accounts  in the  Company's  network of stores  throughout
Mexico.  The Company believes that this venture increases the financial products
and services being offered to the middle class consumer in Mexico,  the majority
of whom have formerly depended primarily on informal savings mechanisms.

     Elektra offers a savings account named "Guardadito" ("Little Savings"). The
Company views this product as providing  further  opportunities for customers to
visit  the  Company's  stores  as  well  as  providing  increased  profits  from
commissions  from  Serfin.  A minimum  deposit  of P$20 is  required  to open an
account,  but there are no direct commissions or fees paid by the customer,  and
the savings in the account generate interest.

     There  are  two  different  types  of  "Guardadito"  accounts:  "Guardadito
Ahorro," which consists of a passbook  savings account that generates  interest,
and  "Guardadito  Tanda," which  consists of a savings club whereby the customer
deposits  a fixed  amount of cash (a  minimum  of P$20) on a weekly  basis for a
certain term (8 to 52 weeks) after which the customer  receives the total amount
of cash saved along with the earned interest.

     As of December 31, 1998 there were 452,000  "Guardadito"  savings  accounts
maintained by Serfin with an average balance of approximately P$200.

     Extended Warranties

     In September  1997,  the Company  launched in Mexico its extended  warranty
service that includes  warranty  certificates and additional  service  contracts
under the trademark of "Milenia."

     The extension of a product  warranty is only available for  electronics and
appliances merchandise. There are three terms of extended warranties: two, three
and five year.  The program's  goal is for the Company's  customers to rely on a
professional  product  maintenance  service and to achieve a penetration  of six
percent of  Elektra's  total  sales.  Under the  extended  warranty  program the
Company  independently  repairs and provides  maintenance for products when they
are not covered by the manufacturer's  warranty. The Company's customers can pay
the price of the warranty through the Company's installment sales program on the
same credit terms that apply to the merchandise.

     As of December 31, 1998, the Company sold 317,000 extended  warranties with
an average price of P$425.


                                       19
<PAGE>

     Photo Products and Processing Services

     In January 1997, the Company began offering  photo  processing  services at
selected  Elektra  stores in Mexico  under the  trademark  of  "Fotofacil."  The
photography  kiosks at the Company's Elektra stores offer products such as film,
cameras, photo albums, batteries, frames and audiocassettes, as well as services
such as film  development  and ID  photography.  The space  required  in Elektra
stores for installation of photography  minilabs is  approximately  107.6 square
feet (10 square  meters).  Generally,  two specialized  salespersons  staff each
minilab. The average development time for a roll of film is one hour.

     As of December  31, 1998 the Company had  installed  Fotofacil  kiosk in 80
Elektra stores which generated a total of P$12.0 million in revenue. The Company
expects to install 50 additional  Fotofacil  kiosks in its Elektra stores by the
end of 1999.

Investment in Comunicaciones Avanzadas, S.A.

     Casa

     On March 26,  1996,  the Company  purchased  35.8% of the capital  stock of
Comunicaciones  Avanzadas,  S.A.  ("Casa"),  a holding company through which the
Controlling  Shareholders  (as defined in Item 4, "Control of  Registrant")  own
their interests in TV Azteca and COTSA (as defined below).  Casa indirectly owns
40.4% of the  outstanding  common stock and 51% of the voting stock of TV Azteca
and 40.4% of the  outstanding  common  stock and  50.0% of the  voting  stock of
COTSA.  The Company  acquired its interest in Casa in exchange for  capitalizing
US$45.4 million of accounts receivable due from Casa and its subsidiaries to the
Company, and payment of US$62.2 million in cash which was applied by Casa to the
repayment of bank debt incurred in connection  with the acquisition of interests
in TV Azteca and COTSA.  The  Company  acquired  non-voting  "N" shares in Casa,
together with the right to exchange such "N" shares into "N" shares of TV Azteca
and of COTSA.  The Company has the right to exchange  all of the Casa "N" shares
for approximately 170 million TV Azteca shares (representing 9.3% of the capital
stock  of TV  Azteca)  and up to  approximately  44  million  COTSA  "N"  shares
(representing  14.2% of the  capital  stock of  COTSA).  Elektra  may make  such
exchange, in whole or in part, at any time prior to March 26, 2006. See Item 13,
"Interest of Management in Certain Transactions--Purchase of Casa `N' Shares."

     TV Azteca

     In July 1993, an investor group, including the Controlling  Shareholders of
the  Company,  acquired  a  controlling  interest  in TV Azteca,  a  multi-media
communications  company  that is one of  Mexico's  two  over-the-air  television
broadcasters.  TV Azteca owns and operates  two national  networks and more than
250 commercial annual-and-operatedrepeater stations.

     TV Azteca is the second largest television  broadcasting company in Mexico.
TV Azteca is a holding  company with three  principal  subsidiaries:  Television
Azteca,  S.A.  de C.V.  ("Television  Azteca"),  Azteca  Digital,  S.A.  de C.V.
("Azteca  Digital")  and Grupo TV Azteca,  S.A.  de C.V.  ("Grupo  TV  Azteca").
Television  Azteca and Azteca Digital own and operate all TV Azteca's  broadcast
assets, including the licenses to operate television  transmitters,  TV Azteca's
transmission  equipment and TV Azteca's  headquarters and production  studios in
Mexico City.  Substantially  all payments to TV Azteca from advertisers are made
through Grupo TV Azteca.

     TV Azteca owns and operates two national  television  networks  through two
anchor  stations in Mexico City and numerous other stations  located  throughout
Mexico  that  rebroadcast  the  signals of TV  Azteca's  Mexico  City  stations.
Although  most of the stations  outside  Mexico City are repeater  stations that
solely  rebroadcast  the anchor  stations'  signals,  stations in 31 of Mexico's
larger  metropolitan  areas  broadcast  local  programming  and  advertising  in
addition to the national  programming  and  advertising  broadcast by the anchor
stations.


                                       20
<PAGE>


     Azteca 7 in Mexico  City is  broadcast  throughout  Mexico  (the  "Azteca 7
Network"), 20-24 hours a day, seven days a week. The programming on the Azteca 7
Network  primarily  consists  of  situation   comedies,   children's   programs,
entertainment news programs,  game shows and sports. In 1998, TV Azteca produced
approximately 55% of Azteca 7's weekday,  prime-time  programming hours, and 31%
of its total programming hours.

     Azteca 13 in Mexico City is  broadcast  throughout  Mexico (the  "Azteca 13
Network"),  20-24 hours a day, seven days a week. The programming for the Azteca
13 Network primarily consists of soap operas ("telenovelas"),  news, talk shows,
musical variety programs and sports.  In 1998, TV Azteca produced  approximately
96% of Channel 13's weekday,  prime-time programming hours, and 67% of its total
programming hours.

     Most of the stations of the Azteca 7 and Azteca 13 Networks  outside Mexico
City are repeater stations that solely rebroadcast programming received from the
Mexico City anchor stations and do not have any sales or programming  personnel.
With  respect  to 30 of its local  broadcast  facilities  outside  Mexico  City,
including its Monterrey, Guadalajara, Tijuana, and Veracruz facilities, however,
TV  Azteca  developed  its  stations  into  part  time   broadcasters  of  local
programming and  advertising.  For 24 of its local stations outside Mexico City,
TV Azteca has entered into contracts with local  business  partners  pursuant to
which they may sell  advertising  time 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  receives  the  majority  of  local  advertising  sales
generated  by  these  local   stations  and  has  the  right  to  terminate  the
relationship at any time by returning the partners'  investment in the insertion
equipment.  TV Azteca  operates six of its local  stations  outside  Mexico City
without local partners.

     In  addition  to the  insertion  of local  advertisements,  certain  of the
Company's local stations  broadcast  programs produced and financed by the local
partners.  Locally-produced  programs include news, game shows, sports and other
programs.  In 1996,  1997 and 1998,  the  Company's  local  television  stations
produced approximately 4,600, 5,000 and 7,100 combined hours,  respectively,  of
programming for viewing on those stations.

     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.  Since  1994,  TV Azteca  has  focused  on  acquiring  and
producing  programming that appeals to most Mexican television  viewers,  rather
than targeting specific segments of the Mexican television audience.

     COTSA

     The Controlling  Shareholders have also acquired a controlling  interest in
Grupo COTSA, S.A. de C.V.  ("COTSA"),  whose principal business is the ownership
and operation of a chain of movie theater properties.

     As of December 31, 1998,  COTSA  operated 24 movie theaters in large cities
throughout Mexico with a total of 98 screens.  Fifteen of COTSA's movie theaters
are  located  in Mexico  City.  According  to Camara  Nacional  de la  Industria
Cinematografica (the Mexican movie theater industry trade organization), Mexican
movie theater ticket sales amounted to approximately  P$1,281  million,  P$1,991
million and P$1,335 million in 1996, 1997 and 1998 respectively.  COTSA's ticket
sales declined during this period,  however,  from P$192 million in 1995 to P$75
million  in  1998,  principally  due to  the  closing  of a  number  of  COTSA's
unprofitable movie theaters. COTSA's ticket sales continue to decline due to the
closing of additional movie theaters.

     Of the movie theaters  operated by COTSA as of December 31, 1998, four were
owned,  four were rented from private parties under leases of varying  duration,
and 16 were rented from Fideicomiso Liquidador de


                                       21
<PAGE>


Instituciones  y  Organizaciones  Auxiliares  de  Credito  (FIDELIQ),  a Mexican
government trust,  under a long-term lease that grants COTSA a right to purchase
the  theaters  at fair  market  value any time  prior to the end of 1999.  COTSA
expects  to  purchase  a  number  of  these   theaters  in  1999.   COTSA  spent
approximately  US$0.28  million for the  refurbishment  of its movie theaters in
1998 and plans to remodel some of its theaters into the multiplex format.

     During the years ended  December 31,  1996,1997 and 1998 COTSA operated 63,
108 and 98 screens,  respectively.  COTSA  management's  current  strategy is to
increase its revenue and  operating  cash flow by continuing to operate its most
successful  movie  theaters and closing or ceasing to rent movie  theaters whose
ticket sales are declining.

TV Azteca Expansion into Latin America

     The Company  considers  TV Azteca's  expansion  plan into Central and South
America as a key component for the  implementation of its own expansion strategy
in the region.

     Television Channel 12 in El Salvador

     In 1997, TV Azteca purchased a 75% interest in Canal 12 de Television, S.A.
de C.V.  ("Channel  12"),  which  owns and  operates  an  over-the-air  national
television network in El Salvador.  Under the terms of the agreement,  TV Azteca
agreed  to  pay  a  total   purchase  price  of   approximately   US$7  million,
approximately  US$2 million of which was paid on April 1, 1997. TV Azteca agreed
to pay the  remainder  of the purchase  price in five equal annual  installments
through December 2001, with interest paid quarterly at an annual rate of 11.5%.

     UHF Channel 35 in Guatemala

     In 1997, TV Azteca purchased a 75% interest in a UHF broadcast  license for
Channel 35 in Guatemala City,  Guatemala  ("Channel 35"). TV Azteca paid a total
purchase price of approximately US$200,000.

     Television Channel 4 in Chile

     In January 1998, TV Azteca  purchased a 75% interest in Compania Chilena de
Television,  a Chilean television network popularly known as "La Red" which owns
and  operates  an  over-the-air   national  television  network  in  Chile,  and
broadcasts  on  Channel  4 in  Santiago  ("Channel  4").  Under the terms of the
agreement,  TV Azteca  agreed  to pay a total  purchase  price of  approximately
US$10.3  million,  approximately  US$5  million of which was paid on January 18,
1998. TV Azteca will pay the remainder of the purchase price in two equal annual
installments through 2000, with interest paid quarterly at an annual rate of 9%.

     Television Channel 4 in Costa Rica

     In June 1998, TV Azteca  purchased a 35% interest in Canal 4 de Costa Rica,
an over-the-air  national  television network in Costa Rica, which broadcasts on
Channel 4 in San Jose. Under the terms of the agreement,  TV Azteca paid a total
purchase  price of  approximately  US$2  million  and  controls  management  and
operations of Canal 4 de Costa Rica.

Employees

     As of December 31, 1998,  the Company,  in  maintenance  of its Elektra and
Elektrafin  operations  in  Mexico,  employed  approximately  9,200  people on a
full-time  basis.  Neither  Elektra nor  Elektrafin  directly has any employees;
personnel  services  are  provided by other  subsidiaries  of the  Company.  The
Company  employs  part-time  employees to meet seasonal  needs as necessary.  At
December 31, 1998, approximately 26% of the


                                       22
<PAGE>


Company's  employees who worked in Elektra  stores worked in Mexico City and the
remaining   employees   were  located   throughout  the  rest  of  the  country.
Approximately  65.9% of the Company's  full-time employees who worked in Elektra
stores were, as of December 31, 1998, represented by one of nine unions. Mexican
labor laws  require  that union  contracts  must be  reviewed  yearly and fringe
benefits  must be  reviewed  every  other  year.  The  average  salary  increase
contained in each of the new collective  bargaining  agreements  during the past
year for the union employees  referred to above was below the average  inflation
rate in Mexico.  The Company believes its relations with the employees  involved
in Elektra and  Elektrafin  operations;  it has not  experienced  a strike since
1983.

Trademarks

     The Company's  "Elektra" and  "MegaElektra"  trademarks are registered with
the  Mexican  Institute  of  Intellectual  Property  (Instituto  Mexicano  de la
Propiedad  Industrial)  of the Ministry of Commerce and  Industrial  Development
(Secretaria de Comercio y Fomento Industrial).

ELEKTRA'S OPERATIONS IN LATIN AMERICA

General

     In April 1997, the Company began its electronics,  appliances and furniture
retail  operations  in Latin  America  through  the  opening  of four  stores in
Guatemala.  This was the first  step of an  expansion  process  that has,  as of
December 31, 1998,  resulted in the Company  opening 83 Elektra  stores  outside
Mexico.

     The Company believes that its strengths in management, credit and marketing
expertise,  technological infrastructure,  margins and other factors will enable
it to compete  successfully  in various markets in Latin America and, over time,
become a leading competitor in the region.

     The  following   table  sets  forth  certain   demographics   and  economic
information with respect to each one of the four Latin America  countries (other
than Mexico) in which the Company operates:

<TABLE>
<CAPTION>
                                            Annual                            Gross Domestic      Per Capita Gross
                          Population      Population         Literacy            Product          Domestic Product
                          (millions)     Growth Rate           Rate           (US$ billions)            (US$)
                          ----------     -----------           ----           --------------      -----------------
<S>                          <C>            <C>               <C>                 <C>                  <C>
Guatemala                    12.0           2.71%             55.6%               $45.8                $4,000

El Salvador                   5.8           1.57%             71.5%               $17.8                $3,000

Honduras                      5.8           2.33%             72.7%               $12.7                $2,200

Dominican Republic            8.0           1.63%             82.1%               $38.3                $4,700

Peru                         26.1           1.97%             88.7%              $110.2                $4,420
</TABLE>

Source:  The World Factbook 1998, Central Intelligence Agency.

         For its expansion into Latin America,  the Company  established in each
one of the five  countries  in which  it  operated  as of  December  31,  1998 a
corporation  organized under the laws of such country.  These  corporations  are
owned by Elektra  Centroamerica,  S.A. de C.V.,  an indirect  subsidiary  of the
Company,  which is organized  under the laws of the United Mexican  States.  The
Company's  Latin  American  retail  operations  headquarters  are located in San
Salvador, the capital of El Salvador.


                                       23
<PAGE>


     The names of the  corporations  through which the Company  operates in each
country are as follows:
<TABLE>
<CAPTION>
         Country                                      Corporation                               First Store Opening Date
------------------------- -------------------------------------------------------------- ---------------------------------
<S>                       <C>                                                                       <C>
Guatemala                 Mercantil Agricola, S.A.                                                  April 25,1997
El Salvador               Importadora y Exportadora Elektra de El Salvador, S.A.                    June 20, 1997
Honduras                  Comercializadora EKT, S.A.                                                November 14, 1997
Dominican Republic        Elektra Dominicana, S.A.                                                  November 28, 1997
Peru                      Elektra del Peru, S.A.                                                    September 18, 1998
</TABLE>


Target Market

     The Company's  target  market for its  international  retail  operations is
similar  to  the  target  market  for  its  domestic  retail   operations.   See
"Overview--Target  Market." The profile of the Company's  "typical" customer for
its  international  operations  is that of a person who is employed and owns his
own home, but does not own a car and therefore  shops in his  neighborhood or at
locations served by public transportation.

     The  population in the Latin America  countries  other than Mexico in which
the Company currently operates--Guatemala,  El Salvador, Honduras, the Dominican
Republic and Peru--is young: approximately 50% of the population is less than 24
years of age in these  countries,  according  to the Latin  American  Center for
Demographic  Studies  (CELADE),  and the Company estimates that more than 70% of
the  population  of these  countries is in the middle  class,  as defined by the
Company.

Merchandising and Marketing

     Merchandise Selection

     The  Company,   through  its  international  Elektra  stores  that  average
approximately 807.9 square meters (8,696 square feet) of selling space, offers a
broad  range  of  internationally-recognized   brand-name  consumer  electronics
products,  major  appliances  and household  furniture at many  different  price
points,  with  greatest  inventory  depth at the  middle-to-lower  price levels,
generally  similar to those offered in Elektra's  domestic  stores.  The Company
also sells its Elektra brand  products at prices that are  generally  lower than
the  internationally-  recognized  brand-name products that the Company sells in
the same product category.

     The following table sets forth the approximate  percentages of total retail
merchandise  revenues  (excluding  mark-up for  installment  sales) from each of
Elektra's principal product lines for its 1998 international operations:

<TABLE>
<CAPTION>
                                                                   Year Ended December 31, 1998
                                        ---------------------------------------------------------------------------------
                                                                                                Dominican
                                        Guatemala         El Salvador          Honduras          Republic           Peru
                                        ----------------  --------------- ------------------ ----------------- ----------
<S>                                       <C>            <C>                <C>                <C>               <C>
Consumer electronics.............          47%            43%                42%                48%               63%
Major appliances.................          17%            22                 18                 20                 7
Household furniture..............          29%            20                 33                 28                24
Other products...................           7%            15                  7                  4                 6
                                          ---            ---                ---                ---               ---
         Total...................         100%           100%               100%               100%              100%
                                          ===            ===                ===                ===               ===
</TABLE>


                                       24
<PAGE>


     These  product  lines  are very  similar  to those  of  Elektra's  domestic
operations.  The Company also sells in these Latin  America  countries  consumer
electronics  and certain other products  manufactured  by GoldStar,  Samsung and
Daewoo under the Elektra brand name. Elektra brand products  represented 3.4% of
merchandise  revenues  in the  Company's  Latin  America  operations  (excluding
mark-up on installment sales) in 1998.

     The  following  table sets forth the  Company's  estimate of the store area
devoted to its principal product lines in its international Elektra stores:
<TABLE>
<CAPTION>
                                                                                                Dominican
                                       Guatemala          El Salvador          Honduras          Republic            Peru
                                  ---------------------- ------------------- ---------------- ----------------- ---------------
<S>                                     <C>                  <C>                <C>                <C>              <C>
Consumer electronics.............       10%                   13%                11%                15%              31%
Major appliances.................       20                    21                 19                 24               53
Household furniture..............       64                    60                 67                 58               13
Other products...................        6                     6                  3                  3                3
                                       ---                   ---                ---                ---              ----
         Total..................       100%                  100%               100%               100%             100%
                                       ===                   ===                ===                ===              ====
</TABLE>

     In  1998,  the  Company  devoted  significantly  greater  selling  area  to
household  furniture in its  international  stores because of the higher margins
obtained on household  furniture  sales as compared to other product  categories
and because  household  furniture is  traditionally  less subject to  comparison
shopping and pricing pressures than other merchandise.

     Pricing Policy, Customer Service and Advertising

     The Company's policies for its international retailer operations in regards
to pricing,  customer  service and advertising are practically the same as those
applied to its operations in Mexico. See "Elektra  Operations in Mexico--Pricing
Policy",  "--Customer Service" and "--Advertising." One difference,  however, is
that every international  Elektra store has an Express Service stand that offers
to the  customer  a fast  repair  service  for  small  appliances  and  consumer
electronics.

Installment Sales Program

     The  Company's   installment   sales   policies  and   procedures  for  its
international  retailer  operations  are  the  same  as  those  applied  to  its
operations  in Mexico.  See "Elektra  Operations  in  Mexico--Installment  Sales
Program."


                                       25
<PAGE>


     The following table sets forth certain information concerning the Company's
installment sales program for its Latin America operations:

<TABLE>
<CAPTION>
                                                                    As of and for the Year Ended December 31, 1998
                                                                     (in millions of Ps. as of December 31, 1998)
                                                       ---------------------------------------------------------------------------
                                                                                                       Dominican
                                                       Guatemala       El Salvador       Honduras       Republic          Peru
                                                       -------------- ---------------- -------------- -------------- -------------
<S>                                                   <C>               <C>             <C>             <C>         <C>
Accounts receivable retail customers-net (at
    period end)......................................  P$   80.4       P$    41.1       P$   64.3      P$    64.4     P$    25.8
Installment sales as a percentage of merchandise
    revenues(1)......................................       68.1%            75.0%           76.2%           85.1%          78.3%
Total number of open accounts (at period-end)             37,642           21,539          26,871          30,938          7,823
Average balance per retail customer (at period-end)..  P$2,133.4       P$ 1,910.7       P$2,393.6      P$ 2,082.6     P$ 3,299.4
Reserve for doubtful accounts as a percentage of
    gross retail receivables.........................       5.57%           12.20%           7.02%           6.78%          6.76%
Weighted average cost of receivables financing(2)....      12.14%           14.03%          29.07%          28.34%         14.07%
</TABLE>
---------------
(1) Includes mark-up on installment sales

(2) Includes unsecured bank debt used to finance the receivables.

     The Company's  accounting  policy with respect to its Latin American retail
operations  is to record  five  percent  of the  value of the cash  price of the
merchandise sold pursuant to the Company's  installment sales program,  plus the
mark-up, less the down payment, if any, as a provision for doubtful accounts.

     The following tables provide certain  information  concerning the Company's
credit  sales in the Latin  American  countries  (other than Mexico) in which it
operates:

     Installment sales as a percentage of total sales as of December 31, 1998:

         Guatemala                                               68.1%
         El Salvador                                             75.0
         Honduras                                                76.2
         Dominican Republic                                      85.1
         Peru:                                                   78.3
                                                                 ----
         Average:                                                75.5%


     Credit sales by term as a percentage of the face amount of the  installment
sales as of December 31, 1998.

<TABLE>
<CAPTION>
                                                      13 Weeks        26 Weeks        39 Weeks        53 Weeks
                                                      --------        --------        --------        --------
<S>                                                   <C>             <C>             <C>             <C>
Guatemala..........................................   1.9%            6.3%            73.0%           18.7%
El Salvador........................................   0.9%            4.3%            9.18%           85.8%
Honduras...........................................   0.9%            8.1%            12.6%           78.4%
Dominican Republic.................................   0.8%            6.2%            90.9%            2.1%
Peru...............................................   0.5%            2.1%            30.5%           66.9%
Total Average......................................   1.0%            5.4%            43.2%           50.4%
</TABLE>

                                       26
<PAGE>


Distribution of customer receivables portfolio at period end by term

     Credit Sales

     The Company's pricing strategy for its international  retailing  operations
is to provide  customers with a choice of a cash price or an alternative  weekly
installment   purchase  price.  Elektra  customers  in  Latin  America  pay  for
merchandise  on a weekly  basis for a period  ranging  from 13 to 53  weeks.  No
statement of the effective interest rate included in the installment sales price
is provided to the customer.

     Total credit sales in 1998  represented  75.5% of the Company's total sales
for its international operations.  Currently,  39-week installment sales plan is
the most  prevalent  term  utilized by  customers  of  Elektra,  and the Company
expects the 39-week  plan to remain  constant as a  percentage  of the  customer
receivable  portfolio  until there are  macroeconomic  changes in the  countries
where the Company does  business.  As of December  31, 1998,  53-week plan sales
represented  36%,  39-week  plan sales  represented  42.5%,  26-week  plan sales
represented 15.3% of installment  sales, and 13-week plan sales represented 6.2%
of the installment sales.

     Credit Approval

     Approval  for  an  installment  purchase  of  electronics,   appliances  or
furniture in  Elektra's  international  operations  is similar to the process of
credit  approval  for  its  domestic  operation.   See  "Elektra  Operations  in
Mexico--Installment  Sales  Program--Credit  Approval." The Company requires the
customer  to complete  an  application  form,  execute a credit  contract  and a
promissory note, and provide an official identification containing a photograph,
a recent  payroll  receipt and evidence of home  ownership such as a receipt for
property  taxes. In addition,  a second party is normally  required to guarantee
the  promissory  note if the  customer  does not meet the  applicable  financial
requirements  or does not own a home.  The  customer's and second party's credit
will be  investigated  prior to  delivery  of the  merchandise.  Generally,  the
customer will not be granted credit if the weekly payments would be in excess of
20% of the  customer's  weekly gross  income.  The  management  at the Company's
headquarters  in each  country  must  approve  installment  sales where the cash
portion is in excess of P$9,000.  After a  verification  period (which can be as
rapid as several  hours or may take two or three days  depending  on a number of
factors  including  store location and customer  availability),  during which an
employee physically  examines the customer's  residence to check the accuracy of
the application, the customer may be approved for the installment purchase.

     Installment sales on products sold through Elektra's  international  stores
are documented by credit  contracts and fixed-term  promissory  notes with fixed
weekly payments and stated interest,  if any. These promissory notes provide for
a penalty  interest  rate in the event that payments are not made when due. Such
penalty  interest is computed  daily on the past due payments until the payments
are current.

     Collection

     The collection practices and repossession procedures used by the Company in
its  international  retailer  operations  are  regulated  under  each  country's
Commercial Code,  Consumer Protection Act or similar law and the Civil Code. The
Company's  collection  procedures for its Elektra  international  operations are
implemented  and monitored at the individual  store level. At December 31, 1998,
the Company had  approximately  469  employees  dedicated to  installment  sales
collections and  investigations  for purchases in its international  stores (144
credit  employees  in  Guatemala,  87 in El  Salvador,  86 in  Honduras,  112 in
Dominican  Republic and 40 in Peru).  Each  international  Elektra  store has an
installment  sales manager who,  under the  supervision of the management at the
Company's  headquarters in each country, is responsible for extending credit and
collecting  that  store's  outstanding  accounts in  accordance  with  corporate
guidelines.   Customers   make  their   weekly   installment   payments  at  the
international  Elektra  stores,  which are open seven days a week.  In the event
that the customer  falls into  arrearages  greater  than two weekly  installment
payments,  a Company  collector will begin to visit the customer at least once a
week. If total  arrearages  exceed eight weekly payments,  an installment  sales
supervisor


                                       27
<PAGE>


will visit the customer weekly. When the customer's  arrearages exceed 12 weekly
payments,  the matter is referred to the Company's legal department,  which will
send an attorney to the customer's house to settle the collection matter. In the
event that a customer's total arrearages exceed 16 weekly payments,  the Company
may institute judicial procedures to settle the claim by obtaining a court order
for  attachment  of the  customer's  assets.  This  procedure is parallel to the
procedure  for  collection  that Elektra uses in its  domestic  operations.  See
"Elektra Operations in Mexico--Installment Sales Program--Collection."

Stores

     At December 31, 1998, the Company operated 83 international Elektra stores.
The total  store area of these  Elektra  stores  was in excess of 67,056  square
meters  (approximately  722,000  square  feet).  The Company owned four of these
Elektra  stores and leased the other 40 under  mid-term  leases  that  typically
contain terms from five to ten years.

     The  following  table  sets  forth  certain  operating  statistics  for the
Company's Latin America Elektra stores (outside  Mexico) as of, and for the year
ended December 31, 1998:

<TABLE>
<CAPTION>
                                                                                            Dominican
                                              Guatemala     El Salvador      Honduras        Republic         Peru
                                            ------------- --------------- --------------- ---------------- ------------
<S>                                            <C>           <C>             <C>             <C>            <C>
Sales (millions)(1)....................        P$.206.3      P$  68.2        P$ 124.0        P$ 140.3       P$ 36.7

Number of stores.......................              24            14              14              21            10

Aggregate store area (m2)..............          19,888        11,405          10,930          16,258         8,575

Number of store employees(2)...........

Average selling space (m2).............             829           815             781             774           858
</TABLE>

---------------
(1)  Excluding mark-up on installment sales.

(2)  This number is exclusive of corporate and collections  staff.


     Store Format

     The  Company's  international  Elektra  stores  range in size from 4,252 to
19,246  square  feet,  with an average of 8,696  square  feet of selling  space.
Elektra stores in Latin America offer approximately 500 SKUs.


                                       28
<PAGE>



     Location

     The  Company  operates  Elektra  stores in 44 cities in five Latin  America
countries  outside  Mexico.  The  following  table sets forth  information  with
respect  to the  distribution  of the  Company's  stores in Latin  America as of
December 31, 1998:

     Guatemala

<TABLE>
<CAPTION>
                                                    Number of     % of Total     Store Area    % of Total
                City                                 Stores       Num. Stores     (m2)(1)      Store Area
                                                   -------------------------------------------------------
                <S>                                     <C>          <C>           <C>             <C>
                Guatemala                               9            37.5%         8,052           40.49%
                Chimaltenango                           1             3.6            708            4.2
                Coban                                   1             4.2          1,279            6.4
                Huehuetenango                           1             4.2            759            3.8
                Jutiapa                                 1             4.2            734            3.7
                Quetzaltenango                          2             8.3          1,587            8.0
                Retalhuleu                              1             4.2            781            3.9
                Santa Lucia                             1             4.2            868            4.4
                Escuintla                               1             4.2            752            3.8
                Mazatenango                             1             4.2            473            2.4
                Chiquimula                              1             4.2            872            4.4
                Pto. Barrios                            1             4.2            800            3.9
                Jalapa                                  1             4.2            768            3.9
                Santa Rosa                              1             4.2            868            4.4
                Zacapa                                  1             4.2            587            3.0

                ============================================================================================
                      Total                            24           100.0%         19,888        100.00%

</TABLE>

     El Salvador
<TABLE>
<CAPTION>
                                                    Number of     % of Total     Store Area    % of Total
                City                                 Stores      Num. Stores      (m2)(1)      Store Area
                                                   -------------------------------------------------------
                <S>                                     <C>           <C>          <C>              <C>
                Sonsonate                               1             7.1%         1,029            9.0%
                San Miguel                              1             7.1            814            5.3
                Sta. Tecla                              1             7.1            530            4.7
                Usulutan                                1             7.1            887            7.8
                San Salvador                            6            42.9          5,062           44.4
                Santa Ana                               2            14.3          1,881           16.5
                Cojutepeque                             1             7.1            602            5.3
                Zacatecoluca                            1             7.1            600            5.3

                ============================================================================================
                      Total                            14           100.0%         8,737          100.00%
</TABLE>


                                       29
<PAGE>

     Honduras
<TABLE>
<CAPTION>
                                                    Number of     % of Total     Store Area    % of Total
                City                                  Stores      Num. Stores     (m2) (1)     Store Area
                                                    -----------------------------------------------------

                <S>                                     <C>          <C>           <C>             <C>
                La Ceiba                                1             7.1%           755            6.9%
                Tegucigalpa                             8            57.1          6,501           59.5
                San Pedro Sula                          3            21.4          2,001           18.3
                Choluteca                               1             7.1            800            7.3
                Juticalpa                               1             7.1            873            8.0
                ============================================================================================
                      Total                             14          100.0%        10,930          100.00%
</TABLE>

     Dominican Republic
<TABLE>
<CAPTION>
                                                    Number of     % of Total    Store Area     % of Total
                City                                  Stores      Num. Stores    (m2) (1)      Store Area
                                                  ----------------------------------------------------------
                <S>                                     <C>          <C>           <C>             <C>
                Higuey                                  1             4.8%           500            3.1%
                La Vega                                 1             4.8            783            4.8
                Puerto Plata                            1             4.8            738            4.5
                Santiago Rodriguez                      1             4.8            900            5.5
                Sto. Domingo                            7            33.3          6,094           37.5
                S. Pedro Macoris                        1             4.8            750            4.6
                S.Fco. del Macoris                      1             4.8            868            5.3
                Barahona                                1             4.8            563            3.5
                Haina                                   1             4.8            679            4.2
                San Cristobal                           1             4.8            515            3.2
                San Juan de la Maguana                  1             4.8            709            4.4
                Santiago de los Caballeros              2             9.5          1,600            9.8
                Santiago la Rotonda                     1             4.8            769            4.8
                Santiago Tabacalera                     1             4.8            790            4.9

                ============================================================================================
                      Total                             21          100.0%        16,258         100.00%
</TABLE>

Peru
<TABLE>
<CAPTION>
                                                    Number of     % of Total    Store Area     % of Total
                City                                  Stores      Num. Stores    (m2) (1)      Store Area

                <S>                                    <C>          <C>           <C>           <C>
                Lima                                    10           100%          8,575          100%
                ============================================================================================
                      Total                             10          100.0%         8,575        100.0%
                Total International                     83                        67,056
</TABLE>
---------------
(1)  Based on total area of each store. The Company does not maintain records of
     selling  space,  but estimates  that the selling space in its stores ranges
     from 85% to 95% of total store area.


                                       30
<PAGE>


     Expansion Plan

     The  Company   anticipates   opening   approximately   20  additional   new
international  Elektra stores by the end of 1999, comprised of approximately two
stores in  Guatemala,  one store in El Salvador,  three stores in Honduras,  one
store in the Dominican Republic and 13 stores in Peru.

     The  average  cost of opening a new  international  Elektra  store has been
approximately  P$3.1  million,  excluding the cost of inventory and real estate.
The average time required to set up a new store is approximately three months.

Store Operations

     The  Company  applies in its  international  retailer  operations  the same
standardized  system that it uses to operate its Elektra  stores in Mexico.  See
"Elektra Operations in Mexico--Store Operations." The system includes procedures
for inventory  management,  transaction  processing,  customer relations,  store
administration,   merchandise  display  and  installment  sales  policies.   The
Company's  management  structure for its international  operations provides that
store  managers  report  directly to management  at the Company's  headquarters,
which is usually  located  in each  country's  capital  (with the  exception  of
Honduras,  where the Company's headquarters are located in the town of San Pedro
Sula instead of the capital, Tegucigalpa).

     The Company's  international Elektra stores are open every day of the year,
except  New  Year's  Day,  usually  from  8:00  a.m.  to  8:00  p.m.  A  typical
international  Elektra  store has the same staff  composition  as a  MegaElektra
store in Mexico. See "Elektra Operations in Mexico--Store Operations."

     Training

     For its international  retailer operations,  the Company has established in
each country a training center and has an extensive  in-house  education program
to train new  employees,  keep  current  employees  informed  of  additions  and
modifications  to its operating  procedures and  demonstrate  new products.  New
store employees  generally receive two weeks training in each country's training
center  prior to  assuming  responsibilities,  and new  store  managers,  credit
managers,  as well as sales and credit regional managers receive three months of
training at the Elektra  University  located in Mexico City.  In  addition,  the
Company offers continuing education programs to its existing employees. Training
consists of both product training and classes focused on the social and personal
attributes important for the particular position.

     Purchasing and Distribution

     The  Company's   centralized   merchandising   and  buying  group  for  its
international  retailer  operations  consists  of a  staff  of five  buyers  who
purchase substantially all electronics, appliances and furniture merchandise for
the international  Elektra stores. All electronics and appliance  merchandise is
purchased  in  each  country  from  local   suppliers  of  brand  name  consumer
electronics  such as Sony,  GoldStar,  JVC, Aiwa,  Samsung and Daewoo,  and from
local  suppliers of major  appliances  such as Mabe,  Vitro,  Tappan,  Atlas and
Bosch.  Household furniture merchandise such as living room furniture,  complete
kitchen units,  dressers and mattresses are purchased in each country from local
suppliers whereas bedroom furniture,  dinettes,  tables and chairs are generally
purchased from Mexican suppliers.

     The Company currently  distributes  products to its  international  Elektra
stores from a central warehouse and distribution  facility that operates in each
country. These warehouses are leased by the Company.


                                       31
<PAGE>

     The following table sets forth certain information regarding the warehouses
from which the Company distributes products to its international Elektra stores:

     Country             Warehouse Location (City)     Warehouse Area (Sq. feet)
     -------             -------------------------     -------------------------
     Guatemala                Guatemala City                  53,819.5
     El Salvador              San Salvador                    21,527.8
     Honduras                 San Pedro Sula                  26,909.8
     Dominican Republic       Santo Domingo                   64,583.5
     Peru                         Lima                        76,746,7



     Deliveries to the Company's Elektra stores are made primarily by
contract trucking carriers,  although the Company has a nominal number of trucks
at each distribution  center for movement of merchandise  between stores and for
special deliveries.

     The computerized management information system developed by the Company for
its Mexican  Elektra  operations  has been  adapted to meet the  various  subtle
differences   in  terminology  in  each  country  as  well  as  the  unique  tax
requirements  of  each  country.   The  system  provides   real-time   satellite
communication  among the  individual  Elektra  stores,  each  country's  Company
headquarters,  the Company's Latin America operations  headquarters  (located in
San Salvador) and the Company's main headquarters in Mexico City.

Competition

     The  Company's  electronics,  appliance and  furniture  retail  business is
highly  competitive  in all  product  categories  and is  characterized  by high
inventory  turnover and small profit margins as a percentage of sales.  Earnings
primarily  depend on the maintenance of high per-store sales volumes,  efficient
product  purchasing and distribution and  cost-effective  store operations.  The
retail sector throughout Latin America is fragmented and consumers are served by
a number of formats,  including  traditional  formats such as independent retail
stores,  modern formats such as retail chains and department  stores, as well as
informal outlets such as street vendors and markets.  In general,  the Company's
competitors  in  this  business  include  other  specialty  stores,  independent
electronics  and  appliance  stores  and  department  stores,  some of which are
national  and  international  in scope and may have greater  resources  than the
Company in that specific country.

     The Company also competes internationally against a significant informal or
"black"  market for the  products it  carries.  The  Company  believes  that its
extended  warranties,  repair service and credit availability  provide it with a
competitive  advantage  over  lower-priced  goods sold in this informal  market.
Although the Company is well positioned,  as a specialty retailer,  to implement
its strategy,  there can be no assurance that the Company's performance will not
be adversely affected by increased competition from these and other sources.


                                       32
<PAGE>


     The following table sets forth certain information concerning the
Company's  primary  competitors  in the four Latin  American  countries  outside
Mexico in which it operates:

     Country                   Competitor            Estimated Number of Stores
     -------                   ----------            --------------------------
     Guatemala                 La Curacao                        18
                               Tropigas                          17
                               Agencias Way                      60
                               Alvarenga                         14

     El Salvador               Prado                             22
                               La Curacao                        24
                               Tropigas                          10

     Honduras                  La Curacao                        24
                               Tropigas                          14

     Dominican Republic        La Curacao                        20
                               Frank y Ray Muebles               15
                               Corripio                          8
                               Plaza Lama                        5


     Peru                      CARSA                             55
                               La Curacao                        24
                               Tiendas Efe                       15
                               Mabila                            13
                               Saga Favela                       4
                               Hiraoka                           3
                               Ripley                            1


Employees

     As of December 31, 1998, the Company through its international Elektra
operations  employed  approximately 875 people on a full-time basis. The Company
employs part-time employees to meet seasonal needs as necessary. No employees of
the Company are represented by any union in the Latin American countries outside
Mexico in which it operates.  The Company believes that its relations with these
international  employees have been good since its inception in 1997; the Company
has never been subject to a strike by its international employees.

HECALI

     During the year ended  December 31, 1996,  the Company  acquired 72% of the
capital  stock of Grupo  Hecali,  S.A. de C.V.  ("Hecali")  for Ps.58.3  million
(nominal).  During  1997,  Hecali  purchased  capital  stock from certain of its
shareholders,  thereby  increasing  the  Company's  equity  stake  to 94% of the
capital stock of Hecali.  In October 1998, the Company acquired the remaining 6%
of Hecali's shares through the capitalization of debt in the aggregate principal
amount of Ps. 155.4 million and a cash payment of Ps. 10.1 million.

     Hecali  is a chain of  clothing  stores  in Mexico  that  targets  the same
customers that comprise Elektra's target market. See "Overview--Target  Market."
At  December  31,  1998,  Hecali  had 155  stores  throughout  Mexico.  Hecali's
pre-acquisition  management has remained  responsible for day-to-day  operations
and has remained as minority  shareholders.  The Company has applied the Elektra
strategy  at  Hecali  to  expand  the  store   network  and  has  supported  the
organization   with   strong    management,    automated    material   handling,
state-of-the-art  information systems and communications,  credit,  intensive TV
advertising and selling space leverage.


                                       33
<PAGE>


Merchandising and Marketing

     Merchandise Selection

     The Company,  through its Hecali stores, which average  approximately 3,560
square feet of selling  space,  offers a broad range of basic and sports apparel
for men,  ladies and children and sport shoes at many  different  price  points,
with greatest inventory depth at the middle-to-lower price levels. The following
table  sets  forth  the  approximate  percentages  of total  retail  merchandise
revenues  (excluding  mark-up  for  installment  sales)  from  each of  Hecali's
principal product lines for 1996, 1997 and 1998:

                                                   Year Ended December 31,
                                           -------------------------------------
                                            1996           1997           1998
                                           ------         ------         ------
Men's clothing ....................          65.1%          63.4%          57.9%
Children's clothing ...............          16.7           18.8           16.7
Ladies' clothing ..................           3.3            6.7           17.5
Sport shoes .......................          14.9           11.2            7.9
                                           ------         ------         ------
         Total ....................         100.0%         100.0%         100.0%
                                           ======         ======         ======


     The  following  table sets forth the  Company's  estimate of the store area
devoted to its  principal  product lines in its Hecali stores as of December 31,
1998:

Men's clothing.................          35.0%
Children's clothing............          12.5
Ladies' clothing...............          30.0
Sport shoes....................          22.5
                                        -----
         Total.................         100.0%
                                        =====

     Pricing Policy

     The Company's policy for its Hecali  operations is to offer its products at
cash prices that are the lowest or among the lowest in its markets. In addition,
the Company designs its  installment  sales plan to provide its customers at its
Hecali stores with  financing for the products  offered at an affordable  weekly
cost.

     Due to the Company's  strategy of everyday low prices, the Company believes
that it relies on markdowns of inventory at its Hecali stores to a lesser extent
than many other  retailers.  A very small  percentage of merchandise at Hecali's
stores is determined to be obsolete and marked down.

     Advertising

     The Company's  marketing strategy for its Hecali operations is very similar
to  Elektra's,   emphasizing  the  same  factors  in  attracting  and  retaining
customers:  quality service,  merchandise  variety,  convenient store locations,
installment  sales  availability,  low prices,  product  availability,  customer
satisfaction and functional display format. The Company reinforces its marketing
strategy through an aggressive advertising program utilizing television,  radio,
and in-store  promotional  circulars,  all of which are designed and prepared by
the Company's in-house advertising department.


                                       34
<PAGE>


Installment Sales Program

     This  section  describes  the  Company's  installment  sales  policies  and
procedures  for its Hecali  operations as of December 31, 1998.  Although  these
policies and procedures are generally  applied  throughout the Company's  retail
sales network, store managers and credit managers have the discretion to deviate
within certain limits from these procedures when they find it is appropriate.

     Operations

     Hecali has provided  in-store  credit to its customers  since January 1996.
The Company has found that the  availability of an installment  sales program is
an important  factor in customer  purchasing  decisions,  while at the same time
strengthening customer loyalty and increasing overall revenues.

     The following table sets forth certain information concerning the Company's
installment sales program on Hecali's products:

<TABLE>
<CAPTION>
                                                                              As of and for the Year
                                                                                Ended December 31,
                                                                     --------------------------------------------
                                                                        1996           1997          1998
                                                                     ------------- ------------- ----------------
                                                                      (in millions of Ps. as of December 31, 1998)
<S>                                                                  <C>      <C>              <C>
Accounts receivable retail customers-net (at period end).........     N/A     Ps. 32,301.1     Ps. 71,862.0
Installment sales as a percentage of merchandise revenues(1).....    15.0%           27.0%            39.3%
Total number of open accounts (at period-end)....................     N/A           64,263          181,320
Average balance per retail customer (at period-end)..............     N/A        Ps. 502.6        Ps. 396.3
</TABLE>
----------------------------------------------------
(1)  Includes mark-up on installment sales.

     The Company's  accounting  policy for its Hecali  operations is to allocate
five percent of the value of the cash price of the merchandise  sold pursuant to
the  Company's  installment  sales  program,  plus  the  mark-up,  less the down
payment, if any, as a provision for doubtful accounts.

     Credit Sales

     The  Company's  pricing  strategy for its Hecali  operations  is to provide
customers  with a choice of a cash price or an  alternative  weekly  installment
purchase  price. In May 1998, the Company  established a revolving  credit sales
program,  which offers a credit line to the client and establishes a schedule of
equal payments in a maximum period of 13 weeks. The Company does not provide the
customer  with a  statement  of the  effective  interest  rate  included  in the
installment sales price.

     Credit Approval

     Approval for an installment  purchase  requires the customer to complete an
application  form,  execute a credit contract and a promissory note, and provide
an official form of  identification  containing a photograph,  a recent  payroll
receipt and evidence of home ownership such as a receipt for property  taxes. To
guarantee a promissory  note, the customer is required to provide the invoice of
a home appliance or an electronic product endorsed to the Company.  In addition,
a second party is normally  required to  guarantee  the  promissory  note if the
customer does not meet the applicable  financial  requirements or does not own a
home. The customer and the second party's credit will be  investigated  prior to
delivery of the merchandise.  Generally, the customer will not be granted credit
if the weekly  payments would be in excess of the 15% of the  customer's  weekly
gross income.


                                       35
<PAGE>


     Installment  sales  are  documented  by  credit  contracts  and  fixed-term
promissory  notes with fixed weekly  payments and stated  interest,  if any. The
promissory notes provide for a penalty interest rate to be assessed in the event
that payments are not made when due. Such penalty  interest is computed daily on
the past due payments until the payments are current.

     Collection

     The collection  practices and  repossession  procedures used by the Company
are regulated under the Mexican Commercial Code, the Consumer Protection Act and
the Mexican  Civil Code.  The  Company's  collection  procedures  for its Hecali
retail  operations are implemented and monitored at the individual  store level.
The Company currently has  approximately 130 employees  dedicated to installment
sales collections and investigations in connection with Hecali operations.

Stores

     At  December  31,  1998,  the Company  operated  155 Hecali  stores.  As of
December 31, 1998,  the total store area of the  Company's  Hecali stores was in
excess of 36,422  square  meters.  At December 31, 1998,  the Company owned four
Hecali stores and leased 151 Hecali stores under mid-term  leases that typically
contain  terms from five to ten years.  Historically,  the  Company  has not had
difficulty  in either  renewing  its expiring  leases for its Elektra  stores or
finding  alternate  locations on comparable  terms.  Thus,  the Company does not
believe it will have  difficulty in renewing its leases for the Hecali stores or
finding  alternate  locations  on  comparable  terms in the future.  The Company
intends to continue its policy of primarily  leasing sites for store  locations,
attempting to secure ten-year leases whenever possible.  However, it is possible
that the Company may face increased  competition for suitable store sites in the
future.

     The following  table sets forth  certain  operating  statistics  for Hecali
stores as of, and for the year ended, December 31, 1998:

     Sales (millions)(1).....................................P$588.5
     Number of stores........................................    155
     Aggregate store area (m2)..............................53,617.9
     Number of store employees(2)............................  1,905

     -------------------
     (1) Excluding mark-up on installment sales.

     (2) This number is exclusive of corporate and collections staff.

     Store Format

     The  Company's  Hecali  stores range in size from 1,195 to 10,268.7  square
feet with an average 3,724.3 square feet of selling space.


                                       36
<PAGE>


     Location

     The Company operates Hecali stores in 109 cities in 28 Mexican states.  The
following table sets forth  information  with respect to the distribution of the
Company's Hecali stores in Mexico as of December 31, 1998:

<TABLE>
<CAPTION>
                                                                 Number of Stores             Store Area (m2)
                                                         ------------------------------  -----------------------
                                                                                                         % of
                                                                           % of all                      Total
           Zone                                                Hecali        Stores         Hecali       Stores
     ----------------------                              --------------- --------------  ------------ -----------
     <S>                                                      <C>          <C>              <C>          <C>
     South..........................................           55           35.5%           18,872        35.0%
     Mexico City....................................           29           18.7             9,420        17.5
     West...........................................           25           16.1             8,328        15.4
     Pacific........................................           21           13.5             8,058        14.9
     North..........................................           25           16.3             9,247        17.2
                                                             ------      --------           -------      ------
              Total.................................          155          100.0%           53,925       100.0%
                                                              ===          =====            ======       =====
</TABLE>

     Expansion Plan

     The Company anticipates  opening  approximately 20 additional Hecali stores
in Mexico by the end of 1999.  The average cost of opening a new Hecali store is
approximately  P$0.93 million,  excluding the cost of inventory and real estate.
The average time  required to set up a new Hecali store is  approximately  three
months.

     The  following  table  provides a history  of the  Company's  Hecali  store
program as of December 31, 1996, 1997 and 1998.

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                             --------------------------------------
                                                                                1996          1997          1998
                                                                             ------------ ------------- -----------
Hecali Stores:
     <S>                                                                       <C>             <C>           <C>
     Number of stores open at beginning of period..................            40              63            110
     Number of new stores opened...................................            23              48             50
     Number of stores closed.......................................             0              (1)            (5)
                                                                                -              ---            ---
     Number of Hecali stores open at end of period.................            63              110            155
                                                                               ==              ===            ===
</TABLE>


Store Operations

     The Company has  developed a  standardized  system for operating its Hecali
stores.  The system includes  procedures for inventory  management,  transaction
processing,  customer relations,  store administration,  merchandise display and
installment sales policies.

     The Company's  Hecali stores open every day of the year,  except New Year's
Day,  usually from 9:00 a.m. to 9:00 p.m. A typical Hecali store is staffed by a
full time manager,  one installment sales manager,  one credit  investigator and
two collectors and, on average, five sales and support personnel.  The Company's
sales personnel at its Hecali stores operate on a sales  commission  basis,  and
store managers typically receive quarterly bonuses based on the profitability of
the stores.

     Training

     Hecali store  employees  undergo the same training  program as employees of
Elektra stores.  See "Elektra  Operations in Mexico--Store  Operations--Training
and Standardization." This training consists of two weeks


                                       37
<PAGE>


training prior to assuming  responsibilities,  while new managers  receive three
months of  training.  In  addition,  the  Company  offers  continuing  education
programs to its existing employees.

     Purchasing and Distribution

     An important element of the Company's  marketing strategy is its ability to
offer a wide selection of name brand  products to its customers.  As of December
31, 1998, the Company had a network of approximately 500 suppliers,  68 of which
supplied the majority of its Hecali  products.  The Company  typically  does not
maintain long-term purchase contracts with suppliers and operates principally on
a  purchase  order  basis.  Although  certain  vendors  are  significant  to the
Company's Hecali operations because of their name recognition,  the Company does
not believe that this  business is dependent  upon any one vendor or  particular
group of vendors.  The  Company's  Hecali  operations  have not been  materially
adversely  affected  by any  limitation  on,  or loss of,  any  supplier.  World
political and economic events,  such as export-import  controls and the value of
the Peso  relative to other  currencies,  over which the Company has no control,
affect the Company's cost of goods sold.

     The  Company's  centralized  merchandising  and buying group for its Hecali
operations  consists of a staff of seven buyers who purchase  substantially  all
merchandise for the Company's Hecali stores.

     The Company  currently  distributes  products to its Hecali stores from its
Mexico  City  warehouse.  Deliveries  to the  Company's  Hecali  stores are made
primarily by 17 contract  trucking  carriers  although the Company has a nominal
number of trucks at the distribution  center for movement of merchandise between
stores and special delivery requirements. The Company's contract carriers employ
a fleet of approximately 77 trucks to deliver merchandise to stores.  Management
believes  that  the  Company's   distribution  centers  and  support  facilities
significantly  reduce  freight  costs and delivery  time by providing  warehouse
space closer to the Company's Hecali stores.

     Competition

     In general,  the Company's  competitors in the clothing  retailer  business
include other specialty  stores,  department stores and warehouse clubs, some of
which are national and  international  in scope and have greater  resources than
the Company.

     The  following  table  sets  forth  the name and  number  of  stores of the
principal competitors in Mexico.

                                                Estimated Number of
                                                      Stores
     Competitor                                (as of December 31, 1998)
     ----------                                -------------------------
     Gigante..............................              116
     Milano...............................              101
     Comercial Mexicana...................               81
     Bodega Aurrera                                      58
     Melody...............................               44
     Bodega Gigante.......................               40
     Tiendas del Sol......................               36
     Almacenes Garcia.....................               28
     Bodega Comercial Mexicana............               26
     El Armario...........................               17
     Mega Comercial Mexicana..............               14


     Although  the  Company  is  a  leading  specialty  retailer  that  is  well
positioned to effect its strategy for Hecali, there can be no assurance that the
Company's performance in its Hecali operations will not be adversely


                                       38
<PAGE>

affected by increased  competition from these and other sources.  With 15 Hecali
stores in the Mexico City metropolitan area, the Company believes it can achieve
Hecali's goal of addressing  the clothing  needs of Elektra's  customer base and
providing fashionable attire for the entire Mexican family.

Employees

     As of December  31,  1998,  the  Company,  through  its Hecali  operations,
employed  approximately 3,304 people on a full-time basis. At December 31, 1998,
61% of the Company's Hecali employees worked in Mexico City, while the remaining
employees were located throughout the rest of the country. Approximately 100% of
the  Company's  full-time  Hecali  employees  were,  as of  December  31,  1998,
represented  by seven of nine  unions.  Mexican  labor laws  require  that union
contracts must be reviewed each year and fringe  benefits must be reviewed every
other year.  The Company  believes that its relations  with these  employees are
good; since assuming control of Hecali in 1996, the Company has not been subject
to a strike by its employees who work at Hecali stores.

SALINAS Y ROCHA

     On March 10, 1999,  Grupo Elektra was announced as the winner of an auction
held by a syndicate of banks in order to acquire a 94.3% stake in Grupo  Salinas
y Rocha,  S.A.  de C.V.  ("GSyR')  and the  assumption  of certain  bank debt of
Salinas y Rocha,  S.A.  de C.V.  ("Salinas  y Rocha" or "SyR"),  a  wholly-owned
subsidiary of GSyR, in the aggregate principal amount of approximately U.S.$84.2
million. The Company won the auction with a bid of US$77.7 million.

     The  predecessor of GSyR started  operations in 1906 by  manufacturing  and
selling  furniture.  Beginning  in 1915,  it  expanded  its line of  business by
manufacturing mattresses (an operation which has been discontinued).  In 1920 it
became the first company in Mexico to offer a credit program, opened traditional
stores in  various  regions  of the  country  and  became  the first  chain with
national  coverage.  GSyR's department store business commenced with the opening
of a store in Monterrey in 1943, and a second store in Mexico City in 1945.

     Today,   GSyR  is  a  retail  holding  company,   whose  main  wholly-owned
subsidiary,  SyR,  sells  furniture,  household  goods and  clothes  through two
different formats:  traditional stores and department stores. In addition,  GSyR
operates  a credit  business  that has  promoted  and  complemented  its  retail
business

     GSyR is the specialty retailer with the longest track record in the Mexican
market.  Its brand name,  "Salinas y Rocha" enjoys a high recognition  among the
middle  and  middle-low   socioeconomic  segments  of  the  Mexican  population.
Regardless of the financial  difficulties  experienced  by GSyR in recent years,
the name "Salinas y Rocha" is still associated with "broad selection", "quality"
and "accessibility" and has a significant share of mind among its target market.

     GSyR was, at the time of its acquisition by the Company, one of the largest
specialty  retailers in Mexico. It currently owns and operates a chain comprised
of 96 stores, of which 86 are traditional  stores and 10 are department  stores.
GSyR also has 21 warehouses and three distribution centers throughout Mexico.

     The following table sets forth certain operating data of GSyR:

                                      No. of stores    Surface   Leased stores
                                      -------------    -------   -------------
            Traditional stores             86           80,898          68
            Department stores              10           65,974           7
                                         ----                         ----
            Total                          96          146,872          75



                                       39
<PAGE>

     At December 31, 1998, GSyR and its  subsidiaries  had 3,485  employees,  of
whom 369 belonged to labor unions.

     Although GSyR will be operated independently from other subsidiaries of the
Company,  the Company  expects that GSyR will benefit from being part of a group
of companies with the largest number of the retail locations  throughout Mexico.
Including  GSyR's  stores,  the  Company  has more than five times the number of
stores of the next largest competitor in the industry.

     In June 1999,  the  Company  entered  into an  agreement  with El Puerto de
Liverpool,  S.A. de C.V.  ("Liverpool"),  in order to dispose  the real  estate,
inventories,  accounts  receivable and the leasing  rights of GSyR's  department
stores.  The  aggregate  principal  amount of this  operation  is 115.8  million
Unidades de  Inversion  ("UDIs")  (or the  equivalent  of Ps.  253.7  million or
approximately U.S.27 million, as of June 22, 1999). In addition,  Liverpool will
substitute  GSyR as the employer of those  employees  assigned to the department
store operations.

     The Company's management cited the following key factors in acquiring GSyR:

     Strength of Retail Brand Name. The acquired stores will continue to operate
under the  nationally-recognized  Salinas y Rocha brand  name.  Salinas y Rocha,
which  specializes  in  furniture  and small  appliances,  caters to a different
demographic  group than the Company's  current  Elektra and Hecali stores.  As a
result, the acquisition may allow Grupo Elektra to increase its penetration of a
higher income sector.

     Opportunities  for Efficiency  Gains.  Management of the Company has stated
that it intends to convert  the  Salinas y Rocha  stores and  warehouses  to the
Elektra system and organization within a few months of the acquisition. In 1998,
the Company developed a new business  management system that has the flexibility
and capacity to meet the demands of the new chain.

     Opportunities  for Creating New Value in Salinas y Rocha. The credit system
managed by the  Company  will be  gradually  implemented  in the Salinas y Rocha
chain, and the same is expected to happen with some of the products and services
offered by the Company.  In addition,  the Company will increase its  television
advertising  efforts in order to promote the products offered in Salinas y Rocha
stores.

     The sales distribution of GSyR is set forth in the following table:

                                                                Percentage
                                                                ----------
                        Electronics                               18.0%
                        Household appliances                      21.0%
                        Furniture                                 20.4%
                        Clothes and accessories                   36.1%
                        Other                                      4.4%
                                                                   ----
                        Total                                      100%


                                       40
<PAGE>

MEXICAN ECONOMIC CONDITIONS AND GOVERNMENT POLICIES

     The Company's  financial results are generally  affected by the strength of
the Mexican economy.  In December l994, Mexico began a period of economic crisis
that continues,  albeit to a much lesser extent, today. Mexico's economic crisis
was  characterized  by exchange  rate  volatility  and  devaluation  of the peso
against the U.S.  dollar,  increased  inflation,  high domestic  interest rates,
negative   economic  growth,   reduced   consumer   purchasing  power  and  high
unemployment.  This crisis  continues to have an adverse effect on the Company's
business and its financial results.

     During the period from 1982 through  1987,  Mexico  experienced  periods of
slow or negative  growth,  high  inflation,  large  devaluations of the peso and
limited availability of foreign exchange. During the late 1980s and early 1990s,
as a result of Mexican  government  initiatives  and the  attendant  increase in
foreign  investment,  the growth rate of Mexico's  economy  increased,  Mexico's
inflation rate was reduced  significantly and the U.S. dollar/peso exchange rate
was relatively stable.

     Beginning  December 1994,  Mexico  experienced an economic crisis caused in
part by a series of internal disruptions and political events, including a large
current account deficit (7.8% of gross domestic  product in 1994),  civil unrest
in the southern state of Chiapas,  the assassination of two prominent  political
figures and significant devaluation of the peso against the U.S. dollar.

     These events  undermined  the confidence of investors in Mexico during 1994
and,  combined  with an  increase  in  international  interest  rates,  led to a
substantial  outflow of  capital.  In  addition,  Mexico  experienced  a rate of
inflation of 52.0% in 1995 (as compared to 7.1% in 1994) and a liquidity  crisis
affecting  the  ability of the  Mexican  government  and the  banking  system to
refinance or refund  maturing  debt issues.  According  to  government  figures,
Mexico's gross domestic  product for 1995 was 6.9% lower than the gross domestic
product for 1994. Mexico's gross international  reserves fell sharply at the end
of 1994.

     Interest rates increased sharply in 1995, both domestically and externally,
on Mexican  public-sector and private-sector  debt, which significantly  reduced
opportunities  for  refinancing  or  refunding  maturing  debt  issues.  Mexican
interest  rates,  which  reached a low of 8.8% per annum for  28-day  Cetes,  or
Mexican  treasury bills, in February 1994, rose throughout most of 1994 and have
increased substantially since December 1994. The highest interest rate on 28-day
Cetes in the period from  January 1, 1994 to December 31, 1994 was 18.0% and the
average  28-day Cetes rate for 1994 was 14.1%.  During 1995,  interest  rates on
28-day Cetes ranged from a low of 32.6% to a high of 82.7% and averaged 48.5%.

     In response to these developments,  the administration of President Ernesto
Zedillo   announced  in  January  1995  an  emergency   economic   recovery  and
stabilization  plan and an accord among the  government,  business and labor. In
order to  reinforce  this  program,  on March 9, 1995,  the  Mexican  government
announced a successor emergency economic plan.  Together,  these programs sought
to achieve the following:  stabilization  of the  peso/dollar  exchange rate and
maintenance  of the  floating-rate  exchange  policy that  continues  to prevail
today; stabilization of the Mexican banking sector; an increase in public-sector
revenues  by,  among other  measures,  increasing  the general rate of the value
added tax for  certain  goods and  services  from 10% to 15%; an increase in the
prices of fuel oil, natural gas and electricity;  and an increase in the minimum
wage (minimum wage increases of 7% and 12% were  implemented in the beginning of
1995 and on April 1, 1995, respectively).

     In  addition,  the  Mexican  government  sought to  minimize  inflation  by
promoting the gradual implementation of price increases.  As part of its efforts
to control  inflation,  the Mexican  government  also reduced public spending by
4.9% in 1995, primarily through departmental  rationalization,  staff reductions
and


                                       41
<PAGE>


hiring freezes, as well as the postponement of new infrastructure  projects.  On
May 31, 1995, the Mexican  government  announced the Plan Nacional de Desarrollo
(the  "National  Development  Plan")  for the  1995-2000  period.  The  National
Development Plan includes the  implementation  of a foreign exchange policy that
will maintain a floating  exchange  regime and a restrictive  monetary policy in
order to stabilize the peso and reduce inflation.

     On October 29, 1995,  the Mexican  government  signed an economic pact with
representatives of the business,  labor and agricultural sectors of the economy,
which  sets  forth  wage and price  policies  while  maintaining  a  restrictive
monetary policy. The most recent pact between the Mexican government and Mexican
business and labor leaders,  Alianza para el Crecimiento  (Alliance for Growth),
was  established on October 26, 1996 and sets forth new wage and price policies,
as well as a plan to stimulate investment in Mexico.

     Furthermore,  declines in growth, high rates of inflation and high interest
rates in Mexico all have a generally  adverse effect on the Company's  business.
The slower the growth of the Mexican economy,  the slower the growth of consumer
retail market.  The continuation of such negative  economic trends would further
decrease consumer  purchasing power,  thereby adversely  affecting the Company's
revenue, as well as increasing the Company's costs. As a result, if inflation in
Mexico were to remain at high levels while economic growth  remained  depressed,
the Company's  results of  operations,  financial  condition,  ability to obtain
financing  and the market price of the Company's  securities  would be adversely
affected.

     In December of 1997, a violent  incident  occurred in the  municipality  of
Chenalho,  in the Mexican state of Chiapas,  which resulted in a large number of
fatalities.  The  Mexican  government  is pursuing a strategy to bring about the
disarmament of armed non-governmental  groups in Chiapas and to achieve peace in
the Chiapas region as soon as  practicable.  There can be no assurance that this
strategy will ultimately prove successful or that outbreaks of violence will not
occur in the future.  Any such outbreak of violence could have an adverse impact
on the Mexican financial markets.

     Economic  conditions  in  Mexico  improved  in 1996 and  1997,  with  gross
domestic  product in 1997 7.0% higher than gross  domestic  product in 1996, and
5.1%  higher in 1996 than  gross  domestic  product in 1995.  Interest  rates on
28-day Cetes in 1997  declined to an average of 19.8%  compared to an average of
30.8% in 1996 and 48.8% in 1995.  Inflation in 1997  declined to a rate of 15.7%
from a rate of 27.7% in 1996 and 52.0% in 1995.  Net  international  reserves at
December 31, 1997 increased to US$28.0  billion from US$17.5 billion at December
31, 1996 and US$15.7 billion at December 31, 1995.

     In 1998,  economic  crisis  in  developing  countries  other  than  Mexico,
including Russia and the countries of Southeast Asia,  undermined the confidence
of  investors  in Mexico,  leading to a  substantial  outflow of  capital.  This
situation,  combined with a steep decline in the price of petroleum (a principal
Mexican  export  and  source  of  foreign   currency),   resulted  in  a  slight
deterioration of economic conditions in Mexico.

     In 1998,  Mexico's  GDP  increased  by 4.8% in real terms as compared  with
1997,  however,  inflation was 18.6% for 1998, compared to 15.7% in 1997. During
1998, the average rate on 28-day Cetes was 24.6% (compared to 22.6% during 1997)
and on December 31, 1998 the 28-day Cetes rate was 31.2%.

     A reversal of the improvement in the Mexican economy since 1995, as well as
social instability or other adverse social,  political or economic  developments
in or affecting Latin America, and globally,  could further adversely affect the
Company's  business,  results of  operations,  financial  condition,  ability to
obtain  financing  and  prospects.  In  addition,  the  Mexican  government  has
exercised, and continues to exercise, significant influence


                                       42
<PAGE>


over the Mexican economy. Accordingly, Mexican governmental actions could have a
significant  effect  on  Mexican  companies  (including  the  Company),   market
conditions,  prices and returns on Mexican  securities  (including  those of the
Company).

     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.  The value of the peso declined by 60.8% against the
U.S. dollar,  from Ps.3.11 at December 31, 1993 to Ps.5.00 at December 31, 1994.
Between  January 1, 1995 and December 31, 1996, the Mexican peso  depreciated an
additional 57.6% to Ps.7.88 per U.S. dollar and fluctuated from a high, relative
to the U.S.  dollar,  of  Ps.5.00  to a low,  relative  to the U.S.  dollar,  of
Ps.8.14.

     The  peso/dollar  exchange rate was relatively  stable during much of 1997,
although  volatility  increased during October and November,  and was present at
times in 1998,  largely due to the effects of the economic  crisis in developing
countries other than Mexico. From January 1, 1998 to December 31, 1998, the peso
depreciated 23% from Ps.8.07 per U.S. dollar to Ps.9.90 per U.S.  dollar.  As of
June 22, 1999, the peso/U.S.  dollar exchange rate was Ps. 9.36 per U.S. dollar,
and no assurance can be given that the peso will not further depreciate in value
relative to the U.S. dollar in the future.

     As of December 31, 1998,  substantially  all of the Company's  indebtedness
was  denominated  in U.S.  dollars,  and the  Company  may in the  future  incur
additional  non-peso-denominated  indebtedness.  A  significant  portion  of the
Company's  operating costs and other  expenditures are also  dollar-denominated.
These costs include  amounts the Company pays for the  purchases of  merchandise
and capital equipment.

     Declines in the value of the peso relative to the U.S.  dollar increase the
interest  costs in  pesos to the  Company  related  to its  non-peso-denominated
indebtedness  and  increase  the cost in pesos of its  other  dollar-denominated
expenditures. Since substantially all of the Company's revenue is denominated in
pesos, such increased costs will not be offset by any exchange-related  increase
in revenue.  As a result,  the  significant  devaluation of the peso in 1994 and
1995  had  a  material  adverse  effect  on  the  Company's  financial  results.
Additional  devaluations of the peso could have a material adverse effect on the
Company's liquidity and results of operations.

     In 1996 and 1997, the Company  experienced  net foreign  exchange losses of
Ps. 76.8 million and Ps. 77.0 million, respectively. For the year ended December
31, 1998, the Company  experienced a foreign exchange loss of Ps. 352.7 million,
due to a 23% devaluation of the peso during 1998. The Company does not currently
hedge against the risk of exchange rate fluctuations and has no current plans to
do so.

     The Mexican economy has suffered  balance of payment deficits and shortages
in foreign exchange  reserves.  While the Mexican  government does not currently
restrict the ability of Mexican or foreign  persons or entities to convert pesos
to U.S. dollars,  no assurance can be given that the Mexican government will not
institute  a  restrictive  exchange  control  policy  in the  future.  Any  such
restrictive  exchange  control policy could adversely  affect the ability of the
Depositary to convert dividends received in pesos into U.S. dollars for purposes
of making  distributions  to  holders  of ADSs,  and could  also have a material
adverse effect on the Company's business and financial condition.

     Item 2. Description of Property

     As of December 31, 1998, the Company operated a total of 819 retail stores:
581  Elektra  stores in  Mexico,  which  operate in 260 cities in all 31 Mexican
states;  155 Hecali stores in Mexico,  which operate in 109 cities in 29 Mexican
states;  24 Elektra stores in Guatemala,  which operate in 14 cities; 14 Elektra
stores in El  Salvador,  which  operate in eight  cities;  14 Elektra  stores in
Honduras,  which  operate  in 10  cities,  21  Elektra  stores in the  Dominican
Republic,  which  operate in 11 cities,  and 10  Elektra  stores in Peru,  which
operate only in the city of Lima.


                                       43
<PAGE>


     As of December 31, 1998, the Company owned 52 Elektra  stores in Mexico,  4
Hecali  stores in Mexico and 2 Elektra  stores in the Latin  American  countries
outside  Mexico in which it  operates,  and  leased 529  Elektra  stores and 151
Hecali stores in Mexico as well as 81 Elektra stores in Latin American countries
outside Mexico,  under mid-term leases that typically contain terms from five to
ten years. In addition, the Company owns its warehouse and distribution facility
located in Mexico City as well as satellite distribution centers in Guadalajara,
Monterrey,  Tijuana and Chihuahua,  and a support facility in Laredo, Texas. The
Company leases each of its 5 warehouses and distribution  facilities  located in
the Latin American  countries  outside  Mexico in which it operates.  Elektrafin
does not own or lease any  property.  The  corporate  offices of the Company are
located  in  Mexico  City,  Mexico  at  Edificio  Parque  Cuicuilco  (Esmeralda)
Insurgentes Sur, No. 3579, Col. Tlalpan La Joya 14000 Mexico,  D.F., Mexico. The
general corporate telephone number of the Company is (525) 629-9000.

     In addition,  in March, 1999, the Company acquired GSyR, whose wholly-owned
subsidiary SyR operates 96 Salinas y Rocha stores throughout Mexico, of which 75
are leased and 21 are owned.

     For a further description of the Company's principal  facilities,  see Item
1,   "Description   of   Business--Elektra's   Operations  in   Mexico--Stores,"
"--Elektra's  Operations  in  Latin  America--Stores,"  "--Hecali--Stores."  and
"--Salinas y Rocha."

Item 3.  Legal Proceedings

     The Company does not believe that any legal  proceedings to which it or any
subsidiary is a party will,  individually  or in the aggregate,  have a material
adverse  effect on the  Company's  business,  financial  condition or results of
operation.

     Suspension of Payments

     In September 1983, Elektra Mexicana,  S.A. de C.V. ("Elektra Mexicana") and
certain  subsidiaries of Elektra Mexicana were subject to suspension of payments
proceedings  in  Mexico  as a result  of the  inability  to pay debts due to the
devaluation  of the peso in the early  1980s.  Elektra  Mexicana is  currently a
subsidiary  of the  Company  and,  at the  time of the  suspension  of  payments
proceedings,  Elektra  Mexicana  was the owner  and  operator  of the  Company's
Elektra  stores.  In  1984,  the  Mexican  court  having  jurisdiction  over the
suspension  of  payments  proceedings  approved  a plan of  reorganization  (the
"Plan") for Elektra Mexicana and its subsidiaries. As a result of the suspension
of payments proceedings, the Company and its current operating subsidiaries were
formed  to  operate  the  Company's  business.  Elektra  Mexicana  has  paid the
settlement  claims  stipulated  in the Plan and is in the process of proving the
payment of such claims to the  authorities.  Once payment has been  proven,  the
suspension of payments process will be formally terminated. The Company is aware
of three  creditors who did not consent to the Plan. Two of these creditors have
filed no  objection  to the Plan and have not sought to collect any amounts owed
to them. One financial  institution (the "Financial  Institution") has sought to
enforce  repayment of a  promissory  note in the  original  principal  amount of
US$3,375,000, together with accrued interest and penalty interest to the date of
repayment. Under the terms of the Plan, the Financial Institution is entitled to
receive  Ps.444,251.  The  Financial  Institution  has  instituted  two separate
proceedings  in the Mexican  federal  courts  seeking to enforce the  promissory
note. Each of these  proceedings has been dismissed,  the court holding that the
suspension  of payments  proceeding is the  appropriate  forum for the Financial
Institution to pursue its claim. The last of these  proceedings was dismissed on
August 12, 1993. Since such date, the Financial Institution has taken no further
action to enforce its claim,  and the Company believes that such claim would now
be barred by the statute of limitations.  The Company  believes that the maximum
amount for which Elektra  Mexicana may be liable to the three  creditors who did
not consent to the Plan is Ps.1.7  million,  which the Company has recorded as a
liability.  Based on the advice of the  Company's  legal  counsel,  the  Company
believes its potential liability does not exceed the amount already recorded. If
the Financial Institution were to prevail for amounts significantly in excess of
the amount  recorded by the Company and if Elektra  Mexicana could not otherwise
satisfy  the  Financial  Institution's  claim,  a court  could order the sale of
certain property leased to the


                                       44
<PAGE>


Company  (including a warehouse  and a small number of stores).  There can be no
assurance that the Company would be able to renew any such leases on the same or
similar terms.

     Tax Claims

     Electronica  del  Moral,  S.A.  de  C.V.   ("Electronica")   and  Articulos
Domesticos  al  Mayoreo,  S.A.  de  C.V.  ("Articulos"),  each  a  wholly  owned
subsidiary  of the Company,  are involved in disputes  with the Mexican  federal
taxing authorities as a result of alleged unreported purchases of inventory. The
federal taxing authority alleges that the Company  purchased  inventory from two
different  suppliers  and  omitted  to  report  purchases  from one of them.  In
February  1996, a Federal  Circuit Court  (Tribunal  Colegiado de Circuito),  on
remand  from the  Supreme  Court of  Mexico  (Suprema  Corte de  Justicia  de la
Nacion),  ruled in favor of the Company in a similar case  involving the alleged
unreported purchases of inventory.

     In  addition,  Elektra  Mexicana is involved in a dispute  with the federal
taxing  authority that alleges that Elektra Mexicana  underpaid  certain federal
income and asset taxes in 1988 as a consequence of (i) impermissible  deductions
of  interest  expense  relating  to a loan  extended  by a  factoring  financial
institution  to the Company and (ii)  failure by the Company to  reevaluate  its
real estate assets for purposes of the determination of the applicable basis for
the asset tax.  Articulos is also  involved in another  dispute with the federal
taxing authority,  which alleges that Articulos underpaid certain federal income
and other taxes relating to certain losses.

     The Company believes that if any of the above referenced tax claims were to
be resolved  unfavorably  against the  Company,  the maximum  liability  derived
therefrom  would  be not  material.  See Note 14 to the  Company's  Consolidated
Financial Statements.

     General

     Manufacturers  of defective  products in Mexico may be subject to liability
for loss and injury caused by such products,  but the Mexican laws providing for
such liability have been rarely invoked.  Mexican law does not recognize product
liability  claims  against  a  seller  of  a  defective  product  that  did  not
manufacture the product.  Because the Company does not currently manufacture any
of its  products,  the  Company  does not  believe  it will be exposed to future
product liability claims.

Item 4.  Control of Registrant

Grupo Elektra, S.A. de C.V.

     As a result of a ten for one stock split in October  1997,  at December 31,
1998, the Company had 4,324,845,990 shares of capital stock authorized, of which
1,495,024,470  were Series "A" shares,  2,342,405,490 were Series "B" shares and
487,416,030 were Series "L" shares. At December 31, 1998,  1,249,127,610  Series
"A" shares were  issued and  outstanding,  1,953,234,140  Series "B" shares were
issued  and  outstanding  and  358,302,980  Series "L"  shares  were  issued and
outstanding.  The following table sets forth,  as of December 31, 1998,  certain
information  with respect to the beneficial  ownership of the Company's  capital
stock of (i) each  person  who is known by the  Company  to own more than 10% of
either the  currently  outstanding  A Shares,  B Shares or L Shares and (ii) all
executive officers and directors as a group.


                                       45
<PAGE>

<TABLE>
<CAPTION>
                                                                   SHARES OWNED
                                --------------------------------------------------------------------------------------
                                  SERIES "A" SHARES      SERIES "B" SHARES     SERIES "L" SHARES
                                ---------------------  ---------------------  --------------------
                                                                                                                 Aggregate
                                                                                                               Percentage of
                                               Percentage                  Percentage             Percentage    Outstanding
     Identity of Owner             Number       of Class       Number       of Class    Number     of Class       Shares
-----------------------------   ------------- ------------  -------------  ---------- ---------- ------------- -------------
<S>                             <C>               <C>       <C>             <C>       <C>           <C>          <C>
Hugo Salinas Rocha's heirs(1)     598,819,740     46%         620,063,200    31.97%    7,101,285     2.02%        34.38%
Esther Pliego de Salinas(2)       650,307,870     51%          60,570,340     3.12%   30,285,170     8.62%        18.31%
All executive Officers and      1,249,127,610     97%       1,326,005,450    68.37%   44,777,590    12.74%        73.47%
    Directors of the Group(3)
</TABLE>


(1)  In February 1997, Mr. Hugo Salinas Rocha,  Honorary  President of the Board
     of  Directors of Grupo  Elektra,  S.A. de C.V.,  grandfather  of Ricardo B.
     Salinas  Pliego (the  current  President of the Company and Chairman of the
     Board of Directors),  father of Mr. Hugo Salinas Price and father-in-law of
     Esther  Pliego  de  Salinas,  died,   distributing  the  capital  stock  of
     Corporacion HSR, S.A. de C.V, the company through which he principally held
     Grupo Elektra's shares, to his children. Therefore, the heirs of Mr.
     Salinas Rocha as a group control his shares.

(2)  Upon Mr. Hugo Salinas Rocha's death, a hereditary  trust terminated and the
     shares held in trust were delivered to Esther Pliego de Salinas.

(3)  In this item are  included  the shares of Hugo  Salinas  Rocha's  heirs and
     Esther  Pliego de  Salinas  as well as those in a  trusteeship  related  to
     Sheung Wong Co. Ltd., a company controlled by the Controlling Shareholders.


     The stock  structure of Grupo  Elektra,  as of June 22, 1999 is the same as
set forth in the above table.

     The  controlling  beneficial  shareholders  of the Company are the heirs of
Hugo Salinas  Rocha,  including  Ricardo B. Salinas and Esther Pliego de Salinas
(collectively,  the "Controlling  Shareholders").  The Controlling  Shareholders
collectively  own  1,249,127,610  A Shares,  representing  97% of the  currently
outstanding A Shares, and 1,326,005,450 B Shares, representing approximately 68%
of the currently outstanding B Shares. In addition, the Controlling Shareholders
own 44,777,590 L Shares,  representing  approximately  13% of the  outstanding L
Shares. Through ownership of these shares, the Controlling Shareholders have the
power  to  determine  the  outcome  of  substantially   all  actions   requiring
shareholder  approval,  including  the  power to elect  14 of the  Company's  16
directors and to determine whether or not dividends will be paid.

Elektra, S.A. de C.V. and Elektrafin, S.A. de C.V.

     Elektra and  Elektrafin  are,  directly or  indirectly,  controlled  by the
Company.  The Company is the beneficial owner of all of the outstanding  capital
stock of Elektra and Elektrafin.

Item 5.  Nature of Trading Market

     The  Ordinary  Participation  Certificates  (the "CPOs") of the Company are
traded on the Mexican Stock Exchange.  Each CPO represents  financial  interests
in, and limited voting rights with respect to, two B Shares and one L Share. The
Global  Depositary  Shares  ("GDSs") have been issued by The Bank of New York as
depositary (the  "Depositary").  Prior to October 3, 1997, the effective date of
the stock split described below, each GDS represented 2 CPOs. As of December 31,
1998,  each GDS  represented 10 CPOs, as issued by Banco del Atlantico,  S.A. as
trustee (the "CPO Trustee") for a Mexican trust (the "CPO Trust").  The GDSs are
traded on the New York Stock Exchange (the "NYSE").  The GDSs are also quoted on
the  Stock  Exchange  Automated  Quotation  system  of the  International  Stock
Exchange  of the  United  Kingdom  and  the  Republic  of  Ireland,  Ltd.  (SEAQ
International).

     The Company's A, B and L Shares (together, "the Shares") are also listed on
the Mexican Stock Exchange.  The A and B Shares have traded infrequently.  Since
the initial  issuance of L Shares by the Company on  December  13,  1993,  the L
Shares  have been  traded  on  Subsection  "A" of the  Mexican  Stock  Exchange.
Subsequent to the  restructuring  of the Company's  capital effected on July 12,
1994 (the "Recapitalization"), the CPO has replaced the L Share as the principal
form of equity  security of the Company traded in Mexico.  In December 1994, the
Company  completed  a Level  II  listing  in the form of GDRs on the NYSE and is
traded under the symbol EKT. At December 31, 1998,  there were  69,562,440  CPOs
represented by 3,478,122 GDSs. The


                                       46
<PAGE>


proportion  of the total CPOs held in the form of GDSs was 58.5% at December 31,
1998. As most of the GDSs are held by a nominee of The Depository Trust Company,
it is not  practicable for the Company to determine the number of GDSs or Shares
beneficially owned in the United States.

     The following  tables set forth,  for the periods  indicated,  the reported
high and low sales prices of the Company's  principal form of equity security on
the Mexican Stock Exchange and GDRs on the New York Stock Exchange.  Prices have
not been  restated  in  constant  currency  units or to reflect  the stock split
described below.

<TABLE>
<CAPTION>
                           Mexican Stock Exchange                  New York Stock Exchange US$ per GDS
                           Nominal Pesos Per CPO
                           High               Low                        High                     Low
                           ----               ---                        ----                     ---
1997:
<S>                        <C>                   <C>                  <C>                      <C>
First Quarter              Ps.79.66              Ps.60.74             US$ 20.75                US$ 15.00
Second Quarter                90.00                 70.40                 22.75                    17.75
Third Quarter                126.10                 86.80                 32.68                    22.00
Fourth Quarter(1)             14.30                  6.50                 37.12                    23.00

1998:
First Quarter              Ps.14.40              Ps.11.90             US$ 18.00                US$ 13.94
Second Quarter                13.28                  8.60                 15.63                     9.69
Third Quarter                 10.40                  3.18                 11.94                     2.88
Fourth Quarter                 5.90                  3.61                  6.00                     3.50
</TABLE>
---------------
(1) Price of the CPO after the ten-to-one split.

     On August 15, 1997, the Company's shareholders approved a ten-for-one split
of the Company's stock. The split was declared  effective on October 3, 1997. As
a result of the split, each GDS represents 10 CPOs and each CPO represents two B
Shares and one L Share.

     At the Company's annual ordinary and extraordinary  meeting of shareholders
held on April 25, 1998, the Company's shareholders approved the establishment of
a reserve in its  stockholders'  equity  account in the amount of Ps.6.7 million
for the  repurchase of its stock,  in accordance  with rules  established by the
Comision  Nacional  Bancaria y de Valores,  the Mexican  banking and  securities
commission (the "CNBV").  The Company may purchase its CPOs on the Mexican Stock
Exchange and its GDSs on the New York Stock Exchange at prevailing prices to the
extent of funds  remaining in this reserve  account.  Any shares so  repurchased
will not be deemed to be outstanding  for purposes of calculating  any quorum or
voting at a  shareholders'  meeting  during the period in which such  shares are
owned by the Company. As of December 31, 1998 and June 15, 1999, the company had
repurchased 37,029,660 and 46,842,800 CPOs, respectively.

Trading on the Mexican Stock Exchange

     The Mexican Stock Exchange, which was founded in 1894, is located in Mexico
City and is Mexico's  only stock  exchange.  It ceased  operations  in the early
1900s, but has operated continuously since 1907.

     The Mexican Stock  Exchange is organized as a  corporation  with its shares
being  held  by  33  licensed  brokerage  firms.  These  firms  are  exclusively
authorized  to trade on the floor of the  Mexican  Stock  Exchange.  Trading  of
securities  registered on Subsection  "A" of the Registro  Nacional de Valores e
Intermediarios  ("RNVI") is effected on the Mexican Stock Exchange each business
day  between  8:30 a.m.  and 3:00 p.m.,  Mexico City time.  Each  trading day is
divided  into six trading  sessions  with  ten-minute  periods  separating  each
session. The size of trading lots is 1,000 shares. Brokerage firms are permitted
to trade in odd lots  only  through  a  parallel  computerized  odd-lot  trading
system.


                                       47
<PAGE>


     The  Mexican  Stock  Exchange  publishes a daily  official  price list that
includes  price  information  on each listed  security.  For most  issuers,  the
Mexican Stock Exchange  operates on a system of automatic  suspension of trading
in  shares of a  particular  issuer as a means of  controlling  excessive  price
volatility.

     Each day a price  band is  established,  with the upper  and  lower  limits
generally  being 5% above and below a reference  price,  which is initially  the
day's  opening  price.  If during the day a bid or offer is  accepted at a price
outside  this band,  trading in the shares is  automatically  suspended  for one
hour. When trading resumes,  the high point of the previous band becomes the new
reference  price in the event of a rise in the price of a  security  and the low
point of the  previous  band becomes the new  reference  price in the event of a
fall in the price of a security. If it becomes necessary to suspend trading on a
subsequent  occasion  on the same  day,  the  suspension  period  lasts  one and
one-half  hours.  Suspension  periods in effect at the close of trading  are not
carried over to the next trading day.

     However,  in accordance with the rules of the Mexican Stock  Exchange,  the
CPOs are not subject to this system  because  they trade  outside  Mexico in the
form of GDSs. In addition,  the Mexican Stock Exchange can suspend  trading in a
security  (including  those  not  subject  to the  automatic  suspension  system
described above) for up to five days if it determines that disorderly trading is
occurring with respect thereto. The CNBV must approve any increase in the length
of the suspension period beyond five days.

     Settlement  is effected two trading days after a share  transaction  on the
Mexican Stock Exchange.  Deferred settlements,  even if by mutual agreement, are
not permitted  without the approval of the CNBV. Most  securities  traded on the
Mexican  Stock  Exchange  are on  deposit  with  S.D.  Indeval,  S.A.  de  C.V.,
Institucion  para el  Deposito  de  Valores  ("Indeval"),  a central  securities
depositary  owned by Mexican  financial  intermediaries  that acts as a clearing
house, depositary,  custodian, settlement, transfer and registration institution
for Mexican  Stock  Exchange  transactions,  eliminating  the need for  physical
transfer of securities.

     As of December 31, 1998, 141 Mexican companies, excluding mutual funds, had
equity  listed on the Mexican  Stock  Exchange.  Although  there is  substantial
participation  by the public in the trading of  securities  on the Mexican Stock
Exchange,  a major part of such activity reflects  transactions by institutional
investors.  There is no  over-the-counter  market for securities in Mexico,  but
trades in  securities  listed on the  Mexican  Stock  Exchange  can,  subject to
certain  requirements,  also be  effected  off of the  Mexican  Stock  Exchange.
However, due primarily to Mexican tax considerations  relating to capital gains,
most transactions in listed Mexican securities are effected on the Mexican Stock
Exchange.

     The  Mexican  Stock  Exchange  and the CNBV have  started to  implement  an
automated trading system intended to eventually  replace trading on the floor of
the Mexican Stock Exchange.

     The Mexican Stock Exchange is Latin  America's  second largest  exchange by
market capitalization,  but it remains relatively small and illiquid compared to
major world markets and is subject to significant  volatility.  During 1994, for
example,  the Indice de Precios y  Cotizaciones  (the  "Mexican  Stock  Exchange
Index")  (which  is based on the  share  prices  of 35  major  Mexican  issuers,
including  Grupo  Elektra)  experienced  one-day  declines  (in peso  terms)  of
approximately 6% and 15%, respectively, following events in the State of Chiapas
in southern Mexico and the assassination of Luis Donaldo Colosio  Murrieta,  the
presidential  candidate of the Institutional  Revolutionary Party.  Furthermore,
following  the  devaluation  of the peso in December  1994,  the  Mexican  Stock
Exchange Index declined (in peso terms) by  approximately  36% from December 20,
1994 to February 27, 1995,  and on several  occasions in 1995, the Mexican Stock
Exchange Index declined by more than 5% (in peso terms) in one day.

     The market value of securities of Mexican companies is, to varying degrees,
affected by economic and market  conditions in other emerging market  countries.
Although  economic  conditions in such countries may differ  significantly  from
economic  conditions in Mexico,  investors'  reactions to developments in any of
these  other  countries  may  have an  adverse  effect  on the  market  value of
securities of Mexican companies. The market


                                       48
<PAGE>


value of securities of many Mexican  companies  declined sharply in late October
1997,  reflected in a 20.6% decline in the Mexican Stock Exchange Index (in peso
terms) from October 21, 1997 to October 27, 1997,  as a result of declines  that
began initially in the Hong Kong securities market.  These values have continued
to react  adversely  to  negative  economic  news  from  Asia.  There  can be no
assurance  that the market value of the CPOs will not be  adversely  affected by
events elsewhere, especially in emerging market countries.

Item 6.  Exchange Controls and Other Limitations Affecting Security Holders

Exchange Controls

     From 1982 through November 10, 1991,  Mexican  residents and companies were
entitled  to purchase  and  obligated  to sell  foreign  currencies  for certain
purposes at a controlled rate of exchange (the  "Controlled  Rate") that was set
daily by Banco de Mexico.  For all transactions to which the Controlled Rate did
not apply,  foreign currencies could also be purchased,  if they were available,
or sold at the free-market  exchange rate,  which was generally  higher than the
Controlled Rate.

     The price of one U.S.  dollar at the Controlled Rate increased at a regular
rate of 1.00 peso per day from January 1, 1989 to May 28,  1990,  0.80 pesos per
day from May 29 to November  12, 1990 and 0.40 pesos per day from  November  13,
1990 to November 11, 1991.  Banco de Mexico  intervened from time to time in the
foreign  exchange  market  to  minimize   temporary   disparities   between  the
free-market rate and the Controlled Rate.

     Since November 11, 1991, Mexico has had a free market for foreign exchange.
Prior to December 21, 1994,  Banco de Mexico kept the peso-U.S.  dollar exchange
rate within a range prescribed by the Mexican government through intervention in
the  foreign  exchange  market.  Within  the  band,  Banco de  Mexico  generally
intervened to reduce day-to-day fluctuations in the exchange rate. From November
11, 1991 through  October 20,  1992,  the upper limit of the  prescribed  range,
expressed  in  terms  of  pesos  per U.S.  dollar,  rose by  Ps.0.0002  per day,
equivalent to a maximum  devaluation of the peso with respect to the U.S. dollar
of  approximately  2.4% per year. From October 20, 1992 until December 20, 1994,
the  upper  limit  of the  prescribed  band  increased  by  Ps.0.0004  per  day,
equivalent to a maximum  devaluation of the peso of approximately 4.9% per year.
On December  20,  1994,  the  Mexican  government  increased  the ceiling of the
trading band by Ps.0.53, equivalent to an effective devaluation of 15.3%.

     On December  21, 1994,  the Mexican  government  announced  its decision to
suspend  intervention  by Banco de Mexico 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 Banco
de  Mexico'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.  By
December 31, 1994 the exchange rate was Ps.5.00 per U.S. dollar,  as compared to
Ps.  3.47 per U.S.  dollar on December  19,  1994.  Between  January 1, 1995 and
December 31, 1995,  the Mexican peso  depreciated  to Ps. 7.74 per U.S.  dollar,
fluctuating  between Ps. 5.27 and Ps. 8.05 per U.S.  dollar.  Between January 1,
1996 and September 30, 1996, the peso  strengthened  slightly,  and was Ps. 7.55
per U.S.  dollar on September 30, 1996.  Subsequent  to September 30, 1996,  the
peso continued to depreciate  against the dollar and was Ps.7.88 per U.S. dollar
on December 31, 1996. In 1997,  the peso weakened to Ps.8.07 per U.S.  dollar at
December 31, 1997.  In 1998,  the peso  weakened to Ps. 9.90 per U.S.  Dollar at
December 31, 1998.  During the first quarter of 1999,  the peso increased by 4%,
appreciating  from Ps. 9.90 per U.S. dollar on December 31, 1998 to Ps. 9.52 per
U.S.  dollar on March 31,  1999.  On June 22, 1999 the Noon Buying Rate stood at
Ps. 9.358 per U.S. dollar. 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.

     As of December 31, 1998,  the Company had  approximately  US$241.4  million
indebtedness  denominated in U.S.  dollars and the equivalent of US$65.5 million
denominated in other currencies, and the


                                       49
<PAGE>


Company may in the future incur  additional  non-peso-denominated  indebtedness.
Declines in the value of the peso  relative  to other  currencies  increase  the
interest  costs in  pesos to the  Company  related  to its  non-peso-denominated
indebtedness  and increase  the cost in pesos of its other  non-peso-denominated
expenditures   and  will  also  result  in  foreign   exchange   losses.   Since
substantially  all of the revenue of the Company is denominated  in pesos,  such
increased costs will not be offset by an  exchange-related  increase in revenue.
As a result, the devaluation of the peso in 1994 and 1995 had a material adverse
effect,  and additional  devaluations of the peso could have a material  adverse
effect, on the value of the Company's  assets,  its liquidity and its results of
operation.

     The Mexican economy has suffered  balance of payment deficits and shortages
in foreign exchange  reserves.  While the Mexican  government does not currently
restrict the ability of Mexican or foreign  persons or entities to convert pesos
to U.S. dollars,  no assurance can be given that the Mexican government will not
institute  a  restrictive  exchange  control  policy  in the  future.  Any  such
restrictive  exchange  control policy could adversely  affect the ability of the
Company to meet its U.S. dollar  obligations,  and could have a material adverse
effect on, the Company's business and financial condition.

Limitations Affecting Security Holders

     Ownership by non-Mexicans of shares of Mexican  enterprises is regulated by
the  Ley  de  Inversion  Extranjera  (the  "Foreign  Investment  Law")  and  the
Reglamento  de  la  Ley  de  Inversion   Extranjera  (the  "Foreign   Investment
Regulations").

     The Foreign Investment Law reserves certain economic activities exclusively
for the Mexican state and reserves  certain  other  activities  exclusively  for
Eligible  Mexican  Holders,   consisting  of  Mexican  individuals  and  Mexican
corporations,  the  charters of which  contain a  prohibition  on  ownership  by
non-Mexicans of the corporation's  capital stock (a "foreign exclusion clause").
However,  the Foreign  Investment  Law provides that the General  Directorate of
Foreign  Investment  may  authorize  the issuance of  "neutral"  shares or other
"neutral" equity  securities ("N Shares").  Investment in N Shares or Securities
by foreign entities is not considered to be a foreign  investment,  but rather a
"neutral" investment.  Pursuant to the Foreign Investment Law, holders of Series
N Shares may or may not have voting  rights;  if they have voting  rights,  they
must be limited. Series N Series may be owned by domestic or foreign entities.

     In order to comply  with these  restrictions,  the  Company has limited the
ownership of its A Shares to Eligible  Mexican  Holders and credit  institutions
acting as  trustees  (such as the CPO  Trustee) in  accordance  with the Foreign
Investment Law and Regulations,  and the Company has obtained the  authorization
from the General  Directorate of Foreign Investment to issue the B Shares, the L
Shares and the CPOs,  all of which qualify as Series N Shares.  L Shares may not
represent  more than 25% of the  capital  stock of the  Company.  A holder  that
acquires A Shares in violation of the restrictions on non-Mexican ownership will
have none of the rights of a shareholder with respect to those A Shares.

     The Foreign  Investment Law and  Regulations  also require that the Company
register  any  non-Mexican  owner of CPOs,  or the  applicable  depositary  with
respect to any Global Depositary  Shares,  with the National Registry of Foreign
Investment.  A  non-Mexican  owner of CPOs who has not  been  registered  is not
entitled to vote any shares underlying the CPOs that he otherwise would have the
right to vote or to receive  dividends with respect to the shares underlying the
CPOs. The Company has registered the Depositary for this purpose with respect to
the GDSs and the CPOs (and the B Shares and L Shares, as applicable, represented
thereby).

Limitations on Voting Rights

     Holders  of GDSs may give  instructions  as to the  manner in which the CPO
Trustee shall vote the B Shares and L Shares  underlying the CPOs represented by
such holder's  GDSs to the extent they have voting rights with respect  thereto.
Holders of the CPOs  (including  CPOs which are represented by GDSs) who are not


                                       50
<PAGE>


Mexican  nationals  will  have  the  same  voting  rights  with  respect  to the
underlying L Shares as those  granted to holders of L Shares under the Company's
Bylaws,  provided that they must give voting instructions to Banca Serfin, S.A.,
the Common  Representative of the holders of CPOs (the "Common  Representative")
at least five  business  days  prior to the  relevant  meeting.  Holders of CPOs
(including  CPOs which are  represented  by GDSs) who are not Mexican  nationals
will have no voting  rights with  respect to the B Shares  underlying  the CPOs.
Voting rights with respect to the B Shares owned by  non-Mexican  nationals held
in the CPO Trust will be exercised by the CPO Trustee, which is required to vote
such shares in the same manner as the  majority of all B Shares are voted at the
relevant  meeting.  Given that a majority  of the B Shares  will be owned by the
Controlling Shareholders, if the Controlling Shareholders vote the same way on a
matter,  the CPO Trustee  will be required to vote the B Shares  underlying  the
CPOs held by non-Mexican  nationals in the CPO Trust in the same manner as the B
Shares held by the Controlling Shareholders are voted.

     Under the  Company's  Bylaws and Mexican  law,  holders of L Shares will be
entitled  to vote only in limited  circumstances.  Holders  of L Shares  will be
entitled to elect, at a special  stockholders meeting of such series, two of the
Company's 16 directors, and the corresponding alternate directors.  Holders of L
Shares are and will be  entitled to vote at general  extraordinary  stockholders
meetings on the following  corporate actions:  (i) transformation of the Company
from one type of company to another, (ii) any merger in which the Company is not
the  surviving  entity,  and  (iii)  removal  of  the  L  Shares  or  securities
representing  them from  listing on the  Mexican  Stock  Exchange or any foreign
stock  exchange.  Holders of L Shares  will also be  entitled to vote at special
stockholders  meetings of such series on actions that would prejudice the rights
of holders of such series.

Limitation on Rights to Withdraw Underlying Securities

     Holders of CPOs may not withdraw the B Shares and L Shares  underlying such
CPOs until July 1,  2004.  At such time,  such  securities  may  continue  to be
represented  by CPOs until the  expiration of the CPO Trust or, at the option of
the holder and subject to certain conditions  described herein, the B Shares and
L Shares  represented  by the CPOs may be removed  from the CPO Trust and may be
traded  separately.  B Shares  which  are so  removed  and  held by  non-Mexican
nationals  must be placed in a trust  similar to the CPO Trust or  otherwise  be
made subject to arrangements which comply with Mexican law regulating  ownership
of such shares by foreigners. The Company does not anticipate sponsoring a trust
relating to shares which are so removed.

Restrictions Imposed by Bylaws, CPO Trust Agreement and Mexican Law

     The Company's  Bylaws provide that legal actions relating to the execution,
interpretation  or  performance  of the Bylaws may be brought  only in courts in
Mexico,  D.F.  The CPO  Trust  Agreement  provides  that  all  disputes  arising
therefrom  must be submitted  to courts  located in Mexico,  D.F.,  and that all
parties to the CPO Trust Agreement,  including CPO holders, agree that they will
not submit such disputes to any other courts.

     The Company's  Bylaws and the CPO Trust Agreement  provide that non-Mexican
stockholders and CPO holders,  respectively,  of the Company formally agree with
the Foreign  Affairs  Ministry (i) to be  considered as Mexicans with respect to
the shares or the CPOs,  as the case may be, of the Company that they acquire or
hold as well as with respect to the property, rights, concessions, participation
or interests owned by the Company and with respect to the rights and obligations
derived from any agreements the Company has with the Mexican Government and (ii)
not  to  invoke  the  diplomatic   protection  or   intervention  of  their  own
governments.   If  a  non-Mexican   stockholder  or  CPO  holder  should  invoke
governmental   diplomatic  protection  or  intervention  in  violation  of  this
agreement,  its shares or CPOs,  as the case may be,  could be  forfeited to the
Mexican  Government.  Under  Mexican  law,  it is not clear what  actions  would
constitute invoking governmental protection or intervention that would result in
forfeiture of shares or CPOs or what process would be  implemented in connection
with the forfeiture provisions;  however, institution of judicial proceedings in
a foreign country would not be deemed an invocation of diplomatic  protection or
intervention which would result in a forfeiture of shares.


                                       51
<PAGE>


     In the event of a capital  increase,  holders  of  existing  shares  have a
preferential  right to subscribe  for a number of shares  sufficient to maintain
the  holders'  existing  proportionate  holding  of  shares,  except in  limited
circumstances.  Holders of GDSs may be  restricted  under  Mexican  law in their
ability to participate in the exercise of preemptive rights to acquire shares or
rights  of any other  nature  and as a result  their  economic  interest  in the
Company could be diluted in the event of a capital increase.

     Whenever the stockholders approve a change of corporate purposes, change of
nationality  of the  corporation or  transformation  from one form of company to
another,  any stockholder entitled to vote on such change that has voted against
it has appraisal  rights whereby it may withdraw from the Company and receive an
amount,  attributable  to its shares  calculated as specified under Mexican law,
such  appraisal  rights must be exercised  within 15 days following the relevant
shareholders  meeting.  Because  the L Shares may vote only on certain  matters,
such  appraisal  rights  will only be  available  to such  holders  of L Shares,
including L Shares  underlying the CPOs (or GDSs), in the case of transformation
of the Company from one type of Company to another. In addition, because the CPO
Trustee is required by the terms of the CPO Trust Agreement to vote the B Shares
held by  non-Mexican  nationals  in the CPO  Trust  in the  same  manner  as the
majority of B Shares are voted at the relevant  meeting,  appraisal  rights will
not be available to  non-Mexican  holders of B Shares  represented  by CPOs (and
GDSs).

Item 7.  Taxation

     The following  summary contains a description of the principal  Mexican and
United States federal  income tax  consequences  of the purchase,  ownership and
disposition of the 12 3/4% Guaranteed  Senior Notes due 2001 (the "Notes"),  the
CPOs or the GDSs,  but does not  purport  to be a complete  analysis  of all the
potential tax considerations  relating thereto. This summary is based on the tax
laws of Mexico and the United States in force on the date of this Annual Report,
including the  provisions of the income tax treaty between the United States and
Mexico (the "Tax Treaty"),  which are subject to change. This summary deals only
with holders that will hold Notes,  CPOs or GDSs as capital  assets and does not
address  tax  considerations  applicable  to  investors  that may be  subject to
special tax rules, such as banks, tax-exempt organizations, insurance companies,
dealers in securities or currencies,  persons that will hold the Notes,  CPOs or
GDSs as part of an integrated  investment  (including a "straddle") comprised of
Notes,  CPOs  or GDSs  and one or more  other  positions,  persons  that  have a
"functional  currency"  other than the U.S.  Dollar and persons  that own or are
treated  as owning  10% or more of the  voting  shares  (including  CPOs) of the
Company,  nor does it address the tax  treatment of holders of Notes who did not
acquire the Notes at their issue price as part of their initial distribution.

     Holders of Notes,  CPOs or GDSs should consult their own tax advisors as to
the United States  federal,  Mexican or other tax  consequences of the purchase,
ownership and disposition of Notes, CPOs or GDSs, including, in particular,  the
effect of any foreign, state or local tax laws.

     As used herein,  the term "United States Holder" means the beneficial owner
of Notes,  CPOs or GDSs that is, for United States  income tax purposes,  (i) an
individual  citizen or  resident  of the  United  States,  (ii) a United  States
domestic  corporation or (iii) otherwise subject to United States federal income
tax on a net income basis in respect of Notes, CPOs or GDSs.

     As used  herein,  the term  "Foreign  Holder"  means a holder that is not a
resident  of Mexico and that will not hold Notes,  CPOs or GDSs 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, whether  consecutive or not, in any one
calendar year and can demonstrate  that he has become a resident of that country
for  tax  purposes,  and  a  legal  entity  is a  resident  of  Mexico  if it is
incorporated under Mexican law. A Mexican


                                       52
<PAGE>


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 person has
a permanent  establishment or fixed base in Mexico, such permanent establishment
or fixed base shall be required to pay taxes in Mexico on income attributable to
such  permanent  establishment  or fixed base in  accordance  with  relevant tax
provisions.

     In general, for United States federal income tax purposes,  holders of GDSs
or CPOs will be  treated  as the  beneficial  owners of the  Series B Shares and
Series L Shares represented by those GDSs or CPOs.

     Tax Considerations Relating to the Notes

     Mexican Taxation

     Taxation of Interest and Principal

     Under the Mexican Income Tax Law,  payments of interest made by the Company
in respect of the Notes (including  payments of principal in excess of the issue
price of such Notes,  which,  under Mexican law, are deemed to be interest) to a
Foreign Holder will generally be subject to a Mexican  withholding  tax assessed
at a rate of 10% if the relevant Notes are registered  with the Special  Section
of the National Registry of Securities and Intermediaries (the "Registry").  For
these purposes,  the difference between the amount payable at maturity on a Note
and the  amount  paid by a Foreign  Holder for its  purchase  at  issuance  will
constitute interest subject to Mexican withholding at the time of payment.

     Pursuant to the Mexican  Income Tax Law,  payments of interest  made by the
Company  in  respect  of the Notes to a Foreign  Holder  that are  subject  to a
withholding  tax will be subject to a reduced 4.9% Mexican  withholding tax rate
(the "Reduced Rate") if (i) the effective beneficiary is a resident of a country
which has entered into a treaty to avoid double  taxation with Mexico,  (ii) the
requirements  for the application of a lower rate  established in the applicable
treaty  are  satisfied,  and (iii) the Notes  are  registered  with the  Special
Section of the Registry. This Reduced Rate provision will expire on December 31,
1999 or when the authority stipulates another term. After that time, however, as
discussed  below,  the Mexican  withholding  tax rate may be reduced under other
provisions.

     Pursuant to general rules (the "Reduced  Rate  Regulations")  issued by the
Ministry of Finance, payments of interest made by the Company to Foreign Holders
with respect to the Notes that are subject to withholding tax will be subject to
withholding  taxes  imposed  at the  Reduced  Rate,  regardless  of the place or
residence  or tax regime  applicable  to the Foreign  Holder  recipient  of such
interest,  if (i) the Notes  are  registered  with the  Special  Section  of the
Registry,  (ii) the Company  timely files with the  Ministry of Finance  certain
information  relating  to the  issuance of the Notes,  (iii) the Company  timely
files with the  Ministry of  Finance,  after the date of each  interest  payment
under the Notes,  information  representing that no party related to the Company
(defined under the Reduced Rate Regulations as parties that are (x) shareholders
of the Company that own,  directly or indirectly,  individually  or collectively
with related persons (within the meaning of the Reduced Rate  Regulations)  more
than 10% of the voting stock of the Company or (y) corporations more than 20% of
the  stock  of  which  is  owned,   directly  or  indirectly,   individually  or
collectively, by related persons of the Company), directly or indirectly, is the
effective  beneficiary  of 5% or  more of the  aggregate  amount  of  each  such
interest  payment,   and  (iv)  the  Company  maintains  records  that  evidence
compliance  with (i),  (ii) and  (iii)  above.  The  Reduced  Rate  Regulations,
together with other tax  regulations,  are  promulgated on an annual basis,  and
there can be no assurance that the Reduced Rate Regulations  described above for
the application of the Reduced Rate will be extended beyond March 31, 2000.

     Apart from the Reduced Rate, other special rates of Mexican withholding tax
may apply. In particular, under the Tax Treaty, the Mexican withholding tax rate
applicable  to interest  payments  on the Notes is reduced to 4.9% (the  "Treaty
Rate") for certain  holders that are residents of the United States  (within the
meaning of the Tax Treaty) under certain circumstances contemplated therein. The
Treaty Rate is reduced to 4.9% on January 1, 1999. The Tax Treaty


                                       53
<PAGE>


provides that United States  Holders will be subject to this rate  independently
from the Reduced Rate Regulations.

     Payments  of  interest  made by the  Company  with  respect to the Notes to
non-Mexican  pension or retirement funds will be exempt from Mexican withholding
taxes, provided that any such fund (i) is duly incorporated pursuant to the laws
of its country of origin,  (ii) is exempt  from  income tax in such  country and
(iii) is registered with the Ministry of Finance for that purpose and (iv) there
is reciprocity in similar  circumstances for Mexican pension or retirement funds
in such country.

     The Company has agreed, subject to specified exceptions and limitations, to
pay  Additional  Amounts to the  holders of the Notes in respect of the  Mexican
withholding  taxes mentioned  above.  If the Company pays Additional  Amounts in
respect of such Mexican  withholding taxes, any refunds received with respect to
such Additional Amounts will be for the account of the Company.

     Holders or beneficial  owners of Notes may be requested 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 Notes. In the event
that the  specified  information  or  documentation  concerning  the  holder  or
beneficial  owner, if requested,  is not provided on a timely basis, the Company
may  withhold  Mexican  tax  from  such  interest  payments  to such  holder  or
beneficial  owner  at the  maximum  applicable  rate  (currently  10%)  but  its
obligation to pay Additional Amounts will be limited.

     Under existing  Mexican law and  regulations,  a Foreign Holder will not be
subject to any Mexican  taxes in respect of payments  of  principal  made by the
Company with respect to the Notes.

     Taxation of Dispositions

     Capital gains resulting from the sale or other  disposition of the Notes by
a Foreign Holder may be subject to a tax at a rate of 10%. However,  pursuant to
rule 3.32.26 published by the Ministry of Finance which is in effect until March
4, 2000, no income tax will apply on any capital gains  resulting  from the sale
or other  disposition of the Notes,  as long as (i) the income tax applicable to
interest  payments  under the Notes is duly withheld and paid to the Ministry of
Finance  by the  Issuer  in  accordance  with  the Law and (ii)  the  Notes,  as
expected, are registered under the Special Section of the Registry. No assurance
can be given that the  aforementioned  rule  3.32.26 will be extended or that an
equivalent rule will be enacted.

     Transfer and Other Taxes

     There are no Mexican  stamp,  registration,  or similar  taxes payable by a
Foreign Holder in connection with the purchase,  ownership or disposition of the
Notes.  A Foreign Holder of Notes will not be liable for Mexican  estate,  gift,
inheritance or similar tax with respect to the Notes.

     United States Taxation

     Taxation of Interest and Additional Amounts

     A United  States  Holder  will  treat the  gross  amount  of  interest  and
Additional  Amounts  (i.e.,  without  reduction for Mexican  withholding  taxes)
received  in respect of the Notes as ordinary  interest  income at the time such
interest and Additional Amounts is received or accrued,  in accordance with such
Holder's  method of accounting  for United States  federal  income tax purposes.
Mexican  withholding taxes paid at the appropriate rate applicable to the United
States  Holder  will be treated  as foreign  income  taxes  eligible  for credit
against such United States  Holder's United States federal income tax liability,
subject to generally applicable limitations and conditions,  or, at the election
of such United  States  Holder,  for  deduction in computing  such United States
Holder's taxable income.  Interest and Additional Amounts will constitute income
from sources  without the United  States for foreign tax credit  purposes.  Such
income  generally will  constitute  "passive  income" or, in the case of certain
United States Holders, "financial services income" for United States foreign tax
credit purposes unless the Mexican withholding tax rate applicable to the United
States  Holder is imposed  at a rate of at least 5%, in which  case such  income
generally will constitute "high withholding tax interest."


                                       54
<PAGE>


     The  calculation of foreign tax credits and, in the case of a United States
Holder that elects to deduct  foreign  taxes,  the  availability  of deductions,
involves  the  application  of rules  that  depend on a United  States  Holder's
particular circumstances.  Under new rules enacted by Congress in 1997 and other
guidance  recently  released by the United States Treasury,  foreign tax credits
will not be  allowed  for  withholding  taxes  imposed  in  respect  of  certain
short-term or hedged  positions in securities or in respect of  arrangements  in
which a United States Holder's expected economic profit, after non-United States
taxes,  is  insubstantial.  United States  Holders  should consult their own tax
advisors  regarding the availability of foreign tax credits and the treatment of
Additional Amounts in light of their particular circumstances.

     A holder or  beneficial  owner of Notes that is, with respect to the United
States, a foreign  corporation or a nonresident  alien individual (a "Non-United
States Holder") generally will not be subject to United States federal income or
withholding  tax on interest  income or Additional  Amounts earned in respect of
Notes,  unless  such  income is  effectively  connected  with the conduct by the
Non-United States Holder of a trade or business in the United States.

     Taxation of Dispositions

     Upon the sale, exchange, retirement (including a redemption by the Company)
or other  disposition of a Note, a United States Holder generally will recognize
capital gain or loss equal to the difference  between the amount realized on the
sale,  exchange,  redemption  or other  disposition  (except to the extent  such
amount is attributable to accrued  interest,  which will be treated as such) and
such Holder's  adjusted tax basis in the Note. A United States Holder's adjusted
tax basis in a Note  generally  will equal the cost of such Note to such holder.
Such capital gain or loss will be long-term capital gain or loss if, at the time
of the  disposition,  the United States  Holder's  holding period in the Note is
more than one year. The  distinction  between  capital gain or loss and ordinary
income or loss is important for purposes of the  limitations  on a United States
Holder's  ability to offset capital losses against  ordinary  income and because
United States  Holders that are  individuals  may be entitled to a  preferential
rate on long-term  capital  gains.  Long-term  capital gain realized by a United
States Holder that is an individual generally is subject to a maximum rate of 20
percent in respect of property held for more than one year.

     A Non-United  States  Holder of Notes will not be subject to United  States
federal  income  or  withholding  tax on gain  realized  on the  sale  or  other
disposition  of Notes  unless (i) such gain is  effectively  connected  with the
conduct by the  Non-United  States  Holder of a trade or  business in the United
States or (ii) in the case of gain realized by an individual  Non-United  States
Holder,  the  Non-United  States  Holder is present in the United States for 183
days or more in the taxable year of the sale and certain  other  conditions  are
met.

     Tax Considerations Relating to CPOs or GDSs

     Taxation of Dividends

     U.S. Tax Considerations

     Cash dividends paid with respect to the Shares represented by GDSs or CPOs,
to the extent paid out of the  Company's  current or  accumulated  earnings  and
profits,  as  determined  for United  States  tax  purposes,  generally  will be
includible in the gross income of a United  States Holder as ordinary  income on
the day on which the  dividends  are received by the CPO Trustee and will not be
eligible for the dividends received deduction allowed to corporations. Dividends
paid in pesos will be included in the income of a United States Holder in a U.S.
dollar amount  calculated in general by reference to the exchange rate in effect
on the day they


                                       55
<PAGE>


are received by the CPO Trustee.  United States holders should consult their own
tax advisors  regarding the treatment of foreign  currency gain or loss, if any,
on any pesos that are converted  into U.S.  dollars on a date  subsequent to the
date of receipt by the CPO Trustee.  Dividends generally will constitute foreign
source  "passive  income"  or, in the case of  certain  United  States  holders,
"financial services income" for United States foreign tax credits purposes.

     Distributions to Holders of additional Shares with respect to their GDSs or
CPOs that are made as part of a pro rata distribution to all shareholders of the
Company generally will not be subject to United States federal income tax.

     A Non-United States Holder of CPOs or GDSs generally will not be subject to
United States federal income or withholding tax on dividends received on CPOs or
GDSs,  unless  such  income is  effectively  connected  with the  conduct by the
Non-United States Holder of a trade or business in the United States.

     Mexican Tax Considerations

     There is no Mexican  withholding or other tax levied on Foreign  Holders of
the Shares,  CPOs or GDSs, on dividends paid,  either in cash or any other form,
by the Company.

     Taxation of Capital Gains

     U.S. Tax Considerations

     Upon the sale,  exchange  or other  disposition  of GDSs or CPOs,  a United
States Holder  generally  will  recognize gain or loss in an amount equal to the
difference  between the amount  realized on the disposition of such GDSs or CPOs
and such United States Holder's tax basis in the GDSs or CPOs. Such gain or loss
recognized by such United States Holder generally will be long-term capital gain
or loss if the  United  States  Holder has held the GDS or CPO for more than one
year at the time of the  disposition.  The  distinction  between capital gain or
loss and ordinary income or loss is important for purposes of the limitations on
a United States  Holder's  ability to offset  capital  losses  against  ordinary
income and because United States Holders that are individuals may be entitled to
a  preferential  tax rate on long-term  capital  gains.  Long-term  capital gain
realized by a United States Holder that is an individual generally is subject to
a maximum rate of 20 percent in respect of property held for more than one year.

     Deposits and  withdrawals  of CPOs by United States Holders in exchange for
GDSs  will not  result  in the  realization  of gain or loss for  United  States
federal income tax purposes.

     A  Non-United  States  Holder of CPOs or GDSs will not be subject to United
States federal income or withholding tax on gain realized on the sale of CPOs or
GDSs,  unless (i) such gain is  effectively  connected  with the  conduct by the
Non-United  States Holder of a trade or business in the United States or (ii) in
the case of gain  realized by an  individual  Non-U.S.  Holder,  the  Non-United
States  Holder  is  present  in the  United  States  for 183 days or more in the
taxable year of the sale and certain other conditions are met.

     Mexican Tax Considerations

     Gain on the sale or other  disposition of GDSs by Foreign  Holders will not
be subject to Mexican tax. Deposits of CPOs in exchange for GDSs and withdrawals
of CPOs in  exchange  for GDSs will not give rise to any Mexican tax or transfer
duties.


                                       56
<PAGE>


     Provided  the  Ministry  of  Finance  determines  that CPOs are held by the
investing  public at large,  gains from the sale of CPOs  carried out by Foreign
Holders  through the  Mexican  Stock  Exchange  or any other  stock  exchange or
securities  market in Mexico or abroad  that is  recognized  by the  Ministry of
Finance will generally be exempt from Mexican taxes.  If, however,  the Ministry
of Finance withdraws such  determination,  sales of CPOs by Foreign Holders will
be subject to Mexican  federal  withholding  at a rate of 20% of the gross sales
price,  unless (i) the determination of the Ministry of Finance was in effect at
the time of  purchase  of the CPOs  being  sold,  in which case there will be no
Mexican federal withholding tax or (ii) the seller is a resident of a qualifying
country (including,  among others, the United States), appoints a representative
in Mexico for income tax purposes  related to the sale and elects to pay Mexican
federal income tax at a rate of 30% of the gain on the sale.

     Under the Tax Treaty,  gains of a United States Holder that is eligible for
benefits  under the Tax Treaty on the  disposition of CPOs generally will not be
subject to  Mexican  tax,  unless  such gains are  attributable  to a  permanent
establishment  or fixed base of such United  States  Holder in Mexico.  Gains of
Non-United  States Holders  eligible for benefits under a treaty to which Mexico
is a party  may be exempt  (in whole or in part)  from  Mexican  tax under  such
treaty.

     United States Backup Withholding and Information Reporting

     A  United  States  Holder  of  Notes,  CPOs  or  GDSs  may,  under  certain
circumstances,  be  subject  to  "backup  withholding"  at the  rate of 31% with
respect to certain  payments to such United States Holder,  such as dividends or
interest paid by the Company or the proceeds of a sale or  disposition of Notes,
CPOs or GDSs,  unless such holder (i) is a corporation  or comes within  certain
exempt categories, and demonstrates this fact when so required, or (ii) provides
a correct taxpayer  identification  number,  certifies that it is not subject to
backup  withholding and otherwise  complies with applicable  requirements of the
backup  withholding rules. Any amount withheld under these rules will be allowed
as a refund or credit  against the holder's  United  States  federal  income tax
liability provided the required information is furnished to the Internal Revenue
Service.  While  Non-United  States  Holders  generally  are exempt  from backup
withholding,  a  Non-United  States  Holder  may, in certain  circumstances,  be
required to comply with certain  information  and  identification  procedures in
order to prove this exemption.

     Other Mexican Taxes

     There are no inheritance,  gift, succession or value added taxes applicable
to the ownership,  transfer,  exchange or disposition of GDSs or CPOs by Foreign
Holders,  although gratuitous  transfers of CPOs may, in certain  circumstances,
cause a Mexican  federal  tax to be  imposed  upon the  recipient.  There are no
Mexican stamp, issue, registration or similar taxes or duties payable by holders
of GDSs or CPOs.

Item 8.  Selected Financial Data

     The following table presents selected  consolidated  financial  information
for  each  of  the  periods  indicated.   The  selected  consolidated  financial
information set forth below should be read in conjunction with, and is qualified
in  its  entirety  by  reference  to,  the  Company's   Consolidated   Financial
Statements, and the notes thereto, included elsewhere herein.

     The  Company's  Consolidated  Financial  Statements  have been  prepared in
accordance with Mexican GAAP,  which differs in certain respects from U.S. GAAP.
Note 16 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 net income (loss) and stockholders'
equity.

     The Company's financial  statements were prepared giving effect to Bulletin
B-10 and Bulletin  B-12 issued by the Mexican  Institute of Public  Accountants.
Bulletin B-10 is designed to provide for the


                                       57
<PAGE>


recognition of certain  effects of inflation by requiring the Company  generally
to  restate   non-monetary   assets  and   liabilities  and  the  components  of
stockholders' equity using the National Consumer Price Index (the "NCPI") and to
record gains or losses in purchasing power from holding monetary  liabilities or
assets.  Bulletin  B-12  requires  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 selected  consolidated
financial  information  set  forth  below,  and  all  data  in the  Consolidated
Financial  Statements,  have been restated in constant  pesos as of December 31,
1998.

     The effect of the inflation  accounting  principles described above has not
been  reversed  in  the  reconciliation  to  U.S.  GAAP.  See  Note  16  to  the
Consolidated Financial Statements.
<TABLE>
<CAPTION>
                                                                               Year ended December 31,                 U.S.$
                                                          1994        1995        1996         1997       1998        1998 (1)
                                                          ----        ----        ----         ----       ----        --------
                                               (millions of constant Ps. as of December 31, 1998 purchasing power, except
                                                                    per share data and percentages)
<S>                                                      <C>        <C>          <C>         <C>         <C>           <C>
Income Statement Data:

Mexican GAAP

Merchandise, service and other revenues(2)               5,491.3     4,228.7     5,869.2     7,566.6     8,924.8       901.4

Cost of merchandise sold and services (2)                3,505.6     2,104.4     3,581.8     4,571.6     5,427.0       548.1

Gross profit                                             1,985.7     2,124.3     2,287.4     2,995.0     3,497.8       353.3

Administrative and selling expenses                      1,248.5     1,194.4     1,498.7     1,787.2     2,361.5       238.5

Other expenses (income)                                     19.1

Depreciation and amortization                               69.4       100.7       113.1       182.3       342.7        34.6

Operating income                                           648.7       829.2       675.6     1,025.5       793.6        80.2

Comprehensive financing income (expense)-net               (59.0)     (225.0)      150.3      (133.0)     (473.7)      (47.8)

Income before income taxes and employees'                  589.7       604.2       825.9       892.5       319.9        32.3

Taxes and employees' statutory profit sharing               94.6        75.2       127.0       109.1       107.1        10.8

Extraordinary item                                         (22.2)                 (153.3)

Consolidated net income (3)                                517.3       529.0       852.2       783.4       212.8        21.5

Income of minority stockholders                                                     14.9        19.3         4.0         0.4

Income of majority stockholders                            517.3       529.0       837.3       764.1       208.8        21.1

Earnings per share (4)                                      0.14        0.15        0.23        0.22        0.06        0.01

Earnings per CPO (4)                                        0.43        0.44        0.70        0.65        0.18        0.02

Weighted average shares outstanding
 (in millions) (4)                                       3,591.0     3,591.0     3,595.6     3,553.6     3,574.7     3,574.7

Weighted average CPOs outstanding
 (in millions) (4)                                       1,197.0     1,197.0     1,198.5     1,184.5     1,191.6     1,191.6

U.S. GAAP

Sales and money transfer services                        3,995.7     3,738.8     4,956.6     6,056.9     7,382.9       745.7

Interest earned from customer credit operations          1,544.8     1,463.5     1,231.2     1,634.7     1,978.9       199.9

Operating income                                           845.5     1,354.1     1,147.4     1,014.9     1,434.4       144.9

Income before income taxes and employees'
statutory profit sharing                                   556.2       558.8       763.2       516.2       615.9        62.2

Net income
                                                          (132.1)      272.7       652.8       278.6       262.6        26.5
Basic earnings (loss) per share (4)
                                                           (0.04)       0.08        0.18        0.08        0.07        0.01
Basic weighted average shares outstanding
(in millions) (4)                                        3,518.0     3,628.0     3,595.5     3,553.6     3,574.7     3,574.7

</TABLE>


                                       58
<PAGE>



<TABLE>
<CAPTION>
                                                                          Year ended December 31,                  U.S.$
                                                     1994       1995         1996         1997         1998       1998 (1)
                                                     ----       ----         ----         ----         ----       --------
                                               (millions of constant Ps. as of December 31, 1998 purchasing power, except
                                                                    per share data and percentages)
<S>                                                 <C>        <C>          <C>          <C>          <C>            <C>
Balance Sheet Data:

Mexican GAAP

Accounts  receivable  due from  customers-Net(5)    1,402.3    1,644.4      2,354.1      1,572.7      1,240.8        125.3

Accounts    receivable   due   from   related
parties-Net                                           798.7      991.0        234.6        169.0        204.9         20.7

Inventories
                                                    1,377.4    1,449.7      1,549.5      2,279.4      2,140.4        216.2
Total current assets
                                                    3,992.6    4,286.2      4,636.5      4,989.9      5,476.7        553.1
Property, machinery and equipment-Net
                                                      623.7      739.5        837.0      1,807.0      2,144.7        216.6
Total assets
                                                    5,115.6    5,534.2      7,536.7      9,188.7      9,854.8        995.3
Total current liabilities
                                                    1,760.3    1,873.7      2,216.9      3,852.3      3,528.1        356.3
Long-term debt
                                                      192.6      126.4      1,178.9        986.4      2,465.9        249.1
Majority stockholders' equity
                                                    1,931.7    2,253.4      4,126.7      4,247.5      3,652.6        368.9

U.S. GAAP

Accounts receivable due from customers-Net
                                                    1,402.3    1,644.4      2,354.1      2,605.8      2,541.0        256.6
Inventories
                                                    1,377.4    1,449.7      1,549.5      2,247.2      2,140.4        216.2
Total assets
                                                    4,794.7    5,268.4      6,396.9      8,936.0      9,500.1        959.5
Short-term debt
                                                    1,679.6    1,873.7        852.5      2,808.3      1,244.0        125.6
Long-term debt
                                                       79.8                 1,082.9        956.1      3,428.5        346.3
Majority stockholders' equity
                                                    1,520.8    1,533.4        776.2        945.3        306.9         31.0

Other Financial Data:

Mexican GAAP

Gross margin(6)                                       36.2%      50.2%        39.0%        39.6%        39.2%        39.2%

Operating income margin(7)                            11.8%      19.6%        11.5%        13.6%         8.9%         8.9%

Capital expenditures
                                                      249.0      438.4        337.3        932.3        607.5         61.4
Stores open at period end
                                                        354        400          521          680          819         82.7
Number of open installment accounts
                                                    586,528    532,452      889,921      948,054      668,772      668,772
Store space (square meters)
                                                    179,031    227,654      308,058      423,557      529,535      529,535
Net sales per square meter
                                                      29.32      20.52        18.53        16.97        16.70         1.69
</TABLE>

----------------
(1)  The U.S. dollar amounts represent the peso amounts as of December 31, 1998,
     expressed  as of  December  31, 1998  purchasing  power,  translated  at an
     exchange  rate of Ps.  9.901  per  U.S.  dollar,  the Noon  Buying  Rate on
     December  31,  1998.  These  transactions   should  not  be  considered  as
     representations  that the peso amounts actually  represent such U.S. dollar
     amount,  or could be converted into U.S.  dollars at the rates indicated or
     at any other rate.

(2)  Includes  for all periods the effects of a change in the method used by the
     Company in accounting for installment  sales and certain  reclassifications
     made by the Company to show all the revenues and costs  associated with the
     installment  sales program within  merchandise,  services and other revenue
     and cost of  merchandise  sold and  services to allow a better  matching of
     revenues  with the costs  needed to produce  them.  Also  includes  for all
     periods the effects of a  reclassification  of the Company's equity in Casa
     as part of  merchandise,  services  and  other  revenue  to  allow a better
     matching  of  such  revenue  with  the  amortization  of  goodwill  of such
     investment.  See Item 9, "Management's Discussion and Analysis of Financial
     Condition and Results of Operations--Accounting  for Installment Sales" and
     "--Investment in Casa."

(3)  Reflects an  extraordinary  item in 1994  relating to the  utilizing of tax
     loss  carryforwards of Ps.18.7 million,  respectively.  Also reflects other
     income in 1995  relating to Ps. 29.5  million  equity in income in Servicio
     Mexicano  de  Entregas  and other  income in 1996  relating  to the sale of
     Servicio Mexicano de Entregas to American Rapid Corporation (Western Union)
     for Ps. 129.3 million. There were no extraordinary items or other income in
     1997.

(4)  After giving effect to the ten to one split of the Company's  stock,  which
     was  authorized  on August 15,  1997.  As a result of the  split,  each GDS
     currently  represents 20 CPOs;  while each CPO continues to represent two B
     Shares and one L Share.

(5)  Accounts  receivables  from retail  customers are shown net of the unearned
     installment sales markup. See Item 9, "Management's Discussion and Analysis
     of  Financial   Condition   and  Results  of   Operations--Accounting   for
     Installment Sales."

(6)  Gross  margin is  calculated  by  dividing  gross  profit  by  merchandise,
     services and other revenues.  (7) Operating  income margin is calculated by
     dividing operating income by merchandise, services and other revenues.


                                       59
<PAGE>



Exchange Rates

     The following table sets forth, for the periods indicated,  the period-end,
average,  high and low,  Noon Buying Rate,  expressed in pesos per U.S.  dollar,
published  by the  Federal  Reserve  Bank of New York.  The rates  have not been
restated in constant currency units. All amounts are stated in pesos.

                                                Free Market Rate(1)
                                  ----------------------------------------------
                                                                         Period
Year Ended December 31,              High         Low     Average(2)       End
----------------------               ----         ---     ---------      ------
1994                               Ps.5.75      Ps.3.11     Ps.3.48      Ps.5.00
1995                                  8.05         5.27        6.53         7.74
1996                                  8.05         7.33        7.63         7.88
1997                                  8.41         7.71        7.96         8.07
1998                                 10.63         8.04        9.15         9.90
1999 (As for June 22, 1999)          10.60         9.24        9.70         9.36

-------------------
(1) Source: Federal Reserve Bank of New York.

(2) Average of end-of-month rates.


Dividends

     The declaration, amount and payment of dividends are determined by majority
vote of the holders of the A Shares and generally,  but not necessarily,  on the
recommendation  of the Board of  Directors.  Dividends are declared in the first
quarter of each  fiscal year based on the audited  financial  statements  of the
Company for the preceding  fiscal year.  The amount of any such  dividend  would
depend on,  among other  things,  the  Company's  operating  results,  financial
condition and capital requirements, and on general business conditions.

     Under the Company's  Amended and Restated By-laws and the Mexican Companies
Law, the gross profits of the Company are applied as follows:

     At the annual ordinary  general meeting of the shareholders of the Company,
the Board of Directors  submits the financial  statements of the Company for the
previous  fiscal year,  together  with the report  thereon by the Board,  to the
holders  of A Shares  for  approval.  Once the  financial  statements  have been
approved by the holders of A Shares, the holders of A and B Shares determine the
allocation  of the  Company's  net  profits  for the  preceding  year.  They are
required by law to allocate at least 5% of such net profits to a legal  reserve,
which is not available for  distribution  except as a stock  dividend  until the
amount of the legal reserve equals 20% of the Company's historical capital stock
(before the effect of  restatement).  Thereafter,  the holders of A and B Shares
may determine and allocate a certain percentage of net profits to any general or
special reserve,  including a reserve for open-market purchases of the Company's
shares.  The remainder of net profits is available for  distribution in the form
of dividends  to the  shareholders  provided  that the holders of A and B Shares
resolve  favorably for the distribution of dividends.  Holders of B Shares and L
Shares  (directly or through CPOs) have equal rights,  on a per share basis,  to
dividends.

     On  March  17,  1999,   the  Company   declared  a  dividend  of  Ps.0.0975
(US$0.00975)  per CPO or Ps.0.0325  (US$0.00325)  per A Share, and B and L Share
not deposited in the CPO trust. This dividend, which was paid on March 31, 1999,
was  equal to 55.4%  of net  profit  for the year  ended  December  31,  1998 or
approximately  Ps.115.7  million.  The  dividend  payment  per GDS in  1995  was
Ps.0.249  (US$0.0249),  in 1996 was  Ps.0.458  (US$0.0458)  per GDS, in 1997 was
Ps.0.951 (US$0.0951) per GDS, in 1998 was Ps.0.828 (US$0.0828).

     Under the terms of the indenture for the 12 3/4 Guaranteed Senior Notes due
2001 and the US$150 million unsecured guaranteed revolving credit agreement with
Citibank as agent,  the Company is subject to certain  financial  covenants that
directly  or  indirectly  restrict  the  payment  of  dividends.   See  Item  9,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Liquidity and Capital Resources."


                                       60
<PAGE>


Item 9.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     The  following  discussion  should  be read  in  conjunction  with,  and is
qualified in its entirety by reference to, the Company's  Consolidated Financial
Statements and the Notes thereto included  elsewhere herein.  This Annual Report
includes  "forward-looking  statements" within the meaning of Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.  All  statements  other  than
statements of historical fact included in this Annual Report, including, without
limitation,   statements  of  the  Company's  and   management's   expectations,
intentions,  plans and beliefs,  including those contained in or implied by Item
1, "Description of Business," or Item 9,  "Management's  Discussion and Analysis
of Financial  Condition and Results of Operations" and the Notes to Consolidated
Financial  Statements,  are  forward-looking  statements,  and are  dependent on
certain  events,  risks and  uncertainties  that may be  outside  the  Company's
control.  Although the Company believes that the expectations  reflected in such
forward-looking  statements are  reasonable,  it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual  results to differ  materially  from the Company's  expectations  include
certain  governmental,  economic  and  political  factors in the United  Mexican
States and in other  countries  where the  Company  has  operations,  including,
without  limitation,  factors related to the devaluation of the Peso,  inflation
and interest rates and exchange control  policies,  the Company's  dependence on
installment  sales,  the  availability  of funding for future  financing  needs,
certain  potential adverse effects of competition,  the Company's  dependence on
key personnel,  potentially more restrictive consumer protection laws in Mexico,
certain factors related to the Company's related party transactions and the risk
factors described from time to time in the Company's other documents and reports
filed with the Securities and Exchange  Commission.  All subsequent  written and
oral forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by such factors.

Basis of Presentation

     The Consolidated  Financial Statements have been prepared on a consolidated
basis to reflect the financial  condition and the results of operations of Grupo
Elektra, S.A. de C.V. and its consolidated subsidiaries.

     Mexican GAAP requires that the Consolidated  Financial Statements recognize
certain  effects of  inflation.  Financial  information  for all  periods in the
Consolidated  Financial  Statements  has been  restated in constant  Pesos as of
December 31, 1998 in accordance with the Third Amendment to Bulletin B-10 of the
Mexican Institute of Accountants. Effective January 1, 1997, the Fifth Amendment
to Bulletin B-10 modified the method of restatement  of  nonmonetary  assets for
the effects of inflation. Accordingly, the percentage increases discussed herein
are  adjusted for the general  effects of  inflation to permit  period-to-period
comparisons. See Note 2 to the Company's Consolidated Financial Statements.

     In accordance  with Bulletin B-10, the Company is required to report,  as a
gain or loss on its net  monetary  position,  the  effects of  inflation  on its
monetary  assets  and  liabilities.  This net amount  reflects  the gain or loss
arising  from  holding  a  net  liability  or  asset  monetary  position  in  an
inflationary  period,  since over time a monetary  liability  can be settled for
units of less  purchasing  power whereas a monetary asset  decreases in value in
real terms.  The  Company's  operations  continually  generate  monetary  assets
(primarily from its installment  sales) while the Company's accounts payable and
borrowings to finance capital expenditures result in monetary liabilities.

Accounting for Installment Sales

     The Company  sells  products  through  its Elektra  stores for cash and for
credit under an  installment  sales program.  Revenues from Elektra  installment
sales are accounted for as follows:  (i) an amount  equivalent to the cash price
of the merchandise is recorded as merchandise  revenue at the time of sale; (ii)
the installment  sales mark-up,  as described  below, is recorded as merchandise
revenue  ratably over the life of the  installment  sale contract;  (iii) stated
interest,  if any, is recorded as merchandise  revenue  ratably over the life of
the installment sale


                                       61
<PAGE>


contract;  and (iv) penalty  interest on past due installment  sales payments is
recorded as merchandise revenue when paid.

     The  cost to the  customer  of  merchandise  purchased  under  the  Elektra
installment  sales  program  includes  a cash  price  component  plus a  mark-up
component and, in certain  circumstances,  a stated interest component depending
on the Company's current marketing  objectives.  If stated interest is used, the
Company discloses such applicable interest rate;  however,  the implicit cost of
financing due to the mark-up is not  disclosed to the customer.  Mark-up and, if
included,  stated  interest  represent the costs  associated  with providing the
installment  sales program plus a profit margin.  Such costs include the cost of
financing,  the cost of credit  investigations  and the cost of  collection  and
legal process relating to bad debts.

     As of  January  1,  1997  the  Company  modified  the  presentation  of its
statement  of income to show all the  revenues  and  costs  associated  with the
installment  sales program  within  merchandise,  services and other revenue and
cost of  merchandise  sold and  services,  thus  allowing a better  matching  of
revenues  with the costs needed to produce  them.  Accordingly,  the cash price,
mark-up,  stated interest and penalty interest on installment  sales are part of
merchandise services and other revenues as well as operating income. Also, parts
of the  revenues  from  installment  sales  are  subject  to a loss on  monetary
position from account receivable. Cost of sales includes the cost of merchandise
sold, the cost of financing the installment  sales program and the allowance for
doubtful accounts, less any monetary gain on financing of receivables.

     When an installment  sale is made for products at the Company's  Elektra or
Hecali  stores,  the  customer  signs a  promissory  note in the  amount  of the
equivalent  cash price of the  merchandise  plus the mark-up and, if applicable,
stated interest minus any down payment.  At the time of the sale, the equivalent
cash price of the merchandise is booked as merchandise revenues,  and an account
receivable is generated in the amount of the  installment  sale  equivalent cash
price minus any down payment.  During the term of the installment sale contract,
each weekly payment is applied  proportionately among the equivalent cash price,
the mark-up and the stated interest. The portion of the weekly payment allocated
to the equivalent cash price is applied to reduce the account receivable and has
no effect on the Company's income statement.  The portions  allocated to mark-up
and stated interest are recognized as merchandise revenues, in each case ratably
over the term of the installment. If the customer is late with a weekly payment,
the mark-up and stated interest  portion of the missed payment are recognized as
merchandise  revenues and the account  receivable  is increased by both amounts.
Penalty  interest is charged on amounts that are past due and is recognized when
paid as merchandise revenues. Payments are applied first to any penalty interest
balances.  In  summary,  if a  customer  is  current  on  the  repayment  of  an
installment sale, the account  receivable  associated with such installment sale
includes  only the  equivalent  cash price  portion of the sale  (minus the down
payment)  and is  amortized  weekly  in  equal  amounts  during  the term of the
installment  sale.  To the extent that a customer is late on the  payments of an
installment sale, the account  receivable  associated with such installment sale
includes the remaining  equivalent  cash price portion  (minus the down payment)
and any accrued but unpaid mark-up and stated interest.

     During 1995, most installment sales were made on a 53-week term.  Beginning
in the second half of 1996, and continuing  until December 31, 1998, most of the
Company's  Elektra  installment  sales were made on a 39-week term. During 1995,
the Company  adjusted its marketing  strategy to eliminate  the stated  interest
component in all of its installment sales terms.

Reserve for Doubtful Accounts

     Since the fourth  quarter of 1996 the Company has recorded a provision  for
doubtful accounts at the time of any installment sale in an amount equal to five
percent of the cash price of the  merchandise  sold,  plus the markup,  less the
down payment, if any. During 1995 and for the first three-quarters of 1996, this
provision  was  calculated  on the basis of the cash price only.  Normally,  the
Company requires a ten percent down payment for all installment sales but waives
such requirement from time to time for marketing purposes.


                                       62
<PAGE>

     After giving effect to  write-offs,  the reserve for doubtful  accounts was
6.4% of account receivable due from retail customers as of December 31, 1998 and
3.2% of accounts  receivable due from retail  customers as of December 31, 1997.
Management believes that its reserve policy for its installment sales program is
sufficient  to cover  potential  write-offs.  The Company  continues  collection
efforts after writing off accounts receivable.

Effects of the Peso Devaluation and Inflation

     General

     The  Mexican  government's  decision  on  December  20,  1994  to  increase
significantly  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,  the Mexican government has, in response to
the adverse effects of the devaluation, established an economic recovery program
that is  designed  to  tighten  the money  supply,  increase  domestic  savings,
discourage consumption and reduce public spending generally.  Foreign investment
in Mexico by private sources has also been reduced significantly.

     For the year ended  December  31,  1998,  the  Mexican  economy  moderately
improved,  with  gross  domestic  product  growth  of  4.5%  compared  to  1997.
Nonetheless,  economic crises in developing countries other than Mexico did have
a negative impact on Mexico. Interest rates on 28-day Cetes in 1998 increased to
an average  of 24.6%,  compared  to an  average  of 19.8% in 1997,  and the peso
devalued  23% to Ps.9.90 per US$1.00 at the end of 1998 from Ps.8.07 per US$1.00
at the end of 1997.  Inflation increased to a rate of 18.6% from a rate of 15.7%
in 1997.  For a description  of the  Company's  accounting  policies  related to
devaluation and inflation, see Note 2 to the Consolidated Financial Statements.

     Revenues

     The Company has increased prices to  substantially  offset the increases in
the cost of  merchandise  sold  and  operating  expenses.  However,  the  rather
significant  levels of inflation in Mexico have reduced the purchasing  power of
the Company's customers.  As a result, many customers have begun to select lower
priced  merchandise or have delayed  purchasing  decisions.  The Company's gross
profits do not vary materially within each of the Company's consumer electronics
product lines, although the Company does realize a greater gross profit from the
sale  of  Elektra  brand  products,   which  typically  are  the  lowest  priced
merchandise in the consumer electronics product line.

     Depreciation and Amortization Expense

     Prior to 1997,  Bulletin B-10 required property,  machinery,  equipment and
other  non-monetary  assets,  such as the Company's stores and inventory,  to be
restated based upon replacement cost or the NCPI; the Company generally restated
based on replacement cost. Commencing 1997, the Fifth Amendment to Bulletin B-10
requires  non-monetary assets of Mexican origin to be restated based on the NCPI
but permits those of non-Mexican  origin to be restated based on the devaluation
of the Mexican peso against the relevant  foreign  currency  after  applying the
inflation  factor  of  the  relevant  foreign  country.   See  Note  2a  to  the
Consolidated Financial Statements.

     Comprehensive Financing Cost

     As of December  31,  1996,  1997 and 1998,  the  Company had  approximately
US$128.7 million,  US$218.6 million and US$241.4 million of monetary liabilities
denominated  in U.S.  dollars,  respectively.  Virtually  all of  such  monetary
liabilities represented outstanding indebtedness of the Company for borrowed


                                       63
<PAGE>


money. The Company's U.S.  dollar-denominated monetary assets as of December 31,
1996, 1997 and 1998 amounted to  approximately  US$2.0 million,  US$19.6 million
and US$30.7 million,  respectively. At December 31, 1998, there were also assets
and  liabilities  denominated in several Latin American  currencies,  which were
equivalent to US$41.4 million and US$65.5 million, respectively.

     Interest  expense.  Interest  on  the  Company's  U.S.   dollar-denominated
indebtedness  exposes the Company 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.

     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 of the Company for borrowed money, 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 vice versa.

     Gain on monetary position.  Gain or loss on monetary position refers to the
gains or losses,  due to the effects of  inflation,  from  holding net  monetary
liabilities  or assets.  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.  Accordingly,  since
the Company's  monetary  liabilities  exceeded its monetary assets in 1998, 1997
and 1996,  the Company  recorded a gain on monetary  position in those  periods,
particularly in 1996 due to relatively high levels of inflation.

Investment in Casa

     As of January 1, 1997 the Company  modified,  for  internal  purposes,  the
presentation  of its statement of income to show the income  associated with the
Company's  investment in Casa, a holding  company  through which the Controlling
Shareholders of the Company own the controlling interest in TV Azteca and COTSA,
as part of  merchandise,  service  revenue and other in order to emphasize  this
item within results of operations and to allow a better  matching of such income
with the amortization of goodwill related to such investment.

                                       64
<PAGE>

Seasonality of Sales

     The  Company  has  historically  experienced,  and  expects to  continue to
experience,  seasonal fluctuations in sales, reaching highs in the months of May
and December.  Such  seasonality  results from increases in general  consumption
associated with Mother's Day and the Christmas season.

Results of Operations

     The following table sets forth certain consolidated  financial  information
of the Company expressed as a percentage of total revenues (merchandise, service
and other revenues) for the three years ended December 31, 1996, 1997 and 1998:


<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                           -------------------------------------
                                                                               1996         1997            1998
                                                                           ------------- --------------- --------

<S>                                                                        <C>             <C>              <C>
Merchandise, service and other revenues..........................          100.0%          100.0%           100%
Cost of merchandise sold and of services.........................          (61.0)          (60.4)           (60.8)
Gross profit.....................................................           39.0            39.6             39.2
Administrative and selling expenses..............................          (25.6)          (23.6)           (26.5)
Depreciation and amortization....................................           (1.9)           (2.4)            (3.8)
Operating income.................................................           11.5            13.6              8.9
Comprehensive financing income (expense).........................            2.6            (1.8)            (5.3)
Income before income taxes and employees' statutory profit
  sharing........................................................
                                                                            14.1            11.8              3.6
Consolidated net income..........................................           14.5            10.4              2.4
</TABLE>


                                       65
<PAGE>


     Year ended December 31, 1998 compared to year ended December 31, 1997.

     Total revenues in 1998 increased 17.9%, or P$1,358.2 million,  to P$8,924.8
million from P$7,566.6  million in 1997.  Merchandise  revenues  (which includes
mark-up on installment sales and penalty interest)  accounted for 98.3% of total
revenues (excluding monetary loss on accounts  receivable) in 1998.  Merchandise
revenues were realized  primarily  through  Elektra's retail network,  with 6.5%
being realized through Hecali's retail network and 0.9% through  wholesale sales
to related  parties  and  governmental  institutions.  Money  transfer  services
decreased  to  3.3% of  total  revenues  (excluding  monetary  loss on  accounts
receivable) in 1998 from 3.6% in 1997. Equity in loss of Casa represented (1.6%)
of total  revenues  (excluding  monetary loss on accounts  receivable)  in 1998,
instead of a revenue of 2.3% in 1997. Those items were offset by a monetary loss
on accounts  receivable,  which decreased to 3.3% of total revenues in 1998 from
4.0% of total revenues in 1997.

     Merchandise  revenues  in 1998  increased  23.0% or  P$1,656.4  million  to
P$6,059.8  million from  P$4,814.6  million in 1997. The increase in merchandise
revenues  was mainly due to 1.4%  increase  in same store  sales at its  Elektra
stores,  but  offset by a  decrease  of 2.0% of  same-store  sales at its Hecali
stores,  and the opening of 139 (net) new retail stores (including 39 new stores
in Central and South America),  representing a 25% increase in store space.  The
slight increase in same store sales reflected the effects of the global economic
turmoil which caused a deceleration  of the Mexican  economy  (interest rates on
28-day Cetes in 1998 increased to an average of 24.6%, compared to an average of
19.8% in 1997, and the peso devalued 23% to Ps.9.93 per U.S. dollar from Ps.8.06
per U.S. dollar,  inflation  increased to a rate of 18.6% from a rate of 15.7%).
Revenue from electronic money transfer services in 1998 increased 8.7% or P$24.6
million to P$306.5 million from P$281.9 million due to increased  competition in
the market.  Monetary  loss on accounts  receivable  in 1998  decreased  4.3% or
P$13.1  million  to  P$290.7  million  from  P$303.8  million  due to a  smaller
portfolio of accounts receivable due to the Company's receivables securitization
program. Equity in income of Casa in 1998 decreased by 181.8% or P$325.0 million
to a loss of  P$146.3  million  from an income of  P$178.8  million  in 1997 due
primarily to higher exchange losses in Casa direct and indirect subsidiaries.

     Of 1998 merchandise revenues,  66.9% were installment sales, as compared to
65.9% in 1997,  and the  remainder  were cash  sales.  The  Company's  aggregate
revenue  from  mark-up  on  installment  sales and  penalty  interest,  which is
included in merchandise,  service and other revenues,  was P$1,978.9 million and
P$1,634.6 million in 1998 and 1997, respectively.  Included in these amounts are
mark-ups on installment  sales of P$1,767.5 million and P$1,412.4  million,  and
penalty  interest  of  P$211.4  million  and  P$222.2  million in 1998 and 1997,
respectively.  The  increase  between  1998 and 1997  was  primarily  due to the
increases  in  mark-up  rates  during  1998 and a better  performance  in credit
portfolio collection, which caused minor penalty interest.

     Gross profit as a percentage of total  revenues  decreased to 39.2% in 1998
from 39.6% in 1997 primarily as a result of the equity in the loss of Casa and a
higher  provision  for  doubtful  accounts,  offset by higher sales and mark-up,
Excluding mark-up, penalty interest,  money transfer services,  monetary loss on
receivables and the equity in loss of Casa, gross margin on merchandise revenues
increased to 30.1% in 1998 from 27.8% in 1997 due to better  conditions  offered
from  suppliers,  and due to the policy  followed  during 1998 of  charging  the
customer  with  every  increase  charged  by the  Company's  suppliers.  Cost of
merchandise sold increased 18.3% or P$764.5 million to P$4,934.2 million in 1998
from P$4,169.7  million in 1997, as a result of increased unit sales. The repair
provision for extended  warranties  increased 1,710.3% or P$9.0 million to P$9.5
million in 1998 from P$0.5 million due to an increase of 1701.2% in the sales of
extended warranties.

     The provision for doubtful accounts increased 30.6% or Ps.89.9 million,  in
1998,  from  Ps.293.6  million in 1997 to  Ps.383.5  million in 1998,  due to an
increase of 24.8% in installment  sales plus mark-up and an increase of 17.8% in
the  receivables  charged off during 1998,  leaving a net allowance for doubtful
accounts of Ps.82.4 million at December 31, 1998.

     Administrative  and selling  expenses,  which includes  salaries,  rent and
other occupancy costs,  advertising costs and sales and collections commissions,
increased 32.1% as a result of the opening of 139 new stores, hiring


                                       66
<PAGE>


of new  employees,  and  incurring  expenses  associated  with the  beginning of
operations  in Peru.  As a  percentage  of total  revenues,  administrative  and
selling expenses increased from 23.6% in 1997 to 26.5% in 1998.

     Depreciation and amortization increased 88.0% or P$160.5 million to P$342.7
million in 1998,  from P$182.2  million in 1997. This increase was due primarily
to a 53.5% increase in net capital  expenditures  associated with opening of new
stores and initiating operations in Peru.

     Comprehensive financing expense increased 256.2% or P$340.7 million in 1998
to P$473.7  million from P$133.0 million in 1997, due to an increase of 96.7% in
interest expense and an increase of 358.1% in the foreign exchange loss,  offset
by an increase  of 80.9% in gain on net  monetary  position,  and an increase of
121.3% in interest income. Interest income increased from P$37.0 million in 1997
to P$81.9 million in 1998 as a result of higher  investment rates in the Mexican
market.  Interest  expense  increased  to P$433.6  million in 1998 from  P$220.5
million in 1997, due primarily to the funding of the store expansion program and
major investments in information technology. The foreign exchange loss increased
to P$352.7  million in 1998 from P$77.0  million  primarily due to the fact that
the year-end  exchange  rate of the U.S.  dollar for 1998 changed 23.2% and that
the  Company's  average  1998 dollar  liabilities  increased  compared  with the
average 1997 liabilities.  Finally, gain on net monetary position increased from
P$127.5  million  in 1997 to  P$230.7  million  in 1998 due to a higher  Mexican
inflation rate of 18.6% for 1998, compared with the 15.7% rate for 1997.

     Income before taxes and employees' statutory profit sharing decreased 64.2%
or P$572.7 million to P$319.9 million in 1998 from P$892.6 million in 1997.

     Provision for income tax and employees'  statutory profit sharing decreased
1.8% or P$2.0  million in 1998 to P$107.1  from  P$109.1  million in 1997.  As a
percentage  of pre-tax  income,  the  provision  for income  tax,  asset tax and
employees'  statutory  profit  sharing  increased to 33.5% in 1998 from 12.2% in
1997 due mainly to the increase of depreciation  and amortization and the equity
in loss of Casa. See Note 13 of the Consolidated Financial Statements.

     The Company has several operating subsidiaries with tax loss carryforwards.
Under  Mexican  tax  law,  the  Company  and  its   subsidiaries  may  not  file
consolidated tax returns except with specific authorization. Tax losses within a
subsidiary  offset  taxable  income only to the extent that taxable  profits are
generated  by such  subsidiary.  In 1997 and 1998,  the  Company was not able to
utilize any tax loss carryforwards.

     Income of minority stockholders was P$4.0 million, a decrease of 79.2% from
P$19.3  million in 1997. The income of minority  stockholders  is related to the
Western Union  Transaction  and for 1997 and part of 1998, the residual claim of
the minority  shareholders in Hecali.  See Note 1 of the Company's  Consolidated
Financial Statements and Item 1, "Description of Business-Hecali."

     Net Income of majority  stockholders  decreased 72.7% to P$208.7 million in
1998 from P$764.1 in 1997.

     Year ended December 31, 1997 compared to year ended December 31, 1996

     Total  revenues  in  1997  increased  28.9%,  or  Ps.1,697.3   million,  to
Ps.$7,566.6 million from Ps.5,869.3 million in 1996. Merchandise revenues (which
includes mark-up on installment sales and penalty interest)  accounted for 94.1%
of total  revenues  (excluding  monetary loss on accounts  receivable)  in 1997.
Merchandise  revenues were realized  primarily through Elektra's retail network,
with 5.1% being  realized  through  Hecali's  retail  network  and 1.3%  through
wholesale sales to related parties and governmental institutions. Money transfer
services  decreased  to 3.6%  of  total  revenues  (excluding  monetary  loss on
accounts  receivable)  in 1997  from  4.7% in 1996.  Equity  in  income  of Casa
represented  2.3%  of  total  revenues  (excluding  monetary  loss  on  accounts
receivable)  in 1997 and 1996.  Those  items were  offset by a monetary  loss on
accounts  receivable,  which  decreased to (4.0%) of total revenues in 1997 from
(7.9%) of total revenues in 1996.


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<PAGE>


     Merchandise  revenues  in 1997  increased  25.9% or  P$1,477.0  million  to
P$7,187.4  million from  P$5,710.4  million in 1996. The increase in merchandise
revenues  was mainly due to 8.5% and 1.8%  increases  in same store sales at its
Elektra and Hecali stores, respectively, and the opening of 159 (net) new retail
stores (including 44 new stores in Central America), representing a 37% increase
in store  space.  The  increase  in same store  sales  reflected  primarily  the
improvement  of the  Mexican  economy  and the  effectiveness  of the  Company's
advertising  campaigns.  Revenue from electronic money transfer services in 1997
decreased 4.7% or P$14.0 million to P$281.9  million from P$295.9 million due to
increased  competition  in the market.  Monetary loss on accounts  receivable in
1997 decreased  34.2% or P$158.1 million to P$303.8 million from P$461.9 million
due to a  lower  inflation  rate  in 1997 as  compared  to  1996  and a  smaller
portfolio of accounts receivable due to the Company's receivables securitization
program.  Equity in income of Casa in 1997 increased  24.6% or P$35.3 million to
P$178.8  million from P$143.5  million in 1996 due  primarily to higher sales of
television advertising.

     Of 1997 merchandise revenues,  65.9% were installment sales, as compared to
68.8% in 1996,  and the  remainder  were cash  sales.  The  Company's  aggregate
revenue  from  mark-up  on  installment  sales and  penalty  interest,  which is
included in merchandise,  service and other revenues,  was P$1,634.6 million and
P$1,231.1 million in 1997 and 1996, respectively.  Included in these amounts are
mark-ups on installment  sales of P$1,412.4 million and P$1,049.9  million,  and
penalty  interest  of  P$222.2  million  and  P$181.2  million in 1997 and 1996,
respectively.  The  increases  between 1997 and 1996 were  primarily  due to the
change in the installment sales mix, which in 1997 favored the 39-week term over
the  53-week  term that was popular in 1996.  The  increased  popularity  of the
39-week  term  allowed the Company to  recognize  in 1997 the earned  mark-up of
higher installment sales in a shorter period than in 1996.

     Gross profit as a percentage of total  revenues  increased to 39.6% in 1997
from 39.0% in 1996 primarily as a result of higher  mark-up,  increased  penalty
interest and the greater equity in income of Casa.  Excluding  mark-up,  penalty
interest,  money transfer services,  monetary loss on receivables and the equity
in income of Casa,  gross margin on merchandise  revenues  decreased to 27.8% in
1997 from 29.4% in 1996 due to the slight  devaluation  of the Mexican  peso and
the increase in prices of imported  goods from abroad,  particularly  from Asian
countries.  Cost of  merchandise  sold  increased  26.8% or  P$881.9  million to
P$4,169.9  million  in 1997  from  P$3,288.0  million  in 1996,  as a result  of
increased unit sales and the increase in prices of imported goods.  During 1997,
a repair  provision  amounting  P$0.5 million was accounted as part of the cost,
and it is  calculated  as a fixed  percentage  (30%)  of the  accrued  sales  of
extended warranties.

     The provision for doubtful accounts increased 57.2% or P$ 106.8 million, in
1997,  due to an  increase  of 20.7% in  installment  sales plus  mark-up and an
increase  of 30.2% in the  receivables  charged off during  1997,  leaving a net
allowance for doubtful accounts of P$50.7 million at December 31, 1997.

     Administrative  and selling  expenses,  which includes  salaries,  rent and
other occupancy costs,  advertising costs and sales and collections commissions,
increased  19.1% as a result of the  opening  of 159 new  stores,  hiring of new
employees,  creating an  expanded  corporate  training  program,  and  incurring
expenses  associated  with the  beginning  of  operations  in four  countries in
Central America.  As a percentage of total revenues,  administrative and selling
expenses decreased from 25.6% in 1996 to 23.6% in 1997.

     Depreciation and amortization  increased 61.2% or P$69.2 million to P$182.3
million in 1997,  from P$113.1  million in 1996. This increase was due primarily
to a 276.4% increase in net capital expenditures  associated with opening of new
stores and initiating operations abroad.

     Comprehensive  financing  expense was P$133.0  million in 1997,  instead of
comprehensive  income of P$150.3  million as in 1996, due to a decrease of 67.5%
in interest income,  an increase of 298.9% in interest expense and a decrease of
24.3% in the gain on net  monetary  position.  Interest  income  decreased  from
P$113.9 million in 1996 to P$37.0 million as a result of lower  investment rates
in the Mexican  market.  Interest  expense  increased to P$220.5 million in 1997
from P$55.3 million in 1996, due primarily to the funding of the store expansion
program and major  investments in information  technology.  The foreign exchange
loss increased 0.3% primarily


                                       68
<PAGE>

due to the fact that the  year-end  exchange  rate of the U.S.  dollar  for 1997
changed  only  2.2% and that  the  Company's  average  1997  dollar  liabilities
remained  almost equal to the average  1996  liabilities.  Finally,  gain on net
monetary  position  decreased from P$168.4 million in 1996 to P$127.5 million in
1997 due to a lower Mexican inflation rate of 15.7% for 1997,  compared with the
27.7% rate for 1996.

     Income before taxes and employees'  statutory profit sharing increased 8.1%
or P$66.6 million to P$892.5 million in 1997 from P$825.9 million in 1996.

     Provision for income tax and employees'  statutory profit sharing decreased
14.1% or P$18.0  million in 1997 to Ps.109.1  million from  Ps.127.1  million in
1996. As a percentage of pre-tax income, the provision for income tax, asset tax
and employees' statutory profit sharing decreased to 12.2% in 1997 from 15.4% in
1996 due mainly to a tax reserve of Ps.34.3  million  recorded by the Company in
1996  for tax  assessments  from  the  Mexican  Government.  See  Note 14 of the
Consolidated Financial Statements.

     The Company has several operating subsidiaries with tax loss carryforwards.
Under  Mexican  tax  law,  the  Company  and  its   subsidiaries  may  not  file
consolidated tax returns except with specific authorization. Tax losses within a
subsidiary  offset  taxable  income only to the extent that taxable  profits are
generated  by such  subsidiary.  In 1996 and 1997,  the  Company was not able to
utilize any tax loss carryforwards.

     Income of minority  stockholders  was P$19.3 million,  an increase of 29.2%
from P$14.9 million in 1996. The income of minority  stockholders  is related to
the  Western  Union   Transaction   and  the  residual  claim  of  the  minority
shareholders  in  Hecali.  See Note 1 of the  Company's  Consolidated  Financial
Statements and Item 1, "Description of Business-Hecali."

     Net Income of majority  stockholders  decreased 8.7% to P$764.1  million in
1997 from P$837.3 in 1996.

Liquidity and Capital Resources

Liquidity

     The  Company's  net working  capital  increased to P$1,948.6  million as of
December 31, 1998 as compared to P$1,137.6  million as of December 31, 1997. The
increase  in  the  Company's   working   capital  during  1998  was  principally
attributable  to a P$811.1  million  decrease in short-term bank loans and other
short-term  borrowings used to finance the Company's  domestic and international
expansion.  In light of the  capital  expenditures  required  for the  Company's
expansion program,  in December 1997 the Company entered into a five year US$150
million  revolving  credit agreement with Citibank as agent described below, and
as of December  31, 1998 the  Company  had drawn down US$85  million  under this
facility.

     The  Company's  cash and cash  equivalents  were  P$1,197.7  million  as of
December 31, 1998, as compared to P$485.7  million as of December 31, 1997.  The
Company funds its operations  through cash flow from  operations and borrowings.
Cash flow provided by operations in 1998 was P$1,006.2  million,  as compared to
P$216.5 million in 1997 and P$469.1 million in 1996.

     Historically,  the Company  has  satisfied  certain of its working  capital
requirements  through the  financing  of accounts  receivable.  Net  receivables
balances of P$1,240.8  million and P$1,572.7 million were on the Company's books
as of  December  31,  1998 and 1997,  respectively.

     As of December  31,  1998,  the Company had  uncommitted  revolving  credit
facilities of P$1,740.8 million.  Also, as of December 31,1998,  the Company had
no uncommitted capital lease financing facilities, whereby the Company has lines
of credit available for future acquisitions of equipment by means of a financial


                                       69
<PAGE>



lease. The unused  availability  under the uncommitted  facilities is subject to
termination by the financial institutions at any time.

     On December 2, 1997,  the Company  entered into a five year US$150  million
committed unsecured guaranteed revolving credit agreement with Citibank as agent
(the "Citibank Credit Agreement"). As of June 22, 1999, the Company had borrowed
the maximum amount available under the Citibank Credit Agreement.

     On January 12,  1996,  the Company sold its  interests  in a joint  venture
engaged in money transfer services to a wholly owned subsidiary of Western Union
for US$20 million and also received a P$37.2 million dividend,  representing its
share of all undistributed net profits from the joint venture. In addition,  the
Company and Western Union entered into an agreement to provide for the continued
service by the  Company as an agent for  Western  Union's  Will Call  Service in
Mexico.  Also,  pursuant to the agreement,  the Company received US$142 million,
which was deposited in escrow.  Under the escrow  arrangements,  the Company has
caused the money  deposited  in escrow to be invested  in the  capital  stock of
certain of the Company's subsidiaries,  which in turn applied the funds to repay
indebtedness of the Company and accounts payable to suppliers, to make a portion
of the Company's cash investment in Casa and for general corporate purposes. See
Item 1, "Description of Business--Elektra's Operations in Mexico--Money Transfer
Business."

     In May 1996, the Company  completed an offering of US$100 million aggregate
principal amount of its 12 3/4% Guaranteed  Senior Notes due 2001 (the "Notes"),
resulting  in net  proceeds  to the  Company of  US$97.1  million.  The  Company
converted the net proceeds into Pesos and used a majority of the net proceeds to
repay a substantial portion of its then existing indebtedness.

     Elektrafin  securitized  a portion  of its  accounts  receivable  portfolio
(P$831.2 million,  P$308.4 million, P$793.0 million and P$200.0 million (nominal
figures),  on July 9, 1997,  December 3, 1997,  April 15, 1998 and  December 17,
1998,  respectively) through a trust (Nacional Financiera,  S.N.C.) and received
an aggregate  of P$739.3  million in 1997 and P$926.1  million in 1998  (nominal
figures) in cash. This  securitization  consists of the sale of a portion of the
receivables  portfolio of  Elektrafin to the public,  and has been  qualified as
"mAA" by Duff and Phelps and "AA" by Fitch Investor  Services.  Elektrafin  will
remain responsible for the collection of the relevant accounts receivable.

     The ability of the Company to make scheduled  semiannual  interest payments
on, and retire the  principal  at maturity of, the Notes,  the  Citibank  Credit
Agreement and its other  indebtedness  will be dependent on the Company's future
performance.  The Company's  performance  is subject to financial,  economic and
other factors  affecting the Company,  many of which are beyond its control.  In
addition,  the Indenture  governing the Notes and the Citibank Credit  Agreement
impose  significant  operating and financial  restrictions on the Company.  Such
restrictions  will affect,  and in many respects limit or prohibit,  among other
things, the ability of the Company to pay dividends, incur indebtedness,  create
liens and to apply the proceeds from certain asset sales.

         The Company's total debt at December 31, 1998 matures as follows:

                  Year ended December 31,                        (in millions)
                  -----------------------
                  1999.......................................     US$  122.5
                  2000.......................................     US$   67.8
                  2001.......................................     US$   94.3
                  2002 and thereafter........................     US$   86.4


     In 1996,  1997 and  1998,  the  Company  advanced  an  aggregate  of P$40.9
million,  P$2.2  million,  and  P$23.4  million,  respectively,  to  affiliates.
Outstanding  advances to affiliates,  including  accrued  interest,  were P$90.7
million,  P$9.5 million and P$33.1 million at December 31, 1996,  1997 and 1998,
respectively. Certain


                                       70
<PAGE>


advances were financed by short-term  bank loans.  As of December 31, 1998,  the
Company  also had  accounts  receivable  of  P$171.9  million  that arose in the
ordinary course of business with affiliates.

     Capital Expenditures

     Capital  expenditures  for the years ended December 31, 1996, 1997 and 1998
were P$337.3 million, P$932.3 million and P$607.5 million, respectively. Capital
expenditures  for store openings and  improvements  were P$72.6 million in 1996,
P$280.5 million in 1997 and P$115.6 million in 1998. Other capital  expenditures
for distribution  centers,  data processing equipment and trucks totaled P$264.7
million in 1996,  P$651.8  million  in 1997 and  P$491.9  million  in 1998.  The
Company's  capital  expenditures are expected to be approximately  P$500 million
for 1999, including the costs of opening new stores,  expanding into other Latin
American  countries,  expanding existing stores,  enlarging its distribution and
satellite networks, as well as investments in computer hardware and software.

     Although the Company anticipates that cash flow from operations will remain
positive,  the Company will continue to require financing for its expansion plan
and the anticipated  growth of its  receivables  portfolio under its installment
sales program. The Company expects that, absent a material adverse change in the
Mexican economy, such financing will be available, but there can be no assurance
that it will be available on favorable terms.

Other Items

     Income Tax

     The Mexican corporate income tax rate for the period from 1996 through 1998
was 34%.  Income  tax  expense  as a  percentage  of income  before  taxes,  and
employees'  statutory  profit sharing was 13.7% in 1996, 11.1% in 1997 and 31.9%
in 1998.

     Taxable income normally differs significantly from accounting income due to
(i) the effect of the deduction for tax purposes of inventory purchases,  offset
by the  non-allowable  deduction of cost of sales, (ii) differences with respect
to the amounts  recorded to reflect the effects of inflation  and (iii)  certain
nondeductible expenses.

     Asset Tax

     An asset tax equivalent to an alternate  minimum tax is payable at the rate
of 1.8% since 1995 on the net amount of certain assets and liabilities, but only
when the amount of asset tax exceeds  the income tax due.  Asset tax paid may be
recovered in the following ten years, to the extent income tax exceeds asset tax
in those  years.  The total  amount paid for such asset  taxes by the  Company's
subsidiaries  in the years of 1996,  1997 and 1998 was Ps.11.9  million,  Ps.7.9
million and Ps.2.5 million,  respectively,  representing  1.4%, 0.9% and 0.8% of
the Company's income before taxes, and statutory profit sharing, respectively.

U.S. GAAP Reconciliation

     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  consolidated  net income,  expressed in pesos of December 31,
1998  purchasing  power for each of the three years in the period ended December
31, 1998, and the determination of consolidated stockholders' equity at December
31,  1997 and 1998,  also  expressed  in pesos of December  31, 1998  purchasing
power,  to the  extent  summarized  in  Note  16 to the  Consolidated  Financial
Statements.  As discussed in Note 16(c) to the Company's  Consolidated Financial
Statements,  the U.S. GAAP stockholders' equity and net income amounts as of and
for the years ended December 31, 1996 and 1997 have


                                       71
<PAGE>


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

     Sales and money transfer  services under U.S. GAAP was Ps.4,956.6  million,
Ps.6,056.9  million and Ps.7,382.9  million for the fiscal years 1996,  1997 and
1998, respectively,  compared with merchandise,  service revenue and other under
Mexican GAAP of Ps.5,869.2  million,  Ps.7,566.6  million and Ps.8,924.8 million
for the comparable periods.  Operating income under U.S. GAAP as of December 31,
1996, 1997 and 1998 was Ps.1,147.4  million,  Ps.1,014.9  million and Ps.1,434.4
million,  respectively,  compared to Ps.675.6  million,  Ps.1,025.5  million and
Ps.793.6 million, respectively, under Mexican GAAP.

     The principal  difference between  merchandise,  service revenues and other
under Mexican GAAP and sales and money transfer services under U.S. GAAP relates
to the exclusion  from sales and money  transfer  services of (i) the mark-up on
installment  sales and  stated  and  penalty  interest,  which are  included  in
operating  income under U.S. GAAP in the line item interest earned from consumer
credit operations, (ii) equity in income in Casa, which is included in equity in
income of affiliated  company and (iii) loss on monetary  position from accounts
receivable,  which  is  included  in  other  financing  expense.  The  principal
differences  between  Mexican  GAAP and U.S.  GAAP  that  affect  the  Company's
operating income relate to the inclusion,  for purposes of calculating operating
income under Mexican GAAP but not U.S.  GAAP,  of (i) loss on monetary  position
from  accounts  receivable,  (ii)  equity in the  income of Casa,  and (iii) the
amortization of goodwill in respect of the acquisition of Casa.

     Net income under U.S. GAAP was P$652.8 million (P$0.18 per share),  P$278.6
million  (P$0.08  per share) and  P$325.2  million (or P$0.09 per share) for the
fiscal years 1996, 1997 and 1998, respectively, compared with income of majority
stockholders  under Mexican GAAP of P$837.3 million (P$0.23 per share),  P$764.1
million  (P$0.21  per  share) and  P$208.7  million  (P$0.06  per share) for the
comparable periods. Majority stockholders' equity under U.S. GAAP as of December
31, 1997 and 1998 was P$945.3  million and  P$425.2  million,  respectively,  as
compared  to  P$4,045.2  million,   P$4,247.5  million  and  P$3,652.6  million,
respectively, under Mexican GAAP.

     The principal  differences  between  Mexican GAAP and U.S. GAAP that affect
the Company's net income  relate to the  treatment of the following  items:  (i)
stock options  granted to employees;  (ii)  acquisition of the interest in Casa;
and (iii) deferred income taxes. The principal  differences between Mexican GAAP
and U.S. GAAP that affect the Company's majority  stockholders' equity relate to
the treatment of the following items: (i) deferred income;  (ii) deferred income
taxes;  (iii) goodwill  relating to the acquisition of the interest in Casa; and
(iv) goodwill in connection with other acquisitions.

YEAR 2000 ISSUE

     The Company has conducted a comprehensive review of its computer systems to
identify areas that require Year 2000 ("Y2K") compliance.  Y2K compliance refers
to the inability of certain  computer  systems to recognize dates  commencing on
January 1, 2000. Such inability has the potential to materially adversely affect
the operation of computer systems, and consequently, may have a material adverse
effect on the Company's  financial  condition and results of operations  because
the Company relies  extensively  on computer  technology to manage its financial
information  and serve its  customers.  The Company  believes  that its computer
systems are able to process accurately time sensitive data beyond the year 1999.
However,  there can be no assurance that the systems of other companies on which
the Company may rely will be timely  converted or that the failure to convert by
another company would not have an adverse effect on the Company.

     The Company has developed various plans focused on Y2K compliance,  and has
taken steps,  using  specialized  personnel,  to adjust the  principal  computer
applications and systems affecting its operations,  such as those related to the
control  of  customers,   production,   distribution,   treasury  functions  and
communications.  The  Company  expects all such  applications  and systems to be
fully  tested or  otherwise  validated as Y2K  compliant  by December  1999.  In
addition,   the  Company  has  contacted  its  principal  suppliers,   financial
institutions  and other  third  parties to  understand  the extent to which such
parties are addressing  Y2K issues and to determine to what effect,  if any, the
Company's  operations  might be adversely  affected by Y2K issues as a result of
its  relations  with such  parties.  The Company  has  received  responses  from
approximately  80% of  its  principal  suppliers  and  approximately  85% of its
principal financial institutions  indicating that such parties are Y2K compliant
or expect to be Y2K  compliant on a timely  basis.  Although the Company has not
been  notified that any known third  party's  problem will not be resolved,  the
Company has  obtained  limited  information  regarding  such  parties and has no
assurance of receiving  additional  information  concerning the Y2K readiness of
third parties.

     As of the  date  hereof,  approximately  90% of the  Company's  information
technology systems and non-information technology systems have been fully tested
or otherwise validated as Y2K compliant. Of the systems tested thus far, certain
minor  compliance  problems were encountered with respect to the Company's point
of sale  applications  in its Hecali  stores.  The Company is  addressing  these
problems by converting these  applications  into Y2K compliant  applications,  a
process which the Company  expects to complete in September  1999.  Furthermore,
the Company has recently  implemented  the SAP R/3 system,  which is expected to
resolve  potential  mission critical problems related to Y2K issues with respect
to treasury functions, including accounting and accounts payable functions.

     The cost of Y2K  compliance,  which as of  December  31,  1998  amounted to
US$301,000,  has been charged against income for the year. The Company estimates
that  the  total  cost  will  amount  to  US$735,000,   of  which  approximately
U.S.$450,000  has been  spent as of the date  hereof and the  remainder  will be
spent prior to year end.  The  Company's  budget for Y2K  expenditures  consists
predominantly  of expenditures  for the upgrading or replacement of hardware and
software systems. The Company does not anticipate that these amounts will have a
material  adverse  effect on the  Company's  financial  condition  or  operating
results.  The Company's Y2K costs have been, and are expected to be, funded with
cash flow from operating activities.  No significant information systems project
has been deferred because of the Year 2000 effort.

     An  experienced  consulting  firm has been  engaged  to  provide  objective
project  management  and  technical  expertise  to  assist  the  Company  in the
completion of its Year 2000 project. Approximately U.S.$230,000 of the Company's
Y2K compliance costs relate to the engagement of such consultants.

                                       72
<PAGE>

     Y2K  compliance  depends,  among other things,  on the Company and relevant
third parties detecting and correcting all their  significant  implications in a
timely manner.  Although all critical systems over which the Company has control
are expected to be Y2K compliant  and tested  before the Year 2000,  the Company
has identified  certain  systems most at risk of  non-compliance  with Year 2000
issues,  including CRM (a personal  identification number management system used
in the provision of beeper  services) and  Centriphone  (an automated  telephone
calling system used in telemarketing and collection activities).  The Company is
currently in the process of developing internal Y2K compliant systems capable of
providing such functions.

     In addition, the Company has identified certain areas of concern in a worst
possible  scenario.  These areas include a systems failure beyond the control of
the Company,  including a loss of  electricity  from its  electricity  supplier,
thereby  impeding  the  ability of the Company to operate its stores and conduct
its business.  Such a failure could lead to lost revenues,  increased  operating
costs,  a loss of  customers  and other  business  interruptions  of a  material
nature.  In  addition,  such  a  failure  could  lead  to  potential  claims  of
mismanagement,  misrepresentation and breach of contract. As of the date hereof,
the Company is in the process of  assessing  these risks and  uncertainties  and
finalizing  appropriate  contingency  plans  and  procedures  in an  attempt  to
minimize the effects of the worst case scenario. The Company expects to finalize
these contingency plans in September 1999.

     The  Company  expects to have  completed  all stages of its Y2K  compliance
project,  including  the  testing  of  all  systems  and  the  establishment  of
appropriate  contingency plans, in December 1999. Upon the completion of the Y2K
compliance   project,   Management  expects  that  the  Company's  business  and
operations will not be materially  adversely  affected as a result of identified
Year 2000 issues.  Due to the general  uncertainty  inherent in evaluating  Year
2000 issues and the inability to anticipate all potential risks  associated with
such issues, including those associated with third parties, however, the Company
cannot ensure its ability to resolve on a timely and  cost-effective  manner all
difficulties  that may arise in  connection  with Year 2000  issues and that may
affect the Company's operations, business and exposure to third party liability.

     This discussion  regarding Year 2000 issues above contains  forward-looking
statements,  including, without limitation, statements relating to the Company's
business plans, strategies, objectives, expectations,  intentions and resources,
made pursuant to the "safe harbor"  provisions of the Private  Litigation Reform
Act of 1995. The Company  cautions all readers that  forward-looking  statements
contained in this Year 2000 discussion are based on certain assumptions that may
vary  from  actual  results.  In  particular,  the  dates on which  the  Company
anticipates the completion and implementation of Year 2000 compliant systems and
contingency plans are based on the best estimates of Company  Management.  These
estimates  were  derived by utilizing  numerous  assumptions  of future  events,
including  the  continued  availability  of  resources,  third-party  Year  2000
compliance modification plans and other factors. As a result, the Company cannot
ensure that the estimates and objectives  described herein will be achieved,  or
that all stages of the Year 2000 Program  will be  implemented  on schedule.  In
addition,  for the same  reasons,  the  Company  cannot  ensure  that the  costs
associated with the Year 2000 Program will remain at levels described herein.

Item 9A. Qualitative and Quantitative Disclosure about Market Risks

     The  Company is  exposed  to market  risk,  principally  interest  rate and
foreign  exchange  risk.   Interest  earned  on  the  Company's  cash  and  cash
equivalents  as well as  interest  paid on its debt and lease  obligations,  are
sensitive to changes in interest  rates.  A portion of the  Company's  long-term
debt is  principally  variable  rate debt,  however  the  Company  believes  its
potential  exposure to interest rate is not material to the Company's  financial
position or the results of its operations.

     The Company is exposed to foreign  currency  exchange risk through its debt
denominated  in  U.S.  dollars.  As  mentioned  in  Note 3 to  the  Consolidated
Financial Statements,  at December 31, 1998 the Company and its subsidiaries had
dollar denominated liabilities of US$306.9 million, which are due as follows:

     1999       US$144.8 million
     2000           34.1 million
     2001           94.0 million
     2002           34.0 million
     ----       ----------------
     Total      US$306.9 million

     The cash flow required to service the liabilities is generated primarily in
Mexican  pesos.  Using the year end 1998 Noon  Buying  Rate (Ps.  9.601 per U.S.
dollar), the cash flow in Mexican pesos to pay the liabilities due in 1999 would
have been Ps. 1,433.4 million. A devaluation of the Mexican peso to Ps. 10.0 per
U.S.  dollar  would  require  cash  flow  of Ps.  1,447.8  million  to  pay  the
liabilities  due in 1999.  If the  Mexican  peso  devalued  to Ps. 10.5 per U.S.
dollar,  the cash flow in Mexican pesos to pay the liabilities due in 1999 would
be Ps. 1,520.2 million.

     The Company continuously evaluates its exposure in US dollars, including an
assessment of the current and future economic  environment.  The Company has not
entered into any derivative  financial  instruments to hedge this exposure,  and
believes its potential exposure is not material


                                       73
<PAGE>


to the Company's financial position or its results of operations.

Item 10.  Directors and Executive Officers

     The following sets  forth-certain  information  regarding the directors and
executive officers of the Company and its subsidiaries.

Directors

     A Board of Directors composed of 16 members and their alternates is elected
at the Company's  ordinary meeting of stockholders.  Fourteen of the members are
elected by the  holders of Class A Shares and Class B Shares  voting as a single
class. The remaining two members are appointed by the holders of Class L Shares.
The  following  table lists the  current  directors  of the  Company  (and their
alternates), their position, their principal occupation and their year appointed
to the board.


<TABLE>
<CAPTION>
Name                                          Principal Occupation                               Director Since
----                                          --------------------                               --------------
Appointed by A and B Stockholders
<S>                                           <C>                                                     <C>
Ricardo B. Salinas Pliego.................... Chairman of the Board and President of the              1993
                                              Company
Hugo Salinas Price........................... Honorary President of the Company                       1993
Carlos F. Autrey Maza........................ Vice Chairman of the Board of Directors of              1993
                                              Grupo Financiero Inverlat, S.A. de C.V.
Pedro Padilla Longoria....................... Chief Executive Officer of the Company                  1993
Fernando Sada Malacara....................... Board Member of Grupo Cydsa, S.A. de C.V.               1993
Elisa Salinas Gomez.......................... Director of Production, Azteca Digital                  1993
Guillermo Salinas Pliego..................... President of Dataflux, S.A. de C.V.                     1993
Ricardo Salinas Price........................ Private Investor                                        1993
Roberto Salinas Price........................ Private Investor                                        1993
Roberto Servitje Achutegui................... Vice-president of Grupo Industrial Bimbo, S.A.          1993
                                              de C.V.
Roberto Salinas Leon......................... Director of Economic Strategy of TV Azteca              1993
Juan Diego Gutierrez Cortina................. Director General, Grupo Gutsa, S.A. de C.V.             1995
Luis J. Echarte.............................. Chief Financial Officer of the Company                  1995
Gustavo Vega Vazquez......................... Vice-president of Corporate Services                    1997
</TABLE>
<TABLE>
<CAPTION>
Appointed by L Stockholders

     As of December 31, 1998 and June 30, 1999, the two seats appointed by Class
L stockholders were vacant, pending the appointment by vote in the corresponding
special stockholders meeting.


Alternate Members Appointed by A and B
<S>                                           <C>                                                     <C>
Stockholders
Arturo Ramos Ochoa........................... Vice-president of Retail operations                     1995
Javier Sarro Cortina......................... Vice-president of Telecommunications                    1995
Gabriel Roqueni Rello........................ Secretary of the Board                                  1995

Statutory Auditor
Francisco Javier Soni O...................... Statutory Auditor                                       1993
</TABLE>


                                       74
<PAGE>


     Hugo Salinas Price,  Roberto Salinas Price, Ricardo Salinas Price and Elisa
Salinas Gomez are the children of Hugo Salinas Rocha. Ricardo Salinas Pliego and
Guillermo  Salinas  Pliego are the sons of Hugo Salinas Price.  Roberto  Salinas
Leon is the son of Roberto  Salinas  Price.  Fernando  Sada  Malacara is Ricardo
Salinas Pliego's father-in-law.

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, Francisco Javier Soni, a partner of
PricewaterhouseCoopers.

Committee on Related Party Transactions

     Historically,  the Company has  engaged in a variety of  transactions  with
certain  of its  affiliates,  including  entities  owned  or  controlled  by the
Controlling  Shareholders,  and  may do so in the  future.  To  assure  that  an
independent  review of such  transactions is conducted on behalf of the Company,
the Board of Directors  established the Committee on Related Party  Transactions
at the October 1995 board  meeting.  The members of this  committee  are Roberto
Servitje  Achutegui,  Eduardo Creel Cobian and Juan Diego Gutierrez Cortina.  No
member of this  committee  may be  employed  by the  Company  or  affiliated  or
associated  with the Controlling  Shareholders  or any executive  officer of the
Company.  This  committee  reviews  certain  proposed  transactions  between the
Company and certain  entities  affiliated with the  Controlling  Shareholders to
assure that all such transactions are related to the Company's  business and are
consummated on terms that are at least as favorable to the Company as terms that
would be  obtainable  at the time for a  comparable  transaction  or  series  of
similar transactions in arm's-length dealings with an unrelated third person.

Executive Officers

     The following table lists each senior executive officer of the Company, his
position at December 31, 1998 and years of service as an executive officer (with
the Company or its predecessor entities):

<TABLE>
<CAPTION>
                                                                                                  Years as
Name                                       Position                                           Executive Officer
----                                       --------                                           -----------------
<S>                                        <C>                                                       <C>
Ricardo B. Salinas Pliego................  Chairman of the Board and President                       16
Pedro Padilla Longoria...................  Chief Executive Officer                                    8
Gustavo Vega V...........................  Vice President of Operations                              13
Luis J. Echarte..........................  Chief Financial Officer                                    3
Arturo Ramos.............................  Vice-president of Retail Operations                        5
Javier Sarro Cortina.....................  Vice-president of Telecommunications                       2
Pablo Collado............................  Vice-president of Financial Services                       2

</TABLE>

Item 11.  Compensation of Directors and Officers

     For the year ended  December 31, 1998, the aggregate  compensation  paid by
the  Company  to its  executive  officers  (a total of 45  persons in senior and
middle  level  management)  for  services in all  capacities  was  approximately
Ps.46.0 million  (approximately US$4.6 million). The aggregate compensation paid
by the Company to all members of the Board of  Directors  during the same period
was approximately  Ps.100,000  (approximately  US$10,000).  In 1994, the Company
established a non-contributory pension plan for its


                                       75
<PAGE>


employees,  including its officers.  During 1996,  1997 and 1998, the charges to
income  related to such pension plan and seniority  premiums were  approximately
Ps.4.0 million, Ps.6.6 million and Ps.5.2 million,  respectively. As of December
31, 1998, the  liabilities  related to seniority  premiums and such pension plan
were Ps.25.2 million.

Item 12.  Options to Purchase Securities from Registrant or Subsidiaries

     On February 28, 1994, the Company's Board of Directors adopted an executive
stock option plan (the "Stock Option Plan") through which store managers and all
personnel  senior  to store  managers  employed  prior to  January  1, 1994 were
granted  options  to  purchase  CPOs at the price of P$2.50  per CPO.  The Stock
Option Plan also allows  employees whose employment date was during 1994 or 1995
to receive  options  beginning  in 1996 and 1997,  respectively,  at an exercise
price of P$3.25 (1994  employees) or P$4.00 (1995  employees) per CPO. The Stock
Option  Plan  authorizes  the sale of up to a total of 70  million  CPOs  (after
giving  effect  to the ten to one split of the  Company's  stock  authorized  on
August 15, 1997).  Options  granted under the Stock Option Plan are  exercisable
ratably over each year in the five-year period after the date on which they were
granted as long as the rate of increase in the  Company's  net profits  over the
previous  year is more than 25%. If the Company  fails to meet this  performance
target in any given year,  the options that would have been  exercisable in such
year are eligible to be exercised in the following  year and the five-year  term
of options is extended one year.

     Under  Mexican  GAAP,  the  granting of these  options has no effect on the
Company's  results of  operations,  cash flow or financial  condition.  Under US
GAAP,  because their exercise price was below fair market value on the date that
they  were  granted,  the  granting  of these  options  gives  rise to  non-cash
compensation  expense  in 1996 and 1997 of  approximately  P$131.9  million  and
P$264.9 million,  respectively,  and a non-cash  compensation revenue of Ps.89.5
million,  in 1998. The revenue  originated  during 1998 was due to a decrease in
the market  value of the Elektra  CPO,  which fell from  P$14.00 at December 31,
1997 to P$5.08 at December  31,  1998.  The Company  expects  that the amount of
non-cash compensation expense arising in future periods under U.S. GAAP from the
granting of these options also will be relatively large.

     As of April 23,  1999,  options  to  acquire  70,311,187  CPOs at prices of
P$2.50, P$3.25 or P$4.00 per CPO (depending on the relevant employment date) had
been granted to 457 executives and key employees,  of which 28,027,432 have been
exercised. See Note 11 to the Company's Consolidated Financial Statements.

     Set  forth  below are the  number  of CPOs,  the  exercise  prices  and the
expiration dates of all options outstanding as of June 15, 1998:

                Number of          Exercise Prices            Current
             CPOs Granted          ---------------            Expiration Dates
             ------------                                     ------------------
               55,017,437            P$2.50                   February 28, 1999
                  218,750            P$3.20                   February 28, 1999
                3,700,000            P$2.50                   February 28, 2000
                1,150,000            P$3.25                   February 28, 2000
                8,550,000            P$2.50                   February 28, 2001
                1,169,532            P$4.00                   February 28, 2001
               ----------
     Total     62,911,187


Item 13.  Interest of Management in Certain Transactions

     Historically, the Company has engaged in a variety of transactions with its
affiliates,   including   entities  owned  or  controlled  by  the   Controlling
Shareholders.  See Note 8 to the Consolidated Financial Statements.  The Company
anticipates that it will continue to engage in transactions with affiliates. The
Company has agreed in


                                       76
<PAGE>


the Indenture and in the Citibank  Credit  Agreement to certain  restrictions on
transactions  with  affiliates.  Set  out  below  is a  description  of  certain
transactions between the Company and its affiliates.

Loans to Affiliates

     From time to time,  the  Company  has made loans to its  affiliates.  As of
December 31, 1998, there were no material loans to affiliates outstanding.

Purchase of Casa "N" Shares

     On March  26,  1996,  Casa  consummated  a  transaction  with the  Company,
pursuant  to which the  Company  purchased  and Casa  issued  260,536  shares of
non-voting  Series "N" capital stock of Casa ("Casa `N'  Shares"),  representing
35.8% of the total outstanding  capital stock of Casa. As further  consideration
for the purchase of the Casa "N" Shares,  the shareholders of Casa caused Azteca
Holdings to enter into an exchange agreement (the "Exchange Agreement") with the
Company on March 25, 1996,  pursuant to which Azteca Holdings agreed to exchange
169,869,472 TV Azteca "N" Shares,  representing,  at December 31, 1998,  9.3% of
the  outstanding  capital stock of TV Azteca,  and 43,509,512  COTSA "N" Shares,
representing,  at December 31, 1998 14.2% of the  outstanding  capital  stock of
COTSA,  for  all of the  Casa  "N"  Shares  held  by the  Company.  See  Item 1,
"Description of  Business--Elektra's  Operations in Mexico--Investment in Casa."
The Company may make such exchange at any time prior to the tenth anniversary of
the date of the Exchange Agreement.

TV Azteca Advertising Agreement

     During 1994,  Television  Azteca,  S.A. de C.V., a subsidiary of TV Azteca,
provided  certain  advertising and media products and services to the Company in
exchange for cash,  services or  electronics  products.  In connection  with the
investment in Casa, the shareholders of Casa caused Television  Azteca,  S.A. de
C.V. and Azteca Holdings de Television del Centro,  S.A. de C.V.  (collectively,
"Television Azteca") to enter into a Television  Advertising Time Agreement with
the  Company on March 25, 1996 (the  "Advertising  Time  Agreement").  Under the
Advertising  Time Agreement,  Television  Azteca has agreed to air not less than
300  commercial  spots  per  week for a  period  of 10  years,  each  spot  with
20-seconds  average  duration,  totaling  5,200  minutes each year, in otherwise
unsold airtime.  In exchange for such television  advertising  time, the Company
has agreed to pay Television Azteca US$1.5 million each year, payable in advance
each  year.  See  Item 1,  "Description  of  Business--Elektra's  Operations  in
Mexico--Merchandising   and   Marketing--Advertising."   The  Advertising   Time
Agreement may not be terminated by Television Azteca.  However,  the Advertising
Time  Agreement  may be  terminated  by the Company at any time upon at least 90
days' notice.  The Company's  rights under the agreement may be  transferred  to
third parties.

                                     PART II

Item 14. Description of Securities to be Registered

     None

                                    PART III

Item 15.  Defaults upon Senior Securities

     None

Item 16. Changes in Securities and Changes in Security for Registered Securities

     None


                                       77
<PAGE>


                                     PART IV

Item 17.  Financial Statements

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

Item 18.  Financial Statements

     Reference  is made to Item  19(a)  for a list of all  financial  statements
filed as part of this Annual Report.

Item 19.  Financial Statements and Exhibits

     (a)  List of Financial Statements



                                       78
<PAGE>



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

<TABLE>
<CAPTION>
                                                                                                       Page
                                                                                                       ----
<S>                                                                                                     <C>
Report of Independent Accountants                                                                       F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998                                            F-5
Consolidated Statements of Income for the Years Ended December 31, 1996, 1997 and 1998                  F-6
Consolidated  Statements of Changes in  Stockholders'  Equity for the Years Ended  December 31, 1996,   F-7
1997 and 1998
Consolidated  Statements of Changes in Financial Position for the Years Ended December 31, 1996, 1997   F-8
and 1998
Notes to Consolidated Financial Statements                                                              F-9

<CAPTION>
     Financial  Statements  for  Elektra,  S.A.  de C.V.  (subsidiary  of  Grupo
     Elektra, S.A de C.V.)

                                                                                                       Page
                                                                                                       ----
<S>                                                                                                    <C>
Report of  Independent  Accountants                                                                    F-44
Balance Sheets as of December 31, 1997 and 1998                                                        F-46
Statements of Income for the Years Ended December 31, 1996,  1997 and 1998                             F-47
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1997 and 1998     F-48
Statements of Changes in Financial Position for the Years Ended December 31, 1996, 1997 and 1998       F-49
Notes to the Financial Statements                                                                      F-50

<CAPTION>
     Financial Statements for Elektrafin, S.A. de C.V. (subsidiary of Grupo Elektra,
     S.A de C.V.)

                                                                                                       Page
                                                                                                       ----
<S>                                                                                                    <C>
Report of Independent Accountants                                                                      F-68
Balance Sheets as of December 31, 1997 and 1998                                                        F-70
Statements of Income for the Years Ended December 31, 1996, 1997 and 1998                              F-71
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1997 and 1998     F-72
Statements of Changes in Financial Position for the Years Ended December 31, 1996, 1997 and 1998       F-73
Notes to the Financial Statements                                                                      F-74

<CAPTION>
     Consolidated  Financial  Statements for Comunicaciones  Avanzadas,  S.A. de
     C.V. and Subsidiaries

                                                                                                       Page
                                                                                                       ----
<S>                                                                                                    <C>
Report of Independent Accountants                                                                      F-91
Consolidated Balance Sheets as of December 31, 1997 and 1998                                           F-93
Consolidated Statements of Income for the Years Ended December 31, 1996, 1997 and 1998                 F-94
Consolidated  Statements of Changes in  Stockholders'  Equity for the Years Ended  December 31, 1996,  F-95
1997 and 1998
Consolidated  Statements  of Changes in  Financial  Position for the Years Ended
December 31, 1996, 1997 and 1998                                                                       F-96
Notes to the Consolidated Financial Statements                                                         F-97
</TABLE>

     The registrant 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  registrant  that are not filed as exhibits to this annual
report.


                                       79
<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements of Section 12 of the Securities  Exchange Act
of 1934, the  registrant  certifies  that it meets all of the  requirements  for
filing  on Form 20-F and has duly  caused  this  Annual  Report be signed on its
behalf by the undersigned,  thereunto duly authorized,  in Mexico City,  Mexico,
D.F.

June 30, 1999                                        GRUPO ELEKTRA, S.A. DE C.V.
                                                     ELEKTRA, S.A. de C.V.
                                                     ELEKTRAFIN, S.A. de C.V.

                                                     /s/ LUIS J. ECHARTE
                                                     --------------------------
                                                     Luis J. Echarte
                                                     Vice President and
                                                     Chief Financial Officer





                                       80

<PAGE>

                          GRUPO ELEKTRA, S. A. DE C. V.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1998


                                      F-1
<PAGE>


                 GRUPO ELEKTRA, S. A. DE C. V. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1998

                                      INDEX



Contents                                                                  Page

Report of Independent Accountants                                          F-3

Consolidated financial statements:

Balance sheets                                                             F-5

Statements of income                                                       F-6

Statements of changes in stockholders' equity                              F-7

Statements of changes in financial position                                F-8

Notes to the consolidated financial statements                             F-9


                                      F-2
<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS


Mexico City, February 28, 1999, except for Note 15 to the financial  statements,
which is dated March 10, 1999.


To the Stockholders of
Grupo Elektra, S. A. de C. V.

1.   We have audited the consolidated balance sheets of Grupo Elektra, S. A. de
     C. V. and subsidiaries (collectively the "Company") as of December 31, 1997
     and 1998, and the related consolidated statements of income, of changes in
     stockholders' equity and of changes in financial position for each of the
     three years in the period ended December 31, 1998, all expressed in
     constant pesos of December 31, 1998 purchasing power. These 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, which are similar in all material respects with
     auditing standards generally accepted 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
     generally accepted accounting principles. 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.

2.   In our opinion, the aforementioned consolidated financial statements
     present fairly, in all material respects, the consolidated financial
     position of Grupo Elektra, S. A. de C. V. and subsidiaries at December 31,
     1997 and 1998, and the results of their operations, changes in
     stockholders' equity and changes in their financial position for each of
     the three years in the period ended December 31, 1998, in conformity with
     accounting principles generally accepted in Mexico.


<PAGE>


3.   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 consolidated net income, expressed in pesos of
     December 31, 1998 purchasing power for each of the three years in the
     period ended December 31, 1998 and the determination of consolidated
     stockholders' equity at December 31, 1997 and 1998 also expressed in pesos
     of December 31, 1998 purchasing power to the extent summarized in Note 16
     to the consolidated financial statements.

PricewaterhouseCoopers


Javier Soni O.



                                      F-4
<PAGE>





                 GRUPO ELEKTRA, S. A. DE C. V. AND SUBSIDIARIES
                                    (Note 1)

                           CONSOLIDATED BALANCE SHEETS

                 Thousands of Mexican pesos of December 31, 1998
                                purchasing power



<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                 --------------------------------------------------
                                                                    1997                           1998
                                                                    ----             ------------------------------
                                                                                                         Thousands
                                                                                                          of U.S.
                                                                                                        dollars (*)
                                                                                                        -----------
<S>                                                              <C>                 <C>                 <C>
Assets

CURRENT ASSETS:
Cash and cash equivalents                                        Ps 485,685         Ps1,197,754          US$120,620
                                                                -----------         -----------          ----------

Accounts receivable:
Customers - Net (Note 4)                                          1,572,734           1,240,819             124,956
Amounts due from related parties - Net (Note 8)                     168,981             204,973              20,642
Recoverable taxes                                                   169,708             128,935              12,984
Other receivables                                                   200,174             154,186              15,528
                                                                -----------         -----------          ----------

                                                                  2,111,597           1,728,913             174,110
                                                                -----------         -----------          ----------

Guarantee on securitized receivables (Note 4)                        91,069             337,687              34,007
                                                                -----------         -----------          ----------

Prepaid expenses                                                     22,071              71,880               7,238
                                                                -----------         -----------          ----------

Inventories (Note 5)                                              2,279,492           2,140,448             215,554
                                                                -----------         -----------          ----------

Total current assets                                              4,989,914           5,476,682             551,529

PROPERTY, FURNITURE, EQUIPMENT AND
INVESTMENT IN STORES - Net (Note 6)                               1,807,030           2,144,689             215,981

GOODWILL, less accumulated amortization of Ps219,933 in
1997 and Ps286,909 in 1998                                        1,080,245           1,170,977             117,923

INVESTMENT IN SHARES (Note 7)                                     1,073,708             795,892              80,150

OTHER ASSETS                                                        237,864             266,593              26,847
                                                                -----------         -----------          ----------

                                                                Ps9,188,761         Ps9,854,833          US$992,430
                                                                ===========         ===========          ==========

Liabilities and Stockholders' Equity

CURRENT LIABILITIES WITH FINANCIAL COST:
Bank loans and other credits (Note 9)                           Ps1,840,473         Ps1,212,443          US$122,099
Capitalized lease obligations (Note 10)                              90,954              31,580               3,180
                                                                -----------         -----------          ----------

                                                                  1,931,427           1,244,023             125,279
                                                                -----------         -----------          ----------

CURRENT LIABILITIES WITHOUT FINANCIAL COST:
Suppliers                                                         1,490,878           1,739,838             175,210
Other accounts payable and accrued expenses                         392,256             514,048              51,767
Income and asset tax payable and employees' statutory
profit sharing payable                                               37,782              30,142               3,036
                                                                -----------         -----------          ----------

                                                                  1,920,916           2,284,028             230,013
                                                                -----------         -----------          ----------

Total current liabilities                                         3,852,343           3,528,051             355,292
                                                                -----------         -----------          ----------

LONG-TERM LIABILITIES WITH FINANCIAL COST:
Bank loans and long-term notes (Note 9)                             956,115           2,459,856             247,720
Capitalized lease obligations (Note 10)                              30,208               6,111                 615
                                                                -----------         -----------          ----------

                                                                    986,323           2,465,967             248,335
                                                                -----------         -----------          ----------

LABOR OBLIGATIONS                                                    20,818              25,203               2,538
                                                                -----------         -----------          ----------

UNEARNED INCOME FOR EXTENDED WARRANTIES                                                  97,261               9,795
                                                                -----------         -----------          ----------

                                                                  4,859,484           6,116,482             615,960
                                                                -----------         -----------          ----------

STOCKHOLDERS' EQUITY (Note 11):
Capital stock                                                       485,460             485,789              48,921
Paid-in capital                                                   1,747,346           1,578,489             158,962
Retained earnings                                                 2,534,387           2,631,533             265,008
Legal reserve                                                        75,798              75,798               7,633
Reserve for repurchase of shares                                    322,128             258,367              26,019
Loss from holding nonmonetary assets                               (917,592)         (1,383,244)           (139,299)
Effect of translation of foreign subsidiaries                                             5,844                 588
                                                                -----------         -----------          ----------

Majority stockholders                                             4,247,527           3,652,576             367,832
Minority stockholders                                                81,750              85,775               8,638
                                                                -----------         -----------          ----------

Total stockholders' equity                                        4,329,277           3,738,351             376,470

                                                                -----------         -----------          ----------
CONTINGENCY (Note 14)
                                                                Ps9,188,761         Ps9,854,833          US$992,430
                                                                ===========         ===========          ==========
</TABLE>

(*)  The U.S. dollar figures represent the Mexican pesos amounts of December 31,
     1998  purchasing  power  translated at the exchange rate of Ps9.93 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>


                 GRUPO ELEKTRA, S. A. DE C. V. AND SUBSIDIARIES
                                    (Note 1)

                        CONSOLIDATED STATEMENTS OF INCOME

                 Thousands of Mexican pesos of December 31, 1998
                   purchasing power (except per share amounts)

<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                             -----------------------------------------------------------------
                                                                1996             1997                        1998
                                                                ----             ----           ------------------------------

                                                                                                                    Thousands
                                                                                                                     of U.S.
                                                                                                                   dollars (*)
                                                                                                                   -----------

<S>                                                          <C>             <C>                 <C>              <C>
Merchandise, services and other revenues (Note 2b.)          Ps 5,869,288    Ps  7,566,634       Ps  8,924,821    US$  898,773
Cost of merchandise sold and of services (Note 2b.)             3,581,884        4,571,603           5,427,048         546,530
                                                             ------------    -------------       -------------    ------------

Gross profit                                                    2,287,404        2,995,031           3,497,773         352,243
                                                             ------------    -------------       -------------    ------------

Administrative and selling expenses                             1,498,706        1,787,266           2,361,448         237,809
Depreciation and amortization                                     113,077          182,260             342,716          34,514
                                                             ------------    -------------       -------------    ------------

                                                                1,611,783        1,969,526           2,704,164         272,323
                                                             ------------    -------------       -------------    ------------

Operating income                                                  675,621        1,025,505             793,609          79,920
                                                             ------------    -------------       -------------    ------------

Comprehensive financing cost:
Interest income (expense) - Net                                    58,673         (183,473)           (351,719)        (35,420)
Foreign exchange losses - Net                                     (76,760)         (76,994)           (352,699)        (35,518)
Gain on net monetary position                                     168,413          127,484             230,678          23,230
                                                             ------------    -------------       -------------    ------------

                                                                  150,326         (132,983)           (473,740)        (47,708)
                                                             ------------    -------------       -------------    ------------

Income before taxes and employees' statutory profit
sharing and extraordinary item                                    825,947          892,522             319,869          32,212

Taxes and employees' statutory profit sharing (Note 12)           127,087          109,089             107,087          10,784
                                                             ------------    -------------       -------------    ------------

Income before extraordinary item                                  698,860          783,433             212,782          21,428
Gain on sale of shares of affiliated company                      153,344
                                                             ------------    -------------       -------------    ------------

Consolidated net income                                      Ps   852,204    Ps    783,433       Ps    212,782    US$   21,428
                                                             ============    =============       =============    ============

Income of minority stockholders                              Ps    14,934    Ps     19,290       Ps      4,025    US$      405
                                                             ============    =============       =============    ============

Income of majority stockholders                              Ps   837,270    Ps    764,143       Ps    208,757    US$   21,023
                                                             ============    =============       =============    ============

Basic and dilutive earnings per share (Note 2n.)             Ps      0.23    Ps       0.22       Ps       0.06    US$    0.006
                                                             ============    =============       =============    ============
</TABLE>


(*)  The U.S. dollar figures represent the Mexican pesos amounts of December 31,
     1998  purchasing  power  translated at the exchange rate of Ps9.93 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>


                 GRUPO ELEKTRA, S. A. DE C. V. AND SUBSIDIARIES
                                    (Note 1)

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                 Thousands of Mexican pesos of December 31, 1998
                                purchasing power




<TABLE>
<CAPTION>
                                                  Number of
                                                   common                   Authorized but
                                                   shares         Capital    unsubscribed                   Paid-in      Retained
                                                 outstanding       stock        stock          Total        capital      earnings
                                                 -----------      -------   --------------     -----        -------      --------

<S>                                             <C>              <C>          <C>            <C>           <C>          <C>
Balances at January 1, 1996                     3,589,657,490    Ps548,313    (Ps66,202)     Ps482,111     Ps290,503    Ps1,711,305

Increase in reserve for repurchase of
shares                                                                                                                     (543,799)
Issuance of capital stock                          12,925,140                       653            653        18,473
Payment of dividends                                                                                                        (88,973)
Contribution of minority stockholders                                                                      1,484,200
Repurchase of shares                              (25,506,660)
Consolidated net income                                                                                                     837,270
Loss from holding nonmonetary assets
                                                -------------    ---------     --------      ---------   -----------    -----------

Balances at December 31, 1996                   3,577,075,970      548,313      (65,549)       482,764     1,793,176      1,915,803

Reduction of paid-in capital resulting from
repurchase of shares of subsidiaries                                                                        (135,768)
Issuance of capital stock                          63,770,280                     2,696          2,696        89,938
Payment of dividends                                                                                                       (145,559)
Repurchase of shares                              (59,148,320)
Consolidated net income                                                                                                     764,143
Loss from holding nonmonetary assets
                                                -------------    ---------     --------      ---------   -----------    -----------

Balances at December 31, 1997                   3,581,697,930      548,313      (62,853)       485,460     1,747,346      2,534,387

Payment of dividends                                                                                                       (111,611)
Issuance of capital stock                           8,937,849                       329            329         4,521
Repurchase of shares                              (24,714,000)
Reduction of paid-in capital resulting from
repurchase of shares of subsidiaries                                                                        (173,378)
Consolidated net income                                                                                                     208,757
Effect of translation of foreign subsidiaries
Loss from holding nonmonetary assets
                                                -------------    ---------     --------      ---------   -----------    -----------
Balances at December 31, 1998                   3,565,921,779    Ps548,313    (Ps62,524)     Ps485,789   Ps1,578,489    Ps2,631,533
                                                =============    =========     ========      =========   ===========    ===========





<CAPTION>
                                                            Reserve        Loss          Effect of
                                                              for      from holding     translation
                                                Legal      repurchase   nonmonetary      of foreign       Minority
                                               reserve     of shares      assets        subsidiaries    stockholders     Total
                                               -------     ---------   ------------     ------------    ------------     -----

<S>                                            <C>         <C>          <C>                 <C>            <C>          <C>
Balances at January 1, 1996                    Ps75,798     Ps20,226     (Ps 326,574)                                   Ps2,253,369

Increase in reserve for repurchase of
shares                                                       543,799
Issuance of capital stock                                                                                                    19,126
Payment of dividends                                                                                                        (88,973)
Contribution of minority stockholders                                                                      Ps67,234       1,551,434
Repurchase of shares                                        (216,936)                                                      (216,936)
Consolidated net income                                                                                      14,934         852,204
Loss from holding nonmonetary assets                                        (242,837)                          (687)       (243,524)
                                               --------    ---------     -----------        -------        --------     -----------

Balances at December 31, 1996                    75,798      347,089        (569,411)                        81,481       4,126,700

Reduction of paid-in capital resulting from
repurchase of shares of subsidiaries                                                                                       (135,768)
Issuance of capital stock                                                                                                    92,634
Payment of dividends                                                                                                       (145,559)
Repurchase of shares                                         (24,961)                                                       (24,961)
Consolidated net income                                                                                      19,290         783,433
Loss from holding nonmonetary assets                                        (348,181)                       (19,021)       (367,202)
                                               --------    ---------     -----------        -------        --------     -----------

Balances at December 31, 1997                    75,798      322,128        (917,592)                        81,750       4,329,277

Payment of dividends                                                                                                       (111,611)
Issuance of capital stock                                                                                                     4,850
Repurchase of shares                                         (63,761)                                                       (63,761)
Reduction of paid-in capital resulting from
repurchase of shares of subsidiaries                                                                                       (173,378)
Consolidated net income                                                                                       4,025         212,782
Effect of translation of foreign subsidiaries                                               Ps5,844                           5,844
Loss from holding nonmonetary assets
                                                                            (465,652)                                      (465,652)
                                               --------    ---------     -----------        -------        --------     -----------

Balances at December 31, 1998                  Ps75,798    Ps258,367    (Ps1,383,244)       Ps5,844        Ps85,775     Ps3,738,351
                                               ========    =========     ===========        =======        ========     ===========
</TABLE>



                                                   Year ended December 31,

                                               1996         1997          1998
                                               ----         ----          ----

         Current year net income (loss):
         Parent Company                     Ps  9,579     (Ps26,215)     59,683
         Subsidiaries                         827,691       790,358     149,074
                                            ---------     ---------     -------

                                            Ps837,270     Ps764,143     208,757
                                            =========     =========     =======


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-7
<PAGE>


                 GRUPO ELEKTRA, S. A. DE C. V. AND SUBSIDIARIES
                                    (Note 1)

            CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

                 Thousands of Mexican pesos of December 31, 1998
                                purchasing power


<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                   ----------------------------------------------------------
                                                      1996            1997                    1998
                                                      ----            ----        ---------------------------
                                                                                                   Thousands
                                                                                                    of U.S.
                                                                                                  dollars (*)
                                                                                                  -----------
<S>                                                <C>            <C>             <C>            <C>
Operations:

Income before extraordinary item                   Ps  698,860    Ps  783,433     Ps   212,782   US$   21,428
Charges (credits) to income not affecting
resources:
Depreciation and amortization                          147,400        228,007          388,463         39,120
Allowance for doubtful accounts                        186,823        293,594          383,497         38,620
Accruals for seniority premiums and pension plan         4,005          6,618            5,235            528
Equity in (income) loss of affiliated company         (143,490)      (178,787)         146,263         14,729
Net change in accounts receivable, inventories,
other assets, accounts payable, related parties
and unaccrued income for extended warranty            (424,488)      (916,392)        (130,031)       (13,095)
                                                   -----------    -----------     ------------   ------------

Resources provided by operations before
extraordinary item                                     469,110        216,473        1,006,209        101,330
Sale of shares of subsidiary                           153,345
                                                   -----------    -----------     ------------   ------------

Resources provided by operations                       622,455        216,473        1,006,209        101,330
                                                   -----------    -----------     ------------   ------------

Financing:

Long-term notes                                      1,082,946
Paid - in capital (own and subsidiaries shares)      1,484,200       (135,768)        (173,378)       (17,460)
Bank loans and other credits - Net                  (1,051,767)     1,143,667          814,936         82,068
Issuance of capital stock                               19,126         92,634            4,850            488
Payment of dividends                                   (88,973)      (145,559)        (111,611)       (11,240)
Repurchase of shares                                  (216,936)       (24,961)         (63,761)        (6,420)
Contribution of minority stockholders                   67,234
                                                   -----------    -----------     ------------   ------------

Resources provided by financing activities           1,295,830        930,013          471,036         47,436
                                                   -----------    -----------     ------------   ------------

Investment:

Acquisition of property, furniture, equipment
and investment in stores - Net                        (337,348)      (932,316)        (607,485)       (61,177)
Investment in shares                                (1,343,627)                       (157,691)       (15,880)
                                                   -----------    -----------     ------------   ------------

Resources used in investment activities             (1,680,975)      (932,316)        (765,176)       (77,057)
                                                   -----------    -----------     ------------   ------------

Increase in cash and cash equivalents                  237,310        214,170          712,069         71,709
Cash and cash equivalents at beginning of year          34,205        271,515          485,685         48,911
                                                   -----------    -----------     ------------   ------------

Cash and cash equivalents at end of year           Ps  271,515    Ps  485,685     Ps 1,197,754   US$  120,620
                                                   ===========    ===========     ============   ============
</TABLE>


(*)  The U.S. dollar figures represent the Mexican pesos amounts of December 31,
     1998  purchasing  power  translated at the exchange rate of Ps9.93 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>


                 GRUPO ELEKTRA, S. A. DE C. V. AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 and 1998

          (monetary figures expressed in thousands of Mexican pesos of
               December 31, 1998 purchasing power, except foreign
                 currency figures and exchange rates in Note 3)


NOTE 1 - COMPANY OPERATIONS:

The main activities of Grupo Elektra, S. A. de C. V. and its subsidiaries
(collectively the "Company") are the purchase and sale, distribution,
importation and exportation of consumer electronics, major appliances, household
furniture and clothing. A significant portion of the Company's revenues is
comprised of installment sales. Additionally, the Company offers a series of
complementary products and services, the most important of which are money
transfer services from the United States to Mexico and within Mexico, and the
extended warranty services for electronics and appliances. At December 31, 1998,
the Company operated 581 Elektra stores and 155 Hecali stores in Mexico, and 83
Elektra stores in several countries in Central and South America.

The main subsidiaries of the Company are the following:

                                                                Percentage of
               Subsidiary                                          equity
               ----------                                       -------------

Corporacion Diprofin, S. A. de C. V. (Diprofin)                     100%
Articulos Domesticos al Mayoreo, S. A. de C. V. (Ardoma)            100%
Elektra, S. A. de C. V. (Elektra)                                    98%
Elektrafin, S. A. de C. V. (Elektrafin)                              98%
Importaciones Electronicas Ribesa, S. A. de C. V. (Ribesa)           98%
Grupo Hecali, S. A. de .C. V. (Hecali)                              100%
Mi Garantia Extendida, S. A. de C. V. (Mi Garantia)                 100%

On March 26, 1996, the Company acquired for Ps1,343,627 a 35.8% interest in
Comunicaciones Avanzadas, S. A. de C. V. (CASA), a company controlling several
subsidiaries engaged in the broadcasting and production of television programs
and the sale of advertising time (TV Azteca), and the operation of movie
theaters and production studios (Grupo Cotsa). This investment was realized
through the capitalization of a US$45.4 million receivable from CASA and a cash
contribution of US$62.2 million, paying an excess of cost over book value
(goodwill) of Ps915,290.



                                      F-9
<PAGE>


In 1996, the Company acquired 72% of the capital stock of Hecali, which is
engaged in the trading and distribution of clothing and shoes, for Ps69,123. In
1997, Hecali made a capital stock reacquisition from certain stockholders, thus
increasing the Company's ownership interest from 72% to 94%. In October 1998,
the Company acquired the remaining 6% of the Hecali shares, through the
capitalization of debt amounting to Ps155,437 and cash payments of Ps10,135,
giving rise to goodwill of Ps157,691.

In January 1996, the Company sold to Western Union its interest in Servicio
Mexicano de Entregas, S. A. de C. V. recording a net gain of Ps153,344 after
deducting the related income tax of Ps40,604 and received dividends of Ps37,207
from the Company immediately prior to its sale.

In January 1996, the Company entered into a revised agreement with Western Union
for the transfer of money from the United States to Mexico, under which, the
Company will receive US$14.2 million annually over ten years. For this purpose,
Western Union deposited US$142 million into an escrow account, which in turn
invested this amount by purchasing 2% of the shares of three consolidated
subsidiaries.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The significant accounting policies, including the concepts, methods and
criteria related to the recognition of the effects of inflation on the financial
statements, are summarized below:

a.   Recognition of the effects of inflation

The consolidated financial statements and the notes thereto are expressed in
constant pesos of purchasing power as of December 31, 1998 and have been
prepared in conformity with generally accepted accounting principles in Mexico,
in accordance with the following policies:

-    Inventory is restated by the replacement cost method; cost of sales is
     restated by applying factors derived from the National Consumer Price Index
     (NCPI).

-    Property, furniture and equipment and investment in stores are restated by
     applying factors derived from the NCPI.

-    The components of stockholders' equity are also restated by using factors
     derived from the NCPI.

-    The gain (loss) on net monetary position represents the effect of
     inflation, as measured by the NCPI, on the monthly net monetary liabilities
     and assets during the year, restated to pesos of purchasing power as of the
     end of the most recent period.



                                      F-10
<PAGE>


-    The loss from holding nonmonetary assets represents the decrease in
     nonmonetary assets compared with the inflation rate measured in terms of
     the NCPI, and is included in stockholders' equity under the caption "loss
     from holding nonmonetary assets".

-    The NCPI used to recognize the effects of inflation in the financial
     statements was 200.388, 231.886 and 275.038 as of December 31, 1996, 1997
     and 1998, respectively.

b.   Presentation of the statement of income

In order to allow better matching of revenues with the costs needed to produce
them, as from 1997, revenues include those resulting from sales of merchandise
and from the installment sales program (that is, accrued mark-up, stated
interest and penalty interest less the monetary loss on receivables).

Cost of sales includes the cost of merchandise sold, the allowance for doubtful
accounts, the cost of financing the installment sales program less the monetary
gain on financing of receivables.

Below is an analysis of merchandise and service revenues, and of the cost of
merchandise sold and of services:

<TABLE>
<CAPTION>
                                                               December 31,
                                             ------------------------------------------------
                                                1996              1997               1998
                                                ----              ----               ----
<S>                                          <C>               <C>                <C>
Revenues:

Sales of Elektra merchandise                 Ps4,440,476       Ps5,399,707        Ps6,455,993
Sales of Hecali merchandise                      220,066           373,557            588,536
Accrued income for extended warranties                               1,768             31,854
Accrued mark-up                                1,049,990         1,412,457          1,767,516
Penalty interest                                 181,211           222,221            211,406
Loss on monetary position from
accounts receivable                             (461,923)         (303,806)          (290,708)
Equity in income of
Comunicaciones Avanzadas, S. A. de C. V.         143,490           178,787           (146,263)
Revenues from money transfer services            295,978           281,943            306,487
                                             -----------       -----------        -----------

                                             Ps5,869,288       Ps7,566,634        Ps8,924,821
                                             ===========       ===========        ===========

Costs:

Cost of Elektra merchandise sold             Ps3,134,861       Ps3,912,007        Ps4,574,692
Cost of Hecali merchandise sold                  153,226           257,723            359,558
Provision for repairs                                                  528              9,555
Interest expense on credits                      357,953           248,831            228,458
Interest on money transfer funding                15,792            10,646             14,501
Allowance for doubtful accounts                  186,823           293,594            383,497
Amortization of CASA goodwill                     34,323            45,747             45,747
Gain on monetary position on
loans obtained to finance the
installment sales program                       (301,094)         (197,473)          (188,960)
                                             -----------       -----------        -----------

                                             Ps3,581,884       Ps4,571,603        Ps5,427,048
                                             ===========       ===========        ===========
</TABLE>



                                      F-11
<PAGE>


c.   Principles of consolidation

The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

d.   Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of
less than three months to be cash equivalents, and states them at market value.

e.   Revenue recognition

The Company recognizes revenue on the accrual basis when goods are delivered to
customers. Interest and installment sales mark-up are credited to income on the
straight-line basis over the life of the respective installment contracts.

f.   Inventories and cost of sales

Inventories and cost of sales are originally determined by the average cost
method and are restated as mentioned in Note 2a. Amounts so determined do not
exceed current market value. (See Note 5).

g.   Property, furniture, equipment and investment in stores

Property, furniture and equipment are expressed at acquisition cost, and are
restated as explained in Note 2a. Investment in stores represents major
improvements necessary for the opening of Elektra and Hecali stores, and is
restated as mentioned in Note 2a.

Depreciation is calculated by the straight-line method, based on the estimated
useful lives and the values of the Company's net fixed assets. Amortization of
investment in stores is calculated by the straight-line method over periods no
longer than five years. (See Note 6).

h.   Investments in shares

The investment in CASA is stated by the equity method. (See Note 7).

Other investments in shares of companies in which the Company owns less than 10%
of the capital are stated originally at cost, and are subsequently restated by
applying factors derived from the NCPI.



                                      F-12
<PAGE>


i.   Goodwill

The excess of cost over the book value of the shares of subsidiaries and equity
investees acquired (goodwill) is amortized over 20 years and is restated by
applying factors derived from the NCPI to its historical cost.

j.   Income tax and employees' statutory profit sharing

The charges to income for income tax and employees' statutory profit sharing are
based on financial pretax income, after adjustment for items excluded by law
from the determination of taxable profits (permanent differences) and for
temporary differences, the realization of which is uncertain in a definite
period of time. At December 31, 1997 and 1998, there were no temporary
differences that require the recognition of deferred income tax.

k.   Labor obligations

Seniority premiums to which employees are entitled upon termination of
employment after 15 years of service, as well as benefits from the retirement
plans established by the Company's subsidiaries for their employees, to which
they do not contribute, are recognized as expenses of the years in which the
services are rendered. based on actuarial studies.

Plan benefits are primarily based on employees' years of service, which the
Company estimates to be an average of 25 years, and remuneration at retirement.

As of and for the years ended December 31, 1996, 1997 and 1998, the net cost for
the period charged to income and the respective liability were not significant.

Other severance compensation to which employees may be entitled in case of
dismissal or death, in accordance with the Mexican Federal Labor Law, is charged
to income in the year in which it becomes payable.

l.   Revenues from extended warranty services

Revenues from extended warranty services are recorded as deferred income on the
date the corresponding warranty certificates are sold, and are credited to
income using the straight line method over the terms of extended warranties
(from two to five years).

m.   Transactions in foreign currencies and translation of transactions carried
     out abroad

Transactions in foreign currencies are recorded at the rates of exchange
prevailing on the dates they are entered into. Assets and liabilities
denominated in these currencies are stated at the Mexican peso equivalents
resulting from applying the year-end rates. Exchange



                                      F-13
<PAGE>


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. (See Note 3.)

Figures of the subsidiaries in Central and South America are translated by using
the methodology established by Statement B-15 "Transactions in Foreign Currency
and Translation of Financial Statements of Foreign Subsidiaries". In accordance
with the provisions thereby set, the figures of those subsidiaries are restated
by applying inflation factors of the country of origin. The resulting monetary
and nonmonetary assets and liabilities, as well as the income and expenses, are
translated at the exchange rate in effect on the balance sheet date. Differences
arising from the translation of the subsidiaries' financial statements as of
December 31, 1998 amounted to Ps5,844 and was recorded as part of stockholders'
equity.

n.   Earnings per share

Earnings per share is computed in accordance with Statement B-14 "Earnings per
Share", by dividing the income of majority stockholders by the weighted average
number of shares outstanding in 1996 (3,595,556,000) 1997 (3,553,643,026) and
1998 (3,574,753,543). Diluted earnings per share reflects 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. The effect of stock options
granted to the Company's employees on earnings per share computation is not
material.

o.   Description of leasing arrangements

The Company conducts a major part of its operations from leased facilities which
include 759 stores, 2 warehouses and distribution centers and the Company's
headquarters building. These facilities are under operating leases that expire
over the next ten years. Most of the operating leases are renewable for periods
of three to five years.

Some of the rental payments under store facilities are based on a minimum rental
or a percentage of the store's sales (contingent rentals).

In most cases, management expects that in the normal course of business, leases
will be renewed or replaced by other assets.

p.   Use of estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affects the amounts reported in the financial statements. Actual results could
differ from those estimates.



                                      F-14
<PAGE>


q.   Reclassifications

Certain reclassifications have been made to prior period amounts to conform to
the current presentation.

NOTE 3 - FOREIGN CURRENCY POSITION:

The following information is expressed in thousands of U.S. dollars, since this
is the currency in which most of the Company's foreign currency transactions are
carried out.

At December 31, 1998, the Company and its subsidiaries had the following foreign
currency monetary assets and liabilities:

                                            Central and
                                              South
                             Mexico         America (1)          Total
                          -----------       -----------       -----------

Assets                    US$  30,687       US$ 41,430        US$  72,117
Liabilities                  (241,430)         (65,467)          (306,897)
                          -----------       ----------        -----------

Net short position       (US$ 210,743)     (US$ 24,037)      (US$ 234,780)
                          ===========       ==========        ============

(1)  Denominated in different currencies, which were translated to US dollars at
     the exchange rates prevailing on December 31, 1998.

At December 31, 1998, the exchange rate was Ps9.93 to the U.S. dollar (Ps8.06 at
December 31, 1997). At February 28, 1999, date of issuance of the consolidated
financial statements, the exchange rate was Ps10.10 to the U.S. dollar.

Below is a summary of the principal transactions denominated in foreign
currencies carried out by the Company's subsidiaries in 1996, 1997 and 1998:

                                  1996              1997              1998
                                  ----              ----              ----

Money transfer services        US$ 23,649        US$ 24,008       US$  24,270
Export sales                                         21,117            71,260
Imported merchandise              (30,068)          (57,202)         (105,231)
Interest expense                   (9,135)          (16,103)          (24,611)
Fees                               (8,619)           (7,878)          (21,132)
Other                                                (6,642)          (11,728)
                               ----------        ----------       -----------

Net                           (US$ 24,173)      (US$ 42,700)     (US$  67,172)
                               ==========        ==========       ===========



                                      F-15
<PAGE>


NOTE 4 - BALANCES DUE FROM CUSTOMERS, NET AND SECURITIZATION OF RECEIVABLES:

Customer account balances at December 31,1997 and 1998 are as follows:

                                                        December 31,
                                                        ------------
                                                   1997              1998
                                                   ----              ----

Gross retail receivables - Net of
securitization                                  Ps1,881,237       Ps1,631,080
Less: Past due receivables written-off
in the year                                        (298,623)         (351,860)
                                                -----------       -----------

Net retail receivables                            1,582,614         1,279,220
Wholesale receivables                                40,848            43,964
                                                -----------       -----------

Total                                             1,623,462         1,323,184

Less: Allowance for doubtful accounts               (50,728)          (82,365)
                                                -----------       -----------

                                                Ps1,572,734       Ps1,240,819
                                                ===========       ===========

The Company follows the policy of writing-off against the allowance for doubtful
accounts all customer balances outstanding more than 90 days.

Accounts receivable from retail customers are shown net of the unearned
installment sales mark-up. The unearned installment sales mark-up was Ps572,141
and Ps439,943 at December 31, 1997 and 1998, respectively.

The movement of the allowance for doubtful accounts is as follows:

                                               Year ended December 31,

                               1996             1997            1998
                               ----             ----            ----

Beginning balance           Ps  98,312       Ps  55,757      Ps  50,728
Provisions                     186,823          293,594         383,497
Write-offs                    (229,378)        (298,623)       (351,860)
                            ----------       ----------      ----------

Ending balance              Ps  55,757       Ps  50,728      Ps  82,365
                            ==========       ==========      ==========



                                      F-16
<PAGE>


Securitization of receivables

Elektrafin has established a four-year revolving securitization program, to
securitize its receivables. Under the program, Elektrafin transfers its
receivable collection rights to a trust fund incorporated by Nacional
Financiera, S. N. C. (NAFIN) in exchange for cash resources obtained from the
public offering of "Ordinary and Amortizable Participation Certificates"
("OPCs"). The public offering is affected by the issuance of preferred and
subordinated OPCs which are acquired by public investors and Elektrafin,
respectively. During 1998 Elektrafin completed two separate offerings, one on
April 15 and one on December 17, 1998 for Ps793,000 (nominal pesos) and
Ps200,000 (nominal pesos), respectively.

Duff and Phelps de Mexico, S. A. de C. V. , Fitch IBCA Mexico, S. A. de C. V.
and Clasificadora de Riesgos, S. A. de C. V. rated the securitized receivables
as mAA, AA and AA, respectively.

Elektrafin collects the securitized receivables on behalf of the trust and
deposits such collections in the trust fund. The two separate offerings of OPCs
will mature in April 2000 and in December 2002. The preferred OPCs will be
repaid at their nominal value, and the subordinated OPCs with the remaining cash
held by the trust.

NOTE 5 - INVENTORIES:

                                                      December 31,
                                                      ------------
                                                1997               1998
                                                ----               ----

Brand name merchandise                      Ps1,943,395         Ps1,849,956
Elektra brand name merchandise                   74,497              73,429
Other merchandise                               169,895             126,419
Merchandise in transit                           30,034              62,324
Other finished products                          29,950              28,838
                                            -----------         -----------

                                              2,247,771           2,140,966
Less-Allowance for obsolete inventories            (616)               (518)
                                            -----------         -----------

                                              2,247,155           2,140,448
Advances to suppliers                            32,337
                                            -----------         -----------

                                            Ps2,279,492         Ps2,140,448
                                            ===========         ===========



                                      F-17
<PAGE>


NOTE 6 - PROPERTY, FURNITURE, EQUIPMENT AND INVESTMENT IN STORES:

<TABLE>
<CAPTION>
                                           December 31,             Annual depreciation
                                                                      and amortization
                                      1997              1998              rate (%)
                                      ----              ----        -------------------

<S>                               <C>               <C>                     <C>
Buildings                         Ps  173,887       Ps  330,192              2.0
Computer equipment                    518,453           636,584             16.6
Communication equipment               181,358           216,247             10.0
Transportation equipment              205,019           246,742             10.3
Furniture and fixtures                219,931           308,168              8.5
Machinery and equipment                94,693           218,737              5.3
                                  -----------       -----------

                                    1,393,341         1,956,670
Less-Accumulated depreciation        (426,556)         (602,708)
                                  -----------       -----------

                                      966,785         1,353,962
Land                                  219,489           195,076
Construction in progress               83,378            38,208
                                  -----------       -----------

                                    1,269,652         1,587,246
Investment in stores - Net            537,378           557,443             20.0
                                  -----------       -----------

                                  Ps1,807,030       Ps2,144,689
                                  ===========       ===========
</TABLE>


The above items include capital leases as shown in Note 10.

NOTE 7 - INVESTMENT IN SHARES:

                                              December 31,

                                                                  Percentage
                                      1997           1998         of equity
                                      ----           ----         ----------

Comunicaciones Avanzadas,
S. A. de C. V.                    Ps  788,599      Ps621,630         35.8%
Biper, S. A. de C. V.                 182,324         80,237         5.0%
Other                                 102,785         94,025
                                  -----------      ---------

                                  Ps1,073,708      Ps795,892
                                  ===========      =========



                                      F-18
<PAGE>


NOTE 8 - ACCOUNTS RECEIVABLE AND SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES:

                                                            December 31,
                                                            ------------
                                                        1997            1998
                                                        ----            ----

Biper, S. A. de C. V. (Biper)                        Ps 45,808       Ps 57,786
Operadora Radiocel, S. A. de C. V. (Operadora)          40,257          66,136
Compania Operadora de Teatros, S. A. de C. V.                           22,760
TV Azteca, S. A. de C. V. (TV Azteca)                   29,902          10,923
Other                                                   53,014          47,368
                                                     ---------       ---------

                                                     Ps168,981       Ps204,973
                                                     =========       =========

The principal transactions with related parties are as follows:

Merchandise sales

Revenues from sales of televisions, video cassette recorders and furniture to
related parties and affiliated companies amounted to Ps142,136, Ps87,996 and
Ps79,716 during the years ended December 31, 1996, 1997 and 1998, respectively.

Interest income

In the years ended December 31, 1996, 1997 and 1998 the Company extended
short-term loans to Biper, Operadora and TV Azteca. Interest income under these
arrangements amounted to Ps55,105, Ps13,713 and Ps13,049, respectively.

Interest expense

In the years ended December 31, 1996, 1997 and 1998 the Company received
short-term loans from Grupo Cotsa and other related parties. Interest expense
incurred under these arrangements amounted to Ps11,346, Ps13,199 and Ps18,973,
respectively.

Advertising expenses

In March 1996, the Company entered into an agreement with TV Azteca whereby
Elektra will purchase 5,200 minutes per year of advertising time from TV Azteca,
to be transmitted in otherwise unsold time, for US$1.5 million per year for each
of the next ten years. For the years ended December 31, 1996, 1997 and 1998 the
Company recorded advertising expenses of Ps24,704, Ps15,101 and Ps21,755,
respectively under this arrangement. Under the agreement the Company may
purchase additional minutes at the same contract terms.



                                      F-19
<PAGE>


Purchase of computer equipment

In 1996 and 1997, the Company acquired computer equipment amounting to Ps49,087
and Ps68,852, respectively, from Dataflux, S. A. de C. V., a former affiliate of
TV Azteca.

NOTE 9 - BANK LOANS AND OTHER DEBT:

<TABLE>
<CAPTION>
                                                                              Average rate at
                                              December 31,                      December 31,
                                              ------------                    ---------------
                                         1997             1998             1997             1998
                                         ----             ----             ----             ----

<S>                                  <C>              <C>                <C>          <C>
Loans in Mexican pesos               Ps1,058,707      Ps  861,500        21.29%            35.96%
Loans in U.S. dollars                    477,797          319,230         8.81%             7.85%
Long-term notes (1)                      956,115          933,420        12.75%            12.75%
Syndicated loan (2)                                       844,050                     7.50% and 7.34%
Loans in other currencies(3)             287,103          542,497        15.32%            21.00%
Other                                     16,866          171,602
                                     -----------      -----------

                                       2,796,588        3,672,299
Less-current portion                   1,840,473        1,212,443
                                     -----------      -----------

Long-term debt                       Ps  956,115      Ps2,459,856
                                     ===========      ===========
</TABLE>

Following is the maturity of the long-term loans:

                Year                        Amount
                ----                        ------

                2000                     Ps  671,463
                2001                         933,420
                2002                         854,973
                                         -----------

                                         Ps2,459,856
                                         ===========

(1)  In May 1996, the Company issued long-term notes in international markets
     for US$100 million, payable in the year 2001, subject to interest at 12.75%
     per annum payable semiannually. The terms of the notes contain certain
     financial covenants with which the Company is in compliance at December 31,
     1997 and 1998. In 1998, the Company repurchased notes worth US$6 million
     (par value) for US$4.9 million, which were deducted from the aggregate
     principal amount.

(2)  The Company entered into a five-year US$150 million committed unsecured
     revolving credit agreement with Citibank, N. A. as agent. The commitment is
     reduced to the outstanding balance under the credit agreement as of June
     30, 1999. At December 31, 1998, the Company borrowed US$85 million under
     this agreement. The remaining amount of the credit will be used to repay
     short-term loans, which were entered into to finance its national and
     international expansion; as a result, US$65 million of the Company's
     short-term loans have been classified as long-term bank loans. This credit
     agreement imposes operating and financial restrictions on the Company, with
     which it is in compliance as of December 31, 1998.

(3)  Mainly Lempiras, Colones, Dominican Pesos and Quetzales.



                                      F-20
<PAGE>


NOTE 10 - CAPITAL AND OPERATING LEASES:

The Company has acquired the assets mentioned below by entering into capital
lease contracts, with purchase options ranging from two to five years.

                                                December 31,
                                                ------------
                                            1997            1998
                                            ----            ----

Land and buildings                       Ps 64,108       Ps 53,878
Computer equipment                         104,633          32,804
Communication equipment                    147,582         147,582
Transportation equipment                    53,762          17,289
Furniture and fixtures                      48,828           9,785
Machinery and equipment                     12,571           4,568
                                         ---------       ---------

                                           431,484         265,906
Less: accumulated amortization             (79,724)        (70,565)
                                         ---------       ---------

                                         Ps351,760       Ps195,341
                                         =========       =========

The liabilities under these contracts mature as follows:

Year ending December 31:
------------------------

1999                                     Ps 31,965
2000                                         7,348
2001                                         2,993
                                         ---------

Total liabilities                           42,306
Less-unaccrued interest                     (4,615)

Net minimum lease payments                  37,691
Less-current portion                       (31,580)

Long-term portion                        Ps  6,111
                                         =========



                                      F-21
<PAGE>


The following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 31, 1998:

Year ending December 31:

        1999                                     Ps236,075
        2000                                       214,683
        2001                                       173,625
        2002                                       148,078
        2003 and thereafter                        134,209
                                                 ---------

        Total minimum payments required          Ps906,670
                                                 =========

The following schedule shows the composition of total rental expense for all
operating leases except those with terms of a month or less that were not
renewed:

                                    Year ended December 31,
                                    -----------------------
                              1996            1997            1998
                              ----            ----            ----

Minimum rentals            Ps112,309       Ps145,147       Ps208,275
Contingent rentals            15,675          18,283          22,700
                           ---------       ---------       ---------

                           Ps127,984       Ps163,430       Ps230,975
                           =========       =========       =========

NOTE 11 - STOCKHOLDERS' EQUITY:

On August 15, 1997, a special stockholders' meeting was held to authorize a
ten-for-one stock split of Series "A", "B" and "L" shares and a ten-for-one
stock split of each Ordinary Participation Certificate (OPC) (comprised of two
Series "B" shares and one Series "L" share).

After this stock split, the capital stock is represented by shares with no par
value, fully subscribed and paid, distributed as shown below:

Authorized shares:

Series "A" Shares                      1,495,024,470
Series "B" Shares                      2,342,405,490
Series "L" Shares                        487,416,030
                                       -------------
                                       4,324,845,990
                                       -------------



                                      F-22
<PAGE>


Less: authorized but unsubscribed and/or unpaid shares:

Series "A" Shares                                     (220,279,440)
Series "B" Shares                                     (328,744,914)
Series "L" Shares                                      (98,810,877)
                                                     -------------

                                                      (647,835,231)
Less - Repurchased shares                             (111,088,980)
                                                     -------------

Net authorized shares subscribed and paid            3,565,921,779
                                                     =============

The Company's by-laws provide that Series "A" shares may only be held by Mexican
nationals. Series "B" and "L" shares are unrestricted as to ownership. Series
"L" shares have restricted voting rights.

At December 31, 1998, the capital stock is represented by the following fixed
minimum capital:

                                                       Amount
                                                       ------


Series "A" shares                                    Ps 49,834
Series "B" shares                                       78,080
Series "L" shares                                       16,247
                                                     ---------

Fixed minimum capital stock                            144,161
Subscribed but unpaid capital stock                    (21,595)
                                                     ---------

Capital stock expressed in nominal pesos               122,566
Effect of restatement                                  363,223
                                                     ---------

Capital stock expressed in Mexican pesos
of December 31, 1998 purchasing power                Ps485,789
                                                     =========

No variable capital has been subscribed.

In the event that dividends are paid from retained earnings which have not
previously been taxed, a tax equivalent to 53.85% of the dividend will be
payable by the Company. Additionally, dividends paid to individuals or to
foreign residents are subject to a maximum tax witholding equivalent to 7.69%,
regardless of any previous taxation of such dividends. Capital stock reductions
in excess of the sum of the balances of capital contributions accounts, net tax
income and reinvested net tax income, inflation-indexed in accordance with the
procedures established by the Income Tax Law, are accorded the same tax
treatment as dividends. At December 31, 1998, the balance of previously taxed
retained earnings determined in accordance with the tax regulations in effect
amounted to Ps60,415.

In February 1994, the Company and its stockholders approved the creation of the
Partner 2000 Stock Option Plan ("the Plan") for key employees of the Company and
its subsidiaries. Under the Plan the Company may grant to the employees options
to acquire up to 70 million OPCs of



                                      F-23
<PAGE>


the Company at a price between Ps2.5 and Ps4.0 (nominal) per OPC. Options
granted under the Plan vest pro-ratably over a five-year period from the date of
grant if the Company achieves annual established performance goals. If the
annual established performance goals are not achieved the vesting of the option
may be postponed or limited. The option price per OPC was determined based on
each employee's employment date. At February 28, 1999, date of issuance of the
consolidated financial statements options to acquire, 28,027,432 OPC's were
exercised.

Stock options                               Number of OPCs     Exercise price
-------------                               --------------     --------------

Outstanding on December 31, 1995             55,236,187
                                             ----------

Granted:                                      3,700,000             2.50
                                              1,655,468             3.25
Exercised                                    (3,808,390)

Outstanding on December 31, 1996             56,783,265
                                             ----------

Granted:                                      1,150,000             2.50
                                              1,169,532             4.00
Exercised                                   (19,768,759)

Outstanding on December 31, 1997             39,334,038

Exercised                                    (4,450,283)
                                             ----------

Outstanding on December 31, 1998             34,883,755
                                             ==========

Exercisable at December 31, 1998             21,295,821
                                             ==========

The following table summarizes information about the stock options outstanding
and exercisable at December 31, 1998:

                                                   Number of
                               Options            exercisable
      Exercise price         outstanding            options
      --------------         -----------          -----------

          2.50                32,751,225          20,527,197
          3.25                 1,164,528             502,341
          4.00                   968,002             266,283
                              ----------          ----------

                              34,883,755          21,295,821
                              ==========          ==========



                                      F-24
<PAGE>


At December 31, 1998, retained earnings include Ps176,013 corresponding to
retained earnings of subsidiaries and affiliated companies. In order for the
Company to pay a dividend from profits derived from affiliate earnings, the
earnings must be previously declared as dividends by the subsidiaries and
affiliated companies.

NOTE 12 - INCOME TAX, ASSET TAX AND EMPLOYEES' STATUTORY PROFIT SHARING:

Income tax, asset tax and employees' statutory profit sharing charged to income
for the year are as follows:

                                    Year ended December 31,
                                    -----------------------
                               1996           1997           1998
                               ----           ----           ----

Income tax                  Ps113,053      Ps 99,394      Ps101,977
Asset tax                      11,969          7,905          2,506
Employees' statutory
profit sharing                  2,065          1,790          2,604
                            ---------      ---------      ---------

                            Ps127,087      Ps109,089      Ps107,087
                            =========      =========      =========

For the years ended December 31, 1996, 1997 and 1998, the differences between
taxable and financial income are mainly due to the effect of the deduction for
tax purposes of inventory purchases, offset by the non-allowable deduction of
cost of sales, to the difference between the effect of the inflationary
component determined for book and tax purposes, and to nondeductible expenses.

At December 31, 1998, certain subsidiaries of the Company had tax loss
carryforwards amounting to Ps303,792, that expire as shown below:

               Year of
              expiration                     Amount
              ----------                   ---------

                  2003                     Ps  7,353
                  2004                         4,062
                  2005                         1,352
                  2006                       105,509
                  2007                       162,947
                  2008                        22,569
                                           ---------

                                           Ps303,792
                                           =========



                                      F-25
<PAGE>


Since the Company does not prepare a consolidated income tax return tax losses
carryforwards can only be utilized by the subsidiaries generating the
carryforwards. The tax loss carryforwards are restated by applying factors
derived from the NCPI until they are utilized.

In 1998, certain subsidiaries paid asset tax totaling Ps36,480 (restated for tax
purposes), for which a refund can be requested, provided that the income tax
determined in any of the next ten years exceeds asset tax for those years.

NOTE 13 - SEGMENT INFORMATION:

<TABLE>
<CAPTION>
                                                                                                       Elimination
                                    Commercial      Credit    International     CASA         Other       entries        Consolidated
                                    ----------      ------    -------------     ----         -----     -----------      ------------
<S>                                <C>           <C>           <C>           <C>            <C>        <C>               <C>
As of and for the year ended
December 31, 1996

Revenues from external customers   Ps4,440,476     Ps769,264                  Ps143,487     Ps516,061                    Ps5,869,288
Depreciation and amortization              504         6,810                                  105,763                        113,077
Operating income (loss)                583,825       318,191   (Ps39,420)       109,163      (296,138)                       675,621

Total assets                         1,858,578     2,724,165      35,278        501,088     3,602,375                      8,721,484

As of and for the year ended
December 31, 1997

Revenues from external customers   Ps5,211,411   Ps1,321,518   Ps197,650      Ps178,787     Ps657,268                    Ps7,566,634
Depreciation and amortization              806         9,955       4,827                      166,672                        182,260
Operating income (loss)                610,601       723,034     (10,722)       133,040      (430,448)                     1,025,505

Total assets                         2,306,602     1,588,201     562,361      4,995,424(1)  3,107,791  (Ps3,371,618)(1)    9,188,761

As of and for the year ended
December 31, 1998

Revenues from external customers   Ps5,880,502   Ps1,556,094   Ps707,611     (Ps146,263)    Ps926,877                    Ps8,924,821
Depreciation and amortization            1,748        10,150      51,592                      279,226                        342,716
Operating income (loss)                779,924       896,022      16,205       (192,010)     (706,532)                       793,609

Total assets                         2,007,279     1,302,482     994,194      1,058,213(1)  4,139,787     Ps352,878(1)     9,854,833
</TABLE>

(1)  Beginning in 1997 for internal purposes the Company states its investment
     in CASA, whose main asset is the investment in Azteca Holdings, S. A. de C.
     V. (holding of TV Azteca) at 80% of its market value, adjusted by the
     proportional part of liabilities of Azteca Holdings, recording the
     variations in this value in stockholders' equity and eliminating the equity
     in the results of CASA and the corresponding goodwill amortization. For
     external reporting purposes these adjustments have been eliminated to
     reflect the investment in CASA under the equity method.

The Company is reporting segment sales and services and operating income in the
same format reviewed by the Company's management. An operating segment is
defined as a component of the Company that engages in business activities from
which it may earn revenues and incur expenses, and about which separate
financial information is regularly evaluated by the Company's management in
deciding how to allocate resources. Except for the valuation of the investment
in CASA, the accounting policies of the segments are the same as those described
in the summary of significant accounting policies.

Certain assets and expenses such as property, furniture and equipment and other
assets, corporate overhead, depreciation, intangible amortization, interest
expense, income taxes are not allocated to the segments and have been included
in the other column. The Company evaluates segment performance based upon income
or loss before the aforementioned expenses. All the Company's operations are
located in Mexico, except for the Latin American operations which are located in
Guatemala, El Salvador, Dominican Republic, Honduras and Peru.



                                      F-26
<PAGE>


The Commercial Business Unit includes sales of a wide variety of brand name
consumer electronics, major appliances and household furniture in Mexico.

The Credit Business Unit consists of expenses incurred to finance the Company's
installment sales program and to administer the installment sales operations, as
well as the mark-up and stated or penalty interest earned by the Company.

The International Business Unit represents the Company's electronics, appliance
and furniture retail operations in five countries of Latin America, Guatemala,
El Salvador, Honduras, Dominican Republic and Peru.

The CASA Business Unit includes the equity in income (loss) of CASA as well as
the amortization of the related goodwill.

The Company's other operating segment includes a chain of clothing stores
(Hecali) that offers a broad range of basic and sports apparel for men, ladies
and children and sport shoes; Money Transfer Services from abroad, primarily the
United States, to Mexico, and within Mexico; Savings Account Services; Extended
Warranties and Photo Products and Processing Services.

NOTE 14 - CONTINGENCY:

The tax authorities are claiming the payment of taxes, fines and surcharges
totaling Ps284,962, omitted in the 1993, 1994 and 1995 periods. The Company's
management and its legal advisors have applied all the necessary legal
resources, and consider that there is sufficient evidence to obtain a favorable
resolution.

NOTE 15 - SUBSEQUENT EVENT:

On March 4, 1999, the Company won a bid to acquire a 94.3% interest in Salinas y
Rocha, S. A. de C. V. The acquisition price was US$77.7 million, of which the
Company paid 25% on March 10, 1999. The Company will incur additional debt to
pay the remaining 75% of the aggregate purchase price.

NOTE 16 - RECONCILIATION BETWEEN MEXICAN (MEXICAN GAAP) AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP):

The Company's consolidated financial statements are prepared in accordance with
Mexican GAAP, which differs in certain significant respects from U.S. 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 statement represents a
comprehensive measure of the effects of price level changes in the Mexican
economy, which for many years was hyperinflationary, and is considered to result
in a more meaningful presentation than historical cost-based financial reporting
for both Mexican and



                                      F-27
<PAGE>


U.S. accounting purposes. Therefore the following reconciliations to U.S. GAAP
do not include the reversal of such inflationary effects.

The principal differences between Mexican GAAP and U.S. GAAP are summarized
below with an explanation, where appropriate, of the effects on consolidated net
income and stockholders' equity. The various reconciling items are presented net
of any price level gain (loss):

a.   Reconciliation of consolidated net income:

<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                                                             -----------------------
                                                                       1996           1997             1998
                                                                       ----           ----             ----
    <S>                                                            <C>             <C>              <C>
    Net income related to majority stockholders under
    Mexican GAAP                                                   Ps 837,270      Ps  764,143      Ps 208,757
    Deferred income tax effects                                      (211,117)        (183,411)        (26,851)
    Deferred employees' profit sharing                                  4,725              748             560
    Amortization of goodwill                                           19,132           19,375          13,328
    Amortization of goodwill relating to CASA acquisition              34,323           45,747          45,747
    Effect of net income of CASA prior to acquisition                  61,627
    Difference in equity in earnings of CASA                           19,458         (110,684)        (69,298)
    Capitalized exchange losses and interest expense                    3,193            3,225           3,225
    Stock options granted to employees                               (131,919)        (264,864)         89,551
    Effect on minority stockholders of U.S. GAAP adjustments           16,137            4,362          (2,407)
                                                                   ----------      -----------      ----------

    Net income under U.S. GAAP                                     Ps 652,829      Ps  278,641      Ps 262,612
                                                                   ==========      ===========      ==========

    Income per share (in pesos)                                    Ps    0.18      Ps     0.08      Ps    0.07
                                                                   ==========      ===========      ==========

    Basic weighted average number of common shares
    outstanding (in millions)                                         3,595.5          3,553.6         3,574.8
                                                                   ==========      ===========      ==========
</TABLE>

b. Reconciliation of consolidated stockholders' equity:

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                          ------------
                                                                      1997             1998
                                                                      ----             ----
    <S>                                                          <C>              <C>
    Majority stockholders' equity under Mexican GAAP             Ps 4,247,527     Ps 3,652,576
    Deferred income tax effects                                      (849,205)        (876,056)
    Deferred employees' profit sharing                                  1,946            2,506
    Participation in net equity of CASA                               (28,890)        (279,333)
    Goodwill relating to CASA acquisition                            (840,910)        (795,163)
    Goodwill                                                         (239,335)        (226,007)
    Capitalized exchange losses and interest expense                  (22,445)         (19,220)
    Deferred income                                                (1,348,432)      (1,175,054)
    Pension plan and seniority premiums                                 4,571            4,571
    Effect on minority stockholders of U.S. GAAP
    adjustments                                                        20,498           18,091
                                                                 ------------     ------------

    Stockholders' equity under U.S. GAAP                         Ps   945,325     Ps   306,911
                                                                 ============     ============
</TABLE>



                                      F-28
<PAGE>


An analysis of the changes in consolidated stockholders' equity under U.S. GAAP
is shown below:

<TABLE>
<CAPTION>
                                                          1996            1997             1998
                                                          ----            ----             ----
<S>                                                   <C>              <C>              <C>
Balance at beginning of year                          Ps1,533,397      Ps 776,182       Ps 945,325
Net income                                                652,829         278,641          262,612
Excess cost over basis acquired in CASA                  (858,177)
Loss from holding nonmonetary assets                     (397,003)       (296,476)        (646,797)
Repurchase of shares                                     (216,936)        (24,961)         (63,761)
Payment of dividends                                      (88,973)       (145,559)        (111,611)
Exercise of stock options                                  19,126          92,634            4,850
Stock options granted to employees                        131,919         264,864          (89,551)
Effect of translation of foreign subsidiaries                                                5,844
                                                      -----------      ----------       ----------

Balance at end of year                                Ps  776,182      Ps 945,325       Ps 306,911
                                                      ===========      ==========       ==========
</TABLE>

c.   Significant differences between U.S. GAAP and Mexican GAAP:

     i. Acquisition of subsidiaries and affiliates:

          1.   CASA

          As discussed in Note 1 the Company acquired a 35.8% interest in CASA
          in 1996. For U.S. GAAP purposes, this acquisition is considered to be
          of a Company under common control and was accounted for at recorded
          amounts in a manner similar to a pooling of interest. Consequently no
          goodwill would be reflected under U.S. GAAP. For Mexican GAAP
          purposes, the acquisition has been accounted for as a purchase of
          shares.

          At the date of acquisition the excess cost over the basis acquired in
          CASA, under U.S. GAAP, was Ps858,177, which has been recorded in the
          above reconciliation as a distribution of equity. Also in the Mexican
          GAAP financial statements the equity in the income of CASA and the
          amortization of the goodwill are included as revenues and cost of
          sales.

          2.   Other subsidiaries

          In 1991, the Company acquired various companies controlled by the
          principal stockholders, and under Mexican GAAP recorded goodwill for
          the excess of the amounts paid over the book value of the companies
          acquired. Under U.S. GAAP these acquisitions would have been recorded
          as combinations of companies under common control and no goodwill
          would have been recorded.



                                      F-29
<PAGE>


     ii.  Employees' profit sharing

          Under U.S. GAAP, employees' profit sharing would be considered an
          operating expense.

     iii. Deferred income tax and employees' profit sharing


          As stated in Note 2j., income tax and employees' profit sharing are
          recorded under Mexican GAAP following interperiod allocation
          procedures under the partial liability method. Under this method,
          deferred tax and profit sharing are recognized only in respect of
          nonrecurring timing differences between taxable and book income which
          are expected to reverse at a definite future date. Also, under Mexican
          GAAP the benefit from utilizing tax loss carryforwards and assets tax
          credits are not recognized until utilized, at which time it is
          presented as an extraordinary item.

          U.S. GAAP Statement of Financial Accounting Standards No. 109
          "Accounting for Income Taxes", ("FAS No. 109"), 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 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 and profit sharing are recognized in
          respect of 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
          in respect of any tax benefits not expected to be realized). The
          subsequent realization of this benefit does not affect income.
          Consequently, they do not represent extraordinary items for U.S. 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 financial
          statements. Except as indicated in the following paragraph, the
          deferred tax expense or benefit is calculated as the difference
          between (a) the deferred tax assets and liabilities at the end of the
          current period determined as indicated above and (b) the deferred tax
          assets and liabilities reported at the end of the prior period
          remeasured to units of current general purchasing power at the end of
          the current period. The deferred profit sharing expense or benefit is
          calculated similarly.



                                      F-30
<PAGE>


          Gains and losses from holding non-monetary assets are recorded in
          stockholders' equity. It is the Company's policy to reflect the
          deferred income taxes and profit sharing that arise as a result of
          such gains (losses) from assets or liabilities which do not currently
          affect income in the results of operations.

          The significant components of income tax expense under U.S. GAAP are
          as follows:

                                       Year ended December 31,
                                       -----------------------
                                  1996           1997          1998
                                  ----           ----          ----

          Current              Ps113,053      Ps 99,394     Ps101,977
          Deferred               211,117        183,411        26,851
          Asset tax               11,969          7,905         2,506
                               ---------      ---------     ---------

                               Ps336,139      Ps290,710     Ps131,334
                               =========      =========     =========

          The following items represent the principal differences between income
          tax computed under U.S. GAAP at the statutory tax rate and the
          Company's provision for income tax in each year:

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                                1996     1997    1998
                                                                ----     ----    ----

<S>                                                              <C>      <C>     <C>
          Statutory income tax rate                              34%      34%     34%
          Effects of inflation                                   (4)      10     (10)
          Asset tax                                               2        2       1
          Non deductible expenses                                10        6       5
          Effect of accounting losses of subsidiaries (1)         8
          Non-taxable earnings of foreign subsidiary             (6)
          Other                                                   3        3      (9)
                                                                 --       --      --

          Effective income tax rate                              47%      55%     21%
                                                                 ==       ==      ==
</TABLE>

     (1)  Since the Company does not prepare consolidated income tax returns,
          the losses of some subsidiaries do not reduce, for tax purposes, the
          profits of the rest of the subsidiaries.

     The tax and profit sharing effects of significant items comprising the
     Company's net deferred tax and profit sharing assets and liabilities under
     U.S. GAAP are shown on the following page.



                                      F-31
<PAGE>


<TABLE>
<CAPTION>
                                                                December 31,
                                                                ------------
                                                          1997                 1998
                                                          ----                 ----
      <S>                                            <C>                  <C>
      Deferred income tax liabilities:
      Inventories                                    Ps  760,239          Ps  749,157
      Property, machinery and equipment                  185,183              216,672
      Deferred installment sales for income
      tax purposes                                        56,017
      Other                                               67,003               90,683
                                                     -----------          -----------

                                                       1,068,442            1,056,512
                                                     -----------          -----------

      Deferred income tax assets:
      Allowance for doubtful accounts                     17,247               28,828
      Operating loss carryforwards                       138,748              106,327
      Asset tax carryforwards                             56,162               36,480
      Other                                                7,080                8,821
                                                     -----------          -----------

                                                         219,237              180,456
                                                     -----------          -----------

      Net deferred income tax liabilities            Ps  849,205          Ps  876,056
                                                     ===========          ===========

      Deferred employees' profit sharing:

      Property, machinery and equipment              Ps      136          Ps       14
      Other                                               (2,082)              (2,520)
                                                     -----------          -----------

      Net deferred employees' profit sharing
      assets                                        (Ps    1,946)        (Ps    2,506)
                                                     ===========          ===========
</TABLE>

iv.  Revenue recognition

     Under Mexican GAAP the mark-up on installment sales is deferred and
     amortized over the life of the installment sales contracts for all years,
     and is included as part of merchandise, services and other revenues since
     it is included in the sales price. Under Mexican GAAP any stated and
     penalty interest is also included in merchandise, services and other
     revenues. Under U.S. GAAP the installment sales mark-up earned along with
     stated and penalty interest would be classified as interest earned from
     consumer credit operations. During the years ended December 31, 1996, 1997
     and 1998 the amount of installment sales mark-up earned for U.S. GAAP
     purposes was Ps1,049,990, Ps1,412,457 and Ps1,767,516, respectively.

     Under Mexican GAAP the loss on monetary position from accounts receivable
     is included in merchandise, services and other revenues since such accounts
     receivable relate to the installment sales contracts. Under U.S. GAAP the
     loss on monetary position from accounts receivable would not be part of
     operating income, but would be classified as an other financing expense.
     For the years ended December 31, 1996, 1997 and 1998 the loss on



                                      F-32
<PAGE>


     monetary position from accounts receivable was Ps461,923, Ps303,806 and
     Ps290,708, respectively.

v.   Consumer credit operations

     The results of the Company's consumer credit operations which are included
     in the consolidated results of operations are as follows:

<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                                             -----------------------
                                                        1996           1997          1998
                                                        ----           ----          ----

      <S>                                           <C>            <C>           <C>
      Consumer credit income:
      Mark-up from installment sales                Ps1,049,990    Ps1,412,457   Ps1,767,516
      Finance charges                                   181,211        222,221       211,406
                                                    -----------    -----------   -----------

                                                      1,231,201      1,634,678     1,978,922
                                                    -----------    -----------   -----------

      Consumer credit expenses:
      Interest                                          357,953        248,831       228,458
      Payroll                                           160,472        157,680       198,150
      Provision for doubtful accounts                   186,823        293,594       383,497
      Other credit and collection expenses               71,733         90,313        74,147
      Provision for income taxes and
      employees profit sharing                          199,853
                                                    -----------    -----------   -----------

      Total operating expenses                          976,834        790,418       884,252
                                                    -----------    -----------   -----------

      Earnings from consumer credit
      operations                                    Ps  254,367    Ps  844,260   Ps1,094,670
                                                    ===========    ===========   ===========
</TABLE>

vi.  Deferred income

     As described in Note 1, the Company received US$142 million in 1996
     relating to the Company's revised contractual agreements with Western Union
     which were deposited in an escrow fund and subsequently (at the direction
     of the Company) transferred to the Company via purchase, by the escrow
     account, of shares of various consolidated subsidiaries. Under Mexican
     GAAP, the escrow fund is treated as an independent, unconsolidated entity
     and the US$142 million relating to the shares purchased by the escrow fund
     is accounted for as minority interest (US$5.6 million) and the remainder
     (US$136.4 million) is treated as additional paid-in capital which are both
     components of consolidated stockholders' equity. The minority interest and
     additional paid-in capital will be reduced annually by an aggregate of
     US$14.2 million with a corresponding credit to revenue, as escrowed amounts
     are released to the Company under terms of the escrow agreement. Income tax
     expense will be recorded at the time of revenue recognition.



                                      F-33
<PAGE>


     Under U.S. GAAP, the escrow arrangement would be treated as a special
     purpose consolidated entity, with the US$142 million accounted for as
     deferred income to be recognized as revenue over periods up to 10 years in
     accordance with the contractual agreements. Income taxes will be recorded,
     as appropriate, under FAS No. 109.

vii. Securitization of receivables

     Under Mexican GAAP the Company accounted for the 1997 and 1998
     securitizations of receivables as sales of the receivables and derecognized
     from its balance sheets the receivables transferred under the programs
     against the proceeds received.

     Under U.S. GAAP, the transfer of the receivables in the 1997 and 1998
     securitization programs have been accounted for as secured borrowings in
     accordance with Statement of Financial Accounting Standards No. 125
     "Accounting for Transfers and Servicing of Financial Assets and
     Extinguishments of Liabilities". Consequently, under U.S. GAAP the Company
     reestablished on its balance sheets as of December 31, 1997 and 1998,
     receivables of Ps967,978 and Ps1,300,213, respectively, which include
     Ps91,069 and Ps337,687, respectively, that correspond to the guarantee on
     the securitized receivables. The Company also recorded as of December 31,
     1997 and 1998 a short-term and long-term liabilities of Ps876,909 and
     Ps962,526, respectively.

viii. Capitalized interest

     The Company capitalized exchange losses and interest incurred from
     borrowings obtained for construction projects in 1994. For the years ended
     December 31, 1996, 1997 and 1998 the Company did not capitalize exchange
     losses or interest. Under U.S. GAAP exchange losses are not capitalized and
     interest is capitalized by applying the weighted average interest rate paid
     by the Company to the capitalized costs related to the construction
     projects.

     Amount capitalized under Mexican GAAP:

     Interest (net of monetary gain)                   Ps 5,757
     Exchange losses                                     36,398
                                                       --------

                                                         42,155

     Amount capitalizable under U.S. GAAP                (9,907)
                                                       --------

     Difference                                        Ps32,248
                                                       ========

     The depreciation computed on this amount for the years ended December 31,
     1996, 1997 and 1998 was Ps3,193, Ps3,225 and Ps3,225, respectively.



                                      F-34
<PAGE>


ix.  Employee stock option plan

     The Company's stock option plan under U.S. GAAP would be considered a
     variable plan since the number of shares exercisable is contingent on the
     Company achieving its performance goals. Once the Company has determined
     the number of options to be exercisable in a particular year compensation
     expense is determined as the difference between the quoted market price and
     the option exercise price times the number of shares exercisable during the
     year. Compensation expense (income) relating to the Employee Stock Option
     Plan determined under Accounting Principles Board Opinion No. 25 was
     Ps131,919 in 1996, Ps264,864 in 1997, and (Ps89,551) in 1998.

     Had compensation cost for the Company's Employee Stock Option Plan been
     determined based on the fair value at the grant dates for awards under
     those plans consistent with the method of Statement of Financial Accounting
     Standards No. 123, "Accounting for Stock-Based Compensation", ("FAS No.
     123"), the Company's compensation expense for the years ended December 31,
     1996, 1997 and 1998 would have been Ps77,607, Ps310,991 and Ps23,749,
     respectively, and the net income per share would have been reduced to the
     proforma amounts as follows:

                                                  Year ended December 31,
                                                  -----------------------
                                               1996         1997         1998
                                               ----         ----         ----

     Net income as reported                  Ps652,829    Ps278,641    Ps262,612
                                             =========    =========    =========

     Net income proforma                     Ps707,142    Ps232,511    Ps149,312
                                             =========    =========    =========

     Net income per share as reported        Ps   0.18    Ps   0.08    Ps   0.07
                                             =========    =========    =========

     Net income per share proforma           Ps   0.19    Ps   0.07    Ps   0.04
                                             =========    =========    =========

     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
     grant is estimated on the date of grant using the weighted average
     Black-Scholes option pricing model and simple binomial model with the
     assumptions presented below:

                                                  Year ended December 31,
                                                  -----------------------
                                                  1997              1998
                                                  ----              ----

     Expected volatility                          0.533           0.7706
     Risk-free interest rate                         18%           29.99%
     Expected life of options in years             1.15             1.00
     Expected dividend yield                         15%              15%



                                      F-35
<PAGE>


     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.

     For Mexican GAAP purposes stock options granted to employees are given
     effect when exercised by crediting to paid-in capital stock the exercise
     price. Under Mexican GAAP the granting of the options has no effect on the
     Company's results of operations, cash flow or financial condition.

x.   Concentration of credit risk

     The Company is a retailer of consumer electronics, major appliances,
     household furniture and other products with 581 Elektra stores in Mexico,
     155 Hecali stores in Mexico and 83 Elektra stores in several Latin American
     countries at December 31, 1998. The Company regularly makes installment
     sales to its customers and credit operations are managed by each store
     based on established credit policies developed by the Company.

     Due to the significant number of installment sales customers and store
     locations the Company believes that it is not dependent on any geographical
     area or customer base and therefore has no significant concentration of
     credit risk.

     The Company currently has a network of approximately 170 suppliers for its
     electronics, appliances and furniture products and directly imports
     approximately 10.5% of these products. The Company typically does not
     maintain long-term purchase contracts with suppliers and principally
     operates on a purchase order basis. Although certain vendors are
     significant to the Company's business because of their name recognition,
     the Company does not believe that its business is dependent upon any one
     vendor or particular group of vendors.

xi.  Fair value information

     The following disclosure of the estimated fair value of financial
     instruments is made in accordance with the requirements of Statement of
     Financial Accounting Standards No. 107, "Disclosures about Fair Value of
     Financial Instruments" ("FAS No. 107"). The estimated fair value amounts
     have been determined by the Company, using available market information and
     appropriate valuation methodologies. However, considerable judgement is
     required in interpreting market data to develop estimates of fair value.

     The carrying value of cash and cash equivalents, accounts receivable and
     accounts payable is a reasonable estimate of their fair value.



                                      F-36
<PAGE>


     The carrying value of loans to related parties at December 31, 1997 and
     1998 is a reasonable estimate of their fair value based on the interest
     rates that are currently available to the related parties for issuance of
     notes with similar terms and remaining maturities.

     The Company's bank loans and other debt bear interest at variable rates and
     their terms are generally representative of those which are currently
     available to the Company at December 31, 1997 and 1998 for the issuance of
     debt with similar terms and remaining maturities, and therefore the
     carrying values of these loans and other debt are a reasonable estimate of
     their fair value.

     The fair value of the Company's long-term notes is based on quoted market
     prices. The estimated fair value of these instruments at December 31, are
     as follows:

                                    1997                1998
                                    ----                ----

     Carrying value            US$100,000,000      US$100,000,000
     Fair value                US$110,080,000      US$ 92,650,000

     The long-term notes are thinly traded financial instruments accordingly,
     their market price at any balance sheet date may not be representative of
     the price which would be derived from a more active market.

xii. Comprehensive income

     Effective January 1, 1998, the Company adopted Statement of Financial
     Accounting Standards No. 130, "Reporting Comprehensive Income", ("FAS No.
     130"), which establishes new standards for reporting and displaying
     comprehensive income and its components. It was not practical to determine
     the cumulative comprehensive income as of January 1, 1998.

xiii. Recently issued accounting standards

     In April 1998, Financing Accounting Standards Board ("FASB") issued
     Statement of Position 98-5, "Reporting on the Costs of Sart-up Activities"
     which is effective for fiscal years beginning after December 15, 1998. This
     statement of position provides guidance on the financial reporting of
     start-up costs and organization costs. It requires cost of start-up
     activities and organization costs to be expensed as incurred. The Company
     does not believe that the adoption of this SOP will have a material impact
     on its consolidated financial position or results of operations.

     In June 1998, the FASB issued Statement of Financial Accounting Standards
     No. 133, "Accounting for Derivative Instruments and Hedging Activities"
     ("FAS No. 133"), which requires that all derivative instruments be recorded
     on the balance sheet at their fair value. Changes in the fair value of
     derivatives are recorded each period in current earnings of other



                                      F-37
<PAGE>


     comprehensive income, depending on whether a derivative is designated as
     part of a hedge transaction and, if it is, the type of hedge transaction.
     The Company does not believe that the adoption of this standard will have a
     material impact on its consolidated financial position or results of
     operations.

xiv. Condensed balance sheets and income statements under U.S. GAAP:

     The following condensed balance sheets and statements of income reflect the
     effects of the principal differences between Mexican GAAP and U.S. GAAP.

                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   December 31,
                                                                   ------------
                                                               1997            1998
                                                               ----            ----
      <S>                                                  <C>            <C>
      Cash and cash equivalents                            Ps  485,685     Ps1,197,754
      Accounts receivable due from customers - net           2,605,766       2,541,032
      Inventories                                            2,247,155       2,140,448
      Other current assets                                     593,270         559,974
                                                           -----------     -----------

      Total current assets                                   5,931,876       6,439,208

      Property, machinery and equipment - net                1,247,208       2,125,469
      Other assets                                             997,242         593,167
      Investment in CASA                                       759,709         342,297
                                                           -----------     -----------

      Total assets                                         Ps8,936,035     Ps9,500,141
                                                           ===========     ===========


      Short-term debt                                      Ps2,808,336     Ps1,244,023
      Deferred income - current portion                        168,554         167,865
      Other current liabilities                              2,645,106       2,983,078
                                                           -----------     -----------

      Total current liabilities                              5,621,996       4,394,966

      Long-term debt                                           956,115       3,428,493
      Other long-term liabilities                              171,469         294,898
      Deferred income                                        1,179,878       1,007,189
                                                           -----------     -----------

      Total liabilities                                      7,929,458       9,125,546
                                                           -----------     -----------

      Minority interest                                         61,252          67,684
                                                           -----------     -----------

      Majority stockholders                                    945,325         306,911
                                                           -----------     -----------

      Total liabilities and stockholders' equity           Ps8,936,035     Ps9,500,141
                                                           ===========     ===========
</TABLE>



                                      F-38
<PAGE>


             CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                           -----------------------
                                                                   1996              1997            1998
                                                                   ----              ----            ----
      <S>                                                     <C>               <C>             <C>
      Revenues:
      Sales and money transfer services                       Ps 4,956,520      Ps 6,056,975    Ps 7,382,870
      Interest earned from consumer credit operations            1,231,201         1,634,678       1,978,922
      Other income                                                 154,642
                                                              ------------      ------------    ------------

                                                                 6,342,363         7,691,653       9,361,792
                                                              ------------      ------------    ------------

      Costs and expenses:
      Cost of sales                                             (3,288,089)       (4,170,258)     (4,943,805)
      Selling, general and administrative                       (1,722,676)       (2,211,790)     (2,598,060)
      Allowance for doubtful accounts                             (186,823)         (293,594)       (383,497)
      Employees' statutory profit sharing                            2,660            (1,043)         (2,043)
                                                              ------------      ------------    ------------

                                                                (5,194,928)       (6,676,685)     (7,927,405)
                                                              ------------      ------------    ------------

      Operating income                                           1,147,435         1,014,968        1,434,387
      Interest paid for consumer credit operations                (357,960)         (248,831)        (228,458)
      Other financing expense                                      (26,284)         (249,963)        (589,990)
                                                              ------------      ------------    -------------

      Income before taxes, equity in earnings and minority
      interest                                                     763,191           516,174          615,939

      Income and asset tax                                        (336,139)         (290,710)        (131,334)
                                                              ------------      ------------    -------------

      Income before equity in earnings and minority interest       427,052           225,464          484,605

      Equity in income (loss) of CASA                              224,574            68,105         (215,561)
                                                              ------------      ------------    -------------

      Income before minority interest                              651,626           293,569          269,044
      Minority interest                                              1,203           (14,928)          (6,432)
                                                              ------------      ------------    -------------

      Net income of majority stockholders                          652,829           278,641          262,612

      Effect of translation of foreign subsidiaries                                                    (5,844)
      Loss from holding non-monetary assets                        (96,816)         (209,529)        (328,256)
                                                              ------------      ------------    -------------

      Comprehensive income (loss)                             Ps   556,013      Ps    69,112   (Ps     71,488)
                                                              ============      ============    =============
</TABLE>

xv.  Cash flow information

     Under US GAAP a statement of cash flow is prepared based on provisions of
     Statement of Financial Accounting Standards No. 95, "Statement of Cash
     Flows" ("FAS No. 95"). This statement does not provide guidance for the
     preparation of cash flow statements for price level adjusted financial
     statements.



                                      F-39
<PAGE>


     Presented below are statements of cash flows for the years ended December
     31, 1996 and 1997, prepared after considering the impact of U.S. GAAP
     adjustments. The cash flow statements are net of certain non cash
     transactions but include the effects of inflation on cash flow and have
     been restated to pesos of December 31, 1998, purchasing power.

<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                                                             -----------------------
                                                                             1996               1997
                                                                             ----               ----
     <S>                                                                 <C>               <C>
     Cash flows from operating activities:

     Net income                                                          Ps   652,829      Ps   278,641
     Adjustments to reconcile net income to net cash provided
     by operating activities:

     Depreciation and amortization                                             90,752           159,660
     Allowance for doubtful accounts                                          186,823           293,594
     Equity in income of affiliated company                                  (224,574)          (68,105)
     Gain on sale of shares of affiliated company                            (153,345)
     Accrual for seniority premiums                                             4,005             6,618
     Monetary gain from financing activities                                   (7,585)          (21,151)
     Deferred income tax and employees' profit sharing                        206,392           182,663
     Stock options granted to employees                                       131,919           264,864
     Deferred income from Western Union agreement                           1,484,200          (135,768)
     Other                                                                                     (126,831)
     Net changes in working capital                                        (1,437,146)       (1,499,977)
                                                                         ------------      ------------

     Net cash provided by (used in) operating activities                      934,270          (665,792)
                                                                         ------------      ------------

     Cash flows from investing activities:

     Acquisition of property, furniture, equipment and
     investment in stores                                                    (337,348)         (932,316)
     Investments in shares                                                   (459,853)
     Dividend received from affiliated company                                 37,207
     Proceeds from sale of shares of affiliated company                       253,285
                                                                         ------------      ------------

     Net cash used in investing activities                                   (506,709)         (932,316)
                                                                         ------------      ------------

     Cash flows from financing activities:

     Proceeds from short-term and long-term debt                            1,855,206         1,840,473
     Proceeds from securitization of receivables - Net                                          876,909
     Repayment of short-term debt                                          (1,797,327)         (772,260)
     Capitalized lease obligations                                            (26,694)          (54,958)
     Issuance of capital stock                                                 19,126            92,634
     Repurchase of capital stock                                             (216,936)          (24,961)
     Payment of dividends                                                     (88,973)         (145,559)
     Contribution from minority stockholders                                   65,345
                                                                         ------------      ------------

     Net cash (used in) provided by financing activities                     (190,253)        1,812,278
                                                                         ------------      ------------

     Increase in cash and cash equivalents                                    237,308           214,170
     Cash and cash equivalents at beginning of year                            34,207           271,515
                                                                         ------------      ------------

     Cash and cash equivalents at end of year                            Ps   271,515      Ps   485,685
                                                                         ============      ============

     Supplemental disclosure:
     Cash paid during the year for:
     Interest                                                            Ps   429,012      Ps   479,973
                                                                         ============      ============

     Income Tax                                                          Ps    92,772      Ps   108,523
                                                                         ============      ============
</TABLE>

     Non cash transactions:
     During 1996 the Company financed certain capital expenditures totaling
     Ps125,683 through the issuance of capital leases.



                                      F-40
<PAGE>


     Presented below is a statement of cash flow for the year ended December 31,
     1998, prepared after considering the impact of U.S. GAAP adjustments. The
     cash flow statement presents nominal cash flow during the period, adjusted
     to pesos of December 31, 1998, purchasing power.

<TABLE>
<CAPTION>
                                                                                         Year ended
                                                                                        December 31,
                                                                                            1998
                                                                                        ------------
      <S>                                                                             <C>
      Cash flows from operating activities:

      Net income                                                                      Ps   262,612
      Adjustments to reconcile net income to net cash provided by
      operating activities:
      Depreciation and amortization                                                        326,163
      Allowance for doubtful accounts                                                      383,497
      Equity in loss of affiliated company                                                 215,561
      Minority stockholders                                                                  6,432
      Accrual for seniority premiums                                                         5,235
      Monetary gain from financing activities                                             (128,930)
      Deferred income tax and employees' profit sharing                                     26,291
      Stock options granted to employees                                                   (89,551)
      Deferred income from Western Union agreement                                        (141,006)
      Unrealized exchange losses - Net                                                     215,211
      Net changes in working capital                                                      (306,490)
                                                                                      ------------

      Net cash provided by operating activities                                           (775,025)
                                                                                      ------------

      Cash flows from investing activities:

      Acquisition of property, furniture, equipment and investment in stores              (560,316)
      Investments in shares                                                               (149,120)
                                                                                      ------------

      Net cash used in investing activities                                               (709,436)
                                                                                      ------------

      Cash flows from financing activities:

      Short-term loans received                                                            551,294
      Proceeds from long-term debt                                                       1,486,911
      Proceeds from securitization of receivables - Net                                    962,526
      Repayment of securitzation of receivables                                           (876,909)
      Repayment of short-term debt                                                        (890,552)
      Repurchase of long-term notes                                                        (59,880)
      Capitalized lease obligations                                                        (64,460)
      Issuance of capital stock                                                              4,850
      Repurchase of capital stock                                                          (63,761)
      Payment of dividends                                                                (111,611)
                                                                                      ------------

      Net cash provided by financing activities                                            953,165
                                                                                      ------------

      Effects of inflation                                                                (291,928)

      Increase in cash and cash equivalents                                                712,069
      Cash and cash equivalents at beginning of year                                       485,685

      Cash and cash equivalents at end of year                                        Ps 1,197,754
                                                                                      ============

      Supplemental disclosure:
      Cash paid during the year for:
      Interest                                                                        Ps   544,393
                                                                                      ============

      Income tax                                                                      Ps   119,514
                                                                                      ============
</TABLE>


     Non cash transactions:
     The Company recorded capital lease obligations of Ps1,952 during 1998,
     related to the acquisition of property.



                                      F-41
<PAGE>



                             ELEKTRA, S. A. DE C. V.
                  (subsidiary of Grupo Elektra, S. A. de C. V.)

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1998


                                      F-42

<PAGE>


                             ELEKTRA, S. A. DE C. V.
                  (subsidiary of Grupo Elektra, S. A. de C. V.)

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1998

                                      INDEX


Contents                                                                   Page
--------                                                                   ----

Report of independent accountants                                         F - 44

Financial statements:

Balance sheets                                                            F - 46

Statements of income                                                      F - 47

Statements of changes in stockholders' equity                             F - 48

Statements of changes in financial position                               F - 49

Notes to the financial statements                                         F - 50


                                      F-43
<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS


Mexico City, February 28, 1999


To the Stockholders of Elektra, S. A. de C. V.

1.   We have audited the balance sheets of Elektra, S. A. de C. V. (the
     "Company") as of December 31, 1997 and 1998, and the related statements of
     income, of changes in stockholders' equity and of changes in financial
     position for each of the three years in the period ended December 31, 1998,
     all expressed in constant pesos of December 31, 1998 purchasing power.
     These 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, which are similar in all material respects with
     auditing standards generally accepted 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
     generally accepted accounting principles. 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 statements presentation. We believe that
     our audits provide a reasonable basis for our opinion.

2.   In our opinion, the aforementioned financial statements present fairly, in
     all material respects, the financial position of Elektra, S. A. de C. V. at
     December 31, 1997, and 1998, and the results of its operations, changes in
     its stockholders' equity and changes in its financial position for each of
     the three years in the period ended December 31, 1998, in conformity with
     accounting principles generally accepted in Mexico.


                                      F-44

<PAGE>


3.   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 net income, expressed in pesos of December 31, 1998,
     purchasing power for each of the three years in the period ended December
     31, 1998, and the determination of stockholders' equity at December 31,
     1997 and 1998 also expressed in pesos of December 31, 1998 purchasing
     power, to the extent summarized in Note 9 to the financial statements.


PricewaterhouseCoopers


Javier Soni O.


                                      F-45

<PAGE>


                             ELEKTRA, S. A. DE C. V.
                  (subsidiary of Grupo Elektra, S. A. de C. V.)

                                 BALANCE SHEETS

                          Thousands of Mexican pesos of
                       December 31, 1998 purchasing power

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                  -------------------------
                                                                                     1997          1998
                                                                                  -----------   -----------
<S>                                                                                <C>           <C>
Assets:

CURRENT ASSETS:
Cash and cash equivalents                                                          Ps 371,418    Ps 899,841
                                                                                  -----------   -----------
Accounts receivable:
Customers, less allowance for doubtful accounts
of Ps21,821 in 1997 and Ps 8,679 in 1998                                               24,898        31,093
Related parties - Net (Note 3)                                                      2,283,662     1,315,840
Recoverable taxes                                                                     138,150        77,908
Other receivables                                                                     107,165       199,284
                                                                                  -----------   -----------

                                                                                    2,553,875     1,624,125
                                                                                  -----------   -----------
Inventories (Note 4)                                                                1,699,419     1,693,128
                                                                                  -----------   -----------

Prepaid expenses                                                                      179,236       218,178
                                                                                  -----------   -----------

Total current assets                                                                4,803,948     4,435,272

TRANSPORTATION EQUIPMENT, OTHER EQUIPMENT
AND INVESTMENT IN STORES, less accumulated depreciation
of Ps119,043 in 1997 and Ps207,290 in 1998                                            232,204       210,317

INVESTMENT IN SHARES (Note 1)                                                                        42,908
GOODWILL, less accumulated amortization of Ps1,625 (Note 1)                                         128,402
OTHER ASSETS                                                                           13,323        23,796
                                                                                  -----------   -----------

                                                                                  Ps5,049,475   Ps4,840,695
                                                                                  ===========   ===========

Liabilities and Stockholders' Equity

CURRENT LIABILITIES:
Bank loans (Note 5)                                                               Ps1,594,004   Ps1,133,178
Suppliers                                                                             992,367     1,227,085
Accounts payable and accrued expenses                                                 180,529       176,026
                                                                                  -----------   -----------

Total current liabilities                                                           2,766,900     2,536,289

RELATED PARTIES (Note 3)                                                              680,439       706,777
OTHER LONG-TERM LIABILITIES                                                             3,493           142
                                                                                  -----------   -----------

                                                                                    3,450,832     3,243,208
                                                                                  -----------   -----------
STOCKHOLDERS' EQUITY (Note 6):
Capital stock                                                                          77,471        77,471
Paid-in capital                                                                       484,434       484,434
Retained earnings                                                                   2,152,778     2,409,709
Loss from holding nonmonetary assets                                               (1,116,040)   (1,374,127)
                                                                                  -----------   -----------

                                                                                    1,598,643     1,597,487
                                                                                  -----------   -----------
CONTINGENCY (Note 8)

                                                                                  Ps5,049,475   Ps4,840,695
                                                                                  ===========   ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                      F-46

<PAGE>


                             ELEKTRA, S. A. DE C. V.

                              STATEMENTS OF INCOME
                                    (Note 3)

                          Thousands of Mexican pesos of
                       December 31, 1998 purchasing power

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                        ---------------------------------------
                                                            1996         1997           1998
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Net sales                                               Ps5,229,490   Ps5,424,276   Ps5,537,250
Money transfer services                                     295,977       281,945       321,779
Cost of sales                                            (3,004,455)   (3,960,342)   (4,027,123)
                                                        -----------   -----------   -----------

                                                          2,521,012     1,745,879     1,831,906
                                                        -----------   -----------   -----------

Sale and administrative expenses                          1,001,710     1,209,824     1,466,478
Expenses (income) pertaining to services received from
or rendered to affiliated companies                         921,827      (203,022)     (302,613)
Other expenses (income) - Net                                 1,681      (176,923)       (3,084)
                                                        -----------   -----------   -----------

                                                          1,925,218       829,879     1,160,781
                                                        -----------   -----------   -----------

Operating income                                            595,794       916,000       671,125
                                                        -----------   -----------   -----------

Comprehensive financing cost:
Interest income                                             247,882       153,526       209,381
Interest expense                                           (613,752)     (569,134)     (388,147)
Exchange loss - Net                                         (47,982)      (53,587)     (273,956)
Gain (loss) on net monetary position                         29,051       (76,444)       86,740
                                                        -----------   -----------   -----------

                                                           (384,801)     (545,639)     (365,982)
                                                        -----------   -----------   -----------

Income before taxes, equity in affiliated
company and extraordinary items                             210,993       370,361       305,143

Asset tax and income tax (Note 7)                            51,693        14,189        48,372
                                                        -----------   -----------   -----------

Income before equity in affiliated company and
extraordinary items                                         159,300       356,172       256,771
Equity in income of affiliated company                                                   10,768
                                                        -----------   -----------   -----------

Income before extraordinary items                           159,300       356,172       267,539

Sale of shares of affiliated company - Net (Note 1)         227,379

Benefit from realization of prior years' tax loss
carryforwards (Note 7)                                       34,842                       5,583
                                                        -----------   -----------   -----------

Net income                                              Ps  421,521   Ps  356,172   Ps  273,122
                                                        ===========   ===========   ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                      F-47

<PAGE>


                             ELEKTRA, S. A. DE C. V.

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                   Thousands of Mexican pesos of December 31,
                              1998 purchasing power

<TABLE>
<CAPTION>
                                                                                                        Loss from
                                                                                                         holding
                                                         Capital         Paid-in        Retained       nonmonetary
                                                          stock          capital        earnings         assets             Total
                                                        --------        ---------     ------------     -----------      -----------
<S>                                                    <C>             <C>            <C>             <C>              <C>
Balances at January 1, 1996                             Ps76,890                      Ps 1,456,991     (Ps 475,285)     Ps1,058,596

Issuance of capital stock                                    581        Ps484,434                                           485,015

Net income                                                                                 421,521                          421,521

Loss from holding nonmonetary
assets
                                                                                                          (454,352)        (454,352)
                                                        --------        ---------     ------------     -----------      -----------


Balances at December 31, 1996                             77,471          484,434        1,878,512        (929,637)        1,510,780

Payment of dividends                                                                       (81,906)                         (81,906)

Net income                                                                                 356,172                          356,172

Loss from holding nonmonetary
assets                                                                                                    (186,403)        (186,403)

Balances at December 31, 1997                             77,471          484,434        2,152,778      (1,116,040)       1,598,643
                                                        --------        ---------     ------------     -----------      -----------

Payment of dividends                                                                       (16,191)                         (16,191)

Net income                                                                                 273,122                          273,122

Loss from holding nonmonetary assets                                                                      (258,087)        (258,087)
                                                        --------        ---------     ------------     -----------      -----------

Balances at December 31, 1998                           Ps77,471        Ps484,434      Ps2,409,709    (Ps1,374,127)     Ps1,597,487
                                                        ========        =========     ============     ===========      ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                      F-48

<PAGE>


                             ELEKTRA, S. A. DE C. V.
                   STATEMENTS OF CHANGES IN FINANCIAL POSITION

                          Thousands of Mexican pesos of
                       December 31, 1998 purchasing power

<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                                                            ------------------------------------------
                                                              1996             1997            1998
                                                            ----------      ----------      ----------
<S>                                                         <C>              <C>            <C>
Operations:

Income before extraordinary items                           Ps 159,300       Ps356,172      Ps 267,539
Charges (credits) to income not affecting resources:
Depreciation and amortization                                   51,041          69,024          88,247
Allowance for doubtful accounts                                  3,055           8,042           1,800
Equity in income of affiliated company                         (10,768)
Variation in inventories, accounts receivable and
payable, related parties and other assets                   (1,082,298)       (985,356)        919,749
                                                            ----------       ---------      ----------

Resources (used in) provided by operations before
extraordinary items                                           (868,902)       (552,118)      1,266,567

Sale of shares of affiliated company - Net                     227,379
Benefit from realization of prior years tax loss
carryforwards                                                   34,842                           5,583
                                                            ----------       ---------      ----------

Resources (used in) provided by operations                    (606,681)       (552,118)      1,272,150
                                                            ----------       ---------      ----------

Financing:

Increase in capital stock                                      485,015
Related parties                                                680,439
Payment of dividends                                                           (81,906)        (16,191)
Bank loans (paid) received                                    (349,393)        903,372        (460,826)
                                                            ----------       ---------      ----------

Resources provided by (used in) financing activities           816,061         821,466        (477,017)
                                                            ----------       ---------      ----------

Investment:

Investment in shares                                                                          (162,168)
Acquisition of equipment and investment in stores - Net        (80,020)        (72,173)       (104,542)
                                                            ----------       ---------      ----------

Resources used in investment activities                        (80,020)        (72,173)       (266,710)
                                                            ----------       ---------      ----------

Increase in cash and cash equivalents                          129,360         197,175         528,423

Cash and cash equivalents at beginning of year                  44,883         174,243         371,418
                                                            ----------       ---------      ----------

Cash and cash equivalents at end of year                    Ps 174,243       Ps371,418      Ps 899,841
                                                            ==========       =========      ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                      F-49

<PAGE>


                             ELEKTRA, S. A. DE C. V.
                  (subsidiary of Grupo Elektra, S. A. de C. V.)

                        NOTES TO THE FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1998

            (monetary figures expressed in thousands of Mexican pesos
             of December 31, 1998 purchasing power, except Note 7)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The main operations of Elektra, S. A. de C. V. (Elektra or the "Company") is the
sale of consumer electronics, major appliances and household furniture through
the operation of 581 stores nationwide. Additionally, the Company provides money
transfer services from the United States of America to Mexico and within Mexico.
Due to the fact that the Company has no employees, all services related with its
activity are rendered by affiliated companies.

Until 1996, the Company made installment sales to customers and the related
accounts receivable were sold to an affiliated Company. As from 1997, sales are
made to the affiliated Company that resells the merchandise to the customers on
the installment plan.

In January 1996, the Company sold its equity in Servicio Mexicano de Entregas,
S. A. de C. V. to Western Union at a profit of Ps227,379 after deducting the
related income tax and the receipt of dividends of Ps36,970 from the affiliated
Company.

In January 1996, the Company entered into a revised agreement with Western Union
for the transfer of money from the United States to Mexico, under which, the
Company will receive US$14.2 million annually over ten years. For this purpose,
Western Union deposited US$142 million into an escrow account, which in turn
invested this amount by purchasing 2% of the shares of Elektra and two
affiliated companies.

The Company is a subsidiary of Corporacion Diprofin, S. A. de C. V., which is a
subsidiary of Grupo Elektra, S. A. de C. V. In August, 1998, the Company
acquired 6% of the capital stock of Grupo Hecali, S. A. de C. V. for Ps162,168,
giving rise to goodwill of Ps130,028.

The financial statements are prepared in conformity with accounting principles
generally accepted in Mexico.


                                      F-50

<PAGE>


The significant accounting policies including the concepts, methods and criteria
related to the recognition of the effects of inflation on the financial
statements, are summarized below:

a.   The Company considers all highly liquid investments with original
     maturities of less than three months to be cash equivalents, and states
     them at market value.

b.   Inventories and cost of sales are originally determined through the average
     cost method and are restated at their replacement costs and by applying
     factors derived from the National Consumer Price Index (NCPI),
     respectively. Amounts so determined do not exceed current market value.

c.   Transportation and other equipment are restated by applying factors derived
     from the NCPI to the acquisition cost of equipment acquired. Investment in
     stores represents major improvements necessary for the opening of Elektra
     Stores. These investments are recorded at acquisition cost and are restated
     by applying factors derived from the NCPI.

     Depreciation is calculated by the straight-line method based on the
     estimated useful lives of the assets. Amortization of investment in stores
     is calculated by the straight-line method over periods no longer than five
     years.

d.   Investment in shares is restated by the equity method, based on the audited
     financial statements of the companies in which investments are held.

e.   The excess of cost over book value of shares of subsidiaries acquired
     (goodwill) is amortized over 20 years and is restated by applying factors
     derived from the NCPI to the historical amounts.

f.   Charges to income for income tax are based on financial pretax income after
     adjustment for items excluded by law from the determination of taxable
     profits (permanent differences) and for temporary differences the
     realization of which is uncertain in a definite period of time. At December
     31, 1997 and 1998, there were no significant temporary differences that
     required the recognition of deferred income tax.

g.   Transactions in foreign currencies are recorded at the rate of exchange
     prevailing on the dates they are entered into. Assets and liabilities
     denominated in these currencies are stated at the Mexican peso equivalents
     resulting from applying the year-end rates. 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 date, are charged or credited to income.

h.   Capital stock, paid-in capital and retained earnings represent the amounts
     of these items expressed in pesos of purchasing power as of December 31,
     1998 and are determined by applying factors derived from the NCPI to the
     historical amounts.


                                      F-51

<PAGE>


i.   The Company recognizes revenue on the accrual basis when goods are
     delivered to customers.

j.   The gain or loss on net monetary position represents the effect of
     inflation, as measured by the NCPI, on the Company's average monthly net
     monetary liabilities or assets, respectively, during the year, as restated
     in pesos of purchasing power at the end of the most recent period.

k.   The loss from holding nonmonetary assets represents the amount by which the
     increase in the values of nonmonetary assets fell short of the inflation
     rate, measured in terms of the NCPI.

l.   The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affects the amounts reported in the financial statements.
     Actual results could differ from those estimates.

NOTE 2 - FOREIGN CURRENCY POSITION:

At December 31, 1997 and 1998, the Company had the following monetary assets and
liabilities in US dollars:

                                               Thousands of US dollars
                                             ---------------------------
                                                1997             1998
                                             -----------      ----------

Assets                                       US$  16,635      US$ 18,415
Liabilities                                     (125,297)        (31,352)
                                             -----------      ----------
Short net position                          (US$ 108,662)    (US$ 12,937)
                                             ===========      ==========

At December 31, 1998, the exchange rate was Ps9.93 to the US dollar (Ps8.06 at
December 31, 1997). At February 28, 1999, date of issuance of the financial
statements, the exchange rate was Ps10.10 to the U.S. dollar.

Below is a summary of the principal transactions denominated in foreign
currencies carried out by the Company in 1996, 1997 and 1998:

                                         1996          1997            1998
                                      ----------    ----------      ----------

Money transfer services               US$ 23,649    US$ 24,008      US$ 24,270
Interest expense                                        (2,840)         (3,740)
                                      ----------    ----------      ----------
                                      US$ 23,649    US$ 21,168      US$ 20,530
                                      ==========    ==========      ==========


                                      F-52

<PAGE>


NOTE 3 - BALANCES AND TRANSACTIONS WITH RELATED PARTIES:

a. Balances:
                                                            December 31,
                                                     ---------------------------
                                                         1997            1998
                                                     -----------     -----------

Accounts receivable from:

Grupo Elektra, S. A. de C. V                         Ps1,183,886     Ps  472,528
Corporacion Diprofin, S. A. de C. V                      426,799         745,008
Inmuebles Ardoma, S. A. de C. V                          204,380         218,947
Mercadotecnia Tezontle, S. A. de C. V                    143,476         206,627
Elektra Centroamerica, S. A. de C. V                      81,401          31,890
Hecali, S. A. de C. V                                     85,200         177,654
Other                                                    396,463         512,518
                                                     -----------     -----------
                                                     Ps2,521,605     Ps2,365,172
                                                     -----------     -----------

Accounts payable to:

Elektrafin, S. A. de C. V                            Ps  123,785     Ps  930,711
Other                                                    114,158         118,621
                                                     -----------     -----------
                                                         237,943       1,049,332
                                                     -----------     -----------

Net balance                                          Ps2,283,662     Ps1,315,840
                                                     ===========     ===========
Long-term borrowings from related parties            Ps  680,439     Ps  706,777
                                                     ===========     ===========

The principal transactions with related parties are as follows:

Sales

Beginning in 1997, sales on the installment plan are made initially to
Elektrafin, S. A. de C. V., which subsequently resells the merchandise to the
final customer. In 1997 and 1998 sales to Elektrafin amounted to Ps2,818,153 and
Ps2,954,932, respectively.

Interest income

During the years ended December 31, 1996, 1997 and 1998 the Company extended
short-term loans to Grupo Elektra, S. A. de C. V and to other related parties.
Interest income under these arrangements amounted to Ps179,867, Ps185,782 and
Ps184,249, respectively.

Administrative services

During the years ended December 31, 1996, 1997 and 1998, the Company provided
administrative services to Elektrafin, S. A. de C. V. and to other related
parties, of Ps168,708, Ps747,147, and Ps782,105, respectively.


                                      F-53

<PAGE>


Interest expense

In 1996 the Company received a long-term loan of US$71 million and payable in
May 2001 from Grupo Elektra, S. A. de C. V., subject to interest at 13% per
annum. In 1996 and 1997, other related parties extended short-term loans to the
company, most of which were repaid during 1998. Interest expense incurred under
this and previous arrangements amounted to Ps384,553, Ps370,799 and Ps153,635
for the years ended December 31, 1996, 1997 and 1998, respectively.

Purchases of merchandise

During the years ended December 31, 1996, 1997 and 1998, the Company purchased
imported merchandise from Importaciones Electronicas Ribesa, S. A. de C. V. for
Ps308,323, Ps268,227 and Ps304,314, respectively.

Rentals and other services

For the years ended December 31, 1996, 1997 and 1998 the Company paid to certain
related parties rentals and other services of Ps411,096, Ps483,317 and
Ps479,492, respectively.

Advertising expenses

In March 1996, the Company entered into an agreement with TV Azteca whereby
Elektra will purchase 5,200 minutes per year of advertising time from TV Azteca,
to be transmitted in otherwise unsold time for US$1.5 million per year for each
of the next ten years. For the years ended December 31, 1996, 1997 and 1998 the
payments under this arrangement amounted to Ps24,704, Ps15,101 and Ps21,755,
respectively. Under the agreement the Company may purchase additional minutes at
the same contract terms.


NOTE 4 - INVENTORIES:

                                                           December 31,
                                                   ----------------------------
                                                       1997            1998
                                                   -----------      -----------

Name brand merchandise                             Ps1,429,197      Ps1,454,360
Other merchandise                                      169,897          125,267
Elektra brand name merchandise                          74,346           56,991
Merchandise in transit                                  26,593           57,028
                                                   -----------      -----------
                                                     1,700,033        1,693,646

Less - Allowance for obsolete inventories                 (614)            (518)
                                                   -----------      -----------

                                                   Ps1,699,419      Ps1,693,128
                                                   ===========      ===========


                                      F-54

<PAGE>


NOTE 5 - SHORT-TERM BANK LOANS:

<TABLE>
<CAPTION>
                                                                     December 31,
                                                             ----------------------------
                                        Interest
                                          rate                  1997             1998
                                     --------------          -----------      -----------
<S>                                  <C>                     <C>              <C>
Unsecured loans payable in:

Mexican pesos                        36.6% to 39.7%          Ps1,099,752      Ps  821,848
US dollars                           8.09% to 8.30%              494,252          311,330
                                                             -----------      -----------
                                                             Ps1,594,004      Ps1,133,178
</TABLE>

NOTE 6 - STOCKHOLDERS' EQUITY:

At an Extraordinary Meeting held on March 21, 1996, the stockholders approved a
Ps581 (Ps359 nominal) increase in the variable portion of the capital stock
through the issuance of 359,446 common shares of one peso par value each, which
were paid for in cash, including an excess of par value of Ps484,434 (Ps299,453
nominal).

After this increase, the capital stock as of December 31, 1997 and 1998, is
represented by 17,972,326 common registered shares of one peso par value each,
distributed as shown below:

                                                                         Amount
                                                                       --------

Fixed minimum capital stock, represented by 8,982,569
Series "A" shares                                                      Ps 8,983

Variable portion, represented by 8,989,757 Series "B" shares              8,990
                                                                       --------

                                                                         17,973

Restatement increase                                                     59,498
                                                                       --------

Capital stock expressed in Mexican
pesos of December 31, 1998 purchasing power                            Ps77,471
                                                                       ========

In accordance with the Company's by-laws, at least 51% of the capital stock must
be held by Mexican nationals.

In the event that dividends are paid from retained earnings which have not
previously been taxed, a tax equivalent to 53.85% of the dividend will be
payable by the Company. Additionally, dividends paid to individuals or to
parties resident abroad are subject to a maximum tax witholding of 7.69%,
regardless of any previous taxation of such dividends. Capital stock reductions
in excess of the sum of the balances of capital contributions accounts, net tax
income and reinvested net tax income, inflation-indexed in accordance with the
procedures established in the Income Tax Law, are accorded the same tax
treatment as dividends.


                                      F-55

<PAGE>


NOTE 7 - INCOME TAX AND ASSET TAX:

Amounts in this note are expressed in nominal pesos.

In the year ended December 31, 1998, the Company had income for tax purposes of
Ps130,265, which was partially offset by tax loss carryforwards of Ps15,042. The
tax benefit amounted to Ps5,583 and is presented in the statement of income as
an extraordinary item.

For the years ended December 31, 1996, 1997 and 1998, the difference between
taxable and financial income is mainly due to the effect of the tax deduction of
inventory purchases, offset by the non-allowable deduction of cost of sales, to
the difference between the effect of the inflationary component determined for
book and tax purposes, and to nondeductible expenses.

At December 31, 1996, 1997 and 1998 the Company determined asset tax of Ps5,334,
Ps11,963 and Ps21,976, respectively. At December 31, 1998, recoverable asset tax
amounted to Ps11,963.

NOTE 8 - CONTINGENCY:

The Company is the guarantor of long term notes amounting to US$100 million
issued by Grupo Elektra, S. A. de C. V. (holding company).

NOTE 9 - RECONCILIATION BETWEEN MEXICAN (MEXICAN GAAP) AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP):

The Company's financial statements are prepared in accordance with Mexican GAAP,
which differ in certain significant respects from U.S. GAAP. The Mexican GAAP
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 Statement represents a comprehensive
measure of the effects of price level changes in the Mexican economy, which for
many years was hyperinflationary, and is considered to result in a more
meaningful presentation than historical cost-based financial reporting for both
Mexican and U.S. accounting purposes. Therefore the following reconciliation to
U.S. GAAP do not include the reversal of such inflationary effects.

The principal differences between Mexican GAAP and U.S. GAAP are summarized
below with an explanation, where appropriate, of the effects on net income and
stockholders' equity. The various reconciling items are presented net of any
price level gain (loss).


                                      F-56

<PAGE>


a.   Reconciliation of net income and stockholders' equity:

<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                                        --------------------------------------------------
                                                           1996               1997                1998
                                                        ----------         ----------          -----------
<S>                                                     <C>                <C>                 <C>
Net income under Mexican GAAP                           Ps 421,521         Ps 356,172          Ps 273,122
Deferred income tax effects                               (112,229)          (175,779)             17,363
Monetary loss on receivables from related
parties                                                   (372,843)          (162,081)           (131,027)
Effect of sales mark-up on installment sales               128,481              1,710
                                                        ----------         ----------          -----------

Net income under US GAAP                                Ps  64,930*        Ps  20,022*         Ps 159,458
                                                        ==========         ==========          ==========
</TABLE>

                                                       December 31,
                                               ----------------------------
                                                   1997            1998
                                               -----------      -----------
Stockholders' equity under Mexican
GAAP                                           Ps1,598,643      Ps1,597,487
Deferred income tax effects                       (608,054)        (590,691)
Reclassification of capital contribution
to deferred income                                (485,015)        (485,015)
                                               -----------      -----------

Stockholders' equity under US GAAP             Ps  505,574*     Ps  521,781
                                               ===========      ===========


An analysis of the changes in stockholders' equity under US GAAP is as follows:

<TABLE>
<CAPTION>
                                                 1996           1997        1998
                                              ---------      ---------    ---------
<S>                                           <C>            <C>          <C>
Balance at beginning of year                  Ps608,359      Ps591,780    Ps505,574
Net income                                       64,930         20,022      159,458
Payment of dividends                                           (81,906)     (16,191)
Loss from holding nonmonetary assets            (81,509)       (24,322)    (127,060)
                                              ---------      ---------    ---------

Balance at end of year                        Ps591,780*     Ps505,574*   Ps521,781
                                              =========      =========    =========
</TABLE>

*    Restated from prior years

b.   Restatement of prior year amounts:

During 1998 the Company determined that various differences occurred in the
determination of net income (loss) and stockholders' equity under US GAAP as of
and for the year ended December 31, 1996 and 1997. These differences relate
principally to the recognition of deferred income, the recognition of cash
advance to related parties and the effect of sales mark up on installment sales.
The effect of these differences on previously reported amounts is shown on the
following page.


                                      F-57

<PAGE>


<TABLE>
<CAPTION>
                                                      Net income (loss)              Stockholders' equity
                                                 --------------------------       --------------------------
                                                   Year ended December 31,              At December 31,
                                                 --------------------------       --------------------------
                                                   1996             1997            1996             1997
                                                 ---------        ---------       ---------        ---------
<S>                                              <C>              <C>             <C>              <C>
As previously reported                           Ps307,582        Ps422,128       Ps836,770        Ps990,589

Effect of differences relating to:
Reclassification of capital contribution
to deferred income                                                                 (485,015)        (485,015)
Monetary loss on receivables from
related parties                                   (372,843)        (162,081)
Effect of sales mark-up on
installment sales-Net                              130,191         (240,025)        240,025
                                                 ---------        ---------       ---------        ---------

                                                  (242,652)        (402,106)       (244,990)        (485,015)
                                                 ---------        ---------       ---------        ---------

As restated                                      Ps 64,930        Ps 20,022       Ps591,780        Ps505,574
                                                 =========        =========       =========        =========
</TABLE>

Previously reported amounts did not include any adjustments for deferred income,
monetary loss on receivables from related parties, and the recognition of the
effect of sales mark-up on installment sales in each year.

c.   Significant differences between US GAAP and Mexican GAAP:

i.   Deferred income tax.

     As stated in Note 1f., income tax is recorded under Mexican GAAP following
     interperiod allocation procedures under the partial liability method. Under
     this method, deferred tax is recognized only in respect of nonrecurring
     timing differences between taxable and book income, which are expected to
     reverse at a definite future date. Also, under Mexican GAAP the benefit
     from utilizing tax loss carryforwards and asset tax credits are not
     recognized until utilized, at which time it is presented as an
     extraordinary item.

     U.S. GAAP Statement of Financial Accounting Standards No. 109 "Accounting
     for Income Taxes" ("FAS No. 109") 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 carryforwards;
     (c) the measurement of current and deferred tax liabilities and assets is
     based on provisions of the enacted tax laws 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 in respect of all
     temporary differences, and the benefit from utilizing tax loss
     carryforwards and asset tax


                                      F-58

<PAGE>


     credits is recognized in the year in which the loss or credits arise
     (subject to a valuation allowance in respect of any tax benefits not
     expected to be realized). The subsequent realization of this benefit does
     not affect income. Consequently, they do not represent extraordinary items
     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 financial statements. Except
     as indicated in the following paragraph, the deferred tax expense or
     benefit is calculated as the difference between: (a) the deferred tax
     assets and liabilities at the end of the current period determined as
     indicated above, and (b) the deferred tax assets and liabilities reported
     at the end of the prior period remeasured to units of current general
     purchasing power at the end of the current period.

     Gains and losses from holding nonmonetary assets are recorded in
     stockholders' equity. It is the Company's policy to reflect the deferred
     income taxes that arise as a result of such gains (losses) from assets or
     liabilities which do not currently affect income in the results of
     operations.

The significant components of income tax expense under US GAAP are as follows:

                                            Year ended December 31,
                                  ------------------------------------------
                                     1996            1997             1998
                                  ---------        ---------        --------
         Current                  Ps 16,851                         Ps42,789
         Deferred                   112,229        Ps175,779         (17,363)
         Asset tax                                    14,189
                                  ---------        ---------        --------
                                  Ps129,080        Ps189,968        Ps25,426
                                  =========        =========        ========

The items shown below represent the main differences between income tax computed
under US GAAP at the statutory tax rate and the Company's provision for income
tax in each period:

                                                     Year ended December 31,
                                               --------------------------------
                                               1996          1997          1998
                                               ----          ----          ----
Statutory income tax rate                       34%           34%           34%
Inflationary effects                            26%           (6%)         (15%)
Non deductible expenses                          6%            2%            1%
Other                                           (4%)          (1%)          (5%)
                                                --            --            --

Effective income tax rate                       62%           29%           15%
                                                ==            ==            ==


                                      F-59

<PAGE>


The tax effects of significant items comprising the Company's net deferred tax
assets and liabilities under US GAAP are shown below:

                                                          December 31,
                                                    -----------------------
                                                      1997           1998
                                                    ---------     ---------
Deferred income tax liabilities:
Inventories                                         Ps577,803     Ps575,664
Transportation and other equipment                      2,842       (42,409)
Other                                                  55,235        74,181
                                                    ---------     ---------

                                                      635,880       607,436
                                                    ---------     ---------

Deferred income tax assets:
Allowance for doubtful accounts                         7,419         2,951
Operating loss carryforwards                            6,218
Asset tax carryforwards                                14,189        13,794
                                                    ---------     ---------

                                                       27,826        16,745
                                                    ---------     ---------

Net deferred income tax liabilities                 Ps608,054     Ps590,691
                                                    =========     =========

ii.  Deferred income

     As described in Note 1, the Company received US$142 million in 1996
     relating to the Company's revised contractual agreements with Western Union
     which were deposited in an escrow fund and subsequently (at the direction
     of the Company) transferred to the Company via purchase, by the escrow
     account, of shares of the Company and of two affiliated companies. Under
     Mexican GAAP, the escrow fund is treated as an independent entity and the
     US$142 million relating to the shares purchased by the escrow fund is
     accounted for as a capital contribution by each company. The aggregate
     capital contribution will be reduced annually by an aggregate of US$14.2
     million with a corresponding credit to revenue, as escrowed amounts are
     released to the Company under terms of the escrow agreement. Income tax
     expense will be recorded at the time of revenue recognition.

     Under U.S. GAAP, the escrow arrangement would be treated as a special
     purpose consolidated entity, with the US$142 million accounted for as
     deferred income to be recognized as revenue over periods up to 10 years in
     accordance with the contractual agreements. The capital contribution
     received by two affiliated companies from the escrow has been recorded by
     the Company as long-term receivables which are to be repaid as escrowed
     amounts are released. The recognition of the long-term receivables also
     results in the recognition of a loss on monetary position for the years
     ended December 31, 1996, 1997 and 1998 of Ps372,843, Ps162,081 and
     Ps131,027, respectively. The US GAAP reconciliations for 1996 and 1997 have
     been restated to reflect the above treatment (see Note 9a.).


                                      F-60

<PAGE>


iii. Revenue recognition

     For Mexican GAAP purposes, the Company accounts for the installment sales
     mark-up as sales when the merchandise was delivered to the customer. Under
     U.S. GAAP, the mark-up is deferred and amortized over the life of the
     installment sales contract. The US GAAP reconciliations for 1996 and 1997
     have been restated to reflect the above treatment (see Note 9a.)

iv.  Fair value information.

     The following disclosure of the estimated fair value of financial
     instruments is made in accordance with the requirements of Statement of
     Financial Accounting Standards No. 107, "Disclosures about Fair Value of
     Financial Instruments" ("FAS No. 107"). 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.

     Notes receivable from related parties. The carrying value of notes
     receivable at December 31, 1997 and 1998, is a reasonable estimate of their
     fair value based on the interest rates that are currently available to the
     related parties for issuance of notes with similar terms and remaining
     maturities.

     Bank loans and other debt. The Company's bank loans and other debt bear
     interest at variable rates and their terms are generally representative of
     those which are currently available to the Company at December 31, 1998 for
     the issuance of debt with similar terms and remaining maturities; and
     therefore, the carrying values of these loans and other debt are a
     reasonable estimate of their fair value.

v.   Concentration of credit risk

     The Company is a retailer of consumer electronics, major appliances,
     household furniture and other products with 581 Elektra stores in Mexico,
     at December 31, 1998.

     The Company currently has a network of approximately 170 suppliers for its
     electronics, appliances and furniture products. The Company typically does
     not maintain long-term purchase contracts with suppliers and principally
     operates on a purchase order basis. Although certain vendors are
     significant to the Company's business because of their name recognition,
     the Company does not believe that its business in dependent upon any one
     vendor or particular group of vendors.


                                      F-61

<PAGE>


vi.  Comprehensive income

     Effective January 1, 1998, the Company adopted Statement of Financial
     Accounting Standards No. 130, "Reporting Comprehensive Income", ("FAS No.
     130"), which establishes new standards for reporting and displaying
     comprehensive income and its components. It was not practical to determine
     the cumulative comprehensive income as of January 1, 1998.

vii. Recently issued accounting standards

     In April 1998, Financing Accounting Standards Board ("FASB") issued
     Statement of Position 98-5, "Reporting on the Costs of Start-up Activities"
     which is effective for fiscal years beginning after December 15, 1998. This
     statement of position provides guidance on the financial reporting of
     start-up costs and organization costs. It requires cost of start-up
     activities and organization costs to be expensed as incurred. The Company
     does not believe that the adoption of this SOP will have a material impact
     on its financial position or results of operations.

     In June 1998, the FASB issued statement of Financial Accounting Standards
     No. 133, "Accounting for Derivative Instruments and Hedging Activities"
     ("FAS 133"), which requires that all derivative instruments be recorded on
     the balance sheet at their fair value. Changes in the fair value of
     derivatives are recorded each period in current earnings of other
     comprehensive income, depending on whether a derivative is designated as
     part of a hedge transaction and, if it is, the type of hedge transactions.
     The Company does not believe that the adoption of this Standard will have a
     material impact on its financial position or results of operations.

d.   Condensed balance sheets and income statements under US GAAP.

     The following condensed balance sheets and income statements reflect the
     effects of the principal differences between Mexican GAAP and US GAAP.


                                      F-62

<PAGE>


                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                      At December 31,
                                                                              ---------------------------------
                                                                                 1997                  1998
                                                                              -----------           -----------
<S>                                                                           <C>                   <C>
Accounts receivable from customers - Net                                      Ps   24,898           Ps   31,093
Inventories                                                                     1,699,419             1,693,128
Related parties                                                                   168,554               167,865
Other current assets                                                            2,427,018             2,021,019
                                                                              -----------           -----------

Total current assets                                                            4,319,889             3,745,240

Property, furniture, equipment and investment in stores - Net                     232,204               210,317
Related parties                                                                   929,501               761,636
Other assets                                                                       13,323               195,107
                                                                              -----------           -----------


                                                                              Ps5,494,917*          Ps5,080,165
                                                                              ===========           ===========

Short-term debt                                                               Ps1,594,004           Ps1,133,178
Deferred income-current portion                                                   168,554               167,865
Other current liabilities                                                       1,808,776             2,010,548
                                                                              -----------           -----------

Total current liabilities                                                       3,571,334             3,311,591
                                                                              -----------           -----------

Long-term liabilities                                                               3,493                   142
Deferred income                                                                 1,414,516             1,246,651
                                                                              -----------           -----------

Total long-term liabilities                                                     1,418,009             1,246,793
                                                                              -----------           -----------

Stockholders' equity                                                              505,574               521,781
                                                                              -----------           -----------

                                                                              Ps5,494,917*          Ps5,080,165
                                                                              ===========           ===========
</TABLE>


             CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                    ------------------------------------------------------
                                                        1996                 1997                1998
                                                    ------------         ------------         ------------
<S>                                                 <C>                  <C>                  <C>
Revenues:
Sales                                               Ps 4,185,726         Ps 5,316,868         Ps 5,537,250
Other income                                             523,356              290,011              321,779
                                                    ------------         ------------         ------------

                                                       4,709,082            5,606,879            5,859,029
                                                    ------------         ------------         ------------

Cost and expenses:
Cost of sales                                         (3,004,455)          (3,960,342)          (4,027,123)
Selling, general and administrative                   (2,217,170)          (1,006,802)          (1,163,865)
Other (expenses) income                                   (1,679)             168,858                3,084
                                                    ------------         ------------         ------------

                                                       5,223,304            4,798,286            5,187,904
                                                    ------------         ------------         ------------

Operating (loss) income                                 (514,222)             808,593              671,125
Other financing income (expense)                         708,232             (598,603)            (497,009)
                                                    ------------         ------------         ------------

Pretax income                                            194,010              209,990              174,116

Income and asset tax                                    (129,080)            (189,968)             (25,426)

Earnings of equity investment                                                                       10,768
                                                    ------------         ------------         ------------
Net income                                                64,930*              20,022*             159,458
Loss from holding nonmonetary assets                     (81,509)             (24,322)            (127,060)
                                                    ------------         ------------         ------------

Comprehensive income (loss)                        (Ps    16,579)       (Ps     4,300)        Ps    32,398
                                                    ============         ============         ============
</TABLE>

*    Restated from prior years


                                      F-63

<PAGE>


Cash flow information.

     Under US GAAP a statement of cash flow is prepared based on provisions of
     FAS 95, "Statement of Cash Flows". This statement does not provide guidance
     for the preparation of cash flow statements for price level adjusted
     financial statements.

     Presented below are statements of cash flows for the years ended December
     31, 1996 and 1997 prepared after considering the impact of U.S. GAAP
     adjustments. The cash flow statements are net of certain non cash
     transactions but include the effects of inflation on cash flow and have
     been restated to pesos of December 31, 1998, purchasing power.

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                               ----------------------------
                                                                   1996            1997
                                                               ------------    ------------
<S>                                                            <C>             <C>
     Cash flow from operating activities:
     Net income                                                Ps    64,930    Ps    20,022
     Adjustments to reconcile net income to net
     cash provided by operating activities:
     Depreciation and amortization                                   51,041          69,024
     Monetary loss                                                  343,792         238,525
     Deferred income tax                                            112,229         175,779
     Deferred income                                              1,718,838        (135,768)
     Allowance for doubtful accounts                                  3,055           8,042
     Gain on sale of shares of affiliated company                  (227,379)
     Net changes in working capital                              (1,260,216)     (1,063,490)
                                                               ------------    ------------

     Net cash provided by (used in) operating activities            806,290        (687,866)
                                                               ------------    ------------

     Cash flow from investing activities:
     Acquisition of equipment and investment in stores - Net        (80,020)        (72,173)
     Borrowings (extended to) repaid by related parties          (1,233,823)        135,768
     Proceeds received from sale of shares of affiliated
     company                                                        253,285
                                                               ------------    ------------

     Net cash (used in) provided by  investing activities:       (1,060,558)         63,595
                                                               ------------    ------------

     Cash flows from financing activities:
     Short-term loans (repaid) received                            (296,811)        903,372
     Borrowings from related parties                                680,439
     Payment of dividends                                                           (81,906)
                                                               ------------    ------------

     Net cash provided by financing activities                      383,628         821,466
                                                               ------------    ------------

     Increase in cash and cash equivalents                          129,360         197,175
     Cash and cash equivalents at beginning of year                  44,883         174,243
                                                               ------------    ------------

     Cash and cash equivalents at end of year                  Ps   174,243    Ps   371,418
                                                               ============    ============
     Supplemental disclosure:
     Cash paid during the year for:
     Interest                                                  Ps   148,338    Ps   170,636
                                                               ============    ============

     Income tax                                                Ps         0    Ps    20,082
                                                               ============    ============
</TABLE>


                                      F-64

<PAGE>


Presented below is a statement of cash flow for the year ended December 31,
1998, prepared after considering the impact of U.S. GAAP adjustments. The cash
flow statement presents nominal cash flows during the period, adjusted to pesos
of December 31, 1998, purchasing power.

                                                             Year ended
                                                          December 31, 1998
                                                          -----------------
Cash flow from operating activities:
Net income                                                   Ps 159,458
Adjustments to reconcile net income to net
cash provided by operating activities:

Depreciation and amortization                                    88,247
Monetary gain                                                    44,287
Deferred income tax                                             (17,363)
Amortization of deferred income                                (168,554)
Allowance for doubtful accounts                                   1,800
Equity in income of subsidiary                                  (10,768)
Net changes in working capital                                1,010,455
                                                             ----------

Net cash provided by operating activities                     1,107,562
                                                             ----------

Cash flow from investing activities:
Acquisition of transportation equipment and
investment in stores - Net                                     (110,133)
Borrowings repaid by related parties                            168,554
Investment in affiliate                                        (162,168)
                                                             ----------

Net cash used in investing activities                          (103,747)
                                                             ----------

Cash flows from financing activities
Short-term loans repaid                                        (210,726)
Payment of dividends                                            (16,191)

Net cash used in financing activities                          (226,917)
                                                             ----------

Effects of inflation and exchange rate changes
on cash                                                        (248,475)
                                                             ----------

Increase in cash and cash equivalents                           528,423
Cash and cash equivalents at beginning of year                  371,418

Cash and cash equivalents at end of year                     Ps 899,841
                                                             ==========

Supplemental disclosure:
Cash paid during the year for:
Interest                                                     Ps 194,668
                                                             ==========
Income tax                                                   Ps  50,445
                                                             ==========


                                      F-65

<PAGE>


                           ELEKTRAFIN, S. A. DE C. V.
                  (subsidiary of Grupo Elektra, S. A. de C. V.)

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1998
















                                      F-66

<PAGE>


                           ELEKTRAFIN, S. A. DE C. V.
                  (subsidiary of Grupo Elektra, S. A. de C. V.)

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1998

                                      INDEX




Contents                                                                    Page
--------                                                                    ----

Report of independent accountants                                           F-68

Financial statements:

Balance sheets                                                              F-70

Statements of income                                                        F-71

Statements of changes in stockholders' equity                               F-72

Statements of changes in financial position                                 F-73

Notes to the financial statements                                           F-74





                                      F-67

<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS

Mexico City, February 28, 1999

To the Stockholders of
Elektrafin, S. A. de C. V.

1.   We have audited the balance sheets of Elektrafin, S. A. de C. V. as of
     December 31, 1997 and 1998, and the related statements of income, of
     changes in its stockholders' equity and of changes in its financial
     position for each of the three years in the period ended December 31, 1998,
     expressed in constant pesos of December 31, 1998 purchasing power. These
     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, which are similar in all material respects with
     auditing standards generally accepted 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
     generally accepted accounting principles. 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.

2.   As mentioned in Note 1 to the financial statements, at the Extraordinary
     Meeting held on January 31, 1997, the stockholders approved the merger of
     Credielektra, S. A. de C. V. (Credielektra) and Elektrafin, S. A. de C. V.
     (Elektrafin), affiliated company. The merger was effective as from that
     date, with Credielektra surviving and changing its name to Elektrafin, S.
     A. de C. V. (the "Company"). The operations of Credielektra prior to the
     merger were not material.

     Since Credielektra and Elektrafin had the same controlling stockholders,
     this business combination was accounted for in a manner similar to the
     pooling of interest method. Accordingly, the accompanying financial
     statements of Elektrafin at December 31, 1997 include the figures as though
     the companies had been combined as of the beginning of the year. Also, the
     financial statements of 1996 were restated on a combined basis for
     comparative purposes.




                                      F-68

<PAGE>

3.   In our opinion, the aforementioned financial statements present fairly in
     all material respects, the financial position of Elektrafin, S. A. de C. V.
     at December 31, 1997 and 1998, and the results of its operations, changes
     in stockholders' equity and changes in its financial position for each of
     the three years in the period ended December 31, 1998, in conformity with
     accounting principles generally accepted in Mexico.

4.   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 net income (loss), expressed in pesos of December 31,
     1998 purchasing power for each of the three years in the period ended
     December 31, 1998 and the determination of stockholders' equity at December
     31, 1997 and 1998, also expressed in pesos of December 31, 1998 purchasing
     power, to the extent summarized in Note 9 to the financial statements.

PricewaterhouseCoopers





Javier Soni O.




                                      F-69

<PAGE>


                           ELEKTRAFIN, S. A. DE C. V.
                  (subsidiary of Grupo Elektra, S. A. de C. V.)

                                 BALANCE SHEETS
                                    (Note 1)

                          Thousands of Mexican pesos of
                       December 31, 1998 purchasing power

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                              ----------------------------
Assets                                                                           1997             1998
                                                                                 ----             ----
<S>                                                                           <C>              <C>
CURRENT ASSETS:
Cash and cash equivalents                                                     Ps    2,299      Ps    1,730
                                                                              -----------      -----------

Accounts receivable:
Customers - Net (Note 4)                                                        1,456,284          953,024
Related parties                                                                                    136,773
Recoverable taxes                                                                  56,758           13,234
Other                                                                                 555            2,241
                                                                              -----------      -----------

                                                                                1,513,597        1,105,272
                                                                              -----------      -----------

Guarantee on securitized receivables (Note 4)                                      91,069          337,688
Prepaid expenses                                                                   65,054
Inventories (finished products)                                                   261,017
                                                                              -----------      -----------

Total current assets                                                            1,933,036        1,444,690

INVESTMENTS IN JOINT VENTURES                                                      97,385          209,019

OTHER ASSETS                                                                        9,593           25,165
                                                                              -----------      -----------

                                                                              Ps2,040,014      Ps1,678,874
                                                                              ===========      ===========
Liabilities and Stockholders' Equity

CURRENT LIABILITIES:
Related parties - Net (Note 5)                                                Ps  220,262
Income tax and asset tax payable                                                   17,860      Ps   70,031
Other accounts payable and accrued expenses                                       178,246          165,271
                                                                              -----------      -----------

Total current liabilities                                                         416,368          235,302
                                                                              -----------      -----------

RELATED PARTIES (Note 5)                                                          248,559          258,180
                                                                              -----------      -----------

Total liabilities                                                                 664,927          493,482
                                                                              -----------      -----------

STOCKHOLDERS' EQUITY (Notes 1 and 6):
Capital stock                                                                     141,458          141,458
Paid-in capital                                                                 1,162,727        1,162,727
Retained earnings (deficit)                                                        73,506         (114,188)
Loss from holding nonmonetary assets                                               (2,604)          (4,605)
                                                                              -----------      -----------

                                                                                1,375,087        1,185,392
CONTINGENCY (Note 8)

                                                                              Ps2,040,014      Ps1,678,874
                                                                              ===========      ===========
</TABLE>


The accompanying notes are an integral part of these financial statements.




                                      F-70

<PAGE>

                           ELEKTRAFIN, S. A. DE C. V.

                              STATEMENTS OF INCOME
                                 (Notes 1 and 5)

                          Thousands of Mexican pesos of
                       December 31, 1998 purchasing power



<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                                 -----------------------------------------------
                                                                     1996             1997               1998
                                                                     ----             ----               ----

<S>                                                              <C>              <C>               <C>
Net sales                                                        Ps  574,023      Ps 2,986,583      Ps 3,648,171
Cost of sales                                                        267,973         2,879,157         3,434,808
                                                                 -----------      ------------      ------------
                                                                     306,050           107,426           213,363
                                                                 -----------      ------------      ------------
Operating expenses and other:
Administrative services received from affiliates                     202,643           873,509         1,134,882
Administrative expenses                                              147,901           164,134           231,279
Allowance for doubtful accounts                                      181,001           285,225           330,401
Other (income) expenses - Net                                        (49,338)           16,734            (6,716)
                                                                 -----------      ------------      ------------

                                                                     482,207         1,339,602         1,689,846
                                                                 -----------      ------------      ------------

Operating loss                                                      (176,157)       (1,232,176)       (1,476,483)
                                                                 -----------      ------------      ------------

Comprehensive financing cost:
Interest income - Net                                                803,850         1,232,969         1,539,072
Exchange losses - Net                                                (17,663)           (5,806)          (24,968)
Loss on monetary position                                           (246,477)         (213,816)         (216,309)
                                                                 -----------      ------------      ------------

                                                                     539,710         1,013,347         1,297,795
                                                                 -----------      ------------      ------------

Income (loss) before income tax and extraordinary item               363,553          (218,829)         (178,688)

Income tax (Note 7)                                                  (25,668)          (21,977)          (50,756)
                                                                ------------      ------------     -------------

Income (loss) before extraordinary item                              337,885          (240,806)         (229,444)
Extraordinary item - Benefit from realization of prior years'
tax loss carryforwards (Note 7)                                                                           50,756
                                                                 -----------      ------------      ------------

Net income (loss)                                                Ps  337,885     (Ps   240,806)    (Ps   178,688)
                                                                 ===========      ============      ============
</TABLE>

The accompanying notes are an integral part of these financial statements.




                                      F-71

<PAGE>




                           ELEKTRAFIN, S. A. DE C. V.

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                    (Note 1)

                         Thousands of Mexican pesos of
                       December 31, 1998 purchasing power


<TABLE>
<CAPTION>
                                                                                           Gain (loss)
                                                                            (Deficit)     from holding
                                               Capital        Paid-in        retained      nonmonetary
                                                stock         capital        earnings        assets            Total
                                             ----------     -----------     ----------    ------------      -----------
<S>                                          <C>            <C>             <C>               <C>           <C>
Balances at January 1, 1996                  Ps 192,319                     (Ps  4,515)       Ps  634       Ps  188,438

Increase in capital stock                         2,372     Ps1,162,727                                       1,165,099

Absorption of deficit                           (53,233)                        53,233

Payment of dividends                                                           (50,195)                         (50,195)

Net income                                                                     337,885                          337,885

Loss from holding nonmonetary assets                                                          (3,147)            (3,147)
                                             ----------     -----------     ----------       -------        -----------

Balances at December 31, 1996                   141,458       1,162,727        336,408        (2,513)         1,638,080

Payment of dividends                                                           (22,096)                         (22,096)

Net loss                                                                      (240,806)                        (240,806)

Loss from holding nonmonetary assets                                                             (91)               (91)
                                             ----------     -----------     ----------       -------        -----------

Balances at December 31, 1997                   141,458       1,162,727         73,506        (2,604)         1,375,087

Payment of dividends                                                            (9,006)                          (9,006)

Net loss                                                                      (178,688)                        (178,688)

Loss from holding nonmonetary assets                                                          (2,001)            (2,001)
                                             ----------     -----------     ----------       -------        -----------

Balances at December 31, 1998                Ps 141,458     Ps1,162,727    (Ps 114,188)     (Ps4,605)       Ps1,185,392
                                             ==========     ===========     ==========       =======        ===========
</TABLE>


The accompanying notes are an integral part of these financial statements.




                                      F-72

<PAGE>

                           ELEKTRAFIN, S. A. DE C. V.

                   STATEMENTS OF CHANGES IN FINANCIAL POSITION
                                    (Note 1)

                          Thousands of Mexican pesos of
                       December 31, 1998 purchasing power


<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                                                --------------------------------------------------
Operations:                                                          1996             1997               1998
                                                                     ----             ----               ----

<S>                                                             <C>              <C>                 <C>
Net income (loss) before extraordinary item                     Ps   337,885     (Ps  240,806)      (Ps   229,444)
Charges to income not affecting resources:
Allowance for doubtful accounts                                      181,001          285,225             330,401
Net changes in accounts receivable and accounts
payable                                                           (1,277,038)         119,149             (31,641)
                                                                ------------     ------------        ------------

Resources (used in) provided by operations before
extraordinary item                                                  (758,152)         163,568              69,316

Extraordinary item - Benefit from realization of prior
years' tax loss carryforwards                                                                              50,756
                                                                ------------      -----------        ------------
Resources (used in) provided by operations                          (758,152)         163,568             120,072
                                                                ------------      -----------        ------------

Financing:

Borrowings from related parties                                      248,559
Bank loans repaid                                                   (603,645)         (28,138)
Increase in capital stock                                          1,165,099
Payment of dividends                                                 (50,195)         (22,096)             (9,006)
                                                                ------------      -----------        ------------

Resources provided by (used in) financing activities                 759,818          (50,234)             (9,006)
                                                                ------------      -----------        ------------

Investment:

Investments in joint ventures                                                        (112,855)           (111,635)
                                                                                  -----------        ------------

Increase (decrease) in cash and cash equivalents                       1,666              479                (569)

Cash and cash equivalents at beginning of year                           154            1,820               2,299
                                                                ------------      -----------        ------------

Cash and cash equivalents at end of year                        Ps     1,820      Ps    2,299        Ps     1,730
                                                                ============      ===========        ============
</TABLE>


The accompanying notes are an integral part of these financial statements.




                                      F-73

<PAGE>

                           ELEKTRAFIN, S. A. DE C. V.
                  (subsidiary of Grupo Elektra, S. A. de C. V.)

                        NOTES TO THE FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1998

               (monetary figures expressed in thousands of Mexican
           pesos of December 31, 1998 purchasing power, except Note 7)



NOTE 1 - COMPANY MERGER AND MAIN OPERATIONS:

At the Extraordinary Meeting held on January 31, 1997, the stockholders approved
the merger of Elektrafin, S. A. de C. V. (Elektrafin), into Credielektra, S. A.
de C. V. (Credielektra), which subsequently changed its name to Elektrafin, S.
A. de C. V. (the "Company"). The operations of Credielektra prior to the merger
were not material. Since Credielektra and Elektrafin had the same controlling
stockholders, this business combination was accounted for in a manner similar to
the pooling of interest method. Accordingly, the accompanying financial
statements of Elektrafin at December 31, 1997 include the figures as though the
companies had been combined as of the beginning of the year. Also, the 1996
financial statements were restated on a combined basis for comparative purposes.

As from August 1996, the Company's main activity is the sale in installments of
electrodomestic appliances and household furniture. Up to July 31, 1996, the
Company was engaged in the acquisition, purchase, sale and trade of accounts
receivable supported by notes, invoices and other documents.

The Company is a subsidiary of Corporacion Diprofin, S. A. de C. V., which is a
subsidiary of Grupo Elektra, S. A. de C. V. The Company has no employees, and
the services necessary to carry out its operations are rendered by affiliated
companies.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The financial statements are prepared in conformity with accounting principles
generally accepted in Mexico.

The significant accounting policies, including the concepts, methods and
criteria related to the recognition of the effects of inflation on the financial
statements, are summarized as follows:




                                      F-74

<PAGE>

a.   The Company considers all highly liquid investments with original
     maturities of less than three months to be cash equivalents.

b.   The Company recognizes revenue on an accrual basis when goods are delivered
     to customers. Interest and the installment sales mark-up are credited to
     income as they come due on a straight-line basis over the life of the
     respective installment contracts.

c.   Inventories and cost of sales are originally determined by the average cost
     method and are restated by applying replacement costs. Amounts so
     determined do not exceed current market value.

d.   The charges to income for income tax are based on financial pretax income,
     adjusted for items excluded by law from the determination of taxable
     profits (permanent differences) and for temporary differences, the
     realization of which is uncertain in a definite period of time. At December
     31, 1997 and 1998, there were no significant temporary differences that
     required the recognition of deferred income tax.

e.   Transactions in foreign currencies are recorded at the rates of exchange
     prevailing on the dates they are entered into. Assets and liabilities
     denominated in these currencies are stated at the Mexican peso equivalents
     resulting from applying the year-end rates. 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. (See Note 3.)

f.   Capital stock, paid-in capital and retained earnings represent the amounts
     of these items expressed in pesos of purchasing power as of December 31,
     1998, and are determined by applying factors derived from the National
     Consumer Price Index (NCPI) to the historical amounts.

g.   The loss on monetary position represents the effect of inflation, as
     measured by the NCPI, on the Company's average monthly net monetary assets
     during the year, as restated in pesos of purchasing power at the end of the
     most recent period.

h.   The gain or loss from holding nonmonetary assets represents the amount by
     which the increase in the value of nonmonetary assets exceeded or fell
     short of the inflation rate, measured in terms of the NCPI.

i.   The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affects the amounts reported in the financial statements.
     Actual results could differ from those estimates.




                                      F-75

<PAGE>

NOTE 3 - FOREIGN CURRENCY POSITION:

At December 31, 1997 and 1998, the Company had monetary assets and liabilities
expressed in thousands of US dollars, as shown below:

                                               December 31,
                                 --------------------------------------
                                       1997                   1998
                                       ----                   ----

Assets                                                    US$     9,207
Liabilities                     (US$     26,587)                (27,875)
                                 --------------           -------------

Net short position              (US$     26,587)         (US$    18,668)
                                 ==============           =============

At December 31, 1998, the exchange rate was Ps9.93 to the U.S. Dollar (Ps8.06 at
December 31, 1997). At February 28, 1999, date of issuance of the financial
statements, the exchange rate was Ps10.10 to the dollar.

NOTE 4 - BALANCES DUE FROM CUSTOMERS, NET AND SECURITIZATION OF RECEIVABLES:

Customer account balances at December 31, 1997 and 1998 are as follows:

                                                      December 31,
                                               -------------------------------
                                                  1997                 1998
                                                  ----                 ----

Customers                                      Ps1,507,012         Ps1,013,516
Less - Allowance for doubtful accounts             (50,728)            (60,492)
                                               -----------         -----------
                                               Ps1,456,284         Ps  953,024
                                               ===========         ===========

The Company follows the policy of writing-off all customer balances outstanding
more than 90 days against the allowance for doubtful accounts.

Accounts receivable from retail customers are shown net of the unearned
installment sales mark-up. The unearned installment sales mark-up was Ps452,403
and Ps353,293 at December 31, 1997 and 1998, respectively.

The movement of the allowance for doubtful accounts is a follows:

                                     Year ended December 31,
                          -----------------------------------------------
                            1996              1997               1998
                            ----              ----               ----

Beginning balance         Ps  89,973       Ps  47,418          Ps  50,728
Provisions                   186,822          285,225             330,401
Write-offs                  (229,377)        (281,915)           (320,637)
                          ----------       ----------          ----------

                          Ps  47,418       Ps  50,728          Ps  60,492
                          ==========       ==========          ==========




                                      F-76

<PAGE>

Securitization of receivables

The Company has established a four year revolving securitization program to
securitize its receivables. Under the program, the Company transfers its
receivable collection rights to a trust fund incorporated by Nacional
Financiera, S. N. C. (NAFIN) in exchange for cash resources obtained from the
public offering of "Ordinary and Amortizable Participation Certificates"
("OPCs"). The public offering is affected by the issuance of preferred and
subordinated OPCs which are acquired by public investors and the Company,
respectively. During 1998, the Company completed two separate offerings one on
April 15 and one on December 17, 1998, for Ps793,000 (nominal pesos) and
Ps200,000 (nominal pesos), respectively.

Duff and Phelps de Mexico, S. A. de C. V., Fitch IBCA Mexico, S. A. de C. V. and
Clasificadora de Riesgos, S. A. de C. V. rated the securitized receivables as
mAA, AA and AA, respectively.

The Company collects the securitized receivables on behalf of the trust and
deposits such collections in the trust fund. The two separate offerings of OPCs
will mature in April 2000 and in December 2002. The preferred OPCs will be
repaid at their nominal value, and the subordinated OPCs with the remaining cash
held by the trust.

NOTE 5 - ACCOUNTS RECEIVABLE FROM AND PAYABLE TO RELATED PARTIES:

                                                            December 31,
                                                    --------------------------
Accounts receivable:                                  1997             1998
                                                      ----             ----

Elektra, S. A. de C. V.                             Ps123,785        Ps930,711
Comercios Elektra, S. A. de C. V.                      53,702           45,277
Other                                                  20,059           11,036
                                                    ---------        ---------

                                                      197,546          987,024
                                                    ---------        ---------

Accounts payable:

Elmex Superior, S. A. de C. V.                        245,163          335,354
Corporacion Diprofin, S. A. de C. V.                   48,067          185,881
Garantias Extendidas, S. A. de C. V.                   42,606          185,267
Other                                                  81,972          143,749
                                                    ---------        ---------

                                                      417,808          850,251
                                                    ---------        ---------

Net (liabilities) receivables balances             (Ps220,262)       Ps136,773
                                                    ==========       =========

Long-term borrowings from related parties           Ps248,559        Ps258,180
                                                    =========        =========





                                      F-77

<PAGE>

The principal transactions with related parties are as follows:

Commissions and interest earned

During the years ended December 31, 1996 and 1997 the Company earned commissions
from Elektra and Hecali amounting to Ps702,224 and Ps312,726, respectively, for
the trade of their accounts receivable. In 1998 the Company earned interest from
certain related parties amounting to Ps33,694.

Purchase of merchandise

As mentioned in Note 1, the Company's main activity is the sale in installments
of electrodomestic appliances and household furniture. All merchandise are
purchased from Elektra, S. A. de C. V. ("Elektra"). For the years ended December
31,1996, 1997 and 1998 the Company's purchases from Elektra amounted to
Ps263,698, Ps3,079,094 and Ps3,169,681, respectively.

Administrative services

The services necessary to carry out the Company's operations are rendered by
Elektra such as accounting and tax computation services. In the years ended
December 31, 1996, 1997 and 1998 the Company incurred administrative services of
Ps202,642, Ps684,408 and Ps918,665, respectively.

Interest expense

In 1996 the Company received a long-term loan of US$26 million from Grupo
Elektra, S. A. de C. V., subject to interest at 13% per annum. For the years
ended December 31, 1996, 1997 and 1998 the Company incurred interest to Grupo
Elektra of Ps22,177, Ps91,896 and Ps37,535, respectively.

NOTE 6 - STOCKHOLDERS' EQUITY:

At the Extraordinary Meeting of January 31, 1997, the stockholders approved the
modification of the par value of the common and nominative shares from Ps100 to
one Mexican peso each.

As a result of the merger mentioned in Note 1, the stockholders approved the
issuance of 73,061,263 common and nominative shares with a par value of one
Mexican peso each, representing the variable part of the capital stock.

At several meetings held in 1996, 1997 and 1998, the stockholders agreed:

a.   To increase the variable portion of the capital stock by Ps2,372 (Ps1,467
     nominal) in 1996 through the issuance of common and nominative shares with
     a par value of one Mexican peso


                                      F-78
<PAGE>

     each, which were paid for in cash. The 1996 capital increase gave rise to
     paid-in capital of Ps1,162,727 (Ps715,644 nominal).

b.   To absorb the deficit of Ps53,233 (Ps32,907 nominal) in 1996.

c.   To pay dividends of Ps50,195 (Ps31,028 nominal) through the assignment of
     accounts receivable from Elektra, S. A. de C. V. (affiliated company)
     amounting to Ps14,024 nominal and the payment of cash dividends of Ps36,171
     (Ps22,358 nominal).

d.   To pay cash dividends of Ps22,096 (Ps17,000 nominal), and Ps9,006 (Ps7,989,
     nominal) in 1997 and 1998, respectively.

The capital stock as of December 31, 1998 is represented by 73,111,233
registered shares with a par value of one Mexican peso each, distributed as
shown below:

                                                                       Amount
                                                                       ------

Fixed minimum capital stock, represented by 50,000 Series "A"
shares                                                                Ps     50

Variable portion, represented by 73,061,263 Series "B" shares            73,061
                                                                      ---------

Capital stock expressed in nominal pesos                                 73,111
Restatement increase                                                     68,347
                                                                      ---------
Capital stock expressed in Mexican pesos of December 31,
1998 purchasing power                                                 Ps141,458
                                                                      =========

In accordance with the Company's by-laws, Series "A" shares may only be held by
Mexican nationals. Series "B" shares ownership is unrestricted.

In the event that dividends are paid from retained earnings which have not
previously been taxed, a tax equivalent to 53.85% of the dividend will be
payable by the Company. Additionally, dividends paid to individuals or to
foreign residents are subject to a maximum tax witholding equivalent to 7.69%,
regardless of any previous taxation of such dividends. Capital stock reductions
in excess of the sum of the balances of capital contributions accounts, net tax
income and reinvested net tax income, inflation-indexed in accordance with the
procedures established by the Income Tax Law, are accorded the same tax
treatment as dividends.



                                      F-79

<PAGE>

NOTE 7 - INCOME TAX:

Amounts in this note are expressed in nominal pesos.

For the years ended December 31, 1996, 1997 and 1998, the Company determined
taxable income of Ps54,996, Ps73,303 and Ps149,282, respectively. The amount for
1998 was reduced by Ps50,756 due to the utilization of tax loss carryforwards.
The benefit from this is presented in the statement of income as an
extraordinary item.

Taxable income differs from financial pretax income mainly due to the effect of
deduction for tax purposes of purchases offset against the non-deduction of cost
of sales, differences in treatment of the effects of inflation for tax and
financial purposes, the deduction of results from joint ventures and the effect
of nondeductible expenses.

NOTE 8 - CONTINGENCY:

The Company is the guarantor of the issuance of long-term notes amounting to
US$100 million issued by Grupo Elektra, S. A. de C. V. (holding company).

NOTE 9 - RECONCILIATION BETWEEN MEXICAN (MEXICAN GAAP) AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP):

The Company's financial statements are prepared in accordance with Mexican GAAP,
which differ in certain significant respects from U.S. GAAP. The Mexican GAAP
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 Statement represents a comprehensive
measure of the effects of price level changes in the Mexican economy, which for
many years was hyperinflationary, and is considered to result in a more
meaningful presentation than historical cost-based financial reporting for both
Mexican and U.S. accounting purposes. Therefore the following reconciliations to
U.S. GAAP do not include the reversal of such inflationary effects.

The principal differences between Mexican GAAP and U.S. GAAP are summarized
below with an explanation, where appropriate, of the effects on net income and
stockholders' equity. The various reconciling items are presented net of any
price level gain (loss).

a.   Reconciliation of net income (loss):

<TABLE>
<CAPTION>
                                                                       Year ended December 31,
                                                              -----------------------------------------
                                                                 1996             1997          1998
                                                                 ----             ----          ----

<S>                                                           <C>             <C>            <C>
Net income under Mexican GAAP                                 Ps 337,885      (Ps240,806)    (Ps178,688)
Deferred income tax effects                                     (147,484)        (10,826)       142,492
Effect of sales mark-up on installment sales                     (48,115)         48,115
                                                              ----------       ---------      ---------

Net income (loss) under U.S. GAAP                             Ps 142,286      (Ps203,517)    (Ps 36,196)
                                                              ==========       =========      =========
</TABLE>




                                      F-80

<PAGE>

b.   Reconciliation of stockholders' equity:

                                                       December 31,
                                              ------------------------------
                                                  1997              1998
                                                  ----              ----

Stockholders' equity under Mexican GAAP       Ps1,375,087        Ps1,185,392
Deferred income tax effects                      (130,505)            11,987
                                              -----------        -----------

Stockholders' equity under U.S. GAAP          Ps1,244,582        Ps1,197,379
                                              ===========        ===========

An analysis of the changes in stockholders' equity under U.S. GAAP is as
follows:

                                         1996           1997            1998
                                         ----           ----            ----

Balance at beginning of year         Ps  216,243     Ps1,470,286    Ps1,244,582
Net income (loss)                        142,286        (203,517)       (36,196)
Issuance of common stock               1,165,099
Loss from holding nonmonetary assets      (3,147)            (91)        (2,001)
Payment of dividends                     (50,195)        (22,096)        (9,006)
                                     -----------     -----------    -----------

Balance at end of year               Ps1,470,286     Ps1,244,582    Ps1,197,379
                                     ===========     ===========    ===========

c.   Significant differences between U.S. GAAP and Mexican GAAP:

     i.   Deferred income tax.

          As stated in Note 1d., income tax is recorded under Mexican GAAP
          following interperiod allocation procedures under the partial
          liability method. Under this method, deferred tax is recognized only
          in respect of nonrecurring timing differences between taxable and book
          income which are expected to reverse at a definite future date. Also,
          under Mexican GAAP, the benefit from utilizing tax loss carryforwards
          and asset tax credits are not recognized until utilized, at which time
          it is presented as an extraordinary item.

          U.S. GAAP Statement of Financial Accounting Standards No. 109
          "Accounting for Income Taxes", (FAS No. 109") 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 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




                                      F-81

<PAGE>

          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
          in respect of 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 in respect of any tax benefits not expected to be realized.
          The subsequent realization of this benefit does not affect income.
          Consequently, the above do not represent extraordinary items for U.S.
          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 financial
          statements. Except as indicated in the following paragraph, the
          deferred tax expenses or benefit is calculated as the difference
          between: (a) the deferred tax assets and liabilities at the end of the
          current period determined as indicated above and (b) the deferred tax
          assets and liabilities reported at the end of the prior period
          remeasured to units of current general purchasing power at the end of
          the current period.

          Gain and losses from holding nonmonetary assets are recorded in
          stockholders' equity. It is the Company's policy to reflect the
          deferred income taxes that arise as a result of such gains (losses)
          from assets or liabilities which do not currently affect income in the
          results of operations.

          The significant components of income tax expense under U.S. GAAP are
          as follows:

                                          Year ended December 31,
                              ------------------------------------------------
                                  1996             1997                1998
                                  ----             ----                ----

          Current             Ps    25,668       Ps  21,977
          Deferred                 147,484           10,826      (Ps   142,492)
                              ------------       ----------       ------------

                              Ps   173,152       Ps  32,803      (Ps   142,492)
                              ============       ==========       ============

          The items shown below represent the main differences between income
          tax computed under U.S. GAAP at the statutory tax rate and the
          Company's provision for income tax in each period.

                                                    Year ended December 31,
                                               --------------------------------
                                               1996          1997          1998
                                               ----          ----          ----

          Statutory income tax rate             34%          (34%)         (34%)
          Effect of inflationary component       2%           11%           (5%)
          Nondeductible expenses                17%           38%          (40%)
          Other                                  2%            6%           (1%)
                                               ----          ----           ---

          Effective income tax rate             55%           21%          (80%)
                                                ===           ===           ===




                                      F-82

<PAGE>


          The tax effects of significant items comprising the Company's net
          deferred tax assets and liabilities under U.S. GAAP are as follows:

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                  -----------------------------
                                                                     1997               1998
                                                                     ----               ----
          <S>                                                    <C>                 <C>
          Deferred income tax (liabilities) assets:
          Inventories                                            (Ps 88,745)
          Prepaid expenses                                           (2,991)         (Ps  8,580)
          Deferred installment sales for income tax purposes        (56,017)
          Allowance for doubtful accounts                            17,248              20,567
          Operating loss carryforwards                               50,756
                                                                  ---------           ---------
                                                                    (79,749)             11,987
          Valuation allowance                                       (50,756)
                                                                  ---------           ---------
          Net deferred income tax (liabilities) assets           (Ps130,505)          Ps 11,987
</TABLE>

     ii.  Revenue recognition.

          Prior to January 1, 1997 for Mexican GAAP purposes, the Company
          accounted for the installment sales mark-up as sales when the
          merchandise was delivered to the customer. Under U.S. GAAP, the
          mark-up is deferred and amortized over the life of the installment
          sales contract. The unamortized mark-up amounted to Ps48,115 in 1996.
          This amount was recognized in income for U.S. GAAP in 1997.

          Subsequent to January 1, 1997 under Mexican GAAP the mark-up on
          installment sales is deferred and amortized over the life of the
          installment sales contracts for all years, and is included as part of
          net sales, since it is included in the sales price. Also under Mexican
          GAAP any stated and penalty interest is also included in net sales.

          Under US GAAP, the installment sales mark-up earned along with stated
          and penalty interest would be classified as interest earned from
          consumer credit operations. During the years ended December 31, 1996,
          1997 and 1998, the amount of installment sales mark-up earned for U.S.
          GAAP purposes, was Ps167,906, Ps452,403, and Ps353,293, respectively.

     iii. Securitization of receivables

          Under Mexican GAAP the Company accounted for the 1997 and 1998
          securitizations of receivables as sales of the receivables and
          derecognized from its balance sheets the receivables transferred under
          the programs against the proceeds received.

          Under U.S. GAAP, the transfer of the receivables in the 1997 and 1998
          securitization programs have been accounted for as secured borrowings
          in accordance with Statement of Financial Accounting Standards No. 125
          "Accounting for Transfers and Servicing of Financial Assets and
          Extinguishments of Liabilities". Consequently, under U.S. GAAP the
          Company reestablished on its balance sheets as of December 31, 1997
          and 1998, receivables of Ps967,978 and Ps1,300,213, respectively,
          which include Ps91,069 and Ps337,687, respectively, that correspond to
          the guarantee on the securitized receivables.



                                      F-83

<PAGE>

          The Company also recorded as of December 31, 1997 and 1998 a short
          term and long term liabilities of Ps876,909 and Ps962,526,
          respectively.

     iv.  Fair value information.

          The following disclosure of the estimated fair value of financial
          instruments is based on the requirements of Statement of Financial
          Accounting Standards No. 107, "Disclosures about Fair Value of
          Financial Instruments" ("FAS No. 107"). 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.

          Accounts payable to related parties and long-term borrowings received
          from related parties. The carrying value of these items at December
          31, 1997 and 1998 is a reasonable estimate of their fair value based
          on the interest rates that are currently available to the Company with
          similar terms and maturities.

     v.   Concentration of credit risk.

          The Company provides financing to the customers of an affiliated
          company which has 581 stores at December 31, 1998 throughout Mexico.
          Credit operations are managed by each store based on established
          credit policies.

          Due to the significant number of customers and their location, the
          Company considers that it is not dependent on any geographical area or
          customer base, and therefore, has no significant concentration of
          risk.

     vi.  Comprehensive income.

          Effective January 1, 1998, the Company adopted Statement of Financial
          Accounting Standards No .130, "Reporting Comprehensive Income", ("FAS
          No. 130"), which establishes new standards for reporting and
          displaying comprehensive income and its components. It was not
          practical to determine the cumulative comprehensive income as of
          January 1, 1998.

     vii. Recently issued accounting standards

          In June 1998, the FASB issued Statement of Financial Accounting
          Standards No. 133, "Accounting for Derivative Instruments and Hedging
          Activities" ("FAS No. 133"), which requires that all derivative
          instruments be recorded on the balance sheet at their fair value.
          Changes in the fair value of derivatives are recorded each period in
          current earnings of other comprehensive income, depending on whether a
          derivative is designated as part of a hedge transaction and, if it is,
          the type of hedge transaction. The Company does not believe that the


                                      F-84

<PAGE>

          adoption of this Standard will have a material impact on its financial
          position or results of operations.















                                      F-85

<PAGE>

d.   Condensed balance sheets and income statements under U.S. GAAP:

The following condensed balance sheets and income statements reflect the effects
of the principal differences between Mexican GAAP and U.S. GAAP.

                            CONDENSED BALANCE SHEETS

                                                            December 31,
                                                    ----------------------------
                                                        1997             1998
                                                        ----             ----

Accounts receivable from customers - Net            Ps2,333,193      Ps1,915,550
Inventories                                             261,017
Deferred income tax                                      17,248           20,567
Other current assets                                    124,666           17,205
                                                    -----------      -----------

Total current assets                                  2,736,124        1,953,322

Investments in joint ventures                            97,385          209,019
Other assets                                            100,662          362,853
                                                    -----------      -----------

Total assets                                        Ps2,934,171      Ps2,525,194
                                                    ===========      ===========

Current liabilities                                 Ps1,689,589      Ps  365,289
                                                    -----------      -----------

Long-term liabilities                                                    962,526
                                                                     -----------
Stockholders' equity                                  1,244,582        1,197,379
                                                    -----------      -----------

Total liabilities and stockholders' equity          Ps2,934,171      Ps2,525,194
                                                    ===========      ===========

             CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                  ---------------------------------------------
                                                      1996             1997            1998
                                                      ----             ----            ----
<S>                                               <C>             <C>              <C>
Revenues:
Net sales                                         Ps  574,023     Ps 2,986,583     Ps 3,648,171
Other income (expenses) - Net                          49,338          (16,734)           6,716
                                                  -----------     ------------     ------------

                                                      623,361        2,969,849        3,654,887
                                                  -----------     ------------     ------------

Cost of sales                                         267,973        2,879,157        3,434,808
Selling, general and administrative expenses          350,544        1,037,643        1,366,161
Allowance for doubtful accounts                       181,001          285,225          330,401
                                                  -----------    -------------    -------------

                                                      799,518        4,202,025        5,131,370
                                                  -----------     ------------     ------------

Operating loss                                       (176,157)      (1,232,176)      (1,476,483)
Interest income                                       755,735        1,281,084        1,539,072
Financing expenses                                   (264,140)        (219,622)        (241,277)
                                                  -----------     ------------     ------------

Pretax income (loss)                                  315,438         (170,714)        (178,688)
Income tax and asset tax                             (173,152)         (32,803)         142,492
                                                  -----------     ------------     ------------

Net income (loss)                                     142,286         (203,517)         (36,196)
Loss from holding nonmonetary assets                   (3,147)             (91)          (2,001)
                                                  -----------     ------------     ------------

Comprehensive income (loss)                       Ps  139,139    (Ps   203,426)   (Ps    38,197)
                                                  ===========     ============     ============
</TABLE>




                                      F-86

<PAGE>

Cash flow information

Under U.S. GAAP a statement of cash flow is prepared based on provisions of
Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows"
("FAS No. 95"). This statement does not provide guidance for the preparation of
cash flow statements for price level adjusted financial statements.

Presented below are statements of cash flows for the years ended December 31,
1996 and 1997, prepared after considering the impact of U.S. GAAP adjustments.
The cash flow statements are net of certain non cash transactions but include
the effects of inflation on cash flow and have been restated to pesos of
December 31, 1998, purchasing power. Year ended December 31,

<TABLE>
<CAPTION>
Cash flow from operating activities:                                          1996                1997
                                                                              ----                ----

<S>                                                                      <C>                   <C>
Net income (loss)                                                        Ps  142,286          (Ps  203,517)
Adjustments to reconcile net income to net cash provided
by operating actitivites:

Allowance for doubtful accounts                                              181,001               285,225
Monetary loss                                                                246,477               213,816
Deferred income tax                                                          147,484                10,826
Net changes in working capital                                              (978,282)             (927,772)
                                                                         -----------           -----------

Net cash used in operating activities                                       (261,034)             (621,422)
                                                                         -----------           -----------

Cash flow from investing activities:

Investments in joint ventures                                                                     (112,855)
                                                                                               -----------
Cash flows from financing activities:

Short-term loans paid - Net                                                 (377,625)              (28,138)
Repayment of receivable financing arrangements                              (226,020)
Borrowings from related parties                                             (248,559)              (91,919)
Proceeds from securitization of receivables - Net                                                  876,909
Capital contribution                                                       1,165,099
Payment of dividends                                                         (50,195)              (22,096)
                                                                         -----------           -----------

Net cash provided by financing activities                                    262,700               734,756
                                                                         -----------           -----------

Increase in cash and cash equivalents                                          1,666                   479
Cash and cash equivalents at beginning or year                                   154                 1,820
                                                                         -----------           -----------

Cash and cash equivalents at end of year                                 Ps    1,820           Ps    2,299
                                                                         ===========           ===========

Supplemental disclosure:
Cash paid during the year for:
Interest                                                                 Ps   68,455           Ps   94,734
                                                                         ===========           ===========

Income tax                                                               Ps   12,177           Ps    7,152
                                                                         ===========           ===========
</TABLE>


                                      F-87

<PAGE>

Presented below is a statement of cash flow for the year ended December 31,
1998, prepared after considering the impact of U.S. GAAP adjustments. The cash
flow statement presents nominal cash flows during the period, adjusted to pesos
of December 31, 1998, purchasing power.

                                                         Year ended December 31,
                                                                   1998
                                                                ----------

Cash flow from operating activities:
Net loss                                                       (Ps  36,196)
Adjustments to reconcile net loss to net cash
provided by operating activities:

Allowance for doubtful accounts                                    330,401
Monetary loss                                                      216,309
Deferred income tax                                               (142,492)
Net changes in working capital                                    (185,681)
                                                                ----------

Net cash provided by operating activities                          182,341
                                                                ----------

Cash flow from investing activities:

Investments in joint ventures                                     (129,256)
                                                                ----------

Cash flows from financing activities:

Borrowings from related parties                                   (273,856)
Proceeds from securitization of receivables - Net                  962,526
Repayment of securitization of receivables                        (876,909)
Payment of dividends                                                (9,006)
                                                                ----------

Net cash used in financing activities                             (196,227)
                                                                ----------

Effect of inflation and exchange rate changes on cash              143,591
                                                                ----------

Decrease in cash and cash equivalents                                 (569)
Cash and cash equivalents at beginning of year                       2,299
                                                                ----------

Cash and cash equivalents at end of year                        Ps   1,730
                                                                ==========

Supplemental disclosure:
Cash paid during the year for:
Interest                                                        Ps 136,662
                                                                ==========

Income tax                                                      Ps  13,942
                                                                ==========


                                      F-88

<PAGE>



                         COMUNICACIONES AVANZADAS, S. A.
                            DE C. V. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1998


                                      F-89

<PAGE>


            COMUNICACIONES AVANZADAS, S. A. DE C. V. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1998





Contents                                                                    Page
--------                                                                    ----

Report of independent accountants                                           F-91

Consolidated financial statements:

Consolidated balance sheets                                                 F-93

Consolidated statements of income                                           F-94

Consolidated statements of changes in stockholders' equity                  F-95

Consolidated statements of changes in financial position                    F-96

Notes to the consolidated financial statements                              F-97


                                      F-90
<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS


Mexico City, May 25, 1999

To the Stockholders of
Comunicaciones Avanzadas, S. A. de C. V.

1.   We have audited the consolidated balance sheets of Comunicaciones
     Avanzadas, S. A. de C. V. and subsidiaries (collectively "the Company") as
     of December 31, 1997 and 1998 and the related consolidated statements of
     income, of changes in stockholders' equity and of changes in financial
     position for each of the three years in the period ended December 31, 1998
     all expressed in constant pesos of December 31, 1998 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, which are similar in all material respects with
     auditing standards generally accepted 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.

2.   In our opinion, the aforementioned consolidated financial statements
     present fairly, in all material respects, the consolidated financial
     position of Comunicaciones Avanzadas, S. A. de C. V. and subsidiaries at
     December 31, 1997 and 1998, 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, 1998,
     in conformity with accounting principles generally accepted in Mexico.



                                      F-91
<PAGE>


3.   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 consolidated net income (loss), expressed in pesos of
     December 31, 1998 purchasing power, for each of the three years in the
     period ended December 31, 1998 and the determination of consolidated
     stockholders' equity and consolidated financial position as of December 31,
     1997 and 1998 also expressed in pesos of December 31, 1998 purchasing power
     to the extent summarized in Note 17 to the consolidated financial
     statements.


PricewaterhouseCoopers


Javier Soni O.


                                      F-92
<PAGE>

           COMUNICACIONES AVANZADAS, S. A. DE C. V. AND SUBISIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                          Thousands of Mexican pesos of
                       December 31, 1998 purchasing power


<TABLE>
<CAPTION>
                                                                 At December 31,
                                                          ----------------------------
                                                              1997             1998
                                                          ------------    ------------
<S>                                                       <C>             <C>
Assets
Current assets:
Cash and cash equivalents                                 Ps 1,639,143    Ps 1,054,594
Pledged securities (Notes 5 and 10)                            280,797         396,074
Accounts receivable (Note 6)                                 3,506,224       3,147,239
Due from related parties (Note 9)                              298,178         201,367
Exhibition rights                                              288,293         790,973
Inventories                                                    181,478         300,010
                                                          ------------    ------------

Total current assets                                         6,194,113       5,890,257

Property, machinery and equipment - Net (Note 7)             3,100,574       3,222,720
Television concessions - Net (Note 3k.)                      3,361,288       3,131,172
Pledged securities (Notes 5 and 10)                            367,343         128,056
Exhibition rights                                              431,052         731,187
Goodwill - Net (Note 3i.)                                    1,186,625       1,160,520
Other assets (Note 8)                                          318,210         404,894
                                                          ------------    ------------

Total assets                                              Ps14,959,205    Ps14,668,806
                                                          ============    ============

Liabilities and stockholders' equity

Current liabilities:
Current portion of long-term bank loans (Note 10)         Ps    76,539    Ps   123,800
Current portion of long-term promissory notes (Note 11)         17,665           9,454
Short-term debt (Note 10)                                      478,747         280,127
Interest payable                                               194,288         223,193
Exhibition rights payable                                      212,919         395,592
Accounts payable and accrued expenses                          469,732         599,685
Due to related parties (Note 9)                                  8,903          95,733
                                                          ------------    ------------

Total current liabilities                                    1,458,793       1,727,584
                                                          ------------    ------------

Long - term liabilities:
Senior notes (Note 10)                                       6,506,762       6,737,441
Bank loans (Note 10)                                           506,173       1,012,316
Promissory notes (Note 11)                                      30,077          24,466
Advertising advances (Note 3o.)                              3,309,493       2,301,120
Exhibition rights payable                                      156,947         354,425
                                                          ------------    ------------

Total long-term liabilities                                 10,509,452      10,429,768
                                                          ------------    ------------

Total liabilities                                           11,968,245      12,157,352
                                                          ------------    ------------

Stockholders' equity (Note 12):
Capital stock                                                1,535,559       1,535,559
Paid-in capital                                                915,152         915,152
Contributions for future capital stock increases                 4,118           4,118
Deficit                                                       (474,695)       (834,238)
Gain (loss) from holding nonmonetary assets                     42,663        (405,085)
                                                          ------------    ------------

Majority stockholders                                        2,022,797       1,215,506
Minority stockholders                                          968,163       1,295,948
                                                          ------------    ------------

Total stockholders' equity                                   2,990,960       2,511,454
Commitments and contingencies (Note 14)
                                                          ------------    ------------

Total liabilities and stockholders' equity                Ps14,959,205    Ps14,668,806
                                                          ============    ============
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-93
<PAGE>

            COMUNICACIONES AVANZADAS, S. A. DE C. V. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                          Thousands of Mexican pesos of
                       December 31, 1998 purchasing power


<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                                     ----------------------------------------
                                                        1996           1997           1998
                                                     -----------    -----------    -----------
<S>                                                  <C>            <C>            <C>
Net revenue                                          Ps2,760,411    Ps4,468,196    Ps4,635,154
                                                     -----------    -----------    -----------

Programming, production, exhibition and
transmission costs                                       809,543      1,319,197      1,563,671
Sales and administrative expenses                        619,113        733,893        735,373
                                                     -----------    -----------    -----------

Total costs and expenses                               1,428,656      2,053,090      2,299,044
                                                     -----------    -----------    -----------

Depreciation and amortization                            496,310        646,834        790,612
                                                     -----------    -----------    -----------

Operating income                                         835,445      1,768,272      1,545,498
                                                     -----------    -----------    -----------

Other (expenses) income - Net                             (4,470)        15,144       (203,316)
                                                     -----------    -----------    -----------

Comprehensive financing income (cost):
Interest expense - Net                                  (481,643)      (636,120)    (1,158,669)
Exchange loss - Net                                       (3,678)      (137,414)    (1,410,027)
Other financing expenses                                 344,035
Gain on monetary position                                885,935        407,968        760,676
                                                     -----------    -----------    -----------

                                                         400,614       (365,566)    (1,463,985)
                                                     -----------    -----------    -----------

Income (loss) before provision for income tax and
extraordinary items                                    1,231,589      1,417,850       (121,803)
Provision for income tax (Note 13)                      (366,137)      (530,059)      (366,158)
                                                     -----------    -----------    -----------

Income (loss) before extraordinary items                 865,542        887,791       (487,961)
Extraordinary item - Income tax benefit from
utilization of prior years' tax-loss carryforwards
(Note 13)                                                353,583        265,643         98,889
Other extraordinary items (Note 13)                       12,554
                                                     -----------    -----------    -----------

Net income (loss)                                    Ps1,231,589    Ps1,153,434    (Ps 389,072)
                                                     ===========    ===========    ===========

Net income (loss) of majority stockholders           Ps  572,899    Ps  604,024    (Ps 359,543)
Net income (loss) of minority stockholders               658,690        549,410        (29,529)
                                                     -----------    -----------    -----------

                                                     Ps1,231,589    Ps1,153,434    (Ps 389,072)
                                                     ===========    ===========    ===========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-94
<PAGE>


                    COMUNICACIONES AVANZADAS, S. A. DE C. V.
                                AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
           FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

        Thousands of Mexican pesos of December 31, 1998, purchasing power

<TABLE>
<CAPTION>
                                                                    Contributions
                                                                      for future
                                          Capital        Paid-in     capital stock
                                           stock         capital       increases      Deficit
                                           -----         -------       ---------      -------
<S>                                     <C>            <C>            <C>           <C>
Balances at January 1, 1996             Ps1,246,554                   Ps    4,118   (Ps1,651,618)

Increases of capital stock                  421,459    Ps  915,152
Net income                                                                               572,899
Loss from holding nonmonetary
assets
                                        -----------    -----------    -----------    -----------

Balances at December 31, 1996             1,668,013        915,152          4,118     (1,078,719)

Decrease of capital stock                  (132,454)
Net income                                                                               604,024
Redemption of capital of subsidiaries
paid to minority stockholders
Gain from holding nonmonetary
assets
                                        -----------    -----------    -----------    -----------

Balances at December 31, 1997             1,535,559        915,152          4,118       (474,695)

Net loss                                                                                (359,543)
(Loss) gain from holding nonmonetary
assets
                                        -----------    -----------    -----------    -----------

Balances at December 31, 1998           Ps1,535,559    Ps  915,152    Ps    4,118    (Ps 834,238)
                                        ===========    ===========    ===========     ==========

<CAPTION>

                                         Majority      Minority
                                       stockholders   stockholders     Total
                                       ------------   ------------     -----
<S>                                     <C>           <C>          <C>
Balances at January 1, 1996            Ps   14,667   Ps1,487,425   Ps1,502,092

Increases of capital stock               1,336,611                   1,336,611
Net income                                 572,899       658,690     1,231,589
Loss from holding nonmonetary
assets                                    (568,050)     (768,064)   (1,336,114)
                                       -----------   -----------   -----------

Balances at December 31, 1996            1,356,127     1,378,051     2,734,178

Decrease of capital stock                 (132,454)                   (132,454)
Net income                                 604,024       549,410     1,153,434
Redemption of capital of subsidiaries
paid to minority stockholders                         (1,025,829)   (1,025,829)
Gain from holding nonmonetary
assets                                     195,100        66,531       261,631
                                       -----------   -----------   -----------

Balances at December 31, 1997            2,022,797       968,163     2,990,960

Net loss                                  (359,543)      (29,529)     (389,072)
(Loss) gain from holding nonmonetary
assets                                    (447,748)      357,314       (90,434)
                                       -----------   -----------   -----------

Balances at December 31, 1998          Ps1,215,506   Ps1,295,948   Ps2,511,454
                                       ===========   ===========   ===========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.



                                      F-95
<PAGE>


                     COMUNICACIONES AVANZADAS, S. A DE C. V.
                                AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

                   Thousands of Mexican pesos of December 31,
                              1998 purchasing power

<TABLE>
<CAPTION>
                                                                Year ended December 31,
                                                       ----------------------------------------
                                                          1996           1997           1998
                                                       -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>
Operations:
Income (loss) before extraordinary items               Ps  865,552    Ps  887,791    (Ps 487,961)
Charges to income not affecting resources:
Amortization of concessions and goodwill                   317,273        397,797        412,156
Depreciation                                               179,037        249,037        378,456
Net change in accounts receivable, inventories,
exhibition rights, related parties, accounts payable
and accrued expenses                                    (1,997,866)    (2,027,026)        (9,426)
Advertising advances                                     1,056,208        713,447     (1,088,383)
                                                       -----------    -----------    -----------

Resources provided by (used in) operations
before extraordinary items                                 420,204        221,046       (795,158)
Income tax benefit from utilization of prior
years' tax loss carryforwards                              353,583        265,643         98,889
Other extraordinary items                                   12,554
                                                       -----------    -----------    -----------

Resources provided by (used in) operations                 786,341        486,689       (696,269)
                                                       -----------    -----------    -----------

Financing:

Increase (decrease) of capital stock                       421,459       (132,454)
Paid-in capital                                            915,152
Senior notes                                                            6,506,762        230,679
Bank loans - Net                                        (1,036,194)    (2,474,703)       354,784
Promissory notes - Net                                     (23,669)        (4,073)       (13,822)
Adjustment for movements in TV Azteca, subsidiary,
for repurchase, valuation and option of stock                                            (78,409)
Dividends of subsidiaries paid to minority
stockholders                                                           (1,025,743)       (17,231)
                                                       -----------    -----------    -----------

Resources provided by financing activities                 276,748      2,869,789        476,001
                                                       -----------    -----------    -----------

Investment:

Acquisition of property, machinery and
equipment - Net                                           (383,848)    (1,494,796)      (476,640)
Deferred costs related to the acquisition of
subsidiaries' shares                                      (582,758)
Pledged securities                                                       (648,140)       124,011
(Acquisition) disposition of shares                        (12,907)        52,184        (11,652)
                                                       -----------    -----------    -----------

Resources used in investment activities                   (979,513)    (2,090,752)      (364,281)
                                                       -----------    -----------    -----------

Increase (decrease) in cash and cash
equivalents                                                 83,576      1,265,726       (584,549)
Cash and cash equivalents at beginning of
year                                                       289,841        373,417      1,639,143
                                                       -----------    -----------    -----------

Cash and cash equivalents at end of year               Ps  373,417    Ps1,639,143    Ps1,054,594
                                                       ===========    ===========    ===========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-96
<PAGE>


                     COMUNICACIONES AVANZADAS, S. A DE C. V.
                                AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1997 AND 1998

                   (monetary amounts expressed in thousands of
                     Mexican pesos (Ps) of December 31, 1998
                    purchasing power, except exchange rates)

NOTE 1 - THE COMPANY AND GROUP STRUCTURE:

Comunicaciones Avanzadas, S. A. de C. V. (collectively "CASA" or the "Company")
is a Mexican holding Company established on November 4, 1993 and which began
operating in 1995. The main activities of CASA and its subsidiaries are the
broadcasting and production of television programs, the sale of advertising time
and the operation of movie theaters and production studios. The Company has no
employees and all administrative services are rendered by an affiliated company.

In 1995 CASA acquired 90% of the shares comprising the capital stock of Azteca
Holdings, S. A. de C. V. (Azteca) which during 1993 had 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, 1996
included Azteca, Radiotelevisora del Centro, S. A. (RTC), TV Azteca, S. A. de C.
V. (TV Azteca) and Grupo COTSA, S. A. de C. V. (COTSA). As of December 31, 1996,
Azteca owned 50% of RTC's ordinary voting capital stock (and the Company's
controlling shareholder, Ricardo Salinas, owned 1% of RTC's ordinary voting
capital stock) and also directly owned 24% and 27% of TV Azteca's and COTSA's
capital stock in the form of Series "N" shares with limited voting right. RTC
directly owned 100% of TV Azteca's and COTSA's Series "A" shares, which
represented in the aggregate approximately 49% and 43%, respectively, of TV
Azteca's and COTSA's outstanding capital stock, and the Series "N" shares
represented the remainder.

Pursuant to the terms of the privatization mentioned above, a portion of the
voting shares of all companies that directly or indirectly own the privatized
businesses was deposited in a trust administered by Nacional Financiera, S. N.
C. (the "Nafin Trust"). As of December 31, 1997, 100% of TV Azteca's and COTSA's
Series "A" shares, 51% of the capital stock of TV Azteca's and COTSA's
subsidiaries at the time of privatization, and 100% of the capital stock of
Azteca are held in the Nafin Trust. Under the terms of the Nafin Trust, these
shares cannot be removed without the government's approval until July 1998. This
mechanism was conceived to prevent Azteca from selling control of TV Azteca and
COTSA within five years of the privatization without the government's approval.


                                      F-97
<PAGE>


On July 17, 1997, an amendment to TV Azteca's by-laws was approved at a General
Extraordinary Stockholders' Meeting of TV Azteca, pursuant to which each of the
three outstanding Series "N" shares were converted into a CPO consisting of one
Series "A" share, one Series "D-A" share and one Series "D-L" share. This
recapitalization became effective concurrently with the consummation of TV
Azteca's initial public offering (the TV Azteca IPO). At such meeting the
stockholders also approved the issuance by TV Azteca of up to 12,670 thousand
CPOs in the TV Azteca IPO. On August 20, 1997, TV Azteca made an initial public
offering of its capital stock in the form of approximately 115 million CPOs sold
by TV Azteca and certain stockholders of TV Azteca. Simultaneous with the TV
Azteca IPO, the capital stock of COTSA owned by RTC was spun-off to a
newly-created entity, RTC-Cines, S. A. de C. V. (RTC-Cines), also a subsidiary
of Azteca, and RTC was merged into TV Azteca. Between July, 1997 and October,
1997, a wholly-owned subsidiary of COTSA purchased 50.4% of the capital stock of
COTSA. (See Note 11). Azteca now owns, directly, 63% of the capital stock of TV
Azteca and, directly or indirectly through RTC-Cines, 99% of the capital stock
of COTSA. Also, in connection with the TV Azteca IPO: (i) the Nafin Trust,
mentioned above, was amended to allow less than all of TV Azteca's Series "A"
shares to be held in the Nafin Trust, provided that at least a majority of the
Series "A" shares is held in the Nafin Trust and (ii) the Bursamex Group's
refund rights (mentioned in Note 12) have been proportionately reduced (by
approximately 43%) to reflect the CPOs sold by the Bursamex Group.

NOTE 2 - ACCOUNTING FOR EFFECTS OF INFLATION:

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles as promulgated by the Mexican Institute
of Public Accountants (MIPA). The recognition of the effects of inflation on the
financial information is in accordance with the following rules:

     -    Inventories, property, machinery and equipment of Mexican origin,
          television concessions, exhibition rights of Mexican origin, 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 "Gain (loss) from holding
          non-monetary assets".


                                      F-98
<PAGE>


     -    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, 1998.

The NCPI used to recognize the effects of inflation in the financial statements
were 200.388, 231.886 and 275.028 as of December 31, 1996, 1997 and 1998,
respectively.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The significant accounting policies are summarized on the following pages.

a. Principles of consolidation

The accompanying consolidated financial statements include those related to CASA
and the aforementioned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

The financial statements of the subsidiaries residing abroad included in the
consolidation are translated in conformity with the requirements of Statement
B-15 issued by the Accounting Principles Commission of the MIPA.

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 with original maturities of
less than three months to be cash equivalents.

d. 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 specified in the barter contracts. During the
years ended December 31, 1996, 1997 and 1998, net revenue derived from barter
transactions amounted to Ps377,995, Ps485,025 and Ps446,629, respectively.


                                      F-99
<PAGE>


e. 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 when the license agreements are signed. The
cost of exhibition rights acquired are amortized (on an accelerated basis when
the rights relate to multiple broadcasts) as the programming and events are
broadcast. At December 31, 1996, 1997 and 1998 the allowance for unused
exhibition rights amounted to Ps45,260, Ps8,302 and Ps60,958, respectively,
which represents management's estimate of exhibition rights which may not be
utilized prior to their expiration.

Exhibition rights at December 31, 1996, 1997 and 1998 also include Ps76,920
Ps126,437 and Ps207,641, respectively, associated with internally produced
programming. Costs of internally produced programming are fully amortized when
the programs are initially aired, except in the case of the telenovelas, where
amortization is over a maximum of a three - year period.

f. Inventories and costs -

Inventories of merchandise, materials and spare parts, and their related costs,
are stated at average costs and are restated by using factors derived from the
NCPI.

g. 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. 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 cost 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, 1997 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 Company's net fixed assets as estimated by the appraisers.

h. Investment in shares -

Investment in affiliates is recorded by the equity method and is included in the
balance sheet as other assets.



                                     F-100
<PAGE>


i. Goodwill -

The excess of cost over the book value of subsidiaries acquired in 1998 and
years before is amortized using the straight-line method over 20 years and
restated by applying factors derived from the NCPI to its historical cost. As a
result of the transaction described in Note 10 (syndicated loan) relating to the
purchase of additional shares in TV Azteca, Azteca recorded additional goodwill
of approximately Ps1,008 million (including the Ps585 million related to the
total cost associated with the termination of the option agreement described in
Note 10). Amortization expense for the years ended December 31, 1996, 1997 and
1998 amounted to Ps2,953, Ps36,988 and Ps55,605, 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.

j. Negative goodwill -

In 1994, TV Azteca received a total of Ps214,469 (Ps78,157 nominal) from the
Mexican government as settlement for disputed amounts received from the
government in connection with the privatization process. Such amounts were
recorded as negative goodwill which will be amortized over a period of five
years. Amortization income for the year ended December 31, 1997 amounted to and
Ps21,049.
The negative goodwill was eliminated when RTC was merged into TV Azteca on July
17, 1997.

k. Television concessions -

The aggregate value of 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. Television concessions are amortized by the
straight-line method over the relevant concession periods, which end on July 2,
1999, April 29, 2006, September 29, 2006 and May 9, 2008. Amortization expense
for the years ended December 31, 1996, 1997 and 1998 amounted to Ps357,217,
Ps354,481 and Ps356,551, respectively.

l. 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. The related obligation was not material at December 31, 1996, 1997 and
1998.

Other compensation based on length of service, to which employees may be
entitled in the event of dismissal or death, in accordance with the Federal
Labor Law, is charged to income in the year in which it becomes payable.



                                     F-101
<PAGE>


m. Income tax and employees' profit sharing -

Income tax and employees' profit sharing are recorded using interperiod
allocation procedures under the partial liability method. Under this method, the
effect on income tax and employees' profit sharing of non-recurring timing
differences between taxable income and financial pretax income which are
expected to reverse in an identifiable time period is recorded as deferred
income tax. As of December 31, 1996, 1997 and 1998 there were no timing
differences that require the recognition of deferred income taxes.

n. Net revenue -

Net revenue includes revenue from advertisers less sales commissions payable and
revenue from movie theaters. During the years ended December 31, 1996, 1997 and
1998 sales commissions payable amounted to Ps123,174, Ps130,050 and Ps148,381,
respectively.

o. 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 from the date they sign the agreement. The Mexican plan allows
clients to pay for advertising 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 received, and the balance 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 in respect of advertising advances are considered
non-monetary liabilities and are restated by applying factors derived from the
NCPI.

p. 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.

q. Stock option plan for employees -

Stock options granted to employees are given effect when exercised by crediting
to paid-in capital stock the exercise price.

r. Derivative financial instruments -

The Company recognizes on its balance sheet as assets or liabilities at fair
value all of its contractual rights and obligations, under derivative financial
instruments to which the Company is a party. See Note 5.


                                     F-102
<PAGE>


s. Deferred charges

Deferred charges are amortized over a ten-year period.  See Note 8.

t. Net revenue

Net revenue includes revenue from advertisers less sales commissions payable and
revenue from movie theaters. During the years ended December 31, 1996, 1997 and
1998 sales commissions payable amounted to Ps123,174, Ps130,050 and Ps148,381,
respectively.

NOTE 4 - FOREIGN CURRENCY POSITION:

Monetary amounts in this note are expressed in thousands of US 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, 1998, the
exchange rate was Ps9.93 per dollar (Ps8.07 and 7.89 at December 31, 1997 and
1996, respectively). As a result, the Company had net exchange losses of
Ps3,678, Ps137,453 and Ps1,409,577 during the years ended December 31, 1996,
1997 and 1998, respectively, which are shown as a component of comprehensive
financing (cost) income.

At May 25, 1999, date of issuance of the consolidated financial statements, the
exchange rate was Ps9.30 per dollar.

At December 31, 1997 and 1998, CASA and subsidiaries had monetary assets and
liabilities denominated in foreign currencies as shown below:

                                     December 31,
                               ----------------------------
                                  1997              1998
                               ----------       -----------
Assets                         US$118,739        US$162,619
Liabilities                      (852,652)         (921,290)
                               ----------       -----------

Net short position            (US$733,913)      (US$758,671)
                               ==========        ==========

At December 31, 1997 and 1998, CASA and subsidiaries had no hedge contracts for
protection against foreign exchange risks.


                                     F-103
<PAGE>


NOTE 5 - OPERATIONS WITH DERIVATIVE FINANCIAL INSTRUMENTS:

a. Debt -

At December 31, 1998 Azteca held an investment in a swap whose return was based
on the difference in price between a basket of bonds issued by several Latin
American companies and United States Treasury bonds. The notional value of
investment reached US$30,000, and the swap's original maturity was April 16,
1999. This investment required an initial collateral of US$10,500 (Ps103,982),
however, due to the adverse variations in the prices of these instruments,
additional collateral reaching an aggregate of US$12,181 (Ps120,629) was
required.

At December 31, 1998, the initial collateral was registered as restricted cash
on the balance sheet and the additional collateral of Ps120,629 was recognized
as a charge to results of operations accounted for as a component of Azteca's
comprehensive financing cost, due to the market value of the aforementioned
investment.

On January 15, 1999 Azteca decided to restructure the aforementioned investment
making it an investment whose return was based solely on the prices of a basket
of Latin American bonds. As a term of the restructuring, Azteca was required to
pay an amount equal to the decrease in the price of the bonds during the period
of the initial swap investment. The maturity date of this restructured swap is
July 19, 1999.

b. Capital -

During the fiscal year 1998 Azteca purchased and sold options on TV Azteca CPO's
and ADR's and Elektra ADR's. The aforementioned transactions are listed below:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
  Position in
 the operation       Type of           Underlying       Notional         Exercise          Maturity
                    operation           security         value            price             date
------------------------------------------------------------------------------------------------------------
<S>              <C>                   <C>             <C>               <C>         <C>
     Sell        European Put          TV Azteca       US$  4,605        US$17.50    Second half of 1999
                                       ADR's
------------------------------------------------------------------------------------------------------------
     Sell        European Put          TV Azteca       Ps 145,973        Ps  7.92    Second half of 1999
                                       CPO's
------------------------------------------------------------------------------------------------------------
      Buy        European Cap Call     Elektra ADR's   US$  9,191        US$ 8.49    May and June of 1999
------------------------------------------------------------------------------------------------------------
      Buy        European Cap Call     TV Azteca       US$ 80,000        US$15.96    Expired in 1998 without
                                       ADR's                                         being exercised
------------------------------------------------------------------------------------------------------------
</TABLE>


                                     F-104
<PAGE>


The market value of the European Put options at December 31, 1998 resulted in a
loss of Ps28,004. This amount was recognized as a charge to stockholders' equity
reducing the premium on the issuance of capital stock.

The premium paid by Azteca for the European Cap Call on its own ADR's was
recognized as a charge to the stockholders' equity by reducing the premium on
the issuance of capital stock in the amount of US$6,666 (Ps66,020). Azteca
recognized a charge to 1998 results from the European Cap Call on Elektra's
ADR's in the amount of US$444 (Ps4,396), accounted for as a component of
Azteca's comprehensive financing cost.

c. Bancrecer

In November 1996, TV Azteca entered into a two year advertising contract with
Bancrecer, S. A. ("Bancrecer") in the amount of Ps.119 million. In exchange for
advertising, Bancrecer issued to TV Azteca 2.6% of its publicly-traded stock.
During the year ended December 31, 1998, TV Azteca recognized a charge to
results of operations of Ps.77 million, accounted for as a component of TV
Azteca's comprehensive financing cost, due to the market value of the
aforementioned investment. TV Azteca risks further losses to its earnings should
the market value of Bancrecer further decline.

NOTE 6 - ACCOUNTS RECEIVABLE:

                                                          December 31,
                                                 ------------------------------
                                                    1997                1998
                                                 -----------        -----------

Amounts due from advertisers                     Ps3,100,846        Ps2,844,028
Recoverable taxes                                    131,465            123,295
Prepaid expenses                                      40,977             51,000
Other accounts receivable                            263,878            179,269
                                                 -----------        -----------
                                                   3,537,166          3,197,592
Allowance for bad debts                              (30,942)           (50,353)
                                                 -----------        -----------
                                                 Ps3,506,224        Ps3,147,239
                                                 ===========        ===========

Amounts due from barter transactions included in amounts due from advertisers
amounted to Ps464,375 and Ps309,535 as of December 31, 1997 and 1998,
respectively.


                                     F-105
<PAGE>


NOTE 7 - PROPERTY, MACHINERY AND EQUIPMENT:

<TABLE>
<CAPTION>
                                                            December 31,                   Annual
                                                   ----------------------------         depreciation
                                                      1997              1998               rates
                                                   -----------      -----------        --------------
<S>                                                <C>              <C>               <C>
Buildings                                          Ps1,797,229      Ps1,994,594          2 and 3%
Machinery and operating equipment                    1,728,527        2,263,459       4%, 11% and 25%
Furniture and office equipment                         104,281          127,325       7%, 9% and 10%
Transportation equipment                               122,797          160,809             16%
Other fixed assets                                     284,711          267,618         8% and 14%
                                                   -----------      -----------

                                                     4,037,545        4,813,805
                                                   -----------      -----------

Accumulated depreciation                            (1,897,593)      (2,431,744)
                                                   -----------      -----------

                                                     2,139,952        2,382,061
Land                                                   787,886          790,217
Machinery and equipment in transit                      21,107
Advance payments for the acquisition
of machinery and equipment                             151,629
Construction in progress                                                 50,442
                                                   -----------      -----------
                                                   Ps3,100,574      Ps3,222,720
                                                   ===========      ===========
</TABLE>


NOTE 8 - OTHER ASSETS:

                                                               December 31,
                                                         -----------------------
                                                           1997          1998
                                                         ---------     ---------
Investment in affiliates (Note 3h.)                      Ps 48,576     Ps 60,228
Deferred costs related to the issuance of
guaranteed senior notes and senior secured
notes - Net                                                198,493       170,707
Advances to Corporacion de Noticias e
Informacion, S. A. de C. V                                                84,759
Other assets                                                71,141        89,200
                                                         ---------     ---------

                                                         Ps318,210     Ps404,894
                                                         =========     =========


                                     F-106
<PAGE>


Corporacion de Noticias e Informacion, S. A. de C. V. (CNI)

On December 10, 1998, TV Azteca and a subsidiary signed a Joint Venture
agreement with CNI (the owner of the concession for UHF Channel 40 in Mexico
City), and Televisora del Valle de Mexico, S. A. de C. V. (TVM) with the
following terms:

1.   TV Azteca will advise TVM and CNI to improve the television operations of
     Channel 40 for a period of 10 years or until the expiration o TVM's
     television concession, which ever is shorter.

2.   Under a Programming, Promotion and Commercialization Agreement with TVM,
     CNI will sede 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 CNI's earnings before interest, taxes, depreciation and
     amortization (EBITDA) on a quarterly basis during the first three years of
     the Joint Venture, with an advance payment of US$15,000. At December 31,
     1998, US$8,375 has been advanced under the terms of this agreement and was
     recognized as a deferred charge that will be amortized for a maximum period
     of ten years. The balance will be advanced to CNI by July 31, 1999.

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 interest of
     three years. The interest, will accrue and the annual interest rate will be
     determined based on the maximum interest rate paid by TV Azteca plus .25
     points. As security for the loan, 51% of the capital stock of TVM owned by
     Mr. Javier Moreno Valle was pledged as collateral. At February 15, 1999,
     date of these financial statements, CNI had not drawn upon this credit
     facility.

4.   Under a purchase option contract, TV Azteca may acquire up to 51% of the
     capital stock of TVM beginning in November 2002. The sale price of the
     capital stock will be the greater of US$100,000 or ten times the EBITDA of
     the 12 months preceding the exercise of the purchase option. This contract
     also gives Mr. Javier Moreno Valle S. and Mr. Hernan Cabalceta Vara the
     right to put their CNI capital stock to the company under certain
     circumstances.

5.   TV Azteca will determine all Channel 40 programming except for 16 and
     one-half hours per week that will be made up of CNI determined programming.
     In return for the transmission rights through Channel 40, TV Azteca will
     pay CNI US$5.0 for each 60 minute program or its equivalent broadcast and
     US$1.65 for each rating point generated by programming broadcast on Channel
     40.

6.   To improve the efficiency of Channel 40' operations, TV Azteca has agreed
     to provide accounting, administrative, computer, technical or any other
     advise that will improve the operations and administration of Channel 40.



                                     F-107
<PAGE>


Dataflux, S. A. de C. V. (Dataflux)

The Company had an investment in Dataflux, a related party, which was sold on
December 31, 1997 resulting in the Azteca recognizing a gain of Ps104,453 that
was accounted for as other income in the results of operations for 1997.

NOTE 9 - BALANCES AND TRANSACTIONS WITH RELATED PARTIES:

The Company had the following amounts due from and payable to related parties:


                                                             December 31,
                                                        -----------------------
                                                         1997           1998
                                                       ---------      ---------
Accounts receivable:

Elektra, S. A. de C. V                                 Ps 74,794
Unefon, S. A. de C. V                                                 Ps 69,452
Corporacion de Comunicaciones, S. A. de C. V                             33,505
Club Atletico Morelia, S. A. de C. V                                     32,580
Club Deportivo Veracruz, S. A. de C. V                    85,642         25,220
Dataflux                                                  94,211
Other                                                     43,531         40,610
                                                       ---------      ---------

                                                       Ps298,178      Ps201,367
                                                       =========      =========

Accounts payable:

Corporacion RBS, S. A. de C. V                                        (Ps38,842)
Elektra, S. A. de C. V                                 (Ps 5,009)       (28,697)
Other                                                     (3,844)       (28,194)
                                                       ---------      ---------

                                                       (Ps 8,903)     (Ps95,733)
                                                       =========      =========

The principal transactions with related parties are as follows:

Advertising revenue

Revenue from airing advertising for related parties and affiliated companies
amounted to Ps58,010, Ps35,675 and Ps45,206 during the years ended December 31,
1996, 1997 and 1998, respectively.


                                     F-108
<PAGE>


Advertising contracts

In March 1996, TV Azteca entered into a Television Advertising Time Agreement
with Elektra under which Elektra (or any company in which 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 with a 20 second duration, totaling 5,200 minutes
annually, but only in otherwise unsold airtime. In exchange for the television
advertising airtime TV Azteca will receive US$1.5 million per year. The
agreement may not be terminated by TV Azteca but may be terminated by Elektra,
which may also transfer its rights under this agreement to third parties.

Effective September 30, 1996, TV Azteca entered into a Television Advertising
Time Agreement with Nueva Icacos, S. A. de C. V. ("Nueva Icacos"), a company
that operates a Hyatt hotel in Acapulco (the "Nueva Icacos Advertising
Agreement"). Under the Nueva Icacos Advertising Agreement, Nueva Icacos has the
right to 14 advertising spots per week on Channel 7 or 13 for a period of 10
years, each spot with 20 seconds average duration, totaling 235 minutes each
year, but only in otherwise unsold airtime. In exchange for the advertising
time, Nueva Icacos has agreed to pay US$68 annually, payable in advance each
year. The Nueva Icacos Advertising Agreement may not be terminated by TV Azteca;
however, it may be terminated by Nueva Icacos at any time upon at least 90 days'
notice.

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 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 the
Company 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.

In 1997, TV Azteca entered into a multi-year advertising agreement with Biper,
S. A. de C. V. ("Biper") (the "Biper Advertising Agreement"), a paging company
controlled by Ricardo Salinas. Under the Biper Advertising Agreement, Biper has
the right to 138 minutes in 1997, 172 minutes in 1998, 207 minutes in 1999 and
240 minutes in 2000 on the Azteca 7 or 13 Networks, each commercial to have an
average duration of 20 second, but only in otherwise unsold advertising time. In
exchange for the advertising time, Biper has agreed to pay 1.5% of its yearly
pager sales to TV Azteca. Biper's rights under the agreement may be assigned to
third parties. Biper also provides paging services to TV Azteca and leases
transmission sites from TV Azteca.

Interest expense

During the years ended December 31, 1996, 1997 and 1998, Azteca received
short-term loans from Grupo Elektra, S. A. de C. V. and Elektra. Interest
expense incurred under these arrangements amounted to Ps65,872, Ps34,870 and
Ps100, respectively.


                                     F-109
<PAGE>


Interest income

During the years ended December 31, 1996, 1997 and 1998 TV Azteca extended
short-term loans to certain related parties. Interest income under these
arrangements amounted to Ps17,805, Ps3,806 and Ps14,920, respectively.

Guarantee fee arrangements

In connection with a syndicated loan agreement (See Note 9) certain related
parties provided guarantees and other credit supports on behalf of TV Azteca. As
consideration for providing this credit support TV Azteca has agreed to
compensate the related parties at an annual rate of 2.4% of the average amount
outstanding under the syndicated loan agreement. Fees due to the related parties
under these guarantee arrangements, which are included in interest expense,
amounted to Ps2,089 during the year ended December 31, 1997. With the net
proceeds from the issuance of the TV Azteca Notes mentioned in Note 10, TV
Azteca paid the amounts outstanding of such fees, and aggregate of approximately
Ps181 million.

Donations

In the years ended December 31, 1997 and 1998 Azteca made donations to a
non-profit organization managed by a related party of Ps60,112 and Ps83,136,
respectively. The related party has permission from tax authorities to collect
donations and issue the corresponding receipts.

Loan granted to stockholder

During the year ended December 31, 1998, Ps44,000 and US$2,000 (US$716 and
Ps16,613 during the years ended December 31, 1996 and 1997, respectively) were
loaned to the principal stockholder of the Company. Ps44,000 was paid on the
same day it was lent, and at December 31, 1998 the outstanding balance was
US$2,000. The 1996 and 1997 loans were paid on December 31, 1996 and 1997
respectively. The 1998 loans bore interest at the rates of 35.10% and 11.05%,
respectively, and the 1996 and 1997 loans bore interest at a rate of Libor plus
7.125% and 20%, respectively.

Building leasing income

In May 1998, Azteca signed a building lease agreement with Sistemas
Profesionales de Comunicacion, S. A. de C. V. (SPC), a related party. Said
contract has a duration 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 Ps1,463 a month, payable in advance each
month. During year ended December 31, 1998 the aggregate lease income received
from SPC by Azteca amounted to Ps10,796.


                                     F-110
<PAGE>

NOTE 10 - SHORT-TERM AND LONG-TERM BANK LOANS:

At December 31, 1997 and 1998 short-term debt for equipment financing amounted
to Ps478,747, and Ps280,127, respectively, representing unsecured loans in U.S.
dollars with Mexican banks, with an average interest rate of 9.28% and 12.50% at
December 31, 1997 and 1998, respectively.

Short-term and long-term bank loans are analyzed as follows:

                                                             December 31,
                                                    ----------------------------
                                                       1997              1998
                                                    -----------      -----------
Building and equipment financing                    Ps  582,712      Ps1,136,116
Less-current portion                                     76,539          123,800
                                                    -----------      -----------

Long-term bank loans                                Ps  506,173      Ps1,012,316
                                                    ===========      ===========

TV Azteca notes                                     Ps4,066,726      Ps4,210,901
Azteca notes                                          2,440,036        2,526,540
                                                    -----------      -----------

Total senior notes                                  Ps 6,506,762     Ps6,737,441
                                                    ============     ===========

Maturity of long-term bank loans:

                   Year ending at December 31,                   Amount
                   ---------------------------                   ------

                           2000                               Ps  642,593
                           2001                                    60,651
                           2002                                    47,218
                           2003                                    10,996
                           Thereafter                             250,858
                                                              -----------

                                                              Ps1,012,316
                                                              ===========

Syndicated loan

In November 1993, TV Azteca entered into a loan agreement (the syndicated loan)
with a banking syndicate headed by Grupo Financiero GBM-Atlantico for
US$226,000, which matured on November 9, 1997 with interest at Libor plus 7%
(12.5% at December 31, 1996). On September 26, 1995, due to an increase in the
interest rate applicable to the loan in 1995,


                                     F-111
<PAGE>


resulting from the economic crisis in Mexico, TV Azteca negotiated certain
revisions to the syndicated loan including the deferral of US$12,600 of interest
until the maturity of the loan. The syndicated loan is guaranteed by various
related parties. (See Note 9).

In connection with the syndicated loan agreement, Azteca and TV Azteca entered
into an option agreement on November 5, 1993 and amended on September 26, 1995,
in which the lenders and the agent were granted an option to purchase from
Azteca 608,626 thousand series "N-5" common shares of TV Azteca's capital stock
and 143,375 thousand series "N-5" common shares of COTSA's capital stock at an
exercise price to be determined as the product of the base price (US$0.3209 per
share) times an applicable factor depending on the exercise date.

On November 8, 1996 Azteca, TV Azteca, the lenders and their agent negotiated
the termination of the option agreement. In consideration for the termination of
the option agreement, TV Azteca agreed to pay US$44 million and to provide the
lenders and the agent with the equivalent of US$10 million at that date in
advertising airtime over a three year period beginning on January 1, 1997 and
Azteca subsequently agreed to reimburse TV Azteca for these amounts. The total
cost associated with the termination of the option agreement (US$54 million) was
deferred at December 31, 1996 (See Note 8) and was included as part of Azteca's
cost basis of the 630,597 thousand Series "N-5" shares of TV Azteca, upon their
acquisition, pursuant to a pre-existing subscription agreement.

On April 22, 1997 Azteca paid Ps814 million for the 631 million Series "N"
shares of TV Azteca which had been subscribed in December 1994. In addition,
Azteca advised TV Azteca that it would increase the aggregate purchase price
from Ps814 million, the aggregate purchase price under Azteca existing
subscription aggrement, to approximately US$300.5 million, the aggregate
exercise price under the lenders' options if they had been exercised prior to
May 10, 1997.

On June 18, 1997, Azteca paid US$54 million to TV Azteca as reimbursement for
certain payments made and obligations undertaken by TV Azteca in connection with
the termination of the options granted to the lenders of the syndicated loan and
paid a premium of Ps1,743,190 (nominal) on the issuance of 630,597 thousand
Series "N-5" Shares subscribed to on April 22, 1997. On the same date, TV Azteca
decreased the fixed part of its capital stock by Ps2,373,789 (nominal) through
the pro-rata distribution of capital. The direct and indirect proceeds received
by TV Azteca amounted to approximately Ps1,568,837 (nominal).

The goodwill resulting from this transaction, amounts to Ps1,008 million
(including the Ps585 million related to the total cost associated with the
termination of the option agreement described above) and will be amortized over
a period of 20 years.


                                     F-112
<PAGE>


Bridge loan

On November 8, 1997 TV Azteca entered into a US$44 million bridge loan
agreement, at an interest rate of Libor plus 7%, which was paid on February 6,
1997. Such funds were used to pay amounts due in connection with the termination
of the option agreement mentioned above.

Classification of long-term bank loans

On January 19, 1999 the Company entered into a syndicated loan facility with a
bank syndicate headed by ABN-AMRO Bank, N.V. for a principal amount of
US$90,000, maturing in 364 days, at an interest rate of Libor plus 3.75% during
the first semester and Libor plus 4.25% during the second. The payment of
principal will be made in one payment upon the maturity of the loan. The
proceeds of the syndicated loan facility were used to repay US$80,000 of
short-term debt out-standing at December 31, 1998 and for other corporate
purposes. Since the facility effectively refinanced this short-term debt to a
maturity after December 31, 1999, these repaid loans were classified as
long-term at December 31, 1998.

TV Azteca Notes

On February 5, 1997, TV Azteca issued unsecured long-term Series A and Series B
Guaranteed Senior Notes (the TV Azteca Notes) in the international markets in an
amount of US$125 million, payable in the year 2004, bearing interest of 10.125%
per annum and of US$300 million, payable in the year 2007, bearing interest rate
of 10.50% per annum, respectively. Interest on the TV Azteca Notes will be
payable semi-annually on February 15 and August 15 each year, commencing on
August 15, 1997. Substantially all of the TV Azteca subsidiaries have fully and
unconditionally guaranteed the TV Azteca Notes on a joint and several basis. The
guarantor subsidiaries are all wholly-owned subsidiaries of TV Azteca. The
direct and indirect non-guarantor subsidiaries of TV Azteca are individually and
in the aggregate inconsequential.

Azteca Notes

On June 12, 1997, Azteca issued senior secured notes (Secured Notes) in the
international capital markets in an amount of US$255 million, payable in the
year 2002, bearing interest of 11% per annum. Interest on the secured notes will
be payable semi-annually on June 15 and December 15 each year, commencing
December 15, 1997. The Secured Notes will be secured initially by (i) a
portfolio of US Government Obligations purchased with approximately US$80
million of the net proceeds of the offering (the Pledged Securities) and (ii)
all of the Series N shares of TV Azteca owned by Azteca except for the Elektra
reserved shares, representing 41% of the capital stock of TV Azteca. At December
31, 1998, US$56 million TV Azteca CPOs remain pledged to secure the Secured
Notes.

The Secured Notes will be redeemable on or after June 15, 2000 at the option of
Azteca, in whole or in part, at the redemption prices set forth herein plus
accrued interest to the date of redemption. The Secured Notes also will be
redeemable prior to June 15, 2000, at the option of


                                     F-113
<PAGE>


Azteca, in whole or in part, 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 (assuming a 360-day year consisting of
twelve 30-day months) at the treasury rate plus 50 basis points, plus in each
case accrued interest to the date of redemption. In addition, on or prior to
June 15, 2000, Azteca may redeem up to 35% of the original principal amount of
the secured

notes with the net cash proceeds of one or more common stock offerings, at a
redemption price of 111% of the principal amount thereof plus accrued interest
to the date of redemption. Upon the occurrence of a change of control, Azteca
will be required to make an offer to purchase the Secured Notes 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 Secured Notes, the Secured Notes will also be redeemable at any
time in whole, but not in part, at the option of Azteca at 100% of the principal
amount thereof plus accrued interest to the date of redemption.

Building and equipment financing

In 1995, TV Azteca borrowed US$28 million to finance the acquisition of
equipment, of which approximately US$24 million 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 of
approximately US$21.5 million at an annual interest rate of Libor plus2.25% and
approximately US$2.7 million at an annual interest rate of Libor plus 4.25%
(8.30% and 10.30% at December 31, 1998, respectively). Both Exim Bank-guaranteed
loans are payable in 14 semi-annual payments beginning in June 1996. At December
31, 1998, payments on the aforementioned credits have been made amounting to
US$9.2 and US$1.1 million, respectively.

On September 18, 1997, Azteca obtained a mortgage loan for the acquisition of an
office building amounting to US$25 million from Banco Bilbao Vizcaya, S. A.
(BBV). 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 must be made by November 30, 2003.

NOTE 11 - PROMISSORY NOTES:

On April 8, 1987 COTSA signed an agreement with the Fundacion Mary Street
Jenkins for the acquisiton of 102 buildings where its movie theaters are located
and subscribed 30 promissory notes which mature every six months, for a total of
US$18 million (Ps188,805), of which US$8.8 million (Ps89,015) corresponds to
interest calculated at an annual rate of 9.7% and US$9.2 million (Ps93,775)
corresponds to principal.

At December 31, 1998, US$1 million (Ps9,454) is to be paid currently and US$2
million (Ps24,460) come due as shown in the following page.


                                     F-114
<PAGE>


                 Year                       Amount
                 ----                     --------

                 2000                     US$1,231
                 2001                        1,231
                                          --------

                                          US$2,462
                                          ========

This liability is guaranteed by Banobras, S.N.C. (a bank of the Mexican
government).

NOTE 12 - STOCKHOLDERS' EQUITY:

a. Capital stock

     The Company's capital stock is variable with a fixed minimum of Ps50
     (nominal) and an unlimited maximum.

     In an Extraordinary Meeting held on February 14, 1997 the stockholders
     approved:

     i. An increase in the number of shares from 726, 885 old shares to
     1,129,750 new shares.

     ii. An elimination of the shares' par value; and

     iii.A reduction in the variable portion of the capital stock through the
     reimbursement of Ps132,454 (US$13 million) represented by 92,505 shares.

     At December 31, 1998, the capital stock of the Company is represented by
     634,380 common shares with par value of one thousand pesos each as follows:


<TABLE>
<CAPTION>
      Number of
       shares                             Description                                 Amount
       ------                             -----------                                 ------
<S>                      <C>                                                      <C>
                         Representing the fixed portion of the
             50          capital stock                                            Ps       50
                         Representing the variable portion of
        634,330          the capital stock                                            634,330
        -------                                                                   -----------

        634,380                                                                       634,380
        =======
                         Restatement                                                1,877,074
                                                                                  -----------

                         Capital stock in pesos of purchasing power
                         at December 31, 1998                                     Ps2,511,454
                                                                                  ===========
</TABLE>


                                     F-115
<PAGE>


     Any capital reduction is subject to income tax payable by the Company
     equivalent to 51.5% of the portion of capital stock exceeding contributions
     made, as per the procedures set forth in the Income Tax Law.

b. Bursamex agreement

     In October 1993, TV Azteca and COTSA entered into a share subscription
     agreement with Bursamex, S. A. de C. V. acting for a group of investors
     (Bursamex Group) under which the Bursamex Group acquired 167,508 thousand
     Series "N-3" shares for Ps379,194 (Ps167,508 nominal) and 42,823 thousand
     Series "N-3" shares for Ps167,492 (Ps42,823 nominal), respectively. The
     agreement provides certain conditions under which TV Azteca and Elektra
     agreed to refund the Bursamex Group's original investment plus interest if
     TV Azteca or COTSA fail to comply with any of the obligations under the
     share subscription agreement or TV Azteca or COTSA make certain
     extraordinary business decisions, or enter into certain extraordinary
     business transactions without the approval of the their respective Board of
     Directors, or upon the loss of control by the controlling stockholders of
     TV Azteca or COTSA. This agreement, which was amended on April 10, 1995,
     provided the Bursamex Group with the right to collect annual in-kind
     interest equivalent to 6% of the shares originally acquired for a four
     year-period beginning on October 28, 1993. In connection with this
     agreement TV Azteca and COTSA authorized the issuance of 40,202 thousand
     and 9,882 thousand Series "N-3" shares, respectively, and issued 20,102
     thousand and 5,138 thousand series "N-3" shares, respectively, in 1995 and
     10,051 thousand and 2,569 thousand Series "N-3" shares, respectively,
     during the year ended December 31, 1996 and 10,050 thousand Series "N-3" TV
     Azteca's shares during 1997. The value of the shares issued by the
     subsidiaries under the terms of this agreement was recorded as interest
     expense and amounted to Ps12,583, during the year ended December 31, 1997.

     Between July 31, 1997 and October, 1997, a wholly-owned subsidiary of COTSA
     purchased 50.4% of the capital stock of COTSA (including the Bursamex
     Group's interest in COTSA) for US$36 million. The purchase was funded in
     part by a US$25 million loan from a subsidiary of TV Azteca that bears
     interest at an annual rate of 11.5% and that matures on December 27, 1997.

     In August 1997, TV Azteca completed an initial public offering in the
     domestic and international capital markets and, as a result, the Bursamex
     subscription agreement was terminated.

c. NBC warrants

     In May 1994, TV Azteca and RTC entered into an agreement with National
     Broadcasting Company, Inc. (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 million over a three-year period ended June 30, 1997. TV
     Azteca records the cost of the programming obtained from NBC as exhibition
     rights and amortizes the related costs as the programs are aired.


                                     F-116
<PAGE>


     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 the then
     fully diluted outstanding shares of TV Azteca, post-exercise (the
     warrants). The total warrant exercise price was US$120 million before June
     30, 1994 accreted at 2.75% compounded quarterly thereafter until it reached
     US$160 million 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
     million, and had the right to collect the warrant put price at any time
     during the option period if it is determined that the warrants could not,
     as a legal matter, be exercised. Any amounts that could have been required
     to purchase the unexercised portion of the warrants would have been added
     to accumulated deficit when paid.

     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 million 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$22.5 million and owed an additional US$5.5 million, the
     balance of the US$7 million owed by TV Azteca for unpaid programming as of
     May 6, 1997 (plus accrued interest).

     The agreement with NBC also provides that TV Azteca is required to issue to
     NBC Series "N-6" shares in an amount equal to 1% 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. If these shares are issued,
     their fair value at date of issue would be added to accumulated deficit.

     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 seeks 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 and
     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. On July 14, 1997, NBC and NBC Europe filed an answer with the
     ICC in which NBC and NBC Europe assert that they performed their
     obligations under these agreements and are entitled to all benefits
     provided by them. Should TV Azteca be unsuccessful in the arbitration, it
     may be required to pay NBC an additional amount based on the value of the
     shares that NBC would have acquired on its partial exercise of the warrant
     as a result of the TV Azteca's market capitalization exceeding the specific
     level due to the proposed public offering, or to issue such additional
     shares to NBC.


                                     F-117
<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 is 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 bases this claim on the
     allegation that TV Azteca misled NBC in order to dissuade NBC Europe from
     exercising its warrant in full. NBC also claims 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%). Although no
     assurance can be given that the arbitration panel will agree, both TV
     Azteca and its special Mexican counsel believe that the new claims and
     requests for damages contained in NBC's amended and counterclaim are
     without merit.

     In summary, should NBC prevail in the arbitration, (i) NBC Europe may be
     entitled to acquire up to 21.5% of the outstanding capital stock of TV
     Azteca, (ii) any portion of that 21.5% not attributable to the NBC IPO
     Allocation Right (i.e., up to 11.5% of the outstanding capital stock of TV
     Azteca) could be acquired by NBC Europe at a price below the price payable
     to TV Azteca in TV Azteca's initial public offering and (iii) NBC and NBC
     Europe would be entitled to damages, which may be substantial. Although no
     assurance can be given, management believes TV Azteca will prevail in the
     arbitration, and accordingly, no reserve has been established with respect
     to these proceedings.

d. TV Azteca employee stock option plans

     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. The
     exercise prices assigned during 1998 and 1997 range from US$0.29 to US$0.39
     per CPO, with a more significant number of options being granted to the TV
     Azteca's senior management and key actors, presenters and creative
     personnel.

    The options, which relate to an aggregate of approximately of 76 million
    CPO's 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 will be cancelled, in the case employment
    years after 1996, if TV Azteca's operating profit before deducting
    depreciation and amortization in that years has not increased by at least
    15% as compared to the previous fiscal year. An employee's option in respect
    to 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.



                                     F-118
<PAGE>


     TV Azteca also granted options in the fourth quarter of 1997 exclusively to
     senior management with respect to 8 million CPO's at an exercise price of
     US$0.39 per CPO. These options were exercised in October 1997 using funds
     obtained from nonrecourse loans provided by TV Azteca. In 1998, options for
     an additional 3 million CPO's were exercised at an exercise price of
     US$0.39 per CPO.

    The activity of employee stock option plans was as shown as follows:

                                                              At December 31,
                                                              ---------------
    Options                                                   Millions of CPO's
    -------                                                   -----------------

                                                               1997      1998
                                                               ----      ----

    Granted (cumulative)                                         76        76
    Exercised                                                    (8)      (11)
                                                               ----      ----

    Outstanding                                                  68        65
                                                               ====      ====

    Available for grant                                         164       164
                                                               ====      ====

    Total authorized                                            240       240
                                                               ====      ====

NOTE 13 - INCOME TAX AND TAX LOSS CARRYFORWARDS:

During the years ended December 31, 1996, 1997 and 1998, various subsidiaries
had taxable income, which was offset against the tax loss carryforwards. The
benefit of the utilization of these tax loss carryforwards amounted to
Ps353,583, Ps265,643 and Ps98,889 during the years ended December 31, 1996, 1997
and 1998, respectively, and is shown in the consolidated statement of income as
an extraordinary item.

At December 31, 1998, the Company and its subsidiaries have combined tax loss
carryforwards amounting to Ps815,219 which expire as follows:

                               Tax loss                        Year of
                             carryforwards                   expiration
                             -------------                   ----------
                              Ps318,924                         2004
                                 93,463                         2005
                                  2,583                         2006
                                136,265                         2007
                                263,984                         2008
                              ---------

                              Ps815,219
                              =========


                                     F-119
<PAGE>


Accrued tax loss carryforwards can be restated by applying factors derived from
the NCPI from the year in which they arise to the year prior to that in which
they are amortized.

As of December 31, 1998, the Company and its subsidiaries have tax-loss
carryforwards for an amount of Ps815 millions, of which Ps450 millions was
incurred in Azteca, Ps354 millions was incurred in CASA and Ps11 millions was
incurred in COTSA. These tax-loss carryforwards can only be amortized by the
incurred company.

During 1997, COTSA's income tax liability was offset against the asset tax paid
in prior years in an amount of Ps12,554 which is shown in the consolidated
statements of income as an extraordinary item.

NOTE 14 - COMMITMENTS AND CONTINGENCIES:

TV Azteca leases the use of satellite transponders property from Satelites
Mexicanos, S. A. de C. V. (Satmex) under two separate agreements. Total rent
expense under such leases included in operating cost and expenses was Ps25,479,
Ps30,038 and Ps30,571 during the years ended December 31, 1996, 1997 and 1998,
respectively. Combined rental obligation under these agreements is US$200,000
per month. Each lease agreement expires in May 2005 but can be terminated by
Satmex at any time for justified cause upon 30 days' notice.

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 business or financial
condition.

NOTE 15 - SUBSEQUENT EVENTS:

On January 26, 1999, TV Azteca made a US$40 million loan to Mr. Salinas, secured
on a non-recourse basis by approximately 167 million CPOs of TV Azteca owned by
Azteca Holdings. The loan accrued interest at an annual rate of 12% and was
repaid in full, including accrued interest, on March 26, 1999.

TV Azteca made a US$40 million loan to Corporacion RBS, S. A. de C. V., a
company controlled by Mr. Salinas, on April 15, 1999, at an annual interest rate
of 12%, with a maturity of June 25, 1999. The loan is secured on a non-recourse
basis by approximately 127 million CPOs of TV Azteca owned by Azteca Holdings.

On May 14, 1999, the Company entered into an agreement (the "Joint Venture
Agreement") with Ricardo Salinas Pliego and Moises Saba Mosri to invest in
Unefon, S. A. de C. V. (together with its wholly-owned subsidiaries, "Unefon"),
a telecommunications company that intends to establish a nationwide digital
fixed wireless personal communications network to provide local telephony
services in Mexico. The Joint Venture Agreement provides for Unefon to be
operated


                                     F-120
<PAGE>


and governed as a joint venture, initially between Ricardo Salinas and Moises
Saba. The Joint Venture Agreement requires that each of Ricardo Salinas and
Moises Saba contribute US$180 million to the capital of Unefon, for a total
capital of Unefon of US$360 million. These capital contributions to Unefon were
completed on June 15, 1999.

Prior to entering into the Joint Venture Agreement, Ricardo Salinas contributed
approximately US[$93] million to the capital of Unefon for purposes of making a
down-payment to the Mexican government for the acquisition of wireless
concessions and for pre-operating expenses. Mr. Salinas satisfied the balance of
his capital contribution obligation under the Joint Venture Agreement with funds
obtained from a loan made by Azteca Holdings. Azteca Holdings borrowed the funds
for this loan from a group of private Mexican investors, secured by [339]
million of the TV Azteca CPOs owned by Azteca Holdings.

The Company has made arrangements pursuant to which, subject to appropriate bank
approvals or refinancing, it will acquire at cost the equity interest of Ricardo
Salinas in Unefon. The Company will fund this acquisition through (i) proceeds
from the issuance of shares (as described below); (ii) the use of approximately
US$40 million of its cash, and (iii) the cancellation of an existing US$40
million obligation owed to TV Azteca by Corporacion RBS, S. A. de C. V., a
company controlled by Ricardo Salinas.

In an extraordinary meeting of stockholders held on June 10, 1999, the
stockholders agreed to increase the capital stock of the Company by up to
Ps1,500 million. After giving effect to the capital stock increase, the
Company's authorized shares will consist of 10,816 million shares of which 5,408
million are Series A Shares, 2,704 million are Series D-A Shares and 2,704
million are Series D-L Shares.

The Company offered a portion of the new shares issued on June 10, 1999 to
Azteca Holdings in exchange for the shares temporarily loaned by Azteca Holdings
to a group of Mexican investors. The remaining new shares were offered to
qualified institutional buyers in a preemptive rights offering whereby current
shareholders have until July 2, 1999 to purchase a portion of the capital
increase in proportion to their ownership of the Company's shares at June [10],
1999.

NOTE 16 - BUSINESS SEGMENTS:

The Company operates in two principal business segments, television and movie
theaters. Substantially all of the Company's activities are in Mexico.


                                     F-121
<PAGE>


Relevant information on these business segments follows:

<TABLE>
<CAPTION>
                                                 Year ended December 31,
                                      --------------------------------------------
                                         1996             1997            1998
                                      ------------    ------------    ------------
<S>                                   <C>             <C>             <C>
Net revenue:
Television                            Ps 2,570,738    Ps 4,314,376    Ps 4,510,534
Less elimination entries and others        (45,330)
                                      ------------    ------------    ------------

                                         2,525,408       4,314,376       4,510,534
Movie theaters                             235,003         153,820         124,620
                                      ------------    ------------    ------------

                                      Ps 2,760,411    Ps 4,468,196    Ps 4,635,154
                                      ============    ============    ============

Operating (loss) profit:

Television                            Ps   813,388    Ps 1,839,306    Ps 1,634,011
Less elimination entries and others         (3,911)        (35,512)        (51,966)
                                      ------------    ------------    ------------

                                           809,477       1,803,794       1,582,045
                                      ------------    ------------    ------------

Movie theaters                             (32,333)        (16,605)        (30,262)
Less elimination entries and other          58,301         (18,917)         (6,285)
                                      ------------    ------------    ------------

                                            25,968         (35,522)        (36,547)
                                      ------------    ------------    ------------

                                      Ps   835,445    Ps 1,768,272    Ps 1,545,498
                                      ============    ============    ============

Capital expenditures:

Television                            Ps   349,460    Ps 1,522,918    Ps   476,640
Movie theaters                              34,388         (28,122)
                                      ------------    ------------    ------------

                                      Ps   383,848    Ps 1,494,796    Ps   476,640
                                      ============    ============    ============

Total assets (at year end):

Television                            Ps 8,706,505    Ps12,653,256    Ps12,652,761
Less elimination entries and others       (103,341)      1,605,773       1,266,926
                                      ------------    ------------    ------------

                                         8,603,164      14,259,029      13,919,687
Movie theaters                             945,753         700,176         749,119
                                      ------------    ------------    ------------

                                      Ps 9,548,917    Ps14,959,205    Ps14,668,806
                                      ============    ============    ============
</TABLE>


                                     F-122
<PAGE>


NOTE 17 - RECONCILIATION BETWEEN MEXICAN (MEXICAN GAAP) AND UNITED STATES (US
GAAP) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:

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 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 reconciliations to
US GAAP do 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 net income (loss) and stockholders' equity. The various reconciling
items are presented net of any price level gain (loss).

a. Reconciliation of net income (loss):

<TABLE>
<CAPTION>
                                                   Year ended December 31,
                                             -----------------------------------
                                                1996         1997        1998
                                             ---------    ---------    ---------
<S>                                          <C>          <C>        <C>
Net income (loss) applicable to majority
stockholders under Mexican GAAP              Ps572,899    Ps604,024   (Ps359,543)
Stock dividend                                  19,168       16,504
Amortization of loan discount                  (10,054)      (7,539)
Amortization of goodwill                      (146,139)    (146,139)    (146,139)
Deferred income taxes                          219,712     (180,528)    (176,817)
Exchange loss on NBC Warrant                    (5,046)      (5,668)     (50,499)
Gain on monetary position of NBC Warrant        68,561       36,555       41,796
Accretion of NBC Warrant                       (28,256)      (7,869)
Compensation cost from stock options                       (345,126)    (110,955)
Effect of fifth amendment to B-10                          (155,877)      14,246
Effect on minority stockholders of US GAAP
adjustments                                    (63,545)     381,897      185,783
                                             ---------    ---------    ---------

Net income (loss) under US GAAP              Ps627,300    Ps190,234   (Ps602,128)
                                             =========    =========    =========
</TABLE>


                                     F-123
<PAGE>


b. Reconciliation of stockholders' equity:

                                                      Year ended December 31,
                                                   ----------------------------
                                                        1997            1998
                                                   ------------    ------------
    Majority stockholders' equity under
    Mexican GAAP                                   Ps 2,022,797    Ps 1,215,506
    Deferred income tax effects                      (1,185,312)     (1,362,129)
    Goodwill                                          1,096,037         949,974
    Effect of fifth amendment to B-10                   235,184         (46,539)
    Effect on minority stockholders of
    US GAAP adjustments                                 (46,614)        199,326
                                                   ------------    ------------

    Stockholders' equity under US GAAP             Ps 2,122,092    Ps   956,138
                                                   ============    ============

c. An analysis of the changes in stockholders' equity under US GAAP is as
follows:

<TABLE>
<CAPTION>
                                                            1996           1997          1998
                                                         -----------    -----------   -----------
<S>                                                      <C>            <C>           <C>
    Balance at beginning of year                         Ps  112,762    Ps1,483,735   Ps2,122,092
    Increase of capital stock                                421,459
    Decrease of capital stock                                              (132,454)
    Net income (loss)                                        627,300        190,234      (602,128)
    Paid-in capital                                          915,152
    (Loss) gain from holding nonmonetary assets             (592,938)       580,577      (563,826)
                                                         -----------    -----------   -----------

    Balance at end of year                               Ps1,483,735    Ps2,122,092   Ps  956,138
                                                         ===========    ===========   ===========
</TABLE>

d. Significant differences between US GAAP and Mexican GAAP:

     i.   Bursamex in-kind interest

          The in-kind interest due under the terms of the agreement would be
          accounted for in a manner similar to a stock dividend, which would
          result in a charge to TV Azteca and COTSA stockholders' equity.

     ii.  NBC warrant

          Under US GAAP, the NBC warrant, discussed in Note 12, would have been
          initially recorded at its estimated fair value, at the date of the
          initial agreement, of Ps179,613, as determined based on an independent
          appraisal, 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


                                     F-124
<PAGE>


          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 NBC
          warrant, it would be considered a monetary item under US GAAP and the
          foreign exchange losses, the accretion of the NBC warrant obligation
          and monetary gains related to the warrant would be reflected in
          results of operations.

     iii. Bonus right relating to NBC warrants

          The terms of the warrant agreement with NBC as discussed in Note 12c.
          require TV Azteca to issue 1% of its outstanding shares to NBC upon
          attainment of performance goals consisting of specified market share
          levels or the market capitalization of TV Azteca of at least US$1.4
          million if a public offering of the TV Azteca's stock occurs prior to
          1998 and US$ 1.8 million if a public offering occurs subsequently. In
          August 1997, TV Azteca completed an initial public offering in the
          domestic and international capital markets, which gave TV Azteca a
          market capitalization in excess of US$2.2 million, as a result TV
          Azteca would (subject to the outcome of the arbitration referred to in
          Note 12c.) be required to issue the additional shares to NBC. Under US
          GAAP TV Azteca is required to recognize an expense, based on the fair
          value of the shares to be issued, when the issuance of the shares
          relating to the bonus rights becomes probable. However, as a result of
          the arbitration proceedings with NBC, in which TV Azteca expects to
          prevail , the ultimate resolution of this matter is not expected to
          have a material effect on the Company's results of operations, cash
          flow or financial condition.

     iv.  Loan discount

          Under US GAAP the fair value of the options granted in connection with
          the syndicated loan, as discussed in Note 10, would be recorded as an
          incremental loan discount, which would be amortized over the period of
          the syndicated loan using the interest method. The estimated fair
          value of the options granted to the bank syndicate and its agents was
          Ps40,215, at the date of grant, based on an independent appraisal.
          During the years ended December 31, 1996 and 1997 the amount of
          related loan discount amortized under US GAAP would be Ps10,054, and
          Ps7,539, respectively.

     v.   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
          licensee and the program is available for its first showing or
          telecast. Under Mexican GAAP the rights acquired and obligations
          incurred are recorded when the


                                     F-125
<PAGE>


          license agreements are signed. At December 31, 1997 and 1998,
          Ps161,603 and Ps329,138, 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 nonmonetary 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.

     vi.  Negative goodwill

          Under US GAAP the amounts refunded by the Mexican government in 1994
          would have been recorded as an adjustment to the purchase price paid
          to acquire the subsidiaries in connection with the privatization
          process. Such adjustment would have been reflected as an adjustment to
          the cost of TV concessions. However, the net effect of the related
          amortization, under US GAAP, is immaterial.

     vii. Effects of fifth amendment to statement B-10

          As mentioned in Note 3, TV Azteca decided to restate its exhibition
          rights and equipment of foreign origin based on the devaluation of the
          Mexican peso against the foreign currencies, 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 statement, and consequently the
          Company has determined the effects in 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.



                                     F-126
<PAGE>


    viii. Deferred income tax

          As stated in Note 3m., income tax is recorded under Mexican GAAP
          following interperiod allocation procedures under the partial
          liability method. Under this method, deferred income tax is recognized
          only in respect of identifiable, nonrecurring timing differences
          between taxable and book income. This substantially eliminates all
          deferred taxes under Mexican GAAP. Also, under Mexican GAAP the
          benefit from utilizing tax loss carryforwards and asset tax credits is
          not recognized until utilized, at which time it is presented as an
          extraordinary item.

          The Company follows Statement of Financial Accounting Standards (FAS)
          No. 109 for US GAAP reconciliation purposes. 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. Consequently, there are no
          extraordinary items from this concept for US GAAP purposes.

          The temporary differences under FAS 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 nonmonetary 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 nonmonetary assets.

          The significant components of income tax (benefit) expense under US
          GAAP were as shown in the following page.


                                     F-127
<PAGE>


                                               Year ended December 31,
                                     ----------------------------------------
                                       1996             1997            1998
                                     ---------       ---------       ---------
          Current                                    Ps264,416       Ps267,269
          Deferred                  (Ps219,712)        180,528         176,817
                                     ---------       ---------       ---------

          Total provision           (Ps219,712)      Ps444,944       Ps444,086
                                     =========       =========       =========

          The following items represent the principal differences between income
          tax computed under US GAAP at the statutory tax rate and the Company's
          provision for income tax in each period:

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                             -------------------------------------------
                                                                1996            1997              1998
                                                             -----------      ---------        ---------
<S>                                                          <C>             <C>              <C>
          Income (loss) before income tax
          (benefit) expense                                  Ps1,129,823      Ps802,691       (Ps373,354)
                                                             ===========      =========        =========

          Income tax (tax benefit) at statutory rate             384,140        287,354         (126,940)
          Non deductible stock dividends                           6,518          5,611
          Effects of inflation components                       (640,167)       156,819          346,542
          Gain on sale of capital stock                            9,677         (4,840)
          Other                                                   20,120                         224,484
                                                             -----------      ---------        ---------

          Income tax (benefit) expense                      (Ps  219,712)     Ps444,944        Ps444,086
                                                             ===========      =========        =========
</TABLE>


          The income tax effects of significant items comprising the Company's
          net deferred tax assets and liabilities under US GAAP are as follows:

                                                             December 31,
                                                      -------------------------
                                                         1997          1998
                                                      -----------   -----------

          Deferred income tax liabilities:
          Television concessions                      Ps1,142,934   Ps1,022,313
          Inventories and provisions                      207,799       328,603
          Property, machinery and equipment               228,519       460,964
                                                      -----------   -----------

                                                        1,579,252     1,811,880

          Deferred income tax assets:
          Advertising advances                           (230,885)     (172,577)
          Operating loss carryforwards                   (163,055)     (277,174)
                                                      -----------   -----------

                                                         (393,940)     (449,751)

          Net deferred income tax liabilities         Ps1,185,312   Ps1,362,129
                                                      ===========   ===========


                                     F-128
<PAGE>


          At the effective date of the privatization, additional goodwill of
          Ps1,753,668 would have been recorded due to the deferred income tax
          liability relating primarily to the television concessions required
          under US GAAP. The additional goodwill would be amortized over 12
          years.

     ix.  Fair value information

          The following disclosure of the estimated fair value of financial
          instruments is made in accordance with the requirements of FAS 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 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, 1996, 1997 and 1998 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 and senior secured notes ("notes"). The
          carrying value of the Company's notes and the related fair value based
          on the quoted market similar prices for the same or similar issues at
          December 31, 1998 was Ps6,737,441 and Ps5,833,820, respectively
          (Ps6,506,762 and Ps6,719,427 respectively in 1997).

      x.  Property, machinery and equipment

          Under US GAAP advances for the acquisition of machinery and equipment
          would be classified as prepayments. At December 31, 1997 the Company
          had advances of Ps151,629.

      xi. Other employee benefits

          The Company has no post-retirement health care insurance or other
          benefit plans. Therefore, FAS No.106, "Employers' Accounting for
          Post-retirement Benefits other than Pensions", and FAS No.112,
          "Employers' Accounting for Post-employment Benefits", and FAS No. 132
          "Employers' Disclosure about Pension and other Post-retirement
          Benefits" would have no effect on the Company's financial position.


                                     F-129
<PAGE>


     xii. Employee stock option plans

          The granting of the stock options in the fourth quarter of 1997 by TV
          Azteca at exercise prices below the current market prices of CPOs will
          result in non-cash compensation cost under US GAAP of approximately
          Ps345 million and Ps111 million for 1997 and 1998, respectively as
          determined under Accounting Principles Board Opinion No. 25. The
          majority of the options granted were pursuant to plans which would be
          considered variable plans under US GAAP, since the number of shares
          execisable 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 connections 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 FAS No. 123, the Company's
          compensation expense would have been Ps341million and Ps196 million
          for 1997 and 1998, respectively and the net income would have been
          reduced to the proforma amounts indicated below:

                                               Year ended December 31,
                                              -------------------------
                                                1997             1998
                                              ---------       ---------
          Net income (loss) as reported       Ps190,234      (Ps602,128)
                                              =========       =========

          Net income (loss) proforma          Ps182,718      (Ps687,173)
                                              =========       =========


          The effect on net (loss) income is not expected to be indicative of
          the effects in future years. The fair value of each option grant is
          estimated on the date of grant using the weighted average
          Black-Scholes option pricing model and simple binomial model with the
          following assumptions:

                                                          1997           1998
                                                          ----           ----
          Expected volatility                             .302           .258
          Risk-free interest rate                         18.0%            19%
          Expected life of options (in years)                5              5
          Expected dividend yield                           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 the TV Azteca's stock
          option plans as of December 31, 1997 and 1998 (post split):



                                     F-130
<PAGE>


                                            Number of options   Weighted-average
                                            thousands of OPCs)   exercise price
                                            ------------------   --------------

         Granted                                   76,564          US$0.34
         Exercised                                 (8,180)            0.39
                                                ---------

         Outstanding on December 31, 1997          68,384             0.33
                                                =========

         Exercised                                 (2,814)            0.29
                                                ---------

         Outstanding on December 31, 1998          65,570             0.32
                                                =========

         Outstanding options exercisable
         at December 31, 1997                       4,866             0.29
                                                =========

         1998                                       9,514             0.31
                                                =========

     xiii.Effect of recently issued accounting standards

          In April 1998, Financial Accounting Standards Board (FASB) issued
          Statement of Position 98-5 "Reporting on the cost of start-up
          activities" which is effective for fiscal years beginning after
          December 15, 1998. This statement of position provides guidance on the
          financial reporting of start-up activities costs and organization
          costs. It requires cost of start-up activities and organization costs
          to be expensed and incurred. TV Azteca does not believe that the
          adoption of this SOP will have a material impact on its consolidated
          financial position or results of operations.

          In June 1998, the FASB issued Statement No. 133, "Accounting for
          Derivative Instruments and Hedging Activities" ("FAS 133"), which
          requires that all derivative instruments be recorded on the balance
          sheet at their fair value. Changes in the fair value of derivatives
          are recorded each period in current earnings of other comprehensive
          income, depending on whether a derivatives is designated as part of
          hedge transaction and, if it is, the type of hedge transaction. The
          Company has not yet determined the impact that the adoption of FAS 133
          will have on its earnings of financial position. The Company is
          required to adopt FAS 133 on January 1, 2000.


                                     F-131
<PAGE>


e. Condensed balance sheet and income statements under US GAAP:

     The following condensed balance sheets and income statements reflect the
     effects of the principal differences between Mexican GAAP and US GAAP:

                            CONDENSED BALANCE SHEETS

                                                           At December 31,
                                                    ----------------------------
                                                        1997            1998
                                                    ------------    ------------
Current assets                                       Ps6,575,206     Ps6,078,378
Television concessions - Net                           3,361,288       3,131,172
Property, machinery and equipment - Net                3,039,661       3,181,775
Goodwill and other assets                              3,548,123       3,045,561
Deferred income tax assets                               163,055         277,174
                                                    ------------    ------------

Total assets                                        Ps16,687,333    Ps15,714,060
                                                    ============    ============

Short-term debt                                      Ps  478,747     Ps  280,127
Advertising advances                                   3,309,493       2,301,120
Deferred income tax payable                              207,799         328,603
Other current liabilities                              1,139,960       1,493,950
                                                    ------------    ------------

Total current liabilities                              5,135,999       4,403,800
                                                    ------------    ------------

Guaranteed senior notes and senior
secured notes                                          6,506,762       6,737,441
Long-term debt                                           536,250       1,036,782
Long-term deferred income tax                          1,371,453       1,483,277
                                                    ------------    ------------

Total long - term liabilities                          8,414,465       9,257,500
                                                    ------------    ------------

Minority interests                                     1,014,777       1,096,622
                                                    ------------    ------------

Stockholders' equity                                   2,122,092         956,138
                                                    ------------    ------------

Total liabilities and stockholders' equity          Ps16,687,333    Ps15,714,060
                                                    ============    ============


                                     F-132
<PAGE>


                         CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                                  ---------------------------------------------
                                                     1996              1997            1998
                                                  ------------     -----------     ------------
<S>                                               <C>              <C>             <C>
    Net revenue                                   Ps 2,760,411     Ps4,468,196     Ps 4,635,154
    Cost and expenses:
    Programming, exhibition and
    transmission costs                                 809,543       1,455,217        1,558,413
    Selling and administrative expenses                619,113       1,066,430          840,043
    Depreciation and amortization                      642,449         818,927          936,751
                                                  ------------     -----------     ------------

    Operating income                                   689,306       1,127,622        1,299,947
    Comprehensive financing income
    (cost)                                             444,998        (339,723)      (1,472,688)
    Other (expenses) income - Net                       (4,481)         14,792         (200,613)
                                                  ------------     -----------     ------------

    Income (loss) before provision
    for income tax benefit (expense)                 1,129,823         802,691         (373,354)
    Income tax benefit (expense)                       219,712        (444,944)        (444,086)
                                                  ------------     -----------     ------------

    Net income (loss) before minority
    interest                                         1,349,535         357,747         (817,440)
    Minority interest                                 (722,235)       (167,513)        (215,312)
                                                  ------------     -----------     ------------

    Net income (loss)                             Ps   627,300     Ps  190,234    (Ps   602,128)
                                                  ============     ===========     ============
</TABLE>

     Cash flow information

     Under US GAAP, a statement of cash flows is prepared bases on provision of
     FAS 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.


                                     F-133
<PAGE>


     During the years ended December 31, 1996 and 1997 the net cash flow
     operating, investing and financing activities under US GAAP were shown as
     follows:

                                                       Year ended December 31,
                                                     --------------------------
                                                        1996           1997
                                                     -----------    -----------
Cash flows from operating activities:

Net income                                           Ps  627,300    Ps   190,234
Adjustments to reconcile net income  to net
cash provided by operating activities:

Compensation cost from stock options                     345,126
Minority interest                                        722,235        167,513
Monetary gain relating to financing activities          (715,725)      (484,267)
Foreign exchange loss, net of monetary gain
on NBC Warrant                                           (63,515)       (30,887)
Foreign exchange loss on bank loans and
promissory notes                                          49,981        126,889
Amortization of television concessions,
goodwill and exhibition rights                           848,288        872,140
Depreciation                                             179,067        268,917
Deferred loan discount                                    10,054          7,539
Accretion of NBC warrant                                  28,256          7,869
Deferred income tax                                     (219,712)       180,528
Changes in working capital                              (116,625)      (656,811)
                                                     -----------    -----------

Net cash provided by operating activities              1,349,604        994,790
                                                     -----------    -----------

Cash flows from investing activities:

Pledged securities                                                     (648,140)
Acquisition of machinery and
equipment - Net                                         (383,848)    (1,252,467)
Advance payment for the acquisition of
subsidiaries' shares                                    (582,758)
(Acquisition) disposition of shares                      (15,092)        52,184
Exhibition rights purchased                             (673,204)      (797,151)
                                                     -----------    -----------

Net cash used in investing activities                 (1,654,902)    (2,645,574)
                                                     -----------    -----------

Cash flows from financing activities:

Guaranteed senior notes and senior secured
notes received                                                        6,353,976
Bank loans paid                                         (860,852)    (2,522,025)
Bank loans received                                      474,425        579,080
Increase of capital stock                                421,459
Decrease of capital stock                                              (132,454)
Paid-in capital                                          915,152
Promissory notes paid                                     (7,736)        (4,073)
Due to related parties                                  (553,574)      (133,742)
Redemption of capital of subsidiary paid
to minority stockholders                                             (1,025,743)
Deferred financing costs                                               (198,509)
                                                     -----------    -----------

Net cash provided by financing activities                388,874      2,916,510
                                                     -----------    -----------

Increase in cash and cash equivalents                     83,576      1,265,726
Cash and cash equivalents at beginning of year           289,841        373,417
                                                     -----------    -----------

Cash and cash equivalents at end of year             Ps  373,417    Ps1,639,143
                                                     ===========    ===========


                                     F-134
<PAGE>


     For the year ended December 31, 1998, the Company has further segregated
     the effects of exchange rate changes and inflationary effects on cash from
     other cash flow activities as provided in the following condensed cash flow
     statement:

                                                             Year ended December
                                                                   31, 1998
                                                             -------------------
Cash flows from operating activities:

Net loss                                                          (Ps  602,128)
Adjustments to reconcile net loss
to net cash provided by operating activities:

Minority interest                                                    (215,312)
Compensation cost from stock options                                  110,955
Amortization of television concessions,
goodwill and exhibition rights                                      1,009,639
Monetary gain relating to financing activities
Foreign exchange loss, net of monetary (gain)
on NBC Warrant                                                          8,703
Foreign exchange loss net of monetary gain relating
to financial activities                                               260,259
Depreciation
Deferred income tax                                                   176,817
Net changes in working capital                                       (412,201)
                                                                  -----------

Net cash provided by operating activities                             336,732
                                                                  -----------

Cash flows from investing activities:

Pledged securities                                                    124,011
Acquisition of machinery and
equipment - Net                                                      (461,905)
Acquisition of shares                                                 (11,652)
Exhibition rights purchased                                          (883,056)
                                                                  -----------

Net cash used in investing activities                              (1,232,602)
                                                                  -----------

Cash flows from financing activities:

Net cash provided by financing activities                             311,383
                                                                  -----------

Effects of inflation and exchange rates changes
on cash                                                               257,004

Decrease in cash and cash equivalents                                (327,483)
Cash and cash equivalents at beginning of year                      1,382,077

Cash and cash equivalents at end of year                          Ps1,054,594
                                                                  ===========

Supplemental disclosure:
Cash paid during the period for:
Interest
Income tax



                                     F-135