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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 20-F


|           |  |                                                                                                  
|---------- |  | -------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                  
|o          |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR(g)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|OR        
|          
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934         
|          
|           |  | FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004                                                      
|          
|OR        
|          
|o          |  | 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: 000-33143


CLAXSON INTERACTIVE GROUP INC.


(Exact name of Registrant as specified in its charter)


CLAXSON INTERACTIVE GROUP INC.


(Translation of Registrants name into English)


British Virgin Islands


(Jurisdiction of incorporation or organization)


Avenida Melian 2752


C1430EYH Buenos Aires, Argentina


(Address of principal executive offices)


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


|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered
|                    |  |                                          
|NONE                |  |                                          

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


Class A Common Shares, Par Value $0.01 Per Share


(Title of Class)


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


None


(Title of Class)




þ o


o þ






o o










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CLAXSON INTERACTIVE GROUP INC.


FORM 20-F


ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 2004


INDEX


|             |         |   |   |                                                             |  |  |    | 
|------------ | ------- | - | - | ----------------------------------------------------------- |  |  | -- | 
|INTRODUCTION |         |   | 1 |                                                            
|PART I      
|             | Item 1  | . |   | Identity of Directors, Senior Management
    and Advisers   |  |  | 1  | 
|             | Item 2  | . |   | Offer Statistics and Expected Timetable                     |  |  | 1  | 
|             | Item 3  | . |   | Key Information                                             |  |  | 2  | 
|             | A       | . |   | Selected Financial Data                                     |  |  | 2  | 
|             | B       | . |   | Capitalization and Indebtedness                             |  |  | 3  | 
|             | C       | . |   | Reasons for the Offer and Use of
    Proceeds               |  |  | 3  | 
|             | D       | . |   | Risk Factors                                                |  |  | 3  | 
|             | Item 4  | . |   | Information on the Company                                  |  |  | 8  | 
|             | A       | . |   | History and Development of the Company                      |  |  | 8  | 
|             | B       | . |   | Business Overview                                           |  |  | 9  | 
|             | C       | . |   | Organizational Structure                                    |  |  | 23 | 
|             | D       | . |   | Property, Plant and Equipment                               |  |  | 23 | 
|             | Item 5  | . |   | Operating and Financial Review and
    Prospects            |  |  | 24 | 
|             | Item 6  | . |   | Directors, Senior Management and
    Employees              |  |  | 38 | 
|             | A       | . |   | Directors and Senior Management                             |  |  | 38 | 
|             | B       | . |   | Compensation                                                |  |  | 43 | 
|             | C       | . |   | Board Practices                                             |  |  | 46 | 
|             | D       | . |   | Employees                                                   |  |  | 48 | 
|             | E       | . |   | Share Ownership                                             |  |  | 48 | 
|             | Item 7  | . |   | Major Shareholders and Related Party
    Transactions       |  |  | 48 | 
|             | A       | . |   | Major Shareholders                                          |  |  | 48 | 
|             | B       | . |   | Related Party Transactions                                  |  |  | 52 | 
|             | C       | . |   | Interests of Experts and Counsel                            |  |  | 57 | 
|             | Item 8  | . |   | Financial Information                                       |  |  | 57 | 
|             | A       | . |   | Consolidated Statements and Other Financial
    Information |  |  | 57 | 
|             | B       | . |   | Significant Changes                                         |  |  | 59 | 
|             | Item 9  | . |   | The Offer and Listing                                       |  |  | 59 | 
|             | A       | . |   | Listing Details                                             |  |  | 59 | 
|             | B       | . |   | Plan of Distribution                                        |  |  | 60 | 
|             | C       | . |   | Markets                                                     |  |  | 60 | 
|             | D       | . |   | Selling Shareholders                                        |  |  | 60 | 
|             | E       | . |   | Dilution                                                    |  |  | 60 | 
|             | F       | . |   | Expense of the Issue                                        |  |  | 60 | 
|             | Item 10 | . |   | Additional Information                                      |  |  | 60 | 
|             | A       | . |   | Share Capital                                               |  |  | 60 | 
|             | B       | . |   | Memorandum and Articles of Association                      |  |  | 60 | 
|             | C       | . |   | Material Contracts                                          |  |  | 64 | 
|             | D       | . |   | Exchange Controls                                           |  |  | 64 | 

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|                                                  |         |   |  |                                                                                  |  |  |    | 
|------------------------------------------------- | ------- | - |  | -------------------------------------------------------------------------------- |  |  | -- | 
|                                                  | E       | . |  | Taxation                                                                         |  |  | 64 | 
|                                                  | F       | . |  | Dividends and Paying Agents                                                      |  |  | 69 | 
|                                                  | G       | . |  | Statement by Experts                                                             |  |  | 69 | 
|                                                  | H       | . |  | Documents on Display                                                             |  |  | 69 | 
|                                                  | I       | . |  | Subsidiary Information                                                           |  |  | 70 | 
|                                                  | Item 11 | . |  | Quantitative and Qualitative Disclosures
    About Market Risk                   |  |  | 70 | 
|                                                  | Item 12 | . |  | Description of Securities Other than Equity
    Securities                       |  |  | 72 | 
|                                                 
|PART II                                          
|                                                  | Item 13 | . |  | Defaults, Dividend Arrearages and
    Delinquencies                              |  |  | 72 | 
|                                                  | Item 14 | . |  | Material Modifications to the Rights of
    Security Holders and Use of Proceeds |  |  | 73 | 
|                                                  | Item 15 | . |  | Controls and Procedures                                                          |  |  | 73 | 
|                                                  | Item 16 | . |  |                                                                                  |  |  |    | 
|                                                  | A       | . |  | Audit Committee Financial Expert                                                 |  |  | 73 | 
|                                                  | B       | . |  | Code of Ethics                                                                   |  |  | 73 | 
|                                                  | C       | . |  | Principal Accountant Fees and Services                                           |  |  | 74 | 
|                                                  | D       | . |  | Exemptions from the Listing Standards for
    Audit Committees                   |  |  | 74 | 
|                                                  | E       | . |  | Purchases of Equity Securities by the
    Issuer and Affiliated Purchasers       |  |  | 74 | 
|                                                 
|PART III                                         
|                                                  | Item 17 | . |  | Financial Statements                                                             |  |  | 74 | 
|                                                  | Item 18 | . |  | Financial Statements                                                             |  |  | 74 | 
|                                                  | Item 19 | . |  | Exhibits                                                                         |  |  | 74 | 
|List of Subsidiaries                             
|Section 302 Chief Executive Officer Certification
|Section 302 Chief Financial Officer Certification
|Section 906 Chief Executive Officer Certification
|Section 906 Chief Financial Officer Certification
|Consent of Deloitte & Touche LLP                 



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INTRODUCTION










| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | El Sitio, Inc., which we refer to as El Sitio;                                                                                                                                                                                                                                                                                                                                              
|
| |  | 1945 Carlton Investments LLC and 1947 Carlyle Investments LLC,
    which are the assignees of Newhaven Overseas Corp. and members
    of the Cisneros Group, which we sometimes refer to as 1945
    Carlton and 1947 Carlyle, respectively;                                                                                                                                              
|
| |  | Hicks, Muse, Tate & Furst Latin America Fund, L.P.;
    Hicks, Muse, Tate & Furst Latin America Private Fund,
    L.P.; and HMLA 1-SBS Coinvestors, L.P., which are funds
    affiliated with Hicks, Muse, Tate & Furst Incorporated,
    which together with Davivo International, HMTF Holdings, and
    their affiliated Funds, we sometimes collectively refer to as
    Hicks Muse; and
|
| |  | Ibero-American Media Partners II, Ltd. which we refer to as
    Ibero-American Media Partners, which was controlled
    by members of the Cisneros Group and funds affiliated with Hicks
    Muse.                                                                                                                                                                                          








PART I







|        |                                                          
|------- | ---------------------------------------------------------
|Item 1. | Identity of Directors, Senior Management and
    Advisers








|        |                                        
|------- | ---------------------------------------
|Item 2. | Offer Statistics and Expected Timetable







---



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|        |                
|------- | ---------------
|Item 3. | Key Information






|   |                        
|-- | -----------------------
|A. | Selected Financial Data



| |                        
| | -----------------------
| | Selected Financial Data





|                                                                                |  |                                |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | -------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                |  | 2000                           |         |   | 2001 |   |         | 2002 |  |   | 2003     |   |  | 2004 |        
|                                                                                |  |                                |         |   |      |   |         |      |  |   |          |   |  |      |        
|                                                                                |  | (In thousands of U.S. dollars) |        
|Consolidated Statements of Operations Data for the Years
    Ended December 31: |  |                                |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Total net revenues                                                              |  | $                              | 90,413  |   |      | $ | 92,318  |      |  | $ | 59,964   |   |  | $    | 62,994  |   |  | $ | 68,184  |  
|Total operating expenses                                                        |  |                                | 91,965  |   |      |   | 104,775 |      |  |   | 60,056   |   |  |      | 57,927  |   |  |   | 61,882  |  
|                                                                                |  |                                |         |   |      |   |         |      |  |   |          |   |  |      |        
|Operating (loss) income                                                         |  |                                | (1,552  | ) |      |   | (12,457 | )    |  |   | (92      | ) |  |      | 5,067   |   |  |   | 6,302   |  
|Other income (expense)                                                          |  |                                | (14,889 | ) |      |   | (47,178 | )    |  |   | (69,526  | ) |  |      | 5,106   |   |  |   | (1,313  | )
|                                                                                |  |                                |         |   |      |   |         |      |  |   |          |   |  |      |        
|Gain on debt restructuring                                                      |  |                                |        |   |      |   |        |      |  |   | 15,274   |   |  |      |        |   |  |   |        |  
|Share of (loss) income from unconsolidated affiliates                           |  |                                | (4,930  | ) |      |   | (19,073 | )    |  |   | (6,746   | ) |  |      | 367     |   |  |   | 245     |  
|Benefit (provision) for income taxes                                            |  |                                | (855    | ) |      |   | (4,328  | )    |  |   | (215     | ) |  |      | (2,911  | ) |  |   | (1,861  | )
|Minority interest                                                               |  |                                | (4      | ) |      |   | 127     |      |  |   | 68       |   |  |      | 46      |   |  |   | 267     |  
|Change in accounting principle                                                  |  |                                |        |   |      |   |        |      |  |   | (74,789  | ) |  |      |        |   |  |   |        |  
|                                                                                |  |                                |         |   |      |   |         |      |  |   |          |   |  |      |        
|Net (loss) income from continuing operations                                    |  |                                | (22,230 | ) |      |   | (82,909 | )    |  |   | (136,026 | ) |  |      | 7,675   |   |  |   | 3,640   |  
|                                                                                |  |                                |         |   |      |   |         |      |  |   |          |   |  |      |        
|Discontinued operations                                                         |  |                                | 761     |   |      |   | (1,977  | )    |  |   | (2,403   | ) |  |      | 662     |   |  |   | 3,050   |  
|                                                                                |  |                                |         |   |      |   |         |      |  |   |          |   |  |      |        
|Net (loss) income                                                               |  | $                              | (21,469 | ) |      | $ | (84,886 | )    |  | $ | (138,429 | ) |  | $    | 8,337   |   |  | $ | 6,690   |  
|                                                                                |  |                                |         |   |      |   |         |      |  |   |          |   |  |      |        
|Consolidated Balance Sheet Data As of December 31:                              |  |                                |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Cash as cash equivalents (including restricted investments)(1)                  |  | $                              | 21,963  |   |      | $ | 15,207  |      |  | $ | 8,819    |   |  | $    | 7,890   |   |  | $ | 7,270   |  
|Total assets                                                                    |  |                                | 367,450 |   |      |   | 278,002 |      |  |   | 147,622  |   |  |      | 145,339 |   |  |   | 156,515 |  
|Working capital (deficiency)(2)                                                 |  |                                | 37,453  |   |      |   | (71,037 | )    |  |   | 1,734    |   |  |      | 676     |   |  |   | 11,391  |  
|Total long-term liabilities                                                     |  |                                | 122,570 |   |      |   | 27,689  |      |  |   | 80,824   |   |  |      | 77,362  |   |  |   | 80,475  |  
|Minority interest                                                               |  |                                | 2,053   |   |      |   |        |      |  |   | 1,164    |   |  |      | 1,128   |   |  |   | 562     |  
|Shareholders equity                                                            |  |                                | 180,465 |   |      |   | 102,753 |      |  |   | 3,195    |   |  |      | 9,993   |   |  |   | 22,603  |  






|    |                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes U.S.$4.3 million, U.S.$0.8 million and
    U.S.$0.2 million in 2000, 2002 and 2003 respectively, of
    restricted investments.                                    
|   
|(2) | For 2001, 2002, 2003 and 2004, includes U.S.$79.5,
    U.S.$3.2 million, U.S.$2.3 million, and
    U.S.$0.5 million respectively, of Imagens
    11% Senior Notes due 2005.

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|   |                                
|-- | -------------------------------
|B. | Capitalization and Indebtedness








|   |                                          
|-- | -----------------------------------------
|C. | Reasons for the Offer and Use of Proceeds








|   |             
|-- | ------------
|D. | Risk Factors



RISKS RELATED TO OUR BUSINESS




| |                                                   
| | --------------------------------------------------
| | We may not be able to continue as a going concern.





| |                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are a highly-leveraged holding company and depend on
    our subsidiaries revenues and cash flows to meet our
    obligations, and the availability of funds from these
    subsidiaries may be limited by contractual or statutory
    restrictions.









| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our cash flow available for use in our business is reduced,                                                                                                                
|
| |  | We are vulnerable to changes in economic conditions, and                                                                                                                   
|
| |  | Our ability to obtain additional financing for working capital,
    capital expenditures, acquisitions, general corporate purposes
    or other purposes could be impaired.



| |                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on a limited number of pay television system
    operators for a significant portion of our revenues and the loss
    of any of our major pay television system operators or
    renegotiation of existing contractual terms could significantly
    reduce our revenues.



3



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| |                                                                            
| | ---------------------------------------------------------------------------
| | Our businesses have incurred losses and may incur losses
    in the future.







| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Members of the Cisneros Group and Hicks Muse control
    Claxson, which could inhibit or cause potential changes of
    control of Claxson.



4



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| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | Hicks Muse and members of the Cisneros Group could have
    interests in other businesses which conflict with ours.







| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Competition in the media industry is intense and we expect
    it to increase significantly so that any failure by us to
    compete successfully would adversely affect our financial
    performance.







| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Our businesses involve risks of liability claims for media
    content, which could result in significant costs.





| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | defamation;                                                                   
|
| |  | negligence;                                                                   
|
| |  | copyright, patent or trademark infringement; and                              
|
| |  | other claims based on the nature and content of the materials
    distributed.

5



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| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to retain or obtain required licenses,
    permits and approvals, which could result in increased costs and
    limit our ability to achieve our strategic objectives and
    increase revenues.





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in governmental regulation could reduce our
    revenues, increase our operating expenses and expose us to
    significant liabilities.





| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | El Sitio, one of our wholly-owned subsidiaries, is a
    defendant in several civil securities cases arising out of its
    initial public offering, which could result in significant
    litigation expense and, if not decided in its favor, damage
    payments to the plaintiffs.





| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our financial results could be affected by potential
    changes in the accounting rules governing the recognition of
    stock-based compensation expense.



6



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RISKS RELATED TO LATIN AMERICA




| |                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because our pay television business is concentrated in
    Argentina and our broadcast radio business is concentrated in
    Chile, our financial performance is especially sensitive to
    risks associated with political, regulatory and economic
    conditions in these two countries.







| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the risk of expropriation, nationalization, war, revolutions,
    border disputes, renegotiation or modification of existing
    contracts, import, export and transportation regulations and
    tariffs;                         
|
| |  | exchange controls, currency fluctuations and other uncertainties
    arising out of foreign government sovereignty over our
    international operations;                                                                          
|
| |  | taxation policies, including royalty and tax increases and
    retroactive tax claims;                                                                                                                                             
|
| |  | laws and policies of the United States affecting foreign trade,
    taxation and investment; and                                                                                                                                   
|
| |  | the possibilities of being subjected to the exclusive
    jurisdiction of foreign courts in connection with legal disputes
    and the inability to subject foreign persons to the jurisdiction
    of courts in the United States.

RISKS RELATED TO OUR CLASS A COMMON SHARES




| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Since our Class A common shares were delisted from
    the Nasdaq SmallCap Market, it may be more difficult for
    investors to trade in our Class A common shares.



7



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| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | Our shareholders may face difficulties in protecting their
    interests because we are a British Virgin Islands international
    business company.





| |                                                                             
| | ----------------------------------------------------------------------------
| | You may experience difficulty in enforcing civil
    liabilities against us.





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | We are a foreign private issuer and you will receive less
    information about us than you would from a domestic
    U.S. corporation.








|        |                           
|------- | --------------------------
|Item 4. | Information on the Company






|   |                                       
|-- | --------------------------------------
|A. | History and Development of the Company





8



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|   |                  
|-- | -----------------
|B. | Business Overview













|                                     |  |                              |        |          |           |   |        |           |  |   |           |   |  |       |        |   |  |   |        |  
|------------------------------------ |  | ---------------------------- | ------ | -------- | --------- | - | ------ | --------- |  | - | --------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                     |  | Year Ended December 31, 2004 |       
|                                     |  |                              |       
|                                     |  |                              |        | Internet |           |   |       
|                                     |  | Pay                          |        |          | Broadcast |   |        | and       |  |   |          
|                                     |  | Television                   |        |          | Radio     |   |        | Broadband |  |   | Corporate |   |  | Total |       
|                                     |  |                              |        |          |           |   |        |           |  |   |           |   |  |       |       
|Revenues                             |  | $                            | 49,931 |          |           | $ | 18,103 |           |  | $ | 100       |   |  | $     | 50     |   |  | $ | 68,184 |  
|Operating Income (Loss)              |  |                              | 6,571  |          |           |   | 4,796  |           |  |   | (964      | ) |  |       | (4,101 | ) |  |   | 6,302  |  
|Net Income (Loss)                    |  |                              | 5,978  |          |           |   | 5,134  |           |  |   | (661      | ) |  |       | (3,761 | ) |  |   | 6,690  |  
|Cash Flows from Operating Activities |  |                              | 1,825  |          |           |   | 808    |           |  |   | 123       |   |  |       | 864    |   |  |   | 3,620  |  
|Cash Flows from Investing Activities |  |                              | (3,767 | )        |           |   | 50     |           |  |   | (3        | ) |  |       | (1,960 | ) |  |   | (5,680 | )
|Cash Flows from Financing Activities |  | $                            | (1,455 | )        |           | $ | (507   | )         |  | $ | (144      | ) |  | $     | 3,691  |   |  | $ | 1,585  |  

9



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|                                     |  |                              |        |          |           |   |        |           |  |   |           |   |  |       |        |   |  |   |        |  
|------------------------------------ |  | ---------------------------- | ------ | -------- | --------- | - | ------ | --------- |  | - | --------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                     |  | Year Ended December 31, 2003 |       
|                                     |  |                              |       
|                                     |  |                              |        | Internet |           |   |       
|                                     |  | Pay                          |        |          | Broadcast |   |        | and       |  |   |          
|                                     |  | Television                   |        |          | Radio     |   |        | Broadband |  |   | Corporate |   |  | Total |       
|                                     |  |                              |        |          |           |   |        |           |  |   |           |   |  |       |       
|Revenues                             |  | $                            | 48,215 |          |           | $ | 14,601 |           |  | $ | 178       |   |  | $     |       |   |  | $ | 62,994 |  
|Operating Income (Loss)              |  |                              | 7,266  |          |           |   | 4,731  |           |  |   | (1,898    | ) |  |       | (5,032 | ) |  |   | 5,067  |  
|Net Income (Loss)                    |  |                              | 13,289 |          |           |   | 2,953  |           |  |   | (1,685    | ) |  |       | (6,220 | ) |  |   | 8,337  |  
|Cash Flows from Operating Activities |  |                              | 5,675  |          |           |   | 5,855  |           |  |   | (1,364    | ) |  |       | 2,865  |   |  |   | 13,031 |  
|Cash Flows from Investing Activities |  |                              | (1,322 | )        |           |   | (378   | )         |  |   | 242       |   |  |       | (3,890 | ) |  |   | (5,348 | )
|Cash Flows from Financing Activities |  | $                            | (1,313 | )        |           | $ | (4,853 | )         |  | $ |          |   |  | $     | (1,398 | ) |  | $ | (7,564 | )

|                                     |  |                              |          |          |           |   |        |           |  |   |           |   |  |       |        |   |  |   |          |  
|------------------------------------ |  | ---------------------------- | -------- | -------- | --------- | - | ------ | --------- |  | - | --------- | - |  | ----- | ------ | - |  | - | -------- | -
|                                     |  | Year Ended December 31, 2002 |         
|                                     |  |                              |         
|                                     |  |                              |          | Internet |           |   |       
|                                     |  | Pay                          |          |          | Broadcast |   |        | and       |  |   |          
|                                     |  | Television                   |          |          | Radio     |   |        | Broadband |  |   | Corporate |   |  | Total |       
|                                     |  |                              |          |          |           |   |        |           |  |   |           |   |  |       |       
|Revenues                             |  | $                            | 46,192   |          |           | $ | 13,582 |           |  | $ | 190       |   |  | $     |       |   |  | $ | 59,964   |  
|Operating Income (Loss)              |  |                              | 9,303    |          |           |   | 1,064  |           |  |   | (7,684    | ) |  |       | (2,775 | ) |  |   | (92      | )
|Net Income (Loss)                    |  |                              | (116,363 | )        |           |   | (7,331 | )         |  |   | (13,549   | ) |  |       | (1,186 | ) |  |   | (138,429 | )
|Cash Flows from Operating Activities |  |                              | (214     | )        |           |   | 4,808  |           |  |   | 929       |   |  |       | (4,075 | ) |  |   | 1,448    |  
|Cash Flows from Investing Activities |  |                              | 8,322    |          |           |   | (340   | )         |  |   | (3,128    | ) |  |       | (330   | ) |  |   | 4,524    |  
|Cash Flows from Financing Activities |  | $                            | (2,178   | )        |           | $ | (4,747 | )         |  | $ | (1,934    | ) |  | $     | (3,881 | ) |  | $ | (12,740  | )



| |                  
| | -----------------
| | Business Strategy





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increase Subscription Revenues from a Portfolio of Leading
    Pay Television Brands. We hold a number of well-known pay
    television brands under one roof. We expect to
    increase subscriber-based revenues by expanding distribution of
    our channels to pay television system operators that we do not
    reach today, and by benefiting from anticipated growth in pay
    television subscribers in Ibero America.
|
| |  | Create Significant Operating Benefits. We endeavor to
    combine our product offerings to create operating benefits
    across all of our businesses, including:                                                                                                                                                                                                                                                                  



| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cross-promotion across multiple channels, thereby increasing
    brand awareness while driving audience growth and reducing
    marketing expenditures; and     
|
| |  | aggregation of management expertise in traditional and new media
    to create innovative and interactive content and to expand our
    brands across all media.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Develop Additional Revenue Streams. We intend to
    capitalize on our diverse media assets to develop additional
    sources of revenue, including, among others, the sale or license
    of content through existing and new media, such as broadband.                                                                                                                                                               
|
| |  | Exploit Market Opportunities for Growth Through Strategic
    Alliances. Our strategy includes geographic expansion of our
    existing pay television business, as well as increasing
    penetration in those geographic markets in which we currently
    operate, through strategic alliances and opportunistic
    acquisitions of channels targeting specific genres, which
    compliment our channel offerings.

10



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Leverage Strategic Relationships. We believe that our
    relationships with the Cisneros Group and Hicks Muse, our
    principal shareholders, provide us with competitive advantages.
    We draw upon the relationships, regional expertise and extensive
    media assets of our principal shareholders to enhance our
    content offerings and facilitate access to distribution and
    technology platforms.

PAY TELEVISION BUSINESS










| |                                 
| | --------------------------------
| | Wholly Owned Basic Tier Channels



| |              
| | -------------
| | Film Channels

Space


I.Sat


Retro


11



---



##### Table of Contents





| |              
| | -------------
| | Entertainment

Infinito


FTV/ Fashion TV




| |               
| | --------------
| | Music Channels

MuchMusic Argentina


HTV




| |                                 
| | --------------------------------
| | Partially Owned Channels  Adult

Playboy TV Network Spice Live Network


Venus


G Channel


12



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##### Table of Contents



Private




| |                     
| | --------------------
| | Distributed Channels

Crónica TV


Venevision Continental


Utilisima Satelital




| |                      
| | ---------------------
| | Production Operations

Claxson Playout Inc., formerly known as The Kitchen,
Inc.


In Jaus




| |                            
| | ---------------------------
| | Pay Television Distribution



13



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##### Table of Contents





|                                |  |                             |        |  |      |  |        |      |  |  |        | 
|------------------------------- |  | --------------------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                                |  | Total Number of Subscribers |       
|                                |  | December 31,                |       
|                                |  |                             |       
|                                |  | 2002                        |        |  | 2003 |  |        | 2004 | 
|                                |  |                             |        |  |      |  |        |      | 
|                                |  | (In thousands)              |       
|Basic Package                   |  |                             |        |  |      |  |        |      |  |  |        | 
|Space                           |  |                             | 4,805  |  |      |  | 4,861  |      |  |  | 5,336  | 
|I. Sat                          |  |                             | 4,674  |  |      |  | 4,724  |      |  |  | 5,194  | 
|Retro(1)                        |  |                             | 3,555  |  |      |  | 5,005  |      |  |  | 5,868  | 
|Infinito                        |  |                             | 8,229  |  |      |  | 8,330  |      |  |  | 9,266  | 
|FTV                             |  |                             | 3,576  |  |      |  | 4,055  |      |  |  | 5,520  | 
|MuchMusic                       |  |                             | 4,494  |  |      |  | 4,569  |      |  |  | 5,245  | 
|HTV                             |  |                             | 5,061  |  |      |  | 4,947  |      |  |  | 5,644  | 
|Cronica TV(2)                   |  |                             | 3,997  |  |      |  | 3,881  |      |  |  | 4,267  | 
|Venevision Continental(2)       |  |                             | 998    |  |      |  | 901    |      |  |  | 978    | 
|Locomotion(3)(4)                |  |                             | 5,330  |  |      |  |       |      |  |  |       | 
|Cl@se(5)                        |  |                             | 1,718  |  |      |  |       |      |  |  |       | 
|Utilisima Satelita(6)           |  |                             |       |  |      |  |       |      |  |  | 5,955  | 
|                                |  |                             |        |  |      |  |        |      | 
|Total Basic Channel Subscribers |  |                             | 46,437 |  |      |  | 41,273 |      |  |  | 53,273 | 






|    |                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Retro was known as Uniseries prior to March 2003.                                                                                        
|   
|(2) | Represents cable subscribers only.                                                                                                       
|   
|(3) | Represented channel.                                                                                                                     
|   
|(4) | We sold our 50% interest in Locomotion in May 2002 and ceased
    providing any transitional services for the channel in August
    2003.
|   
|(5) | We sold Cl@se in January 2003 and ceased providing sales
    representation services to the channel in 2004.                             
|   
|(6) | We commenced distributing Utilisima Satelital on January 1,
    2004.                                                                    



| |                               
| | ------------------------------
| | Pay Television Revenue Sources



Subscriber-Based Fees.


14



---



##### Table of Contents





Advertising Revenue.




Production Revenue.




| |          
| | ---------
| | Marketing





15



---



##### Table of Contents





| |                                     
| | ------------------------------------
| | Programming Sources - Basic channels





Licensed Programming.






Owned Programming.








| |                                       
| | --------------------------------------
| | Playboy TV Latin America Joint Venture



16



---



##### Table of Contents







| |   |                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | transferred our 80.1% interest in Playboy TV International
    (outside of Latin America, Spain and Portugal) to Playboy
    Enterprises, Inc.;                                                                                                       
|
| |  | contributed the Venus channel to Playboy TV Latin America;                                                                                                                                                                                            
|
| |  | transferred all of its preferred shares of Playboy.com, Inc. to
    Playboy Enterprises, Inc;                                                                                                                                                         
|
| |  | were released from our capital commitments to Playboy TV
    International; and                                                                                                                                                                       
|
| |  | revised the terms for our continued relationship in Latin
    America, Spain and Portugal by retaining through a wholly-owned
    subsidiary an 81% interest in Playboy TV Latin America and now
    controlling the management of this joint venture.







| |                        
| | -----------------------
| | DMX MUSIC Latin America





| |                      
| | ---------------------
| | Digital Latin America



17



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##### Table of Contents





BROADCAST RADIO BUSINESS






| |                
| | ---------------
| | Market Overview



Radio Chile




|              |  |                                                                                                                                                                                     
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Radio Network |  | Format                                                                                                                                                                              
|              |  |                                                                                                                                                                                     
|Pudahuel FM   |  | News, Latin music and talk show formats targeted to women 25 to
    59 years old.                                                                                                   
|Corazón       |  | Interactive, tropical music format targeted to listeners 25 to
    59 years old.                                                                                                    
|Rock & Pop    |  | Rock music and talk show format targeted to listeners 15 to
    24 years old.                                                                                                       
|FM Dos        |  | Romantic music format in Spanish (70%) and English (30%)
    targeted to women 20 to 34 years old.                                                                                  
|FM Hit        |  | Top 40 music format targeted to listeners 15 to 19 years
    old.                                                                                                                   
|Futuro        |  | Classic rock format targeting men 25 to 44 years old.
    Futuro complements Concierto in Santiago, where the two stations
    occupy the number one and two spots in their segment.
|Imagina       |  | Romantic music format targeted to women 25 to 59 years old.                                                                                                                         
|Concierto     |  | Adult contemporary music format in English (70%) and Spanish
    (30%), targeting men and women 25 to 44 years old.                                                                 



|                     |  |      |      |   |      |  |    |      |  |  |      |   |  |  |    | 
|-------------------- |  | ---- | ---- | - | ---- |  | -- | ---- |  |  | ---- | - |  |  | -- | 
|                     |  | 2004 |      |   | Rank |  |    | 2003 |  |  | Rank |  
|                     |  |      |      |   |      |  |    |      |  |  |      |  
|FM Dos               |  |      | 6.1  |   |      |  | 1  |      |  |  | 5.4  |   |  |  | 5  | 
|Pudahuel FM          |  |      | 5.6  |   |      |  | 3  |      |  |  | 6.3  |   |  |  | 1  | 
|Corazón              |  |      | 5.5  |   |      |  | 4  |      |  |  | 5.8  |   |  |  | 3  | 
|Rock & Pop           |  |      | 4.6  |   |      |  | 7  |      |  |  | 4.8  |   |  |  | 7  | 
|FM Hit               |  |      | 4.3  |   |      |  | 9  |      |  |  | 4.3  |   |  |  | 10 | 
|Futuro               |  |      | 4.0  |   |      |  | 12 |      |  |  | 4.1  |   |  |  | 11 | 
|Imagina              |  |      | 3.6  |   |      |  | 13 |      |  |  | 2.5  |   |  |  | 19 | 
|Concierto            |  |      | 2.7  |   |      |  | 16 |      |  |  | 2.7  |   |  |  | 15 | 
|                     |  |      |      |   |      |  |    |      |  |  |      |  
|Total audience share |  |      | 36.4 | % |      |  |    |      |  |  | 35.9 | % |  |  |    | 

18



---



##### Table of Contents









Radio Sarandi


INTERNET AND BROADBAND BUSINESS








19



---



##### Table of Contents







| |                                             
| | --------------------------------------------
| | Intellectual Property and Proprietary Rights





REGULATION




| |                                                               
| | --------------------------------------------------------------
| | Regulation of the Pay Television Industry in Latin
    America







20



---



##### Table of Contents













| |                                                    
| | ---------------------------------------------------
| | Regulation of the Brazilian Pay Television Industry





21



---



##### Table of Contents





| |                                                   
| | --------------------------------------------------
| | Regulation of the Chilean Broadcast Radio Industry





COMPETITION










22



---



##### Table of Contents








|   |                         
|-- | ------------------------
|C. | Organizational Structure











|    |                                                    
|--- | ---------------------------------------------------
|(1) | Playback and post-production facility.             
|   
|(2) | Operated through lease and co-management agreement.






|   |                              
|-- | -----------------------------
|D. | Property, Plant and Equipment



| |           
| | ----------
| | Properties





| |                          
| | -------------------------
| | Pay Television Facilities









| |                           
| | --------------------------
| | Broadcast Radio Facilities



23



---



##### Table of Contents












|        |                                             
|------- | --------------------------------------------
|Item 5. | Operating and Financial Review and Prospects



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS










| |                             
| | ----------------------------
| | Critical Accounting Policies



Goodwill, Intangibles and Other Assets


24



---



##### Table of Contents







Allowance for Doubtful Accounts Receivable


Revenue Recognition




| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Disclosure requirements under
SFAS No. 129, Disclosure of Information
About Capital Structure, Relating to Contingently Convertible
Securities


Share Based Payment Accounting for Stock Based
Compensation Accounting for Stock Issued to Employees




25



---



##### Table of Contents





Accounting for Conditional Asset Retirement
Obligations




| |                                                   
| | --------------------------------------------------
| | Contractual Obligations and Commercial Commitments



|                            |  |           |        |  |       |   |        |       |  |   |           |  |  |   |        | 
|--------------------------- |  | --------- | ------ |  | ----- | - | ------ | ----- |  | - | --------- |  |  | - | ------ | 
|                            |  | Less Than |        |  | 1-3   |   |        | 4-5   |  |   | More Than | 
|                            |  | 1 Year    |        |  | Years |   |        | Years |  |   | 5 Years   | 
|                            |  |           |        |  |       |   |        |       |  |   |           | 
|11% Senior Notes due 2005   |  | $         | 450    |  |       | $ |       |       |  | $ |          |  |  | $ |       | 
|8.75% Senior Notes due 2010 |  |           | 3,648  |  |       |   | 15,382 |       |  |   | 25,611    |  |  |   | 13,515 | 
|6.25% Senior Notes due 2013 |  |           | 58     |  |       |   |       |       |  |   |          |  |  |   | 2,667  | 
|Other Senior Notes          |  |           | 535    |  |       |   | 1,183  |       |  |   | 919       |  |  |   |       | 
|Syndicated bank facility    |  |           | 2,441  |  |       |   | 6,834  |       |  |   | 7,178     |  |  |   |       | 
|Convertible Debentures      |  |           | 116    |  |       |   | 3,500  |       |  |   |          |  |  |   |       | 
|Other long term liabilities |  |           | 924    |  |       |   | 891    |       |  |   |          |  |  |   |       | 
|Operating leases            |  |           | 4,081  |  |       |   | 7,656  |       |  |   | 5,578     |  |  |   | 4,467  | 
|Purchase Obligations        |  |           | 12,221 |  |       |   | 9,352  |       |  |   | 9,340     |  |  |   | 15,087 | 







| |                                  
| | ---------------------------------
| | Introduction to Operating Results



| |             
| | ------------
| | Net Revenues



26



---



##### Table of Contents





| |                      
| | ---------------------
| | Subscriber-Based Fees









| |                     
| | --------------------
| | Advertising Revenues





| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | advertising arrangements under which we receive fees for
    advertising spots placed on our pay television channels and
    broadcast stations for specified periods of time;            
|
| |  | sponsorship arrangements that allow advertisers to sponsor a
    program on one or more of our pay television channels, broadcast
    stations or networks in exchange for fixed payments;
|
| |  | advertising arrangements under which we receive fixed fees for
    banners placed on our websites for specified periods of time; and                                                      
|
| |  | reciprocal services arrangements, under which we exchange
    advertising space on our media assets for advertising or
    services from other parties.                                   







| |                    
| | -------------------
| | Production Services



27



---



##### Table of Contents





| |               
| | --------------
| | Other Revenues





| |                   
| | ------------------
| | Operating Expenses





| |   |                                  
| | - | ---------------------------------
| |  | product, content and technology; 
|
| |  | marketing and sales;             
|
| |  | corporate and administration; and
|
| |  | depreciation and amortization.   

Product, Content and Technology Expenses.




Marketing and Sales Expenses.


Corporate and Administration Expenses.


Depreciation and Amortization.




| |   |                                                       
| | - | ------------------------------------------------------
| |  | buildings 20-50 years;                                
|
| |  | computers, software and other equipment 3-10 years;   
|
| |  | leasehold improvements 5-7 years; and                 
|
| |  | furniture, fixtures and other fixed assets 5-10 years.

28



---



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Other Income (Expense).


Share of Loss from Unconsolidated Affiliates.




| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003



|                                |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |   |      |   |  |   |        |   |  |   |        | 
|------------------------------- |  | ------------------------------ | ------ |  | --------- | - | ------ | --------- |  | --- | --------- | - | --------- | ----- | ------ | - | ---------- | - | ------ | ----- |  | - | --------- |  |  | --------- | ------ |  | ----- | - | ---- | - |  | - | ------ | - |  | - | ------ | 
|                                |  | Year Ended December 31,        |       
|                                |  |                                |       
|                                |  | 2003                           |        |  | 2004      |  
|                                |  |                                |        |  |           |  
|                                |  | Pay                            |        |  | Broadcast |   |        |           |  | Pay |           |   | Broadcast |       |        |  
|                                |  | Television                     |        |  | Radio     |   |        | Broadband |  |     | Corporate |   |           | Total |        |   | Television |   |        | Radio |  |   | Broadband |  |  | Corporate |        |  | Total |  
|                                |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |  
|                                |  | (In thousands of U.S. dollars) |       
|Net revenues:                   |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |   |      |   |  |   |        |   |  |   |        | 
|Subscriber-based fees           |  | $                              | 38,922 |  |           | $ |       |           |  | $   | 10        |   |           | $     |       |   |            | $ | 38,932 |       |  | $ | 40,052    |  |  | $         |       |  |       | $ |     |   |  | $ |       |   |  | $ | 40,052 | 
|Advertising                     |  |                                | 3,857  |  |           |   | 14,601 |           |  |     | 73        |   |           |       |       |   |            |   | 18,531 |       |  |   | 5,345     |  |  |           | 17,938 |  |       |   | 56   |   |  |   |       |   |  |   | 23,339 | 
|Production services             |  |                                | 3,051  |  |           |   |       |           |  |     |          |   |           |       |       |   |            |   | 3,051  |       |  |   | 3,233     |  |  |           |       |  |       |   |     |   |  |   |       |   |  |   | 3,233  | 
|Other                           |  |                                | 2,385  |  |           |   |       |           |  |     | 95        |   |           |       |       |   |            |   | 2,480  |       |  |   | 1,301     |  |  |           | 165    |  |       |   | 44   |   |  |   | 50     |   |  |   | 1,560  | 
|                                |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |  
|Total net revenues              |  |                                | 48,215 |  |           |   | 14,601 |           |  |     | 178       |   |           |       |       |   |            |   | 62,994 |       |  |   | 49,931    |  |  |           | 18,103 |  |       |   | 100  |   |  |   | 50     |   |  |   | 68,184 | 
|Operating expenses:             |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |   |      |   |  |   |        |   |  |   |        | 
|Product, content and technology |  |                                | 18,581 |  |           |   | 4,401  |           |  |     | 1,016     |   |           |       | 213    |   |            |   | 24,211 |       |  |   | 22,850    |  |  |           | 5,470  |  |       |   | 368  |   |  |   | 604    |   |  |   | 29,292 | 
|Marketing and sales             |  |                                | 6,382  |  |           |   | 2,513  |           |  |     | 50        |   |           |       | 355    |   |            |   | 9,300  |       |  |   | 8,018     |  |  |           | 4,266  |  |       |   | 188  |   |  |   | 402    |   |  |   | 12,874 | 
|Corporate and administration    |  |                                | 10,145 |  |           |   | 1,457  |           |  |     | 725       |   |           |       | 4,286  |   |            |   | 16,613 |       |  |   | 9,328     |  |  |           | 1,832  |  |       |   | 501  |   |  |   | 3,145  |   |  |   | 14,806 | 
|Depreciation and amortization   |  |                                | 3,362  |  |           |   | 1,499  |           |  |     | 6         |   |           |       | 178    |   |            |   | 5,045  |       |  |   | 3,164     |  |  |           | 1,739  |  |       |   | 7    |   |  |   |       |   |  |   | 4,910  | 
|Impairment of Goodwill          |  |                                | 2,479  |  |           |   |       |           |  |     | 279       |   |           |       |       |   |            |   | 2,758  |       |  |   |          |  |  |           |       |  |       |   |     |   |  |   |       |   |  |   |       | 
|                                |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |  
|Operating income (loss)         |  | $                              | 7,266  |  |           | $ | 4,731  |           |  | $   | (1,898    | ) |           | $     | (5,032 | ) |            | $ | 5,067  |       |  | $ | 6,571     |  |  | $         | 4,796  |  |       | $ | (964 | ) |  | $ | (4,101 | ) |  | $ | 6,302  | 
|                                |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |  

29



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| |             
| | ------------
| | Net Revenues





















| |                   
| | ------------------
| | Operating Expenses



| |                                         
| | ----------------------------------------
| | Product, Content and Technology Expenses





30



---



##### Table of Contents











| |                             
| | ----------------------------
| | Marketing and Sales Expenses











| |                                      
| | -------------------------------------
| | Corporate and Administration Expenses





31



---



##### Table of Contents













| |                              
| | -----------------------------
| | Depreciation and Amortization





| |                       
| | ----------------------
| | Other Income (Expense)





| |                                             
| | --------------------------------------------
| | Share of Loss from Unconsolidated Affiliates





| |                        
| | -----------------------
| | Discontinued Operations



32



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##### Table of Contents





| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to Year Ended
    December 31, 2002



|                                |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |   |        |   |  |   |        |   |  |   |        | 
|------------------------------- |  | ------------------------------ | ------ |  | --------- | - | ------ | --------- |  | --- | --------- | - | --------- | ----- | ------ | - | ---------- | - | ------ | ----- |  | - | --------- |  |  | --------- | ------ |  | ----- | - | ------ | - |  | - | ------ | - |  | - | ------ | 
|                                |  | Year Ended December 31,        |       
|                                |  |                                |       
|                                |  | 2002                           |        |  | 2003      |  
|                                |  |                                |        |  |           |  
|                                |  | Pay                            |        |  | Broadcast |   |        |           |  | Pay |           |   | Broadcast |       |        |  
|                                |  | Television                     |        |  | Radio     |   |        | Broadband |  |     | Corporate |   |           | Total |        |   | Television |   |        | Radio |  |   | Broadband |  |  | Corporate |        |  | Total |  
|                                |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |  
|                                |  | (In thousands of U.S. dollars) |       
|Net revenues:                   |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |   |        |   |  |   |        |   |  |   |        | 
|Subscriber-based fees           |  | $                              | 31,493 |  |           | $ |       |           |  | $   | 73        |   |           | $     |       |   |            | $ | 31,566 |       |  | $ | 38,922    |  |  | $         |       |  |       | $ | 10     |   |  | $ |       |   |  | $ | 38,932 | 
|Advertising                     |  |                                | 2,260  |  |           |   | 13,170 |           |  |     | 121       |   |           |       |       |   |            |   | 15,551 |       |  |   | 3,857     |  |  |           | 14,601 |  |       |   | 73     |   |  |   |       |   |  |   | 18,531 | 
|Production services             |  |                                | 7,081  |  |           |   |       |           |  |     |          |   |           |       |       |   |            |   | 7,081  |       |  |   | 3,051     |  |  |           |       |  |       |   |       |   |  |   |       |   |  |   | 3,051  | 
|Other                           |  |                                | 5,358  |  |           |   | 412    |           |  |     | (4        | ) |           |       |       |   |            |   | 5,766  |       |  |   | 2,385     |  |  |           |       |  |       |   | 95     |   |  |   |       |   |  |   | 2,480  | 
|                                |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |  
|Total net revenues              |  |                                | 46,192 |  |           |   | 13,582 |           |  |     | 190       |   |           |       |       |   |            |   | 59,964 |       |  |   | 48,215    |  |  |           | 14,601 |  |       |   | 178    |   |  |   |       |   |  |   | 62,994 | 
|Operating expenses:             |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |   |        |   |  |   |        |   |  |   |        | 
|Product, content and technology |  |                                | 16,142 |  |           |   | 4,545  |           |  |     | 1,846     |   |           |       |       |   |            |   | 22,533 |       |  |   | 18,581    |  |  |           | 4,401  |  |       |   | 1,016  |   |  |   | 213    |   |  |   | 24,211 | 
|Marketing and sales             |  |                                | 7,434  |  |           |   | 2,361  |           |  |     | 1,001     |   |           |       |       |   |            |   | 10,796 |       |  |   | 6,382     |  |  |           | 2,513  |  |       |   | 50     |   |  |   | 355    |   |  |   | 9,300  | 
|Corporate and administration    |  |                                | 8,016  |  |           |   | 1,752  |           |  |     | 1,554     |   |           |       | 4,012  |   |            |   | 15,334 |       |  |   | 10,145    |  |  |           | 1,457  |  |       |   | 725    |   |  |   | 4,286  |   |  |   | 16,613 | 
|Depreciation and amortization   |  |                                | 5,297  |  |           |   | 3,860  |           |  |     | 3,473     |   |           |       | (1,237 | ) |            |   | 11,393 |       |  |   | 3,362     |  |  |           | 1,499  |  |       |   | 6      |   |  |   | 178    |   |  |   | 5,045  | 
|Impairment of Goodwill          |  |                                |       |  |           |   |       |           |  |     |          |   |           |       |       |   |            |   |       |       |  |   | 2,479     |  |  |           |       |  |       |   | 279    |   |  |   |       |   |  |   | 2,758  | 
|                                |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |  
|Operating income (loss)         |  | $                              | 9,303  |  |           | $ | 1,064  |           |  | $   | (7,684    | ) |           | $     | (2,775 | ) |            | $ | (92    | )     |  | $ | 7,266     |  |  | $         | 4,731  |  |       | $ | (1,898 | ) |  | $ | (5,032 | ) |  | $ | 5,067  | 
|                                |  |                                |        |  |           |   |        |           |  |     |           |   |           |       |        |   |            |   |        |       |  |   |           |  |  |           |        |  |       |  



| |             
| | ------------
| | Net Revenues







33



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| |                   
| | ------------------
| | Operating Expenses



| |                                         
| | ----------------------------------------
| | Product, Content and Technology Expenses







34



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| |                             
| | ----------------------------
| | Marketing and Sales Expenses











| |                                      
| | -------------------------------------
| | Corporate and Administration Expenses









35



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| |                              
| | -----------------------------
| | Depreciation and Amortization





| |                       
| | ----------------------
| | Other Income (Expense)





| |                                             
| | --------------------------------------------
| | Share of Loss from Unconsolidated Affiliates





| |                        
| | -----------------------
| | Discontinued Operations





| |                                
| | -------------------------------
| | Liquidity and Capital Resources



36



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37



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| |                                                         
| | --------------------------------------------------------
| | Research and Development, Patents and Licenses,
    etc.





| |                  
| | -----------------
| | Trend Information








|        |                                           
|------- | ------------------------------------------
|Item 6. | Directors, Senior Management and Employees






|   |                                
|-- | -------------------------------
|A. | Directors and Senior Management



|                      |  |     |    |  |                |                   
|--------------------- |  | --- | -- |  | -------------- | ------------------
|Name                  |  | Age |    |  | Director Since
|                      |  |     |    |  |               
|Roberto Vivo-Chaneton |  |     | 51 |  |                | September 21, 2001
|Carlos Bardasano      |  |     | 60 |  |                | September 21, 2001
|Eric C. Neuman        |  |     | 60 |  |                | September 21, 2001
|Ana Teresa Arismendi  |  |     | 39 |  |                | April 30, 2002    
|Frank Feather         |  |     | 62 |  |                | September 21, 2001
|John A. Gavin         |  |     | 74 |  |                | September 21, 2001
|Gabriel Montoya       |  |     | 36 |  |                | April 30, 2002    
|José Antonio Rìos     |  |     | 59 |  |                | September 21, 2001
|Emilio Romano         |  |     | 40 |  |                | November 12, 2001 
|Marcos Clutterbuck    |  |     | 34 |  |                | August 23, 2002   
|Ricardo Verdaguer     |  |     | 54 |  |                | September 21, 2001
|Luis Villanueva       |  |     | 48 |  |                | April 30, 2002    





38



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| |                   
| | ------------------
| | Executive Officers



|                       |  |     |    |  |          |                                                   |       |                   
|---------------------- |  | --- | -- |  | -------- | ------------------------------------------------- | ----- | ------------------
|                       |  |     |    |  |          | Current Position Held                            
|Name                   |  | Age |    |  | Position |                                                   | Since
|                       |  |     |    |  |          |                                                   |      
|Roberto Vivo-Chaneton  |  |     | 51 |  |          | Chairman of the Board and Chief Executive Officer |       | September 21, 2001
|Ralph Haiek            |  |     | 48 |  |          | Chief Operating Officer  Pay Television          |       | September 21, 2001
|José Antonio Ituarte   |  |     | 45 |  |          | Chief Financial Officer                           |       | January 1, 2002   
|Roberto Cibrian-Campoy |  |     | 46 |  |          | Executive Vice President  Broadband and Internet |       | September 21, 2001
|Amaya Ariztoy          |  |     | 37 |  |          | General Counsel                                   |       | September 21, 2001
|Mariano Varela         |  |     | 37 |  |          | Senior Vice President  Sales and Marketing       |       | January 1, 2003   
|Marcelo Zuñiga         |  |     | 55 |  |          | Executive Director  Ibero American Radio Chile   |       | August 30, 2002   





| |                         
| | ------------------------
| | Biographical Information



| |          
| | ---------
| | Directors

Roberto Vivo-Chaneton


Carlos Bardasano


Eric C. Neuman


39



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Ana Teresa Arismendi


Marcos Clutterbuck


Frank Feather


John A. Gavin


Gabriel Montoya


40



---



##### Table of Contents





José Antonio Rìos tm


Emilio Romano


Ricardo Verdaguer


Luis Villanueva


41



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| |                   
| | ------------------
| | Executive Officers

Ralph Haiek


José Antonio Ituarte


Roberto Cibrian-Campoy


Marcelo Zuñiga


Amaya Ariztoy


Mariano Varela


42



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|   |             
|-- | ------------
|B. | Compensation









| |                                                                   
| | ------------------------------------------------------------------
| | Options to Purchase Securities from Registrant or
    Subsidiaries



| |                          
| | -------------------------
| | 2001 Share Incentive Plan





| |               
| | --------------
| | Administration







| |                       
| | ----------------------
| | Shares Subject to Plan



43



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| |              
| | -------------
| | Share Options













| |                  
| | -----------------
| | Restricted Shares



44



---



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| |                  
| | -----------------
| | Change in Control





| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any acquisition by a person, other than a member or affiliate of
    the Cisneros Group, an affiliate of Hicks Muse or an affiliate
    of the El Sitio founders, of more than 50% of our outstanding
    share capital or voting securities, in each case subject to
    specified exceptions;
|
| |  | a change in the majority of the members of the board of
    directors, unless approved by the incumbent directors;                                                                                                                                                                             
|
| |  | the consummation of certain mergers or restructurings, or
    certain sales of all or substantially all of our assets; or                                                                                                                                                                      
|
| |  | approval by our shareholders of a liquidation, dissolution or
    sale of substantially all of our assets.                                                                                                                                                                                     



| |           
| | ----------
| | Amendments





| |                       
| | ----------------------
| | Grant of Stock Options



|                      |  |          |           |  |               |  |         | 
|--------------------- |  | -------- | --------- |  | ------------- |  | ------- | 
|Manager               |  | Business |           |  | Stock Options | 
|                      |  |          |           |  |               | 
|Roberto Vivo          |  |          | Corporate |  |               |  | 403,565 | 
|Ralph Haiek           |  |          | Pay TV    |  |               |  | 109,112 | 
|José Antonio Ituarte  |  |          | Corporate |  |               |  | 109,112 | 
|José Maria Bustamante |  |          | Corporate |  |               |  | 3,800   | 
|Leandro Feliz Añon*   |  |          |           |  |               |  | 27,800  | 

45



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|  |                                                                           
|- | --------------------------------------------------------------------------
|* | As per employment separation and post employment consulting
    agreement.





| |                                                                      
| | ---------------------------------------------------------------------
| | Grant of Restricted Shares to Cisneros Television Group
    Employees








|   |                
|-- | ---------------
|C. | Board Practices



| |          
| | ---------
| | Directors





| |                           
| | --------------------------
| | Members of Management Body





| |                                        
| | ---------------------------------------
| | Benefits Upon Termination of Employment





46



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| |                                     
| | ------------------------------------
| | Committees of the Board of Directors





| |                    
| | -------------------
| | Executive Committee





| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | strategic initiatives;                                                                                                                                                
|
| |  | material transactions and matters; and                                                                                                                                
|
| |  | matters to be presented to the full board of directors and board
    committees; and such other matters as the board of directors may
    determine from time to time.





| |                
| | ---------------
| | Audit Committee





| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | is responsible for selecting and overseeing the engagement of
    our independent auditors;                                     
|
| |  | reviews the results and scope of the audit and other services
    provided by our independent registered public accounting firm;
|
| |  | reviews our financial statements;                                                                                               
|
| |  | reviews and evaluates our internal control functions and
    financial reporting process; and                                   
|
| |  | review and approve all related party transactions.                                                                              





| |                       
| | ----------------------
| | Compensation Committee





| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | executive compensation;                                                       
|
| |  | salaries and incentive compensation for our employees and
    consultants; and
|
| |  | the administration of our share option plans.                                 

47



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|   |          
|-- | ---------
|D. | Employees






















|   |                
|-- | ---------------
|E. | Share Ownership








|        |                                                  
|------- | -------------------------------------------------
|Item 7. | Major Shareholders and Related Party Transactions






|   |                   
|-- | ------------------
|A. | Major Shareholders



| |                                
| | -------------------------------
| | Ownership of Major Shareholders





| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | each person or entity which, to our knowledge, owns beneficially
    more than 5% of the outstanding shares;

48



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##### Table of Contents





| |   |                                                        
| | - | -------------------------------------------------------
| |  | each of our directors and executive officers; and      
|
| |  | all of our directors and executive officers as a group.



|                                                             |  |           |           |  |               |  |      |           |  |  |           |   |  |           |  |   |  |  |  |  
|------------------------------------------------------------ |  | --------- | --------- |  | ------------- |  | ---- | --------- |  |  | --------- | - |  | --------- |  | - |  |  |  | -
|                                                             |  | Number of |           |  | Percentage of |  |      | Number of |  |  | Number of |   |  | Number of | 
|                                                             |  | Class A   |           |  | Class A       |  |      | Class C   |  |  | Class F   |   |  | Class H   | 
|                                                             |  | Common    |           |  | Common        |  |      | Common    |  |  | Common    |   |  | Common    | 
|Beneficial Owner                                             |  | Shares    |           |  | Shares (%)(1) |  |      | Shares    |  |  | Shares    |   |  | Shares    | 
|                                                             |  |           |           |  |               |  |      |           |  |  |           |   |  |           | 
|1945 Carlton Investments LLC(2)(21)                          |  |           | 4,709,769 |  |               |  | 23.0 |           |  |  |           | 1 |  |           |  |   |  |  |  |  
|1947 Carlyle Investments LLC(3)(21)                          |  |           | 4,709,769 |  |               |  | 23.0 |           |  |  |           | 1 |  |           |  |   |  |  |  |  
|Ricardo J. Cisneros(4)(21)                                   |  |           | 4,709,769 |  |               |  | 23.0 |           |  |  |           |   |  |           |  |   |  |  |  |  
|Gustavo A. Cisneros(5)(21)                                   |  |           | 4,709,769 |  |               |  | 23.0 |           |  |  |           |   |  |           |  |   |  |  |  |  
|Hicks, Muse(6)(21)                                           |  |           | 7,770,708 |  |               |  | 37.9 |           |  |  |           |   |  |           |  |   |  |  |  | 1
|Thomas O. Hicks(6)                                           |  |           | 7,770,708 |  |               |  | 37.9 |           |  |  |           |   |  |           |  |   |  |  |  |  
|IMPSAT Fiber Networks, Inc(19)(20)                           |  |           |          |  |               |  | *    |           |  |  |           | 1 |  |           |  |   |  |  |  |  
|Militello Limited(19)(20)                                    |  |           |          |  |               |  | *    |           |  |  |           |   |  |           |  | 1 |  |  |  |  
|RC Limited(19)(20)                                           |  |           | 79,236    |  |               |  | *    |           |  |  |           |   |  |           |  | 1 |  |  |  |  
|SLI.com, Inc.(19)(20)                                        |  |           | 489,417   |  |               |  | 2.4  |           |  |  |           |   |  |           |  | 1 |  |  |  |  
|Tower Plus International(19)(20)                             |  |           |          |  |               |  | *    |           |  |  |           |   |  |           |  | 1 |  |  |  |  
|Roberto Vivo-Chaneton(7)(19)(20)                             |  |           | 847,079   |  |               |  | 4.1  |           |  |  |           |   |  |           |  | 1 |  |  |  |  
|Carlos Bardasano(8)                                          |  |           | 5,000     |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Eric C. Neuman(9)                                            |  |           | 7,500     |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Ana Teresa Arismendi                                         |  |           | 400       |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Gabriel Montoya(10)                                          |  |           | 5,865     |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|John A. Gavin(11)                                            |  |           | 5,000     |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Ricardo Verdaguer(12)                                        |  |           | 5,000     |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Frank Feather(13)                                            |  |           | 5,000     |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|José Antonio Rìos(14)                                        |  |           | 5,000     |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Emilio Romano(15)                                            |  |           | 5,000     |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Luis Villanueva                                              |  |           |          |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Marcos Clutterbuck(16)                                       |  |           |          |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Ralph Haiek                                                  |  |           | 92,400    |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|José Antonio Ituarte                                         |  |           | 9,500     |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Roberto Cibrian Campoy(17)(18)(19)                           |  |           | 79,236    |  |               |  | *    |           |  |  |           |   |  |           |  | 1 |  |  |  |  
|Amaya Ariztoy                                                |  |           | 800       |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Mariano Julian Varela                                        |  |           | 2,433     |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|Marcelo Zuniga                                               |  |           |          |  |               |  | *    |           |  |  |           |   |  |           |  |   |  |  |  |  
|All directors and executive officers as a group (18 persons) |  |           | 1,075,213 |  |               |  | 5.2  |           |  |  |           |   |  |           |  |   |  |  |  |  
|Kingdon Capital Management, LLC(20)                          |  |           | 1,023,835 |  |               |  | 5.0  |           |  |  |           |   |  |           |  |   |  |  |  |  






| |   |                       
| | - | ----------------------
| | * | indicates less than 1%



| |     |                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Based on 20,467,664 shares of our Class A common
    shares outstanding as of June 12, 2005 and calculated
    according to Rule 13d-3(d) of the Securities Exchange Act
    of 1934. Under Rule 13d-3(d), shares not outstanding which
    are subject to options, warrants, rights or conversion
    privileges exercisable within 60 days are deemed
    outstanding for the purpose of calculating the

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | number and percentage owned by the holder of the options,
    warrants, rights or conversion privileges but not deemed
    outstanding for the purpose of calculating the percentage owned
    by any other person listed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (2) | Excludes 4,709,769 Class A common shares owned by 1947
    Carlyle Investments LLC, of which 1945 Carlton Investments LLC
    disclaims beneficial ownership. Includes 710,134 Class A
    common shares owned by the estate of Carlos E. Cisneros. Carlos
    E. Cisneros had granted 1945 Carlton Investments LLC and 1947
    Carlyle Investments LLC the right to vote the 710,134
    Class A common shares pursuant to an Irrevocable Proxy and
    Right of First Offer Agreement. 1945 Carlton Investments LLC is
    indirectly owned by a trust established by Gustavo A. Cisneros
    primarily for the benefit of himself and members of his family.
    Gustavo A. Cisneros disclaims beneficial ownership of the shares
    owned by 1947 Carlyle Investments LLC. Both 1945 Carlton
    Investments LLC and 1947 Carlyle Investments LLC are members of
    the Cisneros Group of Companies.      
|
| | (3) | Excludes 4,709,769 Class A common shares owned by 1945
    Carlton Investments LLC, of which 1947 Carlyle Investments LLC
    disclaims beneficial ownership. Includes 710,134 Class A
    common shares owned by the estate of Carlos E. Cisneros. Carlos
    E. Cisneros had granted 1947 Carlyle Investments LLC and 1945
    Carlton Investments LLC the right to vote the 710,134
    Class A common shares pursuant to an Irrevocable Proxy and
    Right of First Offer Agreement. 1947 Carlyle Investments LLC is
    indirectly owned by a trust established by Ricardo J. Cisneros
    primarily for the benefit of himself and members of his family.
    Ricardo J. Cisneros disclaims beneficial ownership of the shares
    to be owned by 1945 Carlton Investments LLC. Both 1947 Carlyle
    Investments LLC and 1945 Carlton Investments LLC are members of
    the Cisneros Group of Companies.
|
| | (4) | Includes 4,709,769 Class A common shares owned by 1947
    Carlyle Investments LLC. Includes 710,134 Class A common
    shares owned by the estate of Carlos E. Cisneros. Carlos E.
    Cisneros had granted 1945 Carlton Investments LLC and 1947
    Carlyle Investments LLC the right to vote the 710,134
    Class A common shares pursuant to an Irrevocable Proxy and
    Right of First Offer Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (5) | Includes 4,709,769 Class A common shares owned by 1945
    Carlton Investments LLC. Includes 710,134 Class A common
    shares owned by the estate of Carlos E. Cisneros. Carlos E.
    Cisneros had granted 1945 Carlton Investments LLC and 1947
    Carlyle Investments LLC the right to vote the 710,134
    Class A common shares pursuant to an Irrevocable Proxy and
    Right of First Offer Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (6) | Includes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



| |   |                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 5,589,525 Class A common shares and 1 Class H Common
    Shares, held of record by Hicks, Muse, Tate & Furst
    Latin America Fund, L.P.;                                                                                                                        
|
| |  | 1,014,813 Class A common shares held of record by Hicks,
    Muse, Tate & Furst Latin America Private Fund, L.P.;                                                                                                                                                 
|
| |  | 830,259 Class A common shares held of record by Davivo
    International Ltd;                                                                                                                                                                                     
|
| |  | 217,360 Class A common shares held of record by HMLA 1-SBS
    Coinvestors, L.P.;                                                                                                                                                                                 
|
| |  | 107,945 Class A common shares held of record by HMTF
    Holdings;                                                                                                                                                                                                
|
| |  | 807 Class A common shares held of record by
    Mr. Hicks; and                                                                                                                                                                                                    
|
| |  | Options to acquire 10,000 Class A common shares granted to
    Mr. Neuman and Mr. Clutterbuck under the Claxson
    2001 Share Incentive Plan, which were assigned by
    Mr. Neuman and Mr. Clutterbuck to Hicks, Muse Co.
    Partners, L.P. on October 7, 2003.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Mr. Hicks is the sole shareholder, director and an
    executive officer of Hicks, Muse, Latin America Fund I
    Incorporated, which is the ultimate general partner of Hicks,
    Muse Tate & Furst Latin America Fund, L.P.; Hicks, Muse
    Tate & Furst Latin America Private Fund, L.P. and HMLA
    1-SBS Coinvestors, L.P. Accordingly, Mr. Hicks may be
    deemed to be the beneficial owner of Class A common shares
    and Series A Preferred Shares held by Hicks, Muse,
    Tate & Furst Latin America Fund, L.P.; Hicks, Muse,
    Tate & Furst Latin America Private Fund, L.P.; and

50



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | HMLA 1  SBS Coinvestors, L.P. John R. Muse,
    Andrew S. Rosen, Joe Colonnetta, Jack D. Furst, Dan H. Blanks,
    Eric C. Neuman, Peter Brodsky and Lyndon Lea are also executive
    officers of Hicks, Muse, Latin America Fund I Incorporated
    and as such may be deemed to share with Mr. Hicks the power
    to vote or dispose of the Class A common shares held by
    Hicks, Muse, Tate & Furst Latin America Fund, L.P.;
    Hicks, Muse, Tate & Furst Latin America Private Fund,
    L.P.; HMLA 1-SBS Coinvestors, L.P.; and HMTF Holdings. Each of
    Messrs. Hicks, Muse, Rosen, Colonnetta, Furst, Blanks,
    Neuman, Brodsky and Lea disclaims the existence of a group and
    disclaims beneficial ownership of Class A common shares not
    owned of record by him.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | Includes 6,250 Class A common shares issued to Sarandi
    Comunicaciones S.A., which is also an affiliate of
    Mr. Vivo-Chaneton. Mr. Vivo-Chaneton disclaims
    beneficial ownership of all shares owned by Sarandi
    Comunicaciones S.A. Includes options to acquire
    185,338 shares of Class A common shares granted to
    Mr. Vivo-Chaneton under the Claxson 2001 Share
    Incentive Plan which are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(8) | Consists of options to acquire 5,000 shares of Class A
    common shares granted to Mr. Bardasano under the Claxson
    2001 Share Incentive Plan which are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(9) | Consists of 7,500 Class A common shares held directly by
    Mr. Neuman. Excludes options to acquire 5,000 shares
    of Class A common shares granted to Mr. Neuman under
    the Claxson 2001 Share Incentive Plan which are currently
    exercisable but were assigned to Hicks, Muse Co. Partners L.P.
    on October 7, 2003. Mr. Neuman is an executive officer
    of Hicks, Muse, Latin America Fund I Incorporated, and
    accordingly may be deemed to be the beneficial owner of
    Class A common shares held by Hicks, Muse, Tate &
    Furst Latin America Fund, L.P.; Hicks, Muse, Tate &
    Furst Latin America Private Fund, L.P., HMLA 1-SBS Coinvestors,
    L.P., and HMTF Holdings. Mr. Neuman disclaims the existence
    of a group and disclaims beneficial ownership of Class A
    common shares not owned of record by him.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes options to acquire 5,000 Class A common shares
    granted to Mr. Montoya under the Claxson 2001 Share
    Incentive Plan which are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(11) | Consists of options to acquire 5,000 Class A common shares
    granted to Mr. Gavin under the Claxson 2001 Share
    Incentive Plan which are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(12) | Consists of options to acquire 5,000 shares of Class A
    common shares granted to Mr. Verdaguer under the Claxson
    2001 Share Incentive Plan which are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|(13) | Consists of options to acquire 5,000 Class A common shares
    granted to Mr. Feather under the Claxson 2001 Share
    Incentive Plan which are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(14) | Consists of options to acquire 5,000 Class A common shares
    granted to Mr. Rios under the Claxson 2001 Share
    Incentive Plan which are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(15) | Consist of options to acquire 5,000 Class A common shares
    granted to Mr. Romano under the Claxson 2001 Share
    Incentive Plan which are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(16) | Excludes options to acquire 5,000 Class A common shares
    granted to Mr. Clutterbuck under the Claxson
    2001 Share Incentive Plan which are exercisable within
    60 days and were assigned to Hicks, Muse Co. Partners L.P.
    on October 7, 2003.                                                                                                                                                                                                                                                                                                                          
|    
|(17) | Includes 79,236 Class A common shares held through RC
    Limited, which is wholly owned by Roberto Cibrian Campoy and his
    wife.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(18) | Certain shareholders entered into an agreement dated as of
    September 21, 2001 (the Holdco Agreement).
    Pursuant to Section 2.1 of the Holdco Agreement, the
    Company will not propose and the board of directors of the
    Company will not approve or recommend, any amendment of the
    Amended and Restated Memorandum of Association or Amended and
    Restated Articles of Association of the Company which materially
    adversely affects the rights of the shareholder under the Holdco
    Agreement, without the prior written consent of the shareholder.

51



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|     |                                                                                                                                                                                                                       
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(19) | Each holder of Class F Common Shares, which is a party to
    the Holdco Agreement, must consult with, and take into account
    the views of Luis H. Moreno, III in exercising the voting
    rights of those shares.
|    
|(20) | Kingdon Capital Management, LLC is the beneficial owner of
    1,023,835 Class A common shares according to a
    Schedule 13G filed by such firm on February 17, 2005.                                               



| |       
| | ------
| | Voting








|   |                           
|-- | --------------------------
|B. | Related Party Transactions













52



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| |   |                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | affiliate sales services for the representation of the Cl@se
    channel in sales to cable operators in Latin America in exchange
    for a 20% sales commission. In June 2004, Claxson ceased to be
    the sales agent for Cl@se and will only provide administrative
    sales support in exchange for a 5% commission based on sales.
|
| |  | certain management services for an annual fee until May 2005;                                                                                                                                                                                                                                                                            
|
| |  | program origination, playback, signal distribution, satellite
    transponder, uplink and other technical services for an annual
    fee until May 2005; and                                                                                                                                                                             
|
| |  | sublease of office space.                                                                                                                                                                                                                                                                                                                

53



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| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the joint provision of a paid, personal listing and matchmaking
    service under the brand Cupido VIP;                                                                                                                                                                             
|
| |  | El Sitios operation of virtual, web-based interactive chat
    rooms to be used by America On Line Latin Americas
    subscribers and general Internet users under the AOL and El
    Sitio brands; and                                                                           
|
| |  | the launch of a new web-based personal listing service, provided
    to general Internet users for a monthly fee, on a subscription
    basis, leveraging the brand Cupido, and combining the databases
    of Amor and Cupido existing services to create a new joint
    database.









54



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55



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##### Table of Contents



















56



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|   |                                 
|-- | --------------------------------
|C. | Interests of Experts and Counsel








|        |                      
|------- | ---------------------
|Item 8. | Financial Information






|   |                                                        
|-- | -------------------------------------------------------
|A. | Consolidated Statements and Other Financial Information





| |                  
| | -----------------
| | Legal Proceedings









57



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| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | request that the Chilean Antitrust General Attorney monitor the
    relevant market to prevent anti-competitive practices;
|
| |  | order the dominant players to seek prior approval for further
    mergers, acquisitions or changes in control;            
|
| |  | order the dominant players to discontinue or avoid activities
    which raise antitrust concerns;                         
|
| |  | order the divestiture of certain assets; and                                                                              
|
| |  | impose fines in Chilean currency up to the equivalent of
    approximately U.S.$480,000.                                  



58



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| |                
| | ---------------
| | Dividend Policy








|   |                    
|-- | -------------------
|B. | Significant Changes








|        |                      
|------- | ---------------------
|Item 9. | The Offer and Listing




A.     Listing Details




| |                
| | ---------------
| | Listing Details



|                               |  |              |        |  |     |       |        | 
|------------------------------ |  | ------------ | ------ |  | --- | ----- | ------ | 
|                               |  | Sales Prices |       
|                               |  |              |       
|Fiscal Year Ended December 31, |  | High         |        |  | Low |      
|                               |  |              |        |  |     |      
|2001                           |  | U.S.$        | 3.2344 |  |     | U.S.$ | 1.4219 | 
|2002                           |  |              | 1.4000 |  |     |       | 0.0600 | 
|2003                           |  |              | 3.0500 |  |     |       | 0.1600 | 
|2004                           |  |              | 6.3500 |  |     |       | 2.5000 | 

|               |  |              |        |  |     |       |        | 
|-------------- |  | ------------ | ------ |  | --- | ----- | ------ | 
|               |  | Sales Prices |       
|               |  |              |       
|               |  | High         |        |  | Low |      
|               |  |              |        |  |     |      
|2003           |  |              |        |  |     |       |        | 
|First Quarter  |  | U.S.$        | 0.2900 |  |     | U.S.$ | 0.2300 | 
|Second Quarter |  |              | 0.5700 |  |     |       | 0.1600 | 
|Third Quarter  |  |              | 1.0000 |  |     |       | 0.3300 | 
|Fourth Quarter |  |              | 3.0500 |  |     |       | 0.5500 | 
|2004           |  |              |        |  |     |       |        | 
|First Quarter  |  | U.S.$        | 6.3500 |  |     | U.S.$ | 2.6000 | 
|Second Quarter |  |              | 5.8000 |  |     |       | 2.5000 | 
|Third Quarter  |  |              | 4.5000 |  |     |       | 2.5500 | 
|Fourth Quarter |  |              | 5.2600 |  |     |       | 3.5000 | 
|2005           |  |              |        |  |     |       |        | 
|First Quarter  |  | U.S.$        | 5.800  |  |     | U.S.$ | 3.4500 | 
|Second Quarter |  |              | 5.500  |  |     |       | 3.7000 | 

59



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|              |  |             |        |  |     |       |        | 
|------------- |  | ----------- | ------ |  | --- | ----- | ------ | 
|              |  | Sale Prices |       
|              |  |             |       
|              |  | High        |        |  | Low |      
|              |  |             |        |  |     |      
|June 2005     |  | U.S.$       | 4.7500 |  |     | U.S.$ | 3.7000 | 
|May 2005      |  |             | 5.5000 |  |     |       | 4.5000 | 
|April 2005    |  |             | 5.0000 |  |     |       | 4.0500 | 
|March 2005    |  |             | 5.8000 |  |     |       | 4.6500 | 
|February 2005 |  |             | 5.4000 |  |     |       | 3.9000 | 
|January 2005  |  |             | 5.0000 |  |     |       | 3.4500 | 




B.     Plan of Distribution







C.     Markets









|   |                     
|-- | --------------------
|D. | Selling Shareholders








|   |         
|-- | --------
|E. | Dilution






F.     Expense of the Issue









|         |                       
|-------- | ----------------------
|Item 10. | Additional Information






|   |              
|-- | -------------
|A. | Share Capital








|   |                                       
|-- | --------------------------------------
|B. | Memorandum and Articles of Association



| |         
| | --------
| | Register





| |                             
| | ----------------------------
| | Corporate Object and Purpose



60



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| |                   
| | ------------------
| | Board of Directors









| |                                                                           
| | --------------------------------------------------------------------------
| | Rights, Preferences and Restrictions Attaching to Each
    Class of Shares



| |          
| | ---------
| | Dividends





| |              
| | -------------
| | Voting Rights





| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | four directors to be designated by 1945 Carlton/1947 Carlyle, as
    the holders of the Class C common shares (Class C
    Group);
|
| |  | one director designated by the El Sitio founders, as the holders
    of the Class F common shares (Class F Group);                
|
| |  | three directors to be designated by Hicks Muse, as the holder of
    the Class H common share (Class H Group); and                
|
| |  | one director elected by a resolution of directors who shall also
    be the chief executive officer of the company.               





| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | when the shareholder owns less than 25% of the outstanding
    common shares, the shareholder would be able to designate two
    directors;

61



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| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | when the shareholder owns less than 15% of outstanding common
    shares, the shareholder could designate one director; and                                              
|
| |  | if the shareholder owns less than 3% of the outstanding common
    shares, the shareholder would not have any right to designate
    directors to our board of directors.







| |                           
| | --------------------------
| | Rights to Share in Profits





| |                                  
| | ---------------------------------
| | Redemption and Liquidation Rights







| |                                                
| | -----------------------------------------------
| | Procedures to Change the Rights of Shareholders





| |                                                     
| | ----------------------------------------------------
| | Ordinary and Extraordinary Shareholders
    Meeting







62



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| |                              
| | -----------------------------
| | Limitations to Own Securities



Differences in Applicable Law




| |                                            
| | -------------------------------------------
| | Enforceability of Certain Civil Liabilities







63



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| |                                       
| | --------------------------------------
| | Availability of Representative Actions








|   |                   
|-- | ------------------
|C. | Material Contracts








|   |                  
|-- | -----------------
|D. | Exchange Controls










|   |         
|-- | --------
|E. | Taxation







| |                                          
| | -----------------------------------------
| | British Virgin Islands Tax Considerations



64



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##### Table of Contents







| |                                       
| | --------------------------------------
| | U.S. Federal Income Tax Considerations





| |   |                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a citizen or resident alien individual of the United States,                                                                                                                                                                                                                                                                                                                        
|
| |  | a corporation (or an entity treated as a corporation) organized
    under the law of the United States, any State thereof or the
    District of Columbia,                                                                                                                                                                                                                          
|
| |  | an estate the income of which is subject to U.S. federal
    income tax without regard to its source or                                                                                                                                                                                                                                                                             
|
| |  | a trust if a court within the United States is able to exercise
    primary supervision over the administration of the trust, and
    one or more United States persons have the authority to control
    all substantial decisions of the trust, or the trust was in
    existence on August 20, 1996 and properly elected to
    continue to be treated as a United States person.





| |                      
| | ---------------------
| | Taxation of Dividends





65



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| |                          
| | -------------------------
| | Taxation of Capital Gains





66



---



##### Table of Contents







| |                                         
| | ----------------------------------------
| | Passive Foreign Investment Company Rules







67



---



##### Table of Contents





de minimis




| |                                   
| | ----------------------------------
| | Foreign Personal Holding Companies





68



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| |                                             
| | --------------------------------------------
| | Information Reporting and Backup Withholding










|   |                            
|-- | ---------------------------
|F. | Dividends and Paying Agents








|   |                     
|-- | --------------------
|G. | Statement by Experts








|   |                     
|-- | --------------------
|H. | Documents on Display

http://www.sec.gov


69



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|   |                       
|-- | ----------------------
|I. | Subsidiary Information








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 11. | Quantitative and Qualitative Disclosures About Market
    Risk



| |             
| | ------------
| | Market Risks





| |                          
| | -------------------------
| | Interest Rate Sensitivity





70



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| |                    
| | -------------------
| | Twelve Months Ended

|                              |  |                                                   |       |   |      |  |       |      |  |  |       |   |  |      |        |   |      |  |        |      |  |      |        |   |  |      |   |  |       |  |       |       |  |  |       |   |  |  |        |  |  |  |        | 
|----------------------------- |  | ------------------------------------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | - |  | ---- | ------ | - | ---- |  | ------ | ---- |  | ---- | ------ | - |  | ---- | - |  | ----- |  | ----- | ----- |  |  | ----- | - |  |  | ------ |  |  |  | ------ | 
|                              |  |                                                   |       |   |      |  |       |      |  |  |       |   |  |      |        |   |      |  |        |      |  | Fair |       
|December 31,                  |  | 2005                                              |       |   | 2006 |  |       | 2007 |  |  | 2008  |   |  | 2009 |        |   | 2010 |  |        | 2011 |  |      | 2012   |   |  | 2013 |   |  | Total |  |       | Value | 
|                              |  |                                                   |       |   |      |  |       |      |  |  |       |   |  |      |        |   |      |  |        |      |  |      |        |   |  |      |   |  |       |  |       |       | 
|                              |  | (in thousands of U.S. dollars except percentages) |      
|Long-Term Debt:               |  |                                                   |       |   |      |  |       |      |  |  |       |   |  |      |        |   |      |  |        |      |  |      |        |   |  |      |   |  |       |  |       |       |  |  |       |   |  |  |        |  |  |  |        | 
|8.75% Senior Notes due 2010   |  |                                                   |      |   |      |  | 2,068 |      |  |  | 6,203 |   |  |      | 10,338 |   |      |  | 10,338 |      |  |      | 12,406 |   |  |      |  |  |       |  |      |       |  |  |      |   |  |  | 41,353 |  |  |  | 36,804 | 
|Fixed U.S. Rate               |  |                                                   |       |   |      |  | 8.75  | %    |  |  | 8.75  | % |  |      | 8.75   | % |      |  | 8.75   | %    |  |      | 8.75   | % |  |      |  |  |       |  |      |       |  |  |      |   |  |  |       |  |  |  |        | 
|Syndicated Bank Facility      |  |                                                   | 2,392 |   |      |  | 3,417 |      |  |  | 3,417 |   |  |      | 3,417  |   |      |  | 3,761  |      |  |      |       |   |  |      |  |  |       |  |      |       |  |  |      |   |  |  | 16,404 |  |  |  | N/A    | 
|Average interest rate         |  |                                                   | 3.58  | % |      |  | 3.58  | %    |  |  | 3.58  | % |  |      | 3.58   | % |      |  | 3.58   | %    |  |      |       |   |  |      |  |  |       |  |      |       |  |  |      |   |  |  |       |  |  |  |        | 
|Convertible Debentures        |  |                                                   |      |   |      |  | 3,500 |      |  |  |      |   |  |      |       |   |      |  |       |      |  |      |       |   |  |      |  |  |       |  |      |       |  |  |      |   |  |  | 3,500  |  |  |  | N/A    | 
|Fixed U.S. Rate               |  |                                                   |      |   |      |  | 8.25  | %    |  |  |      |   |  |      |       |   |      |  |       |      |  |      |       |   |  |      |  |  |       |  |      |       |  |  |      |   |  |  |       |  |  |  |        | 
|6.25% Senior Notes due 2013   |  |                                                   |      |   |      |  |      |      |  |  |      |   |  |      |       |   |      |  |       |      |  |      |       |   |  |      |  |  |       |  | 1,150 |       |  |  | 1,150 |   |  |  | 2,300  |  |  |  | N/A    | 
|Fixed U.S. Rate               |  |                                                   |      |   |      |  |      |      |  |  |      |   |  |      |       |   |      |  |       |      |  |      |       |   |  |      |  |  |       |  | 6.25  | %     |  |  | 6.25  | % |  |  |        |  |  |  |        | 
|11% Senior Notes due 2005(1)  |  |                                                   | 306   |   |      |  |      |      |  |  |      |   |  |      |       |   |      |  |       |      |  |      |       |   |  |      |  |  |       |  |      |       |  |  |      |   |  |  | 306    |  |  |  | 150    | 
|Fixed U.S. Rate               |  |                                                   | 11.0  | % |      |  |      |      |  |  |      |   |  |      |       |   |      |  |       |      |  |      |       |   |  |      |  |  |       |  |      |       |  |  |      |   |  |  |       |  |  |  |        | 
|Other                         |  |                                                   | 1,473 |   |      |  | 1,113 |      |  |  | 986   |   |  |      | 571    |   |      |  | 386    |      |  |      | 20     |   |  |      | 3 |  |       |  |      |       |  |  |      |   |  |  | 4,552  |  |  |  | N/A    | 
|Average interest rate (range) |  |                                                   | 9     | % |      |  | 9     | %    |  |  | 9     | % |  |      | 9      | % |      |  | 5      | %    |  |      |        |   |  |      |   |  |       |  |       |       |  |  |       |   |  |  |        |  |  |  |        | 

Notes:




|    |                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | There is no market for these securities. Fair value is estimated
    based on a conversion of 55% of the fair price of the
    8.75% Senior Notes due 2010, which represents the
    conversion rate at the time of exchange offer and consent
    solicitation.



| |                          
| | -------------------------
| | Exchange Rate Sensitivity







71



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Monetary Assets and Liabilities Exposure


As of December 31, 2004


|          |  |                                |       |  |             |   |        |          |  |   |         |  
|--------- |  | ------------------------------ | ----- |  | ----------- | - | ------ | -------- |  | - | ------- | -
|          |  | Monetary                       |       |  | Monetary    |   |        | Net      | 
|Country   |  | Assets                         |       |  | Liabilities |   |        | Exposure | 
|          |  |                                |       |  |             |   |        |          | 
|          |  | (In thousands of U.S. dollars) |      
|Argentina |  | $                              | 3,182 |  |             | $ | 11,975 |          |  | $ | (8,793  | )
|Chile     |  |                                | 566   |  |             |   | 5,194  |          |  |   | (4,628  | )
|Other(1)  |  |                                | 2,885 |  |             |   | 2,144  |          |  |   | 741     |  
|          |  |                                |       |  |             |   |        |          | 
|Total     |  | $                              | 6,633 |  |             | $ | 19,313 |          |  | $ | (12,680 | )






|    |                                                
|--- | -----------------------------------------------
|(1) | Primarily represents Brazil, Spain and Uruguay.










|         |                                                           
|-------- | ----------------------------------------------------------
|Item 12. | Description of Securities Other than Equity
    Securities






PART II







|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Defaults, Dividend Arrearages and Delinquencies



72



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|         |                                                                                 
|-------- | --------------------------------------------------------------------------------
|Item 14. | Material Modifications to the Rights of Security Holders
    and Use of Proceeds








|         |                        
|-------- | -----------------------
|Item 15. | Controls and Procedures



| |                                                 
| | ------------------------------------------------
| | Evaluation of Disclosure Controls and Procedures







| |                                                         
| | --------------------------------------------------------
| | Changes in Internal Control Over Financial
    Reporting






Item 16.







|   |                                 
|-- | --------------------------------
|A. | Audit Committee Financial Expert








|   |               
|-- | --------------
|B. | Code of Ethics



73



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|   |                                       
|-- | --------------------------------------
|C. | Principal Accountant Fees and Services



|                    |  |                  |     |  |      |   |     | 
|------------------- |  | ---------------- | --- |  | ---- | - | --- | 
|                    |  | Amount of Fees   |    
|                    |  |                  |    
|Description of Fees |  | 2004             |     |  | 2003 |  
|                    |  |                  |     |  |      |  
|                    |  | (In thousands    |    
|                    |  | of U.S. dollars) |    
|Audit Fees          |  | $                | 493 |  |      | $ | 611 | 
|Audit-Related Fees  |  |                  | 52  |  |      |   | 29  | 
|Tax Fees            |  |                  | 257 |  |      |   | 240 | 
|All Other Fees      |  |                  |    |  |      |   |    | 
|Total               |  | $                | 802 |  |      | $ | 880 | 

Audit Fees


Audit-Related Fees


Tax Fees


Other Fees







|   |                                                           
|-- | ----------------------------------------------------------
|D. | Exemptions from the Listing Standards for Audit Committees








|   |                                                                           
|-- | --------------------------------------------------------------------------
|E. | Purchases of Equity Securities by the Issuer and Affiliated
    Purchasers






PART III







|         |                     
|-------- | --------------------
|Item 17. | Financial Statements








|         |                     
|-------- | --------------------
|Item 18. | Financial Statements








|         |         
|-------- | --------
|Item 19. | Exhibits

|    |  |                                                                                    |  |  |     | 
|--- |  | ---------------------------------------------------------------------------------- |  |  | --- | 
|(a) |  | Index to Financial Statements.                                                     |  |  |     | 
|    |  | Report of Deloitte & Touche LLP for Claxson Interactive
    Group and Subsidiaries |  |  | F-3 | 
|(b) |  | List of Exhibits                                                                   |  |  |     | 

74



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##### Table of Contents



|        |   |                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | - | ------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                         
|Number  |   | Description of Documents
|        |   |                         
|        | 1 | .1                       |  | Amended and Restated Memorandum of Association of Claxson
    Interactive Group Inc. (incorporated herein by reference to the
    Registration Statement on Form F-4/A (No. 333-13062) filed
    with the Commission on August 15, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        | 1 | .2                       |  | Amended and Restated Articles of Association of Claxson
    Interactive Group Inc. (incorporated herein by reference to the
    Registration Statement on Form F-4/A (No. 333-13062) filed
    with the Commission on August 15, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 2 | .1                       |  | Combination Agreement, dated as of October 30, 2000, by and
    among Claxson Interactive Group Inc. (formerly, New Site Inc.),
    Newhaven Overseas Corp., Hicks, Muse, Tate & Furst
    Latin America Fund, L.P., Hicks, Muse, Tate and Furst Latin
    America Private Fund, L.P.; HMLA 1-SBS Coinvestors, L.P., and El
    Sitio, Inc. (included as Annex A-1 to the proxy statement/
    prospectus forming a part of the Registration Statement on
    Form F-4 (No. 333-13062) filed with the Commission on
    August 17, 2001 which is incorporated herein by reference).                                                                                                                                                                            
|       
|        | 2 | .2                       |  | Amendment No. 1 to Combination Agreement, dated as of
    June 26, 2001, by and among Claxson Interactive Group Inc.,
    formerly known as New Site Inc., Carlyle Investments LLC and
    Carlton Investments LLC, Ibero-American Media Partners II
    Ltd., Hicks, Muse, Tate & Furst Latin America Fund,
    L.P., Hicks, Muse, Tate & Furst Latin America Private
    Fund, L.P., HMLA 1-SBS Coinvestors, L.P. and El Sitio, Inc.
    (included as Annex A-2 to the proxy statement/ prospectus
    forming a part of the Registration Statement on Form F-4
    (No. 333-13062) filed with the Commission on August 17,
    2001 which is incorporated herein by reference).                                                                             
|       
|        | 2 | .3                       |  | Amendment No. 2 to Combination Agreement, dated as of
    August 7, 2001, by and among Claxson Interactive Group
    Inc., formerly known as New Site Inc., Carlyle Investments LLC
    and Carlton Investments LLC, Ibero-American Media
    Partners II Ltd., Hicks, Muse, Tate & Furst Latin
    America Fund, L.P., Hicks, Muse, Tate & Furst Latin
    America Private Fund, L.P., HMLA 1-SBS Coinvestors, L.P. and El
    Sitio, Inc. (included as Annex A-3 to the proxy statement/
    prospectus forming a part of the Registration Statement on
    Form F-4 (No. 333-13062) filed with the Commission on
    August 17, 2001 which is incorporated herein by reference).                                                                            
|       
|        | 2 | .4                       |  | Indenture, dated as of April 4, 1998, among IMASAC S.A. and
    Imagen Satelital, S.A. (as guarantor), The Bank of New
    York, Banco Rio de la Plata S.A. and Banque International a
    Luxembourg (incorporated herein by reference to the Registration
    Statement on Form F-4/A (No. 333-13062) as filed with the
    Commission on February 26, 2001).                                                                                                                                                                                                                                                                                                                                                                                                
|       
|        | 2 | .5                       |  | Indenture, dated as of November 7, 2002, among Claxon
    Interactive Group, Inc., Imagen Satelital, S.A. (as guarantor),
    The Bank of New York and Banco Río de la Plata S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       
|        | 3 | .1                       |  | Holdco Agreement, dated September 21, 2001, by and among
    1947 PTVI, LLC, 1945 PTVI, LLC, Hicks, Muse, Tate &
    Furst Latin America Fund, L.P., Hicks, Muse, Tate &
    Furst Latin America Private Fund, L.P., HMLA 1-SBS Coinvestors,
    L.P., Certain Claxson Interactive Group, Inc. Stockholders and
    Claxson Interactive Group, Inc.                                                                                                                                                                                                                                                                                                                                                                                                            
|       
|        | 4 | .1                       |  | Transfer Agreement, dated as of December 23, 2002, by and
    among Playboy Enterprises, Inc., Playboy Entertainment Group,
    Inc., Playboy Enterprises International, Inc., Claxson
    Interactive Group Inc., Carlyle Investments LLC (in its own
    right and as a successor in interest to Victoria Springs
    Investments Ltd.), Carlton Investments LLC (in its own right and
    as a successor in interest to Victoria Springs Investments
    Ltd.), Lifford International Co. Ltd. and Playboy TV
    International, LLC (incorporated herein by reference to
    Form 6-K (No. 035-22883) filed with the Commission on
    January 23, 2003). Claxson agrees to furnish supplementally
    any omitted schedule to the Commission upon request.
|       
|        | 4 | .2                       |  | Full-Time Transponder Lease Agreement, dated October 22,
    1997, by and between PanAmSat International Systems, Inc. and
    Cisneros Television Services, Inc. (incorporated herein by
    reference to the Registration Statement on Form F-4/A (No.
    333-13062) as filed with the Commission on April 26, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       
|        | 4 | .3                       |  | First Amendment to Full-Time Transponder Lease Agreement (Pre
    Launch), dated as of July 31, 2000, by and between PanAmSat
    International Systems, Inc. and Cisneros Television Services,
    Inc. (incorporated herein by reference to the Registration
    Statement on Form F-4/A (No. 333-13062) as filed with the
    Commission on April 26, 2001).                                                                                                                                                                                                                                                                                                                                                                                                
|       
|        | 4 | .4                       |  | Letter Agreement Re: Full-Time Transponder Lease Agreement,
    dated as of May 1, 1998, by and between PanAmSat
    International Systems, Inc. and Cisneros Television Services,
    Inc. (incorporated herein by reference to the Registration
    Statement on Form F-4/A (No. 333-13062) as filed with the
    Commission on April 26, 2001).                                                                                                                                                                                                                                                                                                                                                                                                             

75



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|        |    |                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                         
|Number  |    | Description of Documents
|        |    |                         
|       
|        | 4  | .5                       |  | First Amendment to Full-Time Transponder Lease Agreement, dated
    as of July 31, 1998, by and between PanAmSat International
    Systems, Inc. and Cisneros Television Services, Inc.
    (incorporated herein by reference to the Registration Statement
    on Form F-4/A (No. 333-13062) as filed with the Commission
    on April 26, 2001).                                                                                                    
|       
|        | 4  | .6                       |  | Letter Agreement Re: First Amendment to the Full-Time
    Transponder Lease Agreement, dated July 31, 2000, by and
    between PanAmSat International Systems, Inc. and Cisneros
    Television Services, Inc. (incorporated herein by reference to
    the Registration Statement on Form F-4/A (No. 333-13062) as
    filed with the Commission on April 26, 2001).                                                                                 
|       
|        | 4  | .7                       |  | Letter Agreement Re: Full-Time Transponder Lease Agreement, as
    amended (dated October 22, 1997), Full-Time Transfer Lease
    Agreement, as amended (dated May 1, 1998) and Letter
    Agreement for Retransmission Services, as amended (dated
    October 17, 1997), dated as of April 3, 2003, by and
    between PanAmSat International Systems, Inc. and Claxon USA
    Inc., formerly known as Cisneros Television Services, Inc.           
|       
|        | 4  | .8                       |  | Claxson Interactive Group Inc. 2001 Share Incentive Plan
    (included as Annex E to the proxy statement/ prospectus
    forming a part of the Registration Statement on Form F-4
    (No. 333-13062 filed with the Commission on August 17, 2001
    which is incorporated herein by reference).                                                                                                                                                     
|       
|        | *4 | .9                       |  | Second Amended and Restated Operating Agreement for Playboy
    TV  Latin America, LLC, effective as of April 1,
    2002, by and between Playboy Entertainment Group, Inc. and
    Lifford International Co. Ltd. (incorporated herein by reference
    to Form 6-K (No. 035-22883) filed with the Commission on
    January 23, 2002). Claxson agrees to furnish supplementary
    any omitted schedule to the Commission upon request.            
|       
|        | *4 | .10                      |  | Playboy TV  Latin America Program Supply and
    Trademark License Agreement, dated December 23, 2002, by
    and between Playboy Entertainment Group, Inc. and Playboy
    TV  Latin America, LLC (incorporated herein by
    reference to Form 6-K (No. 035-22883) filed with the
    Commission on January 23, 2003). Claxson agrees to furnish
    supplementally any omitted schedule to the Commission upon
    request.                      
|       
|        | *4 | .11                      |  | Venus Contribution Agreement, dated as of December 23,
    2002, by and among Claxson Interactive Group Inc., Lifford
    International Co. Ltd, Playboy TV  Latin America, LLC
    and Playboy Entertainment Group, Inc. (incorporated herein by
    reference to Form 6-K (No. 035-22883) filed with the
    Commission on January 23, 2003). Claxson agrees to furnish
    supplementally any omitted schedule to the Commission upon
    request.
|       
|        | 4  | .12                      |  | Playboy TV International Program Supply Agreement, dated as of
    August 31, 1999 by and among Playboy Entertainment Group,
    Inc., Playboy TV International LLC and PTVLA U.S., LLC
    (incorporated herein by reference to the Registration Statement
    on Form F-4/A (No. 333-13062) as filed with the Commission
    on April 26, 2001).                                                                                                    
|       
|        | 4  | .13                      |  | Amendment No. 1 to the Playboy TV International Program
    Supply Agreement, dated as of December 22, 2002, by and
    among Playboy Entertainment Group, Inc., Playboy TV
    International LLC and PTVLA U.S., LLC (incorporated herein by
    reference to Form 6-K (No. 035-22883) filed with the
    Commission on January 23, 2003).                                                                                                           
|       
|        | 8  | .1                       |  | List of Significant Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        | 11 | .1                       |  | Claxson Interactive Group Inc. Code of Business Conduct and
    Ethics (incorporated herein by reference to Exhibit 11.1 to
    Form 20-F filed with the Commission on July 15, 2004).                                                                                                                                                                                                                                                                
|       
|        | 12 | .1                       |  | Certification of Claxon Interactive Group Inc.s Chief
    Executive Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                           
|       
|        | 12 | .2                       |  | Certification of Claxon Interactive Group Inc.s Chief
    Financial Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                           
|       
|        | 13 | .1                       |  | Certification of Claxson Interactive Group Inc.s Chief
    Executive Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                          
|       
|        | 13 | .2                       |  | Certification of Claxson Interactive Group Inc.s Chief
    Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                          
|       
|        | 15 | .1                       |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                                                                                                     






|  |                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Portions of this exhibit have been omitted and filed separately
    with the Commission pursuant to Rule 24b-2 of the
    Securities Exchange Act of 1934, as amended, requesting
    confidential treatment.

76



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##### Table of Contents



SIGNATURES




|                    |  |                                                                                                                                           
|------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|                    |  | /s/ Roberto Vivo-Chaneton                                                                                                                 
|                    |  | -----------------------------------------------------
    Name: Roberto Vivo-Chaneton
    Title:   Chief Executive Officer and Chairman of
|Date: July 15, 2005 |  | the Board                                                                                                                                 
|                   
|                    |  | /s/ Jose Antonio Ituarte                                                                                                                  
|                    |  | -----------------------------------------------------
    Name: Jose Antonio Ituarte                                                      
|Date: July 15, 2005 |  | Title:   Chief Financial Officer                                                                                                          

77



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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS


|                                                                                         |  |  |     | 
|---------------------------------------------------------------------------------------- |  |  | --- | 
|Consolidated Financial Statements of Claxson Interactive Group
    Inc. and subsidiaries |  |  | F-3 | 

F-1



---



##### Table of Contents



[This Page Intentionally Left Blank]


F-2



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














Goodwill
and other Intangible Assets










F-3



---



##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


As of December 31, 2003 and 2004


(In thousands of U.S. dollars except share and per share
data)


|                                                                                                                                                                                         |                                                   |                             |          |        |        |   |          |        |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | --------------------------- | -------- | ------ | ------ | - | -------- | ------ | ------ | 
|                                                                                                                                                                                         |                                                   | 2003                        |          |        | 2004   |  
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|ASSETS                                                                                                                                                                                  
|CURRENT ASSETS:                                                                                                                                                                          |                                                   |                             |          |        |        |   |          |       
|                                                                                                                                                                                         | Cash and cash equivalents                         |                             | $        | 7,677  |        |   | $        | 7,270  |       
|                                                                                                                                                                                         | Restricted investments                            |                             |          | 213    |        |   |          |       |       
|                                                                                                                                                                                         | Accounts receivable, net                          |                             |          | 19,684 |        |   |          | 15,863 |       
|                                                                                                                                                                                         | Due from related parties                          |                             |          | 5,330  |        |   |          | 7,851  |       
|                                                                                                                                                                                         | Assets held for sale                              |                             |          | 17,476 |        |   |          | 24,584 |       
|                                                                                                                                                                                         | Other current assets                              |                             |          | 7,152  |        |   |          | 8,698  |       
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|                                                                                                                                                                                         |                                                   | Total current assets        |          |        | 57,532 |   |          |        | 64,266 | 
|RESTRICTED INVESTMENTS                                                                                                                                                                   |                                                   |                             | 750      |        |        |   |         |       
|PROPERTY AND EQUIPMENT, NET                                                                                                                                                              |                                                   |                             | 13,216   |        |        |   | 11,367   |       
|PROGRAMMING RIGHTS, NET                                                                                                                                                                  |                                                   |                             | 2,372    |        |        |   | 4,028    |       
|INVESTMENTS IN UNCONSOLIDATED AFFILIATES                                                                                                                                                 |                                                   |                             | 821      |        |        |   | 3,407    |       
|INVESTMENTS IN DEBT AND EQUITY SECURITIES                                                                                                                                                |                                                   |                             | 54       |        |        |   | 54       |       
|BROADCAST AND TELEVISION LICENSES, NET                                                                                                                                                   |                                                   |                             | 16,849   |        |        |   | 16,722   |       
|GOODWILL, NET                                                                                                                                                                            |                                                   |                             | 49,524   |        |        |   | 51,021   |       
|OTHER ASSETS, NET                                                                                                                                                                        |                                                   |                             | 4,221    |        |        |   | 5,650    |       
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|TOTAL ASSETS                                                                                                                                                                             |                                                   | $                           | 145,339  |        |        | $ | 156,515  |       
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|                                                                                                                                                                                        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                    
|CURRENT LIABILITIES:                                                                                                                                                                     |                                                   |                             |          |        |        |   |          |       
|                                                                                                                                                                                         | Accounts payable and accrued expenses             |                             | $        | 8,680  |        |   | $        | 8,469  |       
|                                                                                                                                                                                         | Liabilities related to assets held for sale       |                             |          | 14,198 |        |   |          | 14,752 |       
|                                                                                                                                                                                         | Due to related parties                            |                             |          | 2,326  |        |   |          | 1,768  |       
|                                                                                                                                                                                         | Accrued compensation                              |                             |          | 2,641  |        |   |          | 2,914  |       
|                                                                                                                                                                                         | Other current liabilities                         |                             |          | 9,402  |        |   |          | 9,233  |       
|                                                                                                                                                                                         | Current portion of programming rights obligations |                             |          | 5,989  |        |   |          | 5,332  |       
|                                                                                                                                                                                         | Current portion of long-term debt                 |                             |          | 11,495 |        |   |          | 8,172  |       
|                                                                                                                                                                                         | Unearned revenues                                 |                             |          | 2,125  |        |   |          | 2,235  |       
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|                                                                                                                                                                                         |                                                   | Total current liabilities   |          |        | 56,856 |   |          |        | 52,875 | 
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|LONG-TERM LIABILITIES:                                                                                                                                                                   |                                                   |                             |          |        |        |   |          |       
|                                                                                                                                                                                         | Long-term debt, net of current portion            |                             |          | 74,373 |        |   |          | 77,680 |       
|                                                                                                                                                                                         | Other long-term liabilities                       |                             |          | 2,989  |        |   |          | 2,795  |       
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|                                                                                                                                                                                         |                                                   | Total long-term liabilities |          |        | 77,362 |   |          |        | 80,475 | 
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|MINORITY INTEREST                                                                                                                                                                        |                                                   |                             | 1,128    |        |        |   | 562      |       
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|COMMITMENTS AND CONTINGENCIES (Note 11)                                                                                                                                                  |                                                   |                             |          |        |        |   |          |       
|SHAREHOLDERS EQUITY:                                                                                                                                                                    |                                                   |                             |          |        |        |   |          |       
|Class A common shares; $0.01 par value;
    30,000,000 shares authorized, 19,427,993 and
    20,312,674 shares issued and outstanding as of
    December 31, 2003 and 2004, respectively |                                                   |                             | 195      |        |        |   | 204      |       
|Class C common shares; $1.00 par value; 2 shares
    authorized, issued and outstanding as of December 31, 2003
    and 2004                                                             |                                                   |                             |         |        |        |   |         |       
|Class F common shares; $1.00 par value; 7 shares
    authorized, issued and outstanding as of December 31, 2003
    and 2004                                                             |                                                   |                             |         |        |        |   |         |       
|Class H common shares; $1.00 par value; 1 share
    authorized, issued and outstanding as of December 31, 2003
    and 2004                                                              |                                                   |                             |         |        |        |   |         |       
|Additional paid-in capital                                                                                                                                                               |                                                   |                             | 261,584  |        |        |   | 265,136  |       
|Deferred share-based compensation                                                                                                                                                        |                                                   |                             | (14      | )      |        |   | (74      | )     
|Accumulated deficit                                                                                                                                                                      |                                                   |                             | (260,225 | )      |        |   | (253,535 | )     
|Accumulated other comprehensive income                                                                                                                                                   |                                                   |                             | 8,453    |        |        |   | 10,872   |       
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|Total shareholders equity                                                                                                                                                               |                                                   |                             | 9,993    |        |        |   | 22,603   |       
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                               |                                                   | $                           | 145,339  |        |        | $ | 156,515  |       
|                                                                                                                                                                                         |                                                   |                             |          |        |        |  



F-4



---



##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
(LOSS) INCOME


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars, except per share data)


|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |        |        |        |        |        |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------- | ------------------- | ------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | 
|                                                                                                                                                            |                                                                                                         | 2002    |                     |         | 2003   |        |        | 2004   |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|REVENUES:                                                                                                                                                   |                                                                                                         |         |                     |         |        |        |        |        |        |        |        |       
|                                                                                                                                                            | Subscriber-based fees                                                                                   |         | $                   | 31,566  |        |        | $      | 38,932 |        |        | $      | 40,052 |       
|                                                                                                                                                            | Advertising                                                                                             |         |                     | 15,551  |        |        |        | 18,531 |        |        |        | 23,339 |       
|                                                                                                                                                            | Production services                                                                                     |         |                     | 7,081   |        |        |        | 3,051  |        |        |        | 3,233  |       
|                                                                                                                                                            | Other                                                                                                   |         |                     | 5,766   |        |        |        | 2,480  |        |        |        | 1,560  |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|                                                                                                                                                            |                                                                                                         |         | Total revenues, net |         |        | 59,964 |        |        |        | 62,994 |        |        |        | 68,184 | 
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|OPERATING EXPENSES:                                                                                                                                         |                                                                                                         |         |                     |         |        |        |        |        |        |        |        |       
|                                                                                                                                                            | Product, content and technology                                                                         |         |                     | 22,533  |        |        |        | 24,211 |        |        |        | 29,292 |       
|                                                                                                                                                            | Marketing and sales                                                                                     |         |                     | 10,796  |        |        |        | 9,300  |        |        |        | 12,874 |       
|                                                                                                                                                            | Corporate and administration                                                                            |         |                     | 15,334  |        |        |        | 16,613 |        |        |        | 14,806 |       
|                                                                                                                                                            | Depreciation and amortization                                                                           |         |                     | 11,393  |        |        |        | 5,045  |        |        |        | 4,910  |       
|                                                                                                                                                            | Impairment of goodwill                                                                                  |         |                     |        |        |        |        | 2,758  |        |        |        |       |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|                                                                                                                                                            | Total operating expenses                                                                                |         |                     | 60,056  |        |        |        | 57,927 |        |        |        | 61,882 |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|OPERATING (LOSS) INCOME                                                                                                                                     |                                                                                                         |         | (92                 | )       |        |        | 5,067  |        |        |        | 6,302  |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|OTHER (EXPENSE) INCOME:                                                                                                                                     |                                                                                                         |         |                     |         |        |        |        |        |        |        |        |       
|                                                                                                                                                            | Interest expense                                                                                        |         |                     | (12,218 | )      |        |        | (2,046 | )      |        |        | (1,907 | )     
|                                                                                                                                                            | Interest income                                                                                         |         |                     | 748     |        |        |        | 136    |        |        |        | 132    |       
|                                                                                                                                                            | Gain on debt restructuring                                                                              |         |                     | 15,274  |        |        |        |       |        |        |        |       |       
|                                                                                                                                                            | Foreign currency exchange (loss) gain                                                                   |         |                     | (60,506 | )      |        |        | 8,478  |        |        |        | (175   | )     
|                                                                                                                                                            | Other                                                                                                   |         |                     | 2,450   |        |        |        | (1,462 | )      |        |        | 637    |       
|                                                                                                                                                            | Equity in earnings (losses) from unconsolidated affiliates and
    related transactions                 |         |                     | (6,746  | )      |        |        | 367    |        |        |        | 245    |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|                                                                                                                                                            | Other (expense) income, net                                                                             |         |                     | (60,998 | )      |        |        | 5,473  |        |        |        | (1,068 | )     
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES, MINORITY
    INTEREST, CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
    AND DISCONTINUED OPERATIONS |                                                                                                         |         | (61,090             | )       |        |        | 10,540 |        |        |        | 5,234  |       
|PROVISION FOR INCOME TAXES                                                                                                                                  |                                                                                                         |         | (215                | )       |        |        | (2,911 | )      |        |        | (1,861 | )     
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|(LOSS) INCOME BEFORE MINORITY INTEREST, CUMULATIVE EFFECT OF
    CHANGE IN ACCOUNTING PRINCIPLE AND DISCONTINUED OPERATIONS                                 |                                                                                                         |         | (61,305             | )       |        |        | 7,629  |        |        |        | 3,373  |       
|MINORITY INTEREST                                                                                                                                           |                                                                                                         |         | 68                  |         |        |        | 46     |        |        |        | 267    |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
    PRINCIPLE AND DISCONTINUED OPERATIONS                                                    |                                                                                                         |         | (61,237             | )       |        |        | 7,675  |        |        |        | 3,640  |       
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                                                                                         |                                                                                                         |         | (74,789             | )       |        |        |       |        |        |        |       |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|NET (LOSS) INCOME FROM CONTINUING OPERATIONS                                                                                                                |                                                                                                         |         | (136,026            | )       |        |        | 7,675  |        |        |        | 3,640  |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|DISCONTINUED OPERATIONS  (Loss) income from
    operations of discontinued division, net (Note 3)                                                          |                                                                                                         |         | (2,403              | )       |        |        | 662    |        |        |        | 3,050  |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|NET (LOSS) INCOME                                                                                                                                           |                                                                                                         |         | (138,429            | )       |        |        | 8,337  |        |        |        | 6,690  |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|OTHER COMPREHENSIVE (LOSS) INCOME:                                                                                                                          |                                                                                                         |         |                     |         |        |        |        |        |        |        |        |       
|                                                                                                                                                            | Unrealized gain (loss) from investment in equity securities                                             |         |                     | (2,400  | )      |        |        | (394   | )      |        |        |       |       
|                                                                                                                                                            | Foreign currency translation                                                                            |         |                     | 41,198  |        |        |        | (1,194 | )      |        |        | 2,419  |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|                                                                                                                                                            | Other comprehensive income (loss), net                                                                  |         |                     | 38,798  |        |        |        | (1,588 | )      |        |        | 2,419  |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|COMPREHENSIVE (LOSS) INCOME                                                                                                                                 |                                                                                                         | $       | (99,631             | )       |        | $      | 6,749  |        |        | $      | 9,109  |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|NET (LOSS) INCOME PER COMMON SHARE:                                                                                                                         |                                                                                                         |         |                     |         |        |        |        |        |        |        |        |       
|                                                                                                                                                            | (Loss) income from continuing operations before cumulative
    effect of change in accounting principle |         |                     |         |        |        |        |        |        |        |        |        |       
|                                                                                                                                                            |                                                                                                         | Basic   |                     | $       | (3.28  | )      |        | $      | 0.41   |        |        | $      | 0.19   |       
|                                                                                                                                                            |                                                                                                         | Diluted |                     | $       | (3.28  | )      |        | $      | 0.41   |        |        | $      | 0.18   |       
|                                                                                                                                                            | Cumulative effect of change in accounting principle (Basic and
    Diluted)                             |         | $                   | (4.00   | )      |        |        | N/A    |        |        |        | N/A    |       
|                                                                                                                                                            | Net (loss) income from continuing operations                                                            |         |                     |         |        |        |        |        |        |        |        |        |       
|                                                                                                                                                            |                                                                                                         | Basic   |                     | $       | (7.28  | )      |        | $      | 0.41   |        |        | $      | 0.19   |       
|                                                                                                                                                            |                                                                                                         | Diluted |                     | $       | (7.28  | )      |        | $      | 0.41   |        |        | $      | 0.18   |       
|                                                                                                                                                            | Discontinued operations                                                                                 |         |                     |         |        |        |        |        |        |        |        |        |       
|                                                                                                                                                            |                                                                                                         | Basic   |                     | $       | (0.13  | )      |        | $      | 0.03   |        |        | $      | 0.15   |       
|                                                                                                                                                            |                                                                                                         | Diluted |                     | $       | (0.13  | )      |        | $      | 0.03   |        |        | $      | 0.15   |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|                                                                                                                                                            | Net (loss) income                                                                                       |         |                     |         |        |        |        |        |        |        |        |        |       
|                                                                                                                                                            |                                                                                                         | Basic   |                     | $       | (7.41  | )      |        | $      | 0.44   |        |        | $      | 0.34   |       
|                                                                                                                                                            |                                                                                                         | Diluted |                     | $       | (7.41  | )      |        | $      | 0.44   |        |        | $      | 0.33   |       
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES:                                                                                                                   |                                                                                                         |         |                     |         |        |        |        |        |        |        |        |       
|                                                                                                                                                            |                                                                                                         | Basic   |                     |         | 18,678 |        |        |        | 18,886 |        |        |        | 19,611 |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       
|                                                                                                                                                            |                                                                                                         | Diluted |                     |         | 18,678 |        |        |        | 18,980 |        |        |        | 20,490 |       
|                                                                                                                                                            |                                                                                                         |         |                     |         |        |        |        |        |       



F-5



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)


|                           |                                                            |           |        |         |        |   |        |         |   |            |        |         |          |         |             |             |              |             |         |         |             |   |        |      |   |       |          |          |   |   |         |        |   |   |         |          |  
|-------------------------- | ---------------------------------------------------------- | --------- | ------ | ------- | ------ | - | ------ | ------- | - | ---------- | ------ | ------- | -------- | ------- | ----------- | ----------- | ------------ | ----------- | ------- | ------- | ----------- | - | ------ | ---- | - | ----- | -------- | -------- | - | - | ------- | ------ | - | - | ------- | -------- | -
|                           |                                                            |           |        |         |        |   |        |         |   |            |        |         |          |         |             | Accumulated |              |             |        
|                           |                                                            |           |        |         |        |   |        |         |   |            |        |         |          |         |             | Other       |              |             |        
|                           |                                                            |           |        |         |        |   |        |         |   | Additional |        |         | Deferred |         |             |             |              | Comprehen-  |         |         |            
|                           |                                                            | Preferred |        |         |        |   | Common |         |   |            |        | Paid-In |          |         | Share-Based |             |              | Accumulated |         |         | sive (Loss) |   |        |     
|                           |                                                            | Shares    |        |         | Amount |   |        | Shares  |   |            | Amount |         |          | Capital |             |             | Compensation |             |         | Deficit |             |   | Income |      |   | Total |         
|                           |                                                            |           |        |         |        |   |        |         |   |            |        |         |          |         |             |             |              |             |         |         |             |   |        |      |   |       |         
|BALANCE, DECEMBER 31, 2001 |                                                            |           | 15,000 |         |        | $ | 15,000 |         |   |            | 18,678 |         |          | $       | 187         |             |              |             | 246,456 |         |             |   |       |      |   |       | (130,133 | )        |   |   | (28,757 | )      |   |   | 102,753 |         
|                           | Deferred share-based compensation related to share options |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         | 149     |             |   |        | (149 | ) |       |          |         |   |   |         |       |   |   |         |         |  
|                           | Forfeited options                                          |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         | (13     | )           |   |        | 13   |   |       |          |         |   |   |         |       |   |   |         |         |  
|                           | Amortization of deferred share-based compensation          |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        | 73   |   |       |          |         |   |   |         |       |   |   |         | 73       |  
|                           | Net loss                                                   |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        |     |   |       |          | (138,429 | ) |   |         |       |   |   |         | (138,429 | )
|                           | Unrealized loss from investment in equity securities       |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        |     |   |       |          |         |   |   |         | (2,400 | ) |   |         | (2,400   | )
|                           | Change in foreign currency translation                     |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        |     |   |       |          |         |   |   |         | 41,198 |   |   |         | 41,198   |  
|                           |                                                            |           |        |         |        |   |        |         |   |            |        |         |          |         |             |             |              |             |         |         |             |   |        |      |   |       |         
|BALANCE, DECEMBER 31, 2002 |                                                            |           | 15,000 |         |        |   | 15,000 |         |   |            | 18,678 |         |          |         | 187         |             |              |             | 246,592 |         |             |   | (63    | )    |   |       | (268,562 | )        |   |   | 10,041  |        |   |   | 3,195   |         
|                           | Amortization of deferred share-based compensation          |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        | 49   |   |       |          |         |   |   |         |       |   |   |         | 49       |  
|                           | Conversion of preferred shares into common shares          |           |        | (15,000 | )      |   |        | (15,000 | ) |            |        | 750     |          |         |             | 8           |              |             |         | 14,992  |             |   |        |     |   |       |          |         |   |   |         |       |   |   |         |         |  
|                           | Net income                                                 |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        |     |   |       |          | 8,337    |   |   |         |       |   |   |         | 8,337    |  
|                           | Unrealized loss from investment in equity securities       |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        |     |   |       |          |         |   |   |         | (394   | ) |   |         | (394     | )
|                           | Change in foreign currency translation                     |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        |     |   |       |          |         |   |   |         | (1,194 | ) |   |         | (1,194   | )
|                           |                                                            |           |        |         |        |   |        |         |   |            |        |         |          |         |             |             |              |             |         |         |             |   |        |      |   |       |         
|BALANCE, DECEMBER 31, 2003 |                                                            |           |       |         |        |   |       |         |   |            | 19,428 |         |          |         | 195         |             |              |             | 261,584 |         |             |   | (14    | )    |   |       | (260,225 | )        |   |   | 8,453   |        |   |   | 9,993   |         
|                           | Deferred share-based compensation related to share options |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         | 131     |             |   |        | (131 | ) |       |          |         |   |   |         |       |   |   |         |         |  
|                           | Amortization of deferred share-based compensation          |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        | 71   |   |       |          |         |   |   |         |       |   |   |         | 71       |  
|                           | Issuance of common shares                                  |           |        |        |        |   |        |        |   |            |        | 885     |          |         |             | 9           |              |             |         | 3,421   |             |   |        |     |   |       |          |         |   |   |         |       |   |   |         | 3,430    |  
|                           | Net income                                                 |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        |     |   |       |          | 6,690    |   |   |         |       |   |   |         | 6,690    |  
|                           | Change in foreign currency translation                     |           |        |        |        |   |        |        |   |            |        |        |          |         |             |            |              |             |         |        |             |   |        |     |   |       |          |         |   |   |         | 2,419  |   |   |         | 2,419    |  
|                           |                                                            |           |        |         |        |   |        |         |   |            |        |         |          |         |             |             |              |             |         |         |             |   |        |      |   |       |         
|BALANCE, DECEMBER 31, 2004 |                                                            |           |       |         |        | $ |       |         |   |            | 20,313 |         |          | $       | 204         |             |              | $           | 265,136 |         |             | $ | (74    | )    |   | $     | (253,535 | )        |   | $ | 10,872  |        |   | $ | 22,603  |         
|                           |                                                            |           |        |         |        |   |        |         |   |            |        |         |          |         |             |             |              |             |         |         |             |   |        |      |   |       |         



F-6



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)


|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |        |        |       |       |        |        |  
|----------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------- | -------- | ------- | ------- | ----- | ----- | ------ | ------ | ----- | ----- | ------ | ------ | -
|                                                                        |                                                                                              | Year Ended December 31,                                                                 |                                                    
|                                                                        |                                                                                              |                                                                                         |                                                    
|                                                                        |                                                                                              | 2002                                                                                    |                                                     |          | 2003    |         |       | 2004  |       
|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                   |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |        |        |       |      
|                                                                        | Net (loss) income                                                                            |                                                                                         | $                                                   | (138,429 | )       |         | $     | 8,337 |        |        | $     | 6,690 |       
|                                                                        | Adjustments to reconcile net (loss) income to net cash provided
    by operating activities: |                                                                                         |                                                     |          |         |         |       |       |        |        |       |       |       
|                                                                        |                                                                                              | Amortization of programming rights                                                      |                                                     |          | 1,417   |         |       |       | 1,205  |        |       |       | 2,291  |       
|                                                                        |                                                                                              | Share-based compensation                                                                |                                                     |          | 73      |         |       |       | 49     |        |       |       | 71     |       
|                                                                        |                                                                                              | Depreciation and amortization                                                           |                                                     |          | 11,393  |         |       |       | 5,045  |        |       |       | 4,910  |       
|                                                                        |                                                                                              | Interest expense                                                                        |                                                     |          | 818     |         |       |       | 126    |        |       |       | 211    |       
|                                                                        |                                                                                              | Preferred dividend                                                                      |                                                     |          | (342    | )       |       |       |       |        |       |       |       |       
|                                                                        |                                                                                              | Net loss (gain) on disposal of assets                                                   |                                                     |          | 567     |         |       |       | (97    | )      |       |       | 32     |       
|                                                                        |                                                                                              | Exchange rate gain (loss)                                                               |                                                     |          | 60,506  |         |       |       | (8,478 | )      |       |       | 175    |       
|                                                                        |                                                                                              | Cumulative effect of change in accounting principle                                     |                                                     |          | 74,789  |         |       |       |       |        |       |       |       |       
|                                                                        |                                                                                              | Impairment of goodwill                                                                  |                                                     |          |        |         |       |       | 2,758  |        |       |       |       |       
|                                                                        |                                                                                              | Gain on debt restructuring                                                              |                                                     |          | (15,274 | )       |       |       |       |        |       |       |       |       
|                                                                        |                                                                                              | Equity in earnings (losses) from unconsolidated affiliates and
    related transactions |                                                     |          | 6,746   |         |       |       | (367   | )      |       |       | (245   | )     
|                                                                        |                                                                                              | Minority interest                                                                       |                                                     |          | (68     | )       |       |       | (46    | )      |       |       | (267   | )     
|                                                                        |                                                                                              | Changes in operating assets and liabilities:                                            |                                                     |          |         |         |       |       |        |        |       |       |        |       
|                                                                        |                                                                                              |                                                                                         | Accounts receivable, net                            |          |         | 7,489   |       |       |        | (934   | )     |       |        | 4,598  |  
|                                                                        |                                                                                              |                                                                                         | Acquisition of programming rights                   |          |         | (498    | )     |       |        | (1,755 | )     |       |        | (3,600 | )
|                                                                        |                                                                                              |                                                                                         | Due from related parties and other current assets   |          |         | (5,194  | )     |       |        | 12,583 |       |       |        | (8,743 | )
|                                                                        |                                                                                              |                                                                                         | Other assets                                        |          |         | (353    | )     |       |        | 1,195  |       |       |        | (1,442 | )
|                                                                        |                                                                                              |                                                                                         | Accounts payable, accrued expenses and other        |          |         | 30,430  |       |       |        | (5,894 | )     |       |        | 96     |  
|                                                                        |                                                                                              |                                                                                         | Due to related parties                              |          |         | (3,591  | )     |       |        | (1,585 | )     |       |        | (579   | )
|                                                                        |                                                                                              |                                                                                         | Programming rights obligations                      |          |         | (347    | )     |       |        | 435    |       |       |        | (662   | )
|                                                                        |                                                                                              |                                                                                         | Other long-term liabilities                         |          |         | (28,684 | )     |       |        | 454    |       |       |        | 84     |  
|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |       
|                                                                        |                                                                                              | Net cash provided by operating activities                                               |                                                     |          | 1,448   |         |       |       | 13,031 |        |       |       | 3,620  |       
|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                   |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |        |        |       |      
|                                                                        |                                                                                              | Acquisition of property and equipment                                                   |                                                     |          | (1,367  | )       |       |       | (2,271 | )      |       |       | (1,984 | )     
|                                                                        |                                                                                              | Net cash balance of newly consolidated affiliate                                        |                                                     |          | 909     |         |       |       |       |        |       |       |       |       
|                                                                        |                                                                                              | Distributions to minority owners of unconsolidated subsidiaries                         |                                                     |          |        |         |       |       |       |        |       |       | (380   | )     
|                                                                        |                                                                                              | Acquisition of minority interest and transaction costs paid                             |                                                     |          | (3,288  | )       |       |       | (4,285 | )      |       |       | (1,580 | )     
|                                                                        |                                                                                              | (Investments in) distributions from unconsolidated affiliates,
    net                  |                                                     |          | (130    | )       |       |       | 371    |        |       |       | (2,882 | )     
|                                                                        |                                                                                              | Proceeds from sale of investments in affiliates                                         |                                                     |          | 8,400   |         |       |       | 837    |        |       |       | 625    |       
|                                                                        |                                                                                              | Deposit for the sale of subsidiary                                                      |                                                     |          |        |         |       |       |       |        |       |       | 521    |       
|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |       
|                                                                        |                                                                                              |                                                                                         | Net cash provided by (used in) investing activities |          |         | 4,524   |       |       |        | (5,348 | )     |       |        | (5,680 | )
|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                   |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |        |        |       |      
|                                                                        |                                                                                              | Repayments of long-term debt                                                            |                                                     |          | (7,404  | )       |       |       | (8,270 | )      |       |       | (6,252 | )     
|                                                                        |                                                                                              | Proceeds from issuance of convertible debentures                                        |                                                     |          |        |         |       |       |       |        |       |       | 3,500  |       
|                                                                        |                                                                                              | Payment of debt restructuring costs                                                     |                                                     |          | (3,868  | )       |       |       |       |        |       |       |       |       
|                                                                        |                                                                                              | Restricted cash released (deposited) in guarantee of
    Chilean syndicated loan        |                                                     |          | (1,500  | )       |       |       | 706    |        |       |       | 907    |       
|                                                                        |                                                                                              | Proceeds from sale of common shares to shareholders (see
    Note 3)                    |                                                     |          |        |         |       |       |       |        |       |       | 3,375  |       
|                                                                        |                                                                                              | Prodeeds from exercised stock options (see Note 8)                                      |                                                     |          |        |         |       |       |       |        |       |       | 55     |       
|                                                                        |                                                                                              | Capital contribution from minority shareholder                                          |                                                     |          | 32      |         |       |       |       |        |       |       |       |       
|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |       
|                                                                        |                                                                                              | Net cash (used in) provided by financing activities                                     |                                                     |          | (12,740 | )       |       |       | (7,564 | )      |       |       | 1,585  |       
|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |       
|EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH AND CASH
    EQUIVALENTS |                                                                                              |                                                                                         | (370                                                | )        |         |         | (511  | )     |        |        | 68    |      
|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |       
|NET (DECREASE) IN CASH AND CASH EQUIVALENTS                             |                                                                                              |                                                                                         | (7,138                                              | )        |         |         | (392  | )     |        |        | (407  | )    
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                            |                                                                                              |                                                                                         | 15,207                                              |          |         |         | 8,069 |       |        |        | 7,677 |      
|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |       
|CASH AND CASH EQUIVALENTS, END OF YEAR                                  |                                                                                              | $                                                                                       | 8,069                                               |          |         | $       | 7,677 |       |        | $      | 7,270 |      
|                                                                        |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |       
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (See
    Note 13)      |                                                                                              |                                                                                         |                                                     |          |         |         |       |       |        |        |       |      



F-7



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




|   |                                    
|-- | -----------------------------------
|1. | GENERAL BACKGROUND AND ORGANIZATION

General


Organization




Basis of Presentation






|   |                                           
|-- | ------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation


Consolidated
Financial Statements Consolidation of All Majority Owned


F-8



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)


Subsidiaries Consolidation of Variable Interest
Entities








| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | Imagen Satelital S.A. and subsidiaries, 100% owned;                                     
|
| |  | Claxson Chile S.A. and subsidiaries, 100% owned;                                        
|
| |  | Claxson USA II Inc. and subsidiaries, 100% owned;                                       
|
| |  | Carson International Ltd., 100% owned;                                                  
|
| |  | El Sitio, Inc., 100% owned; and                                                         
|
| |  | Playboy TV Latin America, LLC and subsidiaries, 81% owned (see
    Note 3)              
|
| |  | Claxson Playout, Inc. (formerly known as The Kitchen Inc.), 100%
    owned (see Note 14)











F-9



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




Use of Estimates


Fair Value of Financial Instruments


Foreign Currency Translation/ Foreign Currency Exchange
Loss Foreign Currency Translation.




Currency and Management Risks


F-10



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




Cash and Cash Equivalents


Restricted Investments


Allowance for Doubtful Accounts Receivable


|                     |  |                         |        |   |      |   |        |      |  |   |        |  
|-------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                     |  | Year Ended December 31, |       
|                     |  |                         |       
|                     |  | 2002                    |        |   | 2003 |   |        | 2004 | 
|                     |  |                         |        |   |      |   |        |      | 
|Beginning balance    |  | $                       | 6,364  |   |      | $ | 9,512  |      |  | $ | 6,301  |  
|Provision            |  |                         | 4,907  |   |      |   | 1,212  |      |  |   | 1,533  |  
|Write-offs, net      |  |                         | (1,533 | ) |      |   | (4,598 | )    |  |   | (1,575 | )
|Exchange rate effect |  |                         | (226   | ) |      |   | 175    |      |  |   | 54     |  
|                     |  |                         |        |   |      |   |        |      | 
|Ending balance       |  | $                       | 9,512  |   |      | $ | 6,301  |      |  | $ | 6,313  |  
|                     |  |                         |        |   |      |   |        |      | 

Programming Rights Accounting by Producers or Distributors of
Films.


Property and Equipment


|                                           |  |            
|------------------------------------------ |  | -----------
|Buildings                                  |  | 20-50 years
|Equipment                                  |  | 3-10 years 
|Leasehold improvements                     |  | 5-7 years  
|Furniture, fixtures and other fixed assets |  | 5-10 years 

Investments in Debt and Equity Securities


F-11



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




|                                       |  |              |        |   |      |   |        |  
|-------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                       |  | Year Ended   |       
|                                       |  | December 31, |       
|                                       |  |              |       
|                                       |  | 2003         |        |   | 2004 |  
|                                       |  |              |        |   |      |  
|Investment at fair value               |  | $            | 54     |   |      | $ | 54     |  
|Investment at original cost            |  |              | 1,285  |   |      |   | 1,285  |  
|                                       |  |              |        |   |      |  
|Unrealized gain (loss) from investment |  | $            | (1,231 | ) |      | $ | (1,231 | )
|                                       |  |              |        |   |      |  



Goodwill, Intangibles and Other Assets Goodwill and
Other Intangible Assets


|                |  |              |        |  |      |   |        | 
|--------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                |  | Year Ended   |       
|                |  | December 31, |       
|                |  |              |       
|                |  | 2003         |        |  | 2004 |  
|                |  |              |        |  |      |  
|Goodwill:       |  |              |        |  |      |   |        | 
|Pay Television  |  | $            | 25,481 |  |      | $ | 25,481 | 
|Broadcast Radio |  |              | 24,043 |  |      |   | 25,540 | 
|                |  |              |        |  |      |  
|Total goodwill  |  | $            | 49,524 |  |      | $ | 51,021 | 
|                |  |              |        |  |      |  







F-12



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




Revenue Recognition Revenue Recognition.




Share-based Compensation Accounting for Stock Issued to Employees, Accounting for Stock-Based
Compensation.


Accounting for Stock Based
Compensation-Transition and Disclosure




|                                                                                              |          |                         |          |       |      |   |       |      |  |   |        |      | 
|--------------------------------------------------------------------------------------------- | -------- | ----------------------- | -------- | ----- | ---- | - | ----- | ---- |  | - | ------ | ---- | 
|                                                                                              |          | Year Ended December 31, |         
|                                                                                              |          |                         |         
|                                                                                              |          | 2002                    |          |       | 2003 |   |       | 2004 | 
|                                                                                              |          |                         |          |       |      |   |       |      | 
|Net (loss) income as reported                                                                 |          | $                       | (138,429 | )     |      | $ | 8,337 |      |  | $ | 6,690  |     
|Add: Total stock based compensation expense included in reported
    net (loss) income        |          |                         | 73       |       |      |   | 49    |      |  |   | 71     |     
|Deduct: Total stock based compensation expense not included in
    reported net (loss) income |          |                         | (421     | )     |      |   |      |      |  |   | (1,526 | )   
|                                                                                              |          |                         |          |       |      |   |       |      | 
|Pro forma net (loss) income                                                                   |          |                         | (138,777 | )     |      |   | 8,386 |      |  |   | 5,235  |     
|                                                                                              |          |                         |          |       |      |   |       |      | 
|Pro forma net (loss) income per share:                                                        |          |                         |          |       |      |   |       |      |  |   |        |     
|                                                                                              | Basic   |                         | $        | (7.43 | )    |   | $     | 0.44 |  |   | $      | 0.27 | 
|                                                                                              | Diluted |                         | $        | (7.43 | )    |   | $     | 0.44 |  |   | $      | 0.26 | 

F-13



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




|                              |  |      |        |   |      |  |     |      |  |  |        |  
|----------------------------- |  | ---- | ------ | - | ---- |  | --- | ---- |  |  | ------ | -
|                              |  | 2002 |        |   | 2003 |  |     | 2004 | 
|                              |  |      |        |   |      |  |     |      | 
|Risk free rate                |  |      | 4.51   | % |      |  | N/A |      |  |  | 3.39   | %
|Dividend Yield                |  |      | 0.0    | % |      |  | N/A |      |  |  | 0.0    | %
|Volatility Factors            |  |      | 113.86 | % |      |  | N/A |      |  |  | 344.30 | %
|Weighted-average life (years) |  |      | 6.63   |   |      |  | N/A |      |  |  | 7.50   |  





Advertising Expenses


Barter Transactions


Income Taxes Accounting for Income Taxes.


Net Loss Per Common Share


New Accounting Pronouncements Disclosure requirements under
SFAS No. 129, Disclosure of Information
About Capital Structure, Relating to Contingently Convertible
Securities,


F-14



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




Share Based Payment Accounting for Stock Based
Compensation, Accounting for Stock Issued to Employees,


Exchanges of Nonmonetary Assets Accounting for Nonmonetary
Transactions


Accounting for Conditional Asset Retirement
Obligations Accounting for Asset Retirement
Obligations


Earnings Per Share


F-15



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)


(In thousands of U.S. dollars, except per share data)


|                                          |                        |      |          |   |      |   |        |      |  |   |        |     | 
|----------------------------------------- | ---------------------- | ---- | -------- | - | ---- | - | ------ | ---- |  | - | ------ | --- | 
|                                          |                        | 2002 |          |   | 2003 |   |        | 2004 | 
|                                          |                        |      |          |   |      |   |        |      | 
|Numerator:                                |                        |      |          |   |      |   |        |      |  |   |        |    
|Net (loss) income                         |                        | $    | (138,429 | ) |      | $ | 8,337  |      |  | $ | 6,690  |    
|                                          |                        |      |          |   |      |   |        |      | 
|Denominator:                              |                        |      |          |   |      |   |        |      |  |   |        |    
|Weighted average number of common shares: |                        |      |          |   |      |   |        |      |  |   |        |    
|Basic                                     |                        |      | 18,678   |   |      |   | 18,886 |      |  |   | 19,611 |    
|Effect of dilutive securities:            |                        |      |          |   |      |   |        |      |  |   |        |    
|                                          | Stock options          |      |          |  |      |   |        | 94   |  |   |        | 432 | 
|                                          | Convertible debentures |      |          |  |      |   |        |     |  |   |        | 447 | 
|                                          |                        |      |          |   |      |   |        |      | 
|Diluted                                   |                        |      | 18,678   |   |      |   | 18,980 |      |  |   | 20,490 |    
|                                          |                        |      |          |   |      |   |        |      | 
|Basic net (loss) income per share         |                        | $    | (7.41    | ) |      | $ | 0.44   |      |  | $ | 0.34   |    
|                                          |                        |      |          |   |      |   |        |      | 
|Diluted net (loss) income per share       |                        | $    | (7.41    | ) |      | $ | 0.44   |      |  | $ | 0.33   |    
|                                          |                        |      |          |   |      |   |        |      | 



Reclassifications




|   |                           
|-- | --------------------------
|3. | ACQUISITIONS AND DISPOSALS

Sale of Unconsolidated Affiliate


Dilution of Investment in Unconsolidated
Affiliate


Restructuring of the Relationship with Playboy Enterprises
Inc. (PEI)


F-16



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)








Sale of Clase


Investment in DLA Holdings, Inc
(DLA)










F-17



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)













Sale of Chilevisión






F-18



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)






|   |                       
|-- | ----------------------
|4. | PROPERTY AND EQUIPMENT



|                                               |       |              |         |        |      |   |         |        | 
|---------------------------------------------- | ----- | ------------ | ------- | ------ | ---- | - | ------- | ------ | 
|                                               |       | December 31, |        
|                                               |       |              |        
|                                               |       | 2003         |         |        | 2004 |  
|                                               |       |              |         |        |      |  
|Land and buildings                             |       | $            | 4,457   |        |      | $ | 4,546   |       
|Equipment and software                         |       |              | 32,380  |        |      |   | 34,186  |       
|Leasehold improvements                         |       |              | 8,117   |        |      |   | 7,969   |       
|                                               |       |              |         |        |      |  
|                                               | Total |              |         | 44,954 |      |   |         | 46,701 | 
|Less accumulated depreciation and amortization |       |              | (31,738 | )      |      |   | (35,334 | )     
|                                               |       |              |         |        |      |  
|Property and equipment, net                    |       | $            | 13,216  |        |      | $ | 11,367  |       
|                                               |       |              |         |        |      |  





|   |                                        
|-- | ---------------------------------------
|5. | INVESTMENT IN UNCONSOLIDATED AFFILIATES





| |                           
| | --------------------------
| | Balance sheet information:

|                                                  |                              |              |       |       |      |   |        |        | 
|------------------------------------------------- | ---------------------------- | ------------ | ----- | ----- | ---- | - | ------ | ------ | 
|                                                  |                              | December 31, |      
|                                                  |                              |              |      
|                                                  |                              | 2003         |       |       | 2004 |  
|                                                  |                              |              |       |       |      |  
|Current assets                                    |                              | $            | 1,867 |       |      | $ | 4,819  |       
|Non-current assets                                |                              |              | 39    |       |      |   | 7,635  |       
|                                                  |                              |              |       |       |      |  
|                                                  | Total assets                 |              | $     | 1,906 |      |   | $      | 12,454 | 
|                                                  |                              |              |       |       |      |  
|Current liabilities                               |                              | $            | 589   |       |      | $ | 3,493  |       
|Non-current liabilities                           |                              |              |      |       |      |   | 11,907 |       
|Equity                                            |                              |              | 1,317 |       |      |   | (2,946 | )     
|                                                  |                              |              |       |       |      |  
|                                                  | Total liabilities and equity |              | $     | 1,906 |      |   | $      | 12,454 | 
|                                                  |                              |              |       |       |      |  
|Claxsons investment in unconsolidated affiliates |                              | $            | 821   |       |      | $ | 3,407  |       
|                                                  |                              |              |       |       |      |  

F-19



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




| |                                     
| | ------------------------------------
| | Statement of operations information:

|                                                                    |                 |                         |         |        |      |   |        |       |  |   |        |      |  
|------------------------------------------------------------------- | --------------- | ----------------------- | ------- | ------ | ---- | - | ------ | ----- |  | - | ------ | ---- | -
|                                                                    |                 | Year Ended December 31, |        
|                                                                    |                 |                         |        
|                                                                    |                 | 2002                    |         |        | 2003 |   |        | 2004  | 
|                                                                    |                 |                         |         |        |      |   |        |       | 
|Revenues                                                            |                 | $                       | 51,001  |        |      | $ | 2,845  |       |  | $ | 4,332  |     
|Expenses                                                            |                 |                         | (54,576 | )      |      |   | (1,842 | )     |  |   | (4,294 | )   
|Other                                                               |                 |                         | (3,560  | )      |      |   |       |       |  |   | (390   | )   
|                                                                    |                 |                         |         |        |      |   |        |       | 
|                                                                    | Net (loss) gain |                         | $       | (7,135 | )    |   | $      | 1,003 |  |   | $      | (352 | )
|                                                                    |                 |                         |         |        |      |   |        |       | 
|Claxsons share of (loss) income from unconsolidated
    affiliates |                 | $                       | (6,248  | )      |      | $ | 367    |       |  | $ | (380   | )   
|                                                                    |                 |                         |         |        |      |   |        |       | 





|   |               
|-- | --------------
|6. | LONG-TERM DEBT



|                                       |                                                          |              |        |        |      |   |        |        |  
|-------------------------------------- | -------------------------------------------------------- | ------------ | ------ | ------ | ---- | - | ------ | ------ | -
|                                       |                                                          | December 31, |       
|                                       |                                                          |              |       
|                                       |                                                          | 2003         |        |        | 2004 |  
|                                       |                                                          |              |        |        |      |  
|Senior Notes                           |                                                          |              |        |        |      |   |        |       
|                                       | 11% Senior Notes due 2005, including accrued interest    |              | $      | 2,928  |      |   | $      | 450    |  
|                                       | 8.75% Senior Notes due 2010 , including accrued interest |              |        | 61,615 |      |   |        | 57,997 |  
|                                       | 6.25% Senior Notes due 2013 , including accrued interest |              |        | 2,746  |      |   |        | 2,725  |  
|                                       | Other Senior Notes, including accrued interest           |              |        | 244    |      |   |        | 2,796  |  
|Syndicated bank facility               |                                                          |              | 15,447 |        |      |   | 16,453 |       
|Convertible debentures                 |                                                          |              |       |        |      |   | 3,616  |       
|Other long-term debt                   |                                                          |              | 2,888  |        |      |   | 1,815  |       
|                                       |                                                          |              |        |        |      |  
|Total                                  |                                                          |              | 85,868 |        |      |   | 85,852 |       
|Less Current Portion:                  |                                                          |              |        |        |      |   |        |       
|                                       | 11% Senior Notes due 2005                                |              |        | (2,928 | )    |   |        | (450   | )
|                                       | 8.75% Senior Notes due 2010                              |              |        | (3,618 | )    |   |        | (3,618 | )
|                                       | 6.25% Senior Notes due 2013                              |              |        | (80    | )    |   |        | (58    | )
|                                       | Syndicated bank facility                                 |              |        | (3,654 | )    |   |        | (2,441 | )
|                                       | Other long-term debt                                     |              |        | (1,215 | )    |   |        | (1,605 | )
|                                       |                                                          |              |        |        |      |  
|Long-term debt, net of current portion |                                                          | $            | 74,373 |        |      | $ | 77,680 |       
|                                       |                                                          |              |        |        |      |  

Senior Notes


F-20



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)
















Syndicated Bank Facility




F-21



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)






Convertible Debentures  )




Other Long-Term Debt




|                                 |       |   |        |        | 
|-------------------------------- | ----- | - | ------ | ------ | 
|Twelve Months Ended December 31, |       |  
|                                 |       |  
|2005                             |       | $ | 8,172  |       
|2006                             |       |   | 13,734 |       
|2007                             |       |   | 14,056 |       
|2008                             |       |   | 17,233 |       
|2009                             |       |   | 16,475 |       
|Thereafter                       |       |   | 16,182 |       
|                                 |       |   |       
|                                 | Total |   | $      | 85,852 | 
|                                 |       |   |       

F-22



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




|   |             
|-- | ------------
|7. | INCOME TAXES



|         |                                  |                         |      |     |      |   |       |       |  |   |       |       | 
|-------- | -------------------------------- | ----------------------- | ---- | --- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|         |                                  | Year Ended December 31, |     
|         |                                  |                         |     
|         |                                  | 2002                    |      |     | 2003 |   |       | 2004  | 
|         |                                  |                         |      |     |      |   |       |       | 
|Current  |                                  | $                       | 652  |     |      | $ | 2,587 |       |  | $ | 1,813 |      
|Deferred |                                  |                         | (437 | )   |      |   | 324   |       |  |   | 48    |      
|         |                                  |                         |      |     |      |   |       |       | 
|         | Total provision for income taxes |                         | $    | 215 |      |   | $     | 2,911 |  |   | $     | 1,861 | 
|         |                                  |                         |      |     |      |   |       |       | 



|                                                                  |  |                         |         |   |      |  |     |        |  |   |        |   |  |        |     |   |   |   |        |   |  |  |     |  
|----------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- |  | --- | ------ |  | - | ------ | - |  | ------ | --- | - | - | - | ------ | - |  |  | --- | -
|                                                                  |  | Year Ended December 31, |        
|                                                                  |  |                         |        
|                                                                  |  | 2002                    |         |   | 2003 |  |     | 2004   | 
|                                                                  |  |                         |         |   |      |  |     |        | 
|                                                                  |  | Amount                  |         |   | %    |  |     | Amount |  |   | %      |   |  | Amount |     |   | % |  
|                                                                  |  |                         |         |   |      |  |     |        |  |   |        |   |  |        |     |   |   |  
|Expected tax provision (benefit) using statutory tax rate         |  | $                       | (47,558 | ) |      |  | (35 | )      |  | $ | 3,689  |   |  |        | 35  |   |   | $ | 1,832  |   |  |  | 35  |  
|Adjustment for operating losses in taxable jurisdictions          |  |                         | 5,351   |   |      |  | 4   |        |  |   | (397   | ) |  |        | (4  | ) |   |   | (542   | ) |  |  | (10 | )
|Adjustment for operating losses in non-taxable jurisdictions      |  |                         | 10,336  |   |      |  | 8   |        |  |   | 781    |   |  |        | 7   |   |   |   | 34     |   |  |  | 1   |  
|Non-deductible goodwill in Argentina                              |  |                         | 17,859  |   |      |  | 13  |        |  |   |       |   |  |        |    |   |   |   |       |   |  |  |    |  
|Effect of differences in rates from Chile                         |  |                         | (437    | ) |      |  |    |        |  |   | 639    |   |  |        | 6   |   |   |   | 495    |   |  |  | 9   |  
|Effects of change in valuation allowance                          |  |                         | 9,455   |   |      |  | 7   |        |  |   | (4,746 | ) |  |        | (45 | ) |   |   | (2,837 | ) |  |  | (54 | )
|Gain on anticipated payment of long term debt (net present value) |  |                         | 3,143   |   |      |  | 2   |        |  |   | 1,182  |   |  |        | 11  |   |   |   |       |   |  |  |    |  
|Other items                                                       |  |                         | 2,066   |   |      |  | 2   |        |  |   | 1,763  |   |  |        | 17  |   |   |   | 2,879  |   |  |  | 55  |  
|                                                                  |  |                         |         |   |      |  |     |        |  |   |        |   |  |        |     |   |   |  
|Total provision for income taxes                                  |  | $                       | 215     |   |      |  | 1   |        |  | $ | 2,911  |   |  |        | 27  |   |   | $ | 1,861  |   |  |  | 36  |  
|                                                                  |  |                         |         |   |      |  |     |        |  |   |        |   |  |        |     |   |   |  



|                                      |                                |              |         |        |      |   |         |        |  
|------------------------------------- | ------------------------------ | ------------ | ------- | ------ | ---- | - | ------- | ------ | -
|                                      |                                | December 31, |        
|                                      |                                |              |        
|                                      |                                | 2003         |         |        | 2004 |  
|                                      |                                |              |         |        |      |  
|Net operating loss carryforwards      |                                | $            | 27,159  |        |      | $ | 25,464  |       
|Intangible assets                     |                                |              | 79      |        |      |   | 90      |       
|Foreign currency items                |                                |              | 2,104   |        |      |   | 1,397   |       
|Property, equipment, and other assets |                                |              | 2,651   |        |      |   | 2,332   |       
|                                      |                                |              |         |        |      |  
|                                      | Total deferred tax assets      |              |         | 31,993 |      |   |         | 29,283 |  
|                                      | Total deferred tax liabilities |              |         | (1,665 | )    |   |         | (1,522 | )
|Valuation allowance                   |                                |              | (30,588 | )      |      |   | (28,069 | )     
|                                      |                                |              |         |        |      |  
|Net deferred tax liability            |                                | $            | (260    | )      |      | $ | (308    | )     
|                                      |                                |              |         |        |      |  

F-23



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)






|   |                  
|-- | -----------------
|8. | SHARE OPTION PLAN











|   |                 
|-- | ----------------
|9. | PREFERRED SHARES







|    |                    
|--- | -------------------
|10. | SEGMENT INFORMATION

Claxson currently has three business segments:


F-24



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




|                             |                         |            |   |          |           |  |   |              |   |  |           |         |   |       |   |        |   |  |   |          |  
|---------------------------- | ----------------------- | ---------- | - | -------- | --------- |  | - | ------------ | - |  | --------- | ------- | - | ----- | - | ------ | - |  | - | -------- | -
|                             |                         | Pay        |   |          | Broadcast |  |   | Broadband    |   |  |           |         |  
|                             |                         | Television |   |          | Radio     |  |   | and Internet |   |  | Corporate |         |   | Total |  
|                             |                         |            |   |          |           |  |   |              |   |  |           |         |   |       |  
|Year Ended December 31, 2002 |                         |            |   |          |           |  |   |              |   |  |           |         |   |       |   |        |   |  |   |         
|                             | Total net revenues      |            | $ | 46,192   |           |  | $ | 13,582       |   |  | $         | 190     |   |       |   |       |   |  | $ | 59,964   |  
|                             | Operating income (loss) |            |   | 9,303    |           |  |   | 1,064        |   |  |           | (7,684  | ) |       |   | (2,775 | ) |  |   | (92      | )
|                             | Net loss                |            |   | (116,363 | )         |  |   | (7,331       | ) |  |           | (13,549 | ) |       |   | (1,186 | ) |  |   | (138,429 | )
|                             | Total assets            |            |   | 69,000   |           |  |   | 73,053       |   |  |           | 6,650   |   |       |   | (1,081 | ) |  |   | 147,622  |  
|Year Ended December 31, 2003 |                         |            |   |          |           |  |   |              |   |  |           |         |   |       |   |        |   |  |   |         
|                             | Total net revenues      |            | $ | 48,215   |           |  | $ | 14,601       |   |  | $         | 178     |   |       |   |       |   |  | $ | 62,994   |  
|                             | Operating income (loss) |            |   | 7,266    |           |  |   | 4,731        |   |  |           | (1,898  | ) |       |   | (5,032 | ) |  |   | 5,067    |  
|                             | Net income (loss)       |            |   | 13,289   |           |  |   | 2,953        |   |  |           | (1,685  | ) |       |   | (6,220 | ) |  |   | 8,337    |  
|                             | Total assets            |            |   | 62,193   |           |  |   | 81,245       |   |  |           | 2,332   |   |       |   | (431   | ) |  |   | 145,339  |  
|Year Ended December 31, 2004 |                         |            |   |          |           |  |   |              |   |  |           |         |   |       |   |        |   |  |   |         
|                             | Total net revenues      |            | $ | 49,931   |           |  | $ | 18,103       |   |  | $         | 100     |   |       | $ | 50     |   |  | $ | 68,184   |  
|                             | Operating income (loss) |            |   | 6,571    |           |  |   | 4,796        |   |  |           | (964    | ) |       |   | (4,101 | ) |  |   | 6,302    |  
|                             | Net income (loss)       |            |   | 5,978    |           |  |   | 5,134        |   |  |           | (661    | ) |       |   | (3,761 | ) |  |   | 6,690    |  
|                             | Total assets            |            |   | 64,333   |           |  |   | 89,636       |   |  |           | 703     |   |       |   | 1,843  |   |  |   | 156,515  |  





|    |                              
|--- | -----------------------------
|11. | COMMITMENTS AND CONTINGENCIES

Commitments






|                                 |       |   |       |        | 
|-------------------------------- | ----- | - | ----- | ------ | 
|Twelve Months Ended December 31, |       |  
|                                 |       |  
|2005                             |       | $ | 4,081 |       
|2006                             |       |   | 3,960 |       
|2007                             |       |   | 3,696 |       
|2008                             |       |   | 2,898 |       
|2009                             |       |   | 2,680 |       
|Thereafter                       |       |   | 4,467 |       
|                                 |       |   |      
|                                 | Total |   | $     | 21,782 | 
|                                 |       |   |      

F-25



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)




|                                 |       |   |        |        | 
|-------------------------------- | ----- | - | ------ | ------ | 
|Twelve Months Ended December 31, |       |  
|                                 |       |  
|2005                             |       | $ | 12,221 |       
|2006                             |       |   | 4,885  |       
|2007                             |       |   | 4,467  |       
|2008                             |       |   | 4,601  |       
|2009                             |       |   | 4,739  |       
|Thereafter                       |       |   | 15,087 |       
|                                 |       |   |       
|                                 | Total |   | $      | 46,000 | 
|                                 |       |   |       



Legal Proceedings






F-26



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)


Cámara Nacional de
Apelaciones en lo Comercial








|    |                           
|--- | --------------------------
|12. | RELATED PARTY TRANSACTIONS

Management Services


Revenues


F-27



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)








Expenses












|    |                                                 
|--- | ------------------------------------------------
|13. | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION



| |                                                                            
| | ---------------------------------------------------------------------------
| | Supplemental Disclosure of Non-Cash Investing and
    Financing Activities:

Acquisitions and Disposals


Unrealized gain (loss) from investment in equity
securities


Investments in equity securities


F-28



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(In thousands of U.S. dollars)


Supplemental Disclosure of Cash Flow
Information






|    |                  
|--- | -----------------
|14. | SUBSEQUENT EVENTS

Sale of certain assets of El Sitio
México


Sale of certain assets and operations of Claxson Playout,
Inc.




F-29



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##### Table of Contents



INDEX TO EXHIBITS


|        |    |             |  |                                                                                                        
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 8  | .1          |  | List of significant subsidiaries.                                                                      
|       
|        | 12 | .1          |  | Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes Oxley Act of 2002.
|       
|        | 12 | .2          |  | Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes Oxley Act of 2002.
|       
|        | 13 | .1          |  | Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes Oxley Act of 2002.
|       
|        | 13 | .2          |  | Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes Oxley Act of 2002.
|       
|        | 15 | .1          |  | Consent of Deloitte & Touche LLP.