UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                ---------------

                                   FORM 20-F
(Mark One)

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

                                      OR

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

For the fiscal year ended December 31, 2000

                                      OR

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

For the transition period from _____________ to ________________.

Commission file number 34-28367

                                EL SITIO, INC.
            (Exact name of Registrant as specified in its charter)

                                THE SITE, INC.
                (Translation of Registrant's name into English)

                            British Virgin Islands
                (Jurisdiction of incorporation or organization)

                                EL SITIO, INC.
                         Avenida Ingeniero Huergo 1167
                       C1107AOL Buenos Aires, Argentina
                             (011) 5411-4339-3700
                   (Address of principal executive offices)

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

Title of each class             Name of each exchange on which registered
-------------------             -----------------------------------------
    Common Shares                       Nasdaq National Market

Securities registered or to be registered pursuant to Section 12(g) of the
Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None

           Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by
the annual report.

                           45,242,304 Common Shares

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

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





<PAGE>



                               TABLE OF CONTENTS

                                                                         Page

INTRODUCTION................................................................1

PART I......................................................................3

    Item 1.   Identity of Directors, Senior Management and Advisors.........3
    Item 2.   Offer Statistics and Expected Timetable.......................3
    Item 3.   Key Information...............................................4
    Item 4.   Information on the Company...................................16
    Item 5.   Operating and Financial Review and Prospects.................27
    Item 6.   Directors, Senior Management and Employees...................39
    Item 7.   Major Shareholders and Related Party Transactions............45
    Item 8.   Financial Information........................................49
    Item 9.   The Offer and Listing........................................49
    Item 10.  Additional Information.......................................50
    Item 11.  Quantitative and Qualitative Disclosures About Market Risk...55
    Item 12.  Description of Securities Other Than Equity Securities.......55

PART II....................................................................56

    Item 13.  Defaults, Dividend Arrearages and Delinquencies..............56
    Item 14.  Material Modifications to the Rights of Security Holders
              and Use of Proceeds..........................................56
    Item 15.  [Reserved]...................................................56
    Item 16.  [Reserved]...................................................56
    Item 17.  Financial Statements.........................................56

PART III...................................................................57

    Item 18.  Financial Statements.........................................57
    Item 19.  Exhibits.....................................................57






                                    (i)
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                     [This Page Intentionally Left Blank.]



























                                   (ii)

<PAGE>


                                 INTRODUCTION

           This annual report on Form 20-F for the year ended December 31,
2000 also constitutes our annual report to shareholders and includes our
audited consolidated financial statements at December 31, 1999 and 2000 and
for the years ended December 31, 1998, 1999 and 2000.

           We completed the initial public offering of our common shares in
December 1999. We also listed our common shares on The Nasdaq National Market
under the symbol "LCTO" in that month.

           On October 30, 2000, we entered into a combination agreement with
Carlyle Investments LLC and Carlton Investments LLC, which are the assignees of
Newhaven Overseas Corp. and members of the Cisneros Group; 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 Ibero-American Media
Partners II, Ltd., which is controlled by members of the Cisneros Group and
funds affiliated with Hicks, Muse, Tate & Furst Incorporated. Upon completion
of the proposed transaction, we will become a subsidiary of Claxson
Interactive Group Inc., a newly formed British Virgin Islands company. Claxson
will also include media assets contributed by Ibero-American Media Partners.
In addition, Claxson will include other media assets contributed by members of
the Cisneros Group. Under the original terms of the combination agreement, our
shareholders (excluding Ibero-American Media Partners) would have received
approximately 34% of the outstanding Class A common shares of Claxson in
exchange for their common shares of our company.

           In May 2001, the other parties to the combination agreement
informed us that they were evaluating their rights under the agreement,
including whether the conditions precedent to closing of the transaction could
be fulfilled. After evaluating market conditions, trends affecting Internet
companies, other possible options to realize shareholder value, the effect of
changes in our business on the obligation of the parties to go forward with
the transaction and other factors, we entered into extensive negotiations with
the other parties to the combination agreement concerning possible revised
terms for the transaction. During the course of these negotiations, the other
parties indicated that they believed that a material adverse effect (as
defined in the original combination agreement) had occurred with respect to
our company and that, as a result, they had a basis for not proceeding with
the transaction. The negotiations concluded with each party agreeing, in
principle, to revise the terms of the transaction to provide, among other
terms, that our shareholders (excluding Ibero-American Media Partners) will
receive approximately 20% of the outstanding Class A common shares of Claxson
in exchange for their common shares of our company. Our board of directors,
after receiving a fairness opinion from our outside financial advisor, as to
the fairness from a financial point of view to our shareholders (excluding
Ibero-American Media Partners) of the revised terms of the transaction,
concluded that those terms are in the best interest of our shareholders and
approved the revised terms of the transactions. On June 26, 2001, the parties
entered into an amendment to the combination agreement, which provided for
revised terms for the transaction as described in this annual report under
Item 4. "Information on the Company -- The Proposed Transaction".

           The proposed transaction is a related party transaction because
Ibero-American Media Partners is a significant shareholder of our company, and
representatives of members of the Cisneros Group and funds affiliated with
Hicks, Muse, Tate & Furst Incorporated serve as directors of our company.

           In this annual report, we refer to Claxson Interactive Group Inc.
as "Claxson", to the proposed transaction as the "proposed Claxson
transaction", to the combination agreement as amended as the "combination
agreement". We also sometimes refer to Carlyle Investments LLC and Carlton
Investments LLC as "Carlyle/Carlton" and to the funds affiliated with Hicks,
Muse, Tate & First Incorporated as "Hicks Muse".

           We were incorporated as a British Virgin Islands international
business company in July 1997. Our principal executive offices are located at
Avenida Ingeniero Huergo 1167, C1107AOL, Buenos Aires, Argentina, and our
telephone number is 011-5411-4339-3700.

           El Sitio, O Site and the medallion design are trademarks and
service marks of our company.



                                      1
<PAGE>

Special Note Regarding Forward-Looking Statements

           This annual report contains forward-looking statements that involve
risks and uncertainties. These forward-looking statements appear throughout
this annual report, including, without limitation, under Item 3. "Key
Information -- Risk Factors", Item 4. "Information on the Company" and Item 5.
"Operating and Financial Review and Prospects". These forward-looking
statements relate to, among other things, our business model, strategy, plans
and timing for the introduction or enhancement of our services and products,
the proposed Claxson transaction, proposed dispositions, and other
expectations, intentions and plans contained in this annual report that are
not historical fact.

           When used in this annual report, the words "expects",
"anticipates", "intends", "plans", "may", "believes", "seeks", "estimates" and
similar expressions generally identify forward-looking statements. These
statements reflect our current expectations. They are subject to a number of
risks and uncertainties, including but not limited to, those set forth under
Item 3. "Key Information -- Risk Factors". In light of the many risks and
uncertainties surrounding our business, results of operations, financial
condition and prospects, you should understand that we cannot assure you that
the forward-looking statements contained in this annual report will be
realized.



                                      2
<PAGE>


                                    PART I

Item 1.       IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

           Not applicable.

Item 2.       OFFER STATISTICS AND EXPECTED TIMETABLE

           Not applicable.




                                      3
<PAGE>


Item 3.       KEY INFORMATION

SELECTED FINANCIAL DATA

           The following financial data should be read in conjunction with the
consolidated financial statements and Item 5. "Operating and Financial Review
and Prospects". The selected balance sheet data at December 31, 1999 and 2000
and the selected statement of operations data for the years ended December 31,
1998, 1999 and 2000 have been derived from our audited consolidated financial
statements included elsewhere in this annual report. We prepare our financial
statements in U.S. dollars in accordance with accounting principles generally
accepted in the United States, which is commonly called "U.S. GAAP".

<TABLE>
<CAPTION>

                                                               Period from
                                                               July 1, 1997
                                                                 (Date of
                                                                Inception)
                                                                 through
                                                               December 31,                  Year Ended December 31,
                                                                   1997              1998              1999             2000
                                                               ------------          ----              ----             ----
                                                                (In thousands of U.S. dollars, except per share and share data)
<S>                                                         <C>                <C>              <C>               <C>

Statement of Operations Data:
Net revenues.................................................  U.S.$    267      U.S.$    780      U.S.$  6,861     U.S.$ 35,494
                                                               ------------      ------------      ------------     ------------
Operating expenses:
     Cost of goods sold - e-commerce.........................            --                --                --            4,530
     Product, content and technology.........................           221             1,556             8,237           25,940
     Marketing and sales.....................................           142               674            20,656           50,725
     Corporate and administration............................           727             1,940            10,216           26,696
     Depreciation and amortization...........................            81               107             2,100           12,958
     Merger and restructuring expenses.......................            --                --                --            5,541
                                                               ------------      ------------      ------------     ------------

Total operating expenses.....................................         1,171             4,277            41,209          126,390
                                                               ------------      ------------      ------------     ------------
Operating loss...............................................          (904)           (3,497)          (34,348)         (90,896)
Total other income (expense).................................          (110)              (20)              765            5,093
Provision for non-U.S. income taxes..........................            --                --                --             (256)
                                                                  ---------      ------------      ------------     ------------
Net loss.....................................................        (1,014)           (3,517)          (33,583)         (86,059)
Dividends on Class A and Class B convertible preferred shares            --                --            (2,744)          (7,243)
                                                               ------------      ------------      ------------     ------------

Net loss attributable to common shareholders.................  U.S.$ (1,014)     U.S.$ (3,517)     U.S.$(36,327)    U.S.$(93,302)
                                                               ============      ============      ============     ============

Basic and diluted net loss per common share..................  U.S.$ (10.14)     U.S.$  (1.15)     U.S.$  (2.66)    U.S.$  (2.20)
                                                               ============      ============      ============     ============

Shares used in computing basic and diluted loss per common
     share....................................................      100,000         3,050,000        13,681,306       42,400,487

Balance Sheet Data (at period end):
Cash and cash equivalents (including investments available
     for sale)................................................ U.S.$     89      U.S.$    246      U.S.$160,029     U.S.$ 62,668
Total assets..................................................          396             1,481           201,920          137,118
Working capital (deficit).....................................       (1,146)              (42)          154,357           63,930
Total liabilities.............................................        1,360               712            19,281           20,981
Class B convertible preferred shares..........................           --                --             8,967               --
Shareholders' equity (deficit)................................         (964)              769           173,672          116,137

Other Financial Data:
Cash flow from operating activities...........................         (875)           (3,220)          (22,832)         (77,384)
Cash flow from investing activities...........................         (261)             (733)          (23,160)         (29,915)
Cash flow from financing activities...........................        1,225             4,110           205,668               67

</TABLE>






                                      4
<PAGE>


RISK FACTORS

           An investment in our common shares involves a high degree of risk.
Investors in our common shares should carefully consider the following risk
factors and the other information in this annual report.

           We have entered into the combination agreement under which we would
become a subsidiary of Claxson. Consequently, the principal risks to our
company currently relate to completion of the proposed Claxson transaction and
will, upon completion of that transaction, relate to Claxson and its business,
results of operations, financial condition and prospects. For a discussion of
the risks associated with an investment in Class A common shares of Claxson,
we refer you to Claxson's Registration Statement on Form F-4 (Registration No.
333-13062).

Risks Related to the Proposed Claxson Transaction

Any failure to complete the proposed Claxson transaction, or delay in the
completion of that transaction, could cause us to incur substantial costs and
negatively affect our results of operations and competitive position.

           If the proposed Claxson transaction is not completed on a timely
basis or at all, our business, results of operations, financial condition and
prospects could suffer negative consequences, including, among others, the
following:

           o    advertisers and strategic partners may delay or defer decisions
                to renew or enter into relationships with us, which could have
                a material adverse effect on our revenues;

           o    our current and prospective employees may experience
                uncertainty about our future and their roles with the company
                and accept employment elsewhere;

           o    covenants in the combination agreement may impede our ability
                to make acquisitions or complete other transactions pending
                completion of the transaction, putting us at a competitive
                disadvantage;

           o    substantial fees and expenses related to the transaction, such
                as financial, advisory, legal and accounting fees and
                disbursements, must be paid even if the transaction is not
                completed; and

           o    if the transaction is terminated and our board of directors
                determines to pursue another transaction, we may not be able to
                find a partner on terms as attractive as those provided for in
                the combination agreement.

Any of these effects, or the failure to complete the proposed Claxson
transaction on a timely basis or at all, could adversely affect the market
price of our common shares.

We would fail to achieve anticipated benefits if the proposed Claxson
transaction does not close.

           If the proposed Claxson transaction is not completed for any
reason, we would fail to achieve the anticipated benefits of the transaction,
including:

           o    increasing revenues from subscribers, advertising, e-commerce
                and other sources;

           o    integrating the systems, personnel and operations of Claxson's
                constituent companies, which operate in different businesses
                and locations;

           o    hiring, retaining and assimilating key personnel for each
                company; and

           o    developing new businesses and providing additional services
                that benefit from the combined assets and resources of
                Claxson's constituent companies.

           In addition to failing to receive the future benefit of the
proposed Claxson transaction, the failure of that transaction may adversely
affect our company's ability to achieve any other strategic transaction in
the current market environment. Consequently, our company would remain a
stand-alone Internet media company, subject to all the risks identified under
"Risks Related to Our Company".



                                      5
<PAGE>

Risks Related to Our Company

We have been in business for a relatively short period of time, so your basis
for evaluating our company is limited.

           We have a limited operating and financial history upon which
investors can base evaluation of an investment in our common shares. We are
subject to the risks, uncertainties and problems frequently encountered by
companies in early stages of operations, particularly companies in new and
rapidly developing markets. In addition, Internet-based businesses, such as
ours, continue to evolve in a rapid and unpredictable manner. These risks,
uncertainties and problems include, among others, the following:

           o    any failure to continue to develop and extend the El Sitio (O
                Site in Brazil) brand;

           o    any inability to maintain and increase levels of traffic on our
                websites;

           o    any inability to meet minimum guaranteed impressions under our
                advertising agreements;

           o    any failure to anticipate and adapt to developing markets;

           o    any inability to upgrade and develop our systems and
                infrastructure and attract or retain needed personnel in a
                timely and effective manner;

           o    any failure of our network to handle efficiently our web
                traffic;

           o    any failure to manage rapidly changing operations; and

           o    the level of use of the Internet and online services and
                consumer acceptance of the Internet and other online services.

We have recently revised our business strategy, but we may fail to implement
successfully this strategy.

           Our company, like other companies in the Internet sector, was
adversely affected in 2000, as broad expectations for rapid growth of the
Internet sector were not realized. Although we continued to achieve revenue
growth in 2000, we responded to market conditions by modifying our strategy to
concentrate on our core media-related website business. After we entered into
the combination agreement to create Claxson, our strategic focus has shifted
away from our connectivity services and e-commerce businesses. We recently
sold our connectivity services business in Argentina and plan to sell our
connectivity services businesses in Colombia and Brazil. We also intend to
discontinue the operations of DeCompras.com, Inc. and DeCompras.com, S.A. de
C.V. (together, "DeCompras.com") our e-commerce business, during the third
quarter of 2001. Our current strategy remains unproven and may not be
successful, and, if not successful, we may not be able to modify it in a
timely and successful manner in the evolving Internet industry.

We have a history of losses and expect to continue to incur losses for the
foreseeable future.

           We have not achieved profitability to date. We will continue to
incur losses and negative cash flow from operations on a quarterly and annual
basis as we fund operating and capital expenditures in areas such as content
and technology development, marketing and brand promotion, if any, and general
corporate expenditures. The extent of these losses will depend, in part, on
the level of our revenues. We cannot assure you that our losses will not
further increase in the future or that we will ever achieve or sustain
profitability.

           We anticipate that our financial performance for 2001, on a
stand-alone basis without giving effect to the proposed Claxson transaction,
will be negatively affected by global trends affecting Internet companies. In
particular, we have been experiencing declines in net revenues from
advertising due in part to generally decreased expenditures by advertisers for
Internet-based advertising activities and also due to lower traffic on our
network resulting, in part, from decreased expenditures by us on marketing,
branding and advertising. In addition, our results of operations for 2001 will
be adversely affected by write-offs relating to the sale of our connectivity
services businesses and our intention to discontinue the operations of
DeCompras.com, our e-commerce business.

We will not become profitable if we do not attract a substantial number of
users and advertisers.

           We must continually enhance and improve our website content and
services to attract, and to meet the expectations of, our users and
advertisers. If other Internet companies present more desirable content,
features



                                      6
<PAGE>

or functionality, our user traffic could be adversely affected. We
cannot assure you that we can successfully identify new service opportunities
and develop and bring new services and products to market in a cost-efficient
and timely manner. Any failure to develop and introduce new services and
service enhancements that are compatible with industry standards and satisfy
customer requirements would have a material adverse effect on our company.

We must develop our brand and generate increased advertising and other
revenues in order to create a viable business.

           We must continue to develop and extend our El Sitio (O Site in
Brazil) brand. Brand loyalty is critical to our ability to expand our user
base and our revenues. We believe that the importance of brand recognition
will increase as the number of Spanish- and Portuguese-language websites
targeting Latin America and the U.S. Spanish-speaking market increases. We
intend to devote available resources for marketing campaigns, both online and
in traditional media, to promote our brand. If our marketing efforts are
unsuccessful, we may fail to establish and maintain El Sitio and O Site as
leading brands in our markets. We cannot assure you that our branding
initiatives and expenditures for this purpose will prove effective.

           Our ability to promote and enhance our brand will also depend
on our efforts to provide high quality content, features and functionality. If
we fail to promote successfully our brand, or if users or advertisers do not
perceive our services to be of high quality, the value of our brand could be
diminished, which would have a material adverse effect on our company.

We are in the process of selling our connectivity services businesses and
intend to discontinue our e-commerce operations, which will significantly
reduce our sources of revenues.

           We acquired the retail dial-up access customers of IMPSAT Fiber
Networks, Inc. in Argentina, Brazil, and Colombia in October 1999,
November 1999 and April 2000, respectively. On October 30, 2000, we announced
our intention to sell our connectivity services businesses in all three
countries. In June 2001, we sold our connectivity services business in
Argentina for U.S.$1.4 million to Netizen S.A. These sales will result in
losses for our company.

           In May 2000, we acquired DeCompras.com, Inc., our e-commerce
business that targets Mexico and Mexican-Americans located in the United
States. See Item 4. "Information on the Company -- E-Commerce". In
anticipation of completion of the proposed Claxson transaction, we have
determined not to devote the financial and other resources required to further
develop DeCompras.com. As a result, we intend to discontinue the operations of
DeCompras.com during the third quarter of 2001.

           While the sale of our connectivity services businesses and the
future discontinuance of operations of DeCompras.com will have a favorable
effect on our short-term liquidity and capital resource requirements, these
actions will significantly reduce our sources of revenues. Connectivity
services and e-commerce accounted, in the aggregate, for U.S.$14.1 million of
our total net revenues in 2000, representing 39.8% of our total net revenues
for the year. These actions will also adversely affect our results of
operations in 2001, as we will incur significant write-offs in respect of the
book values of these operations.

We must increase our advertising and other revenues in cash in order to
develop our business.

           As a network of websites, our business model is predicated, in
part, upon our ability to increase our advertising revenues from multinational
and local advertisers, which has become more difficult in the current market
conditions. Our future advertising revenues will depend, among other factors,
on:

           o    the level of acceptance that Internet advertising achieves in
                Latin America and the growth of the aggregate amount spent on
                Internet advertising in our markets;

           o    the market recognition and prestige of our brand and
                trademarks;

           o    the attractiveness of our advertising pricing schedules;

           o    the effectiveness of our advertising sales personnel in each of
                our markets; and

           o    our ability to maintain and expand our community of users in
                our markets.

We are not dependent on any single major advertiser. However, the loss of
major advertisers could have a material adverse effect on our company.



                                      7
<PAGE>

           We have received a significant portion of our historical net
revenues from reciprocal services arrangements, pursuant to which we exchange
advertising space on our network for advertising space on television and radio
or for telecommunications services, in lieu of cash payments. In 2000, we
derived advertising revenues valued at approximately U.S.$4.6 million, or
13.0% of our total net revenues for that year, from these non-cash reciprocal
services arrangements. In 1999, we derived approximately U.S.$1.3 million, or
19.0% of our total net revenues, from these arrangements. We expect that
non-cash revenues from reciprocal services arrangements will continue to
account for a significant, though decreasing, portion of our revenues in the
foreseeable future.

We may experience fluctuations in revenues and overall results of operations,
which could adversely affect our ability to develop our businesses.

           Our revenues and overall financial performance are likely to
fluctuate significantly as a result of numerous factors, many of which are
outside of our control, including the following:

           o    the level of demand for Internet advertising packages;

           o    the addition or loss of advertisers and the advertising
                budgeting cycles of individual advertisers;

           o    costs relating to the introduction of new content and services;

           o    our ability to manage expansion into new market segments;

           o    our ability to upgrade and develop our systems and
                infrastructure; and

           o    general economic conditions and other conditions relating to
                the media industry.

Because of these factors, our future financial performance may fall below our
expectations or the expectations of financial analysts or investors, which
could negatively affect the market price of our common shares.

We must maintain access to quality content provided by third parties in order
to develop our user and subscriber base.

           Although we seek to produce or edit a substantial portion of the
content for our websites, we continue to rely upon third parties, such as
Reuters and The Weather Channel, to provide global content to complement our
own content and thus make our websites more attractive to users and, by
extension, advertisers. Most of our arrangements with third-party providers of
content are not exclusive, are short-term and may be terminated at the
discretion of the other party. Any termination of a substantial number of
these content-related arrangements could have an adverse effect on our
company.

We must further develop strategic relationships to strengthen our competitive
position.

           We continue to seek to establish strategic relationships with
leading content producers, media companies and other providers. To date, many
of our key strategic relationships have been with our shareholders and their
affiliates. See Item 4. "Information on the Company -- Business and Strategic
Relationships". Our future development will depend upon maintaining our
existing strategic relationships as well as our ability to establish new
relationships.

We could experience capacity constraints and unexpected system interruptions,
which could impede the development of our business.

           We continue to seek to increase substantially the number of pages
of information transmitted over our network, commonly referred to as "page
views". As a result, our network must accommodate a high volume of traffic,
often at unexpected times. We have, to date, experienced limited capacity
constraints in terms of our ability to serve our increasing user volumes.
However, we cannot assure you that our network will not suffer from
interruptions. Any break in the continuous operations of our network could
have a material adverse effect on our company.

           We make our websites available using servers located at the server
farm facilities of Exodus Communications in Virginia, IMPSAT Brazil in Sao
Paulo and IMPSAT Fiber Networks, Inc. in Miami, Florida. See Item 4.
"Information on the Company -- Technology". Any failure by Exodus
Communications, IMPSAT



                                      8
<PAGE>

Brazil or IMPSAT Fiber Networks, Inc. to protect our systems against damage
from fire, weather, power loss, telecommunications failure, break-ins or other
events could have a material adverse effect on our company.

           We may also, from time to time, experience interruptions due to
hardware failures, unsolicited bulk e-mail and operating system failures.
Because our revenues depend on the level of traffic on our websites and
positive user experiences with our network, we will be adversely affected if
we experience frequent or long system delays or interruptions. Any failure on
our part to minimize or prevent capacity constraints or system interruptions
could have an adverse effect on our company.

We may have difficulty in obtaining the additional financing required to
develop our business.

           We are likely to have difficulty in obtaining additional equity or
debt financing as required to implement our business plan. Our ability to
obtain required additional financing on satisfactory terms will be subject to
a number of factors, including, without limitation, the following:

           o    investor sentiment toward Internet media companies;

           o    our actual or anticipated results of operations, financial
                condition and cash flow;

           o    investor sentiment towards companies conducting business in
                Latin America; and

           o    generally prevailing market conditions.

           If additional funds are raised through the issuance of equity
securities, the percentage ownership of our then current shareholders could be
substantially reduced, and the holders of new equity securities may have
rights, preferences or privileges senior to those of the holders of our common
shares. If additional funds are raised through the issuance of debt
securities, these securities would have some rights, preferences and
privileges senior to those of the holders of our common shares, and the terms
of this debt could impose restrictions on our operations and result in
significant interest expense to us.

           In the event that we are unable to raise sufficient financing on
satisfactory terms and conditions in the future, our company would be
materially and adversely affected.

We must retain key managers and require additional qualified personnel to
develop our business in an industry in which it is difficult to attract and
retain qualified personnel.

           Our future performance depends, in large part, on the continued
service of our senior management, including, in particular, Roberto
Vivo-Chaneton, co-founder and chairman of our company. The loss, for any
reason, of the services of Mr. Vivo-Chaneton or other members of our senior
management could have a material adverse effect on our company.

           The development of our business also requires that we hire and
retain highly qualified personnel. We cannot assure you that we will be able
to retain our key personnel or to attract and retain additional highly
qualified personnel in the future. If we fail to attract and retain necessary
personnel, our company could be adversely affected.

We are controlled by a small group of existing shareholders whose interests
may differ from those of other shareholders.

           Our directors and officers and their respective affiliates
beneficially own, in the aggregate, a significant majority of our issued and
outstanding share capital. See Item 7. "Major Shareholders and Related Party
Transactions". As a result, these shareholders will be able to control the
outcome of all matters requiring shareholder approval, including the election
of directors and approval of mergers, acquisitions and other significant
corporate transactions. There may be circumstances in which interests of these
shareholders may conflict with the interests of the other shareholders in our
company.

           Commercial and other transactions between our company, on the one
hand, and our directors, officers and controlling shareholders and their
affiliates, on the other, create the potential for, or could result in,
conflicting interests. These relationships may give rise to conflicts of
interest from time to time relating to contracts, corporate opportunities and
use of directors' time and expertise. See Item 7. "Major Shareholders and
Related Party



                                      9
<PAGE>

Transactions". We intend to enter into all related party transactions on an
arm's length basis (measured against terms that would be offered by an
unaffiliated third party). We cannot assure you, however, that these future
transactions will be free of conflicting interests.

           The proposed Claxson transaction is a significant pending related
party transaction to which we are a party. Ibero-American Media Partners is a
major shareholder of our company and representatives of its controlling
shareholders, which are members of the Cisneros Group and funds affiliated
with Hicks, Muse, Tate & Furst Incorporated, serve as directors of our company.
Members of the Cisneros Group and funds affiliated with Hicks, Muse, Tate &
Furst Incorporated hold, or may in the future acquire, interests in other
Internet-based businesses in our markets, some of which may compete with our
company. In particular, members of the Cisneros Group own a substantial
interest in AOL Latin America, which is an Internet service provider in
Latin America.

We must preserve our intellectual property rights, which are essential to the
development of our business.

           We consider our El Sitio, O Site and medallion design trademarks
and service marks to be important to our success. We are pursuing the
registration of our core marks in the United States and in key countries of
Latin America, as well as in Spain and Portugal. If we are unable to obtain a
registration in a particular country, we would have trademark or service mark
rights to the extent that we use the mark and common law rights apply, but the
rights would not be as strong as if they were registered.

           Any usage of trademarks or service marks by other parties that are
similar to our core marks could hinder our ability to build a unique brand
identity and may possibly lead to trademark disputes, in that we may be sued
for trademark infringement in court or we may have the validity of our
applications and/or registrations challenged at government agencies. Any
judgment against us in an intellectual property-based proceeding could result
in the loss of our ability to use one or more of our marks, as well as the
imposition of monetary damages. If we lose the right to use a trademark or
service mark, we may be forced to adopt a new mark, which would result in the
loss of substantial resources and brand identity. In any event, whether
successful or not, litigating a trademark dispute would result in the
expenditure of monetary resources and the diversion of executives' time. Any
inability to protect, enforce or use our trademarks, service marks or other
intellectual property may have a material adverse effect on our company.

           We also depend upon technology licensed from third parties for
chat, homepage creation and search capabilities and related web services. Any
dispute with the licensor of a particular technology may result in our
inability to continue to use that technology. In addition, we cannot be
certain that our technology, products, business methods or services do not or
will not infringe valid patents or other intellectual property rights held by
third parties. If a third party alleges infringement, we may be forced to take
a license, which we may not be able to obtain on commercially reasonable
terms. We may also incur substantial expenses in defending our company against
third-party infringement claims, regardless of the merit of those claims.
Successful infringement claims against us could result in substantial monetary
liability and/or being prevented by a court from conducting all or a part of
our business that falls within the scope of the asserted patent, leading to
substantial expenditures to redesign and/or license technology.

Our results of operations may fluctuate due to seasonality.

           The level of use of our network may be seasonal in nature. Internet
usage in Latin America may be lower during the first calendar quarter of the
year because:

           o    it includes the summer months in much of Latin America;

           o    many people in South America take vacations during these
                months; and

           o    schools and universities are generally closed.

           Our advertising revenues may also be subject to seasonal
fluctuations. Advertisers in traditional media tend to spend less in the first
and second calendar quarters.

           We believe that seasonality will affect our overall financial
performance on an ongoing basis.



                                      10
<PAGE>

The multi-country nature of our business exposes us to additional
international-based risks.

           We are subject to a broad range of risks inherent in businesses
with operations in multiple countries, including, among others, the following:

           o    unexpected changes in laws and governmental regulations;

           o    difficulties and costs of staffing and managing international
                operations;

           o    potentially adverse tax consequences;

           o    uncertain protection for intellectual property rights;

           o    trade barriers for products and services which may be sold over
                our network;

           o    difficulties in maintaining and upgrading our systems;

           o    export or import restrictions and controls;

           o    currency fluctuation and exchange risks; and

           o    economic, political and other conditions in the countries in
                which we currently, or may seek to, conduct business.

Any of these factors, many of which are outside our control, could have a
material adverse effect on our company.

Risks Related to Our Industry

We operate in an extremely competitive market and compete with more developed
companies that have greater resources.

           Many companies already provide website and online destinations
targeted to Spanish- and Portuguese-speaking audiences in Latin America, the
United States and elsewhere. Competition for users and advertisers and
business partners is intense and is expected to increase significantly in the
future, particularly because there are no substantial barriers to entry in our
industry.

           We face competition on both regional and country levels from
competitors, such as StarMedia, Terra Lycos and AOL Latin America (in Latin
America and the United States), Clarin Digital (in Argentina), Universo Online
(in Brazil) and T1MSN (in Mexico). We also face competition from Spanish-
and/or Portuguese-language versions of services such as Yahoo! Our competitors
may develop content that is better than ours or that achieves greater market
acceptance. New competitors also may emerge and acquire significant market
share. Some of our established competitors and potential new competitors may
have better brand recognition and significantly greater financial, marketing,
technical and other resources than our company. Any significant loss of users
to our competitors could have a material adverse effect on our company.

We will be adversely affected if the Internet does not become widely accepted
as a medium for advertising and e-commerce.

           Advertising revenue is the principal component of our total
revenues. In order for us to generate advertising revenue, advertisers and
advertising agencies must direct a portion of their advertising budgets to the
Internet and, specifically, to our network. Many of our current or potential
advertisers have limited experience using the Internet to advertise or to sell
their products and services and have not devoted a significant portion of
their budgets to Internet-based advertising. Advertisers that have invested
substantial resources in other media may be reluctant to adopt a new method
that may limit or compete with their existing efforts. These businesses may
find Internet advertising to be less effective for promoting and selling their
products and services than is traditional print and broadcast media. We will
be adversely affected if Internet advertising fails to develop or develops
slowly in Latin America.

Changes in the legal and regulatory environment for our industry could
increase our costs and lengthen the period for us to become profitable.

           Government regulation has not materially restricted use of the
Internet in our markets to date. However, the legal and regulatory environment
pertaining to the Internet remains relatively undeveloped and may change.



                                      11
<PAGE>

New laws and regulations could be adopted, and existing laws and regulations
could be applied to the Internet and, in particular, to e-commerce. New and
existing laws and regulations could cover issues, including, among others, the
following:

           o    sales and other taxes;

           o    user privacy;

           o    pricing controls;

           o    characteristics and quality of products and services;

           o    consumer protection;

           o    cross-border commerce;

           o    libel and defamation;

           o    copyright, trademark and patent infringement; and

           o    other claims based on the nature and content of Internet
                materials.

Changes in government regulation in any of the countries in which we operate
could increase our costs and prevent us from delivering our services and
products over the Internet. It could also slow the growth of the Internet,
which could, in turn, delay growth in demand for our network and adversely
affect our company.

We may become subject to legal liability based on the content provided
through, and the products and services sold over, our network.

           The laws in the United States and in Latin American countries
relating to the liability of online content and service providers, such as our
company, for activities of their users remains unsettled. Claims have been
made against other Internet companies for defamation, negligence, copyright or
trademark infringement, obscenity or other grounds based on the nature and
content of information that was posted online by these providers or their
visitors. We could become subject to similar claims. It is also possible that,
if information provided through our services contains errors, third parties
could make claims against us for losses incurred in reliance on the
information. Finally, we could face personal injury or other product liability
claims arising from the use of products or services sold through our websites.

           We offer e-mail services, which expose us to potential liabilities
or claims resulting from:

           o    unsolicited e-mail;

           o    lost or misdirected messages;

           o    illegal or fraudulent use of e-mail; or

           o    interruptions or delays in e-mail service.

Investigating and defending these claims may involve substantial expenses,
even if they do not result in liability.

           Although we carry general liability insurance, our insurance may
not cover all potential claims to which we are exposed or may not be adequate
to indemnify us for all liabilities that may be imposed. Any imposition of
liability that is not covered by insurance or is in excess of insurance
coverage could have a material adverse effect on our company.

We will be adversely affected if we fail to respond effectively and on a
timely basis to rapid technological change.

           The Internet industry is characterized by rapidly changing
technology, evolving industry standards, frequent new product and service
announcements, introductions and enhancements, and changing consumer demands.
Our future success will depend on our ongoing ability to improve the
performance, features and reliability of our Internet services and products in
response to competitive product, feature and service offerings and the
evolving demands of the marketplace. New services, products and technologies
may be superior to the services and technologies that we use, and may render
our services and technologies obsolete or require us to incur substantial
expenditures to modify or adapt our services, products or technologies.



                                      12
<PAGE>

Our network operations may be vulnerable to hacking, viruses and other
disruptions.

           Internet usage could decline if any well-publicized compromise of
security occurs. "Hacking" involves efforts to gain unauthorized access to
information or systems or to cause intentional malfunctions or loss or
corruption of data, software, hardware or other computer equipment. Hackers,
if successful, could misappropriate proprietary information or cause
disruptions in our services. We cannot assure you that security measures
implemented by us will be effective. Security breaches could have a material
adverse effect on our business. In addition, the inadvertent transmission of
computer viruses could expose us to a material risk of loss or litigation and
possible liability.

Data regarding usage of, and growth prospects for, the Internet may not be
accurate.

           The general market and similar data in this annual report relating
to the Internet industry in Latin America and the United States, including
with respect to projected increases in users of, and advertising and
e-commerce on, the Internet, have been based upon information published by or
obtained from independent market research firms, in each case, except as
otherwise indicated. These research firms include, among others, International
Data Corporation and Forrester Research. The market forecasts by these firms
are based to a large extent upon assumptions, including assumptions about the
growing acceptance of the Internet as a medium for commercial activity and
continuing advances in computing and telecommunications technology. We cannot
assure you that these assumptions will prove to be correct or, even if they
do, that the forecasts will prove to be accurate.

Risks Related to Latin America

Our future success depends upon growth in use of the Internet in Latin
America.

           The timing and the degree of our future success will depend on the
continued growth of the market for online services and products in Latin
America. The market in the region for our services has only recently begun to
develop and is evolving. The commercial potential for the Internet in Latin
America also remains uncertain. Major issues concerning the use of the
Internet, such as security, intellectual property rights, reliability, cost,
ease of deployment and administration, and quality of service, remain largely
unresolved and may adversely affect our growth and market acceptance.

           Each country in Latin America has its own telephone rate tariff
regime which, if too costly, may make consumers less likely to sign up for and
access the Internet. As a result of broad privatization and deregulation of
the telecommunications industry in Latin America and increased competition,
tariffs have been reduced recently in some countries. However, we cannot
assure you that this trend will continue. Unfavorable tariff developments
could have a material adverse effect on our company.

Adverse Latin American political and economic conditions could affect our
financial performance.

           We currently operate in Argentina, Brazil, Chile, Colombia, Mexico,
the United States, Uruguay and Venezuela. Our financial performance may be
affected generally by inflation, exchange rates and controls, price controls,
interest rates, changes in governmental economic policy, taxation and other
political, economic or other developments in or affecting the Latin American
countries in which we operate.

Local currencies used in the conduct of our business are subject to
depreciation and volatility.

           Historically, the currencies of many countries in Latin America
have experienced substantial depreciation and volatility, particularly against
the U.S. dollar. Currency movements, as well as higher interest rates, have
materially and adversely affected the economies of many Latin American
countries, including countries which account or are expected to account for a
significant portion of our operations.

           Our reporting currency is the U.S. dollar. However, some
advertisers in Latin America and customers of our connectivity services
business in Brazil and Colombia may be billed in local currencies. In Brazil,
for example, commercial billing is required to be in reais, the local
currency. Our accounts receivable from these subscribers and advertisers will
decline in value if the local currencies depreciate relative to the U.S.
dollar. Similarly, any decline in the value of local currencies relative to
the U.S. dollar is likely to reduce the U.S. dollar prices that we will be
able to charge our advertisers. In addition, we may be subject to exchange
control regulations which might restrict



                                      13
<PAGE>

our ability to convert local currencies into U.S. dollars. Any imposition of
exchange controls could adversely affect our company.

Risks Related to Our Common Shares

The market price of our common shares is volatile.

           The market price on The Nasdaq National Market for our common
shares has been extremely volatile during much of 2000 and in 2001 to date.
The market price has declined significantly from levels during the period
immediately following the initial public offering. See Item 9. "The Offer and
Listing".

           The market price of our common shares may be significantly affected
by, among others, the following factors:

           o    our actual or anticipated results of operations;

           o    new services or products offered, or new contracts entered
                into, by our company or our competitors;

           o    changes in, or our failure to meet, securities analysts'
                expectations;

           o    legislative and regulatory developments affecting the Internet
                industry;

           o    developments in the Internet industry and technological
                innovations;

           o    investor perceptions of investments relating to Latin America;
                and

           o    general market conditions and other factors beyond our control.

           U.S. and non-U.S. stock markets have periodically experienced
significant price and volume fluctuations that have especially affected the
market prices of common shares of Internet companies. These changes have often
been unrelated to the financial performance of particular companies. These
broad market developments may also adversely affect the market price of our
common shares.

Our common shares may fail to comply with the requirements for continued
listing on The Nasdaq National Market, and any market for our common shares
may be illiquid.

           Our common shares have had a relatively active trading market since
our initial public offering in December 1999. However, on May 16, 2001, we
received notification from The Nasdaq National Market that our common shares
had failed to maintain a minimum bid price of U.S.$1.00 for 30 consecutive
trading days as required by Nasdaq rules. The bid price for our common shares
must close above U.S.$1.00 for ten consecutive trading days before August 14,
2001 in order for us to maintain the listing for our common shares on The
Nasdaq National Market. If we are unable to maintain the listing of our common
shares on The Nasdaq National Market, there will be no established trading
market for these shares, and an active trading market is unlikely to be
sustained in future periods.

We are likely to be a passive foreign investment company for 2001 and may also
be a passive foreign investment company for subsequent years, which would
subject U.S. holders of our common shares to adverse U.S. federal income tax
consequences.

           We are likely to be a passive foreign investment company in 2001
for purposes of U.S. federal tax laws, and we may also be a passive foreign
investment company in subsequent years. The determination of our status as a
passive foreign investment company is based, among other things, on a
valuation of our assets, including goodwill. In calculating goodwill, we value
our total assets based on the market value of the common shares, which is
subject to change. In addition, we have made a number of assumptions regarding
the calculation of goodwill and the allocation of goodwill among active and
passive assets. While we believe our approach is reasonable, the relevant
authorities in this area are unclear, so we cannot assure you that our
determination that we are a passive foreign investment company is accurate.
U.S. holders of shares of a passive foreign investment company are subject to
special adverse tax rules in the United States as discussed under Item 10.
"Additional Information--Taxation."



                                      14
<PAGE>

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

           Corporate governance matters for our company are principally
determined by our memorandum of association and articles of association, in
each case, as amended, and the International Business Companies Act, 1984
(Cap. 291) of the British Virgin Islands. The rights of shareholders and the
fiduciary responsibilities of directors, officers and controlling shareholders
under British Virgin Islands law have not been extensively developed,
particularly when compared with statutes and judicial precedents of most
states and other jurisdictions in the United States. As a result, our
shareholders may have more difficulty in protecting their interests in the
case of actions by our directors, officers or controlling shareholders than
would shareholders of a corporation incorporated in a state or other
jurisdiction in the United States.

You may experience difficulty in enforcing civil liabilities against our
company.

           We are a British Virgin Islands company, and a substantial portion
of our assets is located outside of the United States. In addition, most of
our directors and executive officers, as well as other persons controlling our
company, reside or are located outside of the United States. As a result, it
may not be possible for investors to effect service of process within the
United States upon us or these persons or to enforce judgments obtained
against us or these persons in U.S. courts predicated solely upon the civil
liability provisions of the U.S. federal or state securities laws. We have
been advised by Conyers Dill & Pearman, our British Virgin Islands counsel,
that there is doubt as to the enforceability in the British Virgin Islands in
original actions or in actions for enforcement of judgments of U.S. courts, of
civil liabilities predicated upon the U.S. federal or state securities laws.
There is also doubt as to the enforceability of judgments of this nature in
several of the jurisdictions in which we operate and our assets are located.




                                      15
<PAGE>


Item 4.       INFORMATION ON THE COMPANY

Overview

           We are an Internet media company providing localized and
interactive content through a network of websites for Spanish- and
Portuguese-speaking audiences in Latin America and the United States. We
currently have, in addition to a global website, country websites for
Argentina, Brazil, Chile, Colombia, Mexico, the United States, Uruguay and
Venezuela. We also currently offer branded retail dial-up Internet access, or
"connectivity", services in Brazil and Colombia. In addition, we currently
provide e-commerce services through DeCompras.com, an e-commerce business
targeting Mexico and Mexican-Americans in the United States.

           In an effort to focus on our core Internet media business and
reduce our short-term liquidity and capital resource requirements, we recently
sold our connectivity services business in Argentina, plan to sell our
connectivity services businesses in Colombia and Brazil, and intend to
discontinue the operations of DeCompras.com during the third quarter of 2001.

           Our registered users (meaning users who have provided personal
information such as name, e-mail address and address) grew from 634,000
persons at December 31, 1999 to 1.8 million persons at December 31, 2000. The
number of pages viewed by our users on a quarterly basis increased from 270
million in the fourth quarter of 1999 to 686 million in the fourth quarter of
2000. In March 1999, we also commenced measuring unique visitors (meaning the
number of different individual users in a given period). The number of unique
visitors has increased from a monthly average of 2.7 million in the fourth
quarter of 1999 to a monthly average of 4.2 million in the fourth quarter of
2000. We anticipate that page views, new registered users and unique visitors
will decline significantly for most of 2001 from the levels of the fourth
quarter of 2000. We attribute this decline, in part, to decreased expenditures
by us on marketing, branding and advertising in the first half of 2001 in
anticipation of completion of the proposed Claxson transaction.

           We believe that providing interactive and local content, supported
by local marketing and sales personnel, will enable us to implement our goal
of building user communities in Latin America and the United States and
generate revenues from advertising and interactive marketing services.

           For information concerning the history and development of our
company, see Item 5. "Operating and Financial Review and Prospects--
Overview".

The Proposed Claxson Transaction

           In mid-2000, our management and members of our board of directors
began to consider whether a business combination or similar transaction would
be advisable in light of trends and considerations affecting Internet
companies at that time. In August 2000, representatives of Ibero-American
Media Partners and Cisneros Television Group first approached our company to
initiate preliminary discussions about the possibility of pursuing a broader
transaction that would combine our businesses with the media, pay television,
and broadcast television and radio businesses of Ibero-American Media Partners
and Newhaven Overseas Corp., a member of the Cisneros Group. These discussions
led to negotiations which culminated in our entering into the combination
agreement on October 30, 2000, under which our company would be contributed to
Claxson, a newly formed British Virgin Islands company, and our shareholders
(excluding Ibero-American Media Partners) would receive 34% of the outstanding
share capital of Claxson.

           In May 2001, the other parties to the combination agreement
informed us that they were evaluating their rights under the agreement,
including whether the conditions precedent to closing of the transaction could
be fulfilled. After evaluating market conditions, trends affecting Internet
companies, other possible options to realize shareholder value, the effect of
changes in our business on the obligation of the parties to go forward with
the transaction and other factors, we entered into extensive negotiations with
the other parties to the combination agreement concerning possible revised
terms for the transaction. During the course of these negotiations, the other
parties indicated that they believed that a material adverse effect (as
defined in the original combination agreement) had occurred with respect to
our company and that, as a result, they had a basis for not proceeding with
the transaction. The negotiations concluded with each party agreeing, in
principle, to revise the terms of the transaction to provide, among other
terms, that our shareholders (excluding Ibero-American Media Partners) will
receive approximately 20% of the outstanding Class A common shares of Claxson
in exchange for the common shares of



                                      16
<PAGE>

our company. Our board of directors, after receiving a fairness opinion from
our outside financial advisor, as to the fairness, from a financial point of
view, to our shareholders (excluding Ibero-American Media Partners) of the
revised terms for the transaction, approved those terms. On June 26, 2001, the
parties entered into an amendment to the combination agreement. This
amendment, among other things, provided that our shareholders (excluding
Ibero-American Media Partners) will receive 20% of the outstanding Class A
common shares of Claxson in exchange for their common shares in our company.

           We believe that Claxson will be an integrated provider of branded
entertainment content for consumers in Latin America and in other areas of the
world. Upon completion of the transaction, Claxon will combine assets in pay
television, broadcast television and radio, and the Internet to create a media
company with a portfolio of popular entertainment brands and multiple methods
of distributing its content. Claxson's pay television business will include 13
pay television channels distributed to approximately 9.7 million pay
television households in Latin America, which account for approximately 44.9
million channel subscribers through cable and direct-to-home television
platforms. (Claxson will calculate the number of subscribers based on the
number of channels received per household so that if, for example, a household
receives five channels, it counts as five subscribers.) In addition, Claxson
will own 80.1% of Playboy TV International, which includes branded pay
television channels distributed in 47 countries and in 13 languages. Claxson's
broadcast television and radio business will include the radio network with the
largest audience, through eight radio stations, and the fourth largest broadcast
television network in Chile. Claxson's Internet business will include, in
addition to El Sitio, a 50/50 joint venture with ARTISTdirect, Inc. that plans
to develop an online music portal, both targeted to Spanish- and
Portuguese-speaking audiences in Latin America and the United States.

           The key terms of the proposed Claxson transaction, as revised by
Amendment No. 1 to the combination agreement, include, among others, the
following:

           o    holders of our common shares (excluding Ibero-American Media
                Partners) will receive approximately 20% of the Class A common
                shares of Claxson outstanding after completion of the
                transaction (instead of 34% as provided under the original
                terms of the combination agreement), while Carlyle/Carlton and
                Hicks Muse will receive approximately 45% and 35%,
                respectively, of Claxson's Class A common shares;

           o    Carlyle/Carlton and Hicks Muse have purchased 15,000,000
                preferred shares of Claxson in accordance with the terms of the
                transaction. These preferred shares will be convertible at the
                option of the holders, commencing 12 months after completion of
                the transaction for a specified period, into Class A common
                shares of Claxson at a conversion ratio per share equal to the
                greater of U.S.$2.00 and the fair market value of one Class A
                common share of Claxson. These preferred shares also will,
                prior to such conversion, vote together with the Class A common
                shares at a deemed conversion ratio per share based upon the
                fair market value of one El Sitio common share on the day
                before completion of the transaction;

           o    Carlyle/Carlton and Hicks Muse will receive an aggregate of
                U.S.$5 million in cash from one or more of the businesses being
                contributed by Ibero-American Media Partners prior to
                completion of the transaction;

           o    Claxson's board of directors will have 12 directors, of whom
                four directors will be designated by Carlyle/Carlton, three
                will be designated by Hicks Muse, one will be designated by a
                group of El Sitio's founding shareholders and three will be
                independent directors. The remaining director position will be
                reserved for the Chairman and Chief Executive Officer of
                Claxson. Each of the parties will retain all or part of its
                respective director designation rights so long as it continues
                to hold 3% or more of Claxson's Class A common shares;

           o    Mr. Roberto Vivo-Chaneton, who is Chairman of the Board of El
                Sitio, will be the initial Chairman of the Board and Chief
                Executive Officer of Claxson; and Messrs. Eric C. Neuman of
                Hicks Muse and Carlos Bardasano of the Cisneros Group will be
                Vice Chairmen;

           o    the Claxson Class A common shares will not be required to be
                listed on The Nasdaq National Market or any other securities
                market as a condition to completion of the transaction,
                although the parties will use their best efforts to obtain a
                listing for the shares on The Nasdaq National Market; and

           o    the combination agreement includes, among other provisions,
                representations and warranties, covenants and closing
                conditions, but does not contain any indemnification provisions
                among the parties.



                                      17
<PAGE>

           For a detailed description of the terms of the proposed Claxson
transaction, we refer you to the following:

           o    the combination agreement (filed as an exhibit to this annual
                report);

           o    Amendment No. 1 to the combination agreement (filed as an
                exhibit to this annual report); and

           o    Claxson's Registration Statement on Form F-4 (Registration No.
                333-13062), including the preliminary proxy
                statement/prospectus of Claxson and our company comprising part
                of that registration statement.

Our Market Opportunity

           We believe that a large and growing market of Spanish- and
Portuguese-speaking audiences exists in Latin America and the United States
for Internet-based services, and that this market presents us with a
significant opportunity. Latin America had a total population of approximately
478 million people at December 31, 2000. At that date, the United States had a
total Hispanic population of more than 32 million people. The Spanish- and
Portuguese-speaking audiences in Latin America and the United States together
represent one of the fastest growing groups of Internet users.

           From our inception, our philosophy has been to "Think regional, be
local." Consistent with this philosophy, we have launched a global website and
country websites for seven countries in Latin America and the United States.
We believe that the combination of country websites supported by in-country
management, marketing, sales and content production personnel will enable us
to implement our vision of building a leading Internet destination network for
Spanish- and Portuguese-speaking audiences in Latin America, the United States
and, over the long term, Spain and Portugal.

Our Strategy

           To achieve our goal of becoming a leading Internet destination
network for Spanish- and Portuguese-speaking audiences in Latin America and
the United States, and to take advantage of our market opportunity, we
continue to implement a strategy consisting of the following principal
elements:

    Completing the Proposed Claxson Transaction

           Our principal strategic objective is to complete the proposed
Claxson transaction. Our board of directors has approved the combination
agreement and recommends that our shareholders vote in favor of the
transaction. In our view, the combination of the businesses that will comprise
Claxson will create an integrated media company that will provide branded
entertainment content for Spanish- and Portuguese-speaking consumers of
traditional and new media. Taking advantage of the complementary nature of the
combined assets and the experience of the combined management team, we believe
that Claxson will achieve revenue growth and product diversification that will
result in stronger financial and operating performance than any of its
constituent businesses, including our company, could achieve on its own.

    Building Our Network

           We seek to build a leading network by:

           o    Further Developing Country and Global Interactive Content. From
                our inception, we have focused on developing quality country
                and global interactive content. We also provide content to our
                viewers under agreements with well-known third-party content
                providers and vertical Internet portals. In addition, the
                community features on our websites are designed to encourage
                our users to interact with us and other users and contribute
                content to our network.

           o    Incorporating Additional Community-Building Features. Our
                experience indicates user preference for interactive
                community-building features, such as chat, Cupido.net (which is
                an interactive meeting place for users), "en tu mail"
                (user-solicited e-mails containing original El Sitio content)
                and other interactive resources.

           o    Strengthening Our Brand Identity. We have positioned our brand
                as being user-friendly, informative and entertaining. We
                believe that the essence of our brand is summed up in our
                marketing campaign theme: El Sitio: Tu Lugar en Internet ("El
                Sitio: Your Home on the Internet").



                                      18
<PAGE>

     Generating Revenues from Our Network

           We view increased advertising revenue-generation as a key to our
long-term financial performance, and we seek to capitalize on our network to
generate revenues by forging long-term one-on-one relationships with
multinational and local advertisers. We are working to educate companies as to
the commercial advantages of the Internet as an advertising medium,
emphasizing the attractive demographics of Latin American Internet users, and
thereby attract advertisers to our network. We have sales and marketing
personnel dedicated to expanding our advertising revenues in each of our
principal markets.

     Leveraging Strategic Relationships

           Our existing relationships with shareholders have been critical to
the development of our business to date and to the combination agreement
entered into to create Claxson. We intend to continue to leverage these
relationships to enter into new strategic relationships to expand our network
and enhance our content, marketing and sales. Our key strategic shareholders,
including members of the Cisneros Group, funds affiliated with Hicks, Muse,
Tate & Furst Incorporated, IMPSAT Fiber Networks, Inc. and SLI.com Inc., have
facilitated a number of new commercial relationships, such as introductions to
content providers and advertising customers. Two of these shareholders are
also working with us on initiatives involving the production and distribution
of broadband content.

Our Network

           Our network consists of country websites for Argentina, Brazil,
Chile, Colombia, Mexico, the United States, Uruguay and Venezuela, as well as
a global website. We also have marketing and sales teams in Argentina, Brazil,
Chile, Mexico, the United States and Uruguay.

           We bring together global interactive features and local content
that afford our users the dual advantages of the size and resources of a
regional network and the local community features and interactive tools most
useful to them. Operationally, this structure permits us to maximize economies
of scale across multiple markets with differing content and features from a
single global platform.

           Our global interactive content is produced by a team of
programmers, designers, editors and marketing staff in Buenos Aires. This team
generates proprietary global content and acquires or develops software
required to offer the features that our market research indicates will most
appeal to our users. In addition, we incorporate content from well-known
third-party providers such as Reuters and The Weather Channel, as well as
third-party Internet portals that pay us a fee to appear on our network. The
global interactive content is adapted to take into account the preferences of
users in our local markets.

    Content

           Our network of websites provides original proprietary and
third-party content and user-friendly interactive resources to our local user
bases. Our management believes that our targeted users are attracted by the
following four "impulses", which we have highlighted in the design of our
homepage in each localized website:

           o    Current Events - Our staff transforms relevant daily current
                events in each local market into an interactive and
                entertaining experience. We also provide global and local
                third-party news coverage.

           o    Relationships - We cover relationship topics that interest our
                users, such as love, family, friendship, society, sex and
                politics. This impulse is built around high-traffic channels
                such as Cupido.net and Mujer, Mujer.

           o    Technology - Our staff produces technology-related content with
                both the new and the experienced Internet user in mind.
                Tutorials, guides and news about technology and the Internet
                are provided to help new users to navigate the Internet. We
                also cater to more experienced users by providing sophisticated
                materials, software and application downloads and
                technology-related news.

           o    Entertainment - We provide entertainment-related content in
                areas such as music, fashion, television and movies and create
                an interactive environment for our users through interviews,
                polls, forums, video and photo productions. For example, our
                users participate in interviews with top models, noted
                musicians and television stars. In addition, we provide our
                users with a variety of games and contests on a daily basis.



                                      19
<PAGE>

           Our most popular interactive channels include:

           o    Chat--provides entry to a "virtual community" in which our
                users interact in real-time discussions about topics such as
                sports, politics, relationships and current events.

           o    Free e-mail - permits users to sign up for free e-mail services
                in Spanish, Portuguese or English through an agreement with USA
                Net, a provider of e-mail and messaging services.

           o    El Sitio 3-D - allows a user to simultaneously access windows
                for audio, video, html and three-dimensional navigation
                capabilities through the user's Internet browser. El Sitio 3-D
                enables the user to navigate as a character inside a virtual
                world in which he or she can communicate and play games, while
                advertisers can transform their marketing offerings into
                virtual outdoor advertising spots and e-merchants can use
                three-dimensional presentations to sell their products.

           o    Astrologia (Astrology) - includes studies and analysis on
                birth, early childhood, karma, horoscopes and compatibility.

           o    Cupido.net - is an interactive meeting place on our network
                where users can search for and develop new friends or special
                relationships.

           o    Mujer, Mujer - a channel targeted to women and devoted to
                topics such as sex, beauty, men, work, finance and consulting.

           o    Mensajero On-Line (Messenger Online) - an instant messaging
                service in Spanish that allows users to connect with others
                surfing the same page.

    E-Commerce

           We believe that substantial numbers of businesses and consumers in
Latin America will, over the long term, embrace the Internet as a viable
marketplace for products and services. However, in anticipation of completion
of the proposed Claxson transaction, we have determined not to devote the
financial and other resources required to further develop De Compras.com, our
e-commerce subsidiary. As a result, we intend to discontinue the operations of
DeCompras.com during the third quarter of 2001. The discontinuance of these
operations will have a favorable short-term effect on our liquidity and
capital resources requirements, as DeCompras.com incurred average losses per
month of U.S.$1.1 million during the seven months of 2000 that it was part of
our company. In those seven months, DeCompras.com incurred aggregate losses of
U.S.$7.7 million on total revenues of U.S.$5.1 million. In connection with the
discontinuance of the operations of DeCompras.com, we estimate that in the
second quarter of 2001 we will incur write-offs of approximately U.S. $18
million with respect to unamortized goodwill related to the DeCompras.com
acquisition, fixed assets and inventories.

           Our network will continue to include a shopping guide. This guide
provides links to other websites for online sales by local and U.S.-based
e-merchants of books, flowers, music, gifts and technology products. We also
provide a shopping help center dedicated to assisting users as they navigate
the online buying process. We do not currently receive any transaction fees
for transactions completed by merchants which use our network, but instead
charge advertising rates for the placement of these merchants' banners within
our network.

    Connectivity

           We entered the connectivity services business in the fourth quarter
of 1999, when we acquired the retail dial-up access subscribers of IMPSAT
Fiber Networks, Inc. in Brazil and Argentina. We completed the acquisition of
IMPSAT's retail dial-up access subscribers in Colombia in April 2000. The
agreements for these acquisitions provided for a total purchase price of
U.S.$20.4 million. As a result of these acquisitions, we acquired an aggregate
of approximately 76,000 subscribers.

           We did not acquire the telecommunications infrastructure, such as
points-of-presence, switches and backhaul capacity, required to provide retail
Internet dial-up access. We entered into renewable one-year services
agreements with subsidiaries of IMPSAT Fiber Networks to provide the necessary
infrastructure for its connectivity services operations.

           At December 31, 2000, we had an aggregate of approximately 75,000
subscribers for our connectivity services businesses. We consider a subscriber
any customer who has entered into a contract to receive connectivity services
for a monthly fee, as well as customers who receive service at no charge under
promotional programs. In addition, our subscribers include customers who have
been blocked from using our Internet services due to non-payment. Generally,
we disconnect subscribers who are delinquent in the payment of their accounts
for a period ranging from 60 to 90 consecutive days, depending on the country.



                                      20
<PAGE>

           On October 30, 2000, we announced our plan to sell our connectivity
services businesses in Argentina, Brazil and Colombia in order to focus on our
core Internet media business. The disposition of these businesses will have a
favorable short-term effect on our liquidity and capital resources
requirements. In 2000, these businesses incurred aggregate operating losses of
approximately U.S.$4.1 million on net revenues of U.S.$9.0 million. However,
we will, or expect to, incur write-offs and losses from the sale of these
businesses because the sale prices are, or are likely to be, below the
unamortized intangible asset related to the retail dial-up access subscribers.

           In June 2001, we sold our connectivity services business in
Argentina to Netizen S.A. for U.S.$1.4 million, of which U.S.$1.3 million was
paid in cash at closing with the balance to be paid in twelve equal monthly
installments.

           We still intend to sell our connectivity services businesses
in Colombia and Brazil.

Our Community

           Users accessing our websites are encouraged to register on either a
full or partial basis:

           o    full registration requires users to provide us with the user's
                name, e-mail address, home address, telephone number,
                occupation and other personal information; and

           o    partial registration requires a user to provide only a name and
                e-mail address.

           To encourage full registration, some of our most popular features,
such as private chat rooms, Cupido.net, free e-mail, Mensajero On-Line and
participation in games and other promotions, require full registration. Once a
user is registered, we are able to communicate with the user by e-mail and
involve the user in its community.

           We currently generate our own statistics concerning our registered
users, page views and unique visitors that are not audited. Prior to March
2001, the statistics concerning our page view data and unique visitors were
audited by I/Pro.

           We track our user traffic principally on the following basis:

           o    registered users - measures the cumulative number of users that
                have registered with our network by providing information such
                as name, e-mail address and address. Some of these registered
                users may no longer be active users. Most of our users have not
                yet registered with our network;

           o    page views - measures the number of pages opened by our users
                in a given period and is a useful indicator for advertisers;

           o    visits - measures the number of visits to our websites in a
                given period; and

           o    unique visitors - measures the number of individual visitors in
                a given period; such that an individual user that visits our
                websites multiple times in the relevant period is only counted
                one time.

           The following table presents the evolution in our registered user
base at quarter-end dates and total page views on a quarterly basis over the
last four quarters ended December 31, 2000.

<TABLE>
<CAPTION>

Quarter Ended                             Registered Users(1)                      Total Quarterly Page Views(2)
-------------                             ----------------                         --------------------------
<S>                                       <C>                                      <C>
March 31, 2000                                0.9 million                                   418 million
June 30, 2000                                 1.2 million                                   592 million
September 30, 2000                            1.6 million                                   523 million
December 31, 2000                             1.8 million                                   686 million
-------------
(1)    Unaudited.
(2)    Audited by I/Pro.
</TABLE>

           Our registered users grew from 0.4 million at September 30, 1999 to
1.8 million at December 31, 2000. The number of unique visitors increased from
a monthly average of 1.0 million in the third quarter of 1999 to 4.1 million
in the fourth quarter of 2000.



                                      21
<PAGE>

           We anticipate that page views, new registered users and unique
visitors for 2001 will decline significantly from the levels of the fourth
quarter of 2000. Part of this decline will reflect our decreased expenditures
on marketing, branding and advertising in 2001.

Marketing

           We depend upon advertising to develop our brand and to attract
users to our websites.

           We incurred expenses for marketing, sales and advertising of
approximately U.S.$20.7 million in 1999 and approximately U.S.$50.7 million in
2000. We anticipate that marketing, sales and advertising expenses will
decrease significantly in the future, primarily as a result of reduced
branding and advertising programs, reductions in marketing personnel and the
reduced marketing expenses that will result from the sales of our connectivity
services businesses. The reduction of our marketing, branding and advertising
expenses in 2001 also reflects our initiatives to reduce costs and expenses in
anticipation of our becoming part of Claxson.

           Our marketing strategy seeks, among other things, to build
advertising relationships and generate revenues. Our sales force focuses on
major advertisers and advertising agencies. We believe that relationships with
Latin American advertising agencies are important because they influence
advertising buying decisions by companies in the region.

Sales

           Advertising. At December 31, 2000, we had an internal marketing and
sales organization of 89 professionals, who are based at our offices in Buenos
Aires (33 persons, including both global and local Argentine personnel), Sao
Paulo (15 persons), Mexico City (11 persons), Miami (11 persons), Montevideo
(4 persons), Spain (2 persons), Santiago (8 persons) and Bogota (5 persons).
In February 2001, we reduced the size of our marketing and sales organization
to 57 professionals in anticipation of completion of the proposed Claxson
transaction.

           A significant portion of our sales personnel's income is
commission-based. We are also seeking representation agreements with
advertising agencies for the sale of advertising space on our websites. Our
sales personnel focus on both selling advertising on the websites and
developing long-term strategic relationships with clients.

           We seek to attract corporate advertisers by educating and
communicating with them regarding the benefits of the Internet as a business
tool. Advertising on the Internet by Latin American companies is still in an
early stage of development. Many Latin American companies have not developed a
website or an Internet strategy and need advice on how to implement such a
strategy.

           We offer a range of advertising options to our clients, including
the following:

           o    banner and button advertising;

           o    channel sponsorships;

           o    sweepstakes and promotions;

           o    shared content deals;

           o    contextual links to merchandise;

           o    opt-in direct marketing/lead generation;

           o    e-mail sponsorship programs;

           o    pre-and post-campaign market research; and

           o    celebrity event sponsorships.

           We offer advertisers the option to display their advertisements on
one or more of our localized websites, or on a regional or global basis.
Advertisers also have the flexibility to specify the channels or the website
pages on our network on which they wish their advertising or promotions to
appear.



                                      22
<PAGE>

           We have derived a majority of our revenue to date from the sale of
advertising. In 2000, we had 478 advertisers compared to 113 advertisers in
1999. We are not dependent upon any major advertiser for any material portion
of our total revenues.

           The cost of our advertising products varies according to the
product. Our contracts with advertisers and advertising agencies range from
one to twelve months.

           E-Commerce. Since our acquisition of DeCompras.com in May 2000, we
have had an e-commerce business that targeted the Mexican market and U.S.
Mexican-Americans located in the United States. However, in order to focus on
our core Internet-based media activities, and to reduce our liquidity and
capital resources requirements in anticipation of completion of the Claxson
transaction, we intend to discontinue the operations of DeCompras.com during
the third quarter of 2001.

           Connectivity. In light of our decision to sell our connectivity
services businesses in Colombia and Brazil, we are maintaining, but seeking to
minimize the costs and expenses of, these operations.

           We are pricing our connectivity services in response to market
conditions in order to preserve the businesses while minimizing associated
losses. We vary our pricing and sales strategies by country, offering a range
of services ranging from plans that provide for unlimited access with e-mail
accounts to plans that provide specified monthly hours of access with e-mail
accounts to plans that provide only e-mail access. For Internet use above the
pre-paid access levels, subscribers are charged per-minute rates. The average
monthly subscription fee in December 2000 in Brazil was U.S.$6.06 per month.
The average monthly subscription fee in December 2000 for the subscribers in
Colombia was U.S.$12.74 per month.

Business and Strategic Relationships

           In order to increase traffic on our websites, expand our online
community and build our brand, we continue to pursue strategic relationships
with business partners that offer quality content, technology and distribution
capabilities as well as marketing and cross-promotional opportunities.

           Content. We have agreements with well-known content producers such
as Reuters and The Weather Channel, among others, under which they provide
content to us for a fixed fee or revenue-sharing arrangement based on minimum
page views.

           We also have agreements with vertical content providers, such as
PSN Multimedia International (sports) which is owned by affiliates of Hicks,
Muse, Tate & Furst Incorporated, Lokau.com (auctions) and Jobshark.com
(employment), that pay us a fixed fee and, in certain cases, a share of
revenues generated, to display content provided by them on our network.

           In February 2000, we entered into a strategic alliance with Sarandi
Comunicaciones S.A., which owns and operates a network of radio stations in
Uruguay under the Sarandi name. Under this five-year agreement, we received a
royalty-free license to use proprietary content broadcast on radio stations
owned by Grupo Sarandi. We also have the right to re-name and re-brand one of
the radio stations under the El Sitio mark and, ultimately, to purchase it
from Grupo Sarandi for U.S.$1 million. Grupo Sarandi has agreed to provide a
fixed amount of advertising time on its radio stations to us, valued at
U.S.$450,000, and to guarantee a minimum amount of advertising for our website
in Uruguay. In exchange for Grupo Sarandi's obligations, we will design, host
and maintain websites for Grupo Sarandi's radio stations. We have issued to
Grupo Sarandi an aggregate of 62,500 of our common shares, which have been
pledged by Grupo Sarandi as security for its payment obligations to us. Grupo
Sarandi is an affiliate of Guillermo J. Liberman, as well as Roberto
Vivo-Chaneton, who are directors and shareholders in our company.

           In February 2000, we signed a letter agreement with Chilevision and
Radio Chile. Pursuant to this two-year agreement, we design, host and maintain
websites for Chilevision and Radio Chile's radio stations and television
network in Chile and receive the right to use content from Chilevision and
Radio Chile on its Chilean website. As part of these agreements, Chilevision
and Radio Chile guaranteed us a minimum of U.S.$300,000 in advertising
revenues during the first year of the agreement and U.S.$600,000 in the second
year of the agreement. In exchange for our obligations, we have issued to
Chilevision and Radio Chile an aggregate of 166,667 common shares. Upon
completion of the transaction, these agreements will be terminated and the
services will be integrated by Claxson's management.



                                      23
<PAGE>

           Applications. We are party to several agreements relating to the
provision of third-party licenses and other applications. For example, we have
entered into an agreement with Inktomi, an important Internet company, under
which we may use its search engine software and access its database. In
addition, through an agreement with USA.Net, a provider of e-mail and
messaging services, our users have access to free e-mail services.

Technology

           We make our websites available using 21 Sun Microsystems servers,
24 Microsoft Windows NT servers, 22 Linux servers, two Oracle database
servers, two Microsoft SQL servers and several high availability systems for
the different platforms, as well as our central production servers. Most of
these servers are currently located at the server farm facilities of Exodus
Communications in Sterling, Virginia, and some of them are at the server farm
facilities of Impsat Fiber Networks, Inc. at Wilton Manors, Florida. We also
have separate servers for our Brazilian website, currently located at the
server farm facilities of IMPSAT Brazil in Sao Paulo. This website is powered
by ten Microsoft Windows 2000 servers and four Linux servers. In each of
Argentina, Brazil, Chile, Mexico, Uruguay and the United States, we maintain a
data center for development and staging and for internal back office.

           Each server can function separately and key server components are
served by multiple redundant machines. As part of the Exodus Communications
server farm facilities, we have up to 200 Mbps of bandwidth access over our
Internet connections, which are fully redundant so that if a failure in the
network or a service provider occurs, traffic is automatically routed through
one of several other providers. Each of Exodus Communications, IMPSAT Brazil
and IMPSAT Fiber Networks, Inc. provides comprehensive facilities management
services, including human and technical monitoring of all production servers
24 hours per day, seven days per week. All facilities are protected by
multiple power supplies.

           We employ in-house and third-party monitoring software for its
servers, processes and network connectivity. Reporting and tracking systems
generate daily traffic, demographic and advertising reports. All of our
production systems are copied to backup tapes each night and regularly stored
in a storage facility on Exodus Communication's premises as well as in a
storage facility at our offices in Buenos Aires. We have implemented these
redundancies and backup systems in order to minimize the risk associated with
damage from fire, power, loss, telecommunications failure, break-ins, computer
viruses and other events beyond our control.

           In connection with our acquisitions of retail dial-up access
customers of IMPSAT Fiber Networks, Inc. in Brazil, Argentina and Colombia,
we did not acquire the telecommunications infrastructure, such as
telecommunications bandwidth, points-of-presence, switches and backhaul
capacity, required to provide these services. Instead, we continue to
outsource that infrastructure from subsidiaries of IMPSAT Fiber Networks, Inc.

           IMPSAT Fiber Networks, Inc. provides us with the telecommunications
infrastructure and equipment installation and maintenance services to provide
connectivity services to our subscribers in Brazil and Colombia on a 24-hour,
365-day basis using equipment owned by subsidiaries of IMPSAT Fiber Networks,
Inc. We pay a fee per port or "channel" made available to our customers for
the transmission of data. In 2000, the aggregate fee payable by us for these
services in Argentina, Brazil and Colombia was approximately U.S.$5.8 million.
These services are provided pursuant to agreements that may be terminated, for
any reason, and without any penalty, by giving 30 days' notice. Each service
agreement contains quality of service standards.

Competition

           We compete with providers of content and services over the
Internet, including web directories, portals, search engines, content sites,
Internet service providers and sites maintained by government and educational
institutions.

           We face significant competition on both a regional and country
level from competitors such as StarMedia, Terra Lycos and AOL Latin America
(in Latin America and the United States), Clarin Digital (in Argentina),
Universo Online (in Brazil) and T1MSN (in Mexico). We also face competition
from Spanish- and/or Portuguese-language versions of services such as Yahoo!.
Our competitors may develop content that is better than ours or that achieves
greater market acceptance. It is also possible that new competitors may emerge
and acquire significant market share. Some of our established competitors and
potential new competitors may have better brand recognition and significantly
greater financial, technical and marketing resources than us.

           Our connectivity services and e-commerce businesses operate
in markets which are extremely competitive. Many of these competitors may have
greater financial, technical, marketing and other resources,



                                      24
<PAGE>

greater brand recognition and customer awareness, more extensive retailing
experience and longer-standing relationships with suppliers than our company.

Intellectual Property and Proprietary Rights

           We consider our El Sitio, O Site and medallion design trademarks
and service marks to be important to our success. We are pursuing registration
of our trademarks and service marks in the United States and in key countries
in Latin America. If we are unable to obtain a registration in a particular
country, we would have trademark or service mark rights to the extent that we
use the mark and common law rights apply, but the rights would not be as
strong as if they were registered.

           Some companies, including other participants in the Internet
industry, use and/or may use trademarks or service marks in English or other
languages which, when translated, are similar to certain of our core marks.
This usage may hinder our ability to build a unique brand identity and may
lead to trademark disputes. If we lose the right to use a trademark or service
mark, we may be forced to adopt a new mark which would result in the loss of
substantial resources and brand identity. In any event, even if successful,
litigating a trademark dispute would result in expenditures and diversion of
executives' time. Any inability to protect, enforce or use our trademarks,
service marks or other intellectual property may have a material adverse
effect on us.

           We also depend upon technology licensed from third parties for
chat, homepage, search and related web services. Any dispute with a licensor
of the technology may result in our inability to continue to use that
technology. Additionally, there may be patents issued or pending that are held
by third parties and that cover significant parts of the technology, products,
business methods or services used to conduct our business. We cannot be
certain that our technology, products, business methods or services do not or
will not infringe valid patents or other intellectual property rights held by
third parties. If a third party alleges infringement, we may be forced to take
a license, which we may not be able to obtain on commercially reasonable
terms. We may also incur substantial expenses in defending against third-party
infringement claims, regardless of the merit of those claims.

Government Regulation

           There are currently few laws or regulations directly applicable to
access to or commerce on the Internet. However, due to the increasing use of
the Internet, a number of legislative and regulatory proposals are under
consideration by various governments and governmental agencies or bodies.

           Our Mexican subsidiary is registered as a provider of connectivity
services with the Mexican Federal Telecommunications Commission. We have also
received the necessary licenses from the relevant regulatory authorities to
provide such services in Argentina and Colombia. We are not required to obtain
a license to provide connectivity services in Brazil.

           The adoption or application of existing or new laws or regulations
may negatively affect the growth in the use of the Internet, which could, in
turn, decrease the demand for our services and products, increase our costs of
doing business, or otherwise have a material adverse effect on our company.
See Item 3. "Key Information--Risk Factors--Risks Related to Our Industry".

Employees

           At December 31, 2000, we had 514 full-time employees. Of these
employees, 196 were employed in product, content and technology, 89 in sales
and marketing, 95 in corporate and administration, and 42 in connectivity
services. In addition, DeCompras.com had 92 employees.

           On February 2, 2001, we announced that we were in the process of
terminating approximately 25% of our employees in anticipation of the proposed
Claxson transaction. We estimate that this personnel reduction, combined with
headcount decreases in the fourth quarter of 2000, should produce annual cost
savings of approximately U.S.$8 million to U.S.$9 million. At the end of
February 2001, we had a total of approximately 392 employees.

           We believe that our relations with our employees are generally
good.



                                      25
<PAGE>

Facilities

           Our corporate offices are located in Buenos Aires, where we
currently lease approximately 1,600 square meters. We also lease office space
in Bogota, Mexico City, Monterrey, Miami, Montevideo, Santiago and Sao Paulo.
In anticipation of the consummation of the proposed Claxson transaction, we
are in the process of rationalizing our real estate interests.

Legal Proceedings

           Other than the legal proceedings described below, there are no
material legal proceedings pending or, to our knowledge, threatened against
us.

           Three civil complaints have been filed in the U.S. District
Court for the Southern District of New York against our company, certain of
its directors and principal executive officers, and the underwriters which led
our initial public offering in December 1999. The complaints, which request
that the cases be certified as class actions, are: Howard M. Lasker, on behalf
of himself and all others similarly situated, vs. El Sitio, Inc., et. al.
(filed on June 8, 2001 in the U.S. District Court for the Southern District of
New York); Bais Kahana, on behalf of itself and all others similarly situated,
vs. El Sitio, Inc., et. al. (filed on June 12, 2001 in the U.S. District Court
for the Southern District of New York); and Shapaour Yavari, on behalf of
himself and all others similarly situated, vs. El Sitio, Inc., et. al.(filed
on June 22, 2001 in the U.S. District Court for the Southern District of New
York). The complaints allege, among other things, that the prospectus and
registration statement for the initial public offering were materially
misleading because they did not disclose the following alleged actions on the
part of the underwriters: (1) the underwriters solicited and received
additional and excessive commissions from certain investors in exchange for
special allocations of common shares in the initial public offering; and (2)
the underwriters entered into agreements with these investors whereby such
investors agreed to purchase additional common shares of El Sitio in the
aftermarket at pre-determined prices, thereby artificially supporting or
inflating the market price of our common shares. The claims are alleged under
both the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of
1934. The complaints seek unspecified money damages. To our knowledge, none of
the complaints for the Lasker, Kahana and Yavari cases or any other cases has
yet been served on any of the named defendants. We believe that the
allegations in the complaints relating to us and our directors and officers
are without merit, and we intend to defend vigorously our company and our
directors and officers in these cases.

           On April 30, 2001, the Brazilian tax authorities informed us that
they planned to appeal a lower tax court decision that held in our favor in
a suit for taxes alleged to be due by our Brazilian subsidiary O Site
Entertenimentos Ltda. in the amount of 1.1 million reais (approximately
U.S.$473,000). Based on preliminary assessments of our Brazilian tax advisors,
we anticipate that this appeal will be dismissed and that the lower court
ruling will be upheld.

Subsidiaries

           We are a holding company and conduct our operations through
subsidiaries in each of the countries in which we maintain websites and sales
and production offices. The following is a list of our principal subsidiaries:

Name                                                   Country of Incorporation
----                                                   ------------------------

El Sitio Management S.A......................          Argentina
El Sitio Argentina S.A.......................          Argentina
O Site Entertenimentos Ltda.................           Brazil
El Sitio Chile S.A...........................          Chile
El Sitio Colombia S.A........................          Colombia
El Sitio Entertenimentos, S.A. de C.V.......           Mexico
El Sitio Uruguay S.A.........................          Uruguay
El Sitio Venezuela S.A.......................          Venezuela
DeCompras.com, S.A. de C.V...................          Mexico
El Sitio U.S.A., Inc.........................          United States
DeCompras.com, Inc...........................          United States
El Sitio Commerce, Inc.......................          British Virgin Islands

           All of our subsidiaries are wholly owned (except for a small number
of shares required to be issued to other persons to comply with local
corporate law requirements).



                                      26
<PAGE>

Item 5.       OPERATING AND FINANCIAL REVIEW AND PROSPECTS

           The following management's discussion and analysis should be read
in conjunction with our consolidated financial statements and the other
information appearing elsewhere in this annual report.

Overview

           We are an Internet media company providing localized interactive
content through a network of websites for Spanish- and Portuguese-speaking
audiences in Latin America and the United States. We currently have, in
addition to a global website, country websites for Argentina, Brazil, Chile,
Colombia, Mexico, the United States, Uruguay and Venezuela. We also currently
offer connectivity in Brazil and Colombia. In addition, we currently provide
e-commerce services through DeCompras.com. In an effort to focus on our core
Internet media business and to reduce our short-term liquidity and capital
resource requirements, we recently sold our connectivity services business in
Argentina, plan to sell our connectivity services businesses in Colombia and
Brazil and intend to discontinue the operations of DeCompras.com during the
third quarter of 2001.

           We were incorporated in the British Virgin Islands in July 1997 and
commenced commercial operations in Argentina in 1997. For the period from
inception through October 1998, we focused our activities on developing our
network of websites and opening content production and sales offices in
Brazil, Mexico, the United States and Uruguay. Prior to the commercial
roll-out of our network of websites in November 1998, we did not generate
meaningful revenues, but we achieved growth in terms of registered users and
monthly page views by users. Since that time, we have focused on developing
our network, building a sales and marketing staff, raising capital, preparing
our initial mass media-based branding and advertising campaigns and expanding
our technological infrastructure. See Item 4. "Information on the Company --
Our Community" for information concerning growth in our registered users, page
views and unique visitors.

           In August 1999, we entered into a framework agreement with IMPSAT
Fiber Networks, Inc., a provider of private networks of integrated data and
voice communications systems in Latin America, to acquire its retail dial-up
access customers in Brazil, Argentina and Colombia. Under this agreement, we
acquired these customers for an aggregate of U.S.$21.5 million, which was
based on a price of approximately U.S.$294 per subscriber. IMPSAT Fiber
Networks, Inc. also purchased a total of 3,070,615 Class A convertible
preferred shares for an aggregate purchase price of U.S.$21.5 million. The
Brazilian and Argentine acquisitions were consummated in October 1999 and
November 1999, respectively, and we closed the Colombian acquisition in April
2000. We did not acquire the telecommunications infrastructure required to
provide connectivity services, which we have to outsource from subsidiaries of
IMPSAT Fiber Networks, Inc. Our connectivity services customers subscribe to
our dial-up operations by paying a monthly fee to us in exchange for
connectivity to the Internet.

           We consummated a series of private placements of our convertible
preferred shares in the second half of 1999 (including the sale of our Class A
convertible preferred shares to IMPSAT Fiber Networks, Inc. in connection with
the above acquisitions of retail dial-up access customers). We completed the
initial public offering of our common shares in mid-December 1999. See "--
Liquidity and Capital Resources" below.

           In May 2000, we acquired DeCompras.com for U.S.$7.0 million in cash
and issued 1.75 million common shares. We also made a working capital loan of
U.S.$3.0 million to DeCompras.com during the period immediately prior to the
closing of that acquisition.

           On October 30, 2000, we entered into the combination agreement with
Ibero-American Media Partners II, Ltd., Carlyle Investments LLC and Carlton
Investments LLC (as assignees of Newhaven Overseas Corp.) and funds affiliated
with Hicks, Muse, Tate & Furst Incorporated, to combine our company with their
pay television, broadcast television and radio businesses and create a media
company with a portfolio of popular entertainment brands and multiple methods
of distributing its content. On June 26, 2001, the parties entered into an
amendment to the combination agreement which provided for revised terms for
the transaction as is more fully described in Item 4. "Information on the
Company -- The Proposed Claxson Transaction." We expect to close the proposed
Claxson transaction during the third quarter of 2001.

           In June 2001, we sold our connectivity services business in
Argentina to Netizen S.A. for a total consideration of U.S.$1.4 million, of
which U.S.$1.3 million was paid in cash with the remaining balance to be paid
in twelve equal monthly installments. We also intend to sell our connectivity
services businesses in Colombia and Brazil. In addition, we intend to
discontinue the operations of DeCompras.com during the third quarter of 2001.



                                      27
<PAGE>

           We have a limited operating and financial history and are subject
to the risks, uncertainties and problems frequently encountered by companies
in early stages of operations, particularly companies in new and rapidly
developing markets, such as the Internet industry. Our historical results of
operations are not necessarily indicative of the results of operations to be
expected in the future.

           We anticipate that our financial performance in 2001, on a
stand-alone basis without giving effect to the proposed Claxson transaction,
will be negatively affected by global trends affecting Internet companies. In
particular, we have been experiencing declines in net revenues from
advertising due in part to generally decreased expenditures by advertisers for
Internet-based advertising activities and also due to lower traffic on our
network resulting, in part, from decreased expenditures by us on marketing,
branding and advertising. In addition, our results of operations for 2001 will
be adversely affected by write-offs relating to sales of our connectivity
services businesses and our intention to discontinue the operations of
DeCompras.com.

Introduction to Results of Operations

           Net Revenues

           We expect to derive future net revenues principally from
advertising on our network of websites. We also currently generate revenues in
the form of monthly access fees charged to our dial-up access subscribers of
our remaining connectivity services businesses in Brazil and Colombia and from
products and services sold by DeCompras.com.

           We anticipate that net revenues from advertising will decline
significantly in 2001 primarily due to generally decreased expenditures by
advertisers for Internet-based advertising. Net revenues from our
connectivity services businesses will decrease as a result of the sale of our
connectivity services business in Argentina and our plan to sell our
connectivity services businesses in Colombia and Brazil. Our net revenues from
e-commerce will also decline in 2001 as we intend to discontinue the operations
of DeCompras.com during the third quarter of 2001.

           Advertising

           To date, we have derived a majority of our revenues from the sale
of advertisements and sponsorships on our network. We receive revenues
principally from:

           o    sponsorship arrangements which allow advertisers to sponsor an
                area on our network in exchange for a fixed payment;

           o    advertising arrangements under which we receive fixed fees for
                banners placed on our websites for specified periods of time;
                and

           o    reciprocal services arrangements, under which we exchange
                advertising space on our network for advertising or services
                from other parties.

           We recognize advertising revenues ratably in the period in which
the advertisement is displayed, so long as no significant obligations remain
and collection of the resulting receivable is probable. To the extent that
minimum guaranteed impression levels are not met, we do not recognize the
corresponding revenues until we achieve guaranteed levels. Payments received
prior to displaying advertisements are recorded as deferred revenues. Revenues
from exclusive sponsorship arrangements are also recognized ratably. Our
contracts with advertisers and advertising agencies range from one to twelve
months in length.

           We have entered into reciprocal services arrangements with various
companies, such as TV Azteca, S.A. de C.V. and IMPSAT Fiber Networks, Inc.,
pursuant to which we exchange advertising on our network for advertising or
other services from these companies. We do not receive any cash payments
pursuant to these arrangements. Revenues and expenses relating to these
arrangements are recorded at the estimated fair value of the goods or services
received or the estimated fair value of the advertisements given, whichever is
more readily determinable. Expenses are recorded when services are received,
which is typically in the same period as the advertisements are run on our
network. These expenses are included in our marketing and sales expenses.



                                      28
<PAGE>

           E-Commerce

           Since our acquisition of DeCompras.com in May 2000, we have derived
approximately U.S.$5.1 million in revenues from our e-commerce business.
However, in order to focus on our core Internet-based media activities and to
reduce our short-term liquidity and capital resource requirements in
anticipation of completion of the proposed Claxson transaction, we intend to
discontinue the operations of DeCompras.com during the third quarter of 2001.
We may thereafter sell the assets, including its service marks and inventory,
to a third party.

           Connectivity Services

           Connectivity services revenues have been derived from monthly
access fees charged to our dial-up access subscribers. In 2000, we derived
approximately U.S.$9.0 million in revenues from connectivity services, which
are expected to decline significantly in 2001.

           On October 30, 2000, we announced that we intended to sell our
connectivity services businesses in Argentina, Brazil and Colombia. In June
2001, we sold our connectivity services business in Argentina for U.S.$1.4
million. We still plan to sell these businesses in Colombia and Brazil.

           Costs and Expenses

           Our principal operating costs and expenses consist of:

           o    cost of goods sold - e-commerce;

           o    product, content and technology expenses;

           o    marketing and sales expenses;

           o    corporate and administration expenses; and

           o    depreciation and amortization.

           Costs of Goods Sold - e-commerce

           Costs of goods sold - e-commerce consist of expenses incurred to
purchase inventories that are sold by DeCompras.com, which was acquired in May
2000, and also includes net freight expenses and packaging materials used in
the e-commerce operations. We did not incur this expense until we consolidated
DeCompras.com's operations in the year ended December 31, 2000.

           Product, Content and Technology Expenses

           Product, content and technology expenses consist of personnel costs
associated with development, testing and upgrading of our network of websites
and systems, purchases of content and specific technology, particularly
software, and telecommunications links and access charges. In connection with
our acquisitions of the dial-up access subscribers in Brazil, Argentina and
Colombia, we entered into services agreements with subsidiaries of IMPSAT
Fiber Networks, Inc. under which, in exchange for an access fee linked to a
number of dial-up access subscribers and levels of usage, IMPSAT Fiber
Networks, Inc. provides the connections and the telecommunication
infrastructure necessary for our users to connect to the Internet. We paid
approximately U.S.$1.9 million to IMPSAT Fiber Networks, Inc. and Exodus
Communications for these services in 1999 and approximately U.S.$6.7 million
for the year ended December 31, 2000. Except for hardware (which is
depreciated), we expense product, content and technology expenses and
telecommunications infrastructure costs as they are incurred. We expect that
product, content and technology expenses will decrease in future periods due
principally to sales of our connectivity services business and to reductions
in personnel and implementation of other cost containment measures, such as
producing localized content or acquiring third-party content on a more
cost-effective basis.

           Marketing and Sales Expenses

           Our marketing and sales expenses consist primarily of salaries and
expenses of marketing and sales personnel, commissions and other
marketing-related expenses including, most significantly, our mass media-based
branding and advertising activities. We expect these marketing and sales
expenses to decrease in 2001 as a result of its reduction of marketing
personnel and related expense reductions, as well as the planned sales of our
connectivity



                                      29
<PAGE>

services businesses and our intended discontinuance of the operations of
DeCompras.com. After completion of the proposed Claxson transaction, we expect
that we will also realize synergies with the pay television and broadcast
television and radio businesses being contributed to Claxson by the Cisneros
Group and Ibero-American Media Partners, which should result in a reduction in
our marketing and sales expenses.

           Corporate and Administration Expenses

           Corporate and administration expenses consist primarily of costs
related to corporate personnel, occupancy costs, general operating costs and
professional expenses, such as legal and accounting fees. We do not expect
corporate and administration expenses to increase in future periods, as we
completed our expansion into key Latin American markets during 1999 and 2000.
After completion of the proposed Claxson transaction, we also expect that we
will realize synergies with the pay television and broadcast television and
radio businesses being contributed to Claxson by the Cisneros Group and
Ibero-American Media Partners, which should result in a reduction in our
corporate and administration expenses.

           Depreciation and Amortization

           Depreciation and amortization expenses consist primarily of
depreciation of servers and other computer equipment, office furniture and
leasehold improvements, and amortization of intangible assets. Investments in
property, plant and equipment are recorded at cost and depreciated using the
straight-line method over the following estimated useful lives:

           o    computers, software and other equipment    3 years

           o    leasehold improvements                     5 years (lease term)

           o    furniture, fixtures and other fixed assets 5 - 10 years

           Our amortization expenses relate principally to assets acquired in
connection with our acquisition of retail dial-up access customers for our
connectivity services business and of the goodwill generated in connection
with our acquisition of DeCompras.com. The sales of our connectivity services
businesses and the discontinuance of operations of DeCompras.com will result
in significant write-offs relating to these assets, but will substantially
reduce our depreciation and amortization expenses in future periods.

           Other Income (Expense)

           Other income (expense) consists primarily of interest expense, net
of interest earned, foreign exchange losses, net of any gains, and other
miscellaneous income and expense items. As a result of the net proceeds of the
initial offering of our common shares, we expect that for the foreseeable
future our interest income will exceed our interest expense. Our exposure to
foreign exchange losses on the translation of assets into U.S. dollars will be
a function of the level of assets in each country of operations.

           The recent sale of our connectivity services business in Argentina
was, and the intended sale of these businesses in Brazil and Colombia will
each be, at a sales price below the unamortized intangible asset related to
the retail dial-up access subscribers. We expect to incur a write-off in the
second quarter of 2001 in the amount of approximately U.S.$564,000 as a result
of the sale of our connectivity services business in Argentina and also expect
to incur write-offs in future periods in connection with the sale of these
businesses in Colombia and Brazil. In addition, in connection with the
discontinuance of operations of DeCompras.com, we estimate that we will incur
in the second quarter of 2001 write-offs of approximately U.S.$18 million,
with respect to unamortized goodwill related to the DeCompras.com
acquisition, fixed assets and inventories.

           Net Losses

           We have incurred net losses and have experienced negative cash flow
from operations in each quarterly and annual period since our inception. We
expect that we will continue to record net losses and negative cash flows from
operations on a quarterly and annual basis through 2002 and, if the proposed
Claxson transction is not completed, in future periods.



                                      30
<PAGE>

Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

           Our results of operations for 2000 were characterized by increased
expenses that more than offset revenue growth during the period. We recorded a
net loss of U.S.$93.3 million in 2000, compared to a net loss of U.S.$36.3
million in 1999. During the year 2000, we continued the development of
interactive and local content. We established websites for, and sales and
content production offices in, Chile, Colombia and Venezuela, commenced our
e-commerce operations through the acquisition of DeCompras.com in May 2000 and
undertook the operation of our connectivity services business.

           The following table sets forth, for the periods indicated, our net
revenues by country of operation and line of business (in thousands of U.S.
dollars):

For the year ended December 31, 2000:

<TABLE>
<CAPTION>
                                                Advertising          Connectivity           E-commerce              Total
                                            ---------------       ---------------       ---------------       ---------------
<S>                                         <C>                   <C>                   <C>                   <C>
Argentina................................   U.S.$     4,011       U.S.$     3,232       U.S.$         --      U.S.$     7,243
Brazil...................................             3,785                 5,444                     --                9,229
Chile....................................               647                    --                     --                  647
Colombia.................................               189                   312                     --                  501
Mexico...................................             5,563                    --                  5,121               10,684
United States............................             4,591                    --                     --                4,591
Uruguay..................................             1,863                    --                     --                1,863
Other....................................               736                    --                     --                  736
                                            ---------------       ---------------       ----------------      ---------------
      Total..............................   U.S.$    21,385       U.S.$     8,988       U.S.$      5,121      U.S.$    35,494
                                            ===============       ===============       ================      ===============

For the year ended December 31, 1999:
                                                Advertising          Connectivity           E-commerce              Total
                                            ---------------       ---------------       ---------------       ---------------
Argentina................................   U.S.$     1,307       U.S.$       625       U.S.$        --       U.S.$     1,932
Brazil...................................               165                 2,031                    --                 2,196
Mexico...................................             1,508                    --                    --                 1,508
United States............................               463                    --                    --                   463
Uruguay..................................               762                    --                    --                   762
                                            ---------------       ---------------       ---------------       ---------------
      Total..............................   U.S.$     4,205       U.S.$     2,656       U.S.$        --       U.S.$     6,861
                                            ===============       ===============       ===============       ===============
</TABLE>

           Net Revenues

           Our net revenues increased to U.S.$35.5 million in 2000 from
U.S.$6.9 million in 1999. In 2000, approximately 60% of our net revenues were
derived from advertising; 25% from connectivity service; and 15% from
e-commerce.

           We attribute the increase in net revenues in 2000 principally to
the growth of our network in terms of registered users, page views and unique
visitors, together with the expansion of our marketing and sales force and the
recognition of revenues from the connectivity services operations and
DeCompras.com's e-commerce operations as from May 2000. Of these revenues, 30%
was derived from Mexico (including revenues from DeCompras.com), 13% from the
United States, 20% from Argentina, 26% from Brazil, 5% from Uruguay and 6%
from elsewhere. During 2000, 21% of our total net advertising revenues was
derived from reciprocal services arrangements, compared to 20% of total net
advertising revenues in 1999. We do not receive any cash payments from these
reciprocal arrangements.

           In Argentina, net revenues from the connectivity services business
on a pro forma basis (giving effect to our acquisition of the connectivity
business in Argentina as if it had occurred on January 1, 1999) decreased to
U.S.$3.2 million in 2000 from U.S.$3.8 million in 1999. This decrease resulted
from the following factors:

           o    a decline in the average gross subscription fee per subscriber
                to U.S.$11.65 at December 31, 2000 from U.S.$23.96 for the
                month of December 1999; and



                                      31
<PAGE>

           o    a partially offsetting increase in subscribers to 20,608 at
                December 31, 2000 from 14,549 at December 31, 1999.

           In June 2001 we sold our connectivity services business in
Argentina to Netizen S.A. We will not generate revenue from this business in
Argentina in future periods.

           In Brazil, net revenues for the connectivity services business on a
pro forma basis (giving effect to our acquisition of our connectivity business
in Brazil as if it had occurred on January 1, 1999) decreased to U.S.$5.4
million for 2000 from U.S.$7.8 million for 1999. This decrease resulted from
the following factors:

           o    a decline in the average gross subscription fee per subscriber
                (in U.S. dollar terms) to U.S.$6.06 for the month of December
                2000 from U.S.$13.30 for the month of December 1999; and

           o    a decrease in subscribers to 50,345 at December 31, 2000 from
                57,656 at December 31, 1999.

           In Colombia, we derived net revenues from our connectivity services
business totaling U.S.$312,000 in 2000.

           We plan to sell our connectivity services businesses in Colombia
and Brazil.

           Average gross subscription fees in Argentina, Brazil and Colombia
continued to decrease in 2000 principally due to the effects of the entrance
of free Internet service providers in these countries over the past few years
as well as increased competition for subscribers, which has manifested itself
in free or low-cost promotional packages.

           Costs and Expenses

           Since we have completed the sale of our connectivity services
business in Argentina, we will not incur costs and expenses relating to this
business in Argentina in future periods. We will similarly reduce our costs
and expenses relating to our connectivity services businesses in Colombia and
Brazil upon their sale and relating to DeCompras.com, upon the discontinuance
of its operations.

           Product, Content and Technology Expenses

           Our product, content and technology expenses increased to U.S.$25.9
million in 2000 from U.S.$8.2 million in 1999. Our product, content and
technology expenses as a percentage of revenues decreased to 73% in 2000 from
119% in 1999. The period-to-period increase was principally attributable to:

           o    an increase in personnel costs relating to the development of
                content and technological support to U.S.$9.1 million in 2000
                from U.S.$3.8 million in 1999;

           o    an increase in expenses for telecommunications links to
                U.S.$9.0 million in 2000 from U.S.$0.5 million in 1999;

           o    an increase in technology expenses to U.S.$3.3 million in 2000
                from no such expense in 1999;

           o    an increase of third-party content expenses to U.S.$1.7 million
                in 2000 from U.S.$0.3 million in 1999; and

           o    an increase in share-based compensation to U.S.$0.5 million in
                2000 from U.S.$0.2 million in 1999.

We expect a decrease in content and technology expenses associated with our
portal services as we continue to reduce personnel and implement other cost
containment measures. In particular, we expect that content and technology
expenses will be reduced upon the anticipated sale or other disposition of our
connectivity services businesses.

           Marketing and Sales Expenses

           Our marketing and sales expenses increased to U.S.$50.7 million in
2000 from U.S.$20.7 million in 1999. Our marketing and sales expenses as a
percentage of net revenues decreased to 143% in 2000 from 300% in 1999. The
period-to-period increase was principally attributable to:



                                      32
<PAGE>

           o    U.S.$33.3 million in costs for our mass media-based branding
                and advertising campaign in 2000 compared to U.S.$17.1 million
                in 1999;

           o    U.S.$5.3 million in expenses relating to marketing and
                promotional activities in 2000 compared to no such expenses in
                1999;

           o    an increase in marketing and sales personnel costs to U.S.$5.2
                million in 2000 from U.S.$1.6 million in 1999;

           o    expenses relating to measurement of our traffic of U.S.$1.7
                million in 2000 compared to no such expense in the
                corresponding period in 1999;

           o    new sales commission and related expenses of U.S.$0.7 million
                in 2000 compared to no such expense in the corresponding period
                in 1999; and

           o    an increase in share-based compensation expense to U.S.$0.4
                million in 2000 from U.S.$0.1 million in 1999.

We expect marketing and sales expenses to decrease in the future, primarily as
a result of the recent reduction in marketing personnel and the reduced
marketing expenses that should result from the pending sale of the
connectivity services business in Argentina and the intended sale of our
connectivity services businesses in Brazil and Colombia. We plan to reduce our
branding and advertising spending as part of a program to control costs and
expenses.

           Corporate and Administration Expenses

           Our corporate and administration expenses increased to U.S.$26.7
million in 2000 from U.S.$10.2 million in 1999. Our corporate and
administration expenses as a percentage of net revenues decreased to 75% in
2000 from 148% in 1999. This period-to-period increase was principally
attributable to:

           o    an increase in corporate and administrative personnel costs to
                U.S.$8.8 million in 2000 from U.S.$4.4 million in 1999, which
                resulted primarily from the expansion of our network;

           o    an increase in share-based compensation expense to U.S.$5.9
                million in 2000 from U.S.$1.8 million in 1999; and

           o    an increase in overhead costs to support the expansion of our
                business activities.

We do not expect that these expenses will continue to increase significantly
in future periods.

           Cost of Goods Sold - e-commerce

           We acquired DeCompras.com in May 2000. Our cost of goods sold -
e-commerce were U.S.$4.5 million for the seven months ended December 31, 2000.
The expense incurred to purchase inventories was U.S.$4.4 million and the cost
incurred in net freight expenses and packaging materials was U.S.$0.1 million.

           Depreciation and Amortization

           Our depreciation and amortization expenses increased to U.S.$13.0
million in 2000 from U.S.$2.1 million in 1999. Our depreciation and
amortization expenses as a percentage of net revenues increased to 37% in 2000
from 31% in 1999. This increase was principally attributable to an increase in
fixed assets (principally servers and personal computers), and the
amortization of the customer base and goodwill attributable to our
connectivity services business and the DeCompras.com acquisition.

           Merger and Restructuring Expenses

           We recorded U.S.$5.5 million of merger and restructuring expenses
in 2000 compared to no such expense in 1999. These expenses primarily
consisted of advisory, legal, accounting and other expenses relating to the
combination transaction. We also recorded a restructuring charge stemming from
organizational changes performed in anticipation of synergies to be derived
from the transaction. We expect to record additional merger and restructuring
expenses of approximately U.S.$6.0 million during the first half of 2001.



                                      33
<PAGE>

           Other Income (Expense)

           Other income (expense), which consists of net interest income
(expense), foreign exchange gain or loss, and other income (expense), net,
consisted of income of U.S.$5.1 million in 2000 compared with income of
U.S.$0.8 million in 1999. This change resulted primarily from interest income
on the proceeds from our initial public offering completed in December 1999.
We expect that for the foreseeable future our interest income will exceed our
interest expense. As our assets in each country of operation increase, so will
our exposure to foreign exchange risk on the translation of assets into U.S.
dollars.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

           Our results of operations for 1999 were characterized by
substantially increased expenses that more than offset revenue growth during
the period. We recorded a net loss of U.S.$36.3 million in 1999, compared to a
net loss of U.S.$3.5 million in 1998. During 1999, in addition to the
continued development of quality content and interactive resources, we
expanded our operations and hired additional personnel to support the roll-out
of offices and websites in Brazil, Mexico and the United States and the launch
of our first mass media-based branding and advertising campaign. We acquired a
total of approximately 70,000 retail dial-up access subscribers from IMPSAT
Fiber Networks, Inc. in Brazil and Argentina on October 7, 1999 and November
5, 1999, respectively. The results of operations for 1999 give effect to these
acquisitions from such dates and, accordingly, affect all year-to-year
comparisons between 1999 and 1998.

           The following table sets forth, for the periods indicated, our net
revenues by country of operation (in thousands of U.S. dollars):

<TABLE>
<CAPTION>
For the year ended December 31, 1999:
                                               Advertising        Connectivity            E-commerce              Total
                                            ----------------     ---------------     ----------------      ----------------
<S>                                         <C>                  <C>                 <C>                   <C>
Argentina.................................  U.S.$      1,307     U.S.$       625     U.S.$         --      U.S.$      1,932
Brazil....................................               165               2,031                   --                 2,196
Mexico....................................             1,508                  --                   --                 1,508
United States.............................               463                  --                   --                   463
Uruguay...................................               762                  --                   --                   762
                                            ----------------     ---------------     ----------------      ----------------
    Total.................................  U.S.$      4,205     U.S.$     2,656     U.S.$         --      U.S.$      6,861
                                            ================     ===============     ================      ================

For the year ended December 31, 1998:
                                               Advertising        Connectivity            E-commerce              Total
                                            ----------------     ---------------     ----------------      ----------------
Argentina.................................  U.S.$        657     U.S.$        --     U.S.$         --      U.S.$        657
Mexico....................................                17                  --                   --                    17
Uruguay...................................               106                  --                   --                   106
                                            ----------------     ---------------     ----------------      ----------------
    Total.................................  U.S.$        780     U.S.$        --     U.S.$         --      U.S.$        780
                                            ================     ===============     ================      ================
</TABLE>

    Net Revenues

           Our net revenues increased by 780% to U.S.$6.9 million in 1999 from
U.S.$780,000 in 1998. Approximately 61% of our net revenues in 1999 was
comprised of advertising and related website design and hosting services.

           We attribute the increase in advertising revenues principally to
the growth of our network in terms of registered users, page views and unique
users, together with the expansion of its marketing and sales force. Of these
revenues, 36% was derived from Mexico, 31% was derived from Argentina and 18%
from Uruguay. During this period, 20% of our total net revenues was derived
from reciprocal services arrangements, compared to 23% of total net revenues
in the corresponding period in 1998. We do not receive any cash payments from
these arrangements.

           The remaining 39% of our net revenues in 1999 was attributable to
connectivity services as a result of our acquisitions of IMPSAT Fiber
Networks, Inc.'s retail dial-up access subscribers in Brazil and Argentina in
the fourth quarter of 1999. Net revenues relating to connectivity services on
a pro forma basis (assuming that these acquisitions had occurred at the
beginning of the relevant years) would have been U.S.$11.7 million in 1999 as
compared with U.S.$14.4 million in 1998. This decrease in pro forma net
revenues relating to connectivity services was primarily attributable to
declines in average gross subscription fees per subscriber (in U.S. dollar
terms), which



                                      34
<PAGE>

more than offset increases in paying subscribers in both Brazil and Argentina.
The decrease in average gross subscription fees (in U.S. dollar terms) was
primarily due to a 51% decrease in the value of the Brazilian real to 1.80
reais per U.S. dollar at December 31, 1999 from 1.19 reais per U.S. dollar at
December 31, 1998.

           In Argentina, net revenues for the retail dial-up access business
on a pro forma basis (giving effect to our acquisition of the connectivity
business in Argentina as if it had occurred on January 1, 1999) increased to
U.S.$3.8 million for 1999 from U.S.$3 million for 1998. This increase resulted
from the following factors:

           o    a small increase in subscribers to 14,549 at December 31, 1999
                from 14,329 at December 31, 1998 (and a higher average number
                of subscribers for 1999 as a whole); and

           o    a partially offsetting decline in the average gross
                subscription fee per subscriber to U.S.$23.96 for the month of
                December 1999 from U.S.$30.78 for the month of December 1998.

           In Brazil, net revenues for the dial-up access business on a pro
forma basis (giving effect to our acquisition of the connectivity business in
Brazil as if it had occurred on January 1, 1999) decreased to U.S.$7.8 million
for 1999 from U.S.$11.4 million for 1998. This decrease resulted from the
following factors:

           o    a decline in the average gross subscription fee per subscriber
                (in U.S. dollar terms) to U.S.$13.30 for the month of December
                1999 from U.S.$21.31 for the month of December 1998, which
                decline was largely due to the substantial decline in the value
                of the Brazilian real in relation to the U.S. dollar during
                1999; and

           o    a partially offsetting increase in subscribers to 57,656 at
                December 31, 1999 from 48,603 at December 31, 1998.

           Costs and Expenses

           Product, Content and Technology Expenses

           Our product, content and technology expenses increased to U.S.$8.2
million in 1999 from U.S.$1.6 million in 1998. Our product, content and
technology expenses as a percentage of revenues decreased to 119% in 1999 from
200% in 1998. The year-to-year increase was principally attributable to:

           o    an increase in personnel costs relating to the development of
                content and technological support to U.S.$3.8 million in 1999
                from U.S.$1.1 million in 1998;

           o    an increase in expenses for telecommunications links (other
                than such expenses relating to our newly-acquired connectivity
                services business) to U.S.$490,000 in 1999 from U.S.$284,000 in
                1998; and

           o    an increase of third-party content expenses to U.S.$263,000 in
                1999 from no such expense in the corresponding period in 1998.

           In addition, U.S.$1.6 million of the increase in product, content
and technology expenses, consisting primarily of payments for
telecommunications infrastructure expenses, related to the acquisition of
IMPSAT Fiber Network's retail dial-up access subscribers in Brazil and
Argentina in the fourth quarter of 1999.

           Marketing and Sales Expenses

           Our marketing and sales expenses increased to U.S.$20.7 million in
1999 from U.S.$674,000 in 1998. Our marketing and sales expenses as a
percentage of net revenues increased to 300% in 1999 from 86% in 1998. This
increase was principally attributable to:

           o    U.S.$17.1 million in costs for our mass media-based branding
                and advertising campaign; and

           o    an increase in marketing and sales personnel costs to U.S.$1.6
                million in 1999 from U.S.$274,000 in 1998, due mainly to
                opening or expanding offices in Mexico, Brazil and the United
                States.

           In addition, U.S.$320,000 of the increase in marketing and sales
expenses, consisting primarily of advertising expenses in Brazil, related to
the acquisition of IMPSAT Fiber Networks' retail dial-up access subscribers in
Brazil and Argentina in the fourth quarter of 1999.



                                      35
<PAGE>

           Corporate and Administration Expenses

           Our corporate and administration expenses increased to U.S.$10.2
million in 1999 from U.S.$1.9 million in 1998. Our corporate and
administration expenses as a percentage of net revenues decreased to 148% in
1999 from 249% in 1998. This year-to-year increase was principally
attributable to:

           o    an increase in corporate and administrative personnel costs to
                U.S.$4.4 million in 1999 from U.S.$480,000 in 1998, which
                resulted primarily from the expansion of our network and
                financing activities; and

           o    an increase in overhead costs to support the expansion of our
                business activities.

           In addition, U.S.$377,000 of the increase in corporate and
administration expenses related to the acquisition of IMPSAT Fiber Networks'
retail dial-up access subscribers in Brazil and Argentina in the fourth
quarter of 1999.

           Depreciation and Amortization

           Our depreciation and amortization expenses increased to U.S.$2.1
million in 1999 from U.S.$107,000 in 1998. Our depreciation and amortization
expenses as a percentage of net revenues increased to 31% in 1999 from 14% in
1998. This increase was principally attributable to an increase of U.S.$5.5
million in fixed assets (principally servers and personal computers).

           Approximately U.S.$878,000 of the increase in depreciation and
amortization expenses, consisting primarily of amortization of the intangible
asset relating to the newly-acquired subscriber base, related to the
acquisition of IMPSAT Fiber Networks' retail dial-up access subscribers in
Brazil and Argentina in the fourth quarter of 1999. We expect to incur
significant amortization expense related to intangible assets, consisting
primarily of this newly-acquired subscriber base.

           Other Income (Expense)

           Other income (expense), which consists of net interest income
(expense), foreign exchange gain or loss, and other income (expense), net,
consisted of income of U.S.$765,000 in 1999 compared with net expenses of
U.S.$20,000 in 1998. This change resulted primarily from interest income
earned on the net proceeds of the private placements and the initial public
offering in 1999. We expect that for the foreseeable future our interest
income will exceed our interest expense. As our assets in each country of
operation increase, so will our exposure to foreign exchange losses on the
translation of assets into U.S. dollars.

Liquidity and Capital Resources

           We have generated net losses and negative cash flows from our
inception. As we implement our strategy and seek to take advantage of our
market opportunity, we anticipate that our liquidity and capital resources
requirements will increase significantly.

           We received total capital contributions of approximately U.S.$1.2
million in 1997 and U.S.$4.1 million in 1998. In 1999, we received capital
contributions totaling U.S.$205.7 million, primarily consisting of the net
proceeds from private placements and commercial transactions involving
issuances of our Class A and Class B convertible preferred shares in July 1999
and November 1999 and the initial public offering of our common shares in
December 1999. We did not receive any capital contributions in 2000 or in the
first half of 2001. We do not anticipate receiving any further capital
contributions prior to the completion of the proposed Claxson transaction.

           In July 1999, we completed a private placement of 6,334,004 Class A
convertible preferred shares for a total purchase price of U.S.$44.4 million.
This private placement consisted of 5,477,088 shares sold for U.S.$38.4
million in cash in July 1999 and 856,916 shares to be issued on a quarterly
basis through January 2001 in exchange for U.S.$6 million in non-cash
advertising time credits.



                                      36
<PAGE>

           In August 1999, we entered into an arrangement with TV Azteca, S.A.
de C.V., the second largest television network in Mexico, under which we
issued to TV Azteca 355,478 shares of our Class A convertible preferred
shares, then valued at approximately U.S.$2.5 million, in exchange for
U.S.$3.5 million in advertising time on TV Azteca. This advertising time will
be made available over a three-year period ending in 2002.

           In connection with our acquisitions of retail dial-up access
customers from IMPSAT Fiber Networks in Brazil and Argentina in October 1999
and November 1999, respectively, and Colombia in April 2000, IMPSAT Fiber
Networks purchased approximately U.S.$21.5 million of our Class A convertible
preferred shares.

           In mid-November 1999, we completed a private placement of 1,111,111
Class B convertible preferred shares for a purchase price of U.S.$10 million
in cash, or U.S.$9.00 per Class B convertible preferred share. Each Class B
convertible preferred share automatically converted into one common share on
June 15, 2000, which was six months after the closing date of our initial
public offering. The difference between the initial public offering price per
common share and the U.S.$9.00 price per Class B convertible preferred share
was amortized as a deemed dividend during the same six-month period.

           In mid-December 1999, we completed the initial public offering of
our common shares. We issued an aggregate of 9,430,000 common shares in the
offering and, in conjunction with the offering, listed our common shares on
The Nasdaq National Market under the symbol "LCTO". We received net proceeds
from the sale of our common shares in the initial public offering, after
deduction of underwriting discounts and transaction expenses, of approximately
U.S.$137.5 million.

           We realized proceeds of U.S.$1.3 million from the sale in June 2001
of our connectivity services business in Argentina and hold notes for the
payment of an additional U.S.$100,000 over the twelve months ending June 30,
2002. In addition, we expect to realize proceeds from the intended sale of our
connectivity services businesses in Colombia and Brazil. We cannot predict
whether or when the sale of these businesses in Colombia and Brazil will be
completed, if at all, or as to the proceeds from any such sale.

           We used net cash in operating activities totaling U.S.$77.4 million
in 2000, U.S.$22.8 million in 1999, U.S.$3.2 million in 1998 and U.S.$875,000
in the partial year 1997. We have experienced and expect to continue to
experience significant negative cash flows from operating activities. Net cash
used in operating activities resulted primarily from our net operating losses.

           We used net cash in investing activities totaling U.S.$29.9 million
in 2000, U.S.$23.2 million in 1999, U.S.$733,000 in 1998 and U.S.$261,000 in
the partial year 1997. Net cash used in investing activities in 1999 resulted
primarily from the acquisitions of IMPSAT Fiber Networks' retail dial-up
customers in Brazil and Argentina and purchases of capital assets. Net cash
used in investing activities in the year ended 2000 resulted primarily from
the investment of net proceeds from our initial public offering in investments
available for resale, the acquisition of DeCompras.com, purchases of capital
assets and the acquisition of retail dial-up customers in Colombia.

           We paid U.S.$7.0 million in cash and issued 1.75 million of our
common shares in connection with our acquisition of DeCompras.com, which
closed in May 2000. We also made a working capital loan of U.S.$3.0 million to
DeCompras.com during the period immediately prior to the closing of the
acquisition, which was converted into equity in Decompras.com concurrently
with the closing. We will write-off substantially all of our investment in
DeCompras.com in our statement of operations for the quarter ended June 30,
2001 as a result of our intention to discontinue the operations of this
e-commerce subsidiary during the third quarter pf 2001.

           We recorded U.S.$5.5 million of merger and restructuring expenses
in 2000. These expenses primarily consisted of advisory, legal, accounting and
other merger-related expenses, such as costs and expenses resulting from
organizational changes undertaken to take advantage of synergies that are
anticipated from the proposed merger transaction. We have recorded such costs
as they have been incurred. We expect to record additional merger-related
expenses of approximately U.S.$6.0 million during the first half of 2001.

           We had capital expenditures of approximately U.S.$9 million in 2000
and expect to make capital expenditures of approximately U.S.$3 million in
2001. The capital expenditures in 2000 principally consisted of purchases of,
or investments in, technical equipment. The capital expenditures for 2001 will
mainly consist of additional investments in equipment. We do not expect to
incur significant capital expenditures for the foreseeable future.



                                      37
<PAGE>

           We expense many of our expenditures related to improvements to our
websites such as new channels and interactive features. These expenses are
included in product, content and technology expenses and in marketing and
sales expenses.

           We believe that our cash, cash equivalents and investments
available for sale balance of U.S.$62.7 million at December 31, 2000 (and
U.S.$46.6 million at March 31, 2001) will be sufficient to enable us, on a
stand-alone basis without giving effect to the proposed merger transaction, to
meet our liquidity and capital resource requirements until mid-2002. We expect
to require additional financing after that point in time. We cannot assure
shareholders that financing would be available in sufficient amounts or on
satisfactory terms and conditions -- if at all.

Market Risks

           We have not had any material interest rate exposure because we have
no significant debt balances to date. Our Class A convertible preferred
shares, which carried an annual dividend rate of 8%, were automatically
converted into common shares upon completion of our initial public offering.
Our Class B convertible preferred shares, which also carried an annual
dividend rate of 8%, were automatically converted into common shares on June
15, 2000, six months after completion of its initial public offering.

           Our principal foreign currency exposure is related to our asset
base, which has consisted principally of monetary assets and liabilities, in
the countries in which it operates. Our foreign currency exposures are
summarized as follows:

<TABLE>
<CAPTION>
                                                           At December 31, 2000
                                       --------------------------------------------------------------
                                        Monetary                  Monetary                     Net
                                         Assets                  Liabilities                 Exposure
                                       ---------                 -----------                ---------
                                                        (In millions of U.S. dollars)

<S>                                    <C>                         <C>                      <C>
Argentina........................      U.S.$10.4                   U.S.$ 5.6                U.S.$ 4.8
Brazil...........................            2.9                         3.4                     (0.5)
Mexico...........................            5.8                         3.4                      2.4
Other(1).........................            5.8                         2.2                      3.6
                                       ---------                   ---------                ---------
                                       U.S.$24.9                   U.S.$14.6                U.S.$10.3
                                       =========                   =========                =========
-------------
(1)        Includes Colombia, Uruguay and Chile.
</TABLE>

           Our subsidiaries have generally used the U.S. dollar as their
functional currency because the sale of Internet advertising has historically
been priced and billed in U.S. dollars. As a result, the financial statements
of the subsidiaries have been remeasured, or translated into U.S. dollars. The
effects of foreign currency transactions and of remeasuring our subsidiaries'
financial condition and results of operations into U.S. dollars have been
included as net gain or loss on foreign exchange. However, our Brazilian
subsidiary uses the real as its functional currency and, as such, the effects
of foreign currency transactions and remeasuring are included as an adjustment
to shareholders' equity. We do not currently hedge against currency exchange
transaction risks, but could in the future engage in hedging activities
against specific foreign currency transaction risks.

           To date, we have not been materially affected by inflation in any
of the countries in which we conduct business or have operations.

           We have market price risks relating to investments available for
sale, which amounted to approximately U.S.$10.2 million at December 31, 2000.
We have not taken any actions to hedge this market price risk exposure.



                                      38
<PAGE>


Item 6.       DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS

           Our articles of association provide for a minimum of nine
directors.

           The following table presents the names and ages of each current
member of our board of directors:

Name                            Age  Position
----                            ---  --------
Roberto Vivo-Chaneton..........  47  Co-founder and Chairman of the Board
Roberto Cibrian-Campoy.........  42  Co-founder and Director
Carlos E. Cisneros.............  35  Director
Michael Greeley................  38  Director
Guillermo Liberman.............  33  Director
Horacio Milberg................  54  Director
Eric C. Neuman.................  56  Director
Sofia Pescarmona...............  28  Director
Ricardo Verdaguer..............  50  Director

           All of the directors serve for a period ending at each annual
meeting of shareholders, which generally will be held in May of each year.

EXECUTIVE OFFICERS

           The following table sets forth the names, ages and positions of
each of our executive officers:

Name                            Age  Position
----                            ---  --------
Roberto Vivo-Chaneton..........  47  Co-founder and Chairman of the Board
Roberto Cibrian-Campoy.........  42  Co-founder, President and Chief Executive
                                       Officer
Leandro Anon...................  39  Chief Operating Officer
Horacio Milberg................  54  Chief Financial Officer and Secretary
Alfredo Jimenez de Arechaga....  48  Chief Administrative Officer, Controller
                                       and Treasurer
Florencia Rodriguez-Giavarini..  32  General Counsel
Santiago Troncar...............  30  Vice President -- Internet Product
                                       Development
Norberto Fernandez.............  46  Vice President -- Internet Technology
Pablo Arenas...................  38  Vice President -- Advertising Sales
Mariano Varela.................  33  Vice President -- Marketing

           Messrs. Roberto Vivo-Chaneton, Cibrian-Campoy, Anon and Milberg are
members of the executive committee within the management of our company.

           Executive officers are appointed by, and serve at the discretion
of, our board of directors.

BIOGRAPHICAL INFORMATION

           Roberto Vivo-Chaneton is our co-founder and has served as Chairman
of our board of directors since our inception. Mr. Vivo was one of the
founders of, and since 1988 has served as a Director and Deputy Chief
Executive Officer, of IMPSAT Fiber Networks, Inc., a provider of private
networks of integrated data and voice communications systems in a number of
countries in Latin America. Mr. Vivo holds degrees in Business Administration
from Universidad Argentina de la Empresa and Macroeconomics from Instituto
Torcuato di Tella, both in Buenos Aires.

           Roberto Cibrian-Campoy is our co-founder and has served as the
Chief Executive Officer, President and a Director since our inception. In
1992, Mr. Cibrian founded and served as President of Cibrian-Campoy Creativos,
S.A., a producer of computer animation and developer of multimedia projects.
From 1989 to 1992, Mr. Cibrian served as Advisor to the Minister of Culture
and Education of Argentina. From 1982 to 1989, Mr. Cibrian practiced
architecture at his own firm and as a designer with a leading Buenos Aires
architecture firm. Mr. Cibrian holds a degree in Architecture from the
Universidad de Belgrano, Buenos Aires.



                                      39
<PAGE>

           Carlos E. Cisneros has served as a Director since July 1999. In
October 1996, Mr. Cisneros founded and became Chief Executive Officer of the
Cisneros Television Group, at that time a member of Ibero-American Media
Partners, II, Ltd. Mr. Cisneros is an alternate director of Univision
Communications, and is a member of the advisory board of Clarity Partners, a
Los Angeles-based venture investment firm. Mr. Cisneros has served as the
President of the Miami Art Museum since September 2000. In January 1998, Mr.
Cisneros was named Vice-Chairman of Ibero-American Media Partners, II, Ltd.,
an investment fund jointly owned by the Cisneros Group and Hicks, Muse, Tate &
Furst Incorporated. Mr. Cisneros has been Executive Vice President of
Venevision International since 1996. From June 1993 to October 1996, Mr.
Cisneros was Vice-President of New Business Development at Venevision
International. Mr. Cisneros holds a Bachelor of Arts degree in Political
Science from American University in Washington, D.C.

           Michael Greeley has served as a Director since July 1999. Mr.
Greeley has been a partner of Polaris Venture Partners since October 2000.
From 1994 through September 2000, Mr. Greeley was a Senior Vice President of
GCC Investments, Inc., the private equity investment group of GC Companies,
Inc., which owns and operates General Cinema Theatres. Prior to 1994, Mr.
Greeley was a Vice President at Wasserstein Perella & Co., Inc., an
international investment bank. Mr. Greeley also currently serves as a director
of VeloCom Inc., Fuelman, Inc. and MotherNature.com, Inc. Mr. Greeley was
previously a director of Global TeleSystems Group, Inc. and American Capital
Access Holdings, LLC. Mr. Greeley graduated from Williams College with honors
and has a Master of Business Administration degree from Harvard Business
School.

           Guillermo Liberman has served as a Director since July 1997. Mr.
Liberman is also a Director of Sociedad Latinoamericana de Inversiones, the
parent company of Grupo Liberman. Grupo Liberman is involved in agribusiness,
fisheries, telecommunications and hotel development. He holds a Bachelor of
Science degree in Business Administration from Babson College in Massachusetts
and a Masters of Business Administration degree from the University of Miami
in Florida.

           Horacio Milberg has served as a Director since April 2000 and has
been our Chief Financial Officer since July 1999. From September 1998 to
July 1999, Mr. Milberg served as a financial advisor to our board of directors.
From April 1993 to July 1999, Mr. Milberg served as an independent financial
advisor and investment manager. Mr. Milberg previously served as: senior
finance officer of Corporacion IMPSA, S.A.; vice president, Investment Banking,
Latin America for CS First Boston Corporation, New York; and vice president
and director for Latin America for The Chase Manhattan Bank, N.A., New York
and London. Mr. Milberg holds an undergraduate degree from Universidad de
Buenos Aires and a Master of Business Administration degree with honors from
the J. L. Kellogg Graduate School of Management, Northwestern University,
where Mr. Milberg was a Fulbright Scholar.

           Eric C. Neuman has served as Director since June 2000. Mr. Neuman
has been a Partner of Hicks, Muse, Tate & Furst Incorporated since January
2001. Between June 1998 and March 1999, Mr. Neuman served as Senior Vice
President and Chief Strategic Officer of Chancellor Media, a company that was
founded by and whose largest shareholder was Hicks, Muse, Tate & Furst
Incorporated. From 1993 to 1998, Mr. Neuman was an officer with Hicks, Muse,
Tate & Furst Incorporated. Mr. Neuman serves on the boards of directors of LIN
Television Corporation and Sunrise Television Corporation, and he previously
was a director of Chancellor Media and Capstar Broadcasting Partners. Mr.
Neuman holds a Bachelor of Arts degree from the University of South Florida
and a Masters of Business Administration degree from the J.L. Kellogg Graduate
School of Management, Northwestern University.

           Sofia Pescarmona has served as a Director since October 10, 1999.
Ms. Pescarmona is Assistant to the Chief Executive Officer of IMPSAT Fiber
Networks, Inc., and has also been a Director of IMPSAT since February 1996.
From 1994 to January 1998, Ms. Pescarmona held various positions within IMPSAT
Fiber Networks, Inc. Ms. Pescarmona holds a Bachelor of Arts degree from Tufts
University and a Masters of Business Administration degree from IAE University
in Argentina.

           Ricardo Verdaguer has served as a Director since July 1997. Mr.
Verdaguer has served as the President and Chief Executive Officer of IMPSAT
Fiber Networks, Inc. since 1988. In 1988, as a senior executive of Corporacion
IMPSA, S.A., an Argentina-based multinational company with holdings in
manufacturing, transportation and telecommunications, Mr. Verdaguer was
involved in the founding of IMPSAT Fiber Networks, Inc. From 1976 to 1988, Mr.
Verdaguer occupied various operational positions at Industrias Metalurgicas
Pescarmona as an electromechanical engineer. Mr. Verdaguer holds an Engineering
degree from the Universidad Juan Agustin Mazza, Mendoza, Argentina.



                                      40
<PAGE>

           Leandro Anon has served as our chief operating officer since
October 2000 and served as country manager for El Sitio Uruguay since October
1999. Mr. Anon was a real estate developer and is the president of La Tohona
Golf Club, a private urban community and country club in Uruguay, which he
co-founded. Mr. Anon also was the executive vice president of Sarandi
Comunicaciones, a radio broadcast company in which he is a shareholder. Mr.
Anon has a Degree in business administration and finance from Universidad
Republica oriental del Uruguay.

           Alfredo Jimenez de Arechaga has served as our Chief Administrative
Officer since July 1999 and also served as our Chief Financial Officer from
November 1998 to July 1999. From 1995 until November 1998, Mr. Jimenez served
in the Corporate Treasury of Corporacion IMPSA, S.A. From 1994 to 1998, Mr.
Jimenez served as the Administration Manager for both Resis Ingenieria, S.A.
and International Satellite Communication Holding Ltd. (Switzerland), each a
subsidiary of IMPSAT Fiber Networks, Inc. From 1992 to 1994, Mr. Jimenez
served as a Financial Manager for Puentes and Construcciones Ltda. in Uruguay.
Mr. Jimenez holds a degree in agricultural engineering from Universidad
Republica Oriental del Uruguay, a Masters degree in Project Evaluation and
Economics, and a Masters in Business Administration degree from O.R.T.
University in Uruguay.

           Florencia Rodriguez-Giavarini has served as our General Counsel
since March 2000. Before joining our company, Ms. Rodriguez-Giavarini worked
as Vice President with Citibank's Corporate Bank in Argentina. Previously, she
was a Capital Markets and Project Finance Officer with Corporacion IMPSA S.A.
Ms. Rodriguez-Giavarini holds a law degree from Universidad Catolica Argentina
in Buenos Aires.

           Santiago Troncar has served as our Vice President - Product
Development since March 2001. From September 1999 until January 2001, Mr.
Troncar was our Vice President -- E-Commerce. From July 1997 until September
1999, Mr. Troncar was our Vice-President -- Marketing. Prior to that, Mr.
Troncar was co-founder and manager of NewsClick, an Internet start up that
developed one of the first web based information services in Argentina. From
1993 through 1996, Mr. Troncar was a senior consultant at Coopers & Lybrand in
Buenos Aires, in charge of various projects in different industries. Mr.
Troncar holds an undergraduate degree in economics from the Universidad
de Buenos Aires and has attended the Executive Development Program at the
Wharton School of Business.

           Norberto Fernandez has served as Vice President--Internet
Technology since November 2000. From 1998 until November 2000, Mr. Fernandez
was the Technology Director at Westec S.A. Comunicaciones. From 1996 to 1998,
Mr. Fernandez was the Technology Director at Skytel Uruguay. Prior to 1996,
Mr. Fernandez served as Technology Director at Renset S.A. and he was an
outside consultant for Barisa S.A., product manager for Ahtuel Electronics
S.A., lab engineer for Estirpe S.A. and Ventronics S.A., and technical
engineer for Audio America and others since 1972. Mr. Fernandez holds an
undergraduate degree in electronics and telecommunications from the Universidad
de Buenos Aires.

           Pablo Arenas has served as Vice President -- Advertising Sales
since April 2001. From September 1997 to March 2001, Mr. Arenas was the
Advertising Sales Manager for Torneos y Competencias, which included special
assignments to handle advertising sales for Panamerican Sports Network (PSN)
and La Red Deportiva. From 1992 to 1997, Mr. Arenas served as Sales Manager
for TM Producciones, where he was in charge of advertising sales for
productions airing on Telefe and Canal 13 and radio productions. Mr. Arenas
previously worked at the commercial departments at IBM and Rock & Pop radio in
Buenos Aires. Mr. Arenas holds an undergraduate degree from the Universidad de
Buenos Aires.

           Mariano Varela has served as our Vice President-- Marketing since
August 1999. From August 1994 until July 1999, Mr. Varela served as Director
of Client Services at Leo Burnett Worldwide Inc. in Argentina. From 1992 until
1994 he served as an account executive at Young and Rubicam in Argentina. From
1990 until 1992, Mr. Varela served as an account executive at Marcet, Dreyfuss
and Associates. Mr. Varela has a degree in marketing from the Universidad del
Salvador Argentina.

COMMITTEES OF THE BOARD OF DIRECTORS

           Our board of directors has standing audit and compensation
committees.

           The audit committee consists of Messrs. Greeley, Neuman and
Liberman. Among other functions, the audit committee:

           o    makes recommendations to the board of directors regarding the
                selection of independent auditors;



                                      41
<PAGE>

           o    reviews the results and scope of the audit and other services
                provided by our independent auditors;

           o    reviews our financial statements; and

           o    reviews and evaluates our internal control functions.

           The compensation committee consists of Messrs. Roberto
Vivo-Chaneton, Cisneros and Greeley. The compensation committee makes
recommendations to the board of directors regarding the following matters:

           o    executive compensation;

           o    salaries and incentive compensation for our employees and
                consultants; and

           o    the administration of our share option plans.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Director Compensation

           Directors currently do not receive stated compensation from our
company for their service as members of our board of directors. However, by
resolution of the board of directors, directors may receive a fixed amount and
reimbursement for expenses in connection with the attendance at board of
directors and committee meetings.

           Our directors did not receive any payments in connection with their
services as such in the year ended December 31, 2000.

           Under a shareholders' agreement entered into in connection with the
July 1999 private placement of our Class A convertible preferred shares,
monitoring and directors' fees of U.S. $700,000 per year, in the aggregate, are
payable to IAMP (El Sitio) Investments Ltd., GCC Investments, LLC, Tower Plus
International, SLI.com Inc., Militello Limited and IMPSAT Fiber Networks, Inc.

           From time to time, some of our directors may be granted options to
purchase shares of common shares.

Executive Officer Compensation

           The aggregate amount of compensation paid by us to nine executive
officers as a group (including Roberto Vivo-Chaneton, who began to receive
compensation as of October 31, 2000, but excluding Pablo Arenas, who became an
executive officer in 2001) was approximately U.S.$1.5 million for the year
ended December 31, 2000. We did not set aside or accrue any amounts for pension,
retirement or similar benefits, as we did not provide such benefits for our
executive officers. The above amount does not include share options issued to
these executive officers under our 1999 share option plan.

           At December 31, 2000, our executive officers (including Mr.
Vivo-Chaneton, but excluding Mr. Arenas) held an aggregate of 2,233,900
options in respect of our common shares at an average exercise price of
U.S.$8.38 per share. 508,500 of these options were exercisable as of December
31, 2000, and an additional 6814,950 options will become exercisable in 2001.
The four members of the executive committee held, in the aggregate, 1,892,000
of these options.

           Some of our executive officers (including Messrs. Cibrian-Campoy and
Milberg, but not Mr. Vivo-Chaneton) have employment agreements with us for
three-year terms. Each of these agreements provides for a specified monthly
salary, a minimum annual bonus and share options. Each of these agreements also
provides for one year's salary in the event of termination of employment,
except if such termination is "for cause".

1999 SHARE OPTION PLAN

           Our 1999 share option plan initially provided for the issuance of
up to 1,240,000 common shares. An additional 2,000,000 common shares were
reserved in October 1999 and a further 1,572,700 common shares were reserved
in December 1999.

           Our 1999 share option plan allows for the grant of incentive share
options qualified within the meaning of Section 422 of the U.S. Internal
Revenue Code of 1986 and non-qualified share options, which do not so qualify.



                                      42
<PAGE>

Each option granted under the plan shall be evidenced by an agreement that
specifies the terms and conditions of the grant.

           Our 1999 share option plan is administered by the compensation
committee of our board of directors. Subject to the limitations in our 1999
share option plan, the compensation committee has authority to determine to
whom options may be granted and the terms of such options, including the
exercise price, the number of shares subject to each option, the conditions
for vesting, the expiration date and the form of consideration payable upon
exercise of options. All of our directors, employees and bona-fide consultants
and advisors are eligible for non-qualified share option grants; however,
incentive share options may only be granted to our employees. No individual
currently may be granted options totaling more than 15% of the total number of
options issuable under the plan.

           The exercise price of an incentive share option cannot be less than
100% of the fair market value of a common share on the grant date, provided
that no person who owns, directly or indirectly, more than 10% of the total
combined voting power of all classes of our shares, referred to below as a
"Ten-Percent Shareholder", may receive incentive stock options unless the
exercise price is at least 110% of the fair market value of a common share on
the grant date. Options granted under the 1999 share option plan are not
transferable by the optionee, other than by will or by the laws of descent and
distribution. All options issued under the 1999 share option plan will have a
term no longer than 10 years from the grant date, except that in the case of
incentive stock options granted to a Ten-Percent Shareholder, the term shall
not exceed five years. The 1999 share option plan terminates on December 1,
2008 but such termination will not affect the validity of any outstanding
option.

           At December 31, 2000, options to purchase 4,534,177 common shares
were outstanding under the 1999 share option plan and 170,363 shares remained
available for future option grants. The weighted average exercise price for
these outstanding options is U.S.$7.32 per share. Most of these outstanding
options become exercisable either (i) in tranches (as to 30% of the options on
the first anniversary of the grant date, as to 30% of the options on the
second anniversary of the grant date and as to the remaining 40% of the
options, on the third anniversary of the grant date) or (ii) on the third
anniversary of the grant date. These options terminate upon the earliest to
occur of the following: termination of an optionee's employment for good
cause, 30 days after an optionee's resignation, 180 days after an optionee's
employment is terminated for any other reason, including retirement,
disability or death, and eight years after the grant date. Notwithstanding the
foregoing, upon a change of control (for example, a merger or similar
transaction or the removal of a majority of the members of our current board
of directors) of our company that occurs on or after the first anniversary of
the grant date, all unvested portions of options then outstanding will vest in
full on that date.

           Our board of directors may amend, alter, suspend, or terminate the
1999 share option plan at any time, provided however, that the board must
first seek the approval of stockholders, if required by law or regulation, and
that of each affected optionee if such amendment, alteration, suspension or
termination would adversely affect his or her obligations under any option
granted prior to that date.

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY

           Under British Virgin Islands law, every director and officer of El
Sitio, in performing his or her functions, is required to act honestly and in
good faith with a view to our best interests and exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable
circumstances. No provision in our memorandum and articles of association or
in any agreement entered into by us relieves a director or officer from the
duty to act in accordance with our memorandum and articles of association or
from any personal liability arising from his or her management of our business
and affairs.

           We may indemnify any director or officer against all expenses,
including legal fees, and against all judgments, fines and amounts paid in
settlement and reasonably incurred in connection with legal, administrative or
investigative proceedings. We may only indemnify a director or officer if the
director or officer acted honestly and in good faith with the view to our best
interests and, in the case of criminal proceedings, the director or officer
had no reasonable cause to believe that his or her conduct was unlawful. The
decision of the board of directors as to whether the director or officer acted
honestly and in good faith with a view to our best interests and as to whether
the director or officer had no reasonable cause to believe that his or her
conduct was unlawful, is in the absence of fraud sufficient for the purposes
of indemnification, unless a question of law is involved. The termination of
any proceedings by any judgment, order, settlement, conviction or the entry of
no plea does not, by itself, create a presumption that a director of officer
did not act honestly and in good faith and with a view to our best interests
or



                                      43
<PAGE>

that the director or officer had reasonable cause to believe that his or her
conduct was unlawful. If a director or officer to be indemnified has been
successful in defense of any proceedings referred to above, the director or
officer is entitled to be indemnified against all expenses, including legal
fees, and against all judgments, fines and amounts paid in settlement and
reasonably incurred by the director or officer in connection with the
proceedings.

           We may purchase and maintain insurance in relation to any director
or officer against any liability asserted against the director or officer and
incurred by the director or officer in that capacity, whether or not we have
or would have had the power to indemnify the director or officer against the
liability as provided in our memorandum and articles of association.



                                      44
<PAGE>


Item 7.       MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

PRINCIPAL SHAREHOLDERS

           The following table presents, as of May 31, 2001, the beneficial
ownership of our common shares by:

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

           o    each of our directors and executive officers; and

           o    all of our directors and executive officers as a group.

           Unless otherwise indicated, to our knowledge, all persons listed
below have sole voting and investment power with respect to their common
shares, except to the extent applicable law gives spouses shared authority.
Each shareholder has the same voting rights as each other shareholder.

           The table reflects the conversion of all of our outstanding Class A
convertible preferred shares into our common shares, which occurred
automatically upon the closing of our initial public offering in December
1999). In addition, the table reflects of the conversion of our 1,111,111
outstanding Class B convertible preferred shares, which occurred automatically
on June 15, 2000 (six months after the closing of our initial public
offering).

<TABLE>
<CAPTION>
                                                                                 Number                    Percentage of
Beneficial Owner                                                                of Shares                Common Shares(1)
----------------                                                                ---------                ----------------

<S>                                                                             <C>                      <C>
Principal Shareholders
IAMP (El Sitio) Investments, Ltd.(2)..............................               8,164,549                        18.0%
SLI.com Inc.(3)...................................................               4,956,676                        11.0
Militello Limited(4)..............................................               4,799,414                        10.6
IMPSAT Fiber Networks, Inc........................................               6,141,230                        13.6
Tower Plus International..........................................               2,325,324                         5.1

Directors and Executive Officers
Roberto A. Vivo-Chaneton(5).......................................              11,060,644                        24.4
Ricardo Verdaguer(6)..............................................               8,466,554                        18.7
Sofia Pescarmona(7)...............................................               6,141,230                        13.6
Carlos E. Cisneros(8).............................................               8,165,599                        18.0
Eric C. Neuman(9).................................................               8,314,871                        18.4
Guillermo J. Liberman(10).........................................               4,956,676                        11.0
Michael Greeley...................................................                   4,400                           *
Roberto Cibrian-Campoy(11)........................................               1,118,010                         2.4
Horacio Milberg(12)...............................................                  98,400                           *
Leandro Anon(13)..................................................                 150,346                           *
Alfredo Jimenez de Arechaga(14)...................................                  35,407                           *
Santiago Troncar(15) .............................................                  36,600                           *
Florencia Rodriguez-Giavarini(16) ................................                   3,000                           *
Norberto Fernandez(17)............................................                     300                           *
Pablo Arenas......................................................                      --                          --
Mariano Varela(18) ...............................................                  31,024                           *
All directors and executive officers as a group (16 persons)......              28,010,730                        61.9
-----------------
*      indicates less than 1%.

(1)    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
       number and percentage owned by the holder of the options, warrants,
       rights or conversion privileges such person, but not deemed outstanding
       for the purpose of calculating the percentage owned by any other person
       listed.


                                             (footnotes continued on next page)
                                      45
<PAGE>

(2)    Includes 1,713,832 common shares issued through December 31, 2000 to
       Washburn Enterprises, an affiliate of IAMP (El Sitio) Investments, Ltd.
       Also includes 55,556 common shares issued to Red de Television
       Chilevision S.A. and 111,111 common shares issued to Ibero-American
       Media Holding Chile S.A., affiliates of IAMP (El Sitio) Investments,
       Ltd., in connection with El Sitio's strategic alliance with these
       companies.

(3)    Includes 62,500 common shares issued to Sarandi Comunicaciones S.A.,
       which is an affiliate of SLI.com Inc. and Guillermo J. Liberman.
       SLI.com Inc. and Mr. Liberman disclaim beneficial ownership of all
       shares owned by Sarandi Comunicaciones S.A.

(4)    Includes 62,500 common shares issued to Sarandi Comunicaciones,
       which is an affiliate of Militello Limited and Mr. Roberto
       Vivo-Chaneton. Militello Limited and Mr. Vivo-Chaneton disclaim
       beneficial ownership of all shares owned by Sarandi Comunicaciones
       S.A.

(5)    Includes 4,736,914 common shares owned by Militello Limited in respect
       of which Mr. Roberto Vivo-Chaneton has a controlling interest. Also
       includes 6,141,230 shares owned by IMPSAT Fiber Networks, Inc.
       attributable to Mr. Vivo-Chaneton as a result of his affiliation with
       IMPSAT Fiber Networks, Inc. In addition, includes 62,500 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 IMPSAT Fiber Networks, Inc. and Sarandi
       Comunicaciones S.A. Also includes 120,000 options to purchase common
       shares granted to Mr. Vivo-Chaneton under El Sitio's 1999 share option
       plan which are currently exercisable, but excludes 340,000 options
       which are not currently exercisable.

(6)    Includes beneficial ownership of 2,325,324 common shares
       attributable to Mr. Verdaguer as a result of his controlling
       interest in Tower Plus International. Also includes 6,141,230 shares
       owned by IMPSAT Fiber Networks, Inc. attributable to Mr. Verdaguer
       as a result of his affiliation with IMPSAT Fiber Networks, Inc. Mr.
       Verdaguer disclaims beneficial ownership of all shares owned by
       IMPSAT Fiber Networks, Inc.

(7)    Includes 6,141,230 common shares owned by IMPSAT Fiber Networks,
       Inc. attributable to Ms. Pescarmona as a result of her position as a
       director in IMPSAT Fiber Networks, Inc. Ms. Pescarmona disclaims
       beneficial ownership of all shares owned by IMPSAT Fiber Networks,
       Inc.

(8)    Includes 6,284,050 common shares owned by IAMP (El Sitio)
       Investments, Ltd., which are included as a result of Mr. Cisneros'
       association with the Cisneros Group, which has an indirect joint
       ownership interest in IAMP (El Sitio) Investments, Ltd. Also
       includes 1,713,832 common shares issued through December 31, 2000 to
       Washburn Enterprises, an affiliate of IAMP (El Sitio) Investments,
       Ltd. Also includes 55,556 common shares issued to Red de Television
       Chilevision S.A. and 111,111 common shares issued to Ibero-American
       Media Holdings Chile S.A., affiliates of IAMP (El Sitio)
       Investments, Ltd., in connection with El Sitio's strategic alliance
       with these companies. Mr. Cisneros disclaims beneficial ownership of
       all shares owned by IAMP (El Sitio) Investments, Ltd., Washburn
       Enterprises, Red de Television Chilevision S.A. and Ibero-American
       Media Holdings Chile S.A.

(9)    Includes 6,284,050 common shares owned by IAMP (El Sitio) Investments,
       Ltd., which are included as a result of Mr. Neuman's affiliation with
       Hicks, Muse, Tate & Furst Incorporated which has an indirect joint
       ownership interest in IAMP (El Sitio) Investments, Ltd. In addition,
       includes 1,713,832 common shares issued through December 31, 2000 to
       Washburn Enterprises, an affiliate of IAMP (El Sitio) Investments, Ltd.
       Also includes 55,556 common shares issued to Red de Television
       Chilevision S.A. and 111,111 common shares issued to Ibero-American
       Media Holdings Chile S.A., affiliates of IAMP (El Sitio) Investments
       Ltd., in connection with El Sitio's strategic alliance with these
       companies. Mr. Neuman disclaims beneficial ownership of all shares
       owned by IAMP (El Sitio) Investments, Ltd., Hicks, Muse, Tate & Furst
       Incorporated, Washburn Enterprises, Red de Television Chilevision S.A.
       and Ibero-American Media Holdings Chile S.A.

(10)   Includes beneficial ownership of 4,894,176 common shares
       attributable to Mr. Liberman as a result of his controlling interest
       in SLI.com Inc. Also includes 62,500 common shares issued to Sarandi
       Comunicaciones S.A., which is an affiliate of Mr. Liberman. SLI.com
       Inc. and Mr. Liberman disclaim beneficial ownership of all shares
       owned by Sarandi Comunicaciones S.A.

(11)   Includes 908,010 common shares held through RC Limited, which is wholly
       owned by Mr. Cibrian-Campoy and his wife. Also includes options to
       purchase 210,000 common shares granted to Mr. Cibrian-Campoy under El
       Sitio's 1999 share option plan, which are currently exercisable, but
       excludes 750,000 options which are not currently exercisable.

(12)   Includes options to purchase 90,600 common shares granted to Mr.
       Milberg under El Sitio's 1999 share option plan which are currently
       exercisable, but excludes 291,400 options which are not currently
       exercisable.


                                             (footnotes continued on next page)
                                      46
<PAGE>


(13)   Includes 75,846 common shares owned by Compania de Inversiones de
       Montevideo S.A., in respect of which Mr. Anon holds a controlling
       interest. Also includes 62,500 common shares issued to Sarandi
       Communicaciones S.A. which is an affiliate of Compania de
       Inversiones de Montevideo S.A. and Leandro Anon. Compania de
       Inversiones de Montevideo S.A. and Mr. Anon disclaim beneficial
       ownership of all shares owned by Sarandi Comunicaciones S.A. Also
       includes options to purchase 12,000 common shares granted to Mr.
       Anon under El Sitio's 1999 share option plan which are currently
       exercisable, but excludes 78,000 options which are not currently
       exercisable.

(14)   Includes options to purchase 18,000 common shares granted to Mr.
       Jimenez under our 1999 share option plan which are currently
       exercisable, but excludes 67,000 options which are not currently
       exercisable.

(15)   Includes options to purchase 36,600 common shares granted to Mr.
       Troncar under our 1999 share option plan which are currently
       exercisable, but excludes 66,800 options which are not currently
       exercisable.

(16)   Includes options to purchase 3,000 common shares granted to Ms.
       Rodriguez-Giavarini under our 1999 share option plan which are
       currently exercisable, but excludes 47,000 options which are not
       currently exercisable.

(17)   Includes options to purchase 300 common shares granted to Mr.
       Fernandez under our 1999 share option plan which are currently
       exercisable, but excludes 3,200 options which are not currently
       exercisable.

(18)   Includes options to purchase 18,000 common shares granted to Mr.
       Varela under our 1999 share option plan which are currently
       exercisable, but excludes 67,000 options which are not currently
       exercisable.
</TABLE>


           The above table does not include 3,347,197 common shares reserved
for issuance upon exercise of options granted under our 1999 share option
plan, but that are not currently exercisable (including, among others, the
options referred to in notes (5) and (11) through (16) and (18) above) at a
weighted average exercise price of U.S. $6.98 per share.

                                ---------------

           As of May 31, 2001, 22,257,427 common shares were held by holders
in the United States, and there were 94 record holders in the United States.




                                      47
<PAGE>

RELATED PARTY TRANSACTIONS

The Proposed Claxson Transaction

           We entered into the combination agreement with Ibero-American Media
Partners, Carlyle/Carlton and Hicks Muse to combine our Internet business with
their respective pay television, broadcast television and radio businesses and
create a media company with a portfolio of popular entertainment brands and
multiple methods of distributing its content. The proposed Claxson transaction
involves affiliates of El Sitio and, as a result, is a related party
transaction. Ibero-American Media Partners, which is owned by Carlyle/Carlton
and Hicks Muse, is a major shareholder of our company.  Both Carlos Cisneros,
who is the Chairman and Chief Executive Officer of the Cisneros Television
Group, as well as Eric C. Neuman, who is a partner of Hicks, Muse, Tate & Furst
Incorporated, serve on our board of directors. In addition, several of
our major shareholders, including Ibero-American Media Partners, have entered
into voting agreements to vote their shares in favor of approval of the
transaction.  Terms of the combination agreement are described under Item 4.
"Information on the Coompany -- The Proposed Claxson Transaction".

           Although the proposed Claxson transaction is a related party
transaction, we have taken steps to ensure that the transaction is fair to our
company and is in the best interest of our shareholders. Among other measures,
the interested directors in this transaction, namely Messrs. Cisneros and
Neuman, recused themselves from any votes undertaken by the board of directors
in determining whether to enter into the proposed transaction. In addition,
Credit Suisse First Boston Corporation, our financial advisor in the
transaction, conducted an analysis of the transaction and rendered a fairness
opinion to the effect that the proposed transaction was fair, from a financial
point of view, to our shareholders (excluding Ibero-American Media Partners).

Other Related Party Transactions

           Through one of our subsidiaries, we have an agreement in principle
with Compania Anonima Tenedora de Valores Inmobiliarios, a member of the
Cisneros Group, to purchase advertising time on the Venezuelan television
channel known as Venevision for a value of U.S.$130,000.

           In February 2000, we entered into a strategic alliance with Sarandi
Comunicaciones S.A., which owns and operates a network of radio stations in
Uruguay under the Sarandi name. Under this five-year agreement, we received an
exclusive royalty-free license to use proprietary content broadcast on radio
stations owned by Sarandi. We also have the right to re-name and re-brand one
of the radio stations under the El Sitio mark and, ultimately, to purchase it
from Sarandi for U.S.$l.0 million. This option expires in February 2002.
Sarandi has agreed to provide a fixed amount of advertising time on its radio
stations to us, valued at U.S.$450,000, and to guarantee a minimum amount of
advertising for our website in Uruguay. In exchange for Grupo Sarandi's
obligations, we will design, host and maintain websites for Sarandi's radio
stations. We have issued to Sarandi an aggregate of 62,500 of our common
shares, which have been pledged by Sarandi as security for its payment
obligations to us. Sarandi is an affiliate of Guillermo J. Liberman and
SLI.com Inc., as well as Roberto Vivo-Chaneton, who are shareholders in El
Sitio, and Leandro Anon, who is our chief operating officer.

           Guillermo Liberman, who is one of our directors and who holds
common shares in our company through SLI.com Inc., is a director of Sociedad
Latinoamericana de Inversiones, the holding company of Grupo Liberman, which
is involved in agribusiness, fisheries, telecommunications and hotel
development. An affiliate of Grupo Liberman, Video Cable Comunicacion, or VCC,
is a cable television system operator which was sold to Tele-Communications,
Inc. in 1995 in a series of transactions for over U.S.$1 billion. Prior to the
sale of VCC to Tele-Communications, Inc., we were entered into a reciprocal
advertising agreement with VCC pursuant to which each company provided the
other with advertising time. We previously leased offices from Grupo Liberman
in Miami. Mr. Liberman also is affiliated with one of our advertisers,
TeleLatina, a start-up regional telecommunications company in Latin America.
TeleLatina accounted for approximately U.S.$69,000 of our advertising revenues
in 1999 and none of those revenues in 2000.

           In July 1998, we acquired 85% of the Class A shares and 100% of the
Class B shares of Cibrian-Campoy Creativos, S.A., in Argentina, from its
shareholders, who included the following directors and executive officers:
Roberto Cibrian-Campoy; Guillermo Liberman and Roberto Vivo-Chaneton. We paid
U.S.$50,000 for 85% of these shares, and issued 3,432,094 of our common
shares for 100% of the Class B shares, of Cibrian-Campoy Creativos, S.A. In
October 1997, we purchased, for an aggregate purchase price of U.S. $1,700, the
majority of the



                                      48
<PAGE>

shares of Aalefranger, S.A., in Uruguay, from its
shareholders, who included Roberto Vivo-Chaneton and Roberto Cibrian-Campoy.
These two companies are the predecessors of our operating subsidiaries in
Argentina and Uruguay.

           IMPSAT Fiber Networks, Inc. is controlled by the Pescarmona group,
of which Sofia Pescarmona, a director of El Sitio, is a member. The Pescarmona
group indirectly owns approximately 75% of the capital stock of IMPSAT.
Roberto Vivo-Chaneton is a director of IMPSAT. Mr. Vivo-Chaneton beneficially
owns approximately 6% of the capital stock of IMPSAT. Ricardo Verdaguer,
another director of El Sitio, is the president and chief executive officer of
IMPSAT. Mr. Verdaguer owns approximately 3.5% of the capital stock of IMPSAT.
We acquired the retail dial-up access customers of IMPSAT in Brazil, Argentina
and Colombia. In connection with the acquisitions, among other things, we
entered into services agreements with subsidiaries of IMPSAT under which they
provided us with the telecommunications infrastructure to provide connectivity
services to the acquired customers for payments amounting to approximately
U.S.$5.5 million through December 31, 2000. In addition, we paid to IMPSAT
approximately U.S.$300,000 for connectivity services provided to our portal in
Argentina. IMPSAT also provides us with links to the Internet in exchange for
advertising on our network that accounted for U.S.$124,000 of our net revenues
and a corresponding amount of our operating expenses in 2000.

           Some of our directors have from time to time in the past guaranteed
our short-term indebtedness or other obligations.

           On July 7, 1999, we completed a private placement of 5,447,088
Class A convertible preferred shares for a gross purchase price of U.S.$38.4
million in cash. Strategic investors included Hicks Muse and Ibero-American
Media Partners.

           Under a shareholders agreement entered into in conjunction with the
July 1999 private placement and our articles of association, we pay monitoring
fees and directors fees of U.S.$700,000 per year, in the aggregate, to IAMP
(El Sitio) Investments Ltd., GCC Investments, LLC, Tower Plus International,
SLI.com, Inc., Militello Limited and IMPSAT Fiber Networks, Inc.

           In February 2000, we signed a letter agreement with Chilevision and
Radio Chile. Pursuant to this two-year agreement, we design, host and maintain
websites for Chilevision's and Radio Chile's radio stations and television
network in Chile and receive the right to use content from Chilevision and
Radio Chile on our Chilean website. As part of these agreements, Chilevision
and Radio Chile guaranteed us a minimum of U.S.$300,000 in advertising
revenues during the first year of the agreement and U.S.$600,000 in the second
year of the agreement. In exchange for our obligations, we have issued to
Chilevision and Radio Chile an aggregate of 166,667 common shares.

           In March 2000, PSN Multimedia International, which we refer to in
this annual report as "PSN" and which is owned by funds affiliated with Hicks,
Muse, Tate & Furst Incorporated, and we agreed to establish hypertext links
between PSN.com and our websites. As consideration for the maintenance of the
hypertext links, PSN has agreed to purchase advertising on our websites in the
amount of U.S.$1.0 million over a period of one year ending March 31, 2001.

Item 8.       FINANCIAL INFORMATION

           See Item 18. "Financial Statements" for the consolidated financial
statements of our company filed as part of this annual report.

Item 9.       THE OFFER AND LISTING

           Our common shares are listed on The Nasdaq National Market under
the symbol "LCTO". Trading in our common shares on The Nasdaq National Market
commenced on December 10, 1999. The following table sets forth, for the period
indicated, the high and low sales prices of our common shares on The Nasdaq
National Market.


                                      49
<PAGE>

<TABLE>
<CAPTION>
                                                                                  Sales Prices
                                                                                  ------------
                                                                              High              Low
                                                                              ----              ---
<S>                                                                        <C>              <C>
2000
First Quarter............................................................  U.S.$39.88       U.S.$18.88
Second Quarter...........................................................       19.88             5.56
Third Quarter............................................................        7.81             3.69
Fourth Quarter...........................................................        4.19             0.53
</TABLE>

           During the first quarter of 2001 (January 1, 2001 through March 31,
2001), the high and low prices of our common shares on The Nasdaq National
Market has ranged from U.S.$1.88 to U.S.$0.44. From April 1, 2001 through June
27, 2001, the high and low prices of our common shares ranged from U.S.$1.17
to U.S.$0.35.

Item 10.      ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

           Our authorized capital consists of 200,000,000 common shares and
100,000,000 preferred shares.

Common Shares

           As of each of December 31, 2000 and May 31, 2001, we had 45,242,304
common shares issued and outstanding. All outstanding shares of common shares
are fully paid and non-assessable.

           The holders of common shares are entitled to one vote for each
share held of record on all matters submitted to a vote of our shareholders.
Cumulative voting is not permitted.

           Subject to the prior rights of any series of shares that may be
issued in the future, holders of common shares are entitled to receive,
ratably, such dividends as may be declared by our board of directors from
funds legally available therefor and are entitled to share, ratably, in all
our assets available for distribution to holders of common shares upon the
liquidation, dissolution or winding up of our affairs.

           Our board of directors or our shareholders by resolution may amend
our memorandum and articles of association except as limited by British Virgin
Islands law or in limited circumstances reserved to the holders of, as the
case may be, the common shares or preferred shares.

Preferred Shares

           Authorized preferred shares may be issued from time to time by our
board of directors, in one or more classes or series. Subject to the
provisions of our articles of association and the limitations prescribed by
law, our board of directors is authorized to adopt resolutions to issue the
authorized preferred shares, to fix the number of shares and to change the
number of shares constituting any class or series, and to provide for or
change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations
or restrictions thereof, including dividend rights (including whether
dividends are cumulative), dividend rates, terms of redemption (including
sinking fund provisions), redemption prices, conversion rights and liquidation
preferences of the preferred shares of any class or series, in each case
without any further action or vote by the shareholders.

           One of the effects of undesignated preferred shares may be to
enable our board of directors to render more difficult or to discourage an
attempt to obtain control of our company by means of a tender offer, proxy
contest, merger or otherwise, and thereby to protect continuity of our
management. The issuance of preferred shares may adversely affect the rights
of the holders of common shares. For example, our preferred shares may rank
prior to the common shares as to dividend rights, liquidation preference or
both, may have full or limited voting, rights and may be convertible into
common shares. Accordingly, the issuance of preferred shares may discourage
bids for the common shares at a premium or may otherwise adversely affect the
market price of the common shares.

SUMMARIES OF MATERIAL CONTRACTS

           Item 19. "Exhibits" includes a list of our material agreements. The
terms and conditions of these material agreements are described under Item 4.
"Information on the Company".



                                      50
<PAGE>

REGISTRAR AND TRANSFER AGENT

           The registrar and transfer agent for our common shares is The Bank
of New York. Its address is The Bank of New York, Shareholder Relations, P.O.
Box 11258, New York, New York 10286-1258, and its telephone number is (800)
432-0140.

TAXATION

British Virgin Islands Tax Considerations

           We are exempt from all provisions of the Income Tax Act of the
British Virgin Islands with respect to all dividends, interests, rents,
royalties, compensation and other amounts payable by our company to persons
who are not persons resident in the British Virgin Islands. Persons who are
not persons resident in the British Virgin Islands are also exempt from any
capital gains realized with respect to any shares, debt obligations or other
securities, including the common shares, of our company. No estate,
inheritance, succession or gift tax, rate, duty, levy or other charge is
payable by persons who are not persons resident in the British Virgin Islands
with respect to any shares, debt obligations or other securities, including
the common shares, of our company. There is no reciprocal tax treaty in force
between the British Virgin Islands and the United States.

U.S. Federal Income Tax Considerations

           The following discussion is a summary of the material U.S. federal
income tax considerations that may be relevant to a U.S. Holder (as defined
below) of the ownership and disposition of our common shares. This discussion
is based on the Internal Revenue Code of 1986, as amended (the "Code"), U.S.
Treasury regulations promulgated under the Code and published administrative
rulings and pronouncements and judicial decisions, all as of the date hereof.
We cannot assure you that future legislation, administrative rulings or court
decisions will not modify the conclusions set forth in this summary, possibly
with retroactive effect. This discussion is of a general nature only and
prospective purchasers of our common shares are advised to consult their own
tax advisors with respect to U.S. federal, state and local tax consequences
and tax consequences in other jurisdictions, of the ownership of our common
shares applicable in their particular situation. Except as specifically set
forth herein, this discussion deals only with common shares held by a U.S.
Holder as capital assets within the meaning of Section 1221 of the Code, and
does not address tax considerations applicable to holders that may be subject
to special tax rules, such as financial institutions, insurance companies,
dealers in securities or currencies, a trader in securities that elects to use
the mark-to-market method of accounting for its securities holdings, persons
owning 10% or more of our voting shares, persons who receive our common shares
pursuant to the exercise of employee share options or otherwise as
compensation, tax-exempt entities, persons that will hold shares as a position
in a "hedging", integrated or "conversion" transaction constructive sale or
straddle, or persons that have a "functional currency" (as defined in Section
985 of the Code) other than the U.S. dollar.

           If a partnership holds our common shares, the tax treatment of a
partner will generally depend upon the status of the partner and the
activities of the partnership. A partner of a partnership holding our common
shares should consult its tax adviser.

           As used herein, a "U.S. person" is:

           o    a United States citizen or resident;

           o    a corporation, partnership or other entity, other than a trust,
                created or organized in or under the laws of the United States
                or any political subdivision thereof;

           o    an estate the income of which is subject to U.S. federal income
                taxation regardless of its source; or

           o    a trust (1) if a U.S. court is able to exercise primary
                supervision over its administration and one or more U.S.
                persons have the authority to control all of its substantial
                decisions, or (2) that has a valid election in effect under
                applicable U.S. Treasury Regulations to be treated as a U.S.
                person.

A "U.S. Holder" is a beneficial owner of our common shares that is a U.S.
person. A "non-U.S. Holder" is a beneficial owner of our common shares that is
not a U.S. Holder.



                                      51
<PAGE>

    U.S. Holders

           Distributions. Subject to the passive foreign investment company
rules discussed below, distributions made to U.S. holders on or with respect
to our common shares will be treated as dividends and be taxable as ordinary
income to the extent that those distributions are made out of our current or
accumulated earnings and profits as determined for U.S. federal income tax
purposes. If the amount of any distribution exceeds our accumulated earnings
and profits for a taxable year, the excess will be treated as a tax-free
return of capital to the extent of the U.S. Holder's tax basis, and thereafter
as capital gain. U.S. Holders that are corporations will not be entitled to
claim a dividends received deduction with respect to distributions by us
because we are a foreign corporation. We do not currently pay dividends on our
common shares and do not anticipate paying dividends in the foreseeable
future.

           If we are a "United States-owned foreign corporation",
distributions with respect to our common shares that are taxable as dividends
generally will be treated for U.S. foreign tax credit purposes as either (1)
foreign source "passive income" or, in the case of some U.S. Holders, foreign
source "financial services income" or (2) U.S. source income, in proportion to
our earnings and profits in the year of distribution allocable to foreign and
U.S. sources, respectively. For this purpose, we will be treated as a United
States-owned foreign corporation so long as 50% or more of the voting power or
value of our shares is owned, directly or indirectly, by U.S. persons.

           Disposition. Subject to the passive foreign investment company
rules discussed below, gain or loss realized by a U.S. Holder on the sale,
exchange or other taxable disposition of our common shares will be subject to
U.S. federal income taxation as capital gain or loss in an amount equal to the
difference between the amount realized on that sale, exchange or other
disposition and the U.S. Holder's adjusted tax basis in our common shares
surrendered. The gain or loss will be long term capital gain or loss if the
U.S. Holder's holding period for our common shares is more than one year. Any
gain or loss so realized generally will be U.S. source.

          Passive Foreign Investment Company Provisions. Based on our valuation
of our company's assets, it is likely that we will be a passive foreign
investment company (a "PFIC") for 2001 and may be a PFIC in subsequent years,
although because this is a factual determination made annually we cannot
provide you with any assurance in this regard. The determination of our PFIC
status is based on a valuation of our assets, including goodwill. In
calculating goodwill, we will value our total assets based on the market value
of our common shares, which is subject to change. In addition, we have made a
number of assumptions regarding the calculation of goodwill and the allocation
of goodwill among active and passive assets. We believe our approach is
reasonable. However, the authorities in this area are unclear, and we cannot
provide you with any assurance that the determination of PFIC status is
accurate. In addition, because we have valued our assets based on the market
value of the shares, changes in the price of the shares may affect our PFIC
status.

           A foreign corporation will be classified as a PFIC for U.S. federal
income tax purposes if 75% or more of its gross income for the taxable year is
passive income or on average for the taxable year, 50% or more of its assets,
by value (or, if it is not a publicly traded company and so elects, by
adjusted basis), produce or are held for the production of passive income. For
this purpose, passive income generally includes dividends, interest,
royalties, rents (other than rents and royalties derived in the active conduct
of a trade or business and not derived from a related person), annuities and
gains from assets that produce passive income. If a foreign corporation owns
at least 25% by value of the stock of another corporation, the foreign
corporation is treated for purposes of the PFIC tests as owning its
proportionate share of the assets of the other corporation and as receiving
directly its proportionate share of the other corporation's income. If a
foreign corporation is classified as a PFIC in any year with respect to which
a U.S. Holder owns common shares, it generally will continue to be treated as
a PFIC with respect to such shareholder in all succeeding years. We will
notify U.S. Holders by letter and provide them with the information as may be
required to make a "qualified electing fund" election effective.

           Unless U.S. Holders make a "QEF election" or a "mark-to-market
election", each as described below:

           o    distributions made by our company during a taxable year with
                respect to our common shares that are "excess distributions"
                (defined generally as the excess of the amount received with
                respect to the shares in any taxable year over 125% of the
                average received in the shorter of either the three previous
                years or your holding period before the taxable year) must be
                allocated ratably to each day of the U.S. Holder's holding
                period. The amounts allocated to the current taxable year and
                to taxable years prior to the first year in which our company
                was classified as a PFIC will be included as ordinary income in



                                      52
<PAGE>

                gross income for the current year. The amount allocated to each
                other prior taxable year will be taxed as ordinary income at
                the highest rate in effect for the U.S. Holder in that prior
                year, subject to an interest charge at the rate applicable to
                deficiencies in income taxes; and

           o    the entire amount of any gain realized upon the sale or other
                disposition of our common shares will be treated as an excess
                distribution made in the year of sale or other disposition and
                as a consequence will be treated as ordinary income and, to the
                extent allocated to years prior to the year of sale or
                disposition, will be subject to the interest charge described
                above. In addition, U.S. Holders who acquire their common
                shares in our company from decedents generally will not receive
                a "stepped-up" basis in those common shares; instead, the U.S.
                Holders will have a tax basis equal to the lower of the fair
                market value of the common shares or the decedent's tax basis.
                Furthermore, a disposition pursuant to a transaction that would
                otherwise qualify for non-recognition treatment in which a U.S.
                Holder receives shares of a non-U.S. company that is not a PFIC
                in exchange for our common shares generally would not be
                entitled to such treatment if the U.S. Holder realizes a gain
                on that disposition. However, any losses realized by a U.S.
                Holder on that disposition generally would not be recognized.

           These special PFIC rules generally will apply even if we cease to
be a PFIC in future years. However, these rules will not apply if the U.S.
Holder elects to have our company treated as a "qualified electing fund" (a
"QEF election") and our company provides certain information required for the
QEF election. We intend to notify U.S. Holders and provide them with that
information as may be required to make the QEF election effective.

           If a U.S. Holder makes a QEF election, the U.S. Holder will be
currently taxable on its pro rata share of our company's ordinary earnings and
net capital gain (at ordinary income and long-term capital gains rates,
respectively) for each taxable year of our company, regardless of whether or
not distributions were received. The U.S. Holder's basis in the common shares
will be increased to reflect taxed but undistributed income. Distributions of
income that had previously been taxed will result in a corresponding reduction
in basis in the common shares and will not be taxed again as a distribution.

           Alternatively, if our common shares are treated as "marketable
stock", a U.S. Holder may make a mark-to-market election. If this election is
made, the U.S. Holder will not be subject to the PFIC rules described above.
Instead, the U.S. Holder generally will include in each year as ordinary
income the excess, if any, of the fair market value of our common shares at
the end of the taxable year over the U.S. Holder's adjusted basis in the
shares. Likewise, the U.S. Holder will be permitted an ordinary loss in
respect of the excess, if any, of the U.S. Holder's adjusted basis in the
common shares over their fair market value at the end of the taxable year but
only to the extent of the net amount previously included in income as a result
of the mark-to-market election. The U.S. Holder's basis in the common shares
would be adjusted to reflect any such income or loss amounts. The
mark-to-market election is only available with respect to stock traded on
certain U.S. exchanges and other exchanges designated by the U.S. Treasury.
Under current law, the mark-to-market election may be available to U.S.
Holders since our common shares are currently listed on The Nasdaq National
Market, which constitutes a qualified exchange as designated by the Code.
There can be no assurance, however, that our common shares will continue to be
listed on The Nasdaq National Market or that they will be "regularly traded"
on that exchange. If a U.S. Holder makes a mark-to-market election it will be
effective for the taxable year for which the election is made and all
subsequent taxable years unless our common shares are no longer regularly
traded on a qualified exchange or the Internal Revenue Service consents to the
revocation of the election. U.S. Holders are urged to consult their tax
advisers about the availability of the mark-to-market election, and whether
making the election would be advisable in their particular circumstances.

           U.S. Holders that own common shares during any year that our
company is a PFIC, must file IRS Form 8621. U.S. Holders are urged to consult
their tax advisers concerning the U.S. federal income tax consequences of
holding shares of our company if it is considered a PFIC.

           Controlled Foreign Corporations. If United States Shareholders in
the aggregate own more than 50% of the voting power or value of the shares of
a foreign corporation, it will be classified as a "controlled foreign
corporation" ("CFC"). A "United States Shareholder" is any United States
person that owns (directly or through certain deemed ownership rules) at least
10% of the total combined voting power of all classes of shares of a foreign
corporation.

           If a foreign corporation is a CFC for an uninterrupted period of 30
days or more during the taxable year, the United States Shareholders of the
CFC will generally be subject to current U.S. tax on certain types of income
of the



                                      53
<PAGE>

foreign corporation ("Subpart F income", which includes dividends, interest,
certain rents and royalties, gain from the sale of property producing such
income and certain income from sales and services) and, in certain
circumstances, on earnings of the CFC that are invested in U.S. property,
whether or not cash is distributed by the CFC. In addition, gain on the sale
of the CFC's shares by a United States Shareholder (during the period that the
corporation is a CFC and thereafter for a five-year period) will be ordinary
income in whole or in part.

           If we are treated as a CFC, any U.S. Holder that acquires (directly
or through certain deemed ownership rules) 10% or more of the total combined
voting power of all classes of our shares will be required to include certain
amounts with respect to its investment in income currently. Our status as a
CFC should have no adverse effect on any U.S. Holder that is not a United
States Shareholder.

           Foreign Personal Holding Companies. If five or fewer U.S.
individuals own, or are treated as owning under certain attribution rules, in
the aggregate more than 50% of the voting power or value of the shares of a
foreign corporation, and at least 60% (50% in certain circumstances) of the
"gross income" of such foreign corporation is made up of certain passive type
income (for example, dividends, interest, certain rents and royalties and gain
from the sale of stock or securities) for a taxable year, then such
corporation will be a "foreign personal holding company" ("FPHC"). If a
foreign corporation is a FPHC, U.S. persons that own shares in the FPHC
(regardless of the size of their shareholding and regardless of whether they
are individuals) will generally be subject to current U.S. tax on a pro-rata
portion of the FPHC's undistributed foreign personal holding company income
("FPHCI") for the taxable year or part thereof, although tax-exempt U.S.
investors will not be subject to tax on amounts attributable to FPHCI. In
addition, U.S. persons that are required under these rules to include
undistributed taxable income for a taxable year and that own at least 5% of
the value of the FPHC's shares are required to comply with certain reporting
requirements under the Code. In addition, if our company became a FPHC, U.S.
persons who acquire their shares from decedents would not receive a
"stepped-up" basis in such shares. Instead, such U.S. persons would have a tax
basis equal to the lower of fair market value or the decedent's basis.

           We do not expect that the shareholder test will be met for the
current fiscal year. Accordingly, we do not expect to be treated as a FPHC.
However, due to a number of factors, including the FPHC stock attribution
rules, possible change in residence by current indirect shareholders, and
possible acquisition of our common shares by purchase, gift or bequest by
individuals related to or partners of current indirect shareholders, we cannot
assure you that we are not currently or will not become a FPHC in the future.

    Information Reporting and Backup Withholding

           In general, information reporting requirements will apply to
dividends in respect of our common shares or the proceeds received on the
sale, exchange or redemption of common shares paid within the U.S. (and in
certain cases, outside the United States) to U.S. Holders other than certain
exempt recipients, such as corporations, and a backup withholding tax may
apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer
identification number or to report interest and dividends required to be shown
on its U.S. federal income tax returns. The amount of any backup withholding
from a payment to a U.S. Holder will be allowed as credit against the U.S.
Holder's U.S. federal income tax liability.

EXCHANGE CONTROLS

           There are currently no British Virgin Islands laws or regulations
restricting the import or export of capital or affecting the payment of
dividends or other distributions to shareholders who are non-residents of the
British Virgin Islands.

           Some of our subsidiaries may be subject from time to time to
exchange control laws and regulations that may limit or restrict the payment
of dividends or distributions or other transfers of funds by those
subsidiaries to our company. We do not anticipate, however, that existing
exchange control laws and regulations affecting our subsidiaries will have a
material adverse effect on our company.

DOCUMENTS ON DISPLAY

           We have filed with the Securities and Exchange Commission this
annual report on Form 20-F, including exhibits, under the Securities Exchange
Act of 1934 with respect to the common shares.



                                      54
<PAGE>

           You may read and copy all or any portion of the annual report or
other information in our files in the Commission's public reference room at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, NY 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You can request copies of these documents upon
payment of a duplicating fee, by writing to the Commission. Please call the
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. El Sitio's Commission filings, including the
registration statement, will also be available to you on the Commission's
Internet site (http://www.sec.gov).

Item 11.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

           See Item 5. "Operating and Financial Review and Prospects -- Market
Risks" for quantitative and qualitative disclosures about market risk.

Item 12.      DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

           Not applicable.




                                      55
<PAGE>


                                    PART II

Item 13.      DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

           Not applicable.

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

           Not applicable.

Item 15.      [RESERVED]

Item 16.      [RESERVED]

Item 17.      FINANCIAL STATEMENTS

           See Item 18. "Financial Statements" for the consolidated financial
statements of our company filed as part of this annual report.




                                      56
<PAGE>


                                   PART III

Item 18.      FINANCIAL STATEMENTS

           The following consolidated financial statements of El Sitio and its
subsidiaries are included at the end of this annual report:

Index to Financial Statements............................................  F-1

Independent Auditors' Report.............................................  F-2

Consolidated Balance Sheets at December 31, 1999 and 2000................  F-3

Consolidated Statements of Operations and Comprehensive Loss for the
   years ended December 31, 1998, 1999 and 2000..........................  F-4

Consolidated Statements of Shareholders' Equity for the years ended
   December 31, 1998, 1999 and 2000......................................  F-5

Consolidated Statements of Cash Flow for the years ended December 31,
   1998, 1999 and 2000...................................................  F-7

Notes to Consolidated Financial Statements...............................  F-8

Item 19.   EXHIBITS

2.1        Framework Agreement, dated August 4, 1999, between IMPSAT Fiber
           Networks, Inc. and El Sitio, Inc. (formerly, El Sitio International
           Corporation).*

3.1        Amended and Restated Memorandum of Association of El Sitio, Inc.*

3.2        Amended and Restated Articles of Association of El Sitio, Inc.*

10.1       Stock Purchase Agreement, dated June 21, 1999, among El Sitio, Inc.
           (formerly, El Sitio International Corporation), Washburn
           Enterprises, Inc., Chestnut Hill (El Sitio), LLC and Ibero-American
           Media Partners II Ltd.*

10.2       Form of Internet Data Services Agreement, dated June 14, 1999,
           between Exodus Communications, Inc. and El Sitio U.S.A., Inc.*

10.3       Form of Internet, Backbone and Co-location Service Agreement, dated
           April 29, 1999, among IMPSAT Fiber Networks, Inc. USA IP-Internet
           Backbone & Co. and El Sitio U.S.A., Inc.*

10.4       Letter Agreement, dated February 11, 1999, between TV Azteca, S.A.
           de C.V. and El Sitio, Inc. (formerly, El Sitio International
           Corporation).*

10.5       Subscription Agreement, dated August 31, 1999, between TV Azteca,
           S.A. de C.V. and El Sitio, Inc. (formerly, El Sitio International
           Corporation).*

10.6       Registration Rights Agreement, dated July 2, 1999, among El Sitio,
           Inc. (formerly, El Sitio International Corporation) and holders of
           its Class A Convertible Preferred Stock.*

10.7       El Sitio International Corporation 1999 Amended and Restated Stock
           Option Plan.*

10.8       Assignment Agreement, dated April 1, 2000, between El Sitio Colombia
           S.A. and IMPSAT S.A.**

10.9       Form of Employment Agreement (substantially in the form entered into
           by each of Roberto Cibrian-Campoy and Horacio Milberg).**

10.10      Form of Employment Agreement (substantially in the form entered
           into by each of Mariano Varela and Alfredo Jimenez de Arechaga).**

10.11      Strategic Relationship Agreement, dated February 28, 2000, between
           Grupo Sarandi and El Sitio Uruguay, S.A.**



                                      57
<PAGE>

10.12      Amendment No. 1 to the Stock Purchase Agreement, dated July 2,
           1999, among El Sitio, Inc. (formerly, El Sitio International
           Corporation), Washburn Enterprises, Inc., Chestnut Hill (El Sitio),
           LLC and Ibero-American Media Partners II Ltd.*

10.13      Stockholders Agreement, dated July 2, 1999, among the Stockholders
           of El Sitio International Corporation.*

10.14      Quotas Purchase Agreement, dated October 6, 1999, between IMPSAT
           Comunicacoes Ltda. and O Site Entretenimentos Ltda.*

10.15      Internet Service Agreement, dated October 6, 1999, between IMPSAT
           Comunicacoes Ltda. and Mandic Internet Ltda.*

10.16      Share Purchase Agreement, dated October 6, 1999, between El Sitio,
           Inc. and IMPSAT Fiber Networks, Inc.*

10.17      Amendment No. 1 to Registration Rights Agreement, dated October 6,
           1999, among El Sitio, Inc. and the holders of its Class A
           Convertible Preferred Stock.*

10.18      Amendment No. 1 to Stockholders Agreement, dated October 6, 1999,
           among IAMP (El Sitio) Investments Ltd., Washburn Enterprises Inc.,
           GCC Investments, LLC, the Initial Stockholders and El Sitio, Inc.*

10.19      Assignment Agreement, dated November 5, 1999, between El Sitio
           Argentina S.A. and IMPSAT S.A.*

10.20      Internet Service Agreement, dated November 5, 1999, between El
           Sitio Argentina S.A. and IMPSAT S.A.*

10.21      Reseller and Management Agreement, dated November 5, 1999, between
           El Sitio Argentina S.A. and IMPSAT S.A.*

10.22      Share Purchase Agreement, dated November 9, 1999, among El Sitio,
           Inc., Intel Atlantic, Inc., Utilitivest II, L.P. and Utilitivest
           III, L.P. (investment funds managed by Latinvest Asset Management do
           Brasil).*

10.23      Amended and Restated Registration Rights Agreement, dated November
           9, 1999, among El Sitio, Inc. and the holders of its Class B
           Convertible Preferred Stock.*

10.24      Amended and Restated Shareholders' Agreement, dated November 9,
           1999, among El Sitio, Inc. and certain of its shareholders.*

10.25      Warrant Acquisition Agreement, dated June 25, 1999, between Bear,
           Stearns & Co. Inc. and El Sitio, Inc. (formerly El Sitio
           International Corporation).*

10.26      Purchase Agreement, dated March 10, 2000, among El Sitio, Inc.,
           Belagua B.V., Coracias, B.V., the stockholders of DeCompras.com,
           Inc. and DeCompras.com, Inc.**

10.27      Letter Agreement, dated February 17, 2000, among El Sitio, Inc.,
           Red de Television Chilevision S.A. and Iberoamerican Media Holdings
           Chile S.A.**

10.28      Form of Noncompete Agreement (substantially in the form entered
           into by each of Roberto Cibrian-Campoy, Alfredo Jimenez de Arechaga,
           Horacio Milberg and Mariano Varela).**

10.29      Combination Agreement, dated October 30, 2000, among El Sitio,
           Inc.; Carlyle Investments LLC and Carlton Investments LLC (as
           assignees of Newhaven Overseas Corp.); 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 Ibero-American
           Media Partners II, Ltd.***

10.30      Amendment No. 1 to the Combination Agreement, dated as of June 26,
           2001, among El Sitio, Inc.; Carlyle Investments LLC and Carlton
           Investments LLC; Hicks, Muse, Tate & Furst Latin America Fund, L.P.;
           Hicks, Muse, Tate & Furst Latin America Private Fund, L.P.;
           HMLA1-SBS Coinvestors, L.P.; and Ibero-American Media Partners I,
           Ltd.****

10.31      Form of Holdco Agreement.***



                                      58
<PAGE>

10.32      Voting Agreements, dated as of October 30, 2000, among
           Ibero-American Media Partners II, Ltd., El Sitio, Inc. and each of
           (i) Impsat Fiber Networks, Inc., (ii) Militello Limited, (iii) RC
           Limited, (iv) Roberto Cibrian-Campoy, (v) Roberto Vivo-Chaneton,
           (vi) SLI.com Inc. and (vii) Tower Plus International.***

10.33      Amendment No. 1 to Voting Agreements, dated as of June 26, 2000
           among Ibero-American Media Partners II, Ltd., El Sitio, Inc. and
           each of (i) Impsat Fiber Networks, Inc., (ii) Militello Limited,
           (iii) RC Limited, (iv) Roberto Cibrian-Campoy, (v) Roberto
           Vivo-Chaneton, (vi) SLI.com Inc. and (vii) Tower Plus
           International.****

10.34      Definitive ISP Service Transfer Agreement, dated as of June 8,
           2001, between Netizen S.A. and El Sitio Argentina S.A.

21.1       List of Subsidiaries of the Company (included in Item 4.
           "Information on the Company -- Subsidiaries").

-----------------------
*          Incorporated herein by reference to the Registration Statement (No.
           333-91263) on Form F-1, as filed with the Securities and Exchange
           Commission and declared effective on December 9, 1999.

**         Incorporated herein by reference to El Sitio's Annual Report on
           form 20-F for the year ended December 31, 1999 (No. 34-28367), as
           filed with the Securities and Exchange Commission on May 2, 2000.

***        Incorporated herein by reference to the Registration Statement (No.
           333-13062) on Form F-4, as amended, as originally filed with the
           Securities and Exchange Commission on January 12, 2001.

****       Incorporated herein by reference to El Sitio's Report on Form 6-K
           (No. 34-28367), as filed with the Securities and Exchange
           Commission on June 27, 2001.



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<PAGE>


                         INDEX TO FINANCIAL STATEMENTS


                                                                          Page

Independent Auditors' Report.............................................  F-2

Consolidated Balance Sheets at December 31, 1999 and 2000................  F-3

Consolidated Statements of Operations and Comprehensive Loss for
   the years ended December 31, 1998, 1999 and 2000......................  F-4

Consolidated Statements of Shareholders' Equity for the years
   ended December 31, 1998, 1999 and 2000................................  F-5

Consolidated Statements of Cash Flows for the years ended
   December 31, 1998, 1999 and 2000......................................  F-7

Notes to Consolidated Financial Statements...............................  F-8



                                     F-1
<PAGE>



INDEPENDENT AUDITORS' REPORT

To the Shareholders of El Sitio, Inc.:

We have audited the accompanying consolidated balance sheets of El Sitio, Inc.
and subsidiaries ("El Sitio") as of December 31, 1999 and 2000 and the related
consolidated statements of operations and comprehensive loss, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of El Sitio's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of El Sitio at December 31, 1999 and
2000 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.



Deloitte & Touche LLP
Certified Public Accountants

Miami, Florida
March 1, 2001, except for Note 16, as to which the date is June 26,
2001




                                     F-2
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       As of December 31, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


<TABLE>
<CAPTION>
                                                                                          1999                   2000
                                                                                        --------               --------
<S>                                                                                     <C>                    <C>
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents....................................................        $160,029               $ 52,419
   Investments, available for sale..............................................              --                 10,249
   Trade accounts receivable, net...............................................           3,123                  8,522
   Other receivables............................................................             392                    953
   Inventories..................................................................              --                  2,004
   Prepaid advertising and other current assets.................................          10,094                 10,764
                                                                                        --------               --------
      Total current assets......................................................         173,638                 84,911
PROPERTY AND EQUIPMENT, NET.....................................................           5,405                 11,613
CUSTOMER BASE, NET..............................................................          18,209                 12,448
GOODWILL, NET...................................................................              --                 17,994
INTANGIBLE AND OTHER ASSETS, NET................................................           4,668                 10,152
                                                                                        --------               --------
TOTAL ASSETS....................................................................        $201,920               $137,118
                                                                                        ========               ========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable.............................................................        $ 13,499               $ 13,232
   Accrued and other liabilities................................................           4,824                  5,968
   Unearned revenues............................................................             958                  1,781
                                                                                        --------               --------
      Total current liabilities.................................................          19,281                 20,981
                                                                                        --------               --------
COMMITMENTS AND CONTINGENCIES (Note 14)
CLASS B CONVERTIBLE PREFERRED SHARES
   Redeemable U.S.$0.01 par value, 8% cumulative dividend -
      1,888,889 shares authorized 1,111,111 shares issued and
      outstanding at December 31, 1999, liquidation preference
      U.S.$0.01 per share.......................................................           8,967                     --
                                                                                        --------               --------
SHAREHOLDERS' EQUITY:
   Common shares, U.S.$.01 par value, 200,000,000 shares
      authorized; 40,157,138 and 45,242,304 shares issued and
      outstanding at December 31, 1999 and 2000, respectively...................             402                    452
   Additional paid-in capital...................................................         225,860                254,103
   Obligation for future issuance of common shares..............................           6,000                     --
   Deferred share-based compensation............................................         (11,950)                (4,322)
   Discount on Class B convertible preferred shares.............................          (6,843)                    --
   Accumulated other comprehensive income.......................................           1,061                     64
   Accumulated deficit..........................................................         (40,858)              (134,160)
                                                                                        --------               --------
      Total shareholders' equity................................................         173,672                116,137
                                                                                        --------               --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................................        $201,920               $137,118
                                                                                        ========               ========
</TABLE>

                See notes to consolidated financial statements.




                                     F-3
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES


         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)

<TABLE>
<CAPTION>
                                                                          1998                   1999                 2000
                                                                       ---------              ----------           ----------
<S>                                                                    <C>                    <C>                  <C>
NET REVENUES:
      Advertising and related.........................................   $   780                $  4,205             $ 21,385
      Connectivity subscription fees..................................        --                   2,656                8,988
      E-commerce......................................................        --                      --                5,121
                                                                       ---------              ----------           ----------
         Total........................................................       780                   6,861               35,494
                                                                       ---------              ----------           ----------
COST AND EXPENSES:
      Cost of goods sold, e-commerce..................................        --                      --                4,530
      Product, content and technology.................................     1,556                   8,237               25,940
      Marketing and sales.............................................       674                  20,656               50,725
      Corporate and administration....................................     1,940                  10,216               26,696
      Depreciation and amortization...................................       107                   2,100               12,958
      Merger and restructuring expenses...............................        --                      --                5,541
                                                                       ---------              ----------           ----------
         Total costs and expenses.....................................     4,277                  41,209              126,390
                                                                       ---------              ----------           ----------
OPERATING LOSS........................................................    (3,497)                (34,348)             (90,896)
                                                                       ---------              ----------           ----------
OTHER INCOME (EXPENSES):
      Interest income (expense), net..................................       (42)                    799                5,961
      Foreign exchange gain (loss)....................................       (44)                     (9)                 (82)
      Other income (expense), net.....................................        66                     (25)                (786)
                                                                       ---------              ----------           ----------
         Total other (expenses) income, net...........................       (20)                    765                5,093
                                                                       ---------              ----------           ----------
LOSS BEFORE INCOME TAXES AND DIVIDENDS
      ON CLASS A AND CLASS B CONVERTIBLE
      PREFERRED SHARES................................................    (3,517)                (33,583)             (85,803)
PROVISION FOR NON-U.S. INCOME TAXES...................................        --                      --                 (256)
                                                                       ---------              ----------           ----------
NET LOSS..............................................................    (3,517)                (33,583)             (86,059)
DIVIDENDS ON CLASS A AND B CONVERTIBLE PREFERRED SHARES...............        --                  (2,744)              (7,243)
                                                                       ---------              ----------           ----------
NET LOSS ATTRIBUTABLE TO COMMON
      SHAREHOLDERS....................................................    (3,517)                (36,327)             (93,302)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
      Change in unrealized loss on investments........................        --                      --                    7
      Foreign currency translation adjustment.........................        (2)                  1,063               (1,004)
                                                                       ---------              ----------           ----------
COMPREHENSIVE LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS................   $(3,519)               $(35,264)            $(94,299)
                                                                       =========              ==========           ==========
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS PER COMMON SHARE:
      Basic and diluted...............................................   $ (1.15)               $  (2.66)            $  (2.20)
                                                                       =========              ==========           ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
      Basic and diluted............................................... 3,050,000              13,681,306           42,400,487
                                                                       =========              ==========           ==========
</TABLE>

                See notes to consolidated financial statements.




                                     F-4
<PAGE>


                        EL SITIO, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


<TABLE>
<CAPTION>
                                                                               Obligations
                                                                                   For
                                                                                  Future
                                                                  Additional   Issuance of      Irrevocable
                                               Common               Paid-in       Common          Capital
                                               Shares    Amount     Capital       Shares       Contribution
                                           ----------    ------   ----------   -----------     ------------

<S>                                        <C>           <C>      <C>          <C>             <C>
BALANCE, DECEMBER 31, 1997.............       100,000      $  1     $     49      $   --           $   --
Issuance of common shares in
   exchange for Class B shares of El
   Sitio Argentina.....................     3,432,094        34        1,682          --               --
Issuance of common shares..............     2,467,906        25        1,209          --               --
Irrevocable capital contribution.......            --        --           --          --            2,302
Foreign currency translation
   adjustment..........................            --        --           --          --               --
Net loss for the year..................            --        --           --          --               --
                                           ----------      ----     --------      ------           ------

BALANCE, DECEMBER 31, 1998.............     6,000,000        60        2,940          --            2,302
Issuance of common shares..............       168,098         2           82          --               --
Irrevocable capital contribution.......            --        --           --          --              898
Capitalization of irrevocable capital
   contribution........................     6,400,000        64        3,136          --           (3,200)
Issuance of common shares in initial
   public offering, net of transaction
   expenses of U.S.$2,849..............     9,430,000        94       37,374          --               --
Obligation for future issuance of
   common shares.......................            --        --           --       6,000               --
Discount on Class B convertible
   preferred shares....................            --        --        7,778          --               --
Amortization of discount on Class B
   convertible preferred shares........            --        --           --          --               --
Conversion of Class A convertible
   preferred shares....................    18,092,000       181       60,443          --               --
Exercise of share options..............        67,240         1          115          --               --
Deferred share-based compensation
   related to share options............            --        --       13,992          --               --
Amortization of deferred share-based
   compensation........................            --        --           --          --               --
Foreign currency translation
   adjustment..........................            --        --           --          --               --
Net loss attributable to common
   shareholders for the year...........            --        --           --          --               --
                                           ----------      ----     --------      ------           ------
BALANCE, DECEMBER 31, 1999.............    40,157,338      $402     $225,860      $6,000           $   --
                                           ----------      ----     --------      ------           ------
</TABLE>


<TABLE>
<CAPTION>
                                                              Discounts
                                                              On Class B   Accumulated
                                          Deferred           Convertible     Other
                                         Share-based          Preferred   Comprehensive      Accumulated
                                        Compensation            Shares    (Loss) Income        Deficit            Total
                                        ------------         -----------  -------------      -----------          -----

<S>                                     <C>                  <C>          <C>                <C>                 <C>
BALANCE, DECEMBER 31, 1997.............   $     --             $    --       $    --           $  (1,014)        $  (964)
Issuance of common shares in
   exchange for Class B shares of El
   Sitio Argentina.....................         --                  --            --                  --            1,716
Issuance of common shares..............         --                  --            --                  --            1,234
Irrevocable capital contribution.......         --                  --            --                  --            2,302
Foreign currency translation
   adjustment..........................         --                  --            (2)                 --               (2)
Net loss for the year..................         --                  --            --              (3,517)          (3,517)
                                          --------             -------       -------           ---------         --------

BALANCE, DECEMBER 31, 1998.............         --                  --            (2)             (4,531)             769
Issuance of common shares..............         --                  --            --                  --               84
Irrevocable capital contribution.......         --                  --            --                  --              898
Capitalization of irrevocable capital
   contribution........................         --                  --            --                  --               --
Issuance of common shares in initial
   public offering, net of transaction
   expenses of U.S.$2,849..............         --                  --            --                  --          137,468
Obligation for future issuance of
   common shares.......................         --                  --            --                  --            6,000
Discount on Class B convertible
   preferred shares....................         --              (7,778)           --                  --               --
Amortization of discount on Class B
   convertible preferred shares........         --                 935            --                  --              935
Conversion of Class A convertible
   preferred shares....................         --                  --            --                  --           60,624
Exercise of share options..............         --                  --            --                  --              116
Deferred share-based compensation
   related to share options............    (13,992)                 --            --                  --               --
Amortization of deferred share-based
   compensation........................      2,042                  --            --                  --            2,042
Foreign currency translation
   adjustment..........................         --                  --         1,063                  --            1,063
Net loss attributable to common
   shareholders for the year...........         --                  --            --             (36,327)         (36,327)
                                          --------             -------       -------           ---------         --------
BALANCE, DECEMBER 31, 1999.............   $(11,950)            $(6,843)      $ 1,061           $ (40,858)        $173,672
                                          --------             -------       -------           ---------         --------
</TABLE>

                                                                    (continued)



                                     F-5
<PAGE>


                        EL SITIO, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - Continued
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


<TABLE>
<CAPTION>
                                                                               Obligations
                                                                                   For
                                                                                  Future
                                                                  Additional   Issuance of      Irrevocable
                                               Common               Paid-in       Common          Capital
                                               Shares    Amount     Capital       Shares       Contribution
                                           ----------    ------   ----------   -----------     ------------

<S>                                        <C>           <C>      <C>          <C>             <C>
BALANCE, DECEMBER 31,
   1999................................    40,157,338      $402     $225,860      $6,000               --
Issuance of common shares..............     1,979,167        20       14,046          --               --
Issuance of common shares..............     1,713,832        17        5,983      (6,000)              --
Amortization of discount on Class B
   convertible preferred Shares........            --        --           --          --               --
Conversion of Class B convertible
   preferred shares....................     1,111,111        11        8,956          --               --
Exercise of share options..............        40,920        --           67          --               --
Exercise of warrants...................       239,936         2           (2)         --               --
Amortization of deferred share-based
   compensation........................            --        --         (807)         --               --
Foreign currency translation
   adjustment..........................            --        --           --          --               --
Change in unrealized loss on
   investments available for sale......            --        --           --          --               --
Net loss attributable to common
   shareholders for the year...........            --        --           --          --               --
                                           ----------      ----     --------      ------           ------
BALANCE, DECEMBER 31,
   2000................................    45,242,304      $452     $254,103      $   --           $   --
                                           ==========      ====     ========      ======           ======
</TABLE>


<TABLE>
<CAPTION>
                                                              Discounts
                                                              On Class B   Accumulated
                                          Deferred           Convertible     Other
                                         Share-based          Preferred   Comprehensive      Accumulated
                                        Compensation            Shares    (Loss) Income        Deficit            Total
                                        ------------         -----------  -------------      -----------          -----

<S>                                     <C>                  <C>          <C>                <C>                 <C>
BALANCE, DECEMBER 31,
   1999................................   $(11,950)            $(6,843)      $ 1,061           $ (40,858)        $173,672
Issuance of common shares..............         --                  --            --                  --           14,066
Issuance of common shares..............         --                  --            --                  --               --
Amortization of discount on Class B
   convertible preferred Shares........         --               6,843            --                  --            6,843
Conversion of Class B convertible
   preferred shares....................         --                  --            --                  --            8,967
Exercise of share options..............         --                  --            --                  --               67
Exercise of warrants...................         --                  --            --                  --               --
Amortization of deferred share-based
   compensation........................      7,628                  --            --                  --            6,821
Foreign currency translation
   adjustment..........................         --                  --        (1,004)                 --           (1,004)
Change in unrealized loss on
   investments available for sale......         --                  --             7                  --                7
Net loss attributable to common
   shareholders for the year...........         --                  --            --             (93,302)         (93,302)
                                          --------             -------       -------           ---------         --------
BALANCE, DECEMBER 31,
   2000................................   $ (4,322)                 --       $    64           $(134,160)        $116,137
                                          ========             =======       =======           =========         ========

                                                                                                                (concluded)

</TABLE>




                See notes to consolidated financial statements.





                                     F-6
<PAGE>


                        EL SITIO, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)

<TABLE>
<CAPTION>
                                                                          1998                   1999                2000
                                                                       ---------              ----------           ----------
<S>                                                                    <C>                    <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to common shareholders...........................  $(3,517)               $(36,327)            $(93,302)
Adjustments to reconcile net loss to net cash used in operating
      activities:
      Amortization and depreciation....................................      107                   2,100               12,958
      Amortization of deferred share-based compensation................       --                   2,042                6,821
      Amortization of discount on Class B convertible preferred
         Shares........................................................       --                     935                6,843
      Changes in assets and liabilities:
         Increase in trade accounts receivable, net....................      (57)                 (3,018)              (5,399)
         Increase in prepaid advertising and other current assets......       (7)                 (1,593)               1,293
         Increase in inventories.......................................       --                      --               (2,004)
         Increase in other receivables and other non-current assets....     (240)                 (4,386)              (6,294)
         Increase (decrease) in accounts payable.......................      273                  13,163                 (267)
         Increase in accrued and other liabilities.....................      221                   3,294                1,144
         Increase in unearned revenues.................................       --                     958                  823
                                                                         -------               ---------            ---------
           Net cash used in operating activities.......................   (3,220)                (22,832)             (77,384)
                                                                         -------               ---------            ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................................     (510)                 (5,502)              (8,977)
Purchase of investments available for sale.............................       --                      --             (114,851)
Proceeds from sale or maturity of investments available for sale.......       --                      --              104,595
Purchases of licenses and permits......................................     (223)                   (285)                 (25)
Purchases of retail dial-up access customers...........................       --                 (17,373)              (1,671)
Purchase of DeCompras.com..............................................       --                      --               (8,986)
                                                                         -------               ---------            ---------
           Net cash used in investing activities.......................     (733)                (23,160)             (29,915)
                                                                         -------               ---------            ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings....................................       --                   3,875                   --
Repayments of short-term borrowings....................................       --                  (3,875)                  --
Capital contributions..................................................    1,808                      84                   --
Irrevocable capital contributions......................................    2,302                     898                   --
Net proceeds from issuance of Class A convertible
      preferred shares.................................................       --                  58,135                   --
Net proceeds from issuance of Class B convertible
      preferred shares.................................................       --                   8,967                   --
Net proceeds from initial public offering..............................       --                 137,468                   --
Exercise of share options..............................................       --                     116                   67
                                                                         -------               ---------            ---------
      Net cash provided by financing activities........................    4,110                 205,668                   67
                                                                         -------               ---------            ---------
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS...................       --                     107                 (378)
                                                                         -------               ---------            ---------
</TABLE>


                                                                   (continued)


                                     F-7
<PAGE>


                        EL SITIO, INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CASH FLOWS -- Continued
                 Years Ended December 31, 1998, 1999 and 2000
         (In thousands of U.S. dollars, except share and per share data)

<TABLE>
<CAPTION>
                                                                          1998                   1999                2000
                                                                       ---------              ----------           ----------

<S>                                                                    <C>                    <C>                  <C>
NET INCREASE (DECREASE) IN CASH AND CASH
      EQUIVALENTS......................................................      157                 159,783             (107,610)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.........................       89                     246              160,029
                                                                         -------                --------             --------
CASH AND CASH EQUIVALENTS, END OF PERIOD...............................  $   246                $160,029             $ 52,419
                                                                         =======                ========             ========
SUPPLEMENTAL CASH FLOW INFORMATION:
   Interest paid.......................................................       --                $  1,732                   --
                                                                         =======                ========             ========
   Non-U.S. income taxes paid..........................................  $    --                $     --             $    256
                                                                         =======                ========             ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
      AND FINANCING ACTIVITIES:
      Capitalization of shareholder loans to subsidiaries..............  $ 1,142                      --                   --
                                                                         =======                ========             ========
      Capitalization of irrevocable capital contributions..............       --                $  3,200                   --
                                                                         =======                ========             ========
      Advertising time acquired through the issuance of Class A
         convertible preferred shares..................................       --                $  2,489                   --
                                                                         =======                ========             ========
      Advertising time acquired in exchange for obligation to issue
         common shares.................................................       --                $  6,000                   --
                                                                         =======                ========             ========
      Advertising contracts acquired through issuance of common
         shares........................................................       --                      --             $  2,693
                                                                         =======                ========             ========


                                                                                                                   (concluded)


</TABLE>





                See notes to consolidated financial statements.




                                     F-8
<PAGE>


                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


1.  GENERAL AND ORGANIZATION

           El Sitio, Inc., a British Virgin Islands international business
company, and its subsidiaries ("El Sitio"), is an Internet media company
providing localized content for Spanish- and Portuguese-speaking audiences in
Latin America and the United States. El Sitio offers connectivity services in
Argentina and Brazil, and, since April 2000, in Colombia. El Sitio also
provides e-commerce services in Mexico and for Mexican-Americans located in
the United States.

           El Sitio was formed in July 1997 as an international business
company under the name Blasin International Corporation. In October 1997 and
July 1998, El Sitio acquired ownership of interests in subsidiaries located in
Uruguay and Argentina, respectively, which were under common ownership. These
acquired entities had been established in Argentina and Uruguay on December
30, 1996 and February 24, 1997, respectively, under the names of
Cibrian-Campoy Creativos S.A. ("El Sitio Argentina") and Aalefranger S.A., an
inactive entity ("El Sitio Uruguay"). During 1998, operating subsidiaries were
established in Mexico ("El Sitio Mexico"), the United States ("El Sitio USA")
and Brazil ("El Sitio Brazil"). In December 1999, an additional subsidiary was
established in Colombia ("El Sitio Colombia"). During 2000, other operating
subsidiaries have been established in Chile ("El Sitio Chile") and Venezuela
("El Sitio Venezuela"). Also in 2000, El Sitio acquired DeCompras.com, an
e-commerce company in Mexico.

           All of El Sitio's subsidiaries are wholly owned (except for a small
number of shares issued to other persons to comply with local corporate law
requirements). Minority interest in subsidiaries, which is immaterial, is
included in other liabilities and other income.

           At December 31, 2000, El Sitio's operating subsidiaries were as
follows:

     Country                                   Operating Subsidiaries
    -------------                            ------------------------

    Argentina                                El Sitio Argentina
    Brazil                                   El Sitio Brazil
    Chile                                    El Sitio Chile
    Colombia                                 El Sitio Colombia
    Mexico                                   DeCompras.com
    Mexico                                   El Sitio Mexico
    United States                            El Sitio USA
    Uruguay                                  El Sitio Uruguay
    Venezuela                                El Sitio Venezuela

           El Sitio has continued to incur losses. Management has undertaken
initiatives to expand its revenues and manage its expenses through, among
other measures, increased sales of banners, sponsorships and advertising, more
cost-efficient development of interactive and other content, targeted
advertising and marketing campaigns and selected headcount and other cost
reductions. El Sitio's ability to achieve profitability is dependent upon the
success of these initiatives and other factors. Management believes that its
cash and cash equivalents and its investments available for sale totaling
U.S.$62,668 at December 31, 2000 will be sufficient to meet its liquidity and
capital resource requirements until mid-2002.

2.  MERGERS AND ACQUISITIONS

           In July 1998, El Sitio acquired 85% of the Class A shares of El
Sitio Argentina for U.S.$50 and 100% of the Class B shares of El Sitio
Argentina in exchange for 3,432,094 common shares of El Sitio. This
acquisition, as is generally the case for transactions among companies under
common control, was accounted for in a manner similar to the pooling of
interests method of accounting, whereby all assets and liabilities have been
recorded at their historical carrying amounts.



                                     F-9
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


           During 1999, El Sitio acquired the remaining minority interest in
El Sitio Argentina and El Sitio Uruguay. These acquisitions were accounted for
under the purchase method of accounting.

           On October 7, 1999, November 5, 1999 and April 3, 2000, El Sitio
completed acquisitions of IMPSAT Fiber Networks, Inc.'s ("IMPSAT") retail
dial-up access customers in Brazil, Argentina and Colombia for U.S.$12,300,
U.S.$6,200 and U.S.$1,900, respectively. Each of these acquisitions was
accounted for as a purchase. The purchase price in excess of the fair value of
net assets acquired was approximately U.S.$20,400 and is recorded as customer
base and is being amortized over 3 years using the straight line method.
Accumulated amortization as of December 31, 1999 and 2000 was U.S.$1,458 and
U.S.$9,913, respectively.

           During May 2000, El Sitio acquired 100% of the outstanding shares
of DeCompras, Inc., a Mexican e-commerce company, in exchange for 1.75 million
common shares of El Sitio and U.S.$7,000 in cash. The acquisition was recorded
under the purchase method of accounting. The purchase price in excess of the
fair value of net assets acquired was approximately U.S.$20,000 and is
recorded as goodwill and is being amortized over five years using the straight
line method. Accumulated amortization as of December 31, 2000 was U.S.$2,364.

           The following information presents the unaudited pro forma
information for the years ended December 31, 1999 and 2000, of El Sitio as if
the DeCompras acquisition and the acquisition of IMPSAT's customers in
Colombia had occurred at the beginning of 1999 and 2000.

<TABLE>
<CAPTION>
                                                                                        1999                       2000
                                                                                        ----                       ----

<S>                                                                                     <C>                      <C>
Net revenues............................................................                 $7,977                   $37,043
Net loss................................................................                (39,129)                  (96,215)
Net loss per common share...............................................                 $(2.80)                   $(2.27)
</TABLE>


3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           Basis of Presentation -- The financial statements are presented on
a consolidated basis and include the accounts of El Sitio, Inc. and its
subsidiaries. All significant intercompany transactions and balances have been
eliminated.

           Use of Estimates -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

           Cash and Cash Equivalents -- Cash and cash equivalents are highly
liquid investments, including short-term investments and time deposits with
maturities of three months or less at the time of purchase. Cash equivalents
and short-term investments are stated at cost, which approximates market
value.

           Investments, available for sale -- Debt and equity securities that
have readily determinable market values are carried at fair value in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities, as such
securities are classified as available for sale. Unrealized holding gains or
losses for securities available for sale are excluded from earnings and are
reported as a separate component of comprehensive income.

           Inventories -- Inventories are stated at the lower of cost
(first-in, first-out basis) or market. Cost consists of the purchase price,
customs, duties, freight and insurance.



                                     F-10
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


           Property and Equipment -- Property and equipment are recorded at
cost and depreciated using the straight-line method over the following
estimated useful lives:

           Computers, software and other equipment         3 years
           Furniture, fixtures and other fixed assets      5 - 10 years
           Leasehold improvements                          5 years (lease term)

           Revenue Recognition -- El Sitio derives revenues principally from
the sale of advertising and connectivity subscription fees. El Sitio sells
advertising primarily at a fixed price per month. Revenues on these contracts
are recognized ratably over the period of time in which the advertisement is
displayed. El Sitio also sells advertising generally for a fixed fee based on
a cost-per-thousand impressions, or "CPM", basis under which such advertisers
and advertising agencies receive a guaranteed number of "impressions", or
number of times that an advertisement appears in pages viewed by users of El
Sitio's online properties. El Sitio's contracts with advertisers and
advertising agencies for these types of contracts cover periods ranging from
one month to one year. Advertising revenues are recognized ratably based on
the number of impressions displayed, provided that El Sitio has no obligations
remaining at the end of a period and collection of the resulting receivable is
probable. El Sitio's obligations typically include guarantees of minimum
number of impressions. To the extent that minimum guaranteed impressions are
not met, El Sitio defers recognition of the corresponding revenues until the
remaining guaranteed impression levels are achieved. Billing sent to
advertisers prior to displaying their advertisements on El Sitio's network are
recorded as unearned revenues. Revenues from exclusive sponsorship
arrangements are recognized ratably.

           Connectivity subscription fees represent month-to-month
subscriptions for pre-paid and per-minute usage of access levels. Subscription
revenues are recognized over the period that services are provided.

           For the year ended December 31, 1998, El Sitio had four customers
that accounted for more than 10% of total revenue and, collectively,
represented 72% of revenues. For the years ended December 31, 1999 and 2000,
El Sitio had no customers that accounted for more than 10% of total revenue.

           El Sitio in the ordinary course of business enters into reciprocal
services arrangements whereby El Sitio provides advertising service to third
parties in exchange for telecommunications services and advertising services
in other media. Revenues and expenses from these agreements are recorded at
the fair value of services provided or received, whichever is more
determinable in the circumstances. The fair value represents market prices
negotiated on an arms' length basis. Revenue from reciprocal services
arrangements is recognized as income when advertisements are delivered on El
Sitio's websites. Expense from reciprocal services arrangements is recognized
when telecommunication services are received or El Sitio's advertisements are
run in other media which are typically in the same period when the reciprocal
service revenue is recognized. Related expenses which include
telecommunication charges are classified as product, content and technology
and advertising charges are classified as marketing and sales in the
accompanying statements of operations. During the years ended December 31,
1998, 1999 and 2000, revenues attributable to reciprocal services totaled
approximately U.S.$180, U.S.$1,342 and U.S.$4,595, respectively. No gain or
loss was recognized on these reciprocal services arrangements.

           El Sitio's management believes that its revenue recognition
policies conform to Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements.

           Advertising Expenses -- El Sitio expenses advertising costs as
incurred. Advertising expense was U.S.$180, U.S.$16,109 and U.S.$33,465 for
the years ended December 31, 1998, 1999 and 2000, respectively.

           Share-Based Compensation -- SFAS No. 123, Accounting for
Stock-Based Compensation, encourages, but does not require, companies to
record compensation cost for employees under share-based compensation plans at
fair value. El Sitio has chosen to continue to account for share-based
compensation to employees using the intrinsic value method as prescribed by
Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock
Issued to Employees, and related interpretations. Accordingly, compensation
cost for share options issued to employees are



                                     F-11
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


measured as the excess, if any, of the fair value of El Sitio's common shares
at the date of grant over the amount an employee must pay for the common
shares.

           Income Taxes -- Deferred income taxes result from temporary
differences in the recognition of expenses for tax and financial reporting
purposes and are accounted for in accordance with SFAS No. 109, Accounting for
Income Taxes, which requires the liability method of computing deferred income
taxes. Under the liability method, deferred taxes are adjusted for tax rate
changes as they occur.

           Share Split -- On October 28, 1999, El Sitio's Board of Directors
approved a 2-for-l share split. Retroactive restatement has been made to all
share amounts to reflect this share split.

           Net Loss Per Common Share -- Basic net loss per share is computed
based on the average number of common shares outstanding and diluted net loss
per share is computed based on the average number of common shares outstanding
and, when dilutive, potential common shares from share options and warrants to
purchase common shares using the treasury stock method and from convertible
securities using the if-converted basis.

           Risk Management -- El Sitio operates in Latin America, a region
known for its political and economic volatility. Accordingly, its operations
may be adversely affected by changes in market conditions. El Sitio does not
have significant foreign currency risk in that it has limited monetary assets
and liabilities held in foreign currencies and maintains the majority of its
excess funds in US dollar denominated securities. Furthermore, El Sitio does
not have substantial interest rate risk exposure due to its limited debt
balances. Accordingly, El Sitio does not enter into derivative transactions to
hedge against these risks. As a result, the January 1, 2001 implementation of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS No. 138, is not expected to have a material impact on El
Sitio's consolidated financial position, results of operations or cash flows.

           Foreign Currency Translation -- El Sitio's subsidiaries generally
use the U.S. dollar as the functional currency because their primary function,
the sale of advertising, is originally priced in U.S. dollars. Accordingly,
the financial statements of the subsidiaries have been remeasured (or
translated into U.S. dollars). The effects of foreign currency transactions
and of remeasuring the financial position and results of operations into U.S.
dollars are included as net gain or loss on foreign exchange, except for the
Brazil subsidiary which uses the local currency as its functional currency and
the effects of the translation is included in shareholders' equity.

           Irrevocable Capital Contributions -- Irrevocable capital
contributions represented capital contributions received from existing
shareholders from time to time to fund operations and carried no obligation on
the part of El Sitio to issue common shares or repay such contributions. On
January 29, 1999, El Sitio's Board of Directors approved the issuance of
6,400,000 common shares to capitalize the U.S.$3,200 in irrevocable capital
contributions.

           Long-Lived Assets -- Long-lived assets are reviewed on an ongoing
basis for impairment based on comparison of carrying value against estimated
undiscounted future cash flows. If an impairment is identified, the carrying
amount of the assets is adjusted to fair value. No such adjustments were
recorded for the years ended December 31, 1999 and 2000.

           Fair Value of Financial Instruments -- El Sitio's financial
instruments include cash and cash equivalents, accounts receivable,
investments and accounts payable. The fair value of such financial instruments
has been determined using available market information and interest rates as
of December 31, 1999 and 2000. The fair value of these financial instruments
was not materially different than their carrying value.



                                     F-12
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


4.  INVESTMENTS AVAILABLE FOR SALE

           The amortized cost and estimated fair values of investments
available for sale as of December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                                                               Gross           Estimated
                                                                             Amortized       Unrealized           Fair
                                                                                Cost           Gains              Value
                                                                             ---------       ----------         ---------

<S>                                                                          <C>             <C>                <C>
U.S. Treasury securities and obligations of U.S.
Government agencies.................................................           $ 9,676             $  7           $ 9,683
Obligations of foreign government and foreign
governmental agencies...............................................               566               --               566
                                                                               -------             ----           -------
Total securities available for sale.................................           $10,242             $  7           $10,249
                                                                               =======             ====           =======
</TABLE>

           The contractual maturity of investments available for sale at
December 31, 2000, are all scheduled to occur within one year. As of December
31, 2000, approximately U.S.$415 of securities were held as a guarantee on the
lease of certain facilities.

5.  TRADE ACCOUNTS RECEIVABLE

           Trade accounts receivable at December 31, by operating
subsidiaries, are summarized as follows:

<TABLE>
<CAPTION>
                                                                           1999                      2000
                                                                           ----                      ----

<S>                                                                     <C>                        <C>
El Sitio Mexico.........................................                $   762                    $   791
El Sitio Argentina......................................                  1,345                      1,713
El Sitio Uruguay........................................                     62                      1,059
El Sitio USA............................................                    635                      1,503
El Sitio Brazil.........................................                    330                      3,607
DeCompras.com...........................................                     --                        604
All others..............................................                     --                        365
                                                                        -------                    -------
    Total ..............................................                  3,134                      9,642
Less: allowance for doubtful accounts...................                    (11)                    (1,120)
                                                                        -------                    -------
Trade accounts receivable, net..........................                $ 3,123                    $ 8,522
                                                                        =======                    =======
</TABLE>

           El Sitio's subsidiaries provide trade credit to their customers in
the normal course of business. Prior to extending credit, a customer's
financial history is analyzed. The collection of a substantial portion of the
trade receivables is susceptible to changes in Latin American economic and
political conditions.

           El Sitio provides its allowance for doubtful accounts on a specific
identification basis. The activity for the allowance for doubtful accounts for
the years ended December 31, 1998, 1999 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                            1998                      1999                      2000
                                                            ----                      ----                      ----

<S>                                                         <C>                      <C>                     <C>
Beginning balances....................................       $--                      $ 20                    $   11
Provision for doubtful accounts.......................        20                        19                     1,749
Write-offs, net of recoveries.........................        --                       (28)                     (640)
                                                             ---                      ----                    ------
Ending balances.......................................       $20                      $ 11                    $1,120
                                                             ===                      ====                    ======
</TABLE>




                                     F-13
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


6.  OTHER RECEIVABLES

           Other receivables consist primarily of refunds or credits pending
from local governments for non-income taxes and other miscellaneous amounts
due to El Sitio, Inc. and its operating subsidiaries and are summarized as
follows:

<TABLE>
<CAPTION>
                                                                  1999            2000
                                                                  ----            ----

<S>                                                                <C>            <C>
El Sitio Argentina..................................               $141           $234
El Sitio, Inc ......................................                 --            220
El Sitio Uruguay ...................................                115             --
El Sitio Brazil ....................................                 95             92
El Sitio Mexico ....................................                 --            167
DeCompras.com ......................................                 --            104
El Sitio USA .......................................                 --             63
All others .........................................                 41             73
                                                                   ----           ----
    Total ..........................................               $392           $953
                                                                   ====           ====
</TABLE>

7.  PROPERTY AND EQUIPMENT

           Property and equipment consists of:

<TABLE>
<CAPTION>
                                                                                 1999         2000
                                                                                 ----         ----

<S>                                                                             <C>         <C>
Computers, software and other equipment...........................              $4,140      $11,107
Furniture, fixtures and other fixed assets .......................                 856        1,522
Leasehold improvements ...........................................               1,154        2,520
                                                                                ------      -------
    Total ........................................................               6,150       15,149
Less: accumulated depreciation ...................................                (868)      (3,536)
                                                                                ------      -------
Depreciable property, net ........................................               5,282       11,613
Construction in progress .........................................                 123           --
                                                                                ------      -------
Property and equipment, net ......................................              $5,405      $11,613
                                                                                ======      =======
</TABLE>

           Depreciation expense for the years ended December 31, 1998, 1999
and 2000 amounted to U.S.$107, U.S.$717 and U.S.$2,668, respectively.

8.  INCOME TAXES

           El Sitio has not provided for income taxes because of its operating
loss position. Statutory tax rates range from 15% to 35% depending on the
particular country. During the year ended December 31, 2000, however, El Sitio
was subject to a minimum asset based income tax in certain jurisdictions which
totaled U.S.$256. Deferred tax assets associated with the net operating loss
carryforwards amounted to U.S.$11,798, and U.S.$34,053 as of December 31, 1999
and 2000, respectively. Because there is no assurance that El Sitio will
generate sufficient tax earnings to utilize its available tax assets derived
from loss carryforwards, a corresponding valuation allowance has been
established to offset deferred tax assets.

           No deferred tax assets have been recognized for changes in exchange
rates for foreign subsidiaries whose functional currency is the U.S. dollar.

9.  SEGMENT INFORMATION

           El Sitio's segment information is based on the geographic locations
in which its subsidiaries operate. Each operating subsidiary has a country
manager who reports to senior management of El Sitio. Each country manager is



                                     F-14
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


currently responsible for managing the assets in his or her respective
country, generating revenues, and supervising results of operations.

           El Sitio's segment information is as follows:

<TABLE>
<CAPTION>
                                                                                                    El Sitio
                            El         El       El         El         El                              Inc.                Consoli-
Year Ended      El Sitio    Sitio      Sitio    Sitio      Sitio      Sitio   El Sitio  DeCompras    (Parent    Elimi-    dated
December        Argentina   Uruguay    Chile    Mexico     Brazil     USA     Colombia       .com    Company)   nation    Total
--------        ---------   -------    -----    ------     ------     -----   --------  ---------    --------   -------   --------

<S>             <C>         <C>       <C>       <C>       <C>        <C>      <C>       <C>         <C>        <C>        <C>
1998
Total assets.... $    698   $   121   $    --   $   243   $    317   $    31   $    --    $    --   $     80   $     (9)  $  1,481
Net revenues.... $    657   $   106   $    --   $    17   $     --   $    --   $    --    $    --   $     --   $     --   $    780
Operating loss.. $ (2,322)  $  (118)  $    --   $  (569)  $    (51)  $  (268)  $    --    $    --   $   (169)  $     --   $ (3,497)

1999
Total assets.... $ 19,884   $   429   $    --   $ 5,270   $ 14,867   $  3,881   $   41    $    --   $187,140   $(29,592)  $201,920
Net revenues.... $  1,932   $   762   $    --   $ 1,508   $  2,196   $    463   $   --    $    --   $     --   $     --   $  6,861
Operating loss.. $(13,849)  $  (587)  $    --   $(4,951)  $ (6,194)  $ (5,306)  $  (16)   $    --   $ (3,443)  $     (2)  $(34,348)

2000
Total assets.... $ 19,294   $ 4,744   $   942   $ 7,118   $ 12,081   $ 3,777   $ 2,580    $25,048   $151,936   $(90,402)  $137,118
Net revenues.... $  7,243   $ 1,863   $   712   $ 6,220   $  9,229   $ 4,829   $   501    $ 5,121   $    736   $   (960)  $ 35,494
Operating loss.. $ (6,849)  $(1,497)  $(1,796)  $(4,328)  $(18,065)  $(9,041)  $(1,878)   $(7,705)  $(40,258)  $    521   $(90,896)
</TABLE>


           El Sitio is a holding company which holds primarily cash and
investments and incurs certain general and administrative expenses. The
elimination entries represent the elimination of intercompany balances in the
normal course of business.

10. RELATED PARTY TRANSACTIONS

           El Sitio, in the normal course of business, provides advertising
services to IMPSAT in exchange for telecommunication links and connectivity
services. During 1998, 1999 and 2000, such services totaled approximately
U.S.$165, U.S.$213 and U.S.$165, respectively. In addition, during the years
ended December 31, 1999 and 2000, El Sitio incurred expenses of U.S.$1,870 and
U.S.$5,785, respectively, for telecommunications links and connectivity
services provided by IMPSAT. Other revenues from IMPSAT totaled U.S.$877 for
the year ended December 31, 2000.

11. SHARE OPTION PLAN

           In May 1999, El Sitio adopted the 1999 Share Option Plan (the
"Plan"), pursuant to which 1,240,000 common shares were reserved for issuance
upon exercise of options. An additional 2,000,000 common shares were reserved
in October 1999, and an additional 1,572,700 common shares were reserved in
December 1999. Options granted under the Plan are nonstatutory share options
and have an exercise term of no longer than ten years from the grant date. The
Plan is designed as a means to retain and motivate key employees and
directors. El Sitio's Compensation Committee of El Sitio's Board of Directors,
or in the absence thereof, the full Board of Directors administers and
interprets the Plan and is authorized to grant options thereunder to all
eligible employees of El Sitio, including directors (whether or not they are
employees) and executive officers of El Sitio or affiliated companies. The
Plan will terminate on December 1, 2008, unless sooner terminated by the Board
of Directors.

           In August 2000, El Sitio granted 694,500 non-statutory share
options at an exercise price of U.S.$4.00. In October 2000, El Sitio granted
728,680 non-statutory share options at an exercise price of U.S.$2.94.

           In August and September 1999, El Sitio granted non-statutory share
options for 292,400 and 623,600 shares, respectively, at an exercise price of
U.S.$3.50. On November 1, 1999, El Sitio granted additional share options for
1,030,200 of its common shares to employees at an exercise price of U.S.$9.00
per share. In December 1999, El Sitio granted additional share options for
490,550 and 1,051,120 common shares to employees at exercise prices of
U.S.$9.00 and U.S.$16.00, respectively, per share. These options vest 30%
after the first year, 30% after the second year, and 40% after the third year.




                                     F-15
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


           In October 1998, El Sitio granted non-statutory share options for
322,400 shares at an exercise price of U.S.$1.61, the fair value of the shares
at the time of grant. These options vest 30% after the first year, 30% after
the second year, and 40% after the third year.

           A summary of outstanding share options and changes during each of
the periods with activity through the year ended December 31, 2000 is
presented below:

<TABLE>
<CAPTION>
                                                                                 Option Price Per Share
                                                                                 ----------------------
                                                     Number                                           Weighted
                                                     of Shares            Low            High          Average
                                                     ---------            ---            ----          -------

<S>                                                  <C>                 <C>           <C>            <C>
Granted 1998 and outstanding
December 31, 1998 ...........................          322,400           $1.61         $  1.61           $1.61
Granted 1999 ................................        3,487,870            3.50           16.00            9.67
Exercised 1999 ..............................          (67,240)           1.61            3.50            1.73
Cancelled 1999 ..............................          (48,500)           3.50            9.00            5.46
                                                     ---------
Outstanding December 31, 1999                        3,694,530            1.61           16.00            9.16
Granted 2000.................................        1,423,180            2.94            4.00            3.46
Exercised 2000 ..............................          (40,920)           1.61            1.61            1.61
Cancelled 2000...............................         (542,613)           3.50           16.00           10.19
                                                     ---------
Outstanding December 31, 2000................        4,534,177           $1.61          $16.00           $7.32
                                                     =========
</TABLE>




           The following table summarizes information concerning outstanding
options at December 31, 2000:

<TABLE>
<CAPTION>
                                          Options Outstanding                    Options Exercisable
                                  ----------------------------------       --------------------------------
                                      Weighted
                                       Average           Weighted                               Weighted
                      Number          Remaining           Average            Number             Average
Exercise Price     Outstanding    Contractual Life    Exercise Price       Outstanding       Exercise Price
--------------     -----------    ----------------    --------------       -----------       --------------
<S>                <C>            <C>                 <C>                  <C>               <C>
 $   1.61            218,240         7.75 years         $   1.61             97,547           $   1.61
     2.94            728,680         9.81 years             2.94                 --                 --
     3.50            767,960         8.64 years             3.50            232,260               3.50
     4.00            627,323         9.58 years             4.00                773               4.00
     9.00          1,369,722         8.87 years             9.00            413,400               9.00
    16.00            822,252         8.94 years            16.00            249,096              16.00
                   ---------                                                -------
                   4,534,177                                                993,076               8.74
                   =========                                                =======
</TABLE>



           El Sitio applies APB No. 25 and related interpretations in
accounting for its share options plan to employees as described in Note 3. In
connection with the granting of share options in 1999, El Sitio recorded total
deferred share-based compensation of approximately U.S.$13,992. Total deferred
share-based compensation is being amortized for financial reporting purposes
over the respective vesting periods of the share options. The amount
recognized as expense during the years ended December 31, 1999 and 2000
totaled approximately U.S.$2,042 and U.S.$6,821, respectively.



                                     F-16
<PAGE>


               If compensation cost for options granted had been determined in
accordance with a fair value provisions of SFAS No. 123, the Company's net
loss and net loss per share would have been as follows for the years ended
December 31, 1998, 1999 and 2000.


                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)

<TABLE>
<CAPTION>
                                                                          1998          1999           2000
                                                                          ----          ----           ----
<S>                                                                      <C>          <C>            <C>
Net loss attributable to common shareholders:
    As reported................................................          $(3,517)     $(36,327)      $(93,302)
                                                                         =======      ========       ========
    Pro forma..................................................          $(3,525)     $(36,857)      $(96,301)
                                                                         =======      ========       ========

Net loss per share attributable to common shareholders:
    As reported
       Basic and diluted.......................................          $ (1.15)     $  (2.66)      $  (2.20)
                                                                         =======      ========       ========

    Pro forma:
       Basic and diluted.......................................          $ (1.16)     $  (2.69)      $  (2.27)
                                                                         =======      ========       ========
</TABLE>

           The fair value for these options was estimated at the grant date
using the Black-Scholes Option Pricing Model with the following
weighted-average assumptions for the years ended December 31, 1998, 1999 and
2000.

<TABLE>
<CAPTION>
                                                                           1998           1999            2000
                                                                           ----           ----            ----
<S>                                                                        <C>            <C>           <C>
Risk free interest rate ...............................................     7.0%           7.0%          10.8%
Dividend yield ........................................................     0.0%           0.0%           0.00%
Volatility factors ....................................................     0.0%           0.0%         122.0%
Weighted average life (years) .........................................     3.0            3.0            3.0
</TABLE>




                                     F-17
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


12.  CLASS A CONVERTIBLE PREFERRED SHARES

           El Sitio previously had outstanding Class A convertible preferred
shares, each of which shares was converted into two common shares on December
15, 1999 (the date of El Sitio's initial public offering). El Sitio had issued
such Class A convertible preferred shares during 1999 as follows:

           Private Placement -- On July 7, 1999, El Sitio completed a private
placement of 5,477,088 Class A Convertible Preferred Shares (the "Class A
Convertible Preferred Shares") at U.S.$7.00186 per share for U.S.$35,837 (net
of offering costs of U.S.$2,513) under a stock purchase agreement. In
addition, El Sitio entered into an arrangement whereby it agreed to issue
856,916 Class A Convertible Preferred Shares (1,713,832 common shares) in
return for U.S.$6,000 in advertising time credit on media networks owned and
controlled by affiliates of Washburn Enterprises, Inc., a subsidiary of
Ibero-American Media Partners II, Ltd. Such advertising must be utilized
during an eighteen-month period following the closing date of the private
placement. El Sitio is required to issue and deliver the number of Class A
Convertible Preferred Shares equal to the advertising time incurred on a
quarterly basis with all remaining shares being issued at the end of the
eighteen-month period, irrespective of the use of the advertising credits. El
Sitio is recognizing advertising expense based on the fair value of such
shares at the date of the agreement as the advertising credits are used. As of
December 31, 2000, El Sitio has approximately U.S.$1,465 of unused advertising
credits as is reflected in prepaid advertising and other expenses.
Additionally, 485,791 common shares have been issued under the agreement with
Washburn Enterprises, Inc and, accordingly, a liability to issue the remaining
shares is included in shareholders' equity as of December 31, 2000. El Sitio
has also agreed to purchase at least U.S.$4,000 of advertising time on the
media networks owned and controlled by affiliates of Washburn Enterprises,
Inc. in return for Washburn's commitment to purchase at least U.S.$2,000 of
advertising time on the websites maintained by El Sitio and its subsidiaries.
As agreed in connection with the private placement, El Sitio is required to
pay annual monitoring fees to certain investor groups and annual directors'
fees to certain directors amounting to U.S.$700 per annum in the aggregate. In
addition, El Sitio issued to the placement agent a warrant exercisable for the
purchase of approximately 239,936 common shares for one dollar, which were
issued during 2000.

           Preferred Stock-Barter Arrangement -- On August 31, 1999, El Sitio
entered into an agreement relating to a three-year investment and reciprocal
advertising arrangement with TV Azteca, S.A. de C.V., a major Mexican
television network. Under this agreement, El Sitio will receive, over a
three-year period beginning in July 1999, U.S.$3,500 of advertising time on TV
Azteca's networks (which amounts shall be based on rates actually charged to
similarly situated clients of TV Azteca at the time), in return for 355,478
shares of Class A Convertible Preferred Shares issued on August 31, 1999 at
the same price per share as in the July 1999 private placement. Prepaid
advertising was recorded in the accompanying consolidated balance sheet at the
time the shares were issued based on the fair value of the shares.

           Framework Agreement -- On August 4, 1999, El Sitio entered into an
agreement with IMPSAT which included the private placement of 3,070,615 Class
A Convertible Preferred Shares at U.S.$7.00186 per share for U.S.$21,500.

13.  CLASS B CONVERTIBLE PREFERRED SHARES

           On November 16, 1999, El Sitio completed a private placement of
1,111,111 Class B convertible preferred shares for an aggregate purchase price
of U.S.$10,000 in cash, or U.S.$9.00 per Class B convertible preferred share.
The Class B convertible preferred shares have an annual dividend rate of 8%.
Each Class B convertible preferred share automatically converted, on June 15,
2000, into one common share. The discount between the initial public offering
price per common share and the U.S.$9.00 price per Class B convertible
preferred share is being amortized as a deemed dividend during a six-month
period. Each share of class B convertible preferred shares was converted to
common shares on June 15, 2000.



                                     F-18
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


14.  COMMITMENTS AND CONTINGENCIES

           El Sitio has entered into an agreement, for a term of two years
with renewal options, with Sammy Sosa, a renowned baseball player, whereby
such baseball player granted El Sitio the exclusive right to use such player's
name and likeness on El Sitio's websites for the development of joint
marketing campaigns, promotions, research and e-commerce operations. El Sitio
will pay this baseball player U.S.$1,000 cash in four equal installments of
U.S.$250. As of December 31, 2000, U.S.$250 remained to be paid in future
installments. In addition, El Sitio issued Sammy Sosa 25,000 common shares of
El Sitio. Approximately U.S.$693 is included in Other assets and U.S.$273 is
included in Accrued and other liabilities in the accompanying consolidated
balance sheet as of December 31, 2000 to account for all of the provisions of
this agreement. Other assets are being amortized on a straight-line basis over
a two-year period. The initial amount of the discount will be remeasured, on a
quarterly basis, based on the fair value of the common shares as of the end of
each fiscal period.

           El Sitio has entered into employment agreements with various
members of management. Minimum compensation commitment approximates U.S.$2,500
in the aggregate.

           El Sitio leases several facilities under non-cancelable leases for
varying periods through May 2004. Rent expense for these operating leases was
approximately U.S.$144, U.S.$511 and U.S.$1,271 for the years ended December
31, 1998, 1999 and 2000, respectively.

           Future minimum payments under the various noncancelable operating
leases are as follows:

<TABLE>
<CAPTION>

Twelve Months Ending December 31,
<S>                                                                     <C>
2001 .............................................................      $   951
2002 .............................................................          797
2003 .............................................................          653
2004 .............................................................          409
2005 and thereafter ..............................................          103
                                                                        -------

Total.............................................................      $ 2,913
                                                                        =======
</TABLE>

15.  PROPOSED TRANSACTION

           Combination Agreement -- Claxson Interactive Group Inc. ("Claxson")
was incorporated as an international business company under British Islands
law on October 16, 2000. In connection with a combination agreement dated
October 30, 2000, entered into by El Sitio with Claxson and other parties,
El Sitio will become a subsidiary of Claxson. El Sitio's shareholders will
receive Class A common shares of Claxson in exchange for their common shares
of El Sitio in connection with this transaction. El Sitio recorded U.S.$5.5
million of merger and restructuring expenses in 2000. These expenses primarily
consisted of advisory, legal, accounting and other merger-related expenses,
such as costs and expenses resulting from organizational changes undertaken to
take advantage of synergies that are anticipated from the transaction. El Sitio
has recorded such costs as they have been incurred. El Sitio expects to record
additional merger-related expenses of approximately U.S.$6.0 million during
the first half of 2001.

16.  SUBSEQUENT EVENTS

           Sale of Connectivity Services Business in Argentina -- In June of
2001, El Sitio entered into a definitive agreement providing for the sale of
its connectivity services business in Argentina to Netizen S.A. for U.S.$1.4
million and will result in a loss of approximately U.S.$564,000.



                                     F-19
<PAGE>

                        EL SITIO, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years Ended December 31, 1998, 1999 and 2000
        (In thousands of U.S. dollars, except share and per share data)


           Discontinuance of Operations of DeCompras.com -- In June 2001, El
Sitio's management decided to discontinue the operations of DeCompras.com. The
discontinuance of these operations, which is expected to occur in the third
quarter of 2001, may result in a loss of approximately U.S.$18 million,
primarily from the disposition and write-offs of assets (including unamortized
goodwill, fixed assets and inventory).

           Legal Proceedings - Three class complaints have been filed
in June 2001 in the U.S. District Court for the Southern District of New York
against El Sitio, certain of its directors and principal executive officers,
and the underwriters which led El Sitio's initial public offering in December
1999. The complaints, which request that the cases be certified as class
actions, allege, among other things, that the prospectus and registration
statement for the initial public offering were materially misleading because
they did not disclose the certain alleged actions on the part of the
underwriters. The claims are alleged under both the U.S. Securities Act of
1933 and the U.S. Securities Exchange Act of 1934. The complaints seek
unspecified money damages. El Sitio believes that the allegations in the
complaints relating to the company and its directors and officers are without
merit, and intends to defend vigorously El Sitio and its directors and
officers in these cases.

           Combination Agreement -- The combination agreement referred to in
Note 15 was amended as of June 26, 2001.  This amendment provides, among other
things, that El Sitio's Shareholders (other than Ibero-American Media Partners
II, Ltd.) will receive approximately 20% of the Class A Common Shares of
Claxson in exchange for their common shares of El Sitio.  The transaction is
expectd to be completed in the third quarter of 2001.


                                     F-20
<PAGE>

                                  SIGNATURES

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

                                                 EL SITIO, INC.




                                                 /s/   HORACIO MILBERG
                                                 -----------------------------
                                                 Horacio Milberg
                                                 Chief Financial Officer

                                                 Date:  June 29, 2001