CLAXSON

                       UNAUDITED BALANCE SHEETS

                    (In Thousands of U.S. dollars)

 

                                        As of         As of

                                     September 30,  December 31,

                                         2005          2004

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

ASSETS

 

CURRENT ASSETS:

Cash and cash equivalents             $     22,415   $      7,270

  Accounts receivable, net                  22,097         23,018

  Assets held for sale                         417         25,701

  Other current assets                       7,208          8,698

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

 

Total current assets                        52,137         64,687

 

PROPERTY AND EQUIPMENT, net                 10,630         10,946

 

PROGRAMMING RIGHTS, net                      4,520          4,028

 

INVESTMENTS IN UNCONSOLIDATED AFFILIATES     2,310          3,407

 

INVESTMENTS IN EQUITY SECURITIES               -               54

 

GOODWILL                                    52,356         51,021

 

BROADCAST LICENSES, net                     16,656         16,722

 

OTHER ASSETS                                 7,896          5,650

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

 

TOTAL ASSETS                          $    146,505   $    156,515

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

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

CURRENT LIABILITIES:

Accounts payable, accrued and other

liabilities                           $     25,241         24,444

 

Liabilities related to assets held for

sale                                           -           14,927

 

Current portion of programming rights

obligations                                  5,053          5,332

 

Current portion of long-term debt           14,613          8,172

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

 

Total current liabilities                   44,907         52,875

 

LONG-TERM LIABILITIES:

Long-term debt, net of current portion      66,721         77,680

 

Other long-term liabilities                  2,507          2,795

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

 

Total long-term liabilities                 69,228         80,475

 

MINORITY INTEREST                              323            562

 

SHAREHOLDERS' EQUITY                        32,047         22,603

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

 

TOTAL LIABILITIES AND

SHAREHOLDERS' EQUITY                  $    146,505   $    156,515

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

 

                               CLAXSON

           UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

                         Three Months Ended    Nine Months Ended

                            September 30,         September 30,

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

                          2005       2004       2005       2004

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

 

NET REVENUES:

Subscriber-based fees $  12,021  $  10,261  $  33,700  $  29,700

 

Advertising               8,245      5,669     21,250     16,066

 

Production services         387        291      1,038        537

 

Other                       705        335      2,236        841

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

 

Total net revenues       21,358     16,556     58,224     47,144

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

 

OPERATING EXPENSES:

Product, content and

technology                7,746      6,481     21,644     18,693

 

Marketing and sales       3,816      3,118     10,537      8,570

 

Corporate and

administration            3,725      3,594     11,475     10,843

 

Depreciation and

amortization              1,124      1,131      3,050      3,476

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

 

Total operating

expenses                 16,411     14,324     46,706     41,582

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

 

OPERATING INCOME          4,947      2,232     11,518      5,562

 

INTEREST EXPENSE           (358)      (471)    (1,076)    (1,345)

 

OTHER (EXPENSE) INCOME,

 NET                       (799)       298         (8)       240

 

FOREIGN CURRENCY EXCHANGE

GAIN (LOSS)                (774)      (160)       321       (503)

 

NET (LOSS) INCOME FROM

UNCONSOLIDATED AFFILIATES  (463)       116     (2,060)       992

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

INCOME BEFORE INCOME

TAXES, MINORITY INTEREST

AND DISCONTINUED

OPERATIONS                2,553      2,015      8,695      4,946

 

INCOME TAXES               (154)      (406)    (1,444)      (927)

 

MINORITY INTEREST            10         49        246         52

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

 

NET INCOME FROM CONTINUING

OPERATIONS                2,409      1,658      7,497      4,071

 

DISCONTINUED OPERATIONS

(Loss) income from

operations of

discontinued divisions -

net                         147        267     (2,311)       318

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

 

(LOSS) GAIN ON

DISCONTINUED OPERATIONS     147        267     (2,311)       318

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

 

NET INCOME           $   2,556   $   1,925   $  5,186  $   4,389

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

 

NET INCOME PER COMMON SHARE:

 

Income from continuing

operations

Basic               $    0.12    $    0.09   $   0.37   $    0.21

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

 

Diluted             $    0.11    $    0.08   $   0.34   $    0.20

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

 

(Loss) gain on discontinued

operations

Basic and diluted   $    0.01    $    0.01   $  (0.11)  $    0.02

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

 

Diluted             $    0.01    $    0.01   $  (0.11)  $    0.02

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

 

NET INCOME PER SHARE:

Basic               $    0.12    $    0.10   $    0.25  $    0.23

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

 

Diluted             $    0.12    $    0.10   $   0.24   $    0.22

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

 

NUMBER OF SHARES USED IN

PER SHARE CALCULATIONS:

Basic                  20,468       19,481     20,395      19,461

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

 

Diluted                21,941       19,860     21,896      19,891

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

 

                               CLAXSON

           UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

                    (In Thousands of U.S. dollars)

 

                                              Nine Months Ended

                                                September 30,

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

                                               2005       2004

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

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                   $  5,186   $  4,389

 

Adjustments to reconcile net income to net cash

provided by operating activities:

Amortization of programming rights              3,245      3,992

  

Share-based compensation                           43         52

  

Depreciation and amortization                   3,495      4,476

  

Accrued and (uncollected) unpaid interest        (145)       546

  

Exchange rate loss                                112        693

  

Net (gain) loss on disposal of assets            (156)        27

  

Loss (income) from unconsolidated affiliates    2,060       (989)

  

Minority interest                                (246)       (52)

  

Changes in operating assets and liabilities    (2,602)    (9,874)

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

 

Net cash provided by operating activities      10,992      3,260

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

 

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property and equipment          (1,785)    (1,745)

 

Transaction costs paid                              -     (1,438)

 

Distributions to minority owners of

unconsolidated subsidiaries                         -       (380)

 

Investment in (distributions from)

unconsolidated affiliates                         (22)       247

 

Redemption of deposit for the sale of

subsidiary                                       (506)         -

 

Restricted cash released in guarantee of

Chilean syndicated loan                             -        907

 

Proceeds from sale of investments in

subsidiaries and affiliates, net               10,939        625

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

     

Net cash provided by (used in) investing

activities                                      8,626     (1,784)

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

 

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of convertible

debentures                                          -      3,500

  

Net repayments of short/long-term debt         (5,631)    (5,695)

  

Proceeds from exercised stock options             114         55

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

     

Net cash (used in) financing activities        (5,517)    (2,140)

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

 

EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH

AND CASH EQUIVALENTS                            1,044        158

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

 

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS                                    15,145       (506)

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  7,270      7,682

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

 

CASH AND CASH EQUIVALENTS, END OF PERIOD    $  22,415   $  7,176

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