##### 









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-Q

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended June 30,
    2003                                            
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission File Number 33-82114

(SBS LOGO)

Spanish Broadcasting System, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 13-3827791                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

2601 South Bayshore Drive,
PH II

Coconut Grove, Florida 33133


(Address of principal executive offices) (Zip
Code)


(305) 441-6901

(Registrants telephone number, including
area code)


(Former name, former address and former fiscal
year,

if changed since last report)


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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes þ          No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest
practicable date: As of August 11, 2003, 37,079,655 shares
of Class A common stock, par value $.0001 per share, and
27,605,150 shares of Class B common stock, par value $.0001
per share, were outstanding.



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##### 



SPANISH BROADCASTING SYSTEM, INC.

INDEX

|                                   |  |                                                                                                                             |  |      |    | 
|---------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                   |  |                                                                                                                             |  | Page
|                                   |  |                                                                                                                             |  |     
|PART I.  FINANCIAL
    INFORMATION
|ITEM 1.                            |  | Financial Statements  Unaudited                                                                                            |  |      | 3  | 
|                                   |  | Unaudited Condensed Consolidated Balance Sheets
    as of December 29, 2002 and June 30, 2003                               |  |      | 3  | 
|                                   |  | Unaudited Condensed Consolidated Statements of
    Operations for the Three and Six-Months Ended June 30, 2002
    and 2003 |  |      | 4  | 
|                                   |  | Unaudited Condensed Consolidated Statements of
    Cash Flows for the Six-Months Ended June 30, 2002 and 2003               |  |      | 5  | 
|                                   |  | Notes to Unaudited Condensed Consolidated
    Financial Statements                                                          |  |      | 6  | 
|ITEM 2.                            |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                   |  |      | 16 | 
|ITEM 3.                            |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                              |  |      | 26 | 
|ITEM 4.                            |  | Controls and Procedures                                                                                                     |  |      | 26 | 
|PART II.  OTHER
    INFORMATION   
|ITEM 1.                            |  | Legal Proceedings                                                                                                           |  |      | 26 | 
|ITEM 2.                            |  | Changes in Securities and Use of Proceeds                                                                                   |  |      | 27 | 
|ITEM 6.                            |  | Exhibits and Reports on Form 8-K                                                                                            |  |      | 28 | 

2



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##### 



PART I.  FINANCIAL
INFORMATION

Item 1.Financial
Statements  Unaudited

SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES



UNAUDITED CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                           |                                                                                                                                                                 |                                            |         |               |         |   |         |          |         | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------- | ------- | - | ------- | -------- | ------- | 
|                                           |                                                                                                                                                                 | December 29, 2002                          |         | June 30, 2003
|                                           |                                                                                                                                                                 |                                            |         |              
|                                           |                                                                                                                                                                 |                                           
|                                           |                                                                                                                                                                 | (In thousands, except share               
|                                           |                                                                                                                                                                 | information)                              
|ASSETS                                    
|Current assets:                            |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|                                           | Cash and cash equivalents                                                                                                                                       |                                            | $       | 71,430        |         |   | $       | 31,681   |        
|                                           | Receivables, net                                                                                                                                                |                                            |         | 25,516        |         |   |         | 26,840   |        
|                                           | Other current assets                                                                                                                                            |                                            |         | 2,252         |         |   |         | 2,696    |        
|                                           |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|                                           |                                                                                                                                                                 | Total current assets                       |         |               | 99,198  |   |         |          | 61,217  | 
|Property and equipment, net                |                                                                                                                                                                 |                                            | 24,482  |               |         |   | 25,944  |         
|Intangible assets                          |                                                                                                                                                                 |                                            | 502,644 |               |         |   | 539,149 |         
|Deferred financing costs, net              |                                                                                                                                                                 |                                            | 8,759   |               |         |   | 8,118   |         
|Other assets                               |                                                                                                                                                                 |                                            | 201     |               |         |   | 1,305   |         
|                                           |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|                                           |                                                                                                                                                                 | Total assets                               |         | $             | 635,284 |   |         | $        | 635,733 | 
|                                           |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|LIABILITIES AND STOCKHOLDERS
    EQUITY  
|Current liabilities:                       |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|Current portion of long-term debt          |                                                                                                                                                                 | $                                          | 208     |               |         | $ | 217     |         
|Accounts payable and accrued expenses      |                                                                                                                                                                 |                                            | 15,691  |               |         |   | 16,310  |         
|Accrued interest                           |                                                                                                                                                                 |                                            | 5,226   |               |         |   | 5,403   |         
|Deferred commitment fee                    |                                                                                                                                                                 |                                            | 581     |               |         |   | 230     |         
|                                           |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|                                           |                                                                                                                                                                 | Total current liabilities                  |         |               | 21,706  |   |         |          | 22,160  | 
|9 5/8% senior subordinated notes, net      |                                                                                                                                                                 |                                            | 324,154 |               |         |   | 324,683 |         
|Other long-term debt, less current portion |                                                                                                                                                                 |                                            | 3,948   |               |         |   | 3,837   |         
|Deferred income taxes                      |                                                                                                                                                                 |                                            | 58,051  |               |         |   | 56,018  |         
|                                           |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|                                           |                                                                                                                                                                 | Total liabilities                          |         |               | 407,859 |   |         |          | 406,698 | 
|                                           |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|Stockholders equity:                      |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|                                           | Class A common stock, $.0001 par value.
    Authorized 100,000,000 shares; 37,076,655 shares issued and
    outstanding at December 29, 2002 and June 30, 2003. |                                            |         | 3             |         |   |         | 3        |        
|                                           | Class B common stock, $.0001 par value.
    Authorized 50,000,000 shares; 27,605,150 shares issued and
    outstanding at December 29, 2002 and June 30, 2003.  |                                            |         | 3             |         |   |         | 3        |        
|                                           | Additional paid-in capital                                                                                                                                      |                                            |         | 444,594       |         |   |         | 446,216  |        
|                                           | Accumulated deficit                                                                                                                                             |                                            |         | (217,175      | )       |   |         | (217,187 | )      
|                                           |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|                                           |                                                                                                                                                                 | Total stockholders equity                 |         |               | 227,425 |   |         |          | 229,035 | 
|                                           |                                                                                                                                                                 |                                            |         |               |         |   |         |         
|                                           |                                                                                                                                                                 | Total liabilities and stockholders equity |         | $             | 635,284 |   |         | $        | 635,733 | 
|                                           |                                                                                                                                                                 |                                            |         |               |         |   |         |         

See accompanying notes to unaudited condensed
consolidated financial statements.

3



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##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |        |        |        |  
|------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ---------------- | ------ | ------------- | ------ | ------------- | ------ | ------ | ------ | ------- | ------- | ------- | ------ | ------ | ------ | ------ | -
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                 
|                                                                                                                                      |                                                                                                                                 | Three Months Ended                                                                                                                                       |                   | Six Months Ended
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                 
|                                                                                                                                      |                                                                                                                                 | June 30, 2002                                                                                                                                            |                   | June 30, 2003    |        | June 30, 2002 |        | June 30, 2003
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |              
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                         
|                                                                                                                                      |                                                                                                                                 | (In thousands, except per share data)                                                                                                                   
|Gross revenue                                                                                                                         |                                                                                                                                 | $                                                                                                                                                        | 44,553            |                  |        | $             | 43,725 |               |        | $      | 77,145 |         |         | $       | 76,774 |       
|Less agency commissions                                                                                                               |                                                                                                                                 |                                                                                                                                                          | 5,170             |                  |        |               | 5,716  |               |        |        | 8,859  |         |         |         | 9,958  |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          | Net revenue       |                  |        | 39,383        |        |               |        | 38,009 |        |         |         | 68,286  |        |        |        | 66,816 |  
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|Operating expenses:                                                                                                                   |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      | Engineering                                                                                                                     |                                                                                                                                                          |                   | 926              |        |               |        | 1,005         |        |        |        | 1,860   |         |         |        | 1,991  |       
|                                                                                                                                      | Programming                                                                                                                     |                                                                                                                                                          |                   | 5,927            |        |               |        | 4,942         |        |        |        | 10,128  |         |         |        | 10,411 |       
|                                                                                                                                      | Stock-based programming                                                                                                         |                                                                                                                                                          |                   |                 |        |               |        | 1,280         |        |        |        |        |         |         |        | 1,622  |       
|                                                                                                                                      | Selling                                                                                                                         |                                                                                                                                                          |                   | 13,101           |        |               |        | 10,795        |        |        |        | 22,658  |         |         |        | 18,815 |       
|                                                                                                                                      | General and administrative                                                                                                      |                                                                                                                                                          |                   | 3,764            |        |               |        | 4,306         |        |        |        | 6,978   |         |         |        | 7,932  |       
|                                                                                                                                      | Corporate expenses                                                                                                              |                                                                                                                                                          |                   | 3,089            |        |               |        | 4,692         |        |        |        | 5,950   |         |         |        | 9,181  |       
|                                                                                                                                      | Depreciation and amortization                                                                                                   |                                                                                                                                                          |                   | 720              |        |               |        | 792           |        |        |        | 1,452   |         |         |        | 1,535  |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          | 27,527            |                  |        |               | 27,812 |               |        |        | 49,026 |         |         |         | 51,487 |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      |                                                                                                                                 | Operating income from continuing operations                                                                                                              |                   |                  | 11,856 |               |        |               | 10,197 |        |        |         | 19,260  |         |        |        | 15,329 |       
|Other (income) expenses:                                                                                                              |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      | Interest expense, net                                                                                                           |                                                                                                                                                          |                   | 8,676            |        |               |        | 8,797         |        |        |        | 17,188  |         |         |        | 17,424 |       
|                                                                                                                                      | Other, net                                                                                                                      |                                                                                                                                                          |                   | (266             | )      |               |        | (197          | )      |        |        | (266    | )       |         |        | (223   | )     
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      |                                                                                                                                 | Income (loss) from continuing operations
    before income taxes, discontinued operations, and cumulative
    effect of a change in accounting principle |                   |                  | 3,446  |               |        |               | 1,597  |        |        |         | 2,338   |         |        |        | (1,872 | )     
|Income tax expense (benefit)                                                                                                          |                                                                                                                                 |                                                                                                                                                          | (9,407            | )                |        |               | 808    |               |        |        | 44,655 |         |         |         | (1,860 | )     
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      |                                                                                                                                 | Income (loss) from continuing operations
    before discontinued operations, and cumulative effect of a
    change in accounting principle               |                   |                  | 12,853 |               |        |               | 789    |        |        |         | (42,317 | )       |        |        | (12    | )     
|Discontinued operations:                                                                                                              |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      | Loss from operations of discontinued station
    KTCY-FM, net of tax                                                            |                                                                                                                                                          |                   | (30              | )      |               |        |              |        |        |        | (46     | )       |         |        |       |       
|                                                                                                                                      | Cumulative effect of a change in accounting
    principle for intangible assets, net of income tax benefit of
    $30.2 million |                                                                                                                                                          |                   |                 |        |               |        |              |        |        |        | (45,288 | )       |         |        |       |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          | Net income (loss) |                  | $      | 12,823        |        |               | $      | 789    |        |         | $       | (87,651 | )      |        | $      | (12    | )
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|Net income (loss) per common share before
    discontinued operations, and cumulative effect of a change in
    accounting principle: |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      | Basic and Diluted                                                                                                               |                                                                                                                                                          | $                 | 0.20             |        |               | $      | 0.01          |        |        | $      | (0.65   | )       |         | $      |       |       
|Net (loss) income per common share for
    discontinued operations                                                                    |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      | Basic and Diluted                                                                                                               |                                                                                                                                                          | $                 |                 |        |               | $      |              |        |        | $      |        |         |         | $      |       |       
|Net loss per common share attributed to a
    cumulative effect of a change in accounting principle, net of
    tax:                  |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      | Basic and Diluted                                                                                                               |                                                                                                                                                          | $                 |                 |        |               | $      |              |        |        | $      | (0.70   | )       |         | $      |       |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|Net income (loss) per common share:                                                                                                   |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      | Basic and Diluted                                                                                                               |                                                                                                                                                          | $                 | 0.20             |        |               | $      | 0.01          |        |        | $      | (1.35   | )       |         | $      |       |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|Weighted-average common shares outstanding:                                                                                           |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      | Basic                                                                                                                           |                                                                                                                                                          |                   | 64,672           |        |               |        | 64,682        |        |        |        | 64,666  |         |         |        | 64,682 |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       
|                                                                                                                                      | Diluted                                                                                                                         |                                                                                                                                                          |                   | 65,606           |        |               |        | 64,786        |        |        |        | 64,666  |         |         |        | 64,682 |       
|                                                                                                                                      |                                                                                                                                 |                                                                                                                                                          |                   |                  |        |               |        |               |        |        |        |         |         |         |        |       

See accompanying notes to unaudited condensed
consolidated financial statements.

4



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##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS


|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |         |        |         |      |  
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------- | -------------------------------------------------------- | ------ | ------- | ------- | ------- | ------ | ------- | ---- | -
|                                                 |                                                                                               | Six Months Ended                                                                |                                                   | Six Months Ended                                        
|                                                 |                                                                                               | June 30, 2002                                                                   |                                                   | June 30, 2003                                           
|                                                 |                                                                                               |                                                                                 |                                                   |                                                         
|                                                 |                                                                                               |                                                                                
|                                                 |                                                                                               | (In thousands)                                                                 
|Cash flows from operating activities:            |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 | Net loss                                                                                      |                                                                                 | $                                                 | (87,651                                                  | )      |         | $       | (12     | )     
|                                                 | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                                                 |                                                   |                                                          |        |         |         |         |       
|                                                 |                                                                                               | Loss from discontinued operations                                               |                                                   |                                                          | 46     |         |         |         |       |        
|                                                 |                                                                                               | Stock-based programming expense                                                 |                                                   |                                                          |       |         |         |         | 1,622  |        
|                                                 |                                                                                               | Cumulative effect of a change in accounting
    principle for intangible assets |                                                   |                                                          | 75,480 |         |         |         |       |        
|                                                 |                                                                                               | Loss on disposal of assets                                                      |                                                   |                                                          | 21     |         |         |         |       |        
|                                                 |                                                                                               | Depreciation and amortization                                                   |                                                   |                                                          | 1,452  |         |         |         | 1,535  |        
|                                                 |                                                                                               | Bad debt recoveries                                                             |                                                   |                                                          | (273   | )       |         |         | (391   | )      
|                                                 |                                                                                               | Amortization of debt discount                                                   |                                                   |                                                          | 470    |         |         |         | 529    |        
|                                                 |                                                                                               | Amortization of deferred financing costs                                        |                                                   |                                                          | 640    |         |         |         | 641    |        
|                                                 |                                                                                               | Increase (decrease) in deferred income taxes                                    |                                                   |                                                          | 13,972 |         |         |         | (2,033 | )      
|                                                 |                                                                                               | Decrease in deferred commitment fee                                             |                                                   |                                                          | (351   | )       |         |         | (351   | )      
|                                                 |                                                                                               | Changes in operating assets and liabilities, net
    of acquisitions:           |                                                   |                                                          |        |         |         |         |        |        
|                                                 |                                                                                               |                                                                                 | Increase in receivables                           |                                                          |        | (2,336  | )       |         |        | (933    | )   
|                                                 |                                                                                               |                                                                                 | Decrease (increase) in other current assets       |                                                          |        | 503     |         |         |        | (444    | )   
|                                                 |                                                                                               |                                                                                 | Increase in other assets                          |                                                          |        | (16     | )       |         |        | (1,104  | )   
|                                                 |                                                                                               |                                                                                 | Increase in accounts payable and accrued expenses |                                                          |        | 1,025   |         |         |        | 619     |     
|                                                 |                                                                                               |                                                                                 | Increase in accrued interest                      |                                                          |        | 87      |         |         |        | 177     |     
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 |                                                                                               |                                                                                 |                                                   | Net cash provided by (used in) continuing
    operations |        |         | 3,069   |         |        |         | (145 | )
|                                                 |                                                                                               |                                                                                 |                                                   | Net cash provided by discontinued operations             |        |         | 440     |         |        |         |     |  
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 |                                                                                               |                                                                                 |                                                   | Net cash provided by (used in) operating
    activities  |        |         | 3,509   |         |        |         | (145 | )
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|Cash flows from investing activities:            |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 | Advances on purchase price of radio station                                                   |                                                                                 |                                                   | (15,206                                                  | )      |         |         | (15,156 | )     
|                                                 | Acquisition of radio stations                                                                 |                                                                                 |                                                   |                                                         |        |         |         | (22,356 | )     
|                                                 | Additions to property and equipment                                                           |                                                                                 |                                                   | (2,419                                                   | )      |         |         | (1,990  | )     
|                                                 | Additions to property and equipment of
    discontinued operations                            |                                                                                 |                                                   | (3                                                       | )      |         |         |        |       
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 |                                                                                               |                                                                                 | Net cash used in investing activities             |                                                          |        | (17,628 | )       |         |        | (39,502 | )   
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|Cash flows from financing activities:            |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 | Proceeds from Class A stock option exercised                                                  |                                                                                 |                                                   | 99                                                       |        |         |         |        |       
|                                                 | Repayment of other long-term debt                                                             |                                                                                 |                                                   | (193                                                     | )      |         |         | (102    | )     
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 |                                                                                               |                                                                                 | Net cash used in financing activities             |                                                          |        | (94     | )       |         |        | (102    | )   
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|Net decrease in cash and cash equivalents        |                                                                                               |                                                                                 | (14,213                                           | )                                                        |        |         | (39,749 | )      
|Cash and cash equivalents at beginning of period |                                                                                               |                                                                                 | 51,640                                            |                                                          |        |         | 71,430  |        
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|Cash and cash equivalents at end of period       |                                                                                               | $                                                                               | 37,427                                            |                                                          |        | $       | 31,681  |        
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|Supplemental cash flow information:              |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 | Interest paid                                                                                 |                                                                                 | $                                                 | 16,330                                                   |        |         | $       | 16,417  |       
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 | Income taxes (received) paid                                                                  |                                                                                 | $                                                 | (39                                                      | )      |         | $       | 187     |       
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|Non-cash financing and investing activities:     |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 | Issuance of warrants towards the acquisition of a
    radio station                           |                                                                                 | $                                                 | 8,922                                                    |        |         | $       |        |       
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        
|                                                 | Accrued commission on purchase of radio station                                               |                                                                                 | $                                                 | 1,000                                                    |        |         | $       |        |       
|                                                 |                                                                                               |                                                                                 |                                                   |                                                          |        |         |         |        

See accompanying notes to unaudited condensed
consolidated financial statements.

5



---



##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


June 30, 2003


1.     Basis of
Presentation

The unaudited condensed consolidated financial
statements include the accounts of Spanish Broadcasting System,
Inc. and its subsidiaries (the Company). All
intercompany balances and transactions have been eliminated in
consolidation. The accompanying unaudited condensed consolidated
financial statements as of December 29, 2002 and
June 30, 2003, and for the three and six-month periods
ended June 30, 2002 and 2003 do not contain all disclosures
required by generally accepted accounting principles. These
unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements
of the Company as of and for the fiscal year ended
December 29, 2002 included in the Companys fiscal
year 2002 Annual Report on Form 10-K.

Effective December 30, 2002, the Company
changed its year-end from a broadcast calendar 52-53-week fiscal
year ending on the last Sunday in December to a calendar year
ending on December 31. Pursuant to Securities and Exchange
Commission Financial Reporting Release No. 35, such change
is not deemed a change in fiscal year for financial reporting
purposes and the Company is not required to file a separate
transition report or to report separate financial information
for the two-day period of December 30 and 31, 2002.
Financial results for December 30 and 31, 2002 are included
in the Companys financial results for the six-month period
ended June 30, 2003.

In the opinion of the Companys management,
the accompanying unaudited condensed consolidated financial
statements contain all adjustments, which are all of a normal
and recurring nature, necessary for a fair presentation of the
results of the interim periods. The results of operations for
the three and six-month periods ended June 30, 2003 are not
necessarily indicative of the results for a full year.

2.     Financial
Information for Guarantor and Non-Guarantor
Subsidiaries

Certain of the Companys subsidiaries
(collectively, the Subsidiary Guarantors) have
guaranteed the Companys 9 5/8% senior subordinated
notes due 2009 on a joint and several basis. The Company has not
included separate financial statements of the Subsidiary
Guarantors because (i) all of the Subsidiary Guarantors are
wholly owned subsidiaries of the Company, and (ii) the
guarantees issued by the Subsidiary Guarantors are full and
unconditional. The Company has not included separate parent-only
financial statements since the parent is a holding company with
no independent assets or operations other than its investments
in its subsidiaries. In December 1999, the Company transferred
the Federal Communications Commission (FCC) licenses
of WRMA-FM, WXDJ-FM, WLEY-FM, WSKQ-FM, KLEY-FM, WPAT-FM,
WCMA-FM, WZET-FM (formerly WSMA-FM and prior to that, WEGM-FM),
WMEG-FM, WCMQ-FM, and KLAX-FM, to special purpose subsidiaries
that were formed solely for the purpose of holding each
respective FCC license. In addition, all FCC licenses acquired
subsequent to December 1999 are held by special purpose
subsidiaries and/or non-guarantor subsidiaries. All of the
special purpose subsidiaries are non-guarantors of the
9 5/8% senior subordinated notes due 2009. Condensed
consolidating unaudited financial information for the Company
and its guarantor and non-guarantor subsidiaries is as follows
(in thousands):

6



---



##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


CONDENSED CONSOLIDATING BALANCE
SHEET

As of December 29, 2002


|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |         | 
|------------------------------------------- | ------------------------------------------ | ------------ | -------- | ------------- |  | ------------ | -------- | ------ |  | - | ------- | ------- | - | - | -------- | ------- | 
|                                            |                                            | Parent and   |          |               |  |              |          |       
|                                            |                                            | Guarantor    |          | Non-Guarantor |  |              |          |       
|                                            |                                            | Subsidiaries |          | Subsidiaries  |  | Eliminations |          | Total 
|                                            |                                            |              |          |               |  |              |          |       
|Cash and cash equivalents                   |                                            | $            | 69,253   |               |  | $            | 2,177    |        |  | $ |        |         |   | $ | 71,430   |        
|Receivables, net                            |                                            |              | 23,837   |               |  |              | 1,679    |        |  |   |        |         |   |   | 25,516   |        
|Other current assets                        |                                            |              | 1,875    |               |  |              | 377      |        |  |   |        |         |   |   | 2,252    |        
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total current assets                       |              |          | 94,965        |  |              |          | 4,233  |  |   |         |        |   |   |          | 99,198  | 
|Property and equipment, net                 |                                            |              | 17,005   |               |  |              | 7,477    |        |  |   |        |         |   |   | 24,482   |        
|Intangible assets                           |                                            |              | 66,189   |               |  |              | 436,455  |        |  |   |        |         |   |   | 502,644  |        
|Deferred financing costs, net               |                                            |              | 8,759    |               |  |              |         |        |  |   |        |         |   |   | 8,759    |        
|Investment in subsidiaries and intercompany |                                            |              | 428,740  |               |  |              | (401,926 | )      |  |   | (26,814 | )       |   |   |         |        
|Other assets                                |                                            |              | 200      |               |  |              | 1        |        |  |   |        |         |   |   | 201      |        
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total assets                               |              | $        | 615,858       |  |              | $        | 46,240 |  |   | $       | (26,814 | ) |   | $        | 635,284 | 
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|Current portion of long-term debt           |                                            | $            | 62       |               |  | $            | 146      |        |  | $ |        |         |   | $ | 208      |        
|Accounts payable and accrued expenses       |                                            |              | 12,333   |               |  |              | 3,358    |        |  |   |        |         |   |   | 15,691   |        
|Accrued interest                            |                                            |              | 5,226    |               |  |              |         |        |  |   |        |         |   |   | 5,226    |        
|Deferred commitment fee                     |                                            |              | 581      |               |  |              |         |        |  |   |        |         |   |   | 581      |        
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total current liabilities                  |              |          | 18,202        |  |              |          | 3,504  |  |   |         |        |   |   |          | 21,706  | 
|Long-term debt                              |                                            |              | 324,857  |               |  |              | 3,245    |        |  |   |        |         |   |   | 328,102  |        
|Deferred income taxes                       |                                            |              | 45,374   |               |  |              | 12,677   |        |  |   |        |         |   |   | 58,051   |        
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total liabilities                          |              |          | 388,433       |  |              |          | 19,426 |  |   |         |        |   |   |          | 407,859 | 
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|Common stock                                |                                            |              | 6        |               |  |              | 1        |        |  |   | (1      | )       |   |   | 6        |        
|Additional paid-in capital                  |                                            |              | 444,594  |               |  |              | 94,691   |        |  |   | (94,691 | )       |   |   | 444,594  |        
|Accumulated deficit                         |                                            |              | (217,175 | )             |  |              | (67,878  | )      |  |   | 67,878  |         |   |   | (217,175 | )      
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total stockholders equity                 |              |          | 227,425       |  |              |          | 26,814 |  |   |         | (26,814 | ) |   |          | 227,425 | 
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total liabilities and stockholders equity |              | $        | 615,858       |  |              | $        | 46,240 |  |   | $       | (26,814 | ) |   | $        | 635,284 | 
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        

7



---



##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


CONDENSED CONSOLIDATING BALANCE
SHEET

As of June 30, 2003


|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |         | 
|------------------------------------------- | ------------------------------------------ | ------------ | -------- | ------------- |  | ------------ | -------- | ------ |  | - | ------- | ------- | - | - | -------- | ------- | 
|                                            |                                            | Parent and   |          |               |  |              |          |       
|                                            |                                            | Guarantor    |          | Non-Guarantor |  |              |          |       
|                                            |                                            | Subsidiaries |          | Subsidiaries  |  | Eliminations |          | Total 
|                                            |                                            |              |          |               |  |              |          |       
|Cash and cash equivalents                   |                                            | $            | 28,905   |               |  | $            | 2,776    |        |  | $ |        |         |   | $ | 31,681   |        
|Receivables, net                            |                                            |              | 25,374   |               |  |              | 1,466    |        |  |   |        |         |   |   | 26,840   |        
|Other current assets                        |                                            |              | 2,409    |               |  |              | 287      |        |  |   |        |         |   |   | 2,696    |        
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total current assets                       |              |          | 56,688        |  |              |          | 4,529  |  |   |         |        |   |   |          | 61,217  | 
|Property and equipment, net                 |                                            |              | 18,709   |               |  |              | 7,235    |        |  |   |        |         |   |   | 25,944   |        
|Intangible assets                           |                                            |              | 81,801   |               |  |              | 457,348  |        |  |   |        |         |   |   | 539,149  |        
|Deferred financing costs, net               |                                            |              | 8,118    |               |  |              |         |        |  |   |        |         |   |   | 8,118    |        
|Investment in subsidiaries and intercompany |                                            |              | 450,383  |               |  |              | (425,620 | )      |  |   | (24,763 | )       |   |   |         |        
|Other assets                                |                                            |              | 1,304    |               |  |              | 1        |        |  |   |        |         |   |   | 1,305    |        
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total assets                               |              | $        | 617,003       |  |              | $        | 43,493 |  |   | $       | (24,763 | ) |   | $        | 635,733 | 
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|Current portion of long-term debt           |                                            | $            | 64       |               |  | $            | 153      |        |  | $ |        |         |   | $ | 217      |        
|Accounts payable and accrued expenses       |                                            |              | 13,576   |               |  |              | 2,734    |        |  |   |        |         |   |   | 16,310   |        
|Accrued interest                            |                                            |              | 5,403    |               |  |              |         |        |  |   |        |         |   |   | 5,403    |        
|Deferred commitment fee                     |                                            |              | 230      |               |  |              |         |        |  |   |        |         |   |   | 230      |        
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total current liabilities                  |              |          | 19,273        |  |              |          | 2,887  |  |   |         |        |   |   |          | 22,160  | 
|Long-term debt                              |                                            |              | 325,354  |               |  |              | 3,166    |        |  |   |        |         |   |   | 328,520  |        
|Deferred income taxes                       |                                            |              | 43,341   |               |  |              | 12,677   |        |  |   |        |         |   |   | 56,018   |        
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total liabilities                          |              |          | 387,968       |  |              |          | 18,730 |  |   |         |        |   |   |          | 406,698 | 
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|Common stock                                |                                            |              | 6        |               |  |              | 1        |        |  |   | (1      | )       |   |   | 6        |        
|Additional paid-in capital                  |                                            |              | 446,216  |               |  |              | 94,691   |        |  |   | (94,691 | )       |   |   | 446,216  |        
|Accumulated deficit                         |                                            |              | (217,187 | )             |  |              | (69,929  | )      |  |   | 69,929  |         |   |   | (217,187 | )      
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total stockholders equity                 |              |          | 229,035       |  |              |          | 24,763 |  |   |         | (24,763 | ) |   |          | 229,035 | 
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        
|                                            | Total liabilities and stockholders equity |              | $        | 617,003       |  |              | $        | 43,493 |  |   | $       | (24,763 | ) |   | $        | 635,733 | 
|                                            |                                            |              |          |               |  |              |          |        |  |   |         |         |   |   |          |        

8



---



##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

For the Three Months Ended June 30,
2002


|                                              |                   |              |        |               |  |              |       |       |   |   |      |     |  |   |        |        | 
|--------------------------------------------- | ----------------- | ------------ | ------ | ------------- |  | ------------ | ----- | ----- | - | - | ---- | --- |  | - | ------ | ------ | 
|                                              |                   | Parent and   |        |               |  |              |       |      
|                                              |                   | Guarantor    |        | Non-Guarantor |  |              |       |      
|                                              |                   | Subsidiaries |        | Subsidiaries  |  | Eliminations |       | Total
|                                              |                   |              |        |               |  |              |       |      
|Net revenue                                   |                   | $            | 36,398 |               |  | $            | 2,985 |       |   | $ |     |     |  | $ | 39,383 |       
|Station operating expenses                    |                   |              | 21,508 |               |  |              | 2,210 |       |   |   |     |     |  |   | 23,718 |       
|Corporate expenses                            |                   |              | 3,089  |               |  |              | 120   |       |   |   | (120 | )   |  |   | 3,089  |       
|Depreciation and amortization                 |                   |              | 564    |               |  |              | 156   |       |   |   |     |     |  |   | 720    |       
|                                              |                   |              |        |               |  |              |       |       |   |   |      |     |  |   |        |       
|                                              | Operating income  |              |        | 11,237        |  |              |       | 499   |   |   |      | 120 |  |   |        | 11,856 | 
|Interest expense, net                         |                   |              | 7,307  |               |  |              | 1,369 |       |   |   |     |     |  |   | 8,676  |       
|Other (income) expense, net                   |                   |              | (385   | )             |  |              | (1    | )     |   |   | 120  |     |  |   | (266   | )     
|Equity in net loss of subsidiaries            |                   |              | 869    |               |  |              |      |       |   |   | (869 | )   |  |   |       |       
|Income tax benefit                            |                   |              | (9,407 | )             |  |              |      |       |   |   |     |     |  |   | (9,407 | )     
|Loss from discontinued operations, net of tax |                   |              | (30    | )             |  |              |      |       |   |   |     |     |  |   | (30    | )     
|                                              |                   |              |        |               |  |              |       |       |   |   |      |     |  |   |        |       
|                                              | Net income (loss) |              | $      | 12,823        |  |              | $     | (869  | ) |   | $    | 869 |  |   | $      | 12,823 | 
|                                              |                   |              |        |               |  |              |       |       |   |   |      |     |  |   |        |       

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

For the Three Months Ended June 30,
2003


|                                   |                   |              |        |               |  |              |       |       |   |   |      |     |  |   |        |        | 
|---------------------------------- | ----------------- | ------------ | ------ | ------------- |  | ------------ | ----- | ----- | - | - | ---- | --- |  | - | ------ | ------ | 
|                                   |                   | Parent and   |        |               |  |              |       |      
|                                   |                   | Guarantor    |        | Non-Guarantor |  |              |       |      
|                                   |                   | Subsidiaries |        | Subsidiaries  |  | Eliminations |       | Total
|                                   |                   |              |        |               |  |              |       |      
|Net revenue                        |                   | $            | 35,099 |               |  | $            | 2,910 |       |   | $ |     |     |  | $ | 38,009 |       
|Station operating expenses         |                   |              | 20,168 |               |  |              | 2,160 |       |   |   |     |     |  |   | 22,328 |       
|Corporate expenses                 |                   |              | 4,692  |               |  |              | 120   |       |   |   | (120 | )   |  |   | 4,692  |       
|Depreciation and amortization      |                   |              | 667    |               |  |              | 125   |       |   |   |     |     |  |   | 792    |       
|                                   |                   |              |        |               |  |              |       |       |   |   |      |     |  |   |        |       
|                                   | Operating income  |              |        | 9,572         |  |              |       | 505   |   |   |      | 120 |  |   |        | 10,197 | 
|Interest expense, net              |                   |              | 7,459  |               |  |              | 1,338 |       |   |   |     |     |  |   | 8,797  |       
|Other (income) expense, net        |                   |              | (318   | )             |  |              | 1     |       |   |   | 120  |     |  |   | (197   | )     
|Equity in net loss of subsidiaries |                   |              | 878    |               |  |              |      |       |   |   | (878 | )   |  |   |       |       
|Income tax expense                 |                   |              | 764    |               |  |              | 44    |       |   |   |     |     |  |   | 808    |       
|                                   |                   |              |        |               |  |              |       |       |   |   |      |     |  |   |        |       
|                                   | Net income (loss) |              | $      | 789           |  |              | $     | (878  | ) |   | $    | 878 |  |   | $      | 789    | 
|                                   |                   |              |        |               |  |              |       |       |   |   |      |     |  |   |        |       

9



---



##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

For the Six Months Ended June 30,
2002


|                                                                      |                  |              |        |               |   |              |         |         |   |   |         |        |  |   |         |         |  
|--------------------------------------------------------------------- | ---------------- | ------------ | ------ | ------------- | - | ------------ | ------- | ------- | - | - | ------- | ------ |  | - | ------- | ------- | -
|                                                                      |                  | Parent and   |        |               |   |              |         |        
|                                                                      |                  | Guarantor    |        | Non-Guarantor |   |              |         |        
|                                                                      |                  | Subsidiaries |        | Subsidiaries  |   | Eliminations |         | Total  
|                                                                      |                  |              |        |               |   |              |         |        
|Net revenue                                                           |                  | $            | 62,353 |               |   | $            | 5,933   |         |   | $ |        |        |  | $ | 68,286  |        
|Station operating expenses                                            |                  |              | 37,364 |               |   |              | 4,260   |         |   |   |        |        |  |   | 41,624  |        
|Corporate expenses                                                    |                  |              | 5,950  |               |   |              | 240     |         |   |   | (240    | )      |  |   | 5,950   |        
|Depreciation and amortization                                         |                  |              | 1,106  |               |   |              | 346     |         |   |   |        |        |  |   | 1,452   |        
|                                                                      |                  |              |        |               |   |              |         |         |   |   |         |        |  |   |         |        
|                                                                      | Operating income |              |        | 17,933        |   |              |         | 1,087   |   |   |         | 240    |  |   |         | 19,260  |  
|Interest expense, net                                                 |                  |              | 14,510 |               |   |              | 2,678   |         |   |   |        |        |  |   | 17,188  |        
|Other (income) expense, net                                           |                  |              | (504   | )             |   |              | (2      | )       |   |   | 240     |        |  |   | (266    | )      
|Equity in net loss of subsidiaries                                    |                  |              | 46,877 |               |   |              |        |         |   |   | (46,877 | )      |  |   |        |        
|Income tax expense                                                    |                  |              | 44,655 |               |   |              |        |         |   |   |        |        |  |   | 44,655  |        
|Loss from discontinued operations, net of tax                         |                  |              | (46    | )             |   |              |        |         |   |   |        |        |  |   | (46     | )      
|Cumulative effect of a change in accounting
    principle, net of tax |                  |              |       |               |   |              | (45,288 | )       |   |   |        |        |  |   | (45,288 | )      
|                                                                      |                  |              |        |               |   |              |         |         |   |   |         |        |  |   |         |        
|                                                                      | Net loss         |              | $      | (87,651       | ) |              | $       | (46,877 | ) |   | $       | 46,877 |  |   | $       | (87,651 | )
|                                                                      |                  |              |        |               |   |              |         |         |   |   |         |        |  |   |         |        

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

For the Six Months Ended June 30,
2003


|                                   |                  |              |        |               |   |              |       |        |   |   |        |       |  |   |        |        |  
|---------------------------------- | ---------------- | ------------ | ------ | ------------- | - | ------------ | ----- | ------ | - | - | ------ | ----- |  | - | ------ | ------ | -
|                                   |                  | Parent and   |        |               |   |              |       |       
|                                   |                  | Guarantor    |        | Non-Guarantor |   |              |       |       
|                                   |                  | Subsidiaries |        | Subsidiaries  |   | Eliminations |       | Total 
|                                   |                  |              |        |               |   |              |       |       
|Net revenue                        |                  | $            | 61,473 |               |   | $            | 5,343 |        |   | $ |       |       |  | $ | 66,816 |       
|Station operating expenses         |                  |              | 36,636 |               |   |              | 4,135 |        |   |   |       |       |  |   | 40,771 |       
|Corporate expenses                 |                  |              | 9,181  |               |   |              | 240   |        |   |   | (240   | )     |  |   | 9,181  |       
|Depreciation and amortization      |                  |              | 1,285  |               |   |              | 250   |        |   |   |       |       |  |   | 1,535  |       
|                                   |                  |              |        |               |   |              |       |        |   |   |        |       |  |   |        |       
|                                   | Operating income |              |        | 14,371        |   |              |       | 718    |   |   |        | 240   |  |   |        | 15,329 |  
|Interest expense, net              |                  |              | 14,747 |               |   |              | 2,677 |        |   |   |       |       |  |   | 17,424 |       
|Other (income) expense, net        |                  |              | (464   | )             |   |              | 1     |        |   |   | 240    |       |  |   | (223   | )     
|Equity in net loss of subsidiaries |                  |              | 2,051  |               |   |              |      |        |   |   | (2,051 | )     |  |   |       |       
|Income tax benefit                 |                  |              | (1,951 | )             |   |              | 91    |        |   |   |       |       |  |   | (1,860 | )     
|                                   |                  |              |        |               |   |              |       |        |   |   |        |       |  |   |        |       
|                                   | Net loss         |              | $      | (12           | ) |              | $     | (2,051 | ) |   | $      | 2,051 |  |   | $      | (12    | )
|                                   |                  |              |        |               |   |              |       |        |   |   |        |       |  |   |        |       

10



---



##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

For the Six Months Ended June 30,
2002


|                                     |  |              |         |               |  |              |      |       |  |   |   |  |  |   |         |  
|------------------------------------ |  | ------------ | ------- | ------------- |  | ------------ | ---- | ----- |  | - | - |  |  | - | ------- | -
|                                     |  | Parent and   |         |               |  |              |      |      
|                                     |  | Guarantor    |         | Non-Guarantor |  |              |      |      
|                                     |  | Subsidiaries |         | Subsidiaries  |  | Eliminations |      | Total
|                                     |  |              |         |               |  |              |      |      
|Cash flows from operating activities |  | $            | 4,051   |               |  | $            | (542 | )     |  | $ |  |  |  | $ | 3,509   |  
|                                     |  |              |         |               |  |              |      |       |  |   |   |  |  |   |         |  
|Cash flows from investing activities |  | $            | (17,586 | )             |  | $            | (42  | )     |  | $ |  |  |  | $ | (17,628 | )
|                                     |  |              |         |               |  |              |      |       |  |   |   |  |  |   |         |  
|Cash flows from financing activities |  | $            | (29     | )             |  | $            | (65  | )     |  | $ |  |  |  | $ | (94     | )
|                                     |  |              |         |               |  |              |      |       |  |   |   |  |  |   |         |  

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

For the Six Months Ended June 30,
2003


|                                     |  |              |         |               |  |              |     |       |  |   |   |  |  |   |         |  
|------------------------------------ |  | ------------ | ------- | ------------- |  | ------------ | --- | ----- |  | - | - |  |  | - | ------- | -
|                                     |  | Parent and   |         |               |  |              |     |      
|                                     |  | Guarantor    |         | Non-Guarantor |  |              |     |      
|                                     |  | Subsidiaries |         | Subsidiaries  |  | Eliminations |     | Total
|                                     |  |              |         |               |  |              |     |      
|Cash flows from operating activities |  | $            | (824    | )             |  | $            | 679 |       |  | $ |  |  |  | $ | (145    | )
|                                     |  |              |         |               |  |              |     |       |  |   |   |  |  |   |         |  
|Cash flows from investing activities |  | $            | (39,494 | )             |  | $            | (8  | )     |  | $ |  |  |  | $ | (39,502 | )
|                                     |  |              |         |               |  |              |     |       |  |   |   |  |  |   |         |  
|Cash flows from financing activities |  | $            | (31     | )             |  | $            | (71 | )     |  | $ |  |  |  | $ | (102    | )
|                                     |  |              |         |               |  |              |     |       |  |   |   |  |  |   |         |  

3.     New Accounting
Pronouncements

In June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations. SFAS
No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the
retirement of tangible long-lived assets that results from the
acquisition, construction, development, and/or normal use of the
assets. The Company would also record a corresponding asset that
is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect
the passage of time and changes in the estimated future cash
flows underlying the obligation. The Company adopted SFAS
No. 143 on December 30, 2002. The adoption of SFAS
No. 143 did not have a material effect on the
Companys condensed consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS No. 145). SFAS
No. 145 rescinds FASB Statement No. 4, Reporting
Gains and Losses from Extinguishment of Debt, and an
amendment of that Statement, FASB Statement No. 44,
Accounting for Intangible Assets of Motor Carriers
and FASB Statement No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. SFAS
No. 145 amends FASB No. 13, Accounting for
Leases and other existing authoritative pronouncements to
make various technical corrections and clarify meanings, or
describes their applicability under changed conditions. SFAS
No. 145 will be effective for fiscal years beginning after
May 15, 2002. The adoption of SFAS No. 145 will
require that the Companys extraordinary loss recognized on
the extinguishments of debt in 2000 and 2001 be reclassified to
income or loss from continuing operations in its condensed
consolidated financial statements beginning in 2003.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. This pronouncement
amends SFAS No. 123 to provide alternative methods of
transition for an entity that voluntarily changes to the fair
value-based method of accounting for stock-based compensation.
SFAS No. 148 also expands the disclosure requirements with
respect to stock-based

11



---



##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


compensation. The Company does not intend to
change to the fair value method of accounting. The required
expanded disclosure is included in the June 30, 2003
condensed consolidated financial statements and notes thereto.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities:
an Interpretation of ARB No. 51
(FIN 46). FIN 46 addresses consolidation
by business enterprises of entities in which equity investors do
not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. Variable interest entities are
required to be consolidated by their primary beneficiaries if
they do not effectively disperse risks among parties involved.
The primary beneficiary of a variable interest entity is the
party that absorbs a majority of the entitys expected
losses or receives a majority of its expected residual returns.
The consolidation requirements of FIN 46 apply immediately
to variable interest entities created after January 31,
2003 and apply to existing entities in the first fiscal year or
interim period beginning after June 15, 2003. Certain new
disclosure requirements apply to all financial statements issued
after January 31, 2003. The Company adopted FIN 46 on
February 1, 2003. The adoption of FIN 46 did not effect the
Companys condensed consolidated financial statements.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective
at the beginning of the first interim period beginning after
June 15, 2003. This statement establishes standards for how
an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. It requires
that an issuer classify a freestanding financial instrument that
is within its scope as a liability (or an asset in some
circumstances). The adoption of SFAS No. 150 will have
no impact on the Companys condensed consolidated financial
statements.

4.     Cumulative
Effect of Accounting Change

In July 2001, FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead
tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. The Company has concluded that
its intangible assets, comprised primarily of FCC licenses,
qualify as indefinite-life intangible assets under SFAS
No. 142.

The Company adopted the provisions of SFAS
No. 142 effective December 31, 2001. After performing
the transitional impairment evaluation of its indefinite-life
intangible assets, the Company determined that the carrying
value of certain indefinite-life intangible assets acquired from
AMFM Operating, Inc. in January 2000, and certain
indefinite-life intangible assets acquired from Rodriguez
Communications, Inc. and New World Broadcasters Corp., in
November 2000, exceeded their respective fair market values.
Fair market values of the Companys FCC licenses were
determined through the use of a third-party valuation. These
valuations were performed on the FCC licenses, which exclude the
franchise values of the stations (i.e. going concern value).
These valuations were based on a discounted cash flow model
incorporating various market assumptions and types of signals,
and assumed the FCC licenses were acquired and operated by a
third-party. As a result, the Company recorded a non-cash charge
for the cumulative effect of a change in accounting principle of
$45.3 million, net of income tax benefit of
$30.2 million. Under SFAS No. 142, goodwill is deemed to be
impaired if the net book value of the reporting unit exceeds its
estimated fair value. The Company has determined that it has one
reporting unit under SFAS No. 142 and that there was no
impairment of goodwill as a result of adopting SFAS No. 142.

Additionally, since amortization of its
indefinite-life intangible assets ceased for financial statement
purposes under SFAS No. 142, the Company could not be
assured that the reversals of the deferred tax liabilities
relating to those indefinite-life intangible assets would occur
within the Companys net operating loss

12



---



##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


carry-forward period. Therefore, on
December 31, 2001, the Company recognized a non-cash charge
totaling $55.4 million to income tax expense to establish a
valuation allowance against the Companys deferred tax
assets, primarily consisting of net operating loss
carry-forwards.

As of the Companys adoption of SFAS
No. 142 effective December 31, 2001, the Company had
unamortized goodwill in the amount of $32.7 million, and
unamortized identifiable intangible assets in the amount of
$543.2 million, all of which was subject to the transition
provision of SFAS No. 142. The following table presents
adjusted financial results for the six-month periods ended
June 30, 2002 and 2003, respectively, adjusting for the
cumulative effect of accounting principle and the increase in
the income tax valuation allowance upon adoption of SFAS
No. 142 on December 31, 2001.

|                                                                                    |  |                       |         |          |  |   |     |  
|----------------------------------------------------------------------------------- |  | --------------------- | ------- | -------- |  | - | --- | -
|                                                                                    |  |                      
|                                                                                    |  | Six Months Ended     
|                                                                                    |  |                      
|                                                                                    |  | June 30,              |         | June 30,
|                                                                                    |  | 2002                  |         | 2003    
|                                                                                    |  |                       |         |         
|                                                                                    |  |                      
|                                                                                    |  | (In thousands, except
|                                                                                    |  | per share data)      
|                                                                                    |  | (Unaudited)          
|Reported net loss:                                                                  |  | $                     | (87,651 | )        |  | $ | (12 | )
|Add back:cumulative
    effect of a change in accounting principle, net of tax(1)   |  |                       | 45,288  |          |  |   |    |  
|Add back:income tax
    valuation allowance(2)                                      |  |                       | 55,358  |          |  |   |    |  
|                                                                                    |  |                       |         |          |  |   |     |  
|Adjusted net income (loss)                                                          |  | $                     | 12,995  |          |  |   | (12 | )
|                                                                                    |  |                       |         |          |  |   |     |  
|Basic and diluted loss per share:                                                   |  |                       |         |          |  |   |     |  
|Reported net loss per share:                                                        |  | $                     | (1.35   | )        |  |   |    |  
|Cumulative effect per share of a change in
    accounting principle, net of tax(1): |  |                       | 0.70    |          |  |   |    |  
|Income tax valuation allowance per share(2):                                        |  |                       | 0.86    |          |  |   |    |  
|                                                                                    |  |                       |         |          |  |   |     |  
|Adjusted net income per share:                                                      |  | $                     | 0.21    |          |  | $ |    |  
|                                                                                    |  |                       |         |          |  |   |     |  



---



|    |                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As a result of the adoption of SFAS No. 142
    on December 31, 2001, the Company incurred a non-cash
    transitional charge of $45.3 million, net of income tax
    benefit of $30.2 million, due to the cumulative effect of
    the change in accounting principle.
|   
|(2) | As a result of the adoption of SFAS No. 142
    on December 31, 2001, the Company incurred a non-cash
    income tax expense of $55.4 million to establish a
    valuation allowance against deferred tax assets on the date of
    adoption.                          

5.     Acquisitions

On December 31, 2002, we entered into an
asset purchase agreement with Big City Radio, Inc. and Big City
Radio-Chi, LLC to acquire the assets of radio stations WDEK-FM,
WKIE-FM and WKIF-FM, serving the Chicago, Illinois market.
Additionally, we entered into a time brokerage agreement with
Big City Radio-Chi, LLC pursuant to which we broadcasted our
programming over these radio stations from January 6, 2003
to April 4, 2003 and paid a total of $0.4 million in
time brokerage fees. On April 4, 2003, we completed the
purchase of these stations for total consideration of
$22.4 million consisting of $21.4 million of
intangible asset and property and equipment of
$1.0 million. This acquisition was financed from cash on
hand.

On November 2, 2000, we entered into an
asset purchase agreement (the Asset Purchase
Agreement) with the International Church of the FourSquare
Gospel (ICFG) to acquire the assets of radio station
KXOL-FM (formerly KFSG-FM), serving Los Angeles, California, at
a purchase price of $250.0 million and made a
non-refundable deposit of $5.0 million to be credited
towards the purchase price at closing. The Asset Purchase
Agreement contains customary representations and warranties, and
the closing of our acquisition is

13



---



##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


subject to the satisfaction of certain customary
conditions, including receipt of regulatory approval from the
Federal Communications Commission and expiration of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. On March 13, 2001, we entered into an
Addendum to the Asset Purchase Agreement and two Time Brokerage
Agreements with ICFG pursuant to which we are permitted to
broadcast our programming over radio station KXOL-FM (the
TBA) and ICFG was permitted to broadcast its
programming over radio stations KFSG-FM (currently KZAB-FM) and
KFSB-FM (currently KZBA-FM) (the 93.5 TBA). In
connection with the Addendum to the Asset Purchase Agreement and
the TBA, we made an additional non-refundable deposit of
$20.0 million, which will be credited towards the purchase
price at closing. On April 30, 2001, we commenced
broadcasting our programming under the TBA and ICFG commenced
broadcasting its programming under the 93.5 TBA.

On February 8, 2002, we entered into an
additional amendment to the Asset Purchase Agreement and an
amendment to the TBA and the 93.5 TBA (collectively, the
Second Amendment). The Second Amendment extended the
deadline for closing under the amended Asset Purchase Agreement
(the KXOL Closing) to December 31, 2003. The
KXOL Closing is subject to acceleration if we sell all of five
specified stations (including KTCY-FM which was sold on
August 23, 2002), during the term of the TBA. Pursuant to
the Second Amendment, we made additional non-refundable deposits
of $15.0 million, $5.0 million and $15.0 million
on March 12, 2002, September 27, 2002 and
March 12, 2003, respectively. All payments are
non-refundable (except in the case of breach by ICFG) and will
be credited towards the purchase price at the KXOL Closing. In
accordance with the Second Amendment, the term of the TBA will
continue until the earlier to occur of (i) the KXOL Closing
or (ii) the termination of the amended Asset Purchase
Agreement.

Pursuant to the Second Amendment, on
February 8, 2002, we granted ICFG a warrant exercisable for
an aggregate of 2,000,000 shares of our Class A common
stock at an exercise price of $10.50 per share. This warrant
will be exercisable for a period of thirty-six months from the
date of issuance after which it will expire if not exercised. To
date, this warrant has not been exercised. We assigned the
warrant a fair market value of approximately $8.9 million
based on the Black-Scholes option pricing model in accordance
with SFAS No. 123 Accounting for Stock-Based
Compensation. The fair market value of this warrant was
recorded as an increase to intangible assets and additional
paid-in capital on the date of grant.

Under the Second Amendment, we must also grant to
ICFG additional warrants as a result of ICFGs ceasing to
broadcast its programming under the 93.5 TBA on
February 28, 2003. Beginning on March 31, 2003, and on
the last day of each calendar month thereafter, we are required
to issue to ICFG warrants exercisable for 100,000 shares of our
Class A common stock at an exercise price equal to the
closing price of our shares on the last trading day of each
respective month, until the earlier to occur of (i) the
KXOL Closing or (ii) the termination of the amended Asset
Purchase Agreement. These warrants will also be exercisable for
a period of thirty-six months after the date of issuance after
which they will expire if not exercised. The fair market value
of these warrants, as calculated under the Black-Scholes
option-pricing model, will be recorded as a stock-based
programming expense. On each of March 31, 2003,
April 30, 2003, May 31, 2003, June 30, 2003 and
July 31, 2003, we granted ICFG a warrant exercisable for
100,000 shares (an aggregate of 500,000 shares) of our
Class A common stock at an exercise price of $6.14, $7.67,
$7.55, $8.08 and $8.17 per share, respectively. We assigned each
warrant a fair market value of approximately $0.3 million,
$0.4 million, $0.4 million, $0.4 million, and
$0.4 million, respectively, based on the Black-Scholes
option pricing model in accordance with SFAS No. 123
Accounting for Stock-Based Compensation. The fair
market value of each warrant was recorded as a stock-based
programming expense on the respective date of grant.

We intend to fund the acquisition of radio
station KXOL-FM through a combination of cash on hand,
internally generated cash flow, potential equity and debt
financing and/or asset sales. Although we intend to complete
this transaction, there can be no assurance that the acquisition
of radio station KXOL-FM will be completed.

14



---



##### 



SPANISH BROADCASTING SYSTEM, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


6.     Stock
Options

The Company accounts for its stock option plans
in accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, under which
compensation expense is recorded to the extent that the market
price on the grant date of the underlying stock exceeds the
exercise price. No stock-based employee compensation cost is
reflected in net income (loss), as all options granted under
these plans had an exercise price equal to the market value of
the underlying common stock on the date of grant. The fair value
of each option granted to employees is estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions at:

|                        |  |               |         |               |  |  |         |  
|----------------------- |  | ------------- | ------- | ------------- |  |  | ------- | -
|                        |  | June 30, 2002 |         | June 30, 2003
|                        |  |               |         |              
|Expected life           |  |               | 7 years |               |  |  | 7 years |  
|Dividends               |  |               | None    |               |  |  | None    |  
|Risk-free interest rate |  |               | 4.93    | %             |  |  | 3.37    | %
|Expected volatility     |  |               | 88      | %             |  |  | 86      | %

Had compensation expense for the Companys
plans been determined consistent with SFAS No. 123, the
Companys net income (loss) applicable to common
stockholders and net income (loss) per common share would have
been increased to pro forma amounts indicated below (in
thousands, except per share data):

|                                                                                                                                    |  |                     |        |                     |  |                     |        |                     |  |   |         |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ------ | ------------------- |  | ------------------- | ------ | ------------------- |  | - | ------- | - |  | - | ------ | -
|                                                                                                                                    |  | Three-Months        |        | Three-Months        |  | Six-Months          |        | Six-Months         
|                                                                                                                                    |  | Ended June 30, 2002 |        | Ended June 30, 2003 |  | Ended June 30, 2002 |        | Ended June 30, 2003
|                                                                                                                                    |  |                     |        |                     |  |                     |        |                    
|Net income (loss) applicable to common
    stockholders:                                                                            |  |                     |        |                     |  |                     |        |                     |  |   |         |   |  |   |        |  
|As reported                                                                                                                         |  | $                   | 12,823 |                     |  | $                   | 789    |                     |  | $ | (87,651 | ) |  | $ | (12    | )
|Deduct: total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of tax |  |                     | (1,338 | )                   |  |                     | (1,006 | )                   |  |   | (2,670  | ) |  |   | (2,026 | )
|                                                                                                                                    |  |                     |        |                     |  |                     |        |                     |  |   |         |   |  |   |        |  
|Pro forma net income (loss)                                                                                                         |  | $                   | 11,485 |                     |  | $                   | (217   | )                   |  | $ | (90,321 | ) |  | $ | (2,038 | )
|                                                                                                                                    |  |                     |        |                     |  |                     |        |                     |  |   |         |   |  |   |        |  
|Net income (loss) per common share:                                                                                                 |  |                     |        |                     |  |                     |        |                     |  |   |         |   |  |   |        |  
|As reported: Basic and Diluted                                                                                                      |  | $                   | 0.20   |                     |  | $                   | 0.01   |                     |  | $ | (1.35   | ) |  | $ |       |  
|                                                                                                                                    |  |                     |        |                     |  |                     |        |                     |  |   |         |   |  |   |        |  
|Pro forma: Basic and Diluted                                                                                                        |  | $                   | 0.18   |                     |  | $                   |       |                     |  | $ | (1.40   | ) |  | $ | (0.03  | )
|                                                                                                                                    |  |                     |        |                     |  |                     |        |                     |  |   |         |   |  |   |        |  

15



---



##### 



Item 2.Managements
Discussion and Analysis of Financial Condition and Results of
Operations

General

Our primary source of revenue is the sale of
advertising time on our radio stations to local and national
advertisers. Our revenue is affected primarily by the
advertising rates that our radio stations are able to charge, as
well as the overall demand for radio advertising time in each
respective market. Seasonal net broadcasting revenue
fluctuations are common in the radio broadcasting industry and
are due to fluctuations in advertising expenditures by local and
national advertisers. Typically for the radio broadcasting
industry, the first calendar quarter generally produces the
lowest revenue. Our most significant operating expenses, for
purposes of the computation of station operating income
(formerly broadcast cash flow) and Adjusted EBITDA, are
compensation expenses, programming expenses, and advertising and
promotional expenses. Our senior management strives to control
these expenses, as well as other expenses, by working closely
with local station management and others.

Non-GAAP Measures

Station operating income consists of reported
Generally Accepted Accounting Principles (GAAP) operating
income from continuing operations before corporate expenses and
deprecation and amortization. Station operating income replaces
broadcast cash flow (BCF) as the metric used by management
to assess the performance of its stations. Although it is
calculated in the same manner as BCF, management believes that
using the term station operating income provides a
more accurate description of the performance measure. Station
operating income margin consists of station operating income
divided by net revenue. Adjusted Earnings Before Interest,
Taxes, Depreciation and Amortization (Adjusted EBITDA) consists
of GAAP operating income from continuing operations excluding
depreciation and amortization.

Station operating income and Adjusted EBITDA are
not measures of performance or liquidity calculated in
accordance with GAAP. However, the Company believes that these
measures are useful in evaluating its performance because they
reflect a measure of performance for its radio stations before
considering costs and expenses related to our specific corporate
and capital structure. These measures are widely used in the
broadcast industry to evaluate a radio companys operating
performance and are used by management for internal budgeting
purposes and to evaluate the performance of the Companys
radio stations. However, these measures should not be considered
in isolation or as substitutes for operating income, net income
(loss), cash flows from operating activities or any other
measure for determining the Companys operating performance
or liquidity that is calculated in accordance with GAAP. In
addition, because station operating income and Adjusted EBITDA
are not calculated in accordance with GAAP, they are not
necessarily comparable to similarly titled measures employed by
other companies. Included below is a table that reconciles
station operating income and Adjusted EBITDA to GAAP
reported unaudited operating income from continuing operations
and net income (loss).

16



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##### 



|                                                                                               |                                                             |                |        |                |  |      |        |        |  |   |         |         |   |   |        |        |  
|---------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | -------------- | ------ | -------------- |  | ---- | ------ | ------ |  | - | ------- | ------- | - | - | ------ | ------ | -
|                                                                                               |                                                             |                |        |               
|                                                                                               |                                                             | Three Months   |        | Six Months    
|                                                                                               |                                                             | Ended June 30, |        | Ended June 30,
|                                                                                               |                                                             |                |        |               
|                                                                                               |                                                             | 2002           |        | 2003           |  | 2002 |        | 2003  
|                                                                                               |                                                             |                |        |                |  |      |        |       
|                                                                                               |                                                             |               
|                                                                                               |                                                             | (In thousands)
|Reported net revenue                                                                           |                                                             | $              | 39,383 |                |  | $    | 38,009 |        |  | $ | 68,286  |         |   | $ | 66,816 |       
|Reported station operating expenses (Engineering,
    Programming, Selling and G & A expenses) |                                                             |                | 23,718 |                |  |      | 22,328 |        |  |   | 41,624  |         |   |   | 40,771 |       
|                                                                                               |                                                             |                |        |                |  |      |        |        |  |   |         |         |   |   |        |       
|                                                                                               | Station operating income (formerly broadcast
    cash flow) |                |        | 15,665         |  |      |        | 15,681 |  |   |         | 26,662  |   |   |        | 26,045 |  
|Reported corporate expenses                                                                    |                                                             |                | 3,089  |                |  |      | 4,692  |        |  |   | 5,950   |         |   |   | 9,181  |       
|                                                                                               |                                                             |                |        |                |  |      |        |        |  |   |         |         |   |   |        |       
|                                                                                               | Adjusted EBITDA                                             |                |        | 12,576         |  |      |        | 10,989 |  |   |         | 20,712  |   |   |        | 16,864 |  
|Reported depreciation and amortization                                                         |                                                             |                | 720    |                |  |      | 792    |        |  |   | 1,452   |         |   |   | 1,535  |       
|                                                                                               |                                                             |                |        |                |  |      |        |        |  |   |         |         |   |   |        |       
|                                                                                               | Reported operating income from continuing
    operations    |                |        | 11,856         |  |      |        | 10,197 |  |   |         | 19,260  |   |   |        | 15,329 |  
|                                                                                               |                                                             |                |        |                |  |      |        |        |  |   |         |         |   |   |        |       
|Reported interest expense, net                                                                 |                                                             |                | 8,676  |                |  |      | 8,797  |        |  |   | 17,188  |         |   |   | 17,424 |       
|Reported other (income), net                                                                   |                                                             |                | (266   | )              |  |      | (197   | )      |  |   | (266    | )       |   |   | (223   | )     
|Reported income tax expense (benefit)                                                          |                                                             |                | (9,407 | )              |  |      | 808    |        |  |   | 44,655  |         |   |   | (1,860 | )     
|Reported discontinued operations, net                                                          |                                                             |                | (30    | )              |  |      |       |        |  |   | (46     | )       |   |   |       |       
|Reported cumulative effect of a change in
    accounting principle, net                        |                                                             |                |       |                |  |      |       |        |  |   | (45,288 | )       |   |   |       |       
|                                                                                               |                                                             |                |        |                |  |      |        |        |  |   |         |         |   |   |        |       
|                                                                                               | Net income (loss)                                           |                | $      | 12,823         |  |      | $      | 789    |  |   | $       | (87,651 | ) |   | $      | (12    | )
|                                                                                               |                                                             |                |        |                |  |      |        |        |  |   |         |         |   |   |        |       

AOL Barter
Agreement.In fiscal year 2000, the
Company entered into a barter agreement for advertising with AOL
Time Warner (AOL) whereby AOL agreed to provide a
guaranteed minimum number of impressions to the Company on the
AOL internet network over a two-year period in exchange for
advertising time on certain of the Companys stations. The
aggregate fair value of the barter agreement was approximately
$19.7 million. The barter agreement concluded in August
2002. To provide better comparability of net revenue, station
operating expenses and station operating income, the Company
will also discuss pro forma results excluding the prior
years non-recurring and significant non-cash impact of the
AOL barter agreement.

Results of Operations



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Three Months Ended June 30, 2003
    Compared to the Three Months Ended June 30,
    2002.

Net Revenue.Net
revenue was $38.0 million for the three months ended
June 30, 2003 compared to $39.4 million for the three
months ended June 30, 2002, a decrease of $1.4 million
or 3.6%. The net revenue decrease was due to the decrease in
barter revenue primarily related to the AOL barter agreement
that concluded in August 2002. To provide better comparability
on our net revenue, if the non-cash AOL barter revenue of
$2.3 million is excluded from the prior years three
months ended June 30, 2002 results, pro forma net revenue
actually increased by $0.9 million or 2.4%. This pro forma
net revenue increase was due to the double-digit growth in local
and national sales in our Los Angeles market excluding net
revenue from start-up stations KZAB-FM and KZBA-FM. In addition,
the start-up stations in Chicago and Los Angeles which began
operating on January 6, 2003 and March 1, 2003,
respectively, generated a combined net revenue of
$0.8 million. Offsetting these increases was the decrease
in promotional events held in the New York and Miami markets.

Station Operating
Expenses.Station operating expenses
were $22.3 million for the three months ended June 30,
2003 compared to $23.7 million for the three months ended
June 30, 2002, a decrease of $1.4 million or 5.9%. The
decrease in station operating expenses was caused by the
decrease in barter expense related to

17



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##### 



the conclusion of the AOL barter agreement in
August 2002. To provide better comparability on our station
operating expenses, if the non-cash AOL barter expense of
$2.4 million is excluded from the prior years three
months ended June 30, 2002 results, pro forma station
operating expenses increased by $1.0 million or 4.7%. The
pro forma station operating expenses increase was primarily
attributed to the start-up stations in Chicago and Los Angeles,
which had combined station operating expenses of
$1.2 million. In addition, we granted ICFG three warrants
each exercisable for 100,000 shares (an aggregate of 300,000
shares) of our Class A common stock with a total fair
market value of approximately $1.3 million. The fair market
value was calculated based on the Black-Scholes option pricing
model in accordance with SFAS No. 123 Accounting for
Stock-Based Compensation and was recorded as a non-cash
programming expense in the three months ended June 30,
2003. Excluding prior quarters AOL barter expense of
$2.4 million and the current quarters start-up
stations operating expenses of $1.2 million and
non-cash programming (warrant) expense of $1.3 million, as
adjusted station operating expenses decreased $1.5 million or
7.0% from $21.3 million to $19.8 million mainly due to
reduced advertising and promotional events.


Station Operating
Income.Station operating income was
$15.7 million for the three months ended June 30, 2003
and 2002. Our station operating income margin increased to 41.3%
for the three months ended June 30, 2003 compared to 39.8%
for the three months ended June 30, 2002. To provide better
comparability on our station operating income margin, if the
non-cash AOL barter revenue and expenses of $2.3 million
and $2.4 million, respectively, are excluded from the prior
years three months ended June 30, 2002 results, pro
forma station operating income margin actually decreased from
42.6% to 41.3%. The pro forma station operating income margin
decrease was primarily attributed to the station operating
losses generated by the start-up stations and non-cash
programming expense related to the warrant issuances.

Corporate Expenses.Corporate expenses were $4.7 million for the three months
ended June 30, 2003 compared to $3.1 million for the
three months ended June 30, 2002, an increase of
$1.6 million or 51.6%. The increase in corporate expenses
resulted mainly from an increase in legal and professional fees,
as well as insurance premiums, including directors and officers
insurance.

Adjusted EBITDA.Adjusted EBITDA was $11.0 million for the three months
ended June 30, 2003 compared to $12.6 million for the
three months ended June 30, 2002, a decrease of
$1.6 million or 12.7%. The decrease in Adjusted EBITDA was
attributed to the increase in corporate expenses.

Depreciation and
Amortization.Depreciation and
amortization expense was $0.8 million for the three months
ended June 30, 2003 compared to $0.7 million for the
three months ended June 30, 2002, an increase of
$0.1 million or 14.3%. The increase is due to the
acquisition of property and equipment since June 2002.

Operating Income from Continuing
Operations.Operating income from
continuing operations was $10.2 million for the three
months ended June 30, 2003 compared to $11.9 million
for the three months ended June 30, 2002, a decrease of
$1.7 million or 14.3%. The decrease in operating income
from continuing operations is primarily attributed to the
decrease in Adjusted EBITDA.

Interest Expense,
Net.Interest expense, net, was
$8.8 million for the three months ended June 30, 2003
compared to $8.7 million for the three months ended
June 30, 2002, an increase of $0.1 million or 1.1%.
The increase in interest expense, net, was due to interest
expense on a lawsuit judgement that is being appealed and a
decrease in interest income resulting from a general decline in
interest rates on our cash balances.

Other, Net.Other,
net, was income of $0.2 million for the three months ended
June 30, 2003 compared to income of $0.3 million for
the three months ended June 30, 2002, a decrease of
$0.1 million or 33.3%. Other, net was income of $0.2
million for the three months ended June 30, 2003 due to an
insurance recovery for a claim related to a Los Angeles office
building. Other, net was income of $0.3 million for the
three months ended June 30, 2002 due to an insurance
recovery for a claim related to our New York transmitting
facilities.

Income Taxes.Income
tax expense was $0.8 million for the three months ended
June 30, 2003 compared to an income tax benefit of
$9.4 million for the three months ended June 30, 2002.
Income tax expense for the three-months ended June 30, 2003
of $0.8 million was based on our high effective book tax rate
for the 2003 year. Our effective book tax rate was impacted
by the adoption of SFAS No. 142 on December 31, 2001.
As a result of adopting SFAS No. 142, the reversal of our
deferred tax liabilities related

18



---



##### 



to our intangible assets could no longer be
assured over our net operating loss carryforward period.
Therefore, our effective book tax rate reflects a full valuation
allowance on our deferred tax assets. Income tax benefit for the
three-months ended June 30, 2002 of $9.4 million was
based on the Companys determination that some of its
valuation allowance on its deferred taxes was no longer
necessary resulting in a non-cash income tax benefit of
$13.9 million. This non-cash income tax benefit was offset
by income tax expense of $4.5 million based on the
effective book tax rate for the 2002 fiscal year. Excluding the
prior years three months ended June 30, 2002 non-cash
income tax benefit of $13.9 million, as adjusted income tax
expense decreased $3.7 million or 82.2% from
$4.5 million to $0.8 million due to a decrease in
pre-tax income and our estimate effective book tax rate for 2003.


Discontinued Operations, Net of Taxes.Income on discontinued operations, net
of taxes, was minimal for the three months ended June 30,
2002. The Company determined that the sale of its KTCY-FM
station serving Dallas, Texas met the criteria in accordance
with SFAS No. 144 to classify KTCY-FMs operations as
discontinued operations. Thus, KTCY-FMs results from
operations for the three months ended June 30, 2002 have
been classified as discontinued operations.

Net Income.Net
income was $0.8 million for the three months ended June 30,
2003 compared to $12.8 million for the three months ended
June 30, 2002, a decrease of $12.0 million or 93.8%.
Excluding the prior years non-cash income tax benefit of
$13.9 million, net income actually increased
$1.9 million from a net loss of $1.1 million to net
income of $0.8 million due primarily to a decrease in the
estimated effective book tax rate for 2003.



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Six Months Ended June 30, 2003
    Compared to the Six Months Ended June 30,
    2002.

Net Revenue.Net
revenue was $66.8 million for the six months ended June 30,
2003 compared to $68.3 million for the six months ended
June 30, 2002, a decrease of $1.5 million or 2.2%. The
net revenue decrease was due to the decrease in barter revenue
primarily related to the AOL barter agreement that concluded in
August 2002. To provide better comparability on our net revenue,
if the non-cash AOL barter revenue of $4.8 million is
excluded from the prior years six months ended
June 30, 2002 results, pro forma net revenue actually
increased by $3.3 million or 5.2%. This pro forma net
revenue increase was mainly due to the double-digit growth in
local and national sales in our Los Angeles market excluding net
revenue from start-up stations KZAB-FM and KZBA-FM. In addition,
the start-up stations in Chicago and Los Angeles, which began
operating on January 6, 2003 and March 1, 2003,
respectively, generated combined net revenue of
$0.9 million. Offsetting these increases were decreases in
promotional events held in the New York and Miami markets and
barter revenue in the core markets.

Station Operating Expenses.Station operating expenses were
$40.8 million for the six months ended June 30, 2003
compared to $41.6 million for the six months ended
June 30, 2002, a decrease of $0.8 million or 1.9%. The
station operating expenses decrease was caused by the decrease
in barter expense related to the conclusion of the AOL barter
agreement in August 2002. To provide better comparability on our
station operating expenses, if the non-cash AOL barter expense
of $4.9 million is excluded from the prior years six
months ended June 30, 2002 results, pro forma station
operating expenses actually increased by $4.1 million or
11.2%. This pro forma station operating expenses increase was
primarily attributed to the start-up stations in Chicago and Los
Angeles, which had combined station operating expenses of
$2.2 million. In addition, we granted ICFG four warrants
exercisable each for 100,000 shares (an aggregate of
400,000 shares) of our Class A common stock with an
aggregate fair market value of approximately $1.6 million.
The fair market value was based on the Black-Scholes option
pricing model in accordance with SFAS No. 123
Accounting for Stock-Based Compensation and was
recorded as a non-cash programming expense in the six months
ended June 30, 2003. Excluding the prior years six
months ended AOL barter expense of $4.9 million and the
current six months ended start-up stations operating
expenses of $2.2 million and non-cash programming
(warrant) expense of $1.6 million, as adjusted station
operating expenses, increased $0.3 million or 0.8% from
$36.7 million to $37.0 million mainly due to the
increase in local and national commissions.

Station Operating Income.Station operating income was
$26.0 million for the six months ended June 30, 2003
compared to $26.7 million for the six months ended
June 30, 2002, a decrease of $0.7 million or

19



---



##### 



2.6%. Our station operating income margin
decreased to 38.9% for the six months ended June 30, 2003
compared to 39.1% for the six months ended June 30, 2002.
To provide better comparability on our station operating income
margin, if the non-cash AOL barter revenue and expenses of
$4.8 million and $4.9 million, respectively, are
excluded from the prior years six months ended
June 30, 2002 results, pro forma station operating income
margin decreased from 42.2% to 38.9%. This pro forma station
operating income margin decrease was primarily attributed to the
station operating losses generated by the start-up stations and
non-cash programming expense related to the warrant issuances.


Corporate Expenses.Corporate expenses were
$9.2 million for the six months ended June 30, 2003
compared to $5.9 million for the six months ended
June 30, 2002, an increase of $3.3 million or 55.9%.
The increase in corporate expenses resulted mainly from an
increase in legal and professional fees, as well as insurance
premiums, including directors and officers insurance.

Adjusted EBITDA.Adjusted EBITDA was $16.9 million
for the six months ended June 30, 2003 compared to
$20.7 million for the six months ended June 30, 2002,
a decrease of $3.8 million or 18.4%. The decrease in
Adjusted EBITDA was attributed to the decrease in station
operating income and the increase in corporate expenses.

Depreciation and Amortization.Depreciation and amortization expense
was $1.5 million for the six months ended June 30,
2003 and 2002.

Operating Income from Continuing Operations.Operating income from continuing
operations was $15.3 million for the six months ended
June 30, 2003 compared to $19.3 million for the six
months ended June 30, 2002, a decrease of $4.0 million
or 20.7%. The decrease in operating income from continuing
operations was primarily attributed to the decrease in Adjusted
EBITDA.

Interest Expense, Net.Interest expense, net, was
$17.4 million for the six months ended June 30, 2003
compared to $17.2 million for the six months ended
June 30, 2002, an increase of $0.2 million or 1.2%.
The increase in interest expense, net, was primarily due to one
extra day of interest incurred compared to the prior period and
interest expense on a lawsuit judgement that is being appealed.

Other, Net.Other,
net, was income of $0.2 million for the six months ended
June 30, 2003 compared to income of $0.3 million for
the six months ended June 30, 2002, a decrease of
$0.1 million or 33.3%. Other, net was income of
$0.2 million for the six months ended June 30, 2003
due to an insurance recovery for a claim related to a Los
Angeles office building. Other, net was income of
$0.3 million for the six months ended June 30, 2002
due to an insurance recovery for a claim related to our New York
transmitting facilities.

Income Taxes.Income
tax benefit was $1.9 million for the six months ended
June 30, 2003 compared to an income tax expense of
$44.7 million for the six months ended June 30, 2002.
Income tax benefit of $1.9 million was based on our high
effective book tax rate for 2003. Our effective book tax rate
was impacted by the adoption of SFAS No. 142 on
December 31, 2001. As a result of adopting SFAS
No. 142, the reversal of our deferred tax liabilities
related to our intangible assets could no longer be assured over
our net operating loss carryforward period. Therefore, our
effective book tax rate reflects a full valuation allowance on
our deferred tax assets. Income tax expense for the six months
ended June 30, 2002 consisted primarily of a
$55.4 million non-cash charge to income tax expense to
establish a valuation allowance against our deferred tax assets,
effective December 31, 2001. Additionally, the Company
recorded an income tax expense of $3.2 million based on the
effective book tax rate for the 2002 fiscal year, offset by a
$13.9 million non-cash income tax benefit due to a
reduction of some of the Companys valuation allowance on
its deferred taxes, determined in accordance with SFAS
No. 109 and available information. Excluding the prior
years six months ended June 30, 2002 non-cash income
tax expense of $55.4 million and non-cash income tax
benefit of $13.9 million, as adjusted income tax expense
decreased $1.3 million or 40.6% from $3.2 million to
$1.9 million due to a decrease in pre-tax income and our
estimated effective book tax rate.

Discontinued Operations, Net of Taxes.Income on discontinued operations, net
of taxes, was minimal for the six months ended June 30,
2002. The Company determined that the sale of its KTCY-FM
station serving Dallas, Texas met the criteria in accordance
with SFAS No. 144 to classify KTCY-FMs operations as

20



---



##### 



discontinued operations. Thus, KTCY-FMs
results from operations for the six months ended June 30,
2002 have been classified as discontinued operations.


Cumulative Effect of a Change in Accounting
Principle, Net of Taxes.Cumulative
effect of a change in accounting principle, net of taxes was
$45.3 million for the six months ended June 30, 2002.
The Company adopted SFAS No. 142, effective
December 31, 2001, which eliminated the amortization of
goodwill and intangible assets with indefinite useful lives, and
changed the method of determining whether there is a goodwill or
intangible assets impairment from an undiscounted cash flow
method to an estimated fair value method. As a result of the
adoption of this standard, the Company incurred a non-cash
transitional charge of $45.3 million, net of income tax
benefit.

Net Loss.Net loss
was minimal for the six months ended June 30, 2003 compared
to $87.7 million for the six months ended June 30,
2002. The net loss for the six months ended June 30, 2002
was due to the adoption of SFAS No. 142, which resulted in
the $55.4 million non-cash charge to establish a valuation
allowance on our deferred tax assets and the non-cash charge of
$45.3 million related to the cumulative effect of a change
in accounting principle, net of income tax benefit. Excluding
the prior years six months ended June 30, 2002
non-cash income tax expense of $55.4, income tax benefit of
$13.9 million, and cumulative effect of accounting
principle of $45.3 million, as adjusted net loss decreased
$0.9 million from a net loss of $0.9 million to a
minimal net loss.

The following table presents adjusted financial
results for the six-month periods ended June 30, 2002 and
2003, respectively, adjusting for the cumulative effect of
accounting principle and the increase in the income tax
valuation allowance upon adoption of SFAS No. 142 on
December 31, 2001.

|                                                                                    |  |                       |         |          |  |   |     |  
|----------------------------------------------------------------------------------- |  | --------------------- | ------- | -------- |  | - | --- | -
|                                                                                    |  |                      
|                                                                                    |  | Six Months Ended     
|                                                                                    |  |                      
|                                                                                    |  | June 30,              |         | June 30,
|                                                                                    |  | 2002                  |         | 2003    
|                                                                                    |  |                       |         |         
|                                                                                    |  |                      
|                                                                                    |  | (In thousands, except
|                                                                                    |  | per share data)      
|                                                                                    |  |                      
|                                                                                    |  | (Unaudited)          
|Reported net loss:                                                                  |  | $                     | (87,651 | )        |  | $ | (12 | )
|Add back:cumulative
    effect of a change in accounting principle, net of tax(1)   |  |                       | 45,288  |          |  |   |    |  
|Add back:income tax
    valuation allowance(2)                                      |  |                       | 55,358  |          |  |   |    |  
|                                                                                    |  |                       |         |          |  |   |     |  
|Adjusted net income (loss)                                                          |  | $                     | 12,995  |          |  |   | (12 | )
|                                                                                    |  |                       |         |          |  |   |     |  
|Basic and diluted loss per share:                                                   |  |                       |         |          |  |   |     |  
|Reported net loss per share:                                                        |  | $                     | (1.35   | )        |  |   |    |  
|Cumulative effect per share of a change in
    accounting principle, net of tax(1): |  |                       | 0.70    |          |  |   |    |  
|Income tax valuation allowance per share(2):                                        |  |                       | 0.86    |          |  |   |    |  
|                                                                                    |  |                       |         |          |  |   |     |  
|Adjusted net income per share:                                                      |  | $                     | 0.21    |          |  | $ |    |  
|                                                                                    |  |                       |         |          |  |   |     |  



---



|    |                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As a result of the adoption of SFAS No. 142
    on December 31, 2001, the Company incurred a non-cash
    transitional charge of $45.3 million, net of income tax
    benefit of $30.2 million, due to the cumulative effect of
    the change in accounting principle.
|   
|(2) | As a result of the adoption of SFAS No. 142
    on December 31, 2001, the Company incurred a non-cash
    income tax expense of $55.4 million to establish a
    valuation allowance against deferred tax assets on the date of
    adoption.                          

Liquidity and Capital Resources

Our primary source of liquidity is cash on hand
and cash provided by operations. Our ability to raise funds by
increasing our indebtedness is limited by the terms of the
indentures governing our senior subordinated notes.
Additionally, the indentures place restrictions with respect to
the sale of assets, liens, investments,

21



---



##### 



dividends, debt repayments, capital expenditures,
transactions with affiliates and consolidations and mergers,
among other things.


Net cash flows used in operating activities were
$0.1 million for the six months ended June 30, 2003
compared to net cash flows provided by operating activities of
$3.5 million for the six months ended June 30, 2002.
Changes in our net cash flows from operating activities were
primarily a result of changes in working capital balances and a
decrease in operating income from continuing operations.

Net cash flows used in investing activities were
$39.5 million for the six months ended June 30, 2003
compared to $17.6 million for the six months ended
June 30, 2002. Changes in our net cash flows from investing
activities were primarily a result of the acquisition of the
Chicago radio stations in April 2003.

Net cash flows used in financing activities were
$0.1 million for the six months ended June 30, 2003
and 2002.

Management believes that cash from operating
activities, together with cash on hand, should be sufficient to
permit us to meet our operating obligations in the foreseeable
future, including required cash interest payments pursuant to
the terms of the senior subordinated notes due 2009 and capital
expenditures, excluding the acquisition of FCC licenses.
Assumptions (none of which can be assured) which underlie
managements beliefs, include the following:



| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the economic conditions within the radio
    broadcasting industry and economic conditions in general will
    not further deteriorate in any material respect;
|
| |  | we will continue to successfully implement our
    business strategy; and                                                                                      
|
| |  | we will not incur any material unforeseen
    liabilities, including environmental liabilities.                                                                

We continuously review, and are currently
reviewing, opportunities to acquire additional radio stations,
primarily in the largest Hispanic markets in the United States.
We engage in discussions regarding potential acquisitions from
time to time in the ordinary course of business.

On November 2, 2000, we entered into an
asset purchase agreement (the Asset Purchase
Agreement) with the International Church of the FourSquare
Gospel (ICFG) to acquire the assets of radio station
KXOL-FM (formerly KFSG-FM), serving Los Angeles, California, at
a purchase price of $250.0 million and made a
non-refundable deposit of $5.0 million to be credited
towards the purchase price at closing. The Asset Purchase
Agreement contains customary representations and warranties, and
the closing of our acquisition is subject to the satisfaction of
certain customary conditions, including receipt of regulatory
approval from the Federal Communications Commission and
expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. On
March 13, 2001, we entered into an Addendum to the Asset
Purchase Agreement and two Time Brokerage Agreements with ICFG
pursuant to which we are permitted to broadcast our programming
over radio station KXOL-FM (the TBA) and ICFG was
permitted to broadcast its programming over radio stations
KFSG-FM (currently KZAB-FM) and KFSB-FM (currently KZBA-FM) (the
93.5 TBA). In connection with the Addendum to
the Asset Purchase Agreement and the TBA, we made an additional
non-refundable deposit of $20.0 million, which will be
credited towards the purchase price at closing. On
April 30, 2001, we commenced broadcasting our programming
under the TBA and ICFG commenced broadcasting its programming
under the 93.5 TBA.

On February 8, 2002, we entered into an
additional amendment to the Asset Purchase Agreement and an
amendment to the TBA and the 93.5 TBA (collectively, the
Second Amendment). The Second Amendment extended the
deadline for closing under the amended Asset Purchase Agreement
(the KXOL Closing) to December 31, 2003. The
KXOL Closing is subject to acceleration if we sell all of five
specified stations (including KTCY-FM which was sold on
August 23, 2002), during the term of the TBA. Pursuant to
the Second Amendment, we made additional non-refundable deposits
of $15.0 million, $5.0 million and $15.0 million
on March 12, 2002, September 27, 2002 and
March 12, 2003, respectively. All payments are
non-refundable (except in the case of breach by ICFG) and will
be credited towards the purchase price at the KXOL Closing. In
accordance with the Second Amendment, the term of the TBA will
continue until the earlier to occur of (i) the KXOL Closing
or (ii) the termination of the amended Asset Purchase
Agreement.

22



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Pursuant to the Second Amendment, on
February 8, 2002, we granted ICFG a warrant exercisable for
an aggregate of 2,000,000 shares of our Class A common
stock at an exercise price of $10.50 per share. This warrant
will be exercisable for a period of thirty-six months from the
date of issuance after which it will expire if not exercised. To
date, this warrant has not been exercised. We assigned the
warrant a fair market value of approximately $8.9 million
based on the Black-Scholes option pricing model in accordance
with SFAS No. 123 Accounting for Stock-Based
Compensation. The fair market value of this warrant was
recorded as an increase to intangible assets and additional
paid-in capital on the date of grant.

Under the Second Amendment, we must also grant to
ICFG additional warrants as a result of ICFGs ceasing to
broadcast its programming under the 93.5 TBA on
February 28, 2003. Beginning on March 31, 2003, and on
the last day of each calendar month thereafter, we are required
to issue to ICFG warrants exercisable for 100,000 shares of
our Class A common stock at an exercise price equal to the
closing price of our shares on the last trading day of each
respective month, until the earlier to occur of (i) the
KXOL Closing or (ii) the termination of the amended Asset
Purchase Agreement. These warrants will also be exercisable for
a period of thirty-six months after the date of issuance after
which they will expire if not exercised. The fair market value
of these warrants, as calculated under the Black-Scholes
option-pricing model, will be recorded as a stock-based
programming expense. On each of March 31, 2003,
April 30, 2003, May 31, 2003, June 30, 2003 and
July 31, 2003, we granted ICFG a warrant exercisable for
100,000 shares (an aggregate of 500,000 shares) of our
Class A common stock at an exercise price of $6.14, $7.67,
$7.55, $8.08 and $8.17 per share, respectively. We assigned each
warrant a fair market value of approximately $0.3 million,
$0.4 million, $0.4 million, $0.4 million, and
$0.4 million, respectively, based on the Black-Scholes option
pricing model in accordance with SFAS No. 123
Accounting for Stock-Based Compensation. The fair
market value of each warrant was recorded as a stock-based
programming expense on the respective date of grant.

We intend to fund the acquisition of radio
station KXOL-FM through a combination of cash on hand,
internally generated cash flow, potential equity and debt
financing and/or asset sales. Although we intend to complete
this transaction, there can be no assurance that the acquisition
of radio station KXOL-FM will be completed.

We have no other written understandings, letters
of intent or contracts to acquire radio stations or other
companies. We anticipate that any future acquisitions would be
financed through funds generated from permitted debt financing,
equity financing, operations, asset sales or a combination of
these sources. However, there can be no assurance that financing
from any of these sources, if available, can be obtained on
favorable terms for future acquisitions.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations. SFAS
No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the
retirement of tangible long-lived assets that results from the
acquisition, construction, development, and/or normal use of the
assets. The Company would also record a corresponding asset that
is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect
the passage of time and changes in the estimated future cash
flows underlying the obligation. The Company adopted SFAS
No. 143 on December 30, 2002. The adoption of SFAS
No. 143 did not have a material effect on the
Companys condensed consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS No. 145). SFAS
No. 145 rescinds FASB Statement No. 4, Reporting
Gains and Losses from Extinguishment of Debt, and an
amendment of that Statement, FASB Statement No. 44,
Accounting for Intangible Assets of Motor Carriers
and FASB Statement No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. SFAS
No. 145 amends FASB No. 13, Accounting for
Leases and other existing authoritative pronouncements to
make various technical corrections and clarify meanings, or
describes their applicability

23



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##### 



under changed conditions. SFAS No. 145 will
be effective for fiscal years beginning after May 15, 2002.
The adoption of SFAS No. 145 will require that the
Companys extraordinary loss recognized on the
extinguishments of debt in 2000 and 2001 be reclassified to
income or loss from continuing operations in its condensed
consolidated financial statements beginning in 2003.


In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. This pronouncement
amends SFAS No. 123 to provide alternative methods of
transition for an entity that voluntarily changes to the fair
value-based method of accounting for stock-based compensation.
SFAS No. 148 also expands the disclosure requirements with
respect to stock-based compensation. The Company does not intend
to change to the fair value method of accounting. The required
expanded disclosure is included in the June 30, 2003
condensed consolidated financial statements and notes thereto.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities:
an Interpretation of ARB No. 51
(FIN 46). FIN 46 addresses consolidation by
business enterprises of entities in which equity investors do
not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. Variable interest entities are
required to be consolidated by their primary beneficiaries if
they do not effectively disperse risks among parties involved.
The primary beneficiary of a variable interest entity is the
party that absorbs a majority of the entitys expected
losses or receives a majority of its expected residual returns.
The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003
and apply to existing entities in the first fiscal year or
interim period beginning after June 15, 2003. Certain new
disclosure requirements apply to all financial statements issued
after January 31, 2003. The Company adopted FIN 46 on
February 1, 2003. The adoption of FIN 46 did not
effect the Companys condensed consolidated financial
statements.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective
at the beginning of the first interim period beginning after
June 15, 2003. This statement establishes standards for how
an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. It requires
that an issuer classify a freestanding financial instrument that
is within its scope as a liability (or an asset in some
circumstances). The adoption of SFAS No. 150 will have
no impact on the Companys condensed consolidated financial
statements.

Disclosure Regarding Forward-Looking
Statements

This quarterly report on Form 10-Q contains
both historical and forward-looking statements. All statements
other than statements of historical fact are, or may be deemed
to be, forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements are not based on
historical facts, but rather reflect our current expectations
concerning future results and events. These forward-looking
statements generally can be identified by the use of statements
that include phrases such as believe,
expect, anticipate, intend,
plan, foresee, likely,
will or other similar words or phrases. Similarly,
statements that describe our objectives, plans or goals are, or
may be, forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or
achievements to be different from any future results,
performance and achievements expressed or implied by these
statements. Factors that could cause actual results to differ
from those expressed in forward-looking statements include, but
are not limited to:



| |   |                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our ability to finance the acquisition of KXOL-FM
    may be limited. In the event that we are unable to complete the
    acquisition under its current terms, we will lose the
    non-refundable deposits that we have made (except in the case of
    breach by ICFG);
|
| |  | If we complete our acquisition of KXOL-FM and/or
    acquire additional stations in the future, depending on the
    financing used to fund these acquisitions, interest expense and
    interest payments may increase;                                                 

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| |   |                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our most important operating assets are our
    intangible assets, principally consisting of our FCC licenses.
    Impairment to the carrying value of these assets could have a
    material effect on our results of operations and financial
    position;                                                                                      
|
| |  | Our broadcast revenue and operating results could
    be adversely affected by another national or regional recession;                                                                                                                                                                                                                             
|
| |  | Our substantial level of debt could limit our
    ability to grow and compete;                                                                                                                                                                                                                                                                     
|
| |  | Despite current indebtedness levels and limits
    imposed by our indentures on additional indebtedness, we and our
    subsidiaries are able to incur substantially more debt which
    could further limit our ability to grow and compete;                                                                                                      
|
| |  | If any lender to us or our subsidiaries
    accelerates any debt, we and our subsidiaries may not have the
    resources to repay that debt. An event of default under any
    material debt instruments would harm our business and financial
    condition;                                                                                      
|
| |  | The terms of our debt restrict us from engaging
    in many activities, require us to satisfy various financial
    tests and may adversely affect our business by limiting our
    flexibility;                                                                                                                                                   
|
| |  | We have experienced net losses in the past and to
    the extent that we experience losses in the future, the market
    price of our common stock may be adversely affected which in
    turn may adversely affect our ability to raise capital;                                                                                                  
|
| |  | A large portion of our net broadcast revenue and
    broadcast cash flow comes from the New York and Miami markets
    and a significant decline in net broadcast revenue or broadcast
    cash flow from our stations in either of these markets could
    have a material adverse effect on our financial position and
    results of operations;
|
| |  | Loss of key personnel, including Raúl
    Alarcón, Jr., our Chairman of the Board of Directors,
    President and Chief Executive Officer, could adversely affect
    our business;                                                                                                                                                                
|
| |  | We compete for advertising revenue with other
    broadcasting groups as well as other media groups, many of which
    have greater resources than we do;                                                                                                                                                                                          
|
| |  | Our growth depends upon successfully executing
    our acquisition strategy. We intend to grow by acquiring radio
    stations primarily in the largest U.S. Hispanic markets, but we
    cannot assure you that our acquisition strategy will be
    successful;                                                                                  
|
| |  | Raúl Alarcón, Jr., Chairman of the
    Board of Directors, Chief Executive Officer and President, has
    majority voting control and this control may discourage or
    influence certain types of transactions, including an actual or
    potential change of control of SBS such as a merger or sale of
    SBS;                               
|
| |  | We must be able to respond to rapidly changing
    technology, services and standards which characterize our
    industry for us to remain competitive;                                                                                                                                                                                            
|
| |  | Our business depends on maintaining our FCC
    licenses. We cannot assure you that we will be able to maintain
    these licenses;                                                                                                                                                                                                                
|
| |  | We may face regulatory review for additional
    acquisitions in our existing markets and, potentially, new
    markets;                                                                                                                                                                                                                           
|
| |  | The market price of our shares of Class A
    common stock may fluctuate significantly; and                                                                                                                                                                                                                                                        
|
| |  | Current or future sales by existing or future
    stockholders could depress the market price of our Class A
    common stock.                                                                                                                                                                                                                     

Consequently, such forward-looking statements
should be regarded solely as our current plans, estimates and
beliefs. We do not undertake any obligation to update any
forward-looking statements to reflect subsequent events or
circumstances.

25



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Item 3.Quantitative
and Qualitative Disclosures About Market Risk

We believe that inflation has not had a material
impact on our results of operations for each of our fiscal years
in the two-year period ended September 30, 2001, for the
three-month transitional period ended December 30, 2001,
for the fiscal year ended December 29, 2002 and for the
three and six-month periods ended June 30, 2003. However,
there can be no assurance that future inflation will not have an
adverse impact on our operating results and financial condition.

We are not subject to currency fluctuations since
we do not have any operations other than where the currency is
the U.S. dollar. We do not have any variable rate debt or
derivative financial or commodity instruments.

Item 4.     Controls
and Procedures

With the participation of management, the
Companys chief executive officer and chief financial
officer have evaluated the effectiveness of the Companys
disclosure controls and procedures as of the end of the period
covered by this report. Based upon this evaluation, the chief
executive officer and chief financial officer have concluded
that, as of the end of such period, the Companys
disclosure controls and procedures are effective.

There have not been any changes in the
Companys internal control over financial reporting during
the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.

PART II  OTHER
INFORMATION

Item 1.     Legal
Proceedings

From time to time the Company is involved in
litigation incidental to the conduct of its business, such as
contractual matters and employee-related matters. In the opinion
of management, such litigation is not likely to have a material
adverse effect on the Companys business, operating
results, or financial position.

On November 28, 2001, a complaint was filed
against the Company in the United States District Court for the
Southern District of New York and was amended on April 19,
2002. The amended complaint alleges that the named plaintiff,
Mitchell Wolf, purchased shares of the Companys
Class A common stock pursuant to the October 27, 1999
prospectus and registration statement relating to the
Companys initial public offering which closed on
November 2, 1999 (the IPO). The complaint was brought on
behalf of Mr. Wolf and an alleged class of similarly
situated purchasers, against the Company, eight underwriters
and/or their successors-in-interest who led or otherwise
participated in the IPO (collectively, the Underwriters), two
members of the Companys senior management team, one of
whom is the Chairman of the Board of Directors, and an
additional director (collectively, the Individuals). To date,
the complaint, while served upon the Company, has not been
served upon the Individuals, and no counsel has appeared for
them.

This case is one of more than 300 similar cases
brought by similar counsel against more than 300 issuers, 40
underwriters, and 1000 individual defendants alleging, in
general, violations of federal securities laws in connection
with initial public offerings, in particular, failing to
disclose that the underwriter defendants allegedly solicited and
received additional, excessive and undisclosed commissions from
certain investors in exchange for which they allocated to those
investors material portions of the restricted shares issued in
connection with each offering. All of these cases, including the
one involving the Company, have been assigned for consolidated
pretrial purposes to one judge of the United States District
Court for the Southern District of New York. The issuer
defendants in the consolidated cases (Issuer Defendants) filed
motions to dismiss the consolidated cases. These motions to
dismiss covered issues common among all Issuer Defendants and
issues common among all underwriter defendants in the
consolidated cases. As a result of these motions, the
Individuals were dismissed from one of the claims against them,
specifically the Section 10b-5 claim.

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The Issuer Defendants were in the process of
making multiple motions as a follow-up to the initial motion to
dismiss, but are no longer pursuing those motions in light of a
pending settlement with the plaintiffs.

In June of 2003, after lengthy negotiations, a
settlement proposal was embodied in a memorandum of
understanding (MOU) among the investors in the plaintiff
class (the Plaintiffs), the Issuer Defendants and the Issuer
Defendants insurance carriers (the Insurers). Independent
counsel was specifically retained to advise the Issuer
Defendants and their counsel regarding all of the aspects of the
settlement. SBSs lead insurer played a substantial role in
the settlement negotiations and supported the settlement. The
Board of Directors of the Company subsequently approved both the
MOU and an agreement between the Issuer Defendants and the
Insurers at a meeting of the Board on July 23, 2003. As of
the date of this report, the required majority of non-bankrupt
Issuer Defendants have approved the settlement proposal.

The principal components of the settlement
include: 1) a release of all claims against the Issuer
Defendants and their directors, officers and certain other
related parties arising out of the alleged wrongful conduct in
the amended complaint; 2) the assignment to the Plaintiffs
of certain of the Issuer Defendants potential claims
against the Underwriters; and 3) a guarantee by the
Insurers to the Plaintiffs of the difference between
$1 billion and any lesser amount recovered by the
Plaintiffs against the Underwriters. The payments will be
charged to each Issuer Defendants insurance policy on a
pro rata basis.

Item 2.     Changes
in Securities and Use of Proceeds

Recent Sales of Unregistered
Securities

On each of March 31, 2003, April 30,
2003, May 31, 2003, June 30, 2003 and July 31,
2003, we issued to the International Church of the FourSquare
Gospel (ICFG) a warrant exercisable for 100,000
(aggregate of 500,000 shares) of our Class A common stock
at an exercise price of $6.14, $7.67, $7.55, $8.08 and $8.17 per
share, respectively. We made these issuances pursuant to the
terms of our amended time brokerage agreement with ICFG relating
to radio station KXOL-FM as part of the consideration for our
right to continue broadcasting our programming over KXOL-FM
after ICFG ceased to broadcast its programming under a time
brokerage agreement with us relating to radio stations KFSG-FM
(currently KZAB-FM) and KFSB-FM (currently KZBA-FM). These
warrants are exercisable for a period of thirty-six months from
the date of issuance after which they will expire if not
exercised. To date, these warrants have not been exercised. We
assigned each of the warrants a fair market value of
approximately $0.3 million, $0.4 million,
$0.4 million, $0.4 million and $0.4 million,
respectively, based on the Black-Scholes option pricing model in
accordance with SFAS No. 123, Accounting for
Stock-Based Compensation. The fair market value of each
warrant was recorded as a stock-based programming expense on the
respective date of grant. We relied on Section 4(2) of the
Securities Act of 1933, as amended, to claim exemption from
registration for these issuances, as transactions not involving
any public offering.

27



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|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits 

|     |  |                                                                                                                                                          
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Warrant dated May 31, 2003 by the Company in
    favor of International Church of the FourSquare Gospel.                                                 
|10.2 |  | Warrant dated June 30, 2003 by the Company
    in favor of International Church of the FourSquare Gospel.                                                
|10.3 |  | Warrant dated July 31, 2003 by the Company
    in favor of International Church of the FourSquare Gospel.                                                
|31.1 |  | Chief Executive Officers Certification
    pursuant to Section 302 of the Sabanes-Oxley Act of 2002.                                                    
|31.2 |  | Chief Financial Officers Certification
    pursuant to Section 302 of the Sabanes-Oxley Act of 2002.                                                    
|32.1 |  | Chief Executive Officers Certification
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2 |  | Chief Financial Officers Certification
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

The Company filed the following reports during
the three months ended June 30, 2003:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) a current report on Form 8-K on
    April 17, 2003 to report the date of the annual meeting of
    the Companys stockholders and the record date for such
    meeting and to report that its Board of Directors had ratified
    the change of the Companys fiscal year from a
    52-53 week year ending on the last Sunday in December to a
    calendar year ending on December 31, effective as of
    December 30, 2002;
|
| | (ii) a current report on Form 8-K on
    May 15, 2003 to report that on May 13, 2003 the
    Company issued a press release announcing its first quarter 2003
    financial results; and                                                                                                                                                                                                                                           
|
| | (iii) a current report on Form 8-K on
    June 10, 2003 to report the nomination of Jack Langer and
    Dan Mason to the Companys Board of Directors and to report
    a change of date for the annual meeting of its stockholders from
    June 19, 2003 to July 10, 2003.                                                                                                                                                       

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SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                                  
| | ---------------------------------
| | SPANISH BROADCASTING SYSTEM, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ JOSEPH A. GARCIA

| |                                                      
| | -----------------------------------------------------
| |                                                      
| | Joseph A. García                                     
| | Executive Vice President, Chief Financial
    Officer
| | and Secretary (principal financial
    and           
| | accounting officer and duly
    authorized           
| | officer of the registrant)                           

Date: August 12, 2003

29