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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ending March 31, 2004



OR



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



For the transition period from              to



Commission file number 333-110122



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LBI MEDIA HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 05-0584918                       
|(State or other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification No.)



1845 West Empire
Avenue

Burbank, California 91504

(Address of principal executive offices, excluding zip code) (Zip code)



Registrants Telephone Number, Including Area Code: (818) 563-5722



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Not Applicable

(Former name, former address and former fiscal year, if changed since last report).



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



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



As of March 31, 2004, there were approximately 100 shares outstanding of Common Stock, $0.01 par value.



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##### Table of Contents

LBI MEDIA HOLDINGS, INC.

FORM 10-Q QUARTERLY REPORT



TABLE OF CONTENTS



|                              |  |                                                                                       |  |     
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                       |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Unaudited Financial Statements                                                        |  | 3   
|                              |  |                                                                                      
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18  
|                              |  |                                                                                      
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 31  
|                              |  |                                                                                      
|Item 4.                       |  | Controls and Procedures                                                               |  | 31  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 32  
|                              |  |                                                                                      
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                             |  | 32  
|                              |  |                                                                                      
|Item 3.                       |  | Defaults upon Senior Securities                                                       |  | 32  
|                              |  |                                                                                      
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 32  
|                              |  |                                                                                      
|Item 5.                       |  | Other Information                                                                     |  | 32  
|                              |  |                                                                                      
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                      |  | 32  



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



LBI MEDIA HOLDINGS, INC.



CONDENSED
CONSOLIDATED BALANCE SHEETS



|                                                                                                      |  |                  |             |                |   |            
|----------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | -------------- | - | -----------
|                                                                                                      |  | December 31,2003 |             | March 31, 2004
|                                                                                                      |  | (Note 1)         |             | (unaudited)   
|Assets                                                                                                |  |                  |             |                |   |            
|Current assets                                                                                        |  |                  |             |                |   |            
|Cash and cash equivalents                                                                             |  | $                | 6,670,129   |                | $ | 199,240    
|Short-term investments                                                                                |  |                  | 191,650     |                |   | 189,020    
|Accounts receivable (less allowance for doubtful accounts of $965,132 in 2003 and $1,091,879 in 2004) |  |                  | 13,724,961  |                |   | 10,627,103 
|Current portion of program rights, net                                                                |  |                  | 1,177,325   |                |   | 1,182,611  
|Amounts due from related parties                                                                      |  |                  | 334,693     |                |   | 349,714    
|Current portion of employee advances                                                                  |  |                  | 57,856      |                |   | 67,221     
|Prepaid expenses and other current assets                                                             |  |                  | 1,092,047   |                |   | 931,131    
|                                                                                                      |  |                  |             |                |   |            
|Total current assets                                                                                  |  |                  | 23,248,661  |                |   | 13,546,040 
|                                                                                                      |  |                 
|Property and equipment, net                                                                           |  |                  | 56,837,070  |                |   | 66,214,702 
|Program rights, excluding current portion                                                             |  |                  | 1,642,887   |                |   | 1,335,727  
|Notes receivable from related parties                                                                 |  |                  | 2,518,581   |                |   | 2,537,400  
|Employee advances, excluding current portion                                                          |  |                  | 687,970     |                |   | 680,158    
|Deferred financing costs, net                                                                         |  |                  | 6,080,009   |                |   | 5,942,856  
|Broadcast licenses, net                                                                               |  |                  | 239,405,098 |                |   | 270,018,847
|Acquisition costs                                                                                     |  |                  | 482,455     |                |   | 70,543     
|Escrow funds                                                                                          |  |                  | 1,500,000   |                |   | 750,000    
|Other assets                                                                                          |  |                  | 461,351     |                |   | 655,521    
|                                                                                                      |  |                  |             |                |   |            
|Total assets                                                                                          |  | $                | 332,864,082 |                | $ | 361,751,794
|                                                                                                      |  |                  |             |                |   |            
|Liabilities and stockholders equity                                                                  |  |                  |             |                |   |            
|Current liabilities:                                                                                  |  |                  |             |                |   |            
|Accounts payable and accrued expenses                                                                 |  | $                | 4,015,770   |                | $ | 4,292,557  
|Accrued interest                                                                                      |  |                  | 7,430,702   |                |   | 3,839,241  
|Program rights payable                                                                                |  |                  | 69,324      |                |   | 42,324     
|Amounts due to related parties                                                                        |  |                  | 189,485     |                |   | 135,981    
|Current portion of long-term debt                                                                     |  |                  | 163,078     |                |   | 167,012    
|                                                                                                      |  |                  |             |                |   |            
|Total current liabilities                                                                             |  |                  | 11,868,359  |                |   | 8,477,115  
|                                                                                                      |  |                 
|Long-term debt, excluding current portion                                                             |  |                  | 281,843,787 |                |   | 313,550,140
|Deferred compensation                                                                                 |  |                  | 8,506,000   |                |   | 9,567,000  
|Deferred state income taxes                                                                           |  |                  | 236,078     |                |   | 250,414    
|Other liabilities                                                                                     |  |                  | 218,163     |                |   | 241,733    
|                                                                                                      |  |                 
|Commitments and contingencies                                                                         |  |                  |             |                |   |            
|                                                                                                      |  |                 
|Stockholders equity:                                                                                 |  |                  |             |                |   |            
|Common stock, $0.01 par value:                                                                        |  |                  |             |                |   |            
|Authorized shares 1,000                                                                              |  |                  |             |                |   |            
|Issued and outstanding shares 100                                                                    |  |                  | 1           |                |   | 1          
|Additional paid-in capital                                                                            |  |                  | 22,657,667  |                |   | 22,657,667 
|Retained earnings                                                                                     |  |                  | 7,470,797   |                |   | 6,947,124  
|Accumulated other comprehensive income                                                                |  |                  | 63,230      |                |   | 60,600     
|                                                                                                      |  |                  |             |                |   |            
|Total stockholders equity                                                                            |  |                  | 30,191,695  |                |   | 29,665,392 
|                                                                                                      |  |                  |             |                |   |            
|Total liabilities and stockholders equity                                                            |  | $                | 332,864,082 |                | $ | 361,751,794
|                                                                                                      |  |                  |             |                |   |            



See accompanying
notes.



3



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##### Table of Contents

LBI MEDIA HOLDINGS, INC.



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                                                                                                                        |  |                              |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                                        |  | Three Months Ended March 31, |           
|                                                                                                                                                                                                        |  | 2003                         |            |   | 2004 |  
|Revenues                                                                                                                                                                                                |  | $                            | 18,719,240 |   |      | $ | 22,150,355 |  
|Less agency commissions                                                                                                                                                                                 |  |                              | 2,265,672  |   |      |   | 2,778,060  |  
|                                                                                                                                                                                                        |  |                              |            |   |      |   |            |  
|Net revenues                                                                                                                                                                                            |  |                              | 16,453,568 |   |      |   | 19,372,295 |  
|                                                                                                                                                                                                        |  |                             
|Operating expenses:                                                                                                                                                                                     |  |                              |            |   |      |   |            |  
|Program and technical, exclusive of noncash employee compensation of $159,000 and $245,000 for the three months ended March 31, 2003 and 2004,
respectively, and depreciation shown below               |  |                              | 2,910,956  |   |      |   | 3,572,477  |  
|Promotional, exclusive of depreciation shown below                                                                                                                                                      |  |                              | 248,062    |   |      |   | 381,301    |  
|Selling, general and administrative, exclusive of noncash employee compensation of $524,000 and $816,000 for the three months ended March 31,
2003 and 2004, respectively, and depreciation shown below |  |                              | 5,802,062  |   |      |   | 6,718,283  |  
|Noncash employee compensation                                                                                                                                                                           |  |                              | 683,000    |   |      |   | 1,061,000  |  
|Depreciation                                                                                                                                                                                            |  |                              | 794,211    |   |      |   | 1,124,563  |  
|                                                                                                                                                                                                        |  |                              |            |   |      |   |            |  
|Total operating expenses                                                                                                                                                                                |  |                              | 10,438,291 |   |      |   | 12,857,624 |  
|                                                                                                                                                                                                        |  |                              |            |   |      |   |            |  
|Operating income                                                                                                                                                                                        |  |                              | 6,015,277  |   |      |   | 6,514,671  |  
|Interest expense                                                                                                                                                                                        |  |                              | (4,979,572 | ) |      |   | (6,272,879 | )
|Interest and other income                                                                                                                                                                               |  |                              | 22,614     |   |      |   | 24,123     |  
|                                                                                                                                                                                                        |  |                              |            |   |      |   |            |  
|Income before income taxes                                                                                                                                                                              |  |                              | 1,058,319  |   |      |   | 265,915    |  
|Provision for income taxes                                                                                                                                                                              |  |                              | (20,000    | ) |      |   | (18,558    | )
|                                                                                                                                                                                                        |  |                              |            |   |      |   |            |  
|Net income                                                                                                                                                                                              |  | $                            | 1,038,319  |   |      | $ | 247,357    |  
|                                                                                                                                                                                                        |  |                              |            |   |      |   |            |  







See accompanying notes.



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LBI MEDIA HOLDINGS, INC.



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                            |  |                              |            |   |      |   |             |  
|------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                                            |  | Three Months Ended March 31, |           
|                                                                                            |  | 2003                         |            |   | 2004 |  
|Operating activities                                                                        |  |                              |            |   |      |   |             |  
|Net income                                                                                  |  | $                            | 1,038,319  |   |      | $ | 247,357     |  
|Adjustments to reconcile net income to net cash (used in) provided by operating activities: |  |                              |            |   |      |   |             |  
|Depreciation                                                                                |  |                              | 794,211    |   |      |   | 1,124,563   |  
|Amortization of deferred financing costs                                                    |  |                              | 133,233    |   |      |   | 199,755     |  
|Accretion on senior discount notes                                                          |  |                              |           |   |      |   | 1,100,007   |  
|Noncash employee compensation                                                               |  |                              | 683,000    |   |      |   | 1,061,000   |  
|Provision for doubtful accounts                                                             |  |                              | 216,813    |   |      |   | 198,513     |  
|Changes in operating assets and liabilities:                                                |  |                              |            |   |      |   |             |  
|Accounts receivable                                                                         |  |                              | 110,510    |   |      |   | 2,899,345   |  
|Program rights                                                                              |  |                              | (31,720    | ) |      |   | 301,874     |  
|Amounts due from related parties                                                            |  |                              | (145,459   | ) |      |   | (15,021     | )
|Prepaid expenses and other current assets                                                   |  |                              | (451,086   | ) |      |   | 160,916     |  
|Employee advances                                                                           |  |                              | (9,826     | ) |      |   | (1,553      | )
|Accounts payable and accrued expenses                                                       |  |                              | (526,057   | ) |      |   | 276,787     |  
|Accrued interest                                                                            |  |                              | (4,336,298 | ) |      |   | (3,591,461  | )
|Program rights payable                                                                      |  |                              |           |   |      |   | (27,000     | )
|Amounts due to related parties                                                              |  |                              | (13,874    | ) |      |   | (53,504     | )
|Deferred state income tax payable                                                           |  |                              | 9,600      |   |      |   | 14,336      |  
|Other assets and liabilities                                                                |  |                              | (3,840     | ) |      |   | (189,419    | )
|                                                                                            |  |                              |            |   |      |   |             |  
|Net cash (used in) provided by operating activities                                         |  |                              | (2,532,474 | ) |      |   | 3,706,495   |  
|                                                                                            |  |                              |            |   |      |   |             |  
|Investing activities                                                                        |  |                              |            |   |      |   |             |  
|Purchase of property and equipment                                                          |  |                              | (1,302,984 | ) |      |   | (3,502,195  | )
|Acquisition of radio and television station property and equipment                          |  |                              |           |   |      |   | (7,000,000  | )
|Acquisition costs                                                                           |  |                              | (149,886   | ) |      |   | (70,543     | )
|Acquisition of broadcast licenses                                                           |  |                              | (8,351     | ) |      |   | (28,631,294 | )
|Amounts deposited in escrow for the acquisition of broadcast licenses                       |  |                              |           |   |      |   | (750,000    | )
|                                                                                            |  |                              |            |   |      |   |             |  
|Net cash used in investing activities                                                       |  |                              | (1,461,221 | ) |      |   | (39,954,032 | )
|                                                                                            |  |                              |            |   |      |   |             |  
|Financing activities                                                                        |  |                              |            |   |      |   |             |  
|Proceeds from issuance of long-term debt and bank borrowings, net of financing costs        |  |                              | 6,821,128  |   |      |   | 35,837,398  |  
|Payments on long-term debt and bank borrowings                                              |  |                              | (37,243    | ) |      |   | (5,289,720  | )
|Distributions to Parent                                                                     |  |                              |           |   |      |   | (771,030    | )
|                                                                                            |  |                              |            |   |      |   |             |  
|Net cash provided by financing activities                                                   |  |                              | 6,783,885  |   |      |   | 29,776,648  |  
|                                                                                            |  |                              |            |   |      |   |             |  
|Net increase (decrease) in cash and cash equivalents                                        |  |                              | 2,790,190  |   |      |   | (6,470,889  | )
|Cash and cash equivalents at beginning of period                                            |  |                              | 1,396,636  |   |      |   | 6,670,129   |  
|                                                                                            |  |                              |            |   |      |   |             |  
|Cash and cash equivalents at end of period                                                  |  | $                            | 4,186,826  |   |      | $ | 199,240     |  
|                                                                                            |  |                              |            |   |      |   |             |  
|Supplemental disclosure of cash flow information:                                           |  |                              |            |   |      |   |             |  
|Cash paid during the period for:                                                            |  |                              |            |   |      |   |             |  
|Interest                                                                                    |  | $                            | 10,460,651 |   |      | $ | 8,544,680   |  
|                                                                                            |  |                              |            |   |      |   |             |  
|Income taxes                                                                                |  | $                            | 10,400     |   |      | $ |            |  
|                                                                                            |  |                              |            |   |      |   |             |  



See accompanying
notes.



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##### Table of Contents

LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1. Description of Business and Basis of Presentation



LBI Media Holdings, Inc. was incorporated in Delaware on June 23, 2003, and
is a qualified subchapter S subsidiary of LBI Holdings I, Inc. (the Parent). Pursuant to an Assignment and Exchange Agreement dated September 29, 2003 between the Parent and LBI Media Holdings, Inc., the Parent assigned to LBI Media
Holdings, Inc. all of its right, title and interest in 100 shares of common stock of LBI Media, Inc. (LBI Media) (constituting all of the outstanding shares of LBI Media) in exchange for 100 shares of common stock of LBI Media Holdings, Inc. Thus,
upon consummation of the exchange, LBI Media, the principal operating company, became a wholly owned subsidiary of LBI Media Holdings, Inc. (LBI Media Holdings).



As the above transaction was between entities under common control, it was accounted for at historical cost. LBI Media
Holdings financial statements and financial information presented for prior periods include the historical activity of LBI Media.



LBI Media Holdings is not engaged in any business operations and has not acquired any assets or incurred any liabilities, other than the acquisition of
stock of LBI Media, the issuance of senior discount notes and the operations of its subsidiaries. Accordingly, its only material source of cash is dividends and distributions from its operating subsidiaries, which are subject to restriction by LBI
Medias senior credit facility and the indenture governing the senior subordinated notes issued by LBI Media. Parent-only condensed financial information of LBI Media Holdings on a stand-alone basis has been presented in Note 10.



LBI Media Holdings and its wholly owned subsidiaries (collectively referred
to as the Company) own and operate radio and television stations located in California and Texas. In addition, the Company, through its indirect wholly owned subsidiary, Empire Burbank Studios, Inc. (Empire), owns a television studio
facility that is primarily used to produce programming for Company-owned television stations. Portions of this facility are also leased to independent third parties. The Company sells commercial airtime on its radio and television stations to local
and national advertisers. In addition, the Company has entered into time brokerage agreements with third parties for three of its radio stations.



The Companys KHJ-AM, KVNR-AM, KWIZ-FM, KBUE-FM, KBUA-FM and KEBN-FM radio stations service the Los Angeles, California market, while its KQUE-AM,
KJOJ-AM, KSEV-AM, KEYH-AM, KJOJ-FM, KTJM-FM, KQQK-FM, KIOX-FM and KXGJ-FM radio stations service the Houston, Texas market.



The Companys television stations, KRCA, KZJL, KMPX and KSDX, service the Los Angeles, California, Houston, Texas, Dallas Fort-Worth, Texas and San
Diego, California markets, respectively.



The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X promulgated by the Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the fiscal year. The condensed consolidated financial statements should be read in conjunction with the Companys December 31, 2003 consolidated financial statements and accompanying notes
included in the Companys annual report on Form 10-K (the Annual Report). All terms used but not defined elsewhere herein have the meanings ascribed to them in the Annual Report.



The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The condensed consolidated financial statements include the accounts of LBI Media Holdings and its
subsidiaries. All significant intercompany amounts and transactions have been eliminated. The accounts of the Parent, including certain indebtedness (see Note 4), are not included in the accompanying unaudited condensed financial statements.



2. Recent Accounting Pronouncements



In January 2003, the Financial Accounting Standards Board (FASB) issued FIN
No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity 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. The provisions of FIN 46 became effective
immediately for all arrangements entered into after January 31, 2003. For arrangements entered into with variable interest entities created prior to January 31, 2003, the provisions of FIN 46 become effective for the first interim or annual period
ending after March 15, 2004. The Company adopted the provisions of FIN 46 in the first quarter of 2004, however such adoption has not had an impact on the Companys results of operations or financial position.



3. Broadcast Licenses



The Company accounts for its broadcast licenses in accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS 142). The Company believes its broadcast licenses have indefinite useful lives given they are expected to indefinitely contribute to the future cash flows of the Company and that they may be
continually renewed without substantial cost to the Company. As such, in accordance with SFAS 142, the broadcast licenses are reviewed for impairment at least annually.



The carrying value of broadcast licenses is evaluated periodically in relation to the operating performance and anticipated
future cash flows of the underlying radio and television stations for indicators of impairment. If indicators of impairment are identified and the discounted cash flows estimated to be generated from these assets are less than the carrying value, an
adjustment to reduce the carrying value to the fair market value of the assets would be recorded, if necessary. The fair value of the Companys broadcast licenses is determined using the discounted cash flow approach. This approach requires the
projection of future cash flows and the restatement of these cash flows into their present valuation equivalent through the use of a discount rate. No adjustments to the carrying amounts of broadcast licenses for impairment were made during the
three months ended March 31, 2003 and 2004.



Accumulated
amortization of broadcast licenses totaled approximately $17,696,000 at December 31, 2003 and March 31, 2004.



4. Long-Term Debt



Long-term debt consists of the following (not including the debt of the Parent  see discussion below):



|                          |  |                   |             |   |                |   |             |  
|------------------------- |  | ----------------- | ----------- | - | -------------- | - | ----------- | -
|                          |  | December 31, 2003 |             |   | March 31, 2004 |  
|2002 Revolver             |  | $                 | 88,349,736  |   |                | $ | 118,999,736 |  
|Senior Subordinated Notes |  |                   | 150,000,000 |   |                |   | 150,000,000 |  
|Senior Discount Notes     |  |                   | 40,978,056  |   |                |   | 42,078,064  |  
|Empire Note               |  |                   | 2,679,073   |   |                |   | 2,639,352   |  
|                          |  |                   |             |   |                |   |             |  
|                          |  |                   | 282,006,865 |   |                |   | 313,717,152 |  
|Less current portion      |  |                   | (163,078    | ) |                |   | (167,012    | )
|                          |  |                   |             |   |                |   |             |  
|                          |  | $                 | 281,843,787 |   |                | $ | 313,550,140 |  
|                          |  |                   |             |   |                |   |             |  



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In July 1999, Empire Burbank Studios, Inc., an indirect, wholly owned subsidiary of the Company,
issued an installment note payable to a bank for $3.25 million (the Empire Note), which bears interest at the rate of 8.13% per annum. The Empire Note is payable in monthly principal and interest payments of $31,530 through maturity in
August 2014. The borrowings under the Empire Note are secured by substantially all of the Empire assets.



On July 9, 2002, LBI Media issued $150.0 million of Senior Subordinated Notes due 2012 (the Senior Subordinated Notes) and entered into a new
$160.0 million senior revolving credit facility (the 2002 Revolver). The proceeds of the Senior Subordinated Notes and 2002 Revolver were used to repay LBI Medias former senior credit facility and senior notes.



The Senior Subordinated Notes bear interest at the rate of 101/8% per annum, and interest payments are to be made on a semi-annual basis each January 15 and July 15. LBI Media is
a holding company that has no independent assets or operations, other than its investment in its subsidiaries. All of LBI Medias subsidiaries are wholly owned and have provided full and unconditional joint and several guarantees of the Senior
Subordinated Notes. The indenture governing the Senior Subordinated Notes contains certain restrictive covenants that, among other things, limit the Companys ability to borrow under the 2002 Revolver. The Company may borrow up to $150.0
million under the 2002 Revolver without restrictions, but any amount over $150.0 million will be subject to the Companys compliance with a specified leverage ratio (as defined in the indenture governing the Senior Subordinated Notes). The
indenture also limits the Companys ability to pay dividends.



Amounts available under the 2002 Revolver will begin decreasing quarterly, commencing on June 30, 2005, and continuing until maturity on September 30, 2009. Borrowings under the 2002 Revolver bear interest at the
election of the Company, based on either the base rate (as defined in the senior credit agreement) or the LIBOR rate, in each case plus the applicable margin stipulated in the agreement ranging from 0.25% to 3.00% based on certain leverage ratios,
as defined in the senior credit agreement. The 2002 Revolver bears interest at floating rates (ranging from 3.69% to 3.70% and 3.13% to 4.75% at December 31, 2003 and March 31, 2004, respectively), and borrowings are secured by substantially all of
LBI Medias and its subsidiaries assets. The Company may increase its borrowing capacity under the 2002 Revolver by an additional $40.0 million ($30.0 million after the increase in the Companys borrowing capacity described below)
subject to participation by its existing lenders or new lenders acceptable to the administrative agent under the 2002 Revolver and subject to restrictions in the indenture relating to its Senior Subordinated Notes. On August 16, 2002, the
Companys borrowing capacity under the 2002 Revolver was increased by $10.0 million to $170.0 million.



The 2002 Revolver contains customary restrictive covenants that, among other things, limit the Companys ability to incur additional indebtedness and
liens in connection therewith, pay dividends and make capital expenditures above certain limits. Under the 2002 Revolver, the Company must also maintain specified financial ratios, such as a maximum total leverage ratio, a maximum senior leverage
ratio, a minimum ratio of EBITDA (as defined in the senior credit agreement) to interest expense and a minimum ratio of EBITDA (as defined in the senior credit agreement) to fixed charges.



The Company pays quarterly commitment fees on the unused portion of the 2002
Revolver based on its utilization rate of the total borrowing capacity. If the Company borrows less than 50% of the revolving credit commitment, it must pay a quarterly commitment fee of 0.500% times the unused portion. If the Company borrows 50% or
more of the total revolving credit commitment, it must pay a quarterly commitment fee of 0.375% times the unused portion.



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



On October 10, 2003, the Company issued $68.4 million aggregate principal amount at maturity of
Senior Discount Notes that mature in 2013 (the Senior Discount Notes). The notes were sold at 58.456% of principal amount at maturity, resulting in gross proceeds of approximately $40.0 million and net proceeds of approximately $38.8
million after certain transaction costs. The net proceeds from the offering were used to repay a portion of the indebtedness outstanding under the 2002 Revolver. Under the terms of the notes, cash interest will not accrue or be payable on the notes
prior to October 15, 2008 and instead the value of the notes will be increased each period such that it will be equal to $68.4 million on such date; such accretion (approximately $1.1 million for the three months ended March 31, 2004) is recorded as
additional interest expense by the Company. Thereafter, cash interest on the notes will accrue at a rate of 11% per year payable semi-annually on each April 15 and October 15; provided, however, that the Company may make a cash interest election on
any interest payment date prior to October 15, 2008. If the Company makes a cash interest election, the principal amount of the notes at maturity will be reduced to the accreted value of the notes as of the day of the cash interest election and cash
interest will begin to accrue at a rate of 11% per year from the day the Company makes such election. The indenture governing the Senior Discount Notes contains certain restrictive covenants that, among other things, limit the Companys ability
to incur additional indebtedness and pay dividends. The Senior Discount Notes are structurally subordinated to the 2002 Revolver and Senior Subordinated Notes.



In connection with the July 2002 refinancing discussed above, the Company loaned approximately $1.9 million to a stockholder of the Parent. The loan
matures in 2009 and bears interest at the applicable federal rate (2.84% per annum). The Company also repaid notes payable to the stockholders of the Parent of approximately $1.9 million.



The 2002 Revolver, Senior Subordinated Notes and Senior Discount Notes contain certain financial and non-financial covenants
including restrictions on LBI Medias and LBI Media Holdings ability to pay dividends. At March 31, 2004, the Company was in compliance with all such covenants.



As of March 31, 2004, the Companys long-term debt had scheduled repayments for each of the next five fiscal years as
follows:



|     |  |   |           
|---- |  | - | ----------
|2004 |  | $ | 123,267   
|2005 |  |   | 177,675   
|2006 |  |   | 192,887   
|2007 |  |   | 17,209,137
|2008 |  |   | 34,226,872
|     |  |   |           
|     |  | $ | 51,929,838
|     |  |   |           



The above table does
not include interest payments or scheduled repayments relating to debt of the Parent, and does not include any deferred compensation amounts the Company may ultimately pay. Pursuant to SEC guidelines, such debt of the Parent is not reflected in the
Companys financial statements because (a) the Company will not assume the debt of the Parent, either presently or in a planned transaction in the future; (b) the proceeds from the offering of the Senior Discount Notes in October 2003 were not
used to retire all or a part of the Parents debt; and (c) the Company does not guarantee or pledge its assets as collateral for the Parents debt. The Parent is a holding company that has no assets, operations or cash flows other than its
investment in the Company. Accordingly, funding from the Company may be required for the Parent to repay its debt. The Parents debt, which is subordinated in right of payment to the 2002 Revolver, Senior Subordinated Notes and Senior Discount
Notes, is described below.



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



On March 20, 2001, the Parent entered into an agreement whereby in exchange for $30.0 million, it
issued junior subordinated notes (the Parent Subordinated Notes) and warrants to the holders of the Parent Subordinated Notes to initially acquire 14.02 shares (approximately 6.55%) of the Parents common stock at an initial
exercise price of $.01 per share. In connection with the refinancing in July 2002 and the issuance of the Senior Discount Notes in October 2003, described above, the terms of the Parent Subordinated Notes and the related warrants were amended. The
following information gives effect to such amendments. The Parent Subordinated Notes initially bear interest at 9% per year and will bear interest at 13% per year beginning September 21, 2009. The Parent Subordinated Notes will mature on the
earliest of (i) January 31, 2014, (ii) their acceleration following the occurrence and continuance of a material event of default (as defined in the agreement), (iii) a merger, sale or similar transaction involving the Parent or substantially all of
the subsidiaries of the Parent, (iv) a sale or other disposition of a majority of the Parents issued and outstanding capital stock or other rights giving a third party a right to elect a majority of the Parents board of directors, and
(v) the date on which the warrants issued in connection with the Parent Subordinated Notes are repurchased pursuant to the call options applicable to such warrants. Interest is not payable until maturity.



The warrants will expire on the earlier of (i) the later of (a) July 31,
2015, and (b) the date which is six months from the payment in full of all outstanding principal and interest on the Parent Subordinated Notes or (ii) the closing of an underwritten public equity offering in which the Parent raises at least
$25.0 million (subject to extension in certain circumstances).



A performance-based adjustment may increase or decrease the number of shares issued upon exercise of the warrants based on the future consolidated broadcast cash flow (as defined) of the Parent. Upon the maturity date of the Parent
Subordinated Notes, the payment in full of the Parent Subordinated Notes and the repurchase of the warrants, a change in control of the Parent or the exercise of the call or put options described below, the number of shares issuable upon the
exercise of the warrants at the time of such event will be decreased by multiplying such number of shares by .9367, if the Parent achieves consolidated broadcast cash flow for the trailing 12 months in excess of 125% of its budgeted forecasts and in
the case of the sale of the Parent, its total fair market value is greater than 13 times consolidated broadcast cash flow for the trailing 12 months. The number of shares issuable upon the exercise of the warrants will be increased by multiplying
such number of shares by 1.0633, if the Parent achieves consolidated broadcast cash flow less than 75% of its budgeted plan for the trailing 12 months and in the case of the sale of the Parent, its total fair market value is less than 15 times
consolidated broadcast cash flow for the trailing 12 months.



The warrants contain a put right and a call right as described below. If either of these rights are exercised, it could require a significant amount of cash from the Company to repurchase the warrants, since the Parent is a holding company
that has no operations or assets, other than its investment in the Company, and is dependent on the Company for cash flow. However, the Company has no legal obligation to provide that funding.



Put Right: The warrant holders have a put right, which
entitles them at any time on or after the maturity date of the Parent Subordinated Notes to require the Parent to repurchase the warrants, or if the warrants have been exercised, the stock issued pursuant to the warrants, at the fair market value of
the stock/warrants (the fair market value is subject to certain adjustments). Certain mergers, combinations or sales of assets of the Parent, however, will not trigger such put right, even though such events would have accelerated the obligations
under the Parent Subordinated Notes.



Call Right: If the
Parent proposes an acquisition with a valuation of at least $5.0 million in connection with which any proposed financing source reasonably requires in good faith, as a condition of financing and/or permitting the acquisition, an amendment to the
maturity date of the notes and a majority of the holders of the



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Parent Subordinated Notes do not agree to such amendment, the Parent has the right to purchase the warrants (or related stock, if the warrants have been
issued) at fair market value, in connection with its payment in full of the aggregate of principal and interest outstanding under the Parent Subordinated Notes.



Based on the relative fair values at the date of issuance, the Parent allocated $13.6 million to the Parent Subordinated Notes and $16.4 million to the
warrants. These fair values were determined by using the income and market valuation approaches. The income approach analyzes future cash flows and discounts them to arrive at a current estimated fair value. The market approach uses recent sales and
offering prices of similar properties to determine estimated fair value. The Parent Subordinated Notes will be accreted through January 31, 2014, up to their $30.0 million redemption value; such accretion (approximately $227,000 and $228,000 during
the three months ended March 31, 2003 and 2004, respectively) is recorded as additional interest expense by the Parent. In the financial statements of the Parent, the warrants are stated at fair value each reporting period (approximately $31,400,000
at March 31, 2004), with subsequent changes in fair value being recorded as deferred financing costs and amortized to interest expense over the remaining life of the Parent Subordinated Notes.



On February 12, 2004, Liberman Broadcasting, Inc., a Delaware corporation,
filed a registration statement on Form S-1 (File No. 333-112773) with the Securities and Exchange Commission for the proposed initial public offering of its Class A common stock (the Offering). Immediately before the Offering, Liberman
Broadcasting, Inc. will merge with the Parent, a California corporation. Liberman Broadcasting, Inc. will survive the merger and effectively reincorporate the Parent into a Delaware corporation. It is anticipated that a portion of the net proceeds
to the Parent from the Offering will be contributed to the Company and used to repay:



| |  | $21.8 million of the outstanding principal amount under the 2002 Revolver, plus accrued and unpaid interest,
| | - | ------------------------------------------------------------------------------------------------------------



| |  | $52.5 million of the principal amount of the Senior Subordinated Notes at a redemption price of 110.125%, plus accrued and unpaid interest, and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  | $16.8 million of the accreted value of the Senior Discount Notes at a redemption price of 111.0% of the accreted value to the redemption date.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



Assuming the above redemptions occurred on March 31, 2004, the Company would
have incurred (1) approximately $6.0 million in one-time charges relating to the Senior Subordinated Notes, of which approximately $0.7 million relates to the noncash write-off of previously deferred financing costs and (2) approximately $2.6
million in one-time charges relating to the Senior Discount Notes, of which approximately $0.7 million relates to the noncash write-off of previously deferred financing costs.



Liberman Broadcasting, Inc. plans to redeem all of its outstanding Parent Subordinated Notes at a redemption price of 100.0%
with the net proceeds from the Offering. In addition, Liberman Broadcasting, Inc. expects that the warrants will be exercised for shares of its Class A common stock at the closing of the Offering. Liberman Broadcasting, Inc. also intends to enter
into an agreement with the holders of the warrants to terminate certain of their rights under the warrant agreement, including the put and call rights. Assuming the Offering closed and the warrants were exercised on March 31, 2004, Liberman
Broadcasting, Inc. would have incurred a one-time $6.0 million noncash charge to adjust the fair market value of the warrants resulting from the immediate increase in its net equity value. In addition, Liberman Broadcasting, Inc. would have incurred
approximately $16.6 million in one-time noncash expenses, relating to the write-off of previously deferred financing costs and a loss resulting from the early retirement of the Parent Subordinated Notes.



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



5. Acquisitions



On April 22, 2003, the Company completed its acquisition of selected assets of KEYH-AM, licensed to Houston, Texas, pursuant to an asset purchase
agreement, dated as of April 5, 2002, as amended on October 8, 2002. At the same time, the Company terminated its local marketing agreement, which became effective on May 20, 2002. The aggregate purchase price was approximately $6,487,000, including
acquisition costs of approximately $762,000. The Company changed the format, customer base, and employee base of the acquired station and allocated the purchase price as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Broadcast licenses     |  | $ | 5,601,000
|Property and equipment |  |   | 886,000  
|                       |  |   |          
|                       |  | $ | 6,487,000
|                       |  |   |          



On May 15, 2003, the
Company completed its acquisition of selected assets of KMXN-FM, licensed to Garden Grove, California, pursuant to an asset purchase agreement, dated as of December 19, 2002, and terminated its local marketing agreement, which became effective on
January 7, 2003. Subsequently, the Company changed the stations call letters to KEBN-FM. The aggregate purchase price was approximately $35,642,000, including acquisition costs of approximately $642,000. The Company changed the format,
customer base, and employee base of the acquired station and allocated the purchase price as follows:



|                       |  |   |           
|---------------------- |  | - | ----------
|Broadcast licenses     |  | $ | 35,453,000
|Property and equipment |  |   | 189,000   
|                       |  |   |           
|                       |  | $ | 35,642,000
|                       |  |   |           



On January 12, 2004,
the Company completed its acquisition of selected assets of KMPX-TV, licensed to Decatur-Dallas, Texas, pursuant to an asset purchase agreement, dated as of July 14, 2003. The aggregate purchase price was approximately $37,613,000, including
acquisition costs of approximately $613,000. The Company changed the format, customer base, and employee base of the acquired station and the initial purchase price allocation is as follows:



|                       |  |   |           
|---------------------- |  | - | ----------
|Broadcast licenses     |  | $ | 30,613,000
|Property and equipment |  |   | 7,000,000 
|                       |  |   |           
|                       |  | $ | 37,613,000
|                       |  |   |           



On March 18, 2004, the
Company entered into an agreement to purchase selected assets of radio station KNOR-FM, serving the Dallas-Fort Worth, Texas market for an aggregate purchase price of approximately $15.5 million, of which $750,000 has been deposited into escrow. The
Company expects to complete this acquisition in the third quarter of 2004.



In connection with certain of the above acquisitions of selected radio station assets, the Company entered into local marketing agreements to operate the stations until the purchase was completed. Under such
agreements, the Company paid a negotiated monthly fee, provided programming for the related stations, and received the related advertising revenues. The Company expensed the monthly fees as they were incurred. Local marketing agreement expense
amounted to $672,000 and $0 during the three months ended March 31, 2003 and 2004, respectively. The Company had no local marketing agreements in effect as of March 31, 2004.



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



6. Deferred Compensation



The Company and the Parent have entered into employment agreements with certain employees. The services required under the
employment agreements are rendered to the Company, and payment of amounts due under the employment agreements is made by the Company. Accordingly, the Company has reflected amounts due under the employment agreements in its financial statements. In
addition to annual compensation and other benefits, these agreements provide the employees with the ability to participate in the increase of the net value (as defined) of the Parent over certain base amounts (Incentive Compensation).
There are two components of Incentive Compensation: (i) a component that vests in varying amounts over time; and (ii) a component that vests upon the attainment of certain performance measures. The time vesting component is accounted for over the
vesting periods specified in the employment agreements. Performance based amounts are accounted for at the time it is considered probable that the performance measures will be attained.



The employment agreements contain provisions which allow for limited accelerated vesting in the event of a change in control
of the Parent (as defined). Unless there is a change in control of the Parent (as defined), the net value (as defined) of the Parent is to be determined on December 31, 2005, December 31, 2006 or December 31, 2009 (depending upon the
particular employment agreement). Any Incentive Compensation amounts due are required to be paid within thirty days after the date the net value of the Parent is determined. If the Parent is publicly traded, the employees may elect to
receive all or a portion of the deferred compensation in the form of common stock of the Parent.



At December 31, 2003 and March 31, 2004, the net value of the Parent exceeded the base amounts set forth in certain of the respective
employment agreements, and the employees had vested in approximately $8,506,000 and $9,567,000, respectively, of Incentive Compensation. As a part of the calculation of this incentive compensation, the Company used the income and market valuation
approaches to determine the net value of the Parent. The income approach analyzes future cash flows and discounts them to arrive at a current estimated fair value. The market approach uses recent sales and offering prices of similar
properties to determine estimated fair value. The base amounts were negotiated with each employee at the time the employment agreement was entered into. The vested amounts are shown as deferred compensation in the accompanying consolidated balance
sheets; the related expense is shown as noncash employee compensation in the accompanying consolidated statements of operations.



At March 31, 2004, neither the Company nor Parent had funded any portion of the deferred compensation liability.



Upon the closing of the Parents proposed initial public offering of its
Class A common stock, the Company currently anticipates an immediate increase in the net value of the Parent based on preliminary equity market valuations. Assuming this offering closed on March 31, 2004, the Companys deferred
compensation expense would have increased by an additional $2.5 million for the three months ended March 31, 2004.



7. Related Party Transactions



The Companys national sales representative is an entity owned by the stockholders of the Parent. This national sales representative charged the
Company approximately $231,000 and $320,000 during the three months ended March 31, 2003 and 2004, respectively. Such amounts, which the Company believes represent market rates, are included in selling expenses in the accompanying condensed
consolidated statements of operations.



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company owed its national sales representative approximately $189,000 and $136,000 as of December
31, 2003 and March 31, 2004, respectively. Such amounts are included in amounts due to related parties in the accompanying condensed consolidated balance sheets.



The Company had approximately $2,735,000 and $2,777,000 due from stockholders of the Parent and from affiliated companies at
December 31, 2003 and March 31, 2004, respectively. These loans bear interest at the applicable federal rate and mature through July 2009. Additionally, at the direction of the stockholders of the Parent, the Company has made advances to certain
religious and charitable organizations and individuals totaling approximately $118,000 and $110,000 at December 31, 2003 and March 31, 2004, respectively. These loans and advances plus accrued interest, are included in amounts due from related
parties and notes receivable from related parties in the accompanying condensed consolidated balance sheets. During the three months ended March 31, 2003 and 2004, the Company forgave approximately $24,000 and $0, respectively, in advances made to
certain organizations.



One of the Parents stockholders
is the sole shareholder of L.D.L. Enterprises, Inc. (LDL), a mail order business. From time to time, the Company allows LDL to use, free of charge, unsold advertising time on its television stations.



8. Comprehensive Income



Comprehensive income amounted to approximately $1,020,234 and $244,727 for the three months ended March 31, 2003 and 2004,
respectively.



9. Segment Data



SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, requires companies to provide certain information about their operating segments. The Company has two reportable segments  radio operations and television operations.



Management uses operating income before depreciation and noncash employee
compensation as its measure of profitability for purposes of assessing performance and allocating resources.



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                                                                                        |  |                              |             |   |      |   |             |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                        |  | Three Months Ended March 31, |            
|                                                                                                                        |  | 2003                         |             |   | 2004 |  
|Net revenues:                                                                                                           |  |                              |             |   |      |   |             |  
|Radio operations                                                                                                        |  | $                            | 8,776,217   |   |      | $ | 8,951,104   |  
|Television operations                                                                                                   |  |                              | 7,677,351   |   |      |   | 10,421,191  |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Consolidated net revenues                                                                                               |  |                              | 16,453,568  |   |      |   | 19,372,295  |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Operating expenses, excluding depreciation and noncash employee compensation:                                           |  |                              |             |   |      |   |             |  
|Radio operations                                                                                                        |  |                              | 4,841,462   |   |      |   | 4,809,927   |  
|Television operations                                                                                                   |  |                              | 4,119,618   |   |      |   | 5,862,134   |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Consolidated operating expenses, excluding depreciation and noncash employee compensation                               |  |                              | 8,961,080   |   |      |   | 10,672,061  |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Operating income before depreciation and noncash employee compensation:                                                 |  |                              |             |   |      |   |             |  
|Radio operations                                                                                                        |  |                              | 3,934,755   |   |      |   | 4,141,177   |  
|Television operations                                                                                                   |  |                              | 3,557,733   |   |      |   | 4,559,057   |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Consolidated operating income before depreciation and noncash employee compensation                                     |  |                              | 7,492,488   |   |      |   | 8,700,234   |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Depreciation expense:                                                                                                   |  |                              |             |   |      |   |             |  
|Radio operations                                                                                                        |  |                              | 317,874     |   |      |   | 461,609     |  
|Television operations                                                                                                   |  |                              | 476,337     |   |      |   | 662,954     |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Consolidated depreciation expense                                                                                       |  |                              | 794,211     |   |      |   | 1,124,563   |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Noncash employee compensation:                                                                                          |  |                              |             |   |      |   |             |  
|Radio operations                                                                                                        |  |                              | 683,000     |   |      |   | 1,061,000   |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Consolidated noncash employee compensation                                                                              |  |                              | 683,000     |   |      |   | 1,061,000   |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Operating income:                                                                                                       |  |                              |             |   |      |   |             |  
|Radio operations                                                                                                        |  |                              | 2,933,881   |   |      |   | 2,618,568   |  
|Television operations                                                                                                   |  |                              | 3,081,396   |   |      |   | 3,896,103   |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Consolidated operating income                                                                                           |  | $                            | 6,015,277   |   |      | $ | 6,514,671   |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Total assets:                                                                                                           |  |                              |             |   |      |   |             |  
|Radio operations                                                                                                        |  | $                            | 133,131,247 |   |      | $ | 172,698,316 |  
|Television operations                                                                                                   |  |                              | 126,643,204 |   |      |   | 167,702,425 |  
|Corporate                                                                                                               |  |                              | 17,916,827  |   |      |   | 21,351,053  |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Consolidated total assets                                                                                               |  | $                            | 277,691,278 |   |      | $ | 361,751,794 |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Reconciliation of operating income before depreciation and noncash employee compensation to income before income taxes: |  |                              |             |   |      |   |             |  
|Operating income before depreciation and noncash employee compensation                                                  |  | $                            | 7,492,488   |   |      | $ | 8,700,234   |  
|Depreciation                                                                                                            |  |                              | (794,211    | ) |      |   | (1,124,563  | )
|Noncash employee compensation                                                                                           |  |                              | (683,000    | ) |      |   | (1,061,000  | )
|Interest expense                                                                                                        |  |                              | (4,979,572  | ) |      |   | (6,272,879  | )
|Interest and other income                                                                                               |  |                              | 22,614      |   |      |   | 24,123      |  
|                                                                                                                        |  |                              |             |   |      |   |             |  
|Income before income taxes                                                                                              |  | $                            | 1,058,319   |   |      | $ | 265,915     |  
|                                                                                                                        |  |                              |             |   |      |   |             |  



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



10. LBI Media Holdings, Inc. (Parent Company Only)



The terms of LBI Medias senior credit facility and the indenture
governing LBI Medias senior subordinated notes restrict LBI Medias ability to transfer assets to LBI Media Holdings in the form of loans, advances, or cash dividends. The following parent-only condensed financial information presents
balance sheets and related statements of operations and cash flows of LBI Media Holdings by accounting for the investments in the owned subsidiaries on the equity method of accounting. The accompanying condensed financial information should be read
in conjunction with the consolidated statements and notes thereto.



|                                               |  |                              |            |                |   |            |  
|---------------------------------------------- |  | ---------------------------- | ---------- | -------------- | - | ---------- | -
|                                               |  | December 31, 2003            |            | March 31, 2004 |  
|Condensed Balance Sheet Information:           |  |                              |            |                |   |            |  
|Assets                                         |  |                              |            |                |   |            |  
|Deferred financing costs                       |  | $                            | 1,889,708  |                | $ | 1,848,820  |  
|Investment in subsidiaries                     |  |                              | 69,197,460 |                |   | 69,802,812 |  
|Other assets                                   |  |                              | 19,353     |                |   | 31,223     |  
|                                               |  |                              |            |                |   |            |  
|Total assets                                   |  | $                            | 71,106,521 |                | $ | 71,682,855 |  
|                                               |  |                              |            |                |   |            |  
|Liabilities and stockholders equity           |  |                              |            |                |   |            |  
|Long term debt                                 |  | $                            | 40,978,056 |                | $ | 42,078,063 |  
|Stockholders equity:                          |  |                              |            |                |   |            |  
|Common stock                                   |  |                              | 1          |                |   | 1          |  
|Additional paid-in capital                     |  |                              | 22,657,667 |                |   | 22,657,667 |  
|Retained earnings                              |  |                              | 7,470,797  |                |   | 6,947,124  |  
|                                               |  |                              |            |                |   |            |  
|Total stockholders equity                     |  |                              | 30,128,465 |                |   | 29,604,792 |  
|                                               |  |                              |            |                |   |            |  
|Total liabilities and stockholders equity     |  | $                            | 71,106,521 |                | $ | 71,682,855 |  
|                                               |  |                              |            |                |   |            |  
|                                               | 
|                                               |  | Three Months Ended March 31, |           
|                                               |  | 2003                         |            | 2004           |  
|Condensed Statement of Operations Information: |  |                              |            |                |   |            |  
|Income:                                        |  |                              |            |                |   |            |  
|Equity in earnings of subsidiaries             |  | $                            | 1,038,319  |                | $ | 1,381,380  |  
|Expenses:                                      |  |                              |            |                |   |            |  
|Interest expense                               |  |                              |           |                |   | (1,147,143 | )
|                                               |  |                              |            |                |   |            |  
|Income before income taxes                     |  |                              | 1,038,319  |                |   | 234,237    |  
|Income tax benefit                             |  |                              |           |                |   | 13,120     |  
|                                               |  |                              |            |                |   |            |  
|Net income                                     |  | $                            | 1,038,319  |                | $ | 247,357    |  
|                                               |  |                              |            |                |   |            |  



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LBI MEDIA HOLDINGS, INC.



NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                                                  |  |                             |            |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                  |  | Three Months EndedMarch 31, |           
|                                                                                  |  | 2003                        |            |   | 2004 |  
|Condensed Statement of Cash Flows Information:                                    |  |                             |            |   |      |   |            |  
|Cash flows provided by operating activities:                                      |  |                             |            |   |      |   |            |  
|Net income                                                                        |  | $                           | 1,038,319  |   |      | $ | 247,357    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |            |   |      |   |            |  
|Equity in earnings of subsidiaries                                                |  |                             | (1,038,319 | ) |      |   | (1,381,380 | )
|Amortization of deferred financing costs                                          |  |                             |           |   |      |   | 45,886     |  
|Accretion on discount notes                                                       |  |                             |           |   |      |   | 1,100,007  |  
|Change in other assets                                                            |  |                             |           |   |      |   | (11,870    | )
|Distributions from subsidiaries                                                   |  |                             |           |   |      |   | 776,028    |  
|                                                                                  |  |                             |            |   |      |   |            |  
|Net cash provided by operating activities                                         |  | $                           |           |   |      | $ | 776,028    |  
|                                                                                  |  |                            
|Cash flows used in financing activities:                                          |  |                             |            |   |      |   |            |  
|Payments of deferred financing costs                                              |  | $                           |           |   |      | $ | (4,998     | )
|Distributions to Parent                                                           |  |                             |           |   |      |   | (771,030   | )
|                                                                                  |  |                             |            |   |      |   |            |  
|Net cash used in financing activities                                             |  | $                           |           |   |      | $ | (776,028   | )
|Net change in cash and cash equivalents                                           |  |                             |           |   |      |   |           |  
|Cash and cash equivalents at beginning of period                                  |  |                             |           |   |      |   |           |  
|                                                                                  |  |                             |            |   |      |   |            |  
|Cash and cash equivalents at end of period                                        |  | $                           |           |   |      | $ |           |  
|                                                                                  |  |                             |            |   |      |   |            |  



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



The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements
included elsewhere in this Quarterly Report and the audited financial statements for the year ended December 31, 2003, included in our Annual Report on Form 10-K (File No. 333-110122). This Quarterly Report contains, in addition to historical
information, forward-looking statements, which involve risk and uncertainties. The words believe, expect, estimate, may, will, could, plan, or continue,
and similar expressions are intended to identify forward-looking statements. Our actual results could differ significantly from the results discussed in such forward-looking statements.



Overview



We own and operate radio and television stations in Los Angeles, California and Houston, Texas and television stations in
Dallas, Texas and San Diego, California. Our radio stations consist of four FM and two AM stations serving Los Angeles, California and its surrounding areas and five FM and four AM stations serving Houston, Texas and its surrounding areas. We expect
to add an FM radio station in the Dallas-Fort-Worth, Texas market in the third quarter of 2004, pursuant to a definitive agreement we entered into in March 2004. Our four television stations consist of three full-power stations serving Los Angeles,
California, Houston, Texas and Dallas-Fort Worth, Texas and a low-power station serving San Diego, California. In addition, we operate a television production facility, Empire Burbank Studios, in Burbank, California that we primarily use to produce
our core programming for all of our television stations, and we have television production facilities in Houston and Dallas-Fort Worth that will allow us to produce local programming for those markets.



We operate in two reportable segments, radio and television. We generate
revenue from the sale of national, regional and local advertising time on our television and radio stations, the sale of time on a contractual basis to brokered or infomercial customers on our radio and television stations, and, to a lesser extent,
the leasing of our production facilities to outside entertainment companies. Advertising rates are, in large part, based on each stations ability to attract audiences in demographic groups targeted by advertisers. We recognize revenues when
the commercials are broadcast or the brokered time is made available to the customer. We incur commissions from agencies on local, regional and national advertising and our revenue reflects deductions from gross revenue for commissions to these
agencies.



Our primary expenses are employee compensation,
including commissions paid to our sales staff, promotion, selling, programming, commissions paid to our national representative firm, SMRT, and general and administrative expenses. Our programming expenses for television consist of costs related to
the production of original programming content, production of local newscasts, and the acquisition of programming content from other sources.



We are organized as a Delaware corporation and are a qualified S subsidiary under federal and California state tax laws. As such, we are
deemed for tax purposes to be part of our parent, an S corporation, and our taxable income is reported by the shareholders of LBI Holdings I, on their respective federal and state income tax returns.



On April 22, 2003, we completed our acquisition of the selected assets of
radio station KEYH-AM, licensed in the Houston, Texas market, for an aggregate purchase price of approximately $6.5 million (including acquisition costs), and have significantly changed the format, customer base, revenue stream and employee base of
this station.



On May 15, 2003, we completed our acquisition of
the selected assets of KMXN-FM, licensed in Garden Grove, California, for an aggregate purchase price of approximately $35.6 million (including acquisition costs) and subsequently changed the stations call letters to KEBN-FM. We have
significantly changed the format, customer base, revenue stream and employee base of this station.



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On January 12, 2004, we completed our acquisition of the selected assets of KMPX-TV serving the
Dallas-Fort Worth, Texas market, for an aggregate purchase price of approximately $37.6 million (including acquisition costs), and have significantly changed the format, customer base, revenue stream and employee base of this station.



On March 18, 2004 we entered into an agreement to purchase the selected
assets of radio station KNOR-FM serving the Dallas-Fort Worth, Texas market for an aggregate purchase price of $15.5 million, of which $750,000 has been placed into escrow. We intend to significantly change the format, customer base, revenue stream
and employee base of this station. We anticipate completing this acquisition in the third quarter of 2004.



We generally experience lower operating margins for several months following the acquisition of radio and television stations. This is primarily due to
the time it takes to fully implement our format changes, build our advertiser base and gain viewer or listener support.



From time to time, we engage in discussions with third parties concerning our possible acquisition of additional radio or television stations or related
assets. Any such discussions may or may not lead to our acquisition of additional broadcasting assets.



Liberman Broadcasting, Inc., a Delaware corporation, filed a registration statement on Form S-1 (File No. 333-112773) with the Securities and
Exchange Commission on February 12, 2004 for the initial public offering of its Class A common stock. Immediately before the offering, Liberman Broadcasting, Inc. will merge with our parent, LBI Holdings, I, Inc., a California corporation. Liberman
Broadcasting, Inc. will survive the merger and effectively reincorporate our parent into a Delaware corporation. In this report, Liberman Broadcasting refers to LBI Holdings I, Inc. before the merger and Liberman Broadcasting, Inc. after
the merger, each on an unconsolidated basis.



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Results of Operations



Separate financial data for each of our operating segments is provided below. We evaluate the performance of our operating segments based on the
following:



|                                                                                |  |                              |             |      |   |            
|------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | ---- | - | -----------
|                                                                                |  | Three Months Ended March 31,
|                                                                                |  | 2003                         |             | 2004
|Net revenues:                                                                   |  |                              |             |      |   |            
|Radio                                                                           |  | $                            | 8,776,217   |      | $ | 8,951,104  
|Television                                                                      |  |                              | 7,677,351   |      |   | 10,421,191 
|                                                                                |  |                              |             |      |   |            
|Total                                                                           |  | $                            | 16,453,568  |      | $ | 19,372,295 
|                                                                                |  |                              |             |      |   |            
|Total operating expenses before noncash employee compensation and depreciation: |  |                              |             |      |   |            
|Radio                                                                           |  | $                            | 4,841,462   |      | $ | 4,809,927  
|Television                                                                      |  |                              | 4,119,618   |      |   | 5,862,134  
|                                                                                |  |                              |             |      |   |            
|Total                                                                           |  | $                            | 8,961,080   |      | $ | 10,672,061 
|                                                                                |  |                              |             |      |   |            
|Noncash employee compensation:                                                  |  |                              |             |      |   |            
|Radio                                                                           |  | $                            | 683,000     |      | $ | 1,061,000  
|Television                                                                      |  |                              |            |      |   |           
|                                                                                |  |                              |             |      |   |            
|Total                                                                           |  | $                            | 683,000     |      | $ | 1,061,000  
|                                                                                |  |                              |             |      |   |            
|Depreciation:                                                                   |  |                              |             |      |   |            
|Radio                                                                           |  | $                            | 317,874     |      | $ | 461,609    
|Television                                                                      |  |                              | 476,337     |      |   | 662,954    
|                                                                                |  |                              |             |      |   |            
|Total                                                                           |  | $                            | 794,211     |      | $ | 1,124,563  
|                                                                                |  |                              |             |      |   |            
|Operating income:                                                               |  |                              |             |      |   |            
|Radio                                                                           |  | $                            | 2,933,881   |      | $ | 2,618,568  
|Television                                                                      |  |                              | 3,081,396   |      |   | 3,896,103  
|                                                                                |  |                              |             |      |   |            
|Total                                                                           |  | $                            | 6,015,277   |      | $ | 6,514,671  
|                                                                                |  |                              |             |      |   |            
|Adjusted EBITDA (1):                                                            |  |                              |             |      |   |            
|Radio                                                                           |  | $                            | 3,934,755   |      | $ | 4,141,177  
|Television                                                                      |  |                              | 3,557,733   |      |   | 4,559,057  
|                                                                                |  |                              |             |      |   |            
|Total                                                                           |  | $                            | 7,492,488   |      | $ | 8,700,234  
|                                                                                |  |                              |             |      |   |            
|Total assets:                                                                   |  |                              |             |      |   |            
|Radio                                                                           |  | $                            | 133,131,247 |      | $ | 172,698,316
|Television                                                                      |  |                              | 126,643,204 |      |   | 167,702,425
|Corporate                                                                       |  |                              | 17,916,827  |      |   | 21,351,053 
|                                                                                |  |                              |             |      |   |            
|Total                                                                           |  | $                            | 277,691,278 |      | $ | 361,751,794
|                                                                                |  |                              |             |      |   |            

---

|(1) | We define Adjusted EBITDA as net income plus income tax expense, net interest expense, depreciation and noncash employee compensation. Management considers this measure an important
indicator of our liquidity relating to our operations because it eliminates the effects of noncash items. This measure should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial
performance prepared in accordance with accounting principles generally accepted in the United States, such as cash flows from operating activities, operating income and net income. In addition, our definition of Adjusted EBITDA may differ from
those of many companies reporting similarly named measures.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We discuss Adjusted EBITDA and the limitations of this financial measure in more detail under
Managements Discussion and Analysis of Financial Condition and Results of Operations  Non-GAAP Financial Measure.



The table set forth below reconciles net cash (used in) provided by operating activities, calculated and presented in accordance with accounting
principles generally accepted in the United States, to Adjusted EBITDA:



|                                             |  |                              |            |   |      |   |            |  
|-------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                             |  | Three Months Ended March 31, |           
|                                             |  | 2003                         |            |   | 2004 |  
|Net cash used in operating activities        |  | $                            | (2,532,474 | ) |      | $ | 3,706,495  |  
|Add:                                         |  |                              |            |   |      |   |            |  
|Income tax expense                           |  |                              | 20,000     |   |      |   | 18,558     |  
|Interest expense, net                        |  |                              | 4,956,958  |   |      |   | 6,248,756  |  
|Less:                                        |  |                              |            |   |      |   |            |  
|Amortization of deferred financing costs     |  |                              | (133,233   | ) |      |   | (199,755   | )
|Accretion on senior discount notes           |  |                              |           |   |      |   | (1,100,007 | )
|Provision for doubtful accounts              |  |                              | (216,813   | ) |      |   | (198,513   | )
|Changes in operating assets and liabilities: |  |                              |            |   |      |   |            |  
|Accounts receivable                          |  |                              | (110,510   | ) |      |   | (2,899,345 | )
|Program rights                               |  |                              | 31,720     |   |      |   | (301,874   | )
|Amounts due from related parties             |  |                              | 145,459    |   |      |   | 15,021     |  
|Prepaid expenses and other current assets    |  |                              | 451,086    |   |      |   | (160,916   | )
|Employee advances                            |  |                              | 9,826      |   |      |   | 1,553      |  
|Accounts payable and accrued expenses        |  |                              | 526,057    |   |      |   | (276,787   | )
|Accrued interest                             |  |                              | 4,336,298  |   |      |   | 3,591,461  |  
|Program rights payable                       |  |                              |           |   |      |   | 27,000     |  
|Amounts due to related parties               |  |                              | 13,874     |   |      |   | 53,504     |  
|Deferred state income tax payable            |  |                              | (9,600     | ) |      |   | (14,336    | )
|Other assets and liabilities                 |  |                              | 3,840      |   |      |   | 189,419    |  
|                                             |  |                              |            |   |      |   |            |  
|Adjusted EBITDA                              |  | $                            | 7,492,488  |   |      | $ | 8,700,234  |  
|                                             |  |                              |            |   |      |   |            |  



Three Months Ended March 31, 2004
Compared to the Three Months Ended March 31, 2003



Net
Revenues. Net revenues increased by $2.9 million, or 17.7%, to $19.4 million for the three months ended March 31, 2004, from $16.5 million for the same period in 2003. This increase was primarily attributable to the performance of our television
segments in the California and Texas markets, along with modest growth from our radio division.



We currently anticipate continued net revenue growth through the end of 2004 from both our radio and television segments due to increased advertising time
sold, increased advertising rates, and incremental net revenue from our new Dallas-Fort Worth television station, KMPX-TV. Our programming, focused sales strategy and the expected continued demand by advertisers for Spanish-language advertising
should continue to increase our advertising time sold and advertising rates for the duration of 2004.



Net revenues for our radio segment increased by $0.2 million, or 2.0%, to $9.0 million for the three months ended March 31, 2004, from $8.8 million for
the same period in 2003. This increase was attributable to revenue growth in our Texas market, primarily reflecting higher advertising rates, increased advertising time sold and a stronger sales force presence. Our targeted local programming and a
strong retail advertiser base have enabled us to increase rates and advertising time sold.



Net revenues for our television segment increased by $2.7 million, or 35.7%, to $10.4 million for the three months ended March 31, 2004, from $7.7 million for the same period in 2003. This increase was attributable to



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revenue growth in our California and Texas markets, reflecting higher advertising rates, advertising time sold and incremental revenues from our new
Dallas-Fort Worth station, KMPX-TV, acquired in January 2004. Our internally produced programming continues to achieve higher ratings, enabling us to raise advertising rates and increase advertising time sold.



Total operating expenses. Total operating expenses increased by $2.4
million, or 23.2%, to $12.8 million for the three months ended March 31, 2004 from $10.4 million for the same period in 2003. This increase was due to:



(1) a $0.7 million increase in program and technical expenses related to (a) additional production of in-house television programs, (b)
incremental expenses related to our new television station in the Dallas-Fort Worth market, which began operations in January 2004 and (c) overall revenue growth,



(2) a $0.2 million increase in promotional expenses primarily resulting from the addition of our television
station in the Dallas-Fort Worth market,



(3)
a $0.9 million increase in selling, general and administrative expenses due to (a) higher sales salaries and commissions, reflecting our net revenue growth, (b) additional expenses related to the acquisition of selected assets of KMPX-TV in January
2004, and (c) moderate increases in other general and administrative expenses associated with our revenue growth,



(4) a $0.3 million increase in depreciation expense, primarily due to (a) the acquisition of selected assets of KMPX-TV in January 2004,
(b) the completion of our corporate office and television production facility during the first three months of 2004, (c) incremental expenses relating to two asset acquisitions completed in the second quarter of 2003 and (d) increased capital
expenditures since the first quarter of 2003, and



(5) a $0.3 million increase in noncash employee compensation. Our deferred compensation liability can increase in future periods based on changes in the applicable employees vesting percentage, which is based on time and performance
measures, and can increase or decrease in future periods based on changes in the net value of our parent, Liberman Broadcasting.



Upon the closing of Liberman Broadcastings proposed initial public offering of its Class A common stock, we currently anticipate an immediate
increase in the net value of Liberman Broadcasting, based on preliminary equity market valuations. Assuming this offering closed on March 31, 2004, our deferred compensation expense would have increased by an additional $2.5 million for
the three months ended March 31, 2004.



We believe that our
total operating expenses will continue to increase in 2004 due to increased programming costs for our television segment, increased sales commissions and administrative expenses associated with our net revenue growth, and increased expenses
associated with our new Dallas-Fort Worth television station, KMPX-TV. Our television programming expenses will likely continue to increase in 2004 due to additional in-house programming. Continued growth in expenses may occur as a result of the
acquisition of radio and television assets that we may complete. We anticipate that the growth rate of our 2004 total operating expenses, excluding noncash employee compensation, will be lower than the growth rate of our 2004 net revenue. This
expectation could be negatively impacted by the number and size of additional radio and television assets that we may acquire, if any, and public equity expenses resulting from the proposed initial public offering of Liberman Broadcastings
Class A common stock.



Total operating expenses for our radio
segment increased by $0.5 million, or 8.4%, to $6.3 million for the three months ended March 31, 2004, from $5.8 million for the same period in 2003. This increase was primarily the result of:



(1) a $0.2 million increase in program and technical
expenses related to (a) additional ratings service and market research costs associated with our Los Angeles and Houston stations, and (b) general expense increases associated with overall revenue growth,



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(2) a $0.1 million increase in depreciation expense, resulting from (a) the completion of
our corporate office and production facility during the first three months of 2004 and (b) incremental expenses relating to two asset acquisitions completed in the second quarter of 2003, and



(3) a $0.3 million increase in noncash employee
compensation.



These increases were offset by a $0.1 million
decline in selling, general and administrative expenses, primarily resulting from a $0.7 million decline in local marketing agreement fees relating to asset acquisitions we completed in the second quarter of 2003. This decrease was offset by (1)
higher sales commissions associated with our growth in net revenue and (2) general expense increases associated with overall revenue growth.



Total operating expenses for our television segment increased by $1.9 million, or 42.0%, to $6.5 million for the three months ended March 31, 2004, from
$4.6 million, for the same period in 2003. This increase was primarily the result of:



(1) a $0.5 million increase in program and technical expenses related to (a) the additional production of in-house programming, (b) the
incremental costs associated with our newly acquired television station in the Dallas-Fort Worth market, and (c) general cost increases associated with overall revenue growth,



(2) a $0.2 million increase in promotional expenses, primarily due to the addition of our new Dallas-Fort
Worth television station acquired in January 2004,



(3) a $1.0 million increase in selling, general and administrative expenses related to (a) higher sales salaries and commissions associated with our growth in net revenue, (b) incremental costs associated with the our new Dallas-Fort Worth
television station acquired in January 2004, and (c) general expense increases associated with revenue growth, and



(4) a $0.2 million increase in depreciation expense, primarily resulting from (a) an increase in capital expenditures, (b) the completion
of our corporate office and television production facility during the quarter and (c) incremental expenses relating to our most recent asset acquisition.



Interest expense. Interest expense increased by $1.3 million, or 26.0%, to $6.3 million for the three months ended March 31, 2004, from $5.0
million for the same period in 2003. This change is attributable to a $1.1 million accretion in our senior discount notes issued in October 2003, and a higher average debt balance during the first quarter of 2004, as compared to the same period in
2003. In January 2004, we borrowed an additional $35.5 million under LBI Medias senior credit facility to finance the acquisition of KMPX-TV.



As a result of Liberman Broadcastings proposed initial public offering of its Class A common stock and the contribution of a portion of the net
proceeds to us, we plan to redeem a portion of our outstanding indebtedness. Consequently, excluding one-time charges, we expect our interest expense to decrease during the remaining nine months of 2004. However, if we acquire additional radio and
television station assets, we may need to incur more debt, which would result in an increase in our interest expense.



Interest and other income. Interest and other income increased to $24,000 for the three months ended March 31, 2004, from $23,000 for the same
period in 2003.



Net income. We recognized net income of
$0.2 million for the three months ended March 31, 2004, as compared to $1.0 million for the same period of 2003, a decrease of $0.8 million. This change was primarily due to the debt accretion associated with our senior discount notes issued in
October 2003.



Adjusted EBITDA. Adjusted EBITDA
increased by $1.2 million, or 16.1%, to $8.7 million for the three months ended March 31, 2004, from $7.5 million for the same period in 2003. This increase was primarily attributable to net revenue growth from our existing stations in the
California and Texas markets and the addition of our television station in the Dallas-Fort Worth market, offset by moderate increases in operating expenses.



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Liquidity and Capital Resources



LBI Medias Senior Credit Facility



Our primary sources of liquidity are cash provided by operations and available borrowings under our subsidiarys, LBI
Medias, $170.0 million revolving senior credit facility. Amounts available under LBI Medias senior credit facility will begin decreasing quarterly, commencing on June 30, 2005 until the facility matures on September 30, 2009. Borrowings
under LBI Medias senior credit facility bear interest at a rate based on LIBOR or a base rate, plus an applicable margin that is dependent upon our leverage ratio (as defined in the senior credit agreement). As of March 31, 2004, LBI Media had
approximately $119.0 million aggregate principal amount outstanding under the senior credit facility. Under the indenture governing LBI Medias senior subordinated notes and our senior discount notes, LBI Media is limited in its ability to
borrow under the senior credit facility. LBI Media may borrow up to $150.0 million under its senior credit facility without having to meet any restrictions under the indentures governing LBI Medias senior subordinated notes and our senior
discount notes, but any amount over $150.0 million that LBI Media may borrow under the senior credit facility will be subject to specified leverage ratios (as defined in the indentures governing LBI Medias senior subordinated notes and our
senior discount notes). LBI Media may increase the borrowing capacity under its senior credit facility by up to an additional $30.0 million, subject to participation by its existing lenders or new lenders acceptable to the administrative agent under
the senior credit facility and subject to restrictions in the indentures governing LBI Medias senior subordinated notes and our senior discount notes.



LBI Medias senior credit facility contains customary restrictive covenants that, among other things, limit its ability to incur additional
indebtedness and liens in connection therewith, pay dividends and make capital expenditures above certain limits. Under the senior credit facility, LBI Media must also maintain specified financial ratios, such as a maximum total leverage ratio, a
maximum senior leverage ratio, a minimum ratio of EBITDA (as defined in the senior credit agreement) to interest expense and a minimum ratio of EBITDA (as defined in the senior credit agreement) to fixed charges. As of March 31, 2004, LBI Media was
in compliance with all these covenants. Based on the current anticipated size and timing of Liberman Broadcastings initial public offering of its Class A common stock, LBI Media plans to repay approximately $21.8 million of the outstanding
principal amount under its senior credit facility, plus accrued and unpaid interest, with the net proceeds contributed from Liberman Broadcasting. We also plan to amend or replace LBI Medias senior credit facility in connection with the
anticipated initial public offering.



LBI Medias
Senior Subordinated Notes



In July 2002, LBI Media issued
$150.0 million of Senior Subordinated Notes that mature in 2012. Under the terms of its senior subordinated notes, LBI Media pays semi-annual interest payments of approximately $7.6 million each January 15 and July 15. After giving effect to
the partial redemption of LBI Medias senior subordinated notes with the net proceeds contributed to LBI Media from Liberman Broadcastings anticipated initial public offering of its Class A common stock (discussed below), the semi-annual
payments will be approximately $4.9 million. The indenture governing LBI Medias senior subordinated notes contains certain restrictive covenants that, among other things, limit LBI Medias ability to incur additional indebtedness and pay
dividends. As of March 31, 2004, LBI Media was in compliance with all these covenants. LBI Media plans to redeem $52.5 million of the principal amount of its senior subordinated notes at a price of 110.125%, plus accrued and unpaid interest, with
the net proceeds contributed to LBI Media from its indirect parent, Liberman Broadcasting, from the anticipated initial public offering of its Class A common stock. Assuming this redemption occurred on March 31, 2004, LBI Media would have incurred
approximately $6.0 million in one-time charges, of which approximately $0.7 million relates to the noncash write-off of previously deferred financing costs.



Senior Discount Notes



In October 2003, we issued $68.4 million aggregate principal amount at maturity of 11% Senior Discount Notes that mature in 2013. Under the terms of the
notes, cash interest will not accrue or be payable on the notes prior to October 15, 2008 and instead the accreted value of the notes will increase until such date. Thereafter,



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cash interest on the notes will accrue at a rate of 11% per year payable semi-annually on each April 15 and October 15; provided, however, that we may make a
cash interest election on any interest payment date prior to October 15, 2008. If we make a cash interest election, the principal amount of the notes at maturity will be reduced to the accreted value of the notes as of the day of the cash interest
election and cash interest will begin to accrue at a rate of 11% per year from the day we make such election. The indenture governing the senior discount notes contains certain restrictive covenants that, among other things, limit our ability to
incur additional indebtedness and pay dividends. Our senior discount notes are structurally subordinated to LBI Medias senior credit facility and senior subordinated notes. We plan to redeem $16.8 million of the accreted value of our senior
discount notes at a redemption price of 111.0% of the accreted value to the redemption date with the net proceeds contributed by Liberman Broadcasting, from its initial public offering. Assuming this redemption occurred on March 31, 2004, we would
have incurred approximately $2.6 million in one-time charges, of which approximately $0.7 million relates to the noncash write-off of previously deferred financing costs.



Liberman Broadcastings 9% Subordinated Notes



In March 2001, our parent, Liberman Broadcasting, issued $30.0 million principal amount of 9% subordinated notes. The 9%
subordinated notes are subordinate in right of payment to LBI Medias senior credit facility and senior subordinated notes, and are structurally subordinated to our senior discount notes. The 9% subordinated notes will mature on the earliest of
(i) January 31, 2014, (ii) their acceleration following the occurrence and continuance of a material event of default, (iii) a merger, sale or similar transaction involving Liberman Broadcasting or substantially all of the subsidiaries of Liberman
Broadcasting, (iv) a sale or other disposition of a majority of Liberman Broadcastings issued and outstanding capital stock or other rights giving a third party a right to elect a majority of Liberman Broadcastings board of directors,
and (v) the date on which the warrants issued in connection with Liberman Broadcastings 9% subordinated notes are repurchased pursuant to the call options applicable to the warrants. Interest is not payable until maturity. Liberman
Broadcasting plans to redeem all of its outstanding 9% subordinated notes at a price of 100.0% with the net proceeds of its anticipated offering of its Class A common stock. Assuming this redemption occurred on March 31, 2004, Liberman Broadcasting
would have incurred approximately $16.6 million in one-time noncash expenses, relating to the write-off of previously deferred financing costs and a loss resulting from the early redemption of the 9% subordinated notes.



In connection with these 9% subordinated notes, Liberman Broadcasting also
issued warrants to purchase shares of its common stock. The warrants have a put feature, which would allow the warrant holders at any time on or after the maturity date of the 9% subordinated notes, to require Liberman Broadcasting to repurchase the
warrants or common stock issued upon exercise of the warrants at fair market value under certain events, and a call feature, which would allow Liberman Broadcasting to repurchase the warrants at its option under certain events. Certain mergers,
combinations or sales of assets of Liberman Broadcasting, however, will not trigger the put right, even though such events would have accelerated the obligations under the 9% subordinated notes. Since Liberman Broadcasting is a holding company that
has no operations or assets, other than its investment in us, and is dependent on our subsidiaries for cash flow, funding from us may be required. However, we have no legal obligation to provide that funding to Liberman Broadcasting. We expect that
these warrants will be exercised for shares of Liberman Broadcastings Class A common stock at the closing of the anticipated initial public offering. Assuming this offering closed and the warrants were exercised on March 31, 2004, Liberman
Broadcasting would have incurred a one-time $6.0 million noncash charge to adjust the fair market value of the warrants, resulting from the immediate increase in Liberman Broadcastings net equity value, based on preliminary market valuations.



Empire Burbank Studios Mortgage Note



One of our indirect, wholly owned subsidiaries, Empire Burbank Studios,
Inc. (Empire), borrowed $3.25 million from City National Bank in July 1999, of which approximately $2.6 million was outstanding as of March 31, 2004. To secure that borrowing on a non-recourse basis, Empire executed a mortgage on its property



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in Burbank, California in favor of City National Bank as security for the loan. The loan bears interest at 8.13% per annum and is payable in monthly
principal and interest payments of approximately $32,000 through maturity in August 2014.



Summary of Indebtedness



The following table summarizes our various levels of indebtedness at March 31, 2004.



|                             |  |                                                         |  |                                            |  |                                                                                   |  |                                                                                      
|---------------------------- |  | ------------------------------------------------------- |  | ------------------------------------------ |  | --------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------
|Issuer                       |  | Form of Debt                                            |  | Principal AmountOutstanding                |  | Scheduled Maturity                                                                |  | Interest rate                                                                        
|LBI Media, Inc.              |  | $170.0 million Senior secured revolving credit facility |  | $119.0 million                             |  | September 30, 2009; amount available begins decreasing quarterly on June 30, 2005 |  | LIBOR or base rate, plus an applicable margin dependent on LBI Medias leverage ratio
|                             |  |                                                         |  |                                           
|LBI Media, Inc.              |  | Senior subordinated notes                               |  | $150.0 million                             |  | July 15, 2012                                                                     |  | 10.125%                                                                              
|                             |  |                                                         |  |                                           
|LBI Media Holdings, Inc.     |  | Senior discount notes                                   |  | $68.4 million aggregate amount at maturity |  | October 15, 2013                                                                  |  | 11%                                                                                  
|                             |  |                                                         |  |                                           
|Empire Burbank Studios, Inc. |  | Mortgage note                                           |  | $2.6 million                               |  | August 1, 2014                                                                    |  | 8.13%                                                                                



The above table does
not include the 9% subordinated notes of our parent, Liberman Broadcasting.



Cash Flows



Cash and
cash equivalents were $6.7 million and $0.2 million at December 31, 2003 and March 31, 2004, respectively.



Net cash flow used in operating activities was $2.5 million for the three months ended March 31, 2003 and net cash flow provided by operating activities
was $3.7 million for the three months ended March 31, 2004. The increase in our net cash flow provided by operating activities was primarily the result of an increase in operating income, higher depreciation, noncash employee compensation and debt
accretion and a larger decline in net operating assets during the first three months of 2004, as compared to the same period in 2003.



Net cash flow used in investing activities was $1.5 million and $40.0 million for the three months ended March 31, 2003 and 2004, respectively. The
increase in net cash flow used in investing activities is primarily attributable to the purchase of selected assets of a television station during the first three months of 2004, requiring $35.6 million in cash, and an increase in capital
expenditures from $1.3 million during the first quarter of 2003 to $3.5 million during the first three months of 2004. The increase in capital expenditures is primarily attributable to additional costs incurred in 2004 for our newly acquired
television station.



Net cash flow provided by financing
activities was $6.8 million and $29.8 million for the three months ended March 31, 2003 and 2004. The increase in our net cash flow provided by financing activities is primarily attributable to the additional funds required during the first three
months of 2004 to acquire selected assets of a television station in Dallas-Fort Worth, Texas.



Contractual Obligations



We have certain cash obligations and other commercial commitments, which will impact our short- and long-term liquidity. At March 31, 2004, such obligations and commitments were LBI Medias senior credit



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facility and senior subordinated notes, our senior discount notes, certain non-recourse debt of one of our indirect, wholly owned subsidiaries, our operating
leases and an obligation to acquire selected assets of a radio station as follows:



|                                   |  |       |             |                                            |   |            |  |           |            |               |   |             |  |   |            
|---------------------------------- |  | ----- | ----------- | ------------------------------------------ | - | ---------- |  | --------- | ---------- | ------------- | - | ----------- |  | - | -----------
|                                   |  |       |             | Payments due by Period from March 31, 2004
|Contractual Obligations            |  | Total |             | Less than 1year                            |   | 1-3 years  |  | 4-5 Years |            | After 5 Years
|Long term debt                     |  | $     | 526,166,663 |                                            | $ | 19,361,539 |  | $         | 38,723,079 |               | $ | 110,967,405 |  | $ | 357,114,640
|Operating leases                   |  |       | 10,752,354  |                                            |   | 1,229,061  |  |           | 2,187,546  |               |   | 2,229,398   |  |   | 5,106,349  
|Asset purchases                    |  |       | 14,750,000  |                                            |   | 14,750,000 |  |           |           |               |   |            |  |   |           
|                                   |  |       |             |                                            |   |            |  |           |            |               |   |             |  |   |            
|Total contractual cash obligations |  | $     | 551,669,017 |                                            | $ | 35,340,600 |  | $         | 40,910,625 |               | $ | 113,196,803 |  | $ | 362,220,989
|                                   |  |       |             |                                            |   |            |  |           |            |               |   |             |  |   |            



The above table
includes principal and interest payments under our debt agreements, based on our interest rates as of March 31, 2004, and assumes no additional borrowings or principal payments on LBI Medias senior credit facility until its maturity in 2009.
It does not include Liberman Broadcastings 9% subordinated notes or any deferred compensation amounts we may ultimately pay. Asset purchases in the table reflects our obligation under a definitive agreement, dated March 18, 2004, to acquire
selected assets of radio station KNOR-FM serving the Dallas-Fort Worth, Texas market. Subject to approval by the Federal Communications Commission and other customary closing conditions, we expect to complete this acquisition in the third quarter of
2004.



Expected Use of Cash Flows



For both our radio and television segments, we have historically funded, and
will continue to fund, expenditures for operations, administrative expenses, capital expenditures and debt service from our operating cash flow and borrowings under LBI Medias senior credit facility. For our television segment, our planned
uses of liquidity during the next twelve months will include the construction a new analog antenna for our television station in Houston, Texas at the same site as our digital antenna. We estimate the costs to be approximately $1.3 million for
this project. We will also incur approximately $2.7 million in costs to relocate our Dallas television antenna to a new tower site. For our radio segment, our planned uses of liquidity during the next twelve months will include the acquisition of
certain assets of radio station KNOR-FM for a remaining purchase price of approximately $14.8 million ($0.7 million has been deposited in escrow), which we anticipate completing the in third quarter of 2004. We may also upgrade several of our radio
stations and towers located in the Houston market for approximately $3.5 million.



We have used, and expect to continue to use, a significant portion of our capital resources to fund acquisitions. Future acquisitions will be funded from amounts available under LBI Medias senior credit
facility, contributions from our parent, the proceeds of future equity or debt offerings and our internally generated cash flows. We believe that our cash on hand, cash provided by operating activities and borrowings under LBI Medias senior
credit facility will be sufficient to permit us to fund our contractual obligations and operations for at least the next twelve months.



Inflation



We believe that inflation in recent years has not had a significant effect on our business. However, there can be no assurance that future inflation would
not have an adverse impact on our operating results and financial condition.



Seasonality



Seasonal net revenue fluctuations
are common in the television and radio broadcasting industry and result primarily from fluctuations in advertising expenditures by local and national advertisers. Our first fiscal quarter generally produces the lowest net broadcast revenue for the
year.



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Non-GAAP Financial Measure



We use the term Adjusted EBITDA throughout this report. Adjusted EBITDA consists of net income plus income tax
expense, net interest expense, depreciation and noncash employee compensation.



This term, as we define it, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with accounting principles generally accepted in
the United States, or GAAP.



Management considers this measure
an important indicator of our liquidity relating to our operations, as it eliminates the effects of noncash items. Management believes liquidity is an important measure for our company because it reflects our ability to meet the interest payments
under our substantial indebtedness and is a measure of the amount of cash available to grow our company through our acquisition strategy. This measure should be considered in addition to, but not as a substitute for or superior to, other measures of
liquidity and financial performance prepared in accordance with GAAP, such as cash flows from operating activities, operating income and net income.



We believe Adjusted EBITDA is useful to an investor in evaluating our liquidity and cash flow because:



| |  | it is widely used in the broadcasting industry to measure a companys liquidity and cash flow without regard to items such as depreciation and noncash employee compensation.
The broadcast industry uses liquidity to determine whether a company will be able to cover its capital expenditures and whether a company will be able to acquire additional assets and broadcast licenses if the company has an acquisition strategy. We
believe that by eliminating the effects of noncash items, Adjusted EBITDA provides a meaningful measure of liquidity.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | it gives investors another measure to evaluate and compare the results of operations from period to period by removing the impact of noncash expense items, such as noncash employee
compensation and depreciation. By removing the noncash items, it allows investors to better determine whether we will be able to meet our debt obligations as they become due; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | it provides a liquidity measure before the impact of a companys capital structure by removing net interest expense items.
| | - | --------------------------------------------------------------------------------------------------------------------------



Our management uses Adjusted EBITDA:



| |  | as a measure to assist us in planning our acquisition strategy;
| | - | ---------------------------------------------------------------



| |  | in presentations to our board of directors to enable them to have the same consistent measurement basis of liquidity and cash flow used by management;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | as a measure for determining our operating budget and our ability to fund working capital; and
| | - | ----------------------------------------------------------------------------------------------



| |  | as a measure for planning and forecasting capital expenditures.
| | - | ---------------------------------------------------------------



The SEC recently adopted rules regulating the use of non-GAAP financial measures, such as Adjusted EBITDA, in filings with the SEC and in disclosures and
press releases. These rules require non-GAAP financial measures to be presented with and reconciled to the most nearly comparable financial measure calculated and presented in accordance with GAAP. We have included a presentation of net cash
provided by operating activities and a reconciliation to Adjusted EBITDA on a consolidated basis under Item 2. Results of Operations.



Critical Accounting Policies



The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of



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contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to acquisitions of radio and television station
assets, allowance for bad debts, intangible assets, deferred compensation and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



We believe the following accounting policies and the related
judgments and estimates affect the preparation of our consolidated financial statements.



Acquisitions of radio and television station assets



Our radio and television station acquisitions have consisted primarily of the FCC licenses to broadcast in a particular market (broadcast licenses). We
generally acquire the existing format and change it upon acquisition. As a result, a substantial portion of the purchase price for the assets of a radio or television station is allocated to its broadcast license. The allocations assigned to
acquired broadcast licenses and other assets are subjective by their nature and require our careful consideration and judgment. We believe the allocations represent appropriate estimates of the fair value of the assets acquired.



Allowance for bad debts



We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. A considerable amount of judgment is required in assessing the likelihood of ultimate realization of these receivables including the current creditworthiness of each advertiser. If the
financial condition of our advertisers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.



Intangible assets



The Company accounts for its broadcast licenses in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142). The Company believes its broadcast licenses have indefinite useful lives given they are expected to indefinitely contribute to the future cash flows of the Company and that they may be continually renewed without
substantial cost to the Company. As such, in accordance with SFAS 142, the broadcast licenses are reviewed for impairment at least annually.



The assessment of the fair values of our broadcast licenses are estimates which require careful consideration and judgments. In determining these fair
values, we use the discounted cash flow approach. This approach requires the projection of future cash flows and the restatement of these cash flows into their present value equivalent through the use of a discount rate. If the operating results of
our stations or conditions in the markets in which they operate change or fail to develop as anticipated, our estimates of the fair values may change in the future and result in impairment charges.



Deferred compensation



We and our parent, Liberman Broadcasting, have entered into employment
agreements with certain employees. In addition to annual compensation and other benefits, these agreements provide the employees with the ability to participate in the increase of the net value of Liberman Broadcasting over certain base
amounts. As part of the calculation of this incentive compensation, we use the income and market valuation approaches to determine the net value of Liberman Broadcasting. The income approach analyzes future cash flows and discounts them
to arrive at a current estimated fair value. The market approach uses recent sales and offering prices of similar properties to determine estimated fair value. Based on the net value of Liberman Broadcasting as determined in these
analyses, and based on the percentage of incentive compensation that has vested (as set forth in the employment agreements), we record noncash employee compensation expense (and a corresponding deferred compensation liability).



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Our deferred compensation liability can increase based on changes in the applicable employees
vesting percentage and can increase or decrease based on changes in the net value of Liberman Broadcasting. We have two deferred compensation components that comprise the employees vesting percentage: (i) a component that vests in
varying amounts over time; and (ii) a component that vests upon the attainment of certain performance measures (each unique to the individual agreements). We account for the time vesting component over the vesting periods specified in the employment
agreements and account for the performance based component when we consider it probable that the performance measures will be attained.



Assuming no change in the net value of Liberman Broadcasting from that at March 31, 2004, we would expect to record an additional $1.3 million
of noncash deferred compensation expense through the end of 2004 relating solely to the time vesting portion of the deferred compensation.



Upon the closing of Liberman Broadcastings proposed initial public offering of its Class A common stock, we currently anticipate an immediate
increase in the net value of Liberman Broadcasting based on preliminary equity market valuations. Assuming this offering closed on March 31, 2004, our deferred compensation expense would have increased by approximately $2.5 million for
the three months ended March 31, 2004.



Commitments and
contingencies



We periodically record the estimated
impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called contingencies, and our accounting for such events is prescribed by SFAS No. 5, Accounting for Contingencies.



The accrual of a contingency involves considerable judgment on
the part of our management. We use our internal expertise, and outside experts (such as lawyers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss. We currently do not have any
material contingencies that we believe require accrual or disclosure in our consolidated financial statements.



Recent Accounting Pronouncements



In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of
the entity if the equity investors in the entity 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. The provisions of FIN 46 became effective immediately for all arrangements entered into after January 31, 2003. For all arrangements entered into with variable interest entities created prior to January 31, 2003, the
provisions of FIN 46 become effective for the first interim or annual period ending after March 15, 2004. We adopted the provisions of FIN 46 in the first quarter of 2004, however such adoption has not had an impact on our results of operations or
financial position.



Cautionary Statement Regarding Forward-Looking
Statements



The forward looking statements in this report,
including statements concerning projections of our future results, operating profits and earnings, are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed
or implied by those statements. The risks and uncertainties include but are not limited to:



| |  | our dependence on advertising revenues;
| | - | ---------------------------------------



| |  | general economic conditions in the United States;
| | - | -------------------------------------------------



| |  | our ability to reduce costs without adversely impacting revenues;
| | - | -----------------------------------------------------------------



| |  | changes in the rules and regulations of the FCC;
| | - | ------------------------------------------------



| |  | our ability to attract, motivate and retain salespeople and other key personnel;
| | - | --------------------------------------------------------------------------------



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| |  | our ability to successfully convert acquired radio and television stations to a Spanish-language format;
| | - | --------------------------------------------------------------------------------------------------------



| |  | our ability to maintain FCC licenses for our radio and television stations;
| | - | ---------------------------------------------------------------------------



| |  | successful integration of acquired radio and television stations;
| | - | -----------------------------------------------------------------



| |  | potential disruption from natural hazards;
| | - | ------------------------------------------



| |  | our ability to protect our intellectual property rights; and
| | - | ------------------------------------------------------------



| |  | strong competition in the radio and television broadcasting industries.
| | - | -----------------------------------------------------------------------



The forward-looking statements in this report, as well as subsequent written and oral forward-looking statements attributable to us or persons acting on
our behalf, are hereby expressly qualified in their entirety by the cautionary statements in this report.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



Our exposure to market risk is currently confined to our cash and cash equivalents, changes in interest rates related to borrowings under our senior
credit facility, and changes in the fair value of LBI Medias senior subordinated notes and our senior discount notes. Because of the short-term maturities of our cash and cash equivalents, we do not believe that an increase in market rates
would have any significant impact on the realized value of our investments. We currently do not hedge interest rate exposure and are not exposed to the impact of foreign currency fluctuations.



We are exposed to changes in interest rates on LBI Medias variable rate
senior credit facility. A hypothetical 10% increase in the interest rates applicable to the year ended December 31, 2003 would have increased interest expense by approximately $0.4 million. Conversely, a hypothetical 10% decrease in the interest
rates applicable to the year ended December 31, 2003 would have decreased interest expense by approximately $0.4 million. At December 31, 2003, we believe that the carrying value of amounts payable under LBI Medias senior credit facility
approximates its fair value based upon current yields for debt issues of similar quality and terms.



The fair value of our fixed rate long-term debt is sensitive to changes in interest rates. Based upon a hypothetical 10% increase in the interest rate,
assuming all other conditions affecting market risk remain constant, the market value of our fixed rate debt would have decreased by approximately $12.6 million at December 31, 2003. Conversely, a hypothetical 10% decrease in the interest rate,
assuming all other conditions affecting market risk remain constant, would have resulted in an increase in market value of approximately $13.9 million at December 31, 2003. Management does not foresee nor expect any significant change in our
exposure to interest rate fluctuations or in how such exposure is managed in the future.



Item 4. Controls and Procedures



As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures are
effective.



There have been no significant changes in our
internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, which have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION



LBI
MEDIA HOLDINGS, INC.



Item 1. Legal Proceedings



We are
not currently a party to any material legal proceedings.



Item 2. Changes in Securities and Use of Proceeds



None.



Item 3. Defaults upon Senior Securities



None.



Item 4. Submission of Matters to a Vote of Security Holders



None.



Item 5. Other Information



None.



Item 6. Exhibits and Reports on Form 8-K



(a) Exhibits



|              |  |                                                                                                                                                                                                                                                
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                            
|3.1           |  | Certificate of Incorporation of LBI Media Holdings, Inc.(1)                                                                                                                                                                                    
|              | 
|3.2           |  | Bylaws of LBI Media Holdings, Inc.(1)                                                                                                                                                                                                          
|              | 
|4.1           |  | Indenture dated as of October 10, 2003, between LBI Media Holdings, Inc. and U.S. Bank, National Association, as
Trustee(1)                                                                                                                    
|              | 
|4.2           |  | Form of Exchange Note (included as Exhibit A-1 to Exhibit 4.1)                                                                                                                                                                                 
|              | 
|4.3           |  | Registration Rights Agreement dated October 10, 2003, among LBI Media Holdings, Inc. and the Initial Purchasers(1)                                                                                                                             
|              | 
|10.1          |  | Asset Purchase Agreement dated as of March 18, 2004, among A.M. & P.M. Broadcasters, LLC, LBI Media, Inc., Liberman Broadcasting of
Dallas, Inc. and Liberman Broadcasting of Dallas License Corp. relating to the acquisition of KNOR (FM) (2)
|              | 
|31.1          |  | Certification of President pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934                                                                                                                                   
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of
1934                                                                                                                     
|              | 
|32.1          |  | Certifications of President and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002                                                                                             

---

|(1) | Incorporated by reference to LBI Media Holdings, Inc.s Registration Statement on Form S-4 (Registration No. 333-110122) filed on October 30, 2003, as amended.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to LBI Media Holdings, Inc.s Annual Report on Form 10-K (Registration No. 333-110122) filed on March 30, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



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(b) Form 8-K



LBI Media Holdings, Inc. filed an 8-K on January 14, 2004 under Item 5 announcing the completion of the acquisition of
selected assets of television station KMPX-TV serving the Dallas-Fort Worth, Texas market for a total purchase price of $37.0 million.



LBI Media Holdings, Inc. filed another 8-K on March 23, 2004 under Item 5 announcing an agreement to purchase selected assets of KNOR-FM, licensed to
Krum, Texas, for a total purchase price of approximately $15.5 million.



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##### Table of Contents

SIGNATURE



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.



LBI MEDIA HOLDINGS, INC.By:

/s/    BRETT
ZANEBrett Zane Chief Financial Officer




Date: May 11, 2004



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                            
|3.1           |  | Certificate of Incorporation of LBI Media Holdings, Inc.(1)                                                                                                                                                                                    
|              | 
|3.2           |  | Bylaws of LBI Media Holdings, Inc.(1)                                                                                                                                                                                                          
|              | 
|4.1           |  | Indenture dated as of October 10, 2003, between LBI Media Holdings, Inc. and U.S. Bank, National Association, as
Trustee(1)                                                                                                                    
|              | 
|4.2           |  | Form of Exchange Note (included as Exhibit A-1 to Exhibit 4.1)                                                                                                                                                                                 
|              | 
|4.3           |  | Registration Rights Agreement dated October 10, 2003, among LBI Media Holdings, Inc. and the Initial Purchasers(1)                                                                                                                             
|              | 
|10.1          |  | Asset Purchase Agreement dated as of March 18, 2004, among A.M. & P.M. Broadcasters, LLC, LBI Media, Inc., Liberman Broadcasting of
Dallas, Inc. and Liberman Broadcasting of Dallas License Corp. relating to the acquisition of KNOR (FM) (2)
|              | 
|31.1          |  | Certification of President pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934                                                                                                                                   
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of
1934                                                                                                                     
|              | 
|32.1          |  | Certifications of President and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002                                                                                             

---

|(1) | Incorporated by reference to LBI Media Holdings, Inc.s Registration Statement on Form S-4 (Registration No. 333-110122) filed on October 30, 2003, as amended.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to LBI Media Holdings, Inc.s Annual Report on Form 10-K (Registration No. 333-110122) filed on March 30, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



35