<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

         (MARK ONE)
            (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                   SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 1998
                                       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 33-82114

                        SPANISH BROADCASTING SYSTEM, INC.
             (Exact name of registrant as specified in its charter)

         Delaware                                     13-3827791
(State or other jurisdiction of             (I.R.S. employer identification)
incorporation or organization
number)


          3191 Coral Way                                 33145
             Miami, FL                                 (Zip Code)
(Address of principal executive
 offices)


                       SEE TABLE OF ADDITIONAL REGISTRANTS


       Registrant's telephone number, including area code: (305) 441-6901

        Securities registered pursuant to Section 12(b) of the Act: NONE

        Securities registered pursuant to Section 12(g) of the Act: NONE

                              Title of Class: NONE

                 Name of each exchange on which registered: NONE

         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



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         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         All of the Company's Common Stock is held by affiliates, accordingly,
as of September 27, 1998, the aggregate value of the Company's voting common
stock held by non-affiliates was $0.00.

         Number of shares of the Registrant's Common Stock, par value $.01 per
share, outstanding as of September 27, 1998: 606, 668 shares of Common Stock all
of which are designated Class A Common Stock.

Documents Incorporated by Reference:  NONE

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<TABLE>
<CAPTION>
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                  NAME                         STATE OR OTHER           PRIMARY STANDARD             I.R.S. EMPLOYER
                                               JURISDICTION OF             INDUSTRIAL             IDENTIFICATION NUMBER
                                                INCORPORATION        CLASSIFICATION NUMBER    
-------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                   <C>                          <C>
SPANISH BROADCASTING SYSTEM, INC.                New Jersey                   4832                     13-3181941
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SPANISH BROADCASTING SYSTEM OF                   California                   4832                     92-3952357
CALIFORNIA, INC.                                                                              
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SPANISH BROADCASTING SYSTEM OF FLORIDA,            Florida                    4832                     58-1700848
INC.                                                                                          
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ALARCON HOLDINGS, INC.                            New York                    6512                     13-3475833
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SPANISH BROADCASTING SYSTEM NETWORK, INC.         New York                    4899                     13-3511101
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SBS PROMOTIONS, INC.                              New York                    7999                     13-3456128
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SBS OF GREATER NEW YORK, INC.                     New York                    4832                     13-3888732
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SPANISH BROADCASTING SYSTEM OF GREATER             Florida                    4832                     65-0774450
MIAMI, INC.                                                                                   
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SPANISH BROADCASTING SYSTEM OF ILLINOIS,          Illinois                    4832                     36-4174296
INC.                                                                                          
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SPANISH BROADCASTING SYSTEM OF SAN                Delaware                    4832                     65-0820776
ANTONIO, INC.                                                                                 
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</TABLE>

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                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
<S>       <C>                                                                                                  <C>
Item 1.   BUSINESS ...............................................................................................1

Item 2.   PROPERTIES.............................................................................................12

Item 3.   LEGAL PROCEEDINGS......................................................................................13

Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................................13

Item 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
          STOCKHOLDERS MATTERS ..................................................................................13

Item 6.    SELECTED FINANCIAL DATA...............................................................................15

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS.............................................................................18

Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
           MARKET RISK ..........................................................................................26

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................................26

Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE................................................................27

Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................................................27

Item 11.   EXECUTIVE COMPENSATION................................................................................29

Item 12.   COMMON STOCK..........................................................................................32

Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................................32

Item 14.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES............................................................34
</TABLE>

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ITEM 1.  BUSINESS

         Spanish Broadcasting System, Inc. (the "Company"), incorporated in the
State of Delaware in 1994, is one of the leading Spanish-language radio
broadcasting companies in the United States. The Company owns and operates eight
major market FM radio stations in Los Angeles, New York, Chicago, San Antonio
and Miami. The Company also owns and operates FM radio stations in Key Largo and
Key West, Florida. A description of each of the Company's stations, organized by
market, is set forth below.

         The Company's strategy is to capitalize on the combined national
marketing power derived from owning and operating radio stations in large
Hispanic media markets in the United States and the economies of scale and
ability to target multiple demographics resulting from multiple station
ownership within a particular market. Multiple station ownership permits the
Company to offer advertising packages on multiple radio stations at attractive
price levels and expands the market for advertising targeted at Hispanics,
thereby allowing the Company to capture a larger share of a market's overall
advertising revenues.

         Los Angeles. KLAX-FM serves the Los Angeles market which has an Area of
Dominant Influence ("ADI") population of approximately 16.1 million, of which
approximately 37.3% is, Hispanic. The station features a Ranchera format, best
described as regional Mexican music including Grupo (romantic ballads) and
Norteno (music from border states in northern Mexico). Of the 49 Arbitron-ranked
radio stations serving the Los Angeles metropolitan area, KLAX-FM is currently
the #3 ranked Spanish-language radio station and the #12 ranked station overall.
KLAX-FM had a 3.2 share for the Summer 1998 Arbitron rating period. KLAX-FM is
licensed at 97.9 MHz. On November 21, 1997 the Company received a construction
permit from the Federal Communications Commission (the "FCC") to change its city
of license from Long Beach to East Los Angeles and to move its transmitting
facilities to Flint Peak, which it has since done thereby allowing the station
to extend its coverage to an additional 1.9 million listeners.

         New York City. WSKQ-FM and WPAT-FM serve the New York City metropolitan
area, which has an ADI population of approximately 20.0 million, of which
approximately 16.4% is Hispanic. Of the 47 Arbitron-ranked radio stations
serving the New York metropolitan area, WSKQ-FM and WPAT-FM are currently the #1
and #2 ranked Spanish-language radio stations and the #1 and #12 ranked stations
overall. The Company's New York stations had a combined 9.2 share for the summer
1998 Arbitron rating period.

         WSKQ-FM. WSKQ-FM was the first Spanish-language FM station to serve the
New York City metropolitan area, making its debut in 1989. In 1993, the Company
changed the station format to a Latin Power format to increase ratings and
revenues. The Latin Power format is a mix of fast paced music such as salsa and
merengue. WSKQ-FM is licensed at 97.9 MHz. The antenna for WSKQ-FM is on the top
of the Empire State Building and covers New York City, northern New Jersey, much
of Suffolk, Nassau and Westchester Counties in New York, and parts of Fairfield
County in Connecticut. WSKQ-FM's signal in the New York metropolitan area is
comparable to other leading FM stations serving the area.
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         WPAT-FM. The Company acquired WPAT-FM in March 1996 because the Company
believed that the New York Spanish-language radio market was underserved. Upon
its acquisition, WPAT-FM was reformatted with a Spanish-language romantic adult
contemporary format designed to complement WSKQ-FM's upbeat salsa and merengue
format. The Company believes that the acquisition and reformatting of WPAT-FM
has served to expand the Spanish-language listening audience in the New York
metropolitan area. WPAT-FM is licensed at 93.1 MHz and transmits from an antenna
on top of the World Trade Center. The station's signal covers New York City,
northern New Jersey, much of Suffolk, Nassau and Westchester Counties in New
York and parts of Fairfield County in Connecticut. WPAT-FM has clarity of sound
within the New York metropolitan area comparable to other leading FM stations
serving the area.

         Miami. WRMA-FM, WXDJ-FM and WCMQ-FM serve the Miami metropolitan
market, which has an ADI population of approximately 3.7 million, of which
approximately 37.1% is Hispanic. Of the 37 Arbitron-ranked radio stations
serving the Miami metropolitan area, WRMA-FM, WXDJ-FM and WCMQ-FM are currently
ranked #3, #4 and #5, respectively, among Spanish language radio stations and
ranked #12, #15 and #18, respectively, among stations overall.

         WRMA-FM. WRMA-FM was acquired by the Company in March 1997. The station
features a Spanish-language adult contemporary format, consisting of a blend of
ballads and pop songs from the 1970's to today. WRMA-FM is licensed at 106.7
MHz. Its transmitter is located on top of the Biscayne Tower in downtown Miami.
The Company believes WRMA-FM's signal provides market coverage of the Miami
metropolitan area comparable to other FM stations licensed in the area.

         WXDJ-FM. WXDJ-FM was acquired by the Company in March 1997. Together
with WRMA-FM, WXDJ-FM formed the first Spanish-language FM duopoly serving the
Miami metropolitan market. WXDJ-FM plays a blend of salsa and merengue targeting
the emerging musical tastes of the rapidly changing face of the Miami Hispanic
population. WXDJ-FM is licensed at 95.7 MHz. Its transmitter is located on top
of the Biscayne Tower located in downtown Miami. The Company believes WXDJ-FM's
signal provides market coverage of the Miami metropolitan area comparable to
other FM stations licensed in the area.

         WCMQ-FM. The Company reformatted WCMQ-FM in October 1996 with a
"Spanish Oldies" format consisting of pop hits from the 1960's and 1970's to
fill a programming void and to complement the formats of WRMA-FM and WXDJ-FM.
WCMQ-FM is licensed at 92.3 MHz. Its main transmitter location is on top of the
Biscayne Tower in downtown Miami and its auxiliary transmitter is located in
Hialeah, Florida. The company believes WCMQ-FM's signal provides market coverage
of the Miami metropolitan area comparable to other FM stations licensed in the
area.

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         Chicago. WLEY-FM was acquired by the Company in March 1997. WLEY-FM
serves the Chicago metropolitan area, which has an ADI population of
approximately 9.4 million of which 11.8% is Hispanic. Of the 40 Arbitron-ranked
radio stations in the Chicago metropolitan area, there are currently only two
other high power Spanish-language FM stations. Accordingly, the Company believes
that this market is underserved and offers significant opportunities for growth.
The Company changed this station's format from 70's rock to Spanish-language in
July of 1997. WLEY-FM is currently the #2 ranked Spanish-Language radio station.
WLEY-FM is licensed at 107.9 MHz. The Company believes WLEY-FM's signal provides
market coverage of the Chicago metropolitan area comparable to other FM stations
licensed to this area.

         San Antonio. KLEY-FM (formerly KRIO-FM) serves the San Antonio
metropolitan area, which has an ADI population of approximately 1.3 million of
which 3.7% is Hispanic. The Company completed the acquisition of KLEY-FM in May
1998 and switched the programming in July 1998, from only "Tejano" to regional
Mexican, including Tejano.

THE ACQUISITIONS

         On March 27, 1997, the Company acquired from Infinity Holdings Corp. of
Orlando ("Infinity") the FCC broadcast license and substantially all of the
assets used or useful in the operation of radio station WYSY-FM (the name of
which, the company has changed to WLEY-FM) serving the Chicago metropolitan area
for a purchase price of approximately $33.0 million, including a $3.0 million
seller note.

         On March 27, 1997, the Company acquired from New Age Broadcasting, Inc.
and The Seventies Broadcasting Corporation (the "Miami Sellers") the FCC
broadcasting licenses and substantially all of the assets used or useful in the
operation of WRMA-FM and WXDJ-FM for a cash purchase price of $111.0 million. As
a result of the acquisition of WRMA-FM and WXDJ-FM, the Company currently
operates the only FM triopoly in the Miami metropolitan market.

         On March 27, 1997, the Company consummated an offering (the"Notes
Offering") of the Company's 11% Senior Notes due 2004, Series A (the "Series A
Notes") and an offering (the "Units Offering" and together with the Notes
Offering, the "Offerings") of 175,000 units (the "Units") each Unit consisting
of one share of the Senior Exchangeable Preferred Stock (the "Senior Preferred
Stock") and one warrant (the "1997 Warrants") to purchase 0.428 shares of the
Company's Class A Common Stock in transactions exempt from the registration
requirements of the Securities Act. Concurrently with the consummation of the
Offerings, the Company redeemed or repurchased the Company's Senior Secured
Notes due 2001 (the "Senior Secured Notes") and Redeeemable Preferred Stock,
Series A (the "Series A Preferred Stock") and the related warrants to purchase
an aggregate of 6.0% of the Company's Common Stock on a fully diluted basis for
approximately $90.6 million. The Company had issued the Senior Secured Notes and
Series A Preferred Stock to partially finance the acquisition of WPAT-FM in New
York in March 1996.

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The Old Warrants were redeemed pursuant to the redemption price schedule, which
was determined at the time of issuance.

         On May 13, 1998, the Company acquired the FCC broadcast license and
substantially all of the assets used or useful in the operation of radio station
KRIO-FM serving the San Antonio area for $9.3 million, plus closing costs of
$0.1 million. The Company financed this purchase from cash on hand and from
operations. The Company subsequently changed the call letters to KLEY-FM.

THE DISPOSITIONS

         On September 29, 1997, the Company sold the assets and FCC licenses of
WXLX-AM serving the New York metropolitan area and WCMQ-AM serving the Miami
metropolitan area to One-on-One Sports, Inc. (One-on-One) for a sales price of
$26.0 million. On December 2, 1997, the Company sold the assets and FCC licenses
of KXMG-AM serving the Los Angeles area to One-on-One for a sales price of $18.0
million. In accordance with the Company's certificate of designation governing 
the Senior Preferred Stock, the Company offered to use $25.0 million to 
repurchase 12 1/2% Senior Notes due 2002 ("Old Notes") and actually used $15.0 
million of the net proceeds of the Dispositions to purchase Old Notes.

RECENT DEVELOPMENTS

         On June 16, 1998, the Company entered into an Asset Purchase Agreement
with Pan Caribbean Broadcasting Corporation to purchase the FCC broadcast
license and substantially all of the assets used or useful in the operation of
WDOY-FM serving Puerto Rico for $8.3 million. The Company closed on this
purchase on December 1, 1998 and financed this purchase from cash on hand and
cash from operations.

INDUSTRY BACKGROUND

         General. Radio reaches approximately 96% of all Americans over the age
of 12. Radio stations derive their gross revenues primarily from the sale of
advertising. In the major U.S. markets tracked by Duncan's Radio Market Guide,
total radio advertising spending rose from an estimated $5.6 billion in 1993 to
an estimated $7.4 billion in 1996. Advertisers generally regard radio as an
efficient means of reaching specifically identified demographic groups. Stations
are typically identified by their music format, such as country,
adult/contemporary, news/talk and Spanish-language, among others. Through a
station's format, a broadcaster focuses on specific demographic groups, making
its station attractive to advertisers who also target these groups. The ability
to deliver an audience comprised of individuals targeted by a particular
advertiser may make a station attractive to that advertiser even though the
station may not command a large share of total radio listeners in that market.
Formats evolve or change as new formats gain popularity and the composition of
audience's change. The largest portion of a radio station's

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programming is usually produced by the radio station itself. This programming
includes locally produced shows featuring recorded music, news and talk shows.
Additional programming may be obtained from various radio syndication services
on a cash, barter (the exchange of goods and services for advertising) or
cash-plus-barter basis.

         Ratings. A station's programming determines the demographics of each
station's listeners and, in part, the station's market share. These factors, in
turn, largely determine the price of commercial airtime paid by advertisers. A
station's listening audience is measured by rating service surveys of the number
of radios tuned to the station at various times of the day. Rank in audience
share data ("ratings") is based on the "12+ average quarter hour share", i.e.
the number of persons, aged 12 and over, who listen to the station for at least
five minutes in a quarter-hour segment Monday through Sunday, 6 a.m. to
midnight, in the most recent survey period (Summer, 1998) as published by
Arbitron. Arbitron periodically samples radio listeners in defined market areas,
principally through the use of diaries maintained by randomly selected
listeners. A station's audience share is calculated by dividing (i) the average
number of persons listening to a particular station for at least five minutes
during an average quarter hour in a given time period by (ii) the average number
of such persons for all stations in the market area. Arbitron also measures
listener levels in a number of demographic categories classified by the age and
gender of the audience. This information is used by advertisers to target
specific audience segments.
         Unless otherwise indicated, all market revenue rankings that are 
contained in this Annual Report are based on information for calendar year 1996 
contained in James H. Duncan, Jr., Duncan's Radio Market Guide (1996 ed.). 
Further, and unless otherwise noted, references herein to the rank of a station 
among all the radio stations within a market has been determined with reference 
to all radio stations rated by Arbitron within the applicable market. ADI 
information contained herein is based on Arbitron's 1998 ADI definitions. 
Unless otherwise indicated, all references to the demographic statistics in 
this Annual Report are derived from Strategy Research Corporation's 1996 United 
States Hispanic Market Study (the "SRC Study"), United States Census Bureau and 
Hispanic Business Magazine. The SRC Study is sponsored by advertisers and other 
businesses targeting the Hispanic market, including the Company and many of its 
principal competitors.
 
THE HISPANIC MARKET IN THE UNITED STATES

         The Company broadcasts primarily to United States Hispanics, which is
one of the most rapidly growing segments of the United States population. With
approximately 27.2 million Hispanics, representing approximately 10.3% of the
total population, the United States has the fifth largest Hispanic population in
the world. The United States Hispanic population is highly concentrated in
discrete geographic areas, with approximately 63% of all Hispanics residing in
the ten largest Hispanic markets in the United States. By the year 2010,
Hispanics are projected to account for approximately 13.5% of the total
population of the United States and will be the country's largest minority
group. According to market studies, the United States Hispanic population has an
estimated annual disposable income in excess of $228 billion. In addition,
approximately 78% of Hispanics living in the United States prefer to speak
Spanish at home, further contributing to the popularity of Spanish-language
radio as a source of Spanish-language entertainment, information and culture.

         In addition to its anticipated rapid growth, the Hispanic market has
several other characteristics, which the Company believes, make it attractive to
advertisers, including the following:

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         -        United States Census Bureau data indicate that Hispanic
                  households are larger than those of the general population,
                  with 3.4 persons living in an average Hispanic household
                  compared to 2.6 persons living in the average household;

         -        the Hispanic population is generally younger than the general
                  population, with a median age of 26.6 years compared to 34.0
                  years;

         -        Hispanic consumers generally spend a higher percentage of
                  their disposable income on consumer goods than the general
                  public; and

         -        market studies have shown that Hispanics are generally more
                  brand conscious than the general population.

         Primarily due to these factors, the Company believes that the United
States Hispanic population represents an attractive market for local and
national advertisers. Total media advertising expenditures targeting Hispanics
have increased significantly from $166 million in 1983 to an estimated $1.4
billion in 1997, with $375 million, or 27%, of the total Hispanic media
advertising allocated to radio advertising. In 1996, Hispanics accounted for
approximately 6.0% of total purchasing power while the Company estimates that
Spanish-language advertising expenditures accounted for less than 2.7% of total
advertising expenditures in all media. The Company believes that the current
disparity between the level of Hispanic contribution to total U.S. purchasing
power and the level of media expenditures targeting the Hispanic market will
lessen and that Spanish-language radio advertising rates will approach general
market rate levels. In addition the Company believes that advertisers are
increasingly realizing that radio advertising is an effective means of reaching
the Hispanic population.

         The Hispanic population is concentrated in major markets making it more
accessible to national advertisers. Approximately 47% of the Hispanic population
in the United States resides in the Company's markets -- Los Angeles, New York,
Miami, Chicago and San Antonio.

ADVERTISING

         Virtually all radio station revenue is derived from advertising. This
revenue is usually classified in one of two categories -- "national" and
"local." "National" connotes advertising that is solicited by a national
representative firm that represents the station and is compensated on a
commission-only basis. "Local" refers to advertising purchased by advertisers in
the local community served by a particular station.

         The Company believes that radio is one of the most efficient and
cost-effective means for advertisers to reach targeted demographic groups.
Advertising rates charged by a radio station are based primarily on the
station's ability to attract listeners in a given market and on the
attractiveness to advertisers of the station's listener demographics. Rates vary
depending upon a program's popularity among the listeners an advertiser is
seeking to attract, the number of advertisers vying for available airtime and
the availability of alternative media in the

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market. Radio advertising rates generally are highest during the morning and
afternoon drive-time hours, which are the peak hours for radio audience
listening. The Company believes that having multiple stations in a market is
desirable to national advertisers and, as a result, commands attractive
advertising rates. The Company believes it will be able to increase its rates as
new and existing advertisers recognize the increasing desirability of targeting
the growing Hispanic population in the United States.

         Each station broadcasts a predetermined number of advertisements each
hour with the actual number depending upon the format of a particular station.
The Company determines the number of advertisements broadcast hourly that can
maximize the station's available revenue dollars without jeopardizing its
audience listener levels. While there may be shifts from time to time in the
number of advertisements broadcast during a particular time of the day, the
total number of advertisements broadcast on a particular station generally does
not vary significantly from year to year.

         The Company's revenue mix between local and national advertising varies
significantly by market. Management's objective has been for its stations to
increase the level of national advertising since national advertising generally
commands a higher dollar rate per advertising spot than does local advertising.
The Company has been successful in this objective since 27% of its advertising
has been national which is substantially higher than past years.

         Although the majority of the Company's advertising contracts are
short-term (generally running for less than one month), the Company has
long-term relationships with some of its advertisers. In each of its
broadcasting markets, the Company employs sales people to obtain local
advertising revenues. The Company believes that its local sales force is crucial
in maintaining relationships with key local advertisers and agencies and
identifying new advertisers. The Company generally pays sales commissions to its
local sales staff upon the receipt from advertisers of the payments related to
such sales. The Company offers assistance to local advertisers by providing them
with studio facilities to produce 60-second commercials free of charge.

COMPETITION

         The success of each of the Company's stations depends significantly
upon its audience ratings and its share of the overall advertising revenue
within its market. The radio broadcasting industry is a highly competitive
business. Each of the Company's radio stations competes with other radio
stations in its market area (both Spanish-language and English-language), as
well as with other advertising media such as newspapers, broadcast television,
cable television, magazines, outdoor advertising, transit advertising and direct
mail marketing. Several of the stations with which the Company competes are
subsidiaries of large national or regional companies that have substantially
greater resources than the Company. Factors which are material to competitive
position include management experience, the station's rank in its market, power,
signal and frequency, and audience demographics (including the nature of the
Spanish market targeted by a particular station).

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SEASONALITY

         The Company's revenues and cash flow are typically lowest in the first
calendar quarter and highest in the second calendar quarter. Seasonal
fluctuations are common in the radio broadcasting industry and are due primarily
to fluctuations in advertising expenditures.

MANAGEMENT AND PERSONNEL

         As of September 27, 1998, the Company had approximately 300 full-time
employees of whom 10 were primarily involved in management, 115 in programming,
94 in sales, 72 in general administration and 9 in technical activities.

         The Company moved its headquarters to Miami in late September and early
October of 1997. To facilitate efficient management from its headquarters, the
Company accesses and utilizes computerized accounting systems from its
properties to provide current information to management on station operations
and to assist in cost control and the preparation of monthly financial
statements. Corporate executives regularly visit stations to monitor operations
and ensure that headquarters' policies are implemented.

FEDERAL REGULATIONS OF RADIO BROADCASTING

         Existing Regulation and Legislation. Radio broadcasting is subject to
the jurisdiction of the FCC under the Communications Act of 1934, as amended
(the "Communications Act"), and by the Telecommunications Act of 1996 (the "1996
Act"). The Communications Act prohibits the operations of a radio broadcasting
station except under a license by the FCC and empowers the FCC, among other
things, to issue, renew, revoke and modify broadcasting licenses; assign
frequency banks; determine stations' frequencies, locations, and power; regulate
the equipment used by stations; adopt other regulations to carry out the
provisions of the Communications Act; impose penalties for violation of such
regulations; and impose fees for processing applications and other
administrative functions. The Communications Act prohibits the assignment of a
license or the transfer of control of a licensee without prior approval of the
FCC.

         The 1996 Act represents the most comprehensive overhaul of the
country's telecommunications laws in more than 60 years. The 1996 Act
significantly changes both the broadcast ownership rules and the process for
renewal of broadcast station licenses. The 1996 Act also relaxes local radio
ownership restrictions, and the FCC continues to explore implementation of new
ownership policies in a series of rule makings. The FCC has already implemented
some changes through administrative orders. The 1996 Act establishes a
"two-step" renewal process that limits the FCC's discretion to consider
applications filed in competition with an incumbent's renewal application.
Additionally, the 1996 Act substantially liberalizes the national broadcast
ownership rules, eliminating the national radio limits.

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         This new regulatory flexibility has engendered aggressive local,
regional, and/or national acquisition campaigns. Removal of previous station
ownership limitations on leading incumbents (i.e., existing networks and major
station groups) has increased sharply the competition for, and the prices of,
attractive stations.

         Multiple Ownership Restrictions. The FCC has promulgated rules that,
among other things, limit the ability of individuals and entities to own or have
an official position or ownership interest above a certain level (an
"attributable" interest, as defined more fully below) in broadcast stations, as
well as other specified mass media entities. Prior to the passage of the 1996
Act, these rules included limits on the number of radio stations that could be
owned on both a national and local basis. On a national basis, the rules
generally precluded any individual or entity from having an attributable
interest in more than 20 AM radio stations and 20 FM radio stations.

         The 1996 Act substantially relaxed the radio ownership limitations. The
FCC began its implementation of the 1996 Act with several orders issued on March
8, 1996. The 1996 Act and the FCC's subsequently issued rule changes eliminated
the national ownership restriction, allowing a single entity to own nationally
any number of AM or FM broadcast stations. The 1996 Act and the FCC's new rules
also greatly eased local radio ownership restrictions. As with the old rules,
the maximum allowable varies depending on the number of radio stations within a
market. In markets with more than 45 stations, one company may own, operate or
control eight stations, with no more than five in any one service (AM or FM). In
markets of 30-44 stations, one company may own seven stations, with no more than
four in any one service, in markets with 15-29 stations, one entity may own six
stations, with no more than four in any one service. In markets with 14
commercial stations or less, one company may own up to five stations or 50% of
all of the stations, whichever is less, with no more than three in any one
service.

         In 1992, the FCC placed limitations on time brokerage (local marketing)
agreements ("LMA") through which the licensees of one radio station provide
programming for another licensee's station in the same market. Stations
operating in the same service (e.g., where both stations are AM) and in the same
market are prohibited from simulcasting more than 25% of their programming.
Moreover, in determining the number of stations that a single entity may
control, an entity programming a station pursuant to an LMA is required, under
certain circumstances, to count that station toward its maximum even though it
does not own the station.

         A number of cross-ownership rules pertain to licensees of television
and radio stations. FCC rules, the Communications Act or both generally prohibit
an individual or entity from having an attributable interest in both a
television station and a radio station, daily newspaper or cable television
system that is located in the same local market area served by the television
station. The FCC has employed a liberal waiver policy with respect to the
TV/radio cross-ownership restriction (the so-called "one-to-a-market" rule),
generally permitting common ownership of one AM, one FM, and one TV station in
any of the 25 largest markets, provided there are at least 30 separately owned
stations in the market. The 1996 Act directed the FCC to extend its
one-to-a-market waiver policy to the top 50 markets, consistent with the public
interest, convenience and necessity; however, the

                                       9
<PAGE>   14
FCC has not yet implemented this provision. Moreover, in a pending 1995
rulemaking the FCC has proposed eliminating the one-to-a-market rule entirely.
In addition, there is now pending a Notice of Inquiry which explores possible
changes in the newspaper/radio cross-ownership waiver policy.

         Expansion of the Company's broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
further changes the FCC or Congress may adopt. Significantly, the 1996 Act
requires the Commission to review its remaining ownership rules biennially -- as
part of its regulatory reform obligations -- to determine whether its various
rules are still necessary. The Company cannot predict the impact of the biennial
review process or any other agency or legislative initiatives upon the FCC's
broadcast rules. Further, the 1996 Act's relaxation of the FCC's ownership rules
may increase the level of competition in one or more of the markets in which the
Company's stations are located, particularly to the extent that any of the
Company's competitors may have greater resources and thereby be in a better
position to capitalize on such changes.

         Under the FCC's ownership rules, a direct or indirect purchaser of
certain types of securities of the Company could violate FCC regulations if that
purchaser owned or acquired an "attributable" or "meaningful" interest in other
media properties in the same areas as stations owned by the Company or in a
manner otherwise prohibited by the FCC. All officers and directors of a
licensee, as well as general partners, limited partners who are not properly
"insulated" from management activities, and stockholders who own five percent or
more of the outstanding voting stock of a licensee (either directly or
indirectly), generally will be deemed to have an attributable interest in the
licensee. Certain institutional investors who exert no control or influence over
a licensee may own up to ten percent of such outstanding voting stock without
being considered "attributable." Under current FCC regulations, debt
instruments, non-voting stock, properly insulated limited partnership interests
(as to which the licensee certifies that the limited partners are not
"materially involved" in the management and operation of the subject media
property), warrants and voting stock held by minority stockholders in cases in
which there is a single majority stockholder generally are not attributable. The
FCC's "cross-interest" policy, which precludes an individual or entity from
having a "meaningful" (even though not attributable) interest in one media
property and an attributable interest in a broadcast, cable or newspaper
property in the same area, may be invoked in certain circumstances to reach
interests not expressly covered by the multiple ownership rules. See the Notice
of Inquiry referred to above.

         In January 1995, the FCC initiated a rulemaking proceeding designed to
permit a "thorough review of [its] broadcast media attribution rules." Among the
issues on which comment was sought were (i) whether to change the voting stock
attribution benchmarks from five percent to ten percent and, for passive
investors, from ten percent to twenty percent; (ii) whether there are any
circumstances in which non-voting stock interests, which are currently
considered non-attributable, should be considered attributable; (iii) whether
the FCC should eliminate its single majority shareholder exception (pursuant to
which voting interests in excess of five percent are not considered cognizable
if a single shareholder owns more than fifty percent of the voting power); (iv)
whether to relax insulation standards for business development companies and
other widely-held limited

                                       10
<PAGE>   15
partnerships; (v) how to treat limited liability companies and other new
business forms for attribution purposes; (vi) whether to eliminate or modify the
cross-interest policy; and (vii) whether to adopt a new policy which would
consider multiple cross interests or other significant business relationships
(such as time brokerage agreements, debt relationships or holdings of
nonattributable interests), which individually do not raise concerns with
respect to diversity and competition. In November 1996, the FCC issued a Further
Notice of Proposed Rulemaking intended to change rules regarding attribution in
light of the 1996 Act. The Company cannot predict with certainty when this
proceeding will be concluded or whether any of these standards will be changed.
Should the attribution rules be changed, the Company is unable to predict what
effect, if any, such changes would have on the Company or its activities.

         License Grant and Renewal. Under the 1996 Act, the statutory
restriction on the length of broadcast licenses has been amended to allow the
FCC to grant broadcast licenses for terms of up to eight years, although the FCC
has not yet implemented this provision. The 1996 Act also requires renewal of a
broadcast license if the FCC finds that (1) the station has served the public
interest, convenience, and necessity; (2) there have been no serious violations
of either the Communications Act or the FCC's rules and regulations by the
licensee; and (3) there have been no other serious violations which taken
together constitute a pattern of abuse. In making its determination, the FCC may
still consider petitions to deny but cannot consider whether the public interest
would be better served by a person other than the renewal applicant. Instead,
under the 1996 Act, competing applications for the same frequency may be
accepted only in the second stage, after the Commission has denied an
incumbent's application for renewal of license.

         By order dated April 12, 1996, the FCC modified its rules to implement
the new two-stage renewal procedure and to eliminate the right to file an
application that is mutually exclusive with renewal. Also on April 12, 1996, the
FCC issued a notice of Proposed Rulemaking to consider how to implement the new
(longer) license term provision of the 1996 Act.

         Although in the vast majority of cases broadcast licenses are granted
by the FCC even when petitions to deny are filed against them, there can be no
assurance that any of the Company's stations' licenses will be renewed.

         Alien Ownership Restrictions. The Communications Act restricts the
ability of foreign entities or individuals to own or hold certain interests in
broadcast licenses. Foreign governments, representatives of foreign governments,
non-U.S. citizens, representatives of non-U.S. citizens, and corporations or
partnerships organized under the laws of a foreign nation are barred from
holding broadcast licenses. Non-U.S. citizens, collectively, may directly or
indirectly own or vote up to twenty percent of the capital stock of a licensee.
In addition, a broadcast license may not be granted to representatives or held
by any corporation that is controlled, directly or indirectly, by any other
corporation more than one-fourth of whose capital stock is owned or voted by
non-U.S. citizens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations, if the FCC finds that the public
interest will be served by the refusal or revocation of such license. The FCC
has interpreted the provision of the Communications Act to require an
affirmative public interest finding before a broadcast license may be granted to
or held by any such corporation, and

                                       11
<PAGE>   16
the FCC has made such an affirmative finding only in limited circumstances. The
Communications Act previously also prohibited grant of a broadcast station
license (i) to any corporation with an alien officer or director, or (ii) to any
corporation controlled by another corporation with any alien officers or more
than one-fourth alien directors. The restrictions on non-U.S. citizens serving
as officers or directors of licensees and their parent corporations have been
eliminated, however, by the 1996 Act effective October 7, 1996.

         Other Regulations Affecting Radio Broadcasting Stations. The FCC has
significantly reduced its regulation of broadcast stations, including
elimination of formal ascertainment requirements and guidelines concerning
amounts of certain types of programming and commercial matter that may be
broadcast. In 1990, the U.S. Supreme Court refused to review a lower court
decision that upheld the FCC's 1987 action invalidating most aspects of the
Fairness Doctrine, which had required broadcasters to present contrasting views
on controversial issues of public importance. The FCC has, however, continued to
regulate other aspects of fairness obligations in connection with certain types
of broadcasts. In addition, there are FCC rules and policies, and rules and
policies of other federal agencies, that regulate matters such as political
advertising practices, equal employment opportunity, application procedures and
other areas affecting the business or operations of broadcast stations.

         Recent Developments, Proposed Legislation and Regulation. The FCC
presently is seeking comment on its policies designed to increase minority
ownership of mass media facilities. Congress, however, has enacted legislation
that eliminated the minority tax certificate program of the FCC, which gave
favorable tax treatment to entities selling broadcast stations to entities
controlled by an ethnic minority. In addition, a recent Supreme Court decision
has cast into doubt the continued validity of other FCC programs designed to
increase minority ownership of mass media facilities.

         Congress and the FCC currently have under consideration, and may in the
future adopt, new laws, regulations and policies regarding a wide variety of
matters that could affect, directly or indirectly, the operation and ownership
of the Company's broadcast properties. In addition to the changes and proposed
changes noted above, such matters include, for example, the license renewal
process, spectrum use fees, political advertising rates, potential restrictions
on the advertising of certain products (liquor, beer and wine, for example) and
the rules and policies to be applied in enforcing the FCC's equal employment
opportunity regulations. Other matters that could affect the Company's broadcast
properties include technological innovations and developments generally
affecting competition in the mass communications industry.

         The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, or the 1996 Act, nor of the regulations
and policies of the FCC thereunder. The 1996 Act also covers satellite and
terrestrial delivery of digital audio radio service, and direct broadcast
satellite systems. Proposals for additional or revised regulations and
requirements are pending before and are being considered by Congress and federal
regulatory agencies from time to time. Also, various of the foregoing matters
are now, or may become, the subject of court litigation,

                                       12
<PAGE>   17
and the Company cannot predict the outcome of any such litigation or the impact
on its broadcast business.

ITEM 2.           PROPERTIES

         The Company's corporate headquarters were moved from New York City to
Miami between September and November 1997. The types of properties required to
support each of the Company's radio stations include offices, broadcasting
studios and antenna towers where its broadcasting transmitters and antenna
equipment are located. The Company owns the buildings housing the office and
studios in New York City for WSKQ-FM and WPAT-FM, and in Los Angeles for
KLAX-FM. The Company owns the auxiliary transmitter site for KLAX-FM in Long
Beach, California and leases its other transmitter sites, with lease terms that
respectively expire between 1998 and 2035 assuming all renewal options are
exercised. The studios and offices of the Company's Miami and South Florida
stations are currently located in leased facilities with lease terms that
respectively expire in 2000 and 2012. See "Certain Relationships and Related
Transactions." The Company leases its office and studio facilities in Chicago
and San Antonio for its WLEY-FM and KLEY-FM stations.

         The transmitter sites for the Company's stations are material to the
Company's overall operations. Management believes that its properties are in
good condition and are suitable for its operations; however, the Company
continually seeks opportunities to upgrade its properties. The Company owns
substantially all of the equipment used in its radio broadcasting business.

ITEM 3.           LEGAL PROCEEDINGS

         From time to time the Company is involved in litigation incidental to
the conduct of its business, such as contract matters and employee-related
matters. The Company is not currently a party to litigation, which in the
opinion of management is likely to have a materially adverse effect on the
Company.

ENVIRONMENTAL MATTERS

         The Company sublets the transmitter for WXLX-AM in Lyndhurst, New
Jersey, which is located on a former landfill. Although WXLX-AM has since been
sold as part of the Dispositions, the Company retained certain potential
environmental liabilities relating to such transmitter. As the lessee of the
property under a long-term lease, the Company may become liable for costs
associated with remediation of the site. There can be no assurance that material
costs or liabilities will not be incurred in the event that cleanup of this site
is required.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE
                  OF SECURITY HOLDERS

         Not applicable.

                                       13
<PAGE>   18
PART II


ITEM 5.           MARKET FOR REGISTRANT'S COMMON STOCK
                  AND RELATED STOCKHOLDERS MATTERS

MARKET INFORMATION AND HOLDERS

         The Company's Common Stock has not been registered under the Securities
Act of 1933 (the "Securities Act") or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and is not listed on any national securities
exchange. There is no established public trading market for the Company's Common
Stock. There are currently three holders of the Company's Common Stock. See
"Item 12. Security Ownership of Certain Beneficial Owners and Management".

DIVIDENDS

         In March 1998, the Company declared a dividend of $5.60 per share of
common stock. In April 1998, holders of warrants to purchase shares of Class A
Common Stock that were issued pursuant to the Warrant Agreement dated June 29,
1994 (the "1994 Warrants") were given the option to participate in such dividend
as if they were stockholders, subject to agreeing to waive their anti-dilution
rights with respect to such dividends. Holders of warrants to purchase 58,209
shares participated in the dividend. In May 1998, the Company paid $0.326
million to these warrantholders and issued replacement warrants entitling each
warrantholder to purchase from the Company shares of Class A Common Stock at a
rate of one share of Class A Common Stock per Warrant. The warrantholders that
elected not to participate in the cash dividend continue to hold such 1994
Warrants and are entitled to purchase from the Company shares of Class A Common
Stock at an adjusted rate of 1.01133 shares of Class A Common Stock per 1994
Warrant.

RECENT SALES OF UNREGISTERED SECURITIES

         On March 27, 1997, the Company consummated an offering (the "Notes
Offering") of the 11% Senior Notes due 2004 Series A (the "Series A Notes") and
an offering (the "Units Offering," and together with the Notes Offering, the
"Offerings") of 175,000 units (the "Units"), each Unit consisting of one share
of the Senior Preferred Stock and one warrant (the "Warrants") to purchase 0.428
shares of the Company's Class A Common Stock in transactions exempt from the
registration requirements of the Securities Act. In conjunction with the
Offerings, the Company effected a series of transactions (collectively,
including the Offerings, the "Transactions") including (i) certain acquisitions,
(ii) the refinancing (the "Refinancing") of the Company's Senior Secured Notes
due 2001 and

                                       14
<PAGE>   19
Senior Preferred Stock, and the repurchase of the related warrants, and (iii)
the solicitation (the "Consent Solicitation") of certain consents from the
holders of the 12-1/2% Senior Notes due 2002.

         Concurrently with the consummation of the Offerings, the Company
redeemed or repurchased the Senior Secured Notes, Senior Preferred Stock and Old
Warrants for approximately $90.6 million. The Company issued the Senior Secured
Notes and Senior Preferred Stock to partially finance the acquisition of
WPAT-FM in New York in March 1996. The Old Warrants were redeemed pursuant to
the redemption price schedule which was determined at the time of issuance.


ITEM 6.           SELECTED FINANCIAL DATA

         The selected consolidated financial data presented below under the
captions "Statement of Operations Data" and "Balance Sheet Data" as of and for
each of the fiscal years in the five-year period ended September 27, 1998, are
derived from the consolidated financial statements of the Company, which
consolidated financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The consolidated financial statements
for each of the years in the three-year period ended September 27, 1998 and the
report thereon, are included elsewhere in this Annual Report. The selected
consolidated financial data of the Company should be read in conjunction with
the consolidated financial statements of the Company as of and for each of the
fiscal years in the three-year period ended September 27, 1998, the related
notes and independent auditor's report, included elsewhere in this Annual
Report. For additional information see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."

                                       15
<PAGE>   20
                 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
                          (IN THOUSANDS, EXCEPT RATIOS)


<TABLE>
<CAPTION>
                                                  FISCAL YEAR ENDED
                                               9/25/94         9/24/95         9/29/96          9/28/97         9/27/98
                                               -------         -------         -------          -------         -------
<S>                                           <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
Gross broadcasting revenues ............      $  45,825       $  54,152       $  55,338       $  67,982       $  86,766
Less: agency commissions ...............          5,688           6,828           6,703           7,972          10,623
                                              ---------       ---------       ---------       ---------       ---------
               Net revenues ............         40,137          47,324          48,635          60,010          76,143
Station operating expenses (1) .........         22,145          22,998          27,876          31,041          39,520
Corporate expenses .....................          2,884           4,281           3,748           5,595           6,893
Depreciation and amortization ..........          3,256           3,389           4,556           7,619           8,877
                                              ---------       ---------       ---------       ---------       ---------

Operating income .......................         11,852          16,656          12,455          15,755          20,853
Gain on sale of AM stations ............             --              --              --              --          36,242


Interest expense, net ..................         14,203          12,874          16,533          22,021          20,860
Financing costs ........................          3,458              --             876             299             213

Other expense (income) (2) .............            (35)            381             698             492              --
                                              ---------       ---------       ---------       ---------       ---------
Income (loss) before income taxes
and extraordinary items ................         (5,774)          3,401          (5,652)         (7,237)         36,022
Income tax expense (benefit) ...........         (2,231)          1,411          (1,166)         (2,715)         15,624
                                              ---------       ---------       ---------       ---------       ---------
Income (loss) before extraordinary
items ..................................         (3,543)          1,990          (4,486)         (4,522)         20,398
Extraordinary gain (loss) (3) ..........         70,255                                          (1,647)         (1,613)
                                              ---------       ---------       ---------       ---------       ---------
Net income (loss) ......................      $  66,712       $   1,990          (4,486)         (6,169)         18,785
                                              =========       =========       =========       =========       =========
Dividends on preferred stock ...........                                         (2,452)        (15,384)        (27,718)
                                                                              ---------       ---------       ---------
Net loss applicable to common stock ....                                      ($  6,938)      ($ 21,553)      ($  8,933)
                                                                              =========       =========       =========
Dividends per share on common stock ....            -0-             -0-             -0-             -0-        $   5.60 
                                              =========       =========       =========       =========       =========
OTHER DATA:
Broadcast cash flow (4) ................      $  17,992       $  24,326       $  20,759       $  28,969       $  36,623
EBITDA (5) .............................         15,108          20,045          17,011          23,374          29,730
Capital expenditures ...................            897           4,888           3,811           2,022           1,645
Net cash interest ......................         12,916           7,459           7,759          13,175          18,658
Non-cash interest ......................          1,287           5,415           8,774           9,026           2,202
                                              ---------       ---------       ---------       ---------       ---------
Interest expense, net ..................         14,203          12,874          16,533          22,201          20,860
Net cash provided by operating
activities .............................          4,121          14,438           8,813           6,386          10,923
Net cash provided by (used .............           (897)         (4,988)        (90,195)       (144,358)         32,190
in) investing activities
Net cash provided by (used in) financing
activities .............................          4,514           3,769          69,036         144,791         (17,758)
Ratio of earnings to fixed charges (6) .             --             1.5              --              --             1.1


                                                 9/25/94          9/24/95        9/29/96         9/28/97        9/27/98
                                              ---------       ---------       ---------       ---------       ---------
BALANCE SHEET DATA:
</TABLE>

                                       16
<PAGE>   21
<TABLE>
<CAPTION>
<S>                                             <C>             <C>             <C>             <C>             <C>
Cash and cash equivalents ................      $  12,137       $  17,817       $   5,468       $  12,288       $  37,642
Net working capital ......................         11,981          21,994           9,172           1,626          40,349
Total assets .............................         98,733         103,629         176,860         334,367         351,034
Total debt (including current maturities)          93,573          95,523         135,914         183,013         171,126
Series A Preferred stock .................             --              --          35,939         171,262         201,368
Shareholder's deficiency .................         (2,960)         (1,150)         (3,569)        (32,047)        (46,193)
</TABLE>


                   NOTES TO SELECTED HISTORICAL FINANCIAL DATA

(1)      Station operating expenses include engineering, programming, selling
         and general and administrative expenses.

(2)      During 1996 and 1997, the Company wrote down the value of the land and
         building located on Sunset Boulevard in Los Angeles. The write downs,
         of $697,741 and $487,973 respectively, were based on current market
         values of real estate in the Los Angeles area.

(3)      On June 29, 1994, the Company sold 107,059 units, each consisting of
         $1,000 principal amount of the Company's Senior Secured Notes and the
         Old Warrants. The Senior Secured Notes were issued at a substantial
         discount from their principal amount. The sale of the Senior Secured
         Notes and the Old Warrants generated gross proceeds of $94,000,000 and
         proceeds to the Company of $87,774,002, net of financing costs of
         $6,225,998. Of the $94,000,000 of gross proceeds from the sale of the
         Senior Secured Notes and the Old Warrants, $88,603,000 was allocated to
         the Senior Secured Notes and $5,397,000 was determined to be the value
         of the Old Warrants. Of the net proceeds from the sale of the Senior
         Secured Notes and the Old Warrants, $83,000,000 was used to satisfy in
         full the Company's obligations to its two former principal lenders and
         the balance was used to settle litigation with a former stockholder and
         for general corporate purposes. The Company realized a gain of
         $70,254,772 in connection with its repayment of all obligations to its
         two former principal lenders because it was able to satisfy in full
         these obligations at substantial discounts to their face amounts in
         accordance with restructuring agreements between the Company and such
         lenders.

         For the fiscal year ended September 28, 1997, the Company recorded an
         extraordinary loss resulting from the redemption of the Senior Secured
         Notes at par which was approximately $1.5 million in excess of their
         carrying value and from the write-off of the related unamortized
         deferred financing costs of approximately $1.3 million, net of the
         related tax benefit of approximately $1.1 million.

         For the fiscal year ended September 27, 1998, the Company recorded an
         extraordinary loss resulting from the repurchase of $ 13.2 million par
         value of Old Notes at a premium of approximately $2.2 million in excess
         of their carrying value and from the write-off of the 

                                       17
<PAGE>   22
         related unamortized deferred financing costs of approximately $ 0.5
         million net of the related tax benefit of approximately $1.1 million.

(4)      The term "broadcast cash flow" means operating income before
         depreciation and amortization, write-down of franchise cost and
         corporate expenses. Broadcast cash flow should not be considered in
         isolation from or as a substitute for, net income or cash flow and
         other consolidated income or cash flow statement data or as a measure
         of the Company's profitability or liquidity. Although broadcast cash
         flow is not a measure of performance calculated in accordance with
         generally accepted accounting principles, broadcast cash flow is widely
         used in the broadcasting industry as a measure of a broadcasting
         company's operating performance.

(5)      EBITDA represents income before extraordinary item, net interest
         expense, financing costs, income taxes, depreciation and amortization,
         write-down of franchise costs and other expenses and income. The
         Company has included information concerning EBITDA because it is used
         by certain investors as a measure of a company's ability to service its
         debt obligations. EBITDA should not be used as an alternative to, or be
         considered more meaningful than, operating income, net income or cash
         flow as an indicator of the Company's operating performance.

(6)      For purposes of this computation, earnings are defined as earnings or
         loss before extraordinary items and fixed charges. Fixed charges are
         the sum of (i) interest costs, (ii) amortization of deferred financing
         costs, (iii) the portion of operating lease rental expense that is
         representative of the interest factor (deemed to be one third) and (iv)
         dividends on preferred stock. Earnings were inadequate to cover fixed
         charges by $3,543,000, $6,938,000, and $ 19,906,000 for fiscal years
         1994, 1996, and 1997 respectively.


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

         The Company's financial results depend on a number of factors,
including the strength of the national economy and the local economies served by
the Company's stations, total advertising dollars dedicated to the markets
served by the Company's stations, advertising dollars targeted to the Hispanic
consumers in the markets served by the Company's stations, the Company's
stations' audience ratings, the Company's ability to provide popular
programming, local market competition from other radio stations and other
advertising media, and governmental regulation and policies.

         Gross revenues derived from radio advertising are affected primarily by
the advertising rates the Company's radio stations are able to charge and the
number of advertisements that can be broadcast without jeopardizing audience
listening levels and the resultant audience ratings.

                                       18
<PAGE>   23
Advertising rates are, in large part, based upon each station's ability to
attract audiences in demographic groups targeted by advertisers. Audience levels
are generally measured by quarterly Arbitron Radio Market Reports. Each of the
Company's stations strives to maximize net revenues by actively managing the
amount of airtime available for sale and adjusting prices based upon local
market conditions and audience ratings.

         In the radio broadcasting industry, stations may utilize trade or
barter agreements to provide advertising time in exchange for goods or services
(such as travel and products used in promotional campaigns or "give-aways")
instead of cash compensation. In each of the 1996, 1997 and 1998 fiscal years
the Company's Sales for cash were 94%, 96% and 96% respectively, of total sales.
The Company believes that its percentage of cash sales will increase in the
future as its stations' ratings increase.

         Although advertising contracts are generally short-term, the Company
has long-term relationships with many of its advertisers. In the 1998 fiscal
year, approximately 73% of the Company's gross revenues from the broadcast of
advertising was generated from local advertising and approximately 27% was from
national advertising. Each station's local sales staff solicits advertising
directly from local advertisers or through an advertising agency representing
local advertisers.

         In March 1996, the Company acquired WPAT-FM in New York for $86.4
million including financing costs and the Company's results include the
operations of WPAT-FM from such date. Pursuant to the terms of an LMA, the
Company began operating WPAT-FM on January 26, 1996 and the revenues of WPAT-FM
and the costs associated with the LMA are included in the Company's operating
results from that date until the date of the acquisition.

         In March 1997, the Company acquired WRMA-FM and WXDJ-FM in Miami and
WLEY-FM (named WYSY-FM at the time of purchase) in Chicago for $111 million and
$33 million, respectively, including financing costs. On May 13, 1998, the
Company acquired KRIO-FM in San Antonio, Texas for $9.3 million. The Company
subsequently changed the call letters to KLEY-FM. The Company's results include
the operations of these stations from such dates.

         The Company reports its revenues and expenses on a broadcast month
basis. "Broadcast month basis" means a four or five week period ending on the
last Sunday of each calendar month. For fiscal 1996 the Company reported 53
weeks of revenues and expenses as compared to 52 weeks for each of fiscal 1997
and 1998.

         As is true of other radio groups, the Company's performance is
customarily measured by its ability to generate broadcast cash flow and EBITDA.
"Broadcast cash flow" means operating

                                       19
<PAGE>   24
income before depreciation and amortization, write-down of franchise costs and
corporate expenses. Although broadcast cash flow and EBITDA are not measures of
performance calculated in accordance with generally accepted accounting
principles, the Company believes that broadcast cash flow and EBITDA are useful
in evaluating the Company because such measures are accepted by the broadcasting
industry as generally recognized measures of performance and are used by
securities industry analysts who publish reports on the performance of
broadcasting companies. In addition, the Company has included information
concerning EBITDA in this Annual Report because it is used by certain investors
as a measure of a company's ability to service its debt obligations and it is
also the basis for determining compliance with certain covenants in the
Indentures and the Certificate of Designation. Broadcast cash flow and EBITDA
are not intended to be substitutes for operating income (as determined in
accordance with generally accepted accounting principles), or alternatives to
cash flow from operating activities (as a measure of liquidity), or alternatives
to net income.

         The Company's revenues fluctuate throughout the year. The Company's
second fiscal quarter (January through March) generally produces the lowest
revenues for the year and the third fiscal quarter (April through June)
generally produces the highest revenues, primarily due to increased levels of
advertising during this period. The Company's operating results in any period
may also be affected by the occurrence of advertising and promotional expenses
that do not produce revenues in the period in which the expenses are incurred.

FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997

         Net Revenues. Net revenues increased from $60.0 million for the year 
ended September 28, 1997 to $76.1 million for the year ended September 27, 
1998, an increase of $16.1 million or 26.9%. This increase was due primarily to
the inclusion of the full year results of WRMA-FM, WXDJ-FM, and WLEY-FM, which 
were purchased on March 27, 1997. The increase in net revenues also resulted 
from a significant increase in the net revenues of the New York stations, 
WPAT-FM and WSKQ-FM whose results were positively impacted by increased ratings
and a Miami station, WCMQ-FM. The increase was offset by a decrease in net 
revenues from the Company's Los Angeles station, KLAX-FM in addition to the 
decrease in revenues attributable to the sale of the AM stations in New York, 
Miami and Los Angeles.

         Operating Expenses. Total operating expenses increased from $44.3
million for the year ended September 28, 1997 to $55.3 million for the year
ended September 27, 1998, an increase of $11.0 million or 24.9%. The higher
operating expenses were caused by an increase of $8.5 million in broadcasting
operating expenses, a $1.3 million increase in corporate expenses and an
increase of $1.3 million in depreciation and amortization expense.

         The increase in broadcasting operating expenses was caused mainly by
the inclusion of the results of WRMA-FM, WXDJ-FM and WLEY-FM. The increase in
corporate expenses was caused mainly by increased professional fees and
salaries. The increase in depreciation and amortization was

                                       20
<PAGE>   25
the result of increased amortization of franchise costs related to the
acquisitions of WRMA-FM, WXDJ-FM and WLEY-FM offset by the decrease attributable
to the sale of the AM stations.

         Operating Income. Operating income increased from $15.8 million during
the year ended September 28, 1997 to $ 20.9 million during the year ended
September 27, 1998, an increase of $5.1 million or 32.4%. The increase was due
to the significant increase in net revenues, partially offset by the increase in
operating expenses.

         EBITDA. EBITDA (defined as income before extraordinary item, net
interest expense, income taxes, depreciation and amortization, gains on sales of
radio stations and other income and expenses) increased $6.4 million or 27.2%
from $23.4 million during the year ended September 28, 1997 to $29.7 million
during the year ended September 27, 1998. The increase in EBITDA was caused by
the increase in net revenues, partially offset by increases in broadcasting
operating expenses and corporate expenses, as described above.

         Other (Income) Expenses. Other income and expenses, changed from an
expense of $22.8 million in the year ended September 28, 1997 to income of 
$15.2 million in the year ended September 28, 1998. The income was a result of 
the sale of the AM Stations at a gain of $36.2 million.

         Extraordinary Item. The extraordinary loss of $1.6 million, net of
taxes of $1.1 million, in the year ended September 27, 1998 is a result of
premiums paid on the purchase of certain outstanding Old Notes and the write off
of related unamortized debt discount and deferred financing costs. In the year
ended September 28, 1997, the Company recorded an extraordinary loss of $1.6
million net of income taxes. This loss was from an amount paid in excess of the
Company's carrying value and the write off of related unamortized debt issuance
costs in conjunction with the refinancing of debt when the Company purchased
WRMA-FM, WXDJ-FM and WLEY-FM.

         Net Income (loss). The Company's net income for the year ended
September 27, 1998 was $18.8 million compared to the net loss of $6.2 million 
for the year ended September 28, 1997. The net income resulted from the 
increase in operating income, the gain from the sale of the AM stations and a 
slight decrease in interest expense partially offset by additional income taxes.

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

         Net revenues. Net revenues increased to $60.0 million for fiscal 1997
from $48.6 million for fiscal 1996, an increase of $11.4 million, or 23.5%. This
increase was due primarily to the inclusion of results of WRMA-FM and WXDJ-FM
which were purchased on March 27, 1997 and increased net revenues by $7.7
million and the inclusion of the results of WPAT-FM for the entire year as
opposed to the eight months during the previous year. The increase in net
revenues also resulted from an increase of $1.1 million in net revenues from the
Company's Los Angeles stations. These increases were offset by decreases in net
revenues from certain of the Company's existing stations, including a decrease
of $3.0 million from the operations of WCMQ-AM and WCMQ-FM,

                                       21
<PAGE>   26
and a decrease of $0.5 million from the operations of WSKQ-FM and WXLX-AM.
Additionally, the acquisition in the Chicago market, WLEY-FM, contributed $0.4
million in net revenues.

         Operating expenses. Total operating expenses increased to $44.3 million
for fiscal 1997 from $36.2 million in fiscal 1996, an increase of $8.1 million,
or 22.4%. The higher operating expenses were caused by an increase of $3.1
million in broadcasting operating expenses, $2.9 million in depreciation and
amortization expense and an increase of $1.9 million in corporate expenses.

         The increase in broadcasting operating expenses was caused mainly by
the inclusion of the results of the recently acquired stations in Miami, WRMA-FM
and WXDJ-FM, the newly acquired station in Chicago, WLEY-FM as well as a full
year of expenses for WPAT-FM. Higher salaries and higher professional fees
caused the increase in corporate expenses. The increase in depreciation and
amortization was the result of increased amortization of franchise costs related
to the acquisitions of WRMA-FM, WXDJ-FM, WLEY-FM and WPAT-FM.

         Operating income. Operating income increased to $15.8 million in fiscal
1997 from $12.5 million in fiscal 1996, an increase of $3.3 million, or 26.4%.
The increase was due to the significant increase in net revenues partially
offset by the increase in operating expenses, as described above.

         EBITDA. EBITDA increased $6.4 million, or 37.6% from $17.0 million in
fiscal 1996 to $23.4 million in fiscal 1997. The increase in EBITDA was caused
by the increase in net revenues, partially offset by an increase in operating
expenses, as described above.

         Other expenses. Other expenses, comprised mostly of interest expense,
increased to $23.0 million for fiscal 1997 from $18.1 million in fiscal 1996, an
increase of $4.9 million, or 27.1%. The increase was caused mostly by the
increase in interest expenses of the 11% Notes issued to partially finance the
acquisitions of WRMA-FM, WXDJ-FM and WLEY-FM and the retirement of the Redeemed
Notes.

         Net loss. As a result of the Company's refinancing of its debt and the
issuance of the 11% Notes which partially financed the acquisitions of WRMA-FM,
WXDJ-FM and WLEY-FM, the Company recorded an extraordinary loss on the
retirement of old debt for the amount paid in excess of the Company's carrying
value and the write-off of the related unamortized debt issuance costs. The
amount of this loss was $1.6 million, net of income taxes. Consequently, the
Company's net loss for fiscal year 1997 was $6.2 million compared to a net loss
of $4.5 million for fiscal year 1996, an increase in the net loss of $1.7
million, or 37.8%.



                                       22
<PAGE>   27

LIQUIDITY AND CAPITAL RESOURCES

         The Company's liquidity needs arise primarily from its debt service
obligations, preferred stock dividend requirements, funding of the Company's
working capital needs and capital expenditures. The Company's primary form of
financing is cash generated from operations, long-term indebtedness and the
issuance of preferred stock.

         On March 27, 1997, the Company consummated the acquisitions of WRMA-FM,
WXDJ-FM and WLEY-FM. The Acquisitions were financed with proceeds of the
Offerings. Concurrently with the consummation of the Acquisitions and the
Offerings, the Company effected a series of transactions including the
redemption (the "Redemption") of the Company's Senior Secured Notes and Senior
Preferred Stock and the repurchase of Old Warrants. In addition, simultaneously
with the consummation of the Offerings, the Company announced its intention to
declare a dividend of up to $4.0 million in the aggregate (the "Distribution")
to its stockholders and existing warrantholders who elected to receive their pro
rata portion of the Distribution in lieu of the anti-dilution adjustment they
would otherwise have been entitled to as a result of the Distribution. A
dividend of $5.60 per share of common stock was declared and distributed to the
stockholders in March 1998. In April 1998, holders of warrants to purchase
shares of Class A Common Stock that were issued pursuant to the Warrant
Agreement dated June 29, 1994 were given the option to participate in such
dividend as if they were stockholders, subject to agreeing to waive their
anti-dilution rights with respect to such dividends. Holders of warrants to
purchase 58,209 shares participated in the dividend and received $0.3 million
in the aggregate. The warrantholders that elected not to participate in the cash
dividend continue to hold such 1994 warrants and are entitled to purchase from
the Company shares of Class A Common stock at an adjusted rate of 1.0133 shares
of Class A Common Stock per 1994 Warrant.

         On July 2, 1997, the Company entered into an agreement to sell the FCC
licenses and all of the assets used or useful in operating its AM stations,
KXMG-AM of Los Angeles, WXLX-AM of New York and WCMQ-AM of Miami for $44.0
million. The Company was required to use the greater of $25.0 million or 50% of
the net proceeds of such sale to make offers to purchase Old Notes at 110% of
the principal amount. Pursuant to this agreement, the Company sold the assets
and FCC licenses


                                       23
<PAGE>   28
of WXLX-AM and WCMQ-AM to One-on-One for a purchase price of $26.0 million on
September 29, 1997. On December 2, 1997, the Company sold the assets and FCC
license of KXMG-AM to One-on-One for a purchase price of $18.0 million.

         On May 13, 1998, the Company acquired the FCC broadcast license and
substantially all of the assets used or useful in the operation of radio station
KRIO-FM serving the San Antonio area for $9.2 million, plus closing costs of
$0.1 million. The Company financed this purchase from cash on hand and from
operations. The Company subsequently changed the call letters to KLEY-FM.

         On June 16, 1998, the Company entered into an Asset Purchase Agreement
with Pan Caribbean Broadcasting Corporation to purchase the FCC broadcast
license and substantially all of the assets used or useful in the operation of
WDOY-FM serving Puerto Rico for $8.3 million. The Company closed on this
purchase on December 1, 1998 and financed this purchase from cash on hand and
cash from operations.

         Cash flow generated from operations was $10.9 million for the year
ended September 27, 1998. A portion of the Company's cash flow was used to make
its semiannual interest payments on the Company's Notes of $15.9 million.
Additionally, the Company purchased KRIO-FM for $9.3 million, invested $1.6
million in capital expenditures, used $15.1 million to purchase Old Notes and
paid dividends of $2.6 million. Proceeds from the sales of WXLX-AM, WCMQ-AM and
KXMG-AM were approximately $43.2 million, net of closing costs of $0.8 million.

         During fiscal 1997, the Company received proceeds of $69.3 million, net
of issuance costs, from the issuance of the Senior Notes and proceeds of $166.0
million, net of issuance costs, from the issuance of the Preferred Stock in
connection with the Offerings. The Company used $142.3 million of these proceeds
to acquire WRMA-FM, WXDJ-FM and WLEY-FM, $38.4 million for the redemption of
Senior Secured notes and $42.7 million for the redemption of preferred Stock
and $8.3 million for the redemption of warrants. Additionally, the Company
invested $2.0 million in capital expenditures, mostly for the construction of a
new tower and antenna system for WXLX-AM in anticipation of the sale of this
station.

         Management believes, together with cash on hand, that cash from
operating activities should be sufficient to permit the Company to meet required
cash interest obligations (which will consist of cash interest expense on the
Senior Notes and cash interest expense on the Company's Old Notes, which,
commencing June 15, 1997, began to accrue cash interest at a rate of 12 -1/2%
per annum) for the foreseeable future as well as capital expenditures and
operating obligations. The Company anticipates paying dividends on its Preferred
Stock through the issuance of additional shares as permitted under the Preferred
Stock Agreement. During fiscal 1998 the Company issued 27,554 additional shares
of Preferred Stock in lieu of cash payments of $27.6 million for dividends on
Preferred Stock. However, significant assumptions (none of which can be assured)
underlie the belief, including that (i) economic conditions within the radio
broadcasting market and economic conditions generally will not deteriorate in
any material respect, (ii) the Company will be able to successfully implement
its business strategy, (iii) the Company will not incur any material unforeseen
liabilities, including, without limitation, environmental liabilities, and (iv)
no future acquisitions will adversely affect the Company's liquidity. The
Company expects that it may be required to refinance the Old Notes on or prior
to their maturity date on June 15, 2002, and no assurances can be given that it
will not be


                                       24

<PAGE>   29
required to refinance the Senior Notes and/or the Senior Preferred Stock. No
assurance can be given that any such refinancing, if required, will be obtained
on terms satisfactory to the Company, if at all.

YEAR 2000 ISSUE
         
         The Year 2000 Issue ("Y2K") is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could cause a system failure or miscalculations in the Company's
broadcast and corporate locations which could cause disruptions of operations,
including, among other things, a temporary inability to produce broadcast
signals, process financial transactions, or engage in similar normal business
activities.

         The Company has performed a preliminary analysis of potential problems
related to the "Y2K" issue but has not completed its assessment. Internally, the
Company bears some risks in the following areas: computer hardware and software
for its accounting and administrative functions, computer-controlled programming
of music and the actual transmission of its signals. Externally, the Company is
at risk, like most companies, of losing power and phone lines.

         In the administrative area, the vast majority of the hardware and
software has been purchased over the preceding two years and is Year 2000
compliant. There are no more than 20 computers that may have to be replaced or
upgraded. In the programming areas the system in use is year 2000 compliant.
Studio equipment, transmitters and other broadcasting equipment are not date
sensitive and, consequently, do not pose much of a threat although the Company
will continue to seek assurances, compliance certificates and /or upgrades from
all significant vendors.

         The greatest threat to the Company's ability to broadcast is from the
utilities upon which the Company is dependent. To date, the Company is not aware
of any external vendor with a Y2K issue that would materially impact the
Company's results of operations, liquidity, or capital resources. However, the
Company has no means for ensuring that third parties will be Y2K ready. The
inability of third parties to complete their Y2K resolution process in a timely
fashion could materially impact the Company. The effect of non-compliance by
external vendors is not determinable. In addition, disruptions in the economy
generally resulting from the Y2K issues could also materially adversely affect
the Company.

         While the Company believes its efforts will provide reasonable
assurance that material disruptions will not occur due to internal failure, the
possibility of interruption still exists. The Company is not anticipating having
to spend more than $50,000 to be Year 2000 compliant. It is performing this
analysis with its MIS manager, its engineers and its accounting staff. It is
anticipated that all assessments and solutions will be in place by April, 1999.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

         The statements contained in this Annual Reports on Form 10-K that are
not historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. A number of important factors
could cause the Company's actual results for future periods to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. These factors include, among other things: the Company's operating
history and uncertainty as to the Company's future profitability; the ability to
develop and implement operational and financial systems to manage rapidly
growing operations; the uncertainly as to the consumer demand for
Spanish-language radio; increasing competition in the Spanish-language radio
market; the ability to integrate and successfully operate acquired stations and
the risks associated with such stations; the ability to obtain financing on
acceptable terms to finance the Company's growth strategy; and general economic
conditions as they may impact the overall radio industry.

                                       25
<PAGE>   30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this Item 8 is included following "Item 14. Index
to Consolidated Financial Statements and Schedules, and Reports on Form 8-K"
appearing at the end of this Annual Report on Form 10-K

PART III

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth the names, ages and positions of the
directors and executive officers of the Company. Each director of the Company
serves until his successor is elected and qualifies.

<TABLE>
<CAPTION>
NAME                              AGE       CURRENT POSITION WITH THE COMPANY
----                              ---       ---------------------------------
<S>                               <C>       <C>
Pablo Raul Alarcon Sr.            72        Chairman of the Board of Directors of the Company

Raul Alarcon Jr.                  42        President and Chief Executive Officer and a Director of the Company

Jose Grimalt                      70        Secretary and a Director of the Company

Arnold Sheiffer*                  65        Director of the Company

Joseph Garcia                     53        Executive Vice President, Chief Financial Officer of the Company and
                                            Assistant Secretary

Carey Davis                       44        Vice President and General Manager of the New York Stations

Jesus Salas                       23        Vice President of Programming

Luis Diaz-Albertini               47        Vice President-Group Sales
</TABLE>

* Member of the Audit and the Compensation Committees of the Board of Directors.

         Pablo Raul Alarcon, Sr. has been the Chairman of the Board of Directors
of the Company since its formation in June 1994. He also serves, as the Chairman
of the Board of SBS-NJ, and those of the Company's other subsidiaries that own
and operate the Company's radio stations. Mr. Alarcon, Sr. has been involved in
Spanish language radio broadcasting for much of his life. Mr. Alarcon, Sr. is
the father of Raul Alarcon, Jr.

         Raul Alarcon, Jr. has been the President and Chief Executive Officer of
the Company since its formation in June 1994. He also serves as the President
and a Director of Spanish Broadcasting


                                       26
<PAGE>   31
System, Inc., a New Jersey corporation that is wholly-owned by the Company
("SBS-NJ"), and President or Vice President of those of the Company's other
subsidiaries that own and operate the Company's radio stations. Mr. Alarcon, Jr.
joined SBS-NJ as a sales manager in 1983 and became a Director and the President
and Chief Executive Officer of SBS-NJ in 1986. Mr. Alarcon, Jr. is responsible
for the Company's long-range strategic planning and was instrumental in the
acquisition and financing of each of the Company's radio stations. Mr. Alarcon,
Jr. is the son of Mr. Alarcon, Sr. and the son-in-law of Mr. Grimalt.

         Jose Grimalt has been the Secretary of the Company since its formation
in June 1994. He also serves as a Director and the Secretary of SBS-NJ and those
of the Company's subsidiaries that own and operate the Company's radio stations.
From 1969 to 1986, Mr. Grimalt owned and operated Spanish language station
WLVH-FM in Hartford, Connecticut with a contemporary Spanish language music
format. In 1984, Mr. Grimalt became a stockholder and the President of the
Company's California subsidiary, which operates KXMG-AM in Los Angeles. Mr.
Grimalt is Mr. Alarcon, Jr's father-in-law. Mr. Grimalt recently assumed
management responsibilities for the Los Angeles station.

         Arnold Sheiffer was elected to the Company's Board of Directors in
December 1994. He is a private investor. From January 1990 until September 30,
1994, Mr. Scheiffer was an officer, director and stockholder of Katz, the
largest national sales representation firm in the broadcasting industry. From
January 1992 until September 30, 1994, Mr. Sheiffer served as Executive Vice
President and Chief Operating Officer of Katz. 

         Joseph Garcia has been the Chief Financial Officer of the Company since
the Company was formed in June 1994. He was appointed Vice President in March
1996. He joined SBS-NJ in 1984 and since then has served as the Chief Financial
Officer of SBS-NJ and those of the Company's subsidiaries that own and operate
the Company's radio stations. Before joining SBS-NJ, Mr. Garcia spent thirteen
years in financial positions with General Foods, Philip Morris and Revlon, where
he was Manager of Financial Planning for Revlon -- Latin America. In addition to
conventional financial duties, Mr. Garcia assists the Company's President in
formulating strategic plans for the acquisition of radio properties and
negotiating for bank financing and capital formation.

         Carey Davis has been the Vice President and General Manager of the New
York stations since February 1997. Mr. Davis previously spent 11 years with
Westinghouse/CBS Corp., including six years as the General Sales Manager for
WINS-AM in New York City and most recently as Vice President/Sales Development
for the CBS and Westinghouse stations.



                                       27
<PAGE>   32
         Jesus Salas has been the Vice President of Programming for the Company
since April 1998. He joined the Company in March 1997 as the Programming
Director for the Miami stations. Prior to that he worked for New Age
Broadcasting, Inc., where he began his career in November 1993 as a disc jockey.
He was promoted to assistant program director and then became the program
director.

         Luis Diaz-Albertini was named the Vice President of Sales for the
Company in September 1998. He began his employment with SBS as the General
Manager of WLEY-FM in Chicago in March 1997. Prior to this, Mr. Diaz-Albertini's
experience included being VP/General Manager of the four stations located in
Miami for Heftel Broadcasting Corporation. Mr. Diaz-Albertini has worked in the
broadcasting industry for 26 years.

ITEM 11. EXECUTIVE COMPENSATION

The following sets forth all compensation awarded to, earned by or paid for
services rendered to the Company and its subsidiaries in all capacities during
the fiscal years 1998, 1997 and 1996 by the Company's Chief Executive Officer
and the Company's next three highest paid executive officers at September 27,
1998, whose annual salary and bonus exceeded $100,000 (the "named executive
officers").

<TABLE>
<CAPTION>
                                        SUMMARY COMPENSATION TABLE

                                                                                            OTHER ANNUAL
NAME                     PRINCIPAL POSITION             YEAR       SALARY         BONUS     COMPENSATION
----                     ------------------             ----       ------         -----     ------------
<S>                      <C>                            <C>     <C>             <C>         <C>
Raul Alarcon, Jr.        President and Chief            1998    $1,633,743      $215,000             (2)
                         Executive Officer              1997     1,361,647         --                (2)
                                                        1996       746,584(1)    237,000             (2)

Pablo Raul Alarcon, Sr.  Chairman of the Board          1998       492,577        25,000             (2)
                         of Directors                   1997       474,000       200,000             (2)
                                                        1996       464,000       112,000             (2)

Jose Grimalt             Secretary and Director         1998       250,000        25,000             (2)
                                                        1997       310,184                           (2)
                                                        1996       250,000        12,000             (2)
</TABLE>


                                       28
<PAGE>   33
<TABLE>
<S>                      <C>                            <C>        <C>           <C>                 <C>
Joseph A. Garcia         Executive Vice President       1998       266,346        27,500             (2)
                         and Chief Financial Officer    1997       244,671        53,000             (2)
                                                        1996       214,659         5,000             (2)

Carey Davis              Vice President and             1998       225,000       264,300             (2)
                         General Manager of the         1997       147,115         --                (2)
                         New York stations              1996         --            --                (2)

</TABLE>


1)       Excludes amounts paid by the Company in connection with the lease by
         the Company of an apartment in New York, New York owned by Mr. Alarcon,
         Jr. and used by the Company's employees and customers. See "Certain
         Relationships and Related Transactions."

(2)      Excludes perquisites and other personal benefits, securities or
         property which aggregate the lesser of $50,000 or 10% of the total of
         annual salary and bonus.

DIRECTOR COMPENSATION

         Directors do not receive any compensation for serving on the Company's
Board of Directors. Directors are reimbursed for their out-of-pocket expenses
incurred in connection with their service as directors. The Company also
maintains a directors' and officers' liability insurance policy for its
directors.

EMPLOYMENT AGREEMENTS AND ARRANGEMENTS

         In February 1997, the Company entered into a three-year employment
agreement with Carey Davis, pursuant to which Mr. Davis will serve as the Vice
President and General Manager of the New York stations. Mr. Davis will be paid a
base salary of $225,000 per year and will receive customary executive benefits.
Additionally, he will be paid a cash bonus in the event the New York Stations
achieve certain broadcast cash flow targets. The agreement also contains a
non-competition provision for a three-month period following termination of Mr.
Davis' employment.


                                       29
<PAGE>   34
         In March 1997, the Company entered into a five-year employment
agreement with Raul Alarcon, Jr. pursuant to which Mr. Alarcon, Jr. will
continue to serve as President and Chief Executive Officer of the Company. The
agreement provides for a base salary of $1.3 million, which may be increased by
the Board of Directors in its sole discretion. Under the terms of the agreement,
Mr. Alarcon, Jr. will be paid a cash bonus equal to the sum of (i) 2.5% of the
dollar increase in same station revenue in the aggregate for any fiscal year and
(ii) 5.0% of the dollar increase in same station broadcast cash flow for any
fiscal year (collectively "Incentive Compensation"). The Company has accrued
bonuses of $215,000 which have not been paid. If Mr. Alarcon, Jr.'s employment
is terminated by the Company as a result of Mr. Alarcon, Jr.'s disability (as
defined in the agreement), or by Mr. Alarcon, Jr. for Good Reason (as defined),
he will be entitled to receive all accrued salary, bonuses and Incentive
Compensation to the date of termination plus his salary, bonuses and Incentive
Compensation for the remainder of the term of his employment agreement. Mr.
Alarcon, Jr. will also receive certain executive benefits, including use of
automobiles, and an apartment in New York City (not to exceed $150,000 per
year). Pursuant to Mr. Alarcon, Jr.'s employment agreement, and in connection
with the Offerings, the Company declared and paid a dividend of $3.4 million of
which Mr. Alarcon, Jr. received $3.1 million less the amounts owed under the
promissory note executed in 1997 from him to the Company.

OPTION PLAN

         The Company adopted a stock option plan in 1994 (the "Plan") pursuant
to which 26,750 shares of the Company's Class A Common Stock are reserved for
issuance upon the exercise of options to be granted thereunder. Officers,
directors and/or key employees of the Company are eligible to participate in the
Plan. As of September 27, 1998, no options had been granted under the Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

         The members of the Compensation Committee are Messrs. Alarcon, Jr. and
Scheiffer. Mr. Alarcon, Jr. is the President and Chief Executive Officer of the
Company. The Compensation Committee did not meet in fiscal 1998. Compensation
for the Company's executive officers for fiscal 1998 was determined by Mr.
Alarcon, Jr. See "Item 13. Certain Relationships and Related Transactions."

LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY

         The Company's Amended and Restated Certificate of Incorporation (the
"Charter") limits the liability of directors to the maximum extent permitted by
Delaware law, which specifies that a director of a company adopting such a
provision will not be personally liable for monetary damages for breach of
fiduciary duty as a director, except for liability: (i) for any breach of the
director's duty of loyalty to the company or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for unlawful payments of


                                       30
<PAGE>   35
dividends or unlawful stock repurchases or redemption's as provided in Section
174 of the Delaware General Corporation Law; or (iv) for any transaction from
which the director denied an improper personal benefit.

         The Company's By-laws provide for mandatory indemnification of
directors and authorize indemnification for officers (and others) in such
manner, under such circumstances and to the fullest extent permitted by the
Delaware General Corporation Law, which generally authorizes indemnification as
to all expenses incurred or imposed as a result of actions, suits or proceedings
if the indemnified parties act in good faith and in a manner they reasonably
believe to be in or not opposed to the best interests of the Company. The
Company believes that these provisions are necessary or useful to attract and
retain qualified persons as directors and officers.

         There is no pending litigation or proceeding involving a director or
officer as to which indemnification is being sought.

ITEM 12. COMMON STOCK

         The following table sets forth information concerning the beneficial
ownership of the Company's common stock by: (i) each person known to the Company
to own beneficially more than 5% of any class of common stock; (ii) each
director and each named executive officer; and (iii) all directors and executive
officers of the Company as a group. All shares are owned with sole voting and
investment power.

<TABLE>
<CAPTION>
                                                                     Percentage
                                                                        of    
                                                                      Economic 
                                                          Percent    Ownership 
                                                             of       of all   
                                            Class A       Class A     Common   
    Executive Officers (1)                Shares (2)       Shares      Stock   
    ----------------------                ----------      -------   ---------- 
<S>                                        <C>             <C>       <C>       
Pablo Raul Alarcon, Sr. ...........          36,400          6%          6%    
Raul Alarcon, Jr. .................         558,135         92%         92%    
Jose Grimalt ......................          12,133          2%          2%    
Arnold Sheiffer ...................            --           --          --     
Joseph Garcia .....................            --           --          --     
All executive officers and                                                     
directors as a group ..............         606,668        100%        100%    
</TABLE>                                                                       

(1)      The address of all directors and executive officers in this table,
         unless otherwise specified, is c/o Spanish Broadcasting System, Inc.,
         3191 Coral Way, Suite 805, Miami, FL 33145.

(2)      As used in this table, "beneficial ownership" means the sole or shared
         power to vote or direct the voting of a security or the sole or shared
         investment power with respect to a security (i.e., the power to
         dispose, or direct the disposition, of a security). A person is deemed
         as of any date to have "beneficial ownership" of any security that such
         person has the right to acquire


                                       31
<PAGE>   36
         within 60 days after such date. For purposes of computing the
         percentage of outstanding shares held by each person named above, any
         security that such person has the right to acquire within 60 days of
         the date of calculation is deemed to be outstanding, but is not deemed
         to be outstanding for purposes of computing the percentage ownership of
         any other person.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In 1992, Mr. Alarcon, Jr. organized Nuestra Telefonica, Inc., a New
York corporation ("Nuestra") to operate long distance telephone service in
Spanish to serve the Hispanic population in the markets served by the Company's
radio stations. In February 1993, Nuestra entered into an access agreement with
a common carrier and commenced operations. Nuestra advertised its Spanish
language long distance telephone service on the Company's radio stations in Los
Angeles and New York and purchased such airtime at standard station rates. Since
early 1994, Nuestra has not utilized any airtime on the Company's radio
stations. As of September 28, 1997 and September 27, 1998, Nuestra owed the
Company $0.4 million related to unpaid air time and $0.3 million related to
certain expenses paid by the Company on Nuestra's behalf. The amounts due are
recorded on the Company's books as a receivable and due from related party
asset, respectively. Mr. Alarcon, Jr. has personally guaranteed the payment of
$0.5 million of Nuestra's obligations to the Company. Mr. Alarcon, Jr., the
Company's President and Chief Executive Officer, is Nuestra's Chairman and
majority shareholder. Joseph A. Garcia, the Company's Chief Financial Officer,
is Nuestra's President and a minority shareholder.

         In 1992, Messrs. Alarcon, Sr. and Alarcon, Jr. acquired a building in
Coral Gables, Florida, for the purpose of housing the studios of WCMQ-AM (which
has since been sold as part of the Dispositions) and WCMQ-FM. In June 1992,
SBS-Florida, a subsidiary of the Company, entered into a 20-year net lease with
Messrs. Alarcon, Sr. and Alarcon, Jr. for the Coral Gables building which
provides for a base monthly rent of $9,000. Effective June 1, 1998 the lease on
this building was assigned to SBS Realty Corp., a realty management company
owned by Messrs. Alarcon Sr. and Jr. This building currently houses the offices
and studios of all of the Miami stations. The lease on the stations' previous
studios expired in October 1993, was for less than half the space of the
stations' present studios and had a monthly rental of approximately $7,500.
Based upon its prior lease for studio space, the Company believes that the lease
for the current studio is at market rates.

         Effective July 1993, Messrs. Alarcon, Sr. and Alarcon, Jr. executed
promissory notes to the Company for the principal amounts of $0.5 million and
$1.6 million, respectively. Those promissory notes evidenced loans made by the
Company to Messrs. Alarcon, Sr. and Alarcon, Jr. over several prior years. They
were to mature in 2001 and bore interest at the rate of six (6%) percent per
annum until July 19, 1994 and thereafter at the lesser of nine (9%) percent per
annum or the prime rate charged by the Chase Manhattan Bank, N.A. Interest on
the unpaid principal amount was payable annually. In December 1995, the Company
exchanged the promissory notes described above for amended and restated notes in
the principal amounts of $0.6 million and


                                       32
<PAGE>   37
$1.9 million due from Messrs. Alarcon, Sr. and Alarcon, Jr., respectively. The
amended and restated notes bear interest at the rate of 6.36% per annum, and
mature on December 30, 2025, and are payable in thirty (30) equal annual
installments of $43,570 and $143,158, respectively, on December 30th of each
year commencing December 30, 1996. The payments due on December 30, 1996 and
1997 have not yet been made. As of September 27, 1998 $0.6 million and $1.9
million, plus accrued and unpaid interest to date, was outstanding,
respectively, on such promissory notes.

         In connection with Mr. Alarcon, Jr's relocation from the New York
metropolitan area to the Miami metropolitan area, the Company advanced to Mr.
Alarcon, Jr. an aggregate of $1.1 million to pay certain relocation expenses.
On July 16, 1997, Mr. Alarcon, Jr. executed a promissory note to the Company for
the principal amount of $1.1 million to evidence such advances. The note was
payable on demand and bore interest at a rate of 7% per annum. When the Company
paid a dividend to common stockholders in March 1998, it applied $1.1 million
against the principal and interest due under the note.

         For the 1996, 1997 and 1998 fiscal years, the Company paid operating
expenses each fiscal year aggregating approximately $0.1 million for a boat
owned by CMQ Radio, Inc. ("CMQ"), a North Carolina corporation owned equally by
Messrs. Alarcon, Sr. and Alarcon, Jr. The boat is used by the Company for
business entertainment. For the year ended September 27, 1998, the amount paid
by the Company for its use of the boat owned by CMQ was comparable to amounts it
would have paid had the Company leased the boat from an unaffiliated party.

         The Company leases a two-bedroom furnished condominium apartment in
midtown Manhattan from Mr. Alarcon, Jr. for a monthly rent of $9,000. The lease
commenced in August 1987 and will expire in August 2007. During fiscal year
1998, the Company began renovations on the apartment of approximately $0.1
million which will ultimately cost about $0.2 million. Generally, the apartment
is used by the Company's executives, customers and business associates. The
Company believes that the lease for this apartment is at market rates. It is
also leasing an apartment in the same area from Mr. Grimalt for a monthly rent
of $3,000, which is being used by the Vice President of Programming when he is
in New York.

         Mr. Grimalt's son was employed by the Company as an operations manager
for which he was paid $128,345 and a bonus of $5,000 for the year ended
September 27, 1998.

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

         a.       EXHIBITS

         10.1     Amended and Restated Certificate of Incorporation of the
                  Company, dated March 21, 1996 (incorporated by reference to
                  Exhibit 3.1.1 of the Company's


                                       33
<PAGE>   38
                  Current Report on Form 8-K dated March 25, 1996 (the "1996
                  Current Report")).

         10.2     By-Laws of the Company (incorporated by reference to Exhibit
                  3.1.2 of the Company's Registration Statement on Form S-4
                  (Commission File No. 33-82114) (the "1994 Registration
                  Statement")).

         10.3     Certificate of Designation of Senior Exchangeable Preferred
                  Stock, Series A, filed March 27, 1997 (incorporated by
                  reference to the Current Report).

         10.4     Indenture dated June 29, 1994 among the Company, IBJ Schroder
                  Bank & Trust Company, as Trustee, the Guarantors named therein
                  and the Purchasers named therein (incorporated by reference to
                  Exhibit 4.1 of the 1994 Registration Statement).

         10.5     Second Supplemental Indenture dated as of March 21, 1997 to
                  Indenture dated as of June 29, 1994 among the Company, the
                  Guarantors named therein and IBJ Schroder Bank & Trust
                  Company, as Trustee (incorporated by reference to the Current
                  Report).

         10.6     Indenture dated as of March 15, 1997, among the Company, the
                  Guarantors named therein, IBJ Schroder Bank & Trust Company,
                  as Trustee, and CIBC Wood Gundy Securities Corp., as Initial
                  Purchaser (incorporated by reference to the Current Report).

         10.7     Exchange Debenture Indenture dated as of March 15, 1997, among
                  the Company, the Guarantors named therein, U.S. Trust Company
                  of New York, as Trustee, and CIBC Wood Gundy Securities Corp.,
                  as Initial Purchaser (incorporated by reference to the Current
                  Report).

         10.8     Securities Purchase Agreement dated as of March 24, 1997 among
                  the Company, the Guarantors named therein and CIBC Wood Gundy
                  Securities Corp., as Initial Purchaser (incorporated by
                  reference to the Current Report).

         10.9     Unit Agreement dated as of March 15, 1997 among the Company,
                  the Guarantors and IBJ Schroder Bank & Trust Company, as
                  Trustee (incorporated by reference to the Current Report).

         10.10    Warrant Agreement dated as of March 15, 1997 among the Company
                  and IBJ Schroder Bank & Trust Company, as Warrant Agent
                  (incorporated by reference to the Current Report).


                                       34
<PAGE>   39
         10.11    Common Stock Registration Rights and Stockholders Agreement
                  dated as of March 15, 1997 among the Company, certain
                  Management Stockholders named therein and CIBC Wood Gundy
                  Securities Corp., as Initial Purchaser (incorporated by
                  reference to the Current Report).

         10.12    Notes Registration Rights Agreement dated as of March 15, 1997
                  among the Company, the Guarantors named therein and CIBC Wood
                  Gundy Securities Corp., as Initial Purchaser (incorporated by
                  reference to the Current Report).

         10.13    Preferred Stock Registration Rights Agreement dated as of
                  March 15, 1997 among the Company, the Guarantors named therein
                  and CIBC Wood Gundy Securities Corp., as Initial Purchaser
                  (incorporated by reference to the Current Report).

         10.14    National Radio Sales Representation Agreement dated as of
                  February 3, 1997 between Caballero Spanish Media, L.L.C. and
                  the Company (incorporated by reference to the Current Report).

         10.15    Employment Agreement dated as of March 4, 1997 between Raul
                  Alarcon, Jr. and the Company (incorporated by reference to the
                  Current Report).

         10.16    Asset Purchase Agreement dated September 16, 1996 among Raul
                  Alarcon, Jr., New Age Broadcasting, Inc., The Seventies
                  Broadcasting Corporation and the Company, and with respect
                  only to Section 9.3 thereof, Alan Potamkin, Russell Oasis and
                  Robert Potamkin (incorporated by reference to Exhibit 10.43 of
                  the 1996 10-K).

         10.17    First Amendment to Asset Purchase Agreement dated December 26,
                  1996 among Raul Alarcon, Jr., New Age Broadcasting, Inc., The
                  Seventies Broadcasting Corporation and the Company, and with
                  respect only to Section 9.3 thereof, Alan Potamkin, Russell
                  Oasis and Robert Potamkin (incorporated by reference to the
                  Current Report).

         10.18    Second Amendment to Asset Purchase Agreement dated February
                  28, 1997 among Raul Alarcon, Jr., New Age Broadcasting, Inc.,
                  The Seventies Broadcasting Corporation and the Company, and
                  with respect only to Section 9.3 thereof, Alan Potamkin,
                  Russell Oasis and Robert Potamkin (incorporated by reference
                  to the Current Report).

         10.19    Asset Purchase Agreement dated August 22, 1996 between
                  Infinity Holdings Corp. of Orlando and the Company
                  (incorporated by reference to Exhibit 10.44 of the 1996 10-K).


                                       35
<PAGE>   40
         10.20    Letter Agreement dated January 13, 1997 between the Company
                  and Caballero Spanish Media, LLC (incorporated by reference to
                  the Current Report).

         10.21    1994 Stock Option Plan of the Company (incorporated by
                  reference to Exhibit 10.4 of the 1994 Registration Statement).

         10.22    Broadcast Station License dated September 20, 1983 issued by
                  the Federal Communications Commission ("FCC") to Sabre
                  Broadcasting Corporation in connection with WXLX-AM, together
                  with an Assignment thereof from Sabre Broadcasting Corporation
                  to Spanish Broadcasting System, Inc., a New Jersey Corporation
                  ("SBS-NJ") and evidence of license renewal (incorporated by
                  reference to Exhibit 10.8.1 of the 1994 Registration
                  Statement).

         10.23    Construction Permit dated July 21, 1993 issued by the FCC to
                  SBS-NJ in connection with WXLX-AM (incorporated by reference
                  to Exhibit 10.8.2 of the 1994 Registration Statement).

         10.24    AM Broadcast Station Construction Permit dated February 1,
                  1991 issued by the FCC to SBS-NJ in connection with WXLX-AM
                  (incorporated by reference to the 1996 Current Report).

         10.25    Ground Lease dated December 18, 1995 between Louis Viola
                  Company and SBS-NJ (incorporated by reference to the 1996
                  Current Report).

         10.26    Ground Lease dated December 18, 1995 between Frank F. Viola
                  and Estate of Thomas C. Viola and SBS-NJ (incorporated by
                  reference to the 1996 Current Report).

         10.27    Broadcast Station License dated November 23, 1994 issued by
                  the FCC to Spanish Broadcasting System of New York, Inc.
                  ("SBS-NY"), in connection with WSKQ-FM (incorporated by
                  reference to the Company's Annual Report on Form 10-K for the
                  fiscal year ended September 24, 1994 (the "1994 10-K")).

         10.28    Broadcast Station License dated September 24, 1990 issued by
                  the FCC to Spanish Broadcasting System of Florida, Inc.
                  ("SBS-Fla.") in connection with WCMQ-AM, together with
                  evidence of license renewal (incorporated by reference to
                  Exhibit 10.10 of the 1994 Registration Statement).


                                       36
<PAGE>   41
         10.29    Evidence of renewal of Federal Communications Commission
                  ("FCC") Broadcast Radio License of WCMQ-AM (incorporated by
                  reference to the 1996 Current Report).

         10.30    Broadcast Station License dated April 1, 1994 issued by the
                  FCC to SBS-Fla. in connection with WCMQ-FM, together with
                  evidence of license (incorporated by reference to Exhibit
                  10.11 of the 1994 Registration Statement).

         10.31    Evidence of renewal of FCC Broadcast Radio License for WCMQ-FM
                  (incorporated by reference to the 1996 Current Report).

         10.32    Broadcast Station License dated July 28, 1993 issued by the
                  FCC to SBS-Fla. in connection with WZMQ-FM (incorporated by
                  reference to Exhibit 10.12 of the 1994 Registration
                  Statement).

         10.33    Evidence of renewal of FCC Broadcast Radio License for WZMQ-FM
                  (incorporated by reference to the 1996 Current Report).

         10.34    Broadcast Station License dated April 8, 1986 issued by the
                  FCC to SBS-NJ in connection with KXMG-AM, together with
                  evidence of license renewal (incorporated by reference to
                  Exhibit 10.13 of the 1994 Registration Statement).

         10.35    Broadcast Station License dated February 21, 1992 issued by
                  the FCC to SBS-Fla. in connection with KLAX-FM, together with
                  evidence of license renewal (incorporated by reference to
                  Exhibit 10.14 of the 1994 Registration Statement).

         10.36    Broadcast Station License dated June 26, 1995 issued by the
                  FCC to CSJ Investments, Inc. in connection with WSKP-FM (the
                  "WSKP Broadcast License") (incorporated by reference to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  September 26, 1995 (the "1995 10-K")).

         10.37    Consent to Assignment of the WSKP Broadcast License from CSJ
                  Investments, Inc. to SBS-Fla. issued by the FCC (incorporated
                  by reference to the 1995 10-K).

         10.38    Evidence of renewal of FCC Broadcast Radio License for WSKP-FM
                  (incorporated by reference to the 1996 Current Report).


                                       37
<PAGE>   42
         10.39    Lease and License Agreement dated February 1, 1991 between
                  Empire State Building Company, as landlord, and SBS-NY, as
                  tenant (incorporated by reference to Exhibit 10.15.1 of the
                  1994 Registration Statement).

         10.40    Modification of Lease and License dated June 30, 1992 between
                  Empire State Building Company and SBS-NY related to WSKQ-FM
                  (incorporated by reference to Exhibit 10.15.2 of the 1994
                  Registration Statement).

         10.41    Lease and License Modification and Extension Agreement dated
                  as of June 30, 1992 between Empire State Building Company, as
                  landlord, and SBS-NY as tenant (incorporated by reference to
                  Exhibit 10.15.3 of the 1994 Registration Statement).

         10.42    Employment Agreement dated July 19, 1993 by and between SBS-NJ
                  and Alfredo Alonso (incorporated by reference to Exhibit 10.18
                  of the 1994 Registration Statement).

         10.43    Employment Agreement dated October 24, 1995 between SBS-NY and
                  Beatriz Pino (incorporated by reference to Exhibit 10.18 of
                  1995 10-K).

         10.44    Representation Agreement dated as of September 27, 1993
                  between Katz Communications, Inc. and SBS-NJ in connection
                  with WXLX-AM (incorporated by reference to Exhibit 10.20 of
                  the 1994 Registration Statement).

         10.45    Representation Agreement dated as of September 27, 1993
                  between Katz Communications, Inc. and SBS-NY in connection
                  with WSKQ-FM (incorporated by reference to Exhibit 10.21 of
                  the 1994 Registration Statement).

         10.46    Representation Agreement dated as of September 27, 1993
                  between Katz Communications, Inc. and SBS-CA in connection
                  with KXMG-AM (incorporated by reference to Exhibit 10.22 of
                  the 1994 Registration Statement).

         10.47    Representation Agreement dated as of September 27, 1993
                  between Katz Communications, Inc. and SBS-CA in connection
                  with KLAX-FM (incorporated by reference to Exhibit 10.23 of
                  the 1994 Registration Statement).

         


                                       38
<PAGE>   43
                  (incorporated by reference to Exhibit 10.24 of the 1994
                  Registration Statement).

         10.49    Representation Agreement dated as of September 27, 1993
                  between Katz Communications, Inc. and SBS-Fla. in connection
                  with WCMQ-FM (incorporated by reference to Exhibit 10.25 of
                  the 1994 Registration Statement).

         10.50    Representation Agreement dated as of September 27, 1993
                  between Katz Communications, Inc. and SBS-Fla. in connection
                  with WZMQ-FM (incorporated by reference to Exhibit 10.26 of
                  the 1994 Registration Statement).

         10.51    Promissory Note, dated as of December 31, 1995 of Raul
                  Alarcon, Sr. to SBS-NJ in the principal amount of $577,323
                  (incorporated by reference to Exhibit 10.26 of the 1995 10-K).

         10.52    Promissory Note, dated as of December 31, 1995 of Raul
                  Alarcon, Jr. to SBS-NJ in the principal amount of $1,896,913
                  (incorporated by reference to Exhibit 10.27 of the 1995 10-K).

         10.53    Lease Agreement dated June 1, 1992 among Raul Alarcon, Sr.,
                  Raul Alarcon, Jr. and SBS-Fla. (incorporated by reference to
                  Exhibit 10.30 of the 1994 Registration Statement).

         10.54    Transmitted Facility Sublicense (KTYM/KSKQ-FM) dated as of
                  June 1, 1991 between Trans-America Broadcasting Corporation
                  and SBS-CA relating to KSKQ-FM (Baldwin Hills Tower Lease)
                  (incorporated by reference to Exhibit 10.31 of the 1994
                  Registration Statement).

         10.55    Indenture dated October 12, 1988 between Alarcon Holdings,
                  Inc. and SBS-NJ related to the studio located at 26 West 56th
                  Street, NY, NY (incorporated by reference to Exhibit 10.32 of
                  the 1994 Registration Statement).

         10.56    Communications Equipment Site Lease Agreement between Freeman
                  Properties, Inc. and SBS-Fla. dated July 1, 1992
                  (WZMQ/WKLG-FM) (incorporated by reference to Exhibit 10.33 of
                  the 1994 Registration Statement).

         10.57    Lease Option Agreement made as of October 1, 1995 between
                  KPWR, Inc. and the Company relating to Flint Peak
                  (incorporated by reference to the 1996 Current Report).


                                       39
<PAGE>   44
         10.58    Form of Lease Agreement by and between KPWR, Inc. and the
                  Company relating to KLAX (incorporated by reference to the
                  1996 Current Report).

         10.59    Asset Purchase Agreement dated as of October 30, 1995 between
                  SBS-NJ and Park Radio of Greater New York, Inc. ("Park Radio")
                  (incorporated by reference to Exhibit 10.32 of the 1995 10-K).

         10.60    First Amendment dated as of March 18, 1996 to the Asset
                  Purchase Agreement dated as of October 1995, among SBS-NJ,
                  Park Radio and SBS of Greater New York ("SBS-GNY")
                  (incorporated by reference to the 1996 Current Report).

         10.61    Escrow Agreement dated as of October 30, 1995 by and among
                  SBS-NJ, Park Radio and Media Ventures (incorporated by
                  reference to the 1996 Current Report).

         10.62    Time Brokerage Agreement dated as of January 20, 1995 between
                  the SBS-GNY and Park Radio (incorporated by reference to the
                  1996 Current Report).

         10.63    Broadcast Station License dated June 1, 1984 issued by the FCC
                  to Capital Cities Communications, Inc. ("Capital Cities") in
                  connection with WPAT-FM, together with FCC License Renewal
                  authorization granted October 29, 1991 to Park Radio, as
                  assignee of Capital Cities and the assignment of the Broadcast
                  Station License for WPAT-FM from Park Radio to SBS-NY
                  (incorporated by reference to the 1996 Current Report).

         10.64    Agreement of Lease dated as of March 1, 1996. No WT-1744-A119
                  1067 between The Port Authority of New Jersey and SBS-GNY as
                  assignee of Park Radio (incorporated by reference to the 1996
                  Current Report).

         10.65    Asset Purchase Agreement dated as of July 2, 1998, by and
                  between Spanish Broadcasting System, Inc. (New Jersey),
                  Spanish Broadcasting System of California, Inc., Spanish
                  Broadcasting System of Florida, Inc., Spanish Broadcasting
                  System, Inc., and One-on-One Sports, Inc. (incorporated by
                  reference to Exhibit 10.62 of the Company's Registration
                  Statement on Form S-4 (Commission File No. 333-26295)).

         10.66    Amendment No. 1 dated as of September 28, 1998 to the Asset
                  Purchase Agreement dated as of July 2, 1998, by and between
                  Spanish Broadcasting System, Inc. (New Jersey), Spanish
                  Broadcasting System of California, Inc., Spanish Broadcasting
                  System of Florida, Inc., Spanish Broadcasting System, Inc. and
                  One-on-One Sports, Inc. (incorporated by reference to the


                                       40
<PAGE>   45
                  Company's Current Report on Form 8-K dated October 15, 1997
                  (Commission File No. 33-82114).

         10.67    Promissory Note, dated July 16, 1997 of Raul Alarcon, Jr. to
                  the Company in the principal amount of $1,050,229.63
                  (incorporated by reference to Exhibit 10.63 of the Company's
                  Registration Statement on Form S-4 (Commission File No.
                  333-26295).

         10.68    Asset Purchase Agreement dated January 28, 1998 by and between
                  Spanish Broadcasting System of San Antonio, Inc. and Radio
                  KRIO, Ltd. (incorporated by reference in the Company's 
                  Form 10-Q dated February 12, 1998).

         10.69    Asset Purchase Agreement dated June 16, 1998 by and between
                  Spanish Broadcasting System of Puerto Rico, Inc. and Pan
                  Caribbean Broadcasting Corporation.

         10.70    Extension of lease of a Condominium Unit (Metropolitan Tower
                  Condominium) between Raul Alarcon, Jr. ("Landlord") and
                  Spanish Broadcasting System, Inc. ("Tenant").


                                       41
<PAGE>   46
                                   SIGNATURES

         Pursuant to the requirements of sections 13 or 15(d) 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 on this 24 day of
December, 1998.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and as of December 24, 1998.

SPANISH BROADCASTING SYSTEM, INC.

By:      /s/ RAUL ALARCON, JR.
         -------------------------------------------------------------
Name:    Raul Alarcon, Jr.
Title:   President and Chief Executive Officer

By:               /s/ RAUL ALARCON, JR.
         -------------------------------------------------------------
         Name:    Raul Alarcon, Jr.
         Title:   President, Chief Executive Officer and a Director
                  (Principal executive officer)

By:               /s/ JOSEPH A. GARCIA
         -------------------------------------------------------------
         Name:    Joseph A. Garcia
         Title:   Executive Vice President and Chief Financial Officer
                  (Principal financial and accounting officer)

By:               /s/ PABLO RAUL ALARCON, SR.
         -------------------------------------------------------------
         Name:    Pablo Raul Alarcon, Sr.
         Title:   Chairman of the Board of Directors

By:               /s/ JOSE GRIMALT
         -------------------------------------------------------------
         Name:    Jose Grimalt
         Title:   Secretary and a Director

By:               /s/ ARNOLD SHEIFFER
         -------------------------------------------------------------
         Name:    Arnold Sheiffer
         Title:   Director
<PAGE>   47
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                 Index to Consolidated Financial Statements and
      Financial Statement Schedule Covered by Independent Auditors' Report

                                 (Item 14 (A) 1)

<TABLE>
<S>                                                                                    <C>
Independent Auditors' Report                                                           F - 1

Consolidated Balance Sheets as of September 28, 1997 and September 27, 1998            F - 2

Consolidated Statements of Operations for each of the fiscal years in the
   three-year period ended September 27, 1998                                          F - 3

Consolidated Statements of Changes in Stockholders' Deficiency for each
   of the fiscal years in the three-year period ended September 27, 1998               F - 4

Consolidated Statements of Cash Flows for each of the fiscal years in the
   three-year period ended September 27, 1998                                          F - 5

Notes to Consolidated Financial Statements                                             F - 7

Financial statement schedule for each of the fiscal years in the three-year
   period ended September 27, 1998:

        Schedule II  Valuation and Qualifying Accounts                                 F - 25
</TABLE>

All other schedules have been omitted because the required information either is
not applicable or is included in the consolidated financial statements or notes
thereto.
<PAGE>   48
                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Spanish Broadcasting System, Inc.:

We have audited the consolidated financial statements of Spanish Broadcasting
System, Inc. and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spanish Broadcasting
System, Inc. and subsidiaries as of September 28, 1997 and September 27, 1998,
and the results of their operations and their cash flows for each of the fiscal
years in the three-year period ended September 27, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

    /s/ KPMG Peat Marwick LLP

Miami, Florida
December 11, 1998


                                      F-1
<PAGE>   49
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                    September 28, 1997 and September 27, 1998


<TABLE>
<CAPTION>
                                                                                           1997                 1998
                                                                                      -------------        -------------
<S>                                                                                   <C>                     <C>       
                                      ASSETS
Current assets:
    Cash and cash equivalents                                                         $  12,287,764           37,642,227
    Receivables:
       Trade (note 8)                                                                    17,226,345           20,777,151
       Barter                                                                             3,290,728            3,582,751
                                                                                      -------------        -------------
                                                                                         20,517,073           24,359,902
    Less allowance for doubtful accounts                                                  5,405,095            7,770,060
                                                                                      -------------        -------------
                   Net receivables                                                       15,111,978           16,589,842
    Other current assets                                                                  1,409,906            1,822,584
                                                                                      -------------        -------------
                   Total current assets                                                  28,809,648           56,054,653
Property and equipment, net (notes 5 and 10)                                             18,409,415           14,942,933
Franchise costs, net of accumulated amortization of $22,048,929
    in 1997 and $27,563,051 in 1998                                                     273,631,766          272,261,440
Deferred financing costs, net of accumulated amortization
    of $3,038,202 in 1997 and $4,257,074 in 1998 (note 6)                                 9,262,314            7,275,980
Due from related party (note 8)                                                             289,869              289,869
Deferred income taxes (note 11)                                                           3,674,287                 --   
Other assets                                                                                289,784              209,301
                                                                                      -------------        -------------

                                                                                      $ 334,367,083          351,034,176
                                                                                      =============        =============

                     LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
    Current portion of Senior unsecured notes (note 6)                                $  15,000,000                 --   
    Current portion of other long-term debt (note 7)                                         44,644               47,496
    Accounts payable                                                                      1,367,572            2,612,952
    Accrued expenses                                                                      3,722,777            5,838,808
    Accrued interest                                                                      4,536,627            3,941,088
    Unearned revenue                                                                      1,551,255            2,141,456
    Dividends payable                                                                       960,761            1,124,360
                                                                                      -------------        -------------
                   Total current liabilities                                             27,183,636           15,706,160
12.5% Senior unsecured notes due 2002, net of unamortized
    discount of $3,238,037 in 1997 and $2,724,535 in 1998 (note 6)                       88,820,963           91,668,465
11% Senior secured notes due 2004 (note 6)                                               75,000,000           75,000,000
Other long-term debt, less current portion (note 7)                                       4,147,676            4,410,505
Deferred income taxes (note 11)                                                                --              9,074,596
Redeemable Preferred Stock:
    14.25% Senior Exchangeable Preferred Stock, $.01 par value. Authorized
       413,930 shares, issued and outstanding 186,706 shares (liquidation value
       $186,706,000) in 1997 and 214,260 shares
       (liquidation value $214,260,000) in 1998 (note 6)                                171,261,919          201,367,927
Stockholders' deficiency (notes 6 and 9):
    Class A common stock, $.01 par value. Authorized 5,000,000 shares;
       issued and outstanding 558,135 shares in 1997 and 606,668 in 1998                      5,581                6,066
    Class B common stock, $.01 par value.  Authorized 200,000 shares;
        issued and outstanding 48,533 shares in 1997 and -0- in 1998                            485                 --   
    Additional paid-in capital                                                            6,590,473            6,864,301
    Accumulated deficit                                                                 (35,119,184)         (50,604,436)
                                                                                      -------------        -------------
                                                                                        (28,522,645)         (43,734,069)
Less loans receivable from stockholders (note 8)                                         (3,524,466)          (2,459,408)
                                                                                      -------------        -------------

                   Total stockholders' deficiency                                       (32,047,111)         (46,193,477)

Commitments and contingencies (notes 10 and 12)
                                                                                      -------------        -------------

                                                                                      $ 334,367,083          351,034,176
                                                                                      =============        =============
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-2
<PAGE>   50
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Operations

                     Fiscal years ended September 29, 1996,
                        September 28, 1997 
                             and September 27, 1998



<TABLE>
<CAPTION>
                                                            1996                1997                1998
                                                        ------------        ------------        ------------
<S>                                                     <C>                   <C>                 <C>       
Gross revenues                                          $ 55,337,720          67,981,407          86,766,158
Less agency commissions                                    6,702,302           7,971,827          10,623,062
                                                        ------------        ------------        ------------

                   Net revenues                           48,635,418          60,009,580          76,143,096
                                                        ------------        ------------        ------------

Operating expenses:
    Engineering                                            1,773,027           2,099,116           1,924,744
    Programming                                            5,864,066           7,081,521           8,462,258
    Selling                                               13,864,695          14,980,035          18,574,529
    General and administrative                             6,374,622           6,879,443          10,558,965
    Corporate expenses                                     3,747,714           5,595,403           6,892,705
    Depreciation and amortization                          4,555,978           7,618,921           8,876,876
                                                        ------------        ------------        ------------

                                                          36,180,102          44,254,439          55,290,077
                                                        ------------        ------------        ------------

                   Operating income                       12,455,316          15,755,141          20,853,019

Other income (expense):
    Interest expense, net of interest income of
       $547,952 in 1996, $462,358 in 1997 and
       $1,902,762 in 1998                                (16,533,278)        (22,201,114)        (20,860,210)
    Financing costs                                         (876,579)           (299,240)           (213,239)
    Other, net (note 5)                                     (697,741)           (491,308)               --   
    Gain on sale of AM stations (note 4)                        --                  --            36,241,947
                                                        ------------        ------------        ------------

                   Income (loss) before income
                     taxes and extraordinary item         (5,652,282)         (7,236,521)         36,021,517

Income tax expense (benefit) (note 11)                    (1,165,800)         (2,714,411)         15,624,032
                                                        ------------        ------------        ------------

Income (loss) before extraordinary item                   (4,486,482)         (4,522,110)         20,397,485

Extraordinary item-loss on extinguishment
    of debt, net of income taxes of $1,097,836
    in 1997 and $1,075,149 in 1998 (note 4)                     --            (1,646,753)         (1,612,723)
                                                        ------------        ------------        ------------

                   Net income (loss)                    $ (4,486,482)         (6,168,863)         18,784,762
                                                        ============        ============        ============
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>   51
                        SPANISH BROADCASTING SYSTEM, INC.

         Consolidated Statements of Changes in Stockholders' Deficiency

Fiscal years ended September 29, 1996, September 28, 1997 and September 27, 1998

<TABLE>
<CAPTION>
                                                                                                                                    
                                                                                                                        TOTAL PAR   
                                                       CLASS A COMMON STOCK            CLASS B COMMON STOCK               VALUE     
                                                    ---------------------------     ---------------------------
                                                    NO. OF SHARES   PAR VALUE       NO. OF SHARES    PAR VALUE         COMMON STOCK 
                                                    -------------  ------------     -------------   -----------        ------------ 
<S>                                                <C>             <C>             <C>              <C>                    <C>      
Balance at September 24, 1995                          558,135     $     5,581          48,533      $       485            6,066    

Increase in loans receivable from stockholders            --              --              --               --               --      

Costs associated with issuance of Redeemable
    Series A Preferred Stock (note 5)                     --              --              --               --               --      

Issuance of warrants (note 5)                             --              --              --               --               --      

Accretion of preferred stock                              --              --              --               --               --      

Preferred stock issued as dividends (note 5)              --              --              --               --               --      

Net loss                                                  --              --              --               --               --      
                                                   -----------     -----------     -----------      -----------      -----------    

Balance at September 29, 1996                          558,135           5,581          48,533              485            6,066    

Retirement of preferred stock and warrants                --              --              --               --               --      

Issuance of warrants                                      --              --              --               --               --      

Accretion of preferred stock                              --              --              --               --               --      

Preferred stock issued as dividends                       --              --              --               --               --      

Cash dividends on preferred stock                         --              --              --               --               --      

Issuance costs for preferred stock                        --              --              --               --               --      

Increase in loans receivable from stockholders            --              --              --               --               --      

Net loss                                                  --              --              --               --               --      
                                                   -----------     -----------     -----------      -----------      -----------    

Balance at September 28, 1997                          558,135           5,581          48,533              485            6,066    

Preferred stock issued as dividends                       --              --              --               --               --      

Accretion of preferred stock                              --              --              --               --               --      

Decrease in loans receivable from stockholders            --              --              --               --               --      

Cash dividends on common stock                            --              --              --               --               --      

Dividends on preferred stock                              --              --              --               --               --      

Issuance of warrants as dividends                         --              --              --               --               --      

Conversion of common stock                              48,533             485         (48,533)            (485)            --      

Net income                                                --              --              --               --               --      
                                                   -----------     -----------     -----------      -----------      -----------    

Balance at September 27, 1998                          606,668     $     6,066            --        $      --              6,066    
                                                   ===========     ===========     ===========      ===========      ===========    
</TABLE>

<TABLE>
<CAPTION>
                                                                                       LESS: LOANS
                                                     ADDITIONAL                        RECEIVABLE         TOTAL
                                                      PAID-IN         ACCUMULATED         FROM         STOCKHOLDERS'
                                                      CAPITAL           DEFICIT        STOCKHOLDERS     DEFICIENCY
                                                     ----------       -----------      ------------    ------------
<S>                                                   <C>            <C>               <C>             <C>         
Balance at September 24, 1995                         5,690,934       (4,425,882)      (2,421,272)      (1,150,154)

Increase in loans receivable from stockholders             --               --            (52,964)         (52,964)

Costs associated with issuance of Redeemable
    Series A Preferred Stock (note 5)                (1,718,437)            --               --         (1,718,437)

Issuance of warrants (note 5)                         6,833,507             --               --          6,833,507

Accretion of preferred stock                               --           (541,416)            --           (541,416)

Preferred stock issued as dividends (note 5)               --         (2,452,910)            --         (2,452,910)

Net loss                                                   --         (4,486,482)            --         (4,486,482)
                                                    -----------      -----------      -----------      -----------

Balance at September 29, 1996                        10,806,004      (11,906,690)      (2,474,236)      (3,568,856)

Retirement of preferred stock and warrants          (11,887,981)            --               --        (11,887,981)

Issuance of warrants                                 16,625,000             --               --         16,625,000

Accretion of preferred stock                               --         (1,659,695)            --         (1,659,695)

Preferred stock issued as dividends                        --        (13,030,211)            --        (13,030,211)

Cash dividends on preferred stock                          --         (2,353,725)            --         (2,353,725)

Issuance costs for preferred stock                   (8,952,550)            --               --         (8,952,550)

Increase in loans receivable from stockholders             --               --         (1,050,230)      (1,050,230)

Net loss                                                   --         (6,168,863)            --         (6,168,863)
                                                    -----------      -----------      -----------      -----------

Balance at September 28, 1997                         6,590,473      (35,119,184)      (3,524,466)     (32,047,111)

Preferred stock issued as dividends                        --        (27,553,543)            --        (27,553,543)

Accretion of preferred stock                               --         (2,552,465)            --         (2,552,465)

Decrease in loans receivable from stockholders             --               --            14,827            14,827

Cash dividends on common stock                             --         (3,726,579)       1,050,231       (2,676,348)

Dividends on preferred stock                               --           (163,599)            --           (163,599)

Issuance of warrants as dividends                       273,828         (273,828)            --               --   

Conversion of common stock                                 --               --               --               --   

Net income                                                 --         18,784,762             --         18,784,762
                                                    -----------      -----------      -----------      -----------

Balance at September 27, 1998                         6,864,301      (50,604,436)      (2,459,408)     (46,193,477)
                                                    ===========      ===========      ===========      ===========
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>   52
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                        Fiscal years ended September 29,
                          1996, September 28, 1997 and
                               September 27, 1998


<TABLE>
<CAPTION>
                                                                       1996              1997              1998
                                                                   ------------      ------------      ------------
Cash flows from operating activities:
<S>                                                                <C>                 <C>               <C>       
    Net income (loss)                                              $ (4,486,482)       (6,168,863)       18,784,762
                                                                   ------------      ------------      ------------
    Adjustments to reconcile net income (loss) to
        net cash provided by operating activities:
          Loss on extinguishment of debt                                                2,744,589         2,687,872
          Gain on sale of AM stations                                      --                --         (36,241,947)
          Depreciation and amortization                               4,555,978         7,618,921         8,876,876
          Change in allowance for doubtful accounts                    (674,123)          894,332         2,364,965
          Amortization of debt discount                               5,591,004         4,772,539           658,297
          Interest satisfied through issuance of notes                2,199,121         1,185,722                   
          Amortization of deferred financing costs                      984,001         1,390,736         1,555,016
          Write down of fixed assets                                    697,741           487,973              --   
          Accretion of interest to principal on other
            long-term debt                                                 --             161,523           307,200
          Deferred income taxes                                      (1,357,722)       (4,062,247)       12,748,883
          Changes in operating assets and liabilities:
            Decrease (increase) decrease in receivables               1,043,961        (5,176,284)       (3,842,829)
            Increase in other current assets                           (762,897)         (294,574)         (412,678)
            Decrease (increase) decrease in other assets                148,272          (158,490)           80,483
            Increase (decrease) in accounts payable                     310,374          (196,443)        1,245,380
            Increase in accrued expenses                                292,468           368,585         2,116,031
            Increase (decrease) in accrued interest                      52,702         2,142,006          (595,539)
            Increase in unearned revenue                                218,381           675,999           590,201
                                                                   ------------      ------------      ------------

                   Total adjustments                                 13,299,261        12,554,887        (7,861,789)
                                                                   ------------      ------------      ------------

                   Net cash provided by operating activities          8,812,779         6,386,024        10,922,973
                                                                   ------------      ------------      ------------

Cash flows from investing activities:
    Proceeds from sale of AM stations, net of
       disposal costs of $838,167 in 1998                                  --                --          43,161,833
    Additions to property and equipment                              (3,811,436)       (2,022,344)       (1,644,533)
    Acquisition of radio licenses                                   (86,358,962)     (142,335,513)       (9,327,713)
    Increase in franchise costs                                         (24,980)             --                --   
                                                                   ------------      ------------      ------------

                   Net cash provided by (used in)
                       investing activities                         (90,195,378)     (144,357,857)       32,189,587
                                                                   ------------      ------------      ------------
</TABLE>

                                      F-5
<PAGE>   53
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                        Fiscal years ended September 29,
                          1996, September 28, 1997 and
                               September 27, 1998


<TABLE>
<CAPTION>
                                                                    1996               1997               1998
                                                                -------------      -------------      -------------
Cash flows from financing activities:
<S>                                                             <C>                   <C>                <C>       
    Dividends on common stock                                   $        --                 --           (2,676,348)
    Purchase of Senior unsecured notes                                   --                             (15,055,055)
    Retirement of Senior secured notes                                   --           (38,414,562)             --
    Retirement of Series A preferred stock                               --           (42,699,590)             --
    Redemption of warrants                                               --            (8,323,000)             --
    Repayments of debt, including accrued interest                   (120,691)            (56,143)          (41,521)
    Proceeds from senior notes, net of financing costs of
      $1,605,426 in 1996 and $5,712,407 in 1997                    33,394,574         69,287,593               --   
    Proceeds from Redeemable Series A Preferred stock
       and warrants, net of issuance cost of $1,718,437
       in 1996 and $8,952,550 in 1997                              35,781,563         166,047,450               --   
    Decrease in deferred financing costs                               33,999               --                 --   
    Decrease (increase) in loans receivable from stockholders         (52,964)        (1,050,230)            14,827
    Advances to related party                                          (2,922)              --                 --   
                                                                -------------      -------------      -------------

                   Net cash provided by (used in) financing
                      activities                                   69,033,559        144,791,518        (17,758,097)
                                                                -------------      -------------      -------------

                   Net (decrease) increase in cash and cash
                      equivalents                                 (12,349,040)         6,819,685         25,354,463

Cash and cash equivalents at beginning of year                     17,817,119          5,468,079         12,287,764
                                                                -------------      -------------      -------------

Cash and cash equivalents at end of year                        $   5,468,079         12,287,764         37,642,227
                                                                =============      =============      =============

Supplemental cash flow information:
    Interest paid during the year                               $   8,254,402         13,175,308         20,561,613
                                                                =============      =============      =============

    Income taxes paid during the year                           $     632,990            294,262          1,787,191
                                                                =============      =============      =============

Noncash investing and financing activities:
    Issuance of notes as payment for interest                   $   2,199,122          1,185,722               --   
                                                                =============      =============      =============


    Issuance of preferred stock as payment of dividends         $   2,452,910         13,030,211         27,553,543
                                                                =============      =============      =============

    Issuance of warrants as payment of dividends                $        --                 --              273,828
                                                                =============      =============      =============
    Issuance of note as payment towards 
       purchase price of radio station                          $        --            3,000,000               --
                                                                =============      =============      =============
    Repayment of stockholder loan and 
       accrued interest through dividend withholding            $        --                 --            1,098,368
                                                                =============      =============      =============


</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>   54
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


(1)    ORGANIZATION AND NATURE OF BUSINESS

       The Company owns and operates eleven Spanish-language radio stations
       serving the New York, Miami, Chicago, San Antonio and Los Angeles markets
       through its subsidiaries, SBS of Greater New York, Inc., Spanish
       Broadcasting System of Florida, Inc. Spanish Broadcasting System of
       California, Inc., Spanish Broadcasting System of Greater Miami, Inc.,
       Spanish Broadcasting System of San Antonio, Inc. and Spanish Broadcasting
       System of Illinois, Inc. Additionally, the Company's other subsidiaries
       include Alarcon Holdings, Inc. ("Alarcon"), Spanish Broadcasting System
       Network, Inc. ("SBS Network") and SBS Promotions, Inc. ("SBS
       Promotions"). Alarcon owns and operates the building where the Company's
       New York offices are located. SBS Network and SBS Promotions are
       currently dormant. SBS Network was formerly the Company's exclusive
       agency representative for national advertising sales. SBS Promotions
       formerly performed promotional services for the Company's radio stations.


(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS

       (a)    BASIS OF PRESENTATION
              The consolidated financial statements include the accounts of the
              Company and its subsidiaries. The Company is a holding company
              with no independent assets or operations other than its
              investments in subsidiaries. All significant intercompany balances
              and transactions have been eliminated in consolidation.

              The Company's subsidiaries (hereinafter referred to in this
              paragraph collectively as "Subsidiary Guarantors") are fully,
              unconditionally, and jointly and severally liable for the
              Company's senior unsecured notes and new senior secured notes
              referred to in note 6. The Subsidiary Guarantors are wholly owned
              and constitute all of the Company's subsidiaries. The Company has
              not included separate financial statements of the aforementioned
              subsidiaries because (i) the aggregate assets, liabilities,
              earnings and equity of such subsidiaries are substantially
              equivalent to the assets, liabilities, earnings and equity of the
              Company on a consolidated basis, and (ii) the separate financial
              statements and other disclosures concerning such subsidiaries are
              not deemed material to investors.

              The Company's fiscal year is the 52-week period which ends on the
              last Sunday of September.

                                      F-7
<PAGE>   55
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


        (B)   REVENUE RECOGNITION

              Revenues are recognized when advertisements are aired.

        (C)   PROPERTY AND EQUIPMENT

              Property and equipment are stated at cost. The Company depreciates
              the cost of its property and equipment using the straight-line
              method over the respective estimated useful lives. Leasehold
              improvements are amortized on a straight-line basis over the
              shorter of the remaining life of the lease or the useful life of
              the improvements.

              The Company capitalized interest in connection with the renovation
              of its facilities. The capitalized interest is recorded as part of
              the related building and is amortized over the estimated useful
              life of the building.

       (D)    LONG-LIVED ASSETS

              The Company follows the provisions of Statement of Financial
              Accounting Standards No. 121, (Statement 121) "Accounting for the
              Impairment of Long-Lived Assets and for Long-Lived Assets to be
              Disposed of." Statement 121 requires that long-lived assets and
              certain identifiable intangibles to be held and used or disposed
              of by an entity be reviewed for impairment whenever events or
              changes in circumstances indicate that the carrying amount of an
              asset may not be recoverable. See note 5 for impairment losses
              related to fixed assets.

       (E)    FRANCHISE COSTS

              Franchise costs represent the excess cost to acquire the Company's
              radio station assets over the allocated fair value of the net
              tangible assets acquired and are amortized on a straight-line
              basis over periods not exceeding 40 years, based on the industry
              practice of renewing franchises periodically. In evaluating the
              recoverability of franchise costs, management gives consideration
              to a number of factors, including analysis of the estimated future
              undiscounted cash flows from operations for each market, the
              dispositions of other radio properties in specific markets and
              input from appraisers.

       (F)    FINANCING COSTS

              During fiscal 1996, the Company expensed $0.9 million of costs
              related to an initial public offering that was aborted. The net
              deferred financing costs at September 28, 1997 and September 27,
              1998 amount to $9.3 million and $7.3 million, respectively. These
              balances relate to the successful refinancing of the Company's
              debt and additional financing obtained in connection with
              Company's acquisition of WXDJ-FM and WRMA-FM in Miami and WLEY-FM
              in Chicago (see note 6).

                                      F-8
<PAGE>   56
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


              Deferred financing costs are being amortized using a method which
              approximates the effective interest method over the respective
              lives of the related indebtedness.

       (G)    BARTER TRANSACTIONS

              The Company records barter transactions at the fair value of goods
              or services received.

       (H)    CASH EQUIVALENTS

              Cash equivalents, consisting primarily of interest-bearing money
              market accounts and certificates of deposits, totaled $12.3
              million and $37.6 million at September 28, 1997 and September 27,
              1998, respectively.

       (I)    INCOME TAXES

              The Company files a consolidated Federal income tax return with
              its subsidiaries. The Company accounts for income taxes under the
              asset and liability method. Deferred tax assets and liabilities
              are recognized for the future tax consequences attributable to
              differences between the financial statement carrying amounts of
              existing assets and liabilities and their respective tax bases and
              operating loss and tax credit carryforwards. Deferred tax assets
              and liabilities are measured using enacted tax rates expected to
              apply to taxable income in the years in which those temporary
              differences are expected to be recovered or settled. The effect on
              deferred tax assets and liabilities of a change in tax rates is
              recognized in income in the period that includes the enactment
              date.

       (J)    USE OF ESTIMATES

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

                                      F-9
<PAGE>   57
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


       (k)    CONCENTRATION OF RISK

              All of the Company's business is conducted in the New York, Miami,
              Los Angeles, Chicago and San Antonio markets. Net revenue earned
              from radio stations in these markets as a percentage of total
              revenue for the fiscal years ended September 29, 1996, September
              28, 1997 and September 27, 1998 is as follows:

<TABLE>
<CAPTION>
                                                1996                 1997                 1998
                                                ----                 ----                 ----
<S>                                             <C>                  <C>                   <C>
          New York                              51%                  49%                   44%
          Miami                                 17%                  22%                   28%
          Los Angeles                           32%                  28%                   17%
          Chicago                                 -                   1%                   11%
          San Antonio                                                  -                    -
                                                ---                  ---                  --- 
                                                100%                 100%                 100%
                                                ===                  ===                  === 
</TABLE>

              The increase in market concentration risk in Miami and Chicago in
              fiscal 1997 and 1998 results from the acquisitions of WRMA-FM and
              WXDJ-FM in Miami and WYSY-FM in Chicago as discussed in note 3.


(3)    ACQUISITIONS

       On March 25, 1996, the Company acquired the FCC broadcast license and
       substantially all of the assets used or useful in the operation of radio
       station WPAT-FM for $84.6 million, plus financing and closing costs of
       $1.8 million. The Company assumed operational responsibility of WPAT-FM
       on January 20, 1996 under an interim agreement, at which time the Company
       changed the musical format of WPAT-FM to Spanish language adult
       contemporary. The Company financed the acquisition of WPAT-FM through 
       the issuance of the Senior Notes and Preferred Stock in March 1996 (See 
       Note 6).

       On March 27, 1997, the Company acquired the FCC broadcast licenses and
       substantially all of the assets used or useful in the operation of
       WYSY-FM in Chicago for $33.0 million plus financing and closing costs of
       $0.5 million.

       On March 27, 1997, the Company acquired the FCC broadcast licenses and
       substantially all of the assets used or useful in the operation of
       WRMA-FM and WXDJ-FM in Miami for $111.0 million plus financing and
       closing costs of $0.8 million.

       The Company financed the purchases of WYSY-FM, WRMA-FM and WXDJ-FM with
       proceeds from a combination of issuances consisting of 175,000 shares of
       the Company's 14 1/4% Series A, Senior Exchangeable Preferred Stock (see
       note 6) and warrants to purchase 74,900 shares of the Company's Class A 
       common stock (par value $.01 per share) and $75 million aggregate 
       principal amount of the Company's 11% Senior Notes due 2004 (see note 
       6), plus a note payable to the seller of WYSY-FM for $3.0 million.

                                      F-10
<PAGE>   58
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


       On May 13, 1998, the Company acquired the FCC broadcast license and
       substantially all of the assets used or useful in the operation of radio
       station KRIO-FM serving the San Antonio area for $9.2 million, plus
       closing costs of $0.1 million. The Company financed this purchase from
       cash on hand and from operations. The Company subsequently changed the
       call letters to KLEY-FM.

       The Company's consolidated results of operations include the results of
       WPAT-FM, WYSY-FM, WRMA-FM, WXDJ-FM and KRIO-FM from the respective dates
       of acquisition. These acquisitions have been accounted for under the
       purchase method of accounting. The purchase price has been allocated to
       the assets acquired, principally franchise costs, based on their
       estimated fair values at the date of acquisition.

       The following unaudited proforma summary presents the consolidated
       results of operations as if the acquisitions had occurred as of the
       beginning of fiscal 1997 after giving effect to certain adjustments,
       including amortization of franchise costs and interest expense on the
       acquisition debt. These pro forma results have been prepared for
       comparative purposes only and do not purport to be indicative of what
       would have occurred had the acquisitions been made as of that date or of
       results which may occur in the future. The results of WYSY-FM and KRIO-FM
       prior to their respective acquisition dates have not been included in the
       proforma summary as these acquisitions do not meet the significance test
       for presentation of proforma information.

<TABLE>
<CAPTION>
                                                                    YEAR ENDED
                                                                SEPTEMBER 28, 1997
                                                                ------------------
                                                                   (UNAUDITED)

<S>                                                            <C>
              Net revenues                                     $       66,762,000
              Loss before extraordinary item                           (3,498,000)
              Net loss                                                 (5,145,000)
</TABLE>


(4)    SALE OF AM STATIONS

       On July 2, 1997, the Company entered into a definitive agreement (as
       amended, the "One-on-One Agreement") with One-on-One Sports, Inc.
       ("One-on-One") for the sale of the assets and FCC licenses of radio
       stations WXLX-AM, serving the New York metropolitan area, KXMG-AM,
       serving the Los Angeles metropolitan area, and WCMQ-AM, serving the Miami
       metropolitan area. The One-on-One Agreement contained customary
       representations, warranties and conditions, including receipt of FCC
       approval to the transfer of the FCC licenses. Pursuant to the One-on-One
       Agreement, on September 29, 1997, the Company sold the assets and FCC
       licenses of WXLX-AM and WCMQ-AM to One-on-One for a sales price of $26.0
       million and recorded a gain of $18.6 million. On December 2, 1997, the
       Company consummated the sale of the assets and FCC license of KXMG-AM to
       One-on-One for a sales price of $18.0 million and recorded a gain of
       $17.6 million. These transactions are classified under other income as
       Gain on sale of AM stations.

                                      F-11
<PAGE>   59
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


       Pursuant to the 1994 12.5% Senior Notes due 2002 (the "Notes") (see note
       6) the Company is required to use the greater of $25.0 million or 50% of
       the net proceeds from any disposition of certain asset sales including
       the FCC broadcast licenses of the aforementioned AM stations to make
       offers to purchase the Notes at 110% of the principal value thereof.

       On October 17, 1997, the Company made a "Tender Offer" to purchase for
       cash any and all of the Notes up to $22.7 million plus accrued interest
       up to, but not including the payment date. The amount payable by the
       Company was 110% of the principal amount of the Notes. The Company paid
       $15.7 million to the noteholders who responded to the "Tender Offer" and
       purchased $13.2 million in principal amount of Notes for $15.0 million
       plus accrued interest of $0.7 million in October and November 1997. The
       Company recognized a loss on the "Tender Offer" of $1.6 million, net of
       income taxes of $1.1 million, due to the premium paid for the Notes and
       the subsequent write-off of the deferred financing costs and original
       issue discounts related to the Notes purchased. This amount has been
       classified as an extraordinary item in the accompanying Consolidated
       Statement of Operations.

       Prior to the sale of the assets of WCMQ-AM, the Station operated on the
       frequency of 1210 kHz. As part of the sale of WCMQ-AM, the Company
       entered into a five-year local marketing agreement ("LMA") with
       One-on-One in November 1997. Under the terms of the LMA, the Company
       began programming and selling advertising on WCMQ-AM using a
       newly-authorized frequency of 1700 kHz. The 1700 kHz transmitter is
       co-located at the 1210 kHz transmitter/antenna site which was part of the
       aforementioned asset sale.

 (5)   PROPERTY AND EQUIPMENT

       Property and equipment consist of the following at September 28, 1997 and
September 27, 1998:

<TABLE>
<CAPTION>
                                                                       1997             1998         ESTIMATED
                                                                   -----------        ----------   USEFUL LIVES
                                                                                                   ------------
<S>                                                                <C>                 <C>         <C>
              Land                                                 $ 1,413,287         1,368,407           -
              Building and building leasehold
                 improvements                                       15,324,227        11,250,742         20 years
              Tower and antenna systems                              6,709,991         2,138,824       7-15 years
              Studio and technical equipment                         4,874,321         5,135,586         10 years
              Furniture and fixtures                                 1,549,749         1,685,745       3-10 years
              Transmitter equipment                                  1,266,747           931,750       7-10 years
              Leasehold improvements                                 1,135,176         1,405,759       5-13 years
              Computer equipment                                     1,378,908         1,333,888          5 years
              Other                                                    205,276           520,369          5 years
                                                                    ----------        ----------
                                                                    33,857,682        25,771,070
              Less accumulated depreciation
                 and amortization                                   15,448,267        10,828,137
                                                                    ----------        ----------
                                                                   $18,409,415        14,942,933
                                                                   ===========        ----------
</TABLE>

                                      F-12
<PAGE>   60
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


       During fiscal 1996 and 1997, the Company wrote down the value of its land
       and building located on Sunset Boulevard in Los Angeles (which was part
       of the assets acquired in the purchase of the Los Angeles AM radio
       station) by $0.7 million and $0.4 million, respectively. The write downs
       were based on current market values of real estate in the Los Angeles
       area. This amount is included in other, net in the accompanying
       consolidated statement of operations.


(6)    SENIOR NOTES AND PREFERRED STOCK

       On June 29, 1994, the Company, through a private placement offering (the
       "Offering") completed the sale of 107,059 units (the "Units"), each
       consisting of $1,000 principal amount of 12-1/2% Senior Notes (the
       "Notes") due 2002 and 107,059 Warrants (the "Warrants") each to purchase
       one share of Class A voting common stock at a price of $0.01 per share.
       The Notes and Warrants became separately transferable on June 29, 1994.
       The Notes were issued at a substantial discount from their principal
       amount and generated proceeds to the Company of $87.8 million, net of
       financing costs of $6.2 million. Of the $94.0 million of gross proceeds,
       $88.6 million was allocated to the Notes and $5.4 million was determined
       to be the value of the Warrants.

       The Notes bear interest at a rate of 7-1/2% per annum from the date of
       original issue until June 15, 1997 and at a rate of 12-1/2% per annum
       from and after such date until maturity on June 15, 2002. Interest is
       payable semiannually on June 15 and December 15, commencing December 15,
       1994. The Notes are not redeemable at the option of the Company. The
       Notes are senior unsecured obligations of the Company and are
       unconditionally guaranteed, on a senior unsecured basis, as to payment of
       principal, premium, if any, and interest, jointly and severally, by each
       subsidiary of the Company. In the event of a change of control, as
       defined in the offering, the Company will be required to make an offer to
       purchase all of the outstanding Notes at a purchase price equal to 101%
       of the principal amount thereof, in each case plus accrued and unpaid
       interest to the date of purchase. The indenture pursuant to which the
       Notes are issued contains covenants restricting the incurrence of
       additional indebtedness, the payment of dividends and distributions, the
       creation of liens, asset sales, mergers or consolidations, among other
       things. The Company registered the Notes with the Securities and Exchange
       Commission, which registration became effective on October 26, 1994. The
       discount on the Notes is being amortized over the term of the Notes to
       result in an effective interest rate of 12-1/2% per annum.

                                      F-13
<PAGE>   61
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


       The Warrants expire on June 30, 1999. Each warrant entitles the holder to
       acquire prior to the expiration date, one share of Class A voting common
       stock at $0.01 per share, subject to adjustment from time to time upon
       the occurrence of certain changes in common stock, common stock
       distributions, issuances of options or convertible securities, dividends
       and distributions and certain other increases in the number of shares of
       common stock, as defined.

       On March 25, 1996 the Company financed the purchase of radio station
       WPAT-FM with a combination of the proceeds from the sale in a private
       placement of 37,500 shares of the Company's Redeemable Series A
       Preferred Stock (Preferred Stock) and $35.0 million of the Company's
       12-1/4% Senior Secured Notes due 2001 (Senior Notes) together with cash
       on hand. The Company also issued to the holders of the Preferred Stock
       and Senior Notes warrants to purchase, in the aggregate, 6% of the
       Company's common stock on a fully diluted basis which expired
       unexercised.

       On March 27, 1997, the Senior Notes and Preferred Stock and the
       related warrants redeemed were retired with a portion of the proceeds
       from issuance of the 1997 Preferred Stock and Senior Notes described
       below. The Company realized a loss on the extinguishment of the Senior
       Notes of $1,646,753, net of taxes of $1,097,836 resulting from the
       purchase price exceeding the Company's carrying value and the write-off
       of unamortized deferred financing costs. This amount has been classified
       as an extraordinary item in the accompanying fiscal 1997 consolidated
       statement of operations.

       On March 27, 1997, the Company financed the purchase of radio stations
       WYSY-FM (renamed WLEY-FM by the Company), WRMA-FM and WXDJ-FM with
       proceeds from the sale through a private placement of 175,000 shares of
       the Company's 14 1/4% Series A Senior Exchangeable Preferred Stock (1997
       Preferred Stock) and warrants to purchase 74,900 shares of the Company's
       Class A Common Stock (1997 Warrants). The gross proceeds from the
       issuance of the 1997 Preferred Stock and 1997 Warrants amounted to $175.0
       million. The value of the 1997 Warrants was determined to be $16.6
       million. The Company also issued $75.0 million aggregate principal amount
       of the Company's 11%. Senior Notes (the "New Senior Notes") due 2004. In
       connection with this transaction, the Company capitalized financing costs
       of $5.7 million related to the New Senior Notes and charged issuance
       costs of $9.0 million related to the 1997 Preferred Stock and 1997
       Warrants to paid-in-capital.

       The New Senior Notes are secured by the FCC licenses of radio stations
       WLEY-FM, WRMA-FM and WXDJ-FM and are guaranteed by each of the Company's
       subsidiaries. The New Senior Notes are senior obligations of the Company
       that rank senior in right of payment to all subordinated indebtedness of
       the Company and are equally ranked with all existing and future senior
       indebtedness of the Company including the Notes. The New Senior Notes are
       due on March 15, 2004 and bear interest at a rate of 11% per annum
       payable on each March 15 and September 15, commencing September 15, 1997.

       The carrying value of the Notes and the New Senior Notes approximates
       market value.

                                      F-14
<PAGE>   62
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998

       The New Senior Notes will be redeemable at the Company's option at any
       time on or after March 15, 2001 at the redemption prices set forth,
       together with accrued and unpaid interest thereon to the redemption date.
       In addition, the Company, at its option, may redeem in the aggregate up
       to 25% of the original principal amount of New Senior Notes at any time
       prior to March 15, 2000, at a redemption price equal to 110% of the
       principal amount plus accrued and unpaid interest to the redemption date.

       Convenants under the indebentures governing the New Senior Notes and 1997
       Preferred Stock are substantially identical to the covenants of the
       Notes.

       The 1997 Preferred Stock is entitled to dividends at the rate of 14-1/4%
       per annum payable semi-annually beginning September 15, 1997. The
       Company, at its option, may pay dividends on any dividend payment date
       occurring on or before March 15, 2002 either in cash or by the issuance
       of additional shares of 1997 Preferred Stock. In September 1997, the
       Company elected to satisfy the dividends due of $11.7 million through the
       issuance of 11,706 additional preferred shares. In March 1998 and
       September 1998, the Company elected to satisfy the dividends due of $13.3
       million and $14.3 million, respectively, through the issuance of
       additional preferred shares of 13,303 and 14,251, respectively.

       The 1997 Preferred Stock is exchangeable at the option of the Company, on
       any dividend payment date for the Company's 14-1/4% Exchange Debentures
       due March 15, 2005. The Exchange Debentures are redeemable, at the option
       of the Company, at any time, on or prior to March 15, 2000 at a
       redemption price equal to 105% of the aggregate principal amount thereof,
       plus accrued interest to the date of redemption. After March 15, 2000 and
       prior to March 15, 2002 the Exchange Debentures are not redeemable. On or
       after March 15, 2002, the Exchange Debentures are redeemable at the
       option of the Company.

       The 14 1/4% Exchange debentures due 2005 are issuable in exchange for the
       1997 Preferred Stock in an aggregate principal amount equal to the
       liquidation preference of the 1997 Preferred Stock so exchanged, plus
       accumulated and unpaid dividends to the date fixed for the exchange
       thereof, plus any additional Exchange debentures issued from time to time
       in lieu of cash interest. The maturity date is March 15, 2005.

       The 1997 Preferred Stock will be redeemable, at the option of the
       Company, in whole or in part, at any time on or prior to March 15, 2000
       at the redemption price equal to 105% of the liquidation preference
       thereof, plus accumulated and unpaid dividends to the date of redemption.
       After March 15, 2000 and prior to March 15, 2002, the 1997 Preferred
       Stock is not redeemable. On or after March 2002, the

                                      F-15
<PAGE>   63
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


       Preferred Stock will be redeemable, at the option of the Company, in
       whole or in part at any time, at the following redemption prices
       (expressed as a percentage of liquidation preference) if redeemed during
       the twelve-month period commencing March 15, of the applicable year set
       forth below plus, without duplication, an amount in cash equal to all
       accumulated and unpaid dividends to the redemption date:

<TABLE>
<CAPTION>
                           YEAR                                       PERCENTAGE
                           ----                                       ----------
<S>                        <C>                                        <C>
                           2002                                             107%
                           2003                                             105%
                           2004 and thereafter                              100%
</TABLE>

       The Company is required, subject to certain conditions, to redeem all of
       the 1997 Preferred Stock outstanding on March 15, 2005 at a redemption
       price equal to 100% of the liquidation preference thereof, plus
       accumulated and unpaid dividends to the date of the redemption.
       
       The 1997 Preferred Stock and 1997 Warrants became separately transferable
       on June 1, 1997. The 1997 Warrants, which expire on June 30, 1999,
       entitle the holder to acquire 0.428 shares of Class A Common Stock at a
       price equal to $0.01 per 0.428 shares, subject to adjustment from time to
       time upon the occurrence of certain changes in Common Stock, certain
       Common Stock distributions, certain issuances of options or convertible
       securities, certain dividends and distributions and certain other
       increases in the number of shares of Common Stock.

       In March 1998, the Company declared a dividend of $5.60 per share of
       common stock. In April 1998, holders of Warrants were given the option to
       participate in such dividend as if they were stockholders, subject to
       agreeing to waive their anti-dilution rights with respect to such
       dividends. Holders of Warrants to purchase 58,209 shares participated in
       the dividend. In May 1998, the Company paid $0.326 million to these
       warrantholders and issued replacement warrants entitling each
       warrantholder to purchase from the Company shares of Class A Common Stock
       at a rate of one share of Class A Common Stock per Warrant. The
       warrantholders that elected not to participate in the cash dividend
       continue to hold such Warrants and are entitled to purchase from the
       Company shares of Class A Common Stock at an adjusted rate of 1.01133
       shares of Class A Common Stock per Warrant.

       On July 22, 1997, the Company commenced an exchange offer whereby shares
       of Series A Preferred Stock were exchanged for an equal number of Series
       B Senior Exchangeable Preferred Stock (the "Series B Preferred Stock").
       The Exchange of Series A Preferred Stock for Series B Preferred Stock has
       been registered under the Act. Such exchange was completed in August
       1997.

       On July 22, 1997, the Securities and Exchange Commission declared
       effective a shelf registration statement relating to the Series A
       Preferred Stock, and to $338,930 in aggregate principal amount of 14 1/4%
       Exchange Debentures due 2005, Series A and 23,836 shares of Common Stock
       that may be issued upon the occurrence of certain events, each of which
       may be offered from time to time by or for the account of the holders
       thereof. The Company is using its best efforts to keep such shelf
       registration continuously effective.





                                      F-16
<PAGE>   64

                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


(7)    OTHER LONG-TERM DEBT

       Other long-term debt consists of the following at September 28, 1997 and
September 27, 1998:

<TABLE>
<CAPTION>
                                                                                        1997             1998
                                                                                        ----             ----
<S>                                                                                 <C>                <C>    
               Obligation under capital lease with related party payable in
                  monthly installments of $9,000, including interest at 6.25%,
                  commencing June 1992 (see note 10)                                $1,030,797         989,278
               Note payable due on March 27, 2003 including
                  interest which accrues at an annual rate of
                  three month LIBOR plus 450 basis points                            3,161,523       3,468,723
                                                                                    ----------      ----------
                                                                                     4,192,320       4,458,001
               Less current portion                                                     44,644          47,496
                                                                                    ----------      ----------
                                                                                    $4,147,676       4,410,505
                                                                                    ==========      ==========
</TABLE>


       The scheduled maturities of other long-term debt are as follows at 
       September 27, 1998:

<TABLE>
<CAPTION>
        Fiscal year ending September
        ----------------------------
<S>                                           <C>
               1999                           $   47,496
               2000                               50,572
               2001                               53,825
               2002                               57,287
               2003                               60,972
               Thereafter                      4,187,849
                                              ----------
                                              $4,458,001
                                              ==========
</TABLE>


(8)    LOANS WITH STOCKHOLDERS AND RELATED PARTY TRANSACTIONS

       At September 28, 1997 and September 27, 1998, the Company had loans
       receivable from stockholders totaling $3.0 million and $2.5 million
       respectively. The notes bear interest at 6.36% per annum and mature on
       December 30, 2025. The notes are payable in 30 equal annual aggregate
       installments of $0.2 million, commencing on December 30, 1996. In July
       1997, the Company issued a loan to a stockholder in the amount of $1.1
       million bearing interest at 7% per annum and due on demand. The board of
       directors

                                      F-17
<PAGE>   65

                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


       approved the terms of the exchange of the notes. In 1998, the loan of
       $1.1 million was repaid by the stockholder, along with accrued interest,
       through withholding of dividends on common stock in the amount of $1.1
       million that the stockholder was entitled to. Loans receivable from
       stockholders have been classified as an increase in stockholders'
       deficiency in the accompanying consolidated balance sheets. Interest
       receivable on stockholder loans of $0.2 million is included in other
       current assets at September 28, 1997 and September 27, 1998.

       At September 28, 1997 and September 27, 1998, the Company has advances
       totaling $0.3 million due from a party related through common ownership.
       Payment of this balance is guaranteed by an officer of the Company.
       Additionally, at September 28, 1997 and September 27, 1998, the Company
       had trade receivables totaling $0.4 million due from this related party
       which have been fully reserved.

       The Company pays the operating expenses for a boat owned by a party
       related through common ownership which is used by the Company for
       business entertainment purposes. Such expenses approximated $0.1 million
       for each of the fiscal years ended September 29, 1996, September 28, 1997
       and September 27, 1998.

       The Company leases an apartment from the Chief Executive Officer and
       stockholder of the Company for annual rentals of $0.1 million through
       August 2007. Additionally, the Company occupies a building under a
       capital lease agreement with certain stockholders (see note 10).


(9)    CAPITAL STOCK

       During fiscal 1996, the Company amended and restated its Certificate of
       Incorporation to increase the aggregate number of authorized shares of
       $0.01 par value Class A common stock from 2,000,000 to 5,000,000 and
       create and authorize 500,000 shares of $0.01 par value preferred stock.
       Characteristics and privileges concerning the preferred stock are at the
       discretion of the board of directors. During fiscal 1996, 49,201 of
       preferred shares were designated as Redeemable Series A Preferred Stock
       (see note 6). In addition, the Company has authorized 200,000 shares of
       $0.01 par value Class B common stock. The Class A common stock is
       entitled to one vote per share and the Class B common stock is entitled
       to eight votes per share. The remaining shares of Class B common stock
       were converted into an equal number of shares of Class A common stock
       during fiscal 1998.

       The Company maintains a stock option plan pursuant to which the Company
       has reserved up to 26,750 shares of Class A common stock for issuance
       upon the exercise of options granted under the plan. The plan covers all
       regular salaried employees of the Company and its subsidiaries. No
       options have been granted under this plan to date.

                                      F-18
<PAGE>   66
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


(10)   COMMITMENTS

       The Company occupies a building under a capital lease agreement with
       certain stockholders of the Company expiring in June 2012. The amount
       capitalized under this lease agreement and included in property and
       equipment at September 27, 1997 and September 27, 1998 is $0.9 million
       and $0.8 million, net of accumulated depreciation of $0.3 million and
       $0.4 million, respectively.

       The Company leases office space and facilities and certain equipment
       under operating leases, one of which is with a related party (see note
       8), that expire at various dates through 2035. Certain leases provide for
       base rental payments plus escalation charges for real estate taxes and
       operating expenses.

       At September 27, 1998, future minimum lease payments under such leases
are as follows:

<TABLE>
<CAPTION>
                                                                              CAPITAL           OPERATING
               FISCAL YEAR                                                     LEASE             LEASES
               -----------                                                     -----             ------
<S>             <C>                                                           <C>              <C>
                1999                                                          $  149,000            945,300
                2000                                                             149,000            737,300
                2001                                                             149,000            538,600
                2002                                                             149,000            370,600
                2003                                                             149,000            374,400
                Thereafter                                                     1,291,333          3,765,400
                           Total minimum lease payments                        1,036,333         ----------                        
                           Less executory costs                                  560,333         $6,681,600
                                                                              ----------         ----------
                                                                               1,476,000      
                           Less interest at 6.25%                               (486,722)              
                                                                              ----------
                           Present value of minimum lease
                              payments                                        $  989,278
                                                                              ==========                 
</TABLE>

       Total rent expense for the fiscal years ended September 29, 1996,
       September 28, 1997 and September 27, 1998 amounted to $1.1 million, $1.6
       million and $1.1 million, respectively.

                                      F-19
<PAGE>   67
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


       The Company has agreements to sublease its radio frequencies and portions
       of its tower sites. Such agreements provide for payments through 2002.
       The future minimum rental income to be received under these agreements as
       of September 27, 1998 is as follows:

<TABLE>
<CAPTION>
               FISCAL YEAR                                                      AMOUNT
               -----------                                                      ------
<S>             <C>                                                           <C>
                1999                                                          $  666,741
                2000                                                             320,674
                2001                                                             259,893
                2002                                                             109,330
                                                                              ----------
                                                                              $1,356,638
                                                                              ==========
</TABLE>


       At September 27, 1998, the Company is committed to the purchase of
       broadcast rights for various news and other programming and has
       employment contracts for certain on-air talent and general managers
       expiring through 2003. Future payments under such contracts are as
       follows:

<TABLE>
<CAPTION>
                                                     PROGRAMMING          EMPLOYMENT
                   FISCAL YEAR                        CONTRACTS            CONTRACTS           TOTAL
                   -----------                        ---------            ---------           -----
<S>                 <C>                                <C>                 <C>               <C>
                    1999                               $15,242             2,806,033         2,821,275
                    2000                                  --               2,247,950         2,247,950
                    2001                                  --               1,886,433         1,886,433
                    2002                                  --               1,282,917         1,282,917
                    2003                                  --                  62,500            62,500
                                                       -------             ---------         ---------
                                                       $15,242             8,285,833         8,301,075
                                                       =======             =========         =========
</TABLE>

       Certain employment contracts provide for additional amounts to be paid if
       station ratings or cash flow targets are met.

                                      F-20
<PAGE>   68
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


(11)   INCOME TAXES

       Income tax expense (benefit) for the fiscal years ended September 29,
       1996, September 28, 1997 and September 27, 1998 consists of the
       following and were allocated as follows:


<TABLE>
<CAPTION>
                                                                                       1996
                                                   -----------------------------------------------------------------------------
                                                      CURRENT-
                                                     STATE AND            CURRENT             DEFERRED
                                                       LOCAL              FEDERAL              FEDERAL               TOTAL
                                                   ---------------     ---------------     ----------------     ----------------
<S>                                             <C>                    <C>                 <C>                  <C>
             Loss from operations               $         191,922                  --          (1,357,722)          (1,165,800)
                                                   ===============     ===============     ================     ================
                                                                                       1997
                                                   -----------------------------------------------------------------------------
                                                      CURRENT-
                                                     STATE AND            CURRENT             DEFERRED
                                                       LOCAL              FEDERAL              FEDERAL               TOTAL
                                                   ---------------     ---------------     ----------------     ----------------
<S>                                               <C>                  <C>                 <C>                  <C>
             Loss from operations                  $       250,000                  --          (2,964,411)          (2,714,411)
             Extraordinary item - loss on
               extinguishment of debt                           --                  --          (1,097,836)          (1,097,836)
                                                   ---------------     ---------------     ----------------     ----------------

                                                   $       250,000                  --          (4,062,247)          (3,812,247)
                                                   ===============     ===============     ================     ================
</TABLE>

                                      F-21
<PAGE>   69
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


<TABLE>
<CAPTION>
                                                                                       1998
                                                   -----------------------------------------------------------------------------
                                                      CURRENT-
                                                     STATE AND            CURRENT             DEFERRED
                                                       LOCAL              FEDERAL              FEDERAL               TOTAL
                                                   ---------------     ---------------     ----------------     ----------------
<S>                                                <C>                 <C>                <C>                  <C>
             Income from operations                $      950,000             850,000           13,824,032           15,624,032
             Extraordinary item - loss on
               extinguishment of debt                          --                  --          (1,075,149)          (1,075,149)
                                                   --------------      ---------------     ----------------     ----------------
                                                   $      950,000             850,000           12,748,883           14,548,883
                                                   ===============     ===============     ================     ================
</TABLE>


       During fiscal 1996, 1997 and 1998, the Company utilized net operating
       loss carryforwards of approximately 0.8 million, $0.7 million and $38.8
       million, respectively.

       The difference between the fiscal 1996 and 1997 income tax benefit at the
       Federal statutory rate and the effective rate was primarily attributable
       to state and local income taxes, recurring non-deductible expenses and
       non-deductible expenses incurred in connection with the Company's
       financing transactions. The difference between the fiscal 1998 income tax
       expense at the Federal statutory rate and the effective rate was
       primarily attributable to state and local income taxes.

       The tax effect of temporary differences and carryforwards that give rise
       to deferred tax assets and deferred tax liabilities at September 28, 1997
       and September 27, 1998 is as follows:

<TABLE>
<CAPTION>
                                                                    1997             1998
                                                                    ----             ----
<S>                                                             <C>               <C>
               Deferred tax assets:
                  Net operating loss carryforwards              $32,955,490       16,919,249
                  Deferred interest                               5,717,617        6,080,278
                  Allowance for doubtful accounts                 2,162,038        3,108,024
                  Fixed assets                                      474,286          474,286
                  Unearned revenue                                       --          856,582
                  AMT credit                                             --          850,000
                                                                -----------      -----------
                              Total deferred tax assets          41,309,431       28,288,419
                                                                -----------      -----------

               Deferred tax liabilities:
                  Depreciation and amortization                  11,776,023       14,463,595
                  Intangible assets                               8,382,950        5,502,950
                  Deferred debt forgiveness                      17,396,470       17,396,470
                  Unearned revenue                                   79,701               -- 
                                                                -----------      -----------
                        Total deferred tax liabilities           37,635,144       37,363,015
                                                                -----------      -----------
                        Net deferred tax asset (liability)      $ 3,674,287       (9,074,596)
                                                                ===========      ===========
</TABLE>

                                      F-22
<PAGE>   70
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998


       During fiscal 1994, as a result of a refinancing of the Company's debt,
       the Company recognized an extraordinary gain on debt extinguishment of
       $70.3 million, net of income taxes of $3.1 million, for financial
       statement purposes. For Federal income tax purposes, income from the
       discharge of this indebtedness reduced available net operating loss
       carryforwards and reduced the tax basis of certain assets. As a result,
       the valuation allowance for gross deferred tax assets was eliminated in
       fiscal 1994, reflecting the utilization, as a result of the extraordinary
       gain, of net operating loss carryforwards for financial statement
       purposes. In addition, certain timing differences were created which gave
       rise to deferred tax liabilities that will result in taxable income in
       future years when the assets are realized or settled.

       During fiscal 1995, the recognition of the $70.3 million gain on debt
       extinguishment for Federal income tax purposes was redistributed upon
       filing of the fiscal 1994 tax returns. This resulted in additional
       amounts used to reduce the tax basis of certain assets, additional
       deferred debt forgiveness and preservation of available net operating
       loss carryforwards. The net effect of the redistribution of the discharge
       of indebtedness for Federal income tax purposes did not significantly
       affect the Company's net deferred tax position.

       At September 27, 1998, the Company has net operating loss carryforwards
       of approximately $42.3 million available to offset future taxable income
       expiring as follows:

<TABLE>
<CAPTION>
                                                     NET
                                               OPERATING LOSS
        EXPIRING IN SEPTEMBER                   CARRYFORWARDS
        ---------------------                   -------------
<S>     <C>                                    <C>
               2007                              $ 5,772,000
               2008                               12,213,000
               2009                               11,445,000
               2010                               12,868,000
                                                 -----------
                                                 $42,298,000
                                                 ===========
</TABLE>
                                              
                      
(12)   LITIGATION

       The Company is the defendant in a number of lawsuits and claims
       incidental in its ordinary course of business, certain of which have been
       brought by former employees. The litigation which is probable to result
       in an unfavorable outcome and can be reasonably estimated amounts to $0.3
       million which the Company has accrued. The Company does not believe the
       outcome of any litigation, current or pending, would have a material
       adverse impact on the financial position or the results of operations of
       the Company.

                                      F-23
<PAGE>   71
                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                    September 28, 1997 and September 27, 1998



(13)   SUBSEQUENT EVENT - (UNAUDITED)

              On December 1, 1998, the Company acquired from Pan Caribbean
       Broadcasting Corporation the FCC broadcast license and substantially all
       of the assets of WDOY-FM in Puerto Rico for $8.3 million. The acquisition
       of WDOY-FM was accounted for as a purchase transaction and was financed
       from cash on hand and cash from operations.

                                      F-24
<PAGE>   72
                                                                     Schedule II

                        SPANISH BROADCASTING SYSTEM, INC.
                                AND SUBSIDIARIES

                        Valuation and Qualifying Accounts

                                                                           
                     Fiscal years ended September 29, 1996,
                    September 28, 1997 and September 27, 1998



<TABLE>
<CAPTION>
                                                                         COLUMN C
                                                  COLUMN B              ADDITIONS                                   COLUMN E
                                                 BALANCE AT     CHARGED TO      CHARGED TO                         BALANCE AT
     COLUMN A                                    BEGINNING       COSTS AND        OTHER            COLUMN D           END
   DESCRIPTION                                   OF PERIOD       EXPENSES        ACCOUNTS         DEDUCTIONS       OF PERIOD
   -----------                                   ----------      ---------       ---------        ----------       ----------
<S>                                              <C>            <C>             <C>               <C>              <C>
Fiscal year 1996:
    Allowance for
       doubtful accounts                         $5,184,886      4,908,699              --         5,582,822        4,510,763

Fiscal year 1997:
    Allowance for
       doubtful accounts                         $4,510,763      3,530,259              --         2,635,927        5,405,095

Fiscal year 1998:
    Allowance for
       doubtful accounts                         $5,405,095      2,634,509              --           269,544        7,770,060
</TABLE>
<PAGE>   73
                                EXHIBIT INDEX
                                -------------

         Exhibit
           No.                             Description
         -------                           -----------

         10.68    Asset Purchase Agreement dated January 28, 1998 by and between
                  Spanish Broadcasting System of San Antonio, Inc. and Radio
                  KRIO, Ltd.

         10.69    Asset Purchase Agreement dated June 16, 1998 by and between
                  Spanish Broadcasting System of Puerto Rico, Inc. and Pan
                  Caribbean Broadcasting Corporation.

         10.70    Extension of lease of a Condominium Unit (Metropolitan Tower
                  Condominium) between Raul Alarcon, Jr. ("Landlord") and
                  Spanish Broadcasting System, Inc. ("Tenant").

         27       Financial Data Schedule