**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C.  20549**

 

**FORM 10-Q**

 

| ý                            |   | **Quarterly  Report pursuant to Section 13 or 15(d) of the****Securities Exchange Act of 1934** |
|-----------------------------------|--------|-------------------------------------------------------------------------------------------------|
|                              |   |                                                                                            |
|                              |   | **For  the Quarterly Period Ended March 31, 2003**                                              |
|                              |   |                                                                                            |
| **OR**                            |
|                              |   |                                                                                            |
| **o**                             |   | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**   |
|                              |   |                                                                                            |
| **Commission File No. 001-15151** |

 

| **Radio  Unica Communications Corp.**                                               |
|-------------------------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)                             |
|                                                                                |   |   |
| **Delaware**                                                                        |   | **65-0856900** |
| (State of  Incorporation)                                                           |   | (I.R.S. Employer  Identification Number) |
|                                                                                |   |   |
| **8400 N.W. 52nd Street,  Suite 101  Miami, FL**                                    |   | **33166** |
| (Address of principal  executive offices)                                           |   | (Zip Code) |
|                                                                                |   |   |
| **305-463-5000**                                                                    |
| (Registrant’s telephone  number, including area code)                          |
|                                                                                |   |   |
| **N/A**                                                                             |
| (Former name, former  address and former fiscal year, if changed since last report) |
|                                                                                |   |   |

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.   YES  ý       NO o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange ActRule 12b-2) Yes  oNo  ý

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.

 

As of May 14,2003, 20,941,656 shares of Common Stock, $.01 par value were outstanding.

** **

 

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** **

**RADIO UNICA COMMUNICATIONS CORP.**

 

**TABLE OF CONTENTS**

 
| **PART I.**                                                               | **FINANCIAL INFORMATION** |
|---------------------------------------------------------------------------|---------------------------|
|                                                                      |
| Item 1.   Financial Statements                                       |
| Item  2.  Management’s Discussion and  Analysis                 |
| Item  3.  Quantitative and Qualitative Disclosures about Market Risk |
| Item 4.  Controls and Procedures                                     |
|                                                                      |
| **PART II.**                                                              | **OTHER INFORMATION**     |
|                                                                      |
| Item 2.  Changes in Securities                                       |
| Item 6.  Exhibits and Reports on Form 8-K                            |

 

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**RADIO UNICACOMMUNICATIONS CORP.**

** **

**CONSOLIDATED BALANCE SHEETS**

 
|                                                                                                                     |   | **March 31,  2003** |        | **December 31,  2002** |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-------------|------------------------|--------|
|                                                                                                                     |   | **(unaudited)**     |        |                   |   |
| **ASSETS**                                                                                                               |   |                |        |                   |   |
| Current assets:                                                                                                          |   |                |        |                   |   |
| Cash and cash equivalents                                                                                                |   | $                   | 13,129,257  |                   | $      | 11,054,978 |   |
| Accounts receivable, net of  allowance for doubtful accounts of $1,134,365 and $1,148,228, respectively                  |   | 7,275,522           |        | 9,494,925              |   |
| Prepaid expenses and other  current assets                                                                               |   | 3,670,520           |        | 2,774,480              |   |
| Assets held for sale                                                                                                     |   | —              |        | 2,925,554              |   |
| Total current assets                                                                                                     |   | 24,075,299          |        | 26,249,937             |   |
|                                                                                                                     |   |                |        |                   |   |
| Property and equipment, net                                                                                              |   | 22,483,820          |        | 23,071,043             |   |
| Broadcast licenses, net of  accumulated amortization of $10,210,423                                                      |   | 96,433,935          |        | 96,433,935             |   |
| Other intangible assets,  net                                                                                            |   | 8,679,609           |        | 8,971,849              |   |
| Other assets                                                                                                             |   | 501,825             |        | 437,085                |   |
|                                                                                                                     |   | $                   | 152,174,488 |                   | $      | 155,163,849 |   |
|                                                                                                                     |   |                |        |                   |   |
|                                                                                                                     |   |                |        |                   |   |
| **LIABILITIES  AND STOCKHOLDERS’ (DEFICIT) EQUITY**                                                                 |   |                |        |                   |   |
| Current liabilities:                                                                                                     |   |                |        |                   |   |
| Accounts payable                                                                                                         |   | $                   | 901,754     |                   | $      | 1,295,971 |   |
| Accrued expenses                                                                                                         |   | 2,472,242           |        | 2,905,277              |   |
| Interest payable                                                                                                         |   | 3,164,095           |        | 7,784,537              |   |
| Deferred revenue                                                                                                         |   | 384,122             |        | 608,218                |   |
| Current portion of notes  payable                                                                                        |   | 632,049             |        | 641,741                |   |
| Total current liabilities                                                                                                |   | 7,554,262           |        | 13,235,744             |   |
|                                                                                                                     |   |                |        |                   |   |
| Other liabilities                                                                                                        |   | 75,000              |        | 75,000                 |   |
| Notes payable                                                                                                            |   | 500,000             |        | 500,810                |   |
| Deferred taxes                                                                                                           |   | 988,460             |        | 988,460                |   |
| Borrowings under revolving  credit facility                                                                              |   | 10,000,000          |        | —                 |   |
| Senior discount notes                                                                                                    |   | 158,088,000         |        | 158,088,000            |   |
|                                                                                                                     |   |                |        |                   |   |
| Commitments and  contingencies                                                                                           |   |                |        |                   |   |
|                                                                                                                     |   |                |        |                   |   |
| Stockholders’ (deficit)  equity :                                                                                   |   |                |        |                   |   |
| Preferred stock; $.01 par  value; 5,000,000 shares authorized; no shares issued or outstanding                           |   | —              |        | —                 |   |
| Common stock; $.01 par  value; 40,000,000 shares authorized; 21,420,456 shares issued and 20,941,656  shares outstanding |   | 214,205             |        | 214,205                |   |
| Additional paid-in capital                                                                                               |   | 161,562,205         |        | 161,562,206            |   |
| Treasury stock at cost;  478,800 shares                                                                                  |   | (1,315,644          | )           | (1,315,644             | )      |
| Stockholder notes  receivable                                                                                            |   | (789,657            | )           | (789,657               | )      |
| Deferred compensation  expense                                                                                           |   | (74,483             | )           | (96,226                | )      |
| Accumulated deficit                                                                                                      |   | (184,627,860        | )           | (177,299,049           | )      |
| Total stockholders’  (deficit) equity                                                                               |   | (25,031,234         | )           | (17,724,165            | )      |
|                                                                                                                     |   | $                   | 152,174,488 |                   | $      | 155,163,849 |   |

 

*Theaccompanying notes are an integral part of these financial statements.*

 

2

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**RADIO UNICACOMMUNICATIONS CORP.**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)**

 
|                                                            |   | **Three  months ended  March 31,** |       |
|-----------------------------------------------------------------|--------|------------------------------------|------------|
|                                                            |   | **2003**                           |       | **2002** |   |
|                                                            |   |                               |       |   |   |   |   |
| Net revenue                                                     |   | $                                  | 9,597,394  |   | $ | 8,161,736 |   |
|                                                            |   |                               |       |   |   |
| Operating expenses:                                             |   |                               |       |   |   |
| Direct operating                                                |   | 1,012,535                          |       | 1,195,473 |   |
| Selling, general and  administrative                            |   | 4,142,760                          |       | 3,970,692 |   |
| Network                                                         |   | 2,800,279                          |       | 3,761,046 |   |
| Corporate                                                       |   | 962,869                            |       | 925,272 |   |
| Cost of promotion company  sales                                |   | 2,508,591                          |       | 1,012,357 |   |
| Depreciation and  amortization                                  |   | 798,700                            |       | 739,250 |   |
| Stock option compensation                                       |   | 21,743                             |       | 160,145 |   |
|                                                            |   | 12,247,477                         |       | 11,764,235 |   |
| Loss from operations                                            |   | (2,650,083                         | )          | (3,602,499 | ) |
|                                                            |   |                               |       |   |   |
| Other income (expense):                                         |   |                               |       |   |   |
| Interest expense                                                |   | (4,961,083                         | )          | (4,513,465 | ) |
| Interest income                                                 |   | 39,435                             |       | 105,249 |   |
| Other                                                           |   | 242,920                            |       | (48,483 | ) |
|                                                            |   | (4,678,728                         | )          | (4,456,699 | ) |
| Loss before income taxes                                        |   | (7,328,811                         | )          | (8,059,198 | ) |
| Income tax benefit                                              |   | —                             |       | 39,018 |   |
| Net loss                                                        |   | $                                  | (7,328,811 | ) | $ | (8,020,180 | ) |
|                                                            |   |                               |       |   |   |
| Net loss per common share -  basic and diluted                  |   | $                                  | (0.35      | ) | $ | (0.38 | ) |
|                                                            |   |                               |       |   |   |
| Weighted average common  shares outstanding - basic and diluted |   | 20,941,656                         |       | 20,941,656 |   |

 

*Theaccompanying notes are an integral part of these financial statements.*

 

3

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**RADIO UNICACOMMUNICATIONS CORP.**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)**

** **
|                                                                         |   | **Three  months ended  March 31,** |       |
|------------------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                         |   | **2003**                           |       | **2002** |   |
| **Operating  activities**                                                    |   |                               |       |   |   |
| Net loss                                                                     |   | $                                  | (7,328,811 | ) | $ | (8,020,180 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities: |   |                               |       |   |   |
| Depreciation and  amortization                                               |   | 798,700                            |       | 739,250 |   |
| Provision for bad debt                                                       |   | (13,863                            | )          | 178,077 |   |
| Accretion of interest on  senior discount notes                              |   | —                             |       | 4,305,021 |   |
| Amortization of deferred  financing costs                                    |   | 226,671                            |       | 159,981 |   |
| Stock option compensation  expense                                           |   | 21,743                             |       | 160,145 |   |
| Deferred income taxes                                                        |   | —                             |       | (39,018 | ) |
| Gain on sale of radio  station assets                                        |   | (231,416                           | )          | — |   |
| Other                                                                        |   | (11,556                            | )          | (110,325 | ) |
| Change in assets and  liabilities:                                           |   |                               |       |   |   |
| Accounts receivable                                                          |   | 2,233,266                          |       | 2,237,142 |   |
| Prepaid expenses and other  current assets                                   |   | (862,677                           | )          | 207,345 |   |
| Other assets                                                                 |   | (200,859                           | )          | (117,652 | ) |
| Accounts payable                                                             |   | (394,217                           | )          | (1,400,040 | ) |
| Accrued expenses                                                             |   | (433,035                           | )          | (318,930 | ) |
| Interest payable                                                             |   | (4,660,442                         | )          | — |   |
| Deferred revenue                                                             |   | (212,540                           | )          | (34,691 | ) |
| Deposit payable                                                              |   | —                             |       | 15,000 |   |
| Net cash used in operating  activities                                       |   | (11,069,036                        | )          | (2,038,875 | ) |
|                                                                         |   |                               |       |   |   |
| **Investing  activities**                                                    |   |                               |       |   |   |
| Acquisition of property and  equipment                                       |   | (170,183                           | )          | (1,357,789 | ) |
| Proceeds from sale of radio  station assets                                  |   | 3,324,000                          |       | — |   |
| Net cash provided by (used  in) investing activities                         |   | 3,153,817                          |       | (1,357,789 | ) |
|                                                                         |   |                               |       |   |   |
| **Financing  activities**                                                    |   |                               |       |   |   |
| Borrowings under revolving  credit facility                                  |   | 10,000,000                         |       | — |   |
| Repayment of notes payable                                                   |   | (10,502                            | )          | (9,067 | ) |
| Net cash provided by (used  in) financing activities                         |   | 9,989,498                          |       | (9,067 | ) |
|                                                                         |   |                               |       |   |   |
| Net increase (decrease) in  cash and cash equivalents                        |   | 2,074,279                          |       | (3,405,731 | ) |
| Cash and cash equivalents  at beginning of period                            |   | 11,054,978                         |       | 19,909,952 |   |
| Cash and cash equivalents  at end of period                                  |   | $                                  | 13,129,257 |   | $ | 16,504,221 |   |

 

*Theaccompanying notes are an integral part of these financial statements.*

 

4

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**RADIOUNICA COMMUNICATIONS CORP.**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

 

**1.             Basis of Presentation**

 

The accompanyingunaudited consolidated condensed financial statements of Radio UnicaCommunications Corp. and subsidiaries (the “Company”) for the periods indicatedherein have been prepared pursuant to the rules and regulations of theSecurities and Exchange Commission and in accordance with generally acceptedaccounting principles (“GAAP”) for interim financial information.  Accordingly, the financial statements do notinclude all of the information and notes required by generally acceptedaccounting principles for complete financial statements.  In the opinion of management, alladjustments (consisting of normal recurring adjustments) considered necessaryfor a fair presentation have been included. Operating results for the three months ended March 31, 2003 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2003.  The consolidatedcondensed financial statements include the accounts of the Company and allmajority owned subsidiaries over which the Company has control.  All significant intercompany accounts andtransactions have been eliminated in consolidation.  For further information, refer to the Company’s 2002 consolidatedfinancial statements and notes thereto.

 

The Company’srevenue and cash flows are typically lowest in the first calendar quarter.Seasonal fluctuations are common in the radio broadcasting industry and are dueprimarily to fluctuations in consumer spending.

 

**2.             SegmentOperating Results**

 

Pursuant to theprovisions of Financial Accounting Standards Board (“FASB”) Statement ofFinancial Accounting Standards (“SFAS”) No. 131, “Disclosure About Segments ofa Business Enterprise and Related Information”, the Company is required toreport segment information. The Company classified its businesses into tworeporting segments: radio broadcasting and promotion services.  The radio broadcasting segment includes theoperations of the Company’s radio network, the operations of all owned andoperated radio stations and corporate expenses.  The promotion services segment includes the operations of theCompany’s marketing and promotions business. The Company evaluates performance based on several factors, of which theprimary financial measures are business segment net revenue, operating income(loss) and earnings (loss) before interest, taxes, depreciation andamortization. (“EBITDA”).

 

EBITDA, ispresented not as an alternative measure of operating results or cash flow fromoperations (as determined in accordance with GAAP), but because it is a widelyaccepted supplemental financial measure of a company’s ability to service debt.The Company’s calculation of EBITDA may not be comparable to similarly titledmeasures reported by other companies since all companies do not calculate thisnon-GAAP measure in the same manner. The Company’s EBITDA calculation is notintended to represent cash provided by (used in) operating activities, since itdoes not include interest and taxes and changes in operating assets andliabilities, nor is it intended to represent the net increase or decrease incash, since it does not include cash provided by (used in) investing andfinancing activities.

 

5

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Results by segmentare as follows:

 
|                          |   | **Three  Months Ended  March 31,** |        |
|-------------------------------|--------|------------------------------------|-------------|
|                          |   | **2003**                           |        | **2002** |   |
|                          |   |                               |        |   |   |
| Net revenue                   |   |                               |        |   |   |
| Radio broadcasting            |   | $                                  | 6,838,823   |   | $ | 6,648,897 |   |
| Promotion services            |   | 2,758,571                          |        | 1,512,839 |   |
| Consolidated                  |   | $                                  | 9,597,394   |   | $ | 8,161,736 |   |
|                          |   |                               |        |   |   |
| Operating income (loss)       |   |                               |        |   |   |
| Radio broadcasting            |   | $                                  | (2,536,893  | ) | $ | (3,733,667 | ) |
| Promotion services            |   | (113,190                           | )           | 131,168 |   |
| Consolidated                  |   | $                                  | (2,650,083  | ) | $ | (3,602,499 | ) |
|                          |   |                               |        |   |   |
| EBITDA                        |   |                               |        |   |   |
|                          |   |                               |        |   |   |
| Radio broadcasting            |   | $                                  | (1,558,101  | ) | $ | (3,098,946 | ) |
| Promotion services            |   | (50,362                            | )           | 187,214 |   |
| Consolidated                  |   | $                                  | (1,608,463  | ) | $ | (2,911,732 | ) |
|                          |   |                               |        |   |   |
| Total assets as of March  31, |   |                               |        |   |   |
|                          |   |                               |        |   |   |
| Radio broadcasting            |   | $                                  | 145,720,547 |   | $ | 152,459,612 |   |
| Promotion services            |   | 6,453,941                          |        | 5,423,119 |   |
| Consolidated                  |   | $                                  | 152,174,488 |   | $ | 157,882,731 |   |

 

Below is a reconciliation of operating income (loss)to EBITDA for the Company’s radio broadcasting and promotion services segments:

 

|                           |   | **Three  Months Ended  March 31,** |       |
|--------------------------------|--------|------------------------------------|------------|
|                           |   | **2003**                           |       | **2002** |   |
| **Radio  broadcasting:**       |   |                               |       |   |   |
| Loss from operations           |   | $                                  | (2,536,893 | ) | $ | (3,733,667 | ) |
| Adjustments:                   |   |                               |       |   |   |
| Depreciation and  amortization |   | 735,057                            |       | 684,771 |   |
| Other                          |   | 243,735                            |       | (50,050 | ) |
| EBITDA                         |   | $                                  | (1,558,101 | ) | $ | (3,098,946 | ) |
|                           |   |                               |       |   |   |
| **Promotion  services****:**   |   |                               |       |   |   |
| (Loss) income from  operations |   | $                                  | (113,190   | ) | $ | 131,168 |   |
| Adjustments:                   |   |                               |       |   |   |
| Depreciation and  amortization |   | 63,643                             |       | 54,479 |   |
| Other                          |   | (815                               | )          | 1,567 |   |
| EBITDA                         |   | $                                  | (50,362    | ) | $ | 187,214 |   |

 

6

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**3.             Stock Option Plan**

 

As permissibleunder Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accountingfor Stock-Based Compensation”, the Company accounts for all stock-basedcompensation arrangements using the intrinsic value method prescribed byAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees”, as interpreted by FASB Interpretation No. 44, “Accounting forCertain Transactions Involving Stock Compensation”, and discloses pro forma netloss and loss per share amounts as if the fair value method had been adopted. Accordingly, no compensation cost is recognized for stock option awardsgranted to employees at or above fair market value.

 

The Company’s proforma net loss, pro forma net loss per common share and pro forma weightedaverage fair value of options granted, with related assumptions, assuming theCompany had adopted the fair value method of accounting for all stock-basedcompensation arrangements consistent with the provisions of SFAS No. 123, usingthe Black-Scholes option pricing model for all options granted, are indicatedbelow:

 
|                                                                 |   | **Three  months ended  March 31,** |       |
|----------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                 |   | **2003**                           |       | **2002** |   |
|                                                                 |   |                               |       |   |   |
| Net loss, as reported                                                |   | $                                  | (7,328,811 | ) | $ | (8,020,180 | ) |
| Deduct:                                                              |   |                               |       |   |   |
| Stock-based compensation expense determined under  fair value method |   | 779,430                            |       | 808,268 |   |
| Net loss, pro forma                                                  |   | $                                  | (8,108,241 | ) | $ | (8,828,448 | ) |
|                                                                 |   |                               |       |   |   |
| Net loss per share, basic and diluted                                |   |                               |       |   |   |
|                                                                 |   |                               |       |   |   |
| As reported                                                          |   | $                                  | (0.35      | ) | $ | (0.38 | ) |
|                                                                 |   |                               |       |   |   |
| Pro forma                                                            |   | $                                  | (0.39      | ) | $ | (0.42 | ) |
|                                                                 |   |                               |       |   |   |
|                                                                 |   |                               |       |   |   |
| Weighted average fair value                                          |   | $                                  | —     |   | $ | 1.09 |   |
|                                                                 |   |                               |       |   |   |
| Expected life (in years)                                             |   | 10                                 |       | 10 |   |
|                                                                 |   |                               |       |   |   |
| Risk free interest rate                                              |   | 4.0                                | %          | 5.0 | % |
|                                                                 |   |                               |       |   |   |
| Expected volatility                                                  |   | 213                                | %          | 113 | % |
|                                                                 |   |                               |       |   |   |
| Dividend Yield                                                       |   | —                             |       | — |   |

 

7

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**4.             RevolvingCredit Facility**

 

At March 31, 2003,the Company was in breach of its Minimum Stage 1 Broadcast Cash Flow covenant(as defined).  The Company received awaiver for this breach from the lender.

 

The Company issubject to quarterly financial covenants. There is no assurance that the Company will be able to comply with itsfuture financial covenants or that any future financial covenant breaches willbe waived. Any breach that is not waived could result in an event of default,permitting the lenders to suspend commitments to make any advance, and todeclare amounts outstanding and interest thereon due and payable, which couldhave a material adverse effect on our business, financial condition and resultsof operations.

 

8

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**MANAGEMENT’SDISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION**

 

This reportcontains forward-looking statements within the meaning of Section 21E of theSecurities Exchange Act of 1934, as amended. These forward-looking statementsinclude, among others, statements concerning the Company’s outlook for 2003 andbeyond, the Company’s expectations, beliefs, future plans and strategies,anticipated events or trends, and similar expressions concerning matters thatare not historical facts.  Theforward-looking statements in this report are subject to risks anduncertainties that could cause actual results to differ materially from thoseexpressed in or implied by the statements.

 

**Overview**

 

We generate radiobroadcasting revenue from sales of network advertising time, and sales of localand national advertising time on radio stations that we own and operate(“O&Os”). Advertising rates are, in large part, based upon the network’sand each station’s ability to attract audiences in demographic groups targetedby advertisers. All radio broadcasting revenue is stated net of any agencycommissions. We recognize radio broadcasting revenue when the commercials arebroadcast.   We also generate revenuefrom our promotion services company, MASS Promotions, Inc. (“MASS”).  We recognize revenue generated by MASS whenthe promotion services are performed.

 

Our operatingexpenses consist of programming expenses, marketing and selling costs,including commissions paid to our sales staff, technical and engineering costs,cost of promotion services and general and administrative expenses.

 

**Critical Accounting Policies andEstimates**

 

The discussion andanalysis of our financial condition and results of operations are based on ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America. Thepreparation of these financial statements requires us to make estimates andjudgments that affect the reported amount of assets and liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities at thedate of our financial statements. In general, we base our estimates onhistorical experience, on information from third party professionals and onvarious other assumptions that we believe are reasonable under the facts andcircumstances. We continually evaluate our accounting policies and estimates weuse to prepare our consolidated financial statements. Actual results may differfrom these estimates under different assumptions or conditions.

 

During the quarter ended March 31, 2003, our critical accounting policiesand the nature of our estimates have not changed from those disclosed in ourannual report on Form 10-K for the year ended December 31, 2002.

 

**Resultsof Operations**

 

**ThreeMonths Ended March 31, 2003 Compared To The Three Months Ended March 31, 2002**

 

NET REVENUE.  Net revenue increased by approximately $1.4million or 18% to approximately $9.6 million for the three months ended March31, 2003 from approximately $8.2 million for the comparable period in the prioryear.  The increase in net revenuerelated to increased revenue generated by promotional and merchandisingservices associated with MASS of approximately $1.2 million, and increasedrevenue at the O&Os of approximately $0.2 million.

 

9

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Direct operatingexpenses decreased by approximately $0.2 million or 15% to approximately $1.0million for the three months ended March 31, 2003 from approximately $1.2million for the comparable period in the prior year.  The decrease in direct operating expenses was primarily due todecreased advertising spending in 2003, decreases in headcount at certainstations and the sale and termination of operations at the Denver station as ofFebruary 11, 2003.

 

Selling, general and administrative expenses increased by approximately$0.2 million or 4% to approximately $4.1 million for the three monthsended March 31, 2003 from approximately $3.9 million for the comparable periodin the prior year. The increase inselling, general and administrative expenses primarily related to the increasein the cost of the sales force at certain stations, the buildup of ouroperations at our Dallas station following the signal upgrade completed duringthe third quarter of 2002, offset in part by the sale and termination ofoperations at the Denver station as of February 11, 2003.

 

Network expenses decreased approximately $1.0 million or 26% toapproximately $2.8 million for the three months ended March 31, 2003 fromapproximately $3.8 million for the comparable period in the prior year.  Thedecrease in network expenses was mainly due to a decrease in the cost ofnetwork programming, including sporting events, decreased personnel costs, anddecreased spending associated with the promotion and marketing of the network.

 

Corporate expenses increased approximately $0.1 million or 8% toapproximately $1.0 million for the three months ended March 31, 2003 fromapproximately $0.9 million for the comparable period in the prior year. Theincrease in corporate expense was mainly due to the increased cost ofinsurance. Corporate expenses are comprised of the cost of corporatemanagement, legal and professionalfees and insurance.

 

Cost of promotionservices increased by approximately $1.5 million or 148% to $2.5 million forthe three months ended March 31, 2003 from approximately $1.0 million for thecomparable period in the prior year. The increase in the cost of promotion services was related to thevariable costs associated with the increase in MASS’ revenue, as well as higherout of pocket costs associated with certain client’s marketing programs.

 

Depreciation and amortization increased by approximately  $0.1 million or 8% to approximately $0.8million for the three months ended March 31, 2003 from approximately $0.7million for the comparable period in the prior year.  The increase indepreciation and amortization was due to the additions of fixed and intangibleassets arising from signal upgrades completed during 2002.

 

Stock optioncompensation expense decreased by approximately $0.1 million or 86% toapproximately $22,000 for the three months ended March 31, 2003 fromapproximately $0.2 million for the comparable period in the prior year.  Stock option compensation expense representsa non-cash charge relating to the vesting of stock options granted to employeesto purchase shares of the Company’s common stock.   The decrease in stock option compensation expense is due to stockoptions granted becoming fully vested during 2002.

 

OTHER INCOME(EXPENSE). Other income (expense) decreased by approximately $0.2 million or 5%to approximately $(4.7) million for the three months ended March 31, 2003 fromapproximately $(4.5) million for the comparable period in the prior year. Otherincome (expense) for the three months ended March 31, 2003 included interestexpense of approximately $(5.0) million and interest and other income ofapproximately $0.3 million primarily related to the gain on the sale of theDenver radio station assets in February 2003. Interest expense primarily relates to the interest on the SeniorDiscount Notes.

 

10

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NET LOSS.  Net loss decreased by approximately $0.7million or 9% to approximately $(7.3) million for the three months ended March31, 2003 from approximately $(8.0) million for the comparable period in theprior year.  The decrease in net losswas mainly the result of the increase in the Company’s revenue of approximately$1.4 million, increased other income of approximately $0.3 million, offset inpart by increased operating expenses of approximately $0.5 million, andincreased interest expense of approximately $0.5 million.

 

EBITDA.  EBITDA increased by approximately $1.3million or 45% to approximately $(1.6) million for the three months ended March31, 2003 from approximately $(2.9) million for the comparable period in theprior year.  The increase in EBTIDA wasmainly the result of the decrease in network expenses and the gain on the saleof the Denver radio station assets.

 

**Use ofNon-GAAP Financial Measures**

 

The Companyutilizes a financial measure that is not calculated in accordance with GAAP toassess its financial performance. A non-GAAP financial measure is defined as anumerical measure of a company’s financial performance that (i) excludesamounts, or is subject to adjustments that have the effect of excludingamounts, that are included in the comparable measure calculated and presentedin accordance with GAAP in the statement of income or statement of cash flows;or (ii) includes amounts, or is subject to adjustments that have the effect ofincluding amounts, that are excluded from the comparable measure so calculatedand presented. EBITDA is defined as earnings (loss) before interest, taxes,depreciation and amortization. The Company believes that the presentation ofEBITDA provides useful information to investors regarding the Company’sfinancial condition because it is a commonly used financial analysis tool formeasuring and comparing media companies. EBITDA also serves as a gauge of the Company’s ability to servicelong-term debt and other fixed obligations and to fund continued growth withinternally generated funds. EBITDA should not be considered as an alternativeto net cash provided by (used in) operating activities as a measure ofliquidity. This non-GAAP financial measure may not be comparable to similarlytitled measures used by other companies.  Below is a reconciliation of loss from operations to EBITDA:

 
|                           |   | **Three  Months Ended  March 31,** |       |
|--------------------------------|--------|------------------------------------|------------|
|                           |   | **2003**                           |       | **2002** |   |
|                           |   |                               |       |   |   |
| Loss from operations           |   | $                                  | (2,650,083 | ) | $ | (3,602,499 | ) |
| Adjustments:                   |   |                               |       |   |   |
| Depreciation and  amortization |   | 798,700                            |       | 739,250 |   |
| Other                          |   | 242,920                            |       | (48,483 | ) |
| EBITDA                         |   | $                                  | (1,608,463 | ) | $ | (2,911,732 | ) |

 

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**Liquidity and Capital Resources**

 

The Company hashad negative cash flows since inception. Working capital and financing for theCompany’s acquisitions to date have been provided primarily by the proceedsfrom the Company’s initial public offering, the issuance of the 113⁄4 % SeniorDiscount Notes due August 1, 2006, the issuance of promissory notes, commonstock and preferred stock to the Company’s shareholders and proceeds from theRevolving Credit Facility.

 

Net cash used in operatingactivities increased by approximately $9.1 million or 443% to approximately$11.1 million for the three months ended March 31, 2003 from approximately $2.0million for the comparable period in the prior year.   Net cash provided by (used in) investing activities increased by$4.5 million or 332% to $3.2 million for the three months ended March 31, 2003from approximately $(1.3) million for the comparable period in the prior year.The increase of approximately $4.5 million from 2002 to 2003 was primarily dueto the proceeds received from the sale of the Denver radio station ofapproximately $3.3 million and a decrease in capital expenditures ofapproximately $1.2 million.  Net cashprovided by (used in) financing activities increased by approximately $10.0million to approximately $10.0 million for the three months ended March 31,2003 from approximately $(9,000) for the comparable period in the prior year.The increase of approximately $10.0 million was due to the Company borrowing$10.0 million under its Revolving Credit Facility in March 2003.

 

Capitalexpenditures primarily relate to the purchase of broadcast equipment for thenetwork and O&Os, leasehold improvements, computer equipment andtelecommunications equipment. Capital expenditures were approximately  $0.2 million and $1.4 million for the threemonths ended March 31, 2003 and 2002, respectively.  The decrease in capital expenditures is primarily due to signalupgrades completed during 2002.

 

The Companybelieves that its current cash on hand and its borrowing availability under itsRevolving Credit Facility, will at a minimum provide adequate resources to fundthe Company’s operating expenses, debt service, working capital requirementsand capital expenditures through March 31, 2004.

 

The Companythrough its financial advisor, CIBC World Markets Corp. (“CIBC”) is currentlyin discussions with representatives of the Senior Discount Notes (the “Notes”)in order to restructure the terms of the Notes. In addition, the Companythrough CIBC is in discussions with several potential investors to secureadditional equity financing.  There canbe no assurance that the Company will be able to restructure its Notes orsecure additional equity financing. In connection with the above mentionedefforts the Company has incurred approximately $1,300,000 in fees through March31, 2003. These fees are included in the balance sheet at March 31, 2003 inprepaid expenses and other currents assets. If the Company is successful in its efforts to restructure its Notes,the fees paid will be capitalized and amortized accordingly.  If the Company is successful in its effortsto raise equity, the fees paid will be recorded as a reduction of the equityproceeds. If the Company is unsuccessful in its efforts to restructure itsNotes or raise equity, the fees paid will be expensed.

 

At March 31, 2003,the Company was in breach of the Revolving Credit Facility’s Minimum Stage 1Broadcast Cash Flow covenant (as defined). The Company received a waiver for this breach from its lender.

 

The RevolvingCredit Facility contains quarterly financial covenants.  There is no assurance that the Company willbe able to comply with its future financial covenants or that any futurefinancial covenant breaches will be waived. Any breach that is not waived couldresult in an event of default, permitting the lender to suspend commitments tomake any advance, and to declare amounts outstanding and interest thereon dueand payable, which could have a material adverse effect on our business, financialcondition and results of operations.

 

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If the Company isunable to generate sufficient cash flow, is unable to restructure its Notes, oris unable to secure additional equity financing, it may have to adopt one ormore alternatives after 2003, such as reducing or delaying planned capitalexpenditures or selling assets. There can be no assurance that any of thesefinancing strategies could be effected on satisfactory terms, if at all.

 

**Item3.    Quantitative and QualitativeDisclosures about Market Risk**

 

Our exposure to interest rate risk arises principally from thevariable rates associated with our Revolving Credit Facility. On March 31,2003, we had borrowings of $10.0 million under our senior credit facility thatwere subject to variable rates. As of March 31, 2003, an adverse change of 1.0%in the interest rate on our Revolving Credit Facility would have caused us toincur an increase in interest expense of approximately $0.1 million on anannual basis

 

**Item4.    Controls and Procedures**

 

The Company’sChief Executive Officer and Chief Financial Officer, based on their evaluationof the Company’s disclosure controls and procedures within the past 90 days,have concluded that such disclosure controls and procedures were effective toensure that material information relating to the Company and required to bedisclosed by the Company has been made known to them and has been recorded,processed, summarized and reported timely. There have not been any significant changes in the Company’s internalcontrols or in other factors that could significantly affect these controlssubsequent to the date of evaluation.

 

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**PART II - OTHER INFORMATION**

 

**Item2.  Changes in Securities**

 

On October 19,1999, the Company’s first registration statement under the Securities Act of1933 was declared effective by the Securities and Exchange Commission (File No.333-82561).  The offering commencedOctober 19, 1999 and was consummated on October 22, 1999.

 

The net proceedsreceived by the Company from the offering were approximately $99,450,000.  In connection with the offering, the Companyincurred an estimated $9,990,000 of expenses, including underwriting discountsof $7,660,800, and other expenses of the offering of approximately$2,329,200.  The payments were all madeto persons who were not directors, officers, 10% stockholders or affiliates.

 

From the effectivedate of the registration statement, the net proceeds from the offering havebeen used for the following purposes, none of which were paid to persons whowere officers, directors, 10% stockholders or affiliates:

 
|                                                                                                                      |   | **(in  millions)** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|
| Repayments of amounts outstanding under the  revolving credit facility                                                    |   | $                  | 16.5   |   |
| Acquisition of radio stations                                                                                             |   | 20.3               |   |
| Other purposes, including time brokerage agreements,  acquisition of radio broadcasting rights, working capital and other |   | 30.7               |   |
| Capital expenditures                                                                                                      |   | 10.7               |   |
| Acquisition of Company stock held in treasury                                                                             |   | 1.3                |   |
| Investment in unconsolidated companies                                                                                    |   | 7.0                |   |
| Acquisition of MASS Promotions, Inc.                                                                                      |   | 2.7                |   |
| Deferred financing costs                                                                                                  |   | 0.9                |   |
| Payment of interest on Senior Discount Notes                                                                              |   | 9.3                |   |
| Temporary investments in cash and cash equivalents                                                                        |   | —             |   |
|                                                                                                                      |   | $                  | 99.4   |   |

 

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

 
| (a)    | Exhibits required by Item 601 of Regulation S-K. |                                                                               |                                                                                                             |
|--------|--------------------------------------------------|------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|
|   |                                             |
|   | **Exhibit  No.**                                 |                                                                               | **Description**                                                                                                  |
|   | 99.1                                             |                                                                               | Certification of Chief Executive Officer pursuant to  Section 906 of Sarbanes-Oxley Act of 2002. Filed herewith. |
|   |                                             |                                                                               |                                                                                                             |
|   | 99.2                                             |                                                                               | Certification of Chief Financial Officer pursuant to  Section 906 of Sarbanes-Oxley Act of 2002. Filed herewith. |
|   |                                             |
| (b)    |                                             | Reports on Form 8-K                                                                |
|   |                                             |
|   |                                             | On February 5, 2003, the Company filed a report on  Form 8-K reporting on Item 5.  |
|   |                                             |                                                                               |
|   |                                             | On February 28, 2003, the Company filed a report on  Form 8-K reporting on Item 5. |
|   |                                             |                                                                               |
|        |                                                  |                                                                                    |                                                                                                                  |  |  |  |  |

SIGNATURES

 

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

 

 
|   |         | Radio Unica Communications Corp. |
|--------|--------------|----------------------------------|
|   |         |                             |   |
|   |         | By:                              | /s/ Steven E. Dawson |   |
|   |         |                             | Steven E. Dawson |   |
|   |         |                             | Chief Financial Officer |   |
|   |         |                             |   |
|   |         |                             |   |
| Date:  | May 14, 2003 |                             |   |
|        |              |                                  |  |  |  |

 

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**Certificationpursuant to**

**Rule13a-14 of the Securities Exchange Act of 1934,**

**asadopted pursuant to**

**Section302 of the Sarbanes-Oxley Act of 2002**

 

I, Joaquin F.Blaya, Chief Executive Officer of Radio Unica Communications Corp. (the“Company”), certify that:

 

1.                    I havereviewed this quarterly report on Form 10-Q of the Company;

 

2.                    Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                    Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the Company as of, and for,the periods presented in this quarterly report;

 

4.                    The Company’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Company and we have:

 

(a)                designed suchdisclosure controls and procedures to ensure that material information relatingto the Company, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

(b)               evaluated theeffectiveness of the Company’s disclosure controls and procedures as of a datewithin 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)                presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                    The Company’sother certifying officers and I have disclosed, based on our most recentevaluation, to the Company’s auditors and the audit committee of the Company’sboard of directors (or persons performing the equivalent function):

 

(a)               all significantdeficiencies in the design or operation of internal controls which couldadversely affect the Company’s ability to record, process, summarize and reportfinancial data and have identified for the Company’s auditors any materialweaknesses in internal controls; and

 

(b)              any fraud, whetheror not material, that involves management or other employees who have asignificant role in the Company’s internal controls; and

 

6.                    The Company’sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
| Date: May 14, 2003 |                    |
|--------------------|-------------------------|
|               |                    |
|               | /s/ Joaquin F. Blaya    |   |
|               | Joaquin F. Blaya        |   |
|               | Chief Executive Officer |   |

 

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**Certificationpursuant to**

**Rule13a-14 of the Securities Exchange Act of 1934,**

**asadopted pursuant to**

**Section302 of the Sarbanes-Oxley Act of 2002**

 

I,Steven E. Dawson, Chief Financial Officer of Radio Unica Communications Corp.(the Company”), certify that:

 

1.                    I havereviewed this quarterly report on Form 10-Q of the Company;

 

2.                    Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                    Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the Company as of, and for,the periods presented in this quarterly report;

 

4.                    The Company’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Company and we have:

 

(a)                designed suchdisclosure controls and procedures to ensure that material information relatingto the Company, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

(b)               evaluated theeffectiveness of the Company’s disclosure controls and procedures as of a datewithin 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)                presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                    The Company’sother certifying officers and I have disclosed, based on our most recentevaluation, to the Company’s auditors and the audit committee of the Company’sboard of directors (or persons performing the equivalent function):

 

(a)               all significantdeficiencies in the design or operation of internal controls which couldadversely affect the Company’s ability to record, process, summarize and reportfinancial data and have identified for the Company’s auditors any materialweaknesses in internal controls; and

 

(b)              any fraud, whetheror not material, that involves management or other employees who have asignificant role in the Company’s internal controls; and

 

6.                    The Company’sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
| Date: May 14, 2003 |                    |
|--------------------|-------------------------|
|               | /s/ Steven E. Dawson    |   |
|               | Steven E. Dawson        |   |
|               | Chief Financial Officer |   |

 

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